SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      D.C. 20549


**Form
      10-K/A**


**(Amendment
      No. 1)**




**(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, 2006**





**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**(State
                or other Jurisdiction of
            **22-2731074**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 x No o





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 Filer  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 March7, 2007 was zero.





As
      of
      March 7, 2007, 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.**










**2006
      FORM 10-K ANNUAL REPORT**





**EXPLANATORY
      NOTE**





This
      Amendment No. 1 on Form 10-K/A (this “Amendment”) amends our Annual Report on
      Form 10-K for the fiscal year ended December 31, 2006, originally filed with
      the
      Securities and Exchange Commission on March 7, 2007 (the “Original
      Filing”). We are filing this Amendment to include (i) the information required
      by Part III, Items 10, 11, 12, 13 and 14, which were not included in the
      Original Filing in reliance on Instruction G(3) to Form 10-K, and (ii) the
      certifications required by (a) Rule 13a-14(a)/Rule 15d-14(a) and (b) Rule
      13a-14(b)/Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the
      United States Code, which were not included in the Original Filing. Accordingly,
      in this Amendment we have also deleted the reference to an amendment to the
      Original Filing on the cover page under “Documents Incorporated By Reference,”
amended Item 15 of Part IV to reflect the filing of the certifications, and
      updated page numbers and references to page numbers throughout the document.





Except
      as
      described above, no other changes have been made to the Original Filing. The
      Original Filing continues to speak as of the date of the Original Filing, and
      we
      have not updated the disclosures contained therein to reflect any events which
      occurred at a date subsequent to the filing of the Original Filing.





**TABLE
      OF CONTENTS**





**Page****PART
                I**Item
                1.
            
            Business
            
            3Item
                1A.
            
            Risk
                Factors
            
            14Item
                1B.
            
            Unresolved
                Staff Comments
            
            19Item
                2.
            
            Properties
            
            20Item
                3.
            
            Legal
                Proceedings
            
            21Item
                4.
            
            Submission
                of Matters to a Vote of Security Holders
            
            22**PART
                II**Item
                5.
            
            Market
                for Registrant’s Common Equity, Related Stockholder Matters and IssuerPurchases
                of Equity Securities
            
            22Item
                6.
            
            Selected
                Financial Data
            
            22Item
                7.
            
            Management’s
                Discussion and Analysis of Financial Condition and Results ofOperations
            
            23Item
                7A.
            
            Quantitative
                and Qualitative Disclosures about Market Risk
            
            33Item
                8.
            
            Financial
                Statements and Supplementary Data
            
            34Item
                9.
            
            Changes
                in and Disagreements with Accountants on Accounting and FinancialDisclosure
            
            34Item
                9A.
            
            Controls
                and Procedures
            
            34Item
                9B.
            
            Other
                Information
            
            35**PART
                III**Item
                10.
            
            Directors,
                Executive Officers and Corporate Governance
            
            35Item
                11.
            
            Executive
                Compensation
            
            37Item
                12.
            
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters
            
            49Item
                13.
            
            Certain
                Relationships and Related Transactions, and Director
                Independence
            
            50Item
                14.
            
            Principal
                Accounting Fees and Services
            
            51**PART
                IV**Item
                15.
            
            Exhibits,
                Financial Statement Schedules
            
            53


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





-2-





**2006
      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 lining 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 and Germany through an internal
      installation staff. We formerly offered installation services in the United
      Kingdom through an internal installation staff through December 22, 2006. 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 2006. 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, 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 2006, we sold more than 1.1 billion
      square feet of products to customers in 93 countries.





We
      added
      new products with the purchase on October 13, 2006, of the operating assets,
      patent and other intangible assets of ProGreen Sport Surfaces, LLC (“ProGreen”).
      This business primarily involves marketing, selling and installing synthetic
      turf for athletic fields for governmental and quasi-governmental authorities
      and
      educational institutions. The acquisition of the replicated grass technology
      complements with GSE’s geomembranes, drainage geocomposites, nonwoven geotextile
      liner products and installation techniques for the sports field and landscaping
      markets. While our goal is to expand revenues over time, our replicated grass
      business is anticipated to increase 2007 consolidated revenues by less than
      5%.




**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, along with an
      enhanced distribution network. Our chief executive officer, Samir Badawi, joined
      us from SLT. 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.
      We
      generated consistent growth in the ensuing years, adding capacity in the United
      Kingdom, Germany, Thailand, Egypt and Kingstree, South Carolina.





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 up to $40.0 million. In addition, we issued $150.0 million
      of
      publicly registered 11% senior notes due in 2012. 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
      (“BTI”).




-3-





On
      December 30, 2005, we completed the 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
      for
      a total purchase price of $15.5 million plus a separate agreement for the
      purchase of the raw material and finished goods inventory which we valued at
      $2.1 million. The transaction was financed with cash and a $4.5 million seller
      note payable over a five-year period.





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%.





On
      August
      31, 2006, we acquired the rights to commercialize the storm water detention
      system owned by GeoStorage Corporation under an assignment of U.S. Patent
      Application Serial No. 11/190.629. We entered into a Technology and Patent
      Rights Agreement, along with an Employment Agreement, with Terrance G. Sheridan,
      President of GeoStorage Corporation. The Technology and Patent Rights Agreement
      requires the payment of a per cubic foot royalty payment for any “covered
      system” as defined in the agreement





On
      October 13, 2006, we completed an acquisition of the operating assets, patent
      and other intangible assets of ProGreen. The acquisition was completed pursuant
      to an asset purchase agreement for a total purchase price of $4,712,000, which
      included transaction costs of $151,000. The transaction was payable in cash
      and
      a $2.7 million three-year unsecured promissory note.





The
      historical financial information contained in this annual report on Form 10-K
      includes the results of operations and financial position of our current
      business from the date of acquisition.





**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. In addition, with the acquisition of ProGreen, we also
      offer products and services for synthetic turf athletic and recreational
      fields.





**Geosynthetic
      Products**





**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. Our HDPE liners
      provide chemical resistance, relative impermeability, resistance to ultraviolet
      light and durability under high levels of tension. Our HDPE liner products
      range
      in thickness 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
      sub
      grade that may cause punctures and tears in other liners. Common applications
      for flexible liners include landfill caps, mining heap leach pads and floating
      covers.




-4-





**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.





**Geosynthetic
      Clay Liners**





Geosynthetic
      clay liners (“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.




-5-





**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.





**GSE
      GeoStorage** TM ****





We
      are
      currently in the final development, or prototype, stage of a system for storm
      water retention and management. Storm water management is an issue that affects
      everyone. Land development seals the earth and disrupts the natural course
      of
      storm water.  Rainfall flows across impermeable surfaces picking up oil,
      trash and other pollutants, then quickly discharges into low-lying areas, lakes
      and rivers.  To control the flooding and pollution issues that are inherent
      in storm water, the U.S. Environmental Protection Agency (the “EPA”) and other
      regulatory agencies have developed regulations that require all or a portion
      of
      storm water to be managed on site.  Above-ground detention ponds are the
      common solution, but underground structures are a more convenient and economical
      solution because water can be temporarily stored underground before being
      released to a storm sewer or back into the surrounding soil to recharge the
      groundwater. The GeoStorage Storm Water Detention System (“GSE GeoStorageTM”) is
      a below grade chamber with a stabilized porous perimeter and a pre-stressed
      concrete roof which is supported by both the perimeter and supports in the
      chamber.  A geosynthetic liner prevents the passage of particulate matter
      into the porous perimeter and the chamber.  The GSE GeoStorageTM is a cost
      effective way to manage storm water.  The
      first
      prototype of the system was constructed in February 2007, and we plan to market
      the system by both selling and installing the system with our personnel and
      entering into commercial representative agreements with third-party design/build
      general contractors. We initially plan to market and sell the system in the
      U.S.
      market .





**Replicated
      Grass Products**





With
      the
      ProGreen asset acquisition on October 13, 2006, we began marketing, selling
      and
      installing the replicated grass technology products used in the artificial
      turf
      industry. The technology is a sandless, replicated grass that offers the
      structure of natural grass. The replicated grass can be used as a multipurpose
      athletic surface.





**Installation
      Services**





**Geosynthetic
      Products**





We
      provide our customers of geosynthetic products a variety of installation
      services and have approximately 35 full installation crews available throughout
      the United States, along with an installation office in Germany. Our
      professionals work closely with customers, engineers and contractors to
      determine efficient, cost-effective and safe methods by which to install our
      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
      geosynthetic products. Upon request from a customer using third-party
      installers, we may furnish a technical supervisor to monitor installation
      activities and provide quality assurance.





On
      December 22, 2006, we ceased installing our liner systems in the United Kingdom
      due to competitive pressures on margins and the actions of national waste
      companies in contracting for installation services.




-6-





**Replicated
      Grass Products**




We
      further provide our sport turf customers with installation services for our
      replicated grass technology products. We are able to provide complete
      installation services from site preparation, sub-grade construction and storm
      water drainage construction to placement of the artificial replicated grass
      products.





**End
      Markets and Applications**





**Geosynthetic
      Products**





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


**Sales
          and Operating Revenue by Market Application**
 **For
          the Year Ended December 31,**
 **(in
          thousands)**
 **2006**
                
                **2005**
                
                **2004****Amount**
                
                **Percentage**
                
                **Amount**
                
                **Percentage**
                
                **Amount**
                
                **Percentage**Solid
                    Waste Containment
                
                $
                196,154
                
                
                53
                %
                $
                177,800
                
                
                56
                %
                $
                195,000
                
                
                68
                %Liquid
                    Containment
                
                
                71,869
                
                
                19
                %
                
                58,200
                
                
                18
                %
                
                40,100
                
                
                14
                %Mining
                
                
                64,451
                
                
                17
                %
                
                44,300
                
                
                14
                %
                
                30,000
                
                
                10
                %Other
                    Applications
                
                
                40,844
                
                
                11
                %
                
                37,318
                
                
                12
                %
                
                22,806
                
                
                8
                %Total
                    Sales and Operating Revenue
                
                $
                373,318
                
                
                100
                %
                $
                317,618
                
                
                100
                %
                $
                287,906
                
                
                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, Europe, Australia/New Zealand and developing Asian countries,
      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.




-7-




**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.





**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 geosynthetic 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 used:





**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
              
              7
              
              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.


-8-





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
      Germany, the flat cast machine can produce liners with multiple layers. In
      addition, we are able to produce smooth HDPE and LLDPE geomembranes at a low
      cost through flat cast manufacturing.





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 a finished product based on test
      frequencies 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 on most geomembrane lines over the length and
      width of the roll to check for product consistency.




**Raw
      Materials and Supplier Relationships**





**Geosynthetic
      Products**





We
      have
      developed close relationships with a group of suppliers with whom we have a
      long
      history of doing business. Our purchases from suppliers are based on purchase
      orders, rather than long-term contracts. High-grade polyethylene resins are
      the
      most significant raw material we purchase. These resins are primarily purchased
      from at least two primary suppliers at each manufacturing location. We purchased
      approximately 19% of our raw materials during 2006 from our largest
      supplier.





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




**Replicated
      Grass Products**





We
      are
      developing working agreements with a small group of specialized manufacturers
      and suppliers of artificial turf and the drainage components used in our
      replicated grass business. Our purchases from manufacturers and suppliers are
      based on purchase orders versus long term contracts.




-9-





**Sales
      and Marketing**





**Geosynthetic
      Products and Services**





Our
      sales
      and marketing efforts for our geosynthetic products and related services 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 Germany 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, independent installers 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 independent installers.
      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.





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.




**Replicated
      Grass Products**





Our
      sales
      and marketing efforts for our replicated grass products and services are
      coordinated by our management team headquartered in Houston, Texas. This sales
      effort is supported by regional sales personnel located across the country.
      In
      addition, we use an external engineering firm to design the artificial sport
      surfaces and logo layouts and as a direct resource for our customers’ engineers
      who require technical assistance.





We
      sell
      primarily to owners and general contractors and facility owners who are
      responsible for product specifications, design and awarding of contracts. In
      all
      cases, we provide our customers with limited warranties on installed products
      and workmanship. Our limited warranties are typically six years but occasionally
      extend up to eight years. The limited warranties are generally limited to repair
      or replacement of defective artificial turf or workmanship, but sometimes
      include sub-grade stability, on a prorated basis, up to the amount of the
      original contract. On occasion, the limited warranties are written on a
      non-prorated basis for a period of eight years.





**Environmental
      Legislation**





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




-10-





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 waste. 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 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 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 geosynthetic 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**





GSE
      had a
      total of 928 employees at December 31, 2006, with 558 employed in the United
      States. The size of the 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 with the US PTO and have registered this
      trademark in select foreign countries. We have other patents, pending
      applications, and license rights involved with storm water detention systems
      and
      artificial turf for sport fields, including patent applications and
      continuations in part for artificial turf systems. We manufacture GundSeal,
      Bentofix® and smooth-edged textured sheet pursuant to patent license agreements.
      We construct and install GeoStorage storm water detention systems pursuant
      to a
      patent license agreement. 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.




-11-





**Customers**





**Geosynthetic
      Products and Related Services**





The
      primary customers for the Company’s geosynthetic 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.





In
      connection with the acquisition of Serrot International, Inc., we entered into
      a
      Supply Commitment Agreement (the “Supply Agreement”) with Waste Management Inc.
      on February 4, 2002. The Supply Agreement terminated on December 31, 2006.
      Under
      the Supply Agreement, (“Waste Management”) committed to purchase a minimum
      dollar amount of geosynthetic lining systems from the Company. If Waste
      Management failed to purchase its minimum amount in a given year, the
“shortfall” would carry forward to the next calendar year. The Supply Agreement
      shortfall amounts from all years including the final year, 2006, have been
      agreed between the two parties.





In
      February 2007, the Supply Agreement was replaced with a Master Geosynthetic
      Purchase Agreement and a Master Geosynthetic Construction Agreement (the “Master
      Agreements”), with Waste Management National Services Inc. (“WMNSI”) both of
      which are for terms of two years and will terminate on December 31, 2008,
      subject to the option by WMNSI and us by mutual agreement to extend either
      of
      the Master Agreements for a one-year period with 90 days written notice prior
      to
      the expiration of the current term, up to a maximum of three times. The Master
      Agreements provide that either party may terminate either of the Master
      Agreements on 90 days’ written notice, with or without cause, with each party
      committed to fulfilling existing purchase orders. The reasons for termination
      of
      the Master Agreements for cause include the failure to supply enough properly
      skilled workers or the quantity of products required in a timely manner. We
      have
      30 days to cure any breach of the Master Agreements prior to termination. The
      Master Agreements do not provide for a commitment to purchase a minimum dollar
      amount of geosynthetic lining systems from us.





For
      the
      years 2006, 2005, and 2004, Waste Management accounted for 13%, 13% and 20%,
      respectively, of our sales and operating revenues. Under the Master Agreements,
      we expect to receive significantly less revenues and gross profit for 2007
      as
      compared to 2006. To mitigate the impact of this change in business with Waste
      Management, we are pursuing other business, including our newly acquired
      replicated grass technology business and storm water retention business, as
      well
      as reducing the current cost structure. Based on the terms of the new business
      relationship with Waste Management, we believe that the loss of Waste Management
      as a customer under the Master Agreements would not have a material adverse
      effect on our expected results of operations for 2007.





**Replicated
      Grass Products**





The
      primary customers for replicated grass sport fields are municipalities, schools,
      colleges and private owners and operators of soccer and football field
      complexes. We strive to provide these customers with a single source of
      artificial turf, related products and installation services.





**Backlog**





As
      of
      December 31, 2006, our backlog was $68.0 million compared to $51.9 million
      at
      December 31, 2005. We anticipate that the majority of the value of construction
      contracts and customer purchase orders included in backlog at December 31,
      2006
      is expected to be completed or filled prior to the end of 2007, subject to
      weather and other construction related delays. Contracts and commitments for
      products and services are occasionally varied, modified, or cancelled by mutual
      consent.




-12-




**Seasonality
      and Other Business Conditions**





**Geosynthetic
      Products**





The
      greatest volume of geosynthetic 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 use our manufacturing capacity at our various locations in an attempt to
      mitigate the impact of seasonal fluctuation on its manufacturing, delivery,
      and
      installation schedules.





**Replicated
      Grass Products**





We
      provide the greatest volume of our replicated grass products and services in
      the
      summer months because adverse weather conditions in the northern states
      negatively impact our ability to provide products and services with respect
      to
      outdoor fields in those states. In addition, our customers, which include
      municipalities, schools and colleges, typically use the fields for athletic
      events in the fall and spring.





**Competition**





**Geosynthetic
      Products and Services**





We
      believe 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 we offer *.* Our
      competition is not limited to those companies that manufacture polyethylene
      and
      polypropylene lining products, but also 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 our products sold are high-density polyethylene
      and linear low density polyethylene. At least three other companies
      manufacturing HDPE liners compete directly with us in North
      America.





We
      encounter competition in our 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 our 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. We believe we compete successfully because
      we
      manufacture, sell and install a wide range of high quality, cost effective
      products and services, and because of our strategically located manufacturing
      facilities.




**Forward-Looking
      Information**





This
      Form
      10-K contains certain forward-looking statements as defined in the Private
      Securities Litigation Reform Act of 1995, and information relating to us and
      our
      subsidiaries that are based on beliefs of our management, as well as assumptions
      made by and information currently available to our management. When used in
      this
      report, the words, “anticipate”, “believe”, “estimate”, “expect”, “intend” and
      words of similar import, as they relate to us or our subsidiaries or our
      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 captions “Business”, “Risk Factors”, and
“Management’s Discussion and Analysis of Financial Condition and Results of
      Operations”, 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.




-13-


**Available
      Information**





We,
      through our website www.gseworld.com, make available free of charge our reports
      on Forms 10-K, 10-Q and 8-K (and amendments to these reports) filed or furnished
      pursuant to Section 13(a) or 15(d) of the Exchange Act. These reports are
      available on our website as soon as reasonably practicable after they are
      electronically 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 2006, materials expense represented
      approximately 81% of our cost of sales. Our principal raw material, polyethylene
      resins, is occasionally in short supply and subject to substantial price
      fluctuation in response to market demand and the price of feed stocks, including
      natural gas. Generally, 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 and/or cash flows.





**We
      may experience material decline in volumes and gross margins from the largest
      customer, Waste Management.**





In
      2006,
      Waste Management was our largest customer, accounting for approximately 13%
      of
      sales and operating revenue. As discussed in Item 1. Business-Customers, the
      Supply Contract expired on December 31, 2006, and we entered into the Master
      Agreements with WMNSI which will reduce the volume of business as well as the
      profitability of Waste Management commitments in 2007. We believe that the
      significant reduction in revenue and gross margin from Waste Management will
      have a material adverse effect on our financial position, results of operations
      and/or cash flows if not offset by other new business opportunities or organic
      growth. To mitigate the impact of this change in business with Waste Management,
      we are pursuing other business, including our newly acquired replicated grass
      technology business and storm water retention business, as well as reducing
      the
      current cost structure.





**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 Master Agreements with WMNSI, 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 and/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.




-14-





**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 and/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 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, financial position, results of
      operations and/or cash flows.





**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;





·
              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 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.




-15-




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 and/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 the 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. Our ProGreen asset acquisition in October 2006 was consistent with
      this growth strategy. Currently, we do not have any other 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.





**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 the financial results and cash
      flows.**





The
      greatest volume of geosynthetic 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 senior notes.




-16-





**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 and/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 of our geosynthetic products and related services 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 products 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 and/or cash flows.





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





Our
      primary 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, results of operations and/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 and/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 and/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.




-17-





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, 2006, we had outstanding
      approximately $179.9 million of total indebtedness, including approximately
      $29.6 million of secured indebtedness. The 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.





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;




-18-




·
            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.





**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.**





We
      are 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” for additional
      information.




**Item
      1B. Unresolved Staff Comments.**





None.




-19-




**ITEM
      2. Properties.**





We
      have
      manufacturing capabilities for our products at ten locations around the world.
      Our locations are in close proximity to the our customers and/or resin
      suppliers. At these locations, we have 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 seven texturing lines.





**United
      States**





GSE
      Lining Technology, Inc. conducts U.S. operations at our headquarters located
      on
      a 21.5-acre tract of 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. We have 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 separate 12,000 square foot facility.





The
      second manufacturing facility in Houston occupies 16.9 acres of 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 building houses
      a
      flat cast sheet extrusion line. This facility is idle.





Another
      manufacturing facility is on a 55-acre tract of 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 needle punched nonwoven manufacturing
      line and one geocomposite drainage net line.




Our
      patented GundSeal products are manufactured on one production line housed in
      an
      owned 22,000 square feet building with 1,500 square feet of office space on
      a
      15.3-acre owned tract located in Spearfish, South Dakota. In addition, the
      location includes a Bentofix needle-punched GCL line, which produces our
      Bentofix products, in a 28,000 square feet building. We own a 75.5% interest
      in
      this operation through Bentoliner, Inc. The plant is located near the sources
      for clay (bentonite).





**Canada**





We
      own a
      75.5% interest in BTI, 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 one production line.




**Germany**





GSE
      Lining Technology GmbH, headquartered in Hamburg, Germany, manages our European
      operations. This location has 20,988 square feet for manufacturing located
      in
      Rechlin, Germany, on 8.2 owned acres. From this location, we supply our
      customers with products manufactured on a flat cast extrusion line, three
      texturing lines, a blown film round die extrusion line and a geonet/geocomposite
      drainage net line.





**United
      Kingdom**





Our
      operations in the United Kingdom are carried out by our subsidiary, GSE Lining
      Technology Ltd., operating at a 0.75 acre owned facility in Soham, England,
      just
      north of London with support administrative and sales personnel located in
      a
      2,755 square feet office in Waterbeach, England. The Soham location has 10,652
      square feet of owned manufacturing facilities. Its products are manufactured
      on
      a blown film round die extrusion line located on this site and one texturing
      line. This facility manufacturers both polyethylene and polypropylene
      geomembrane products.




-20-




**Egypt**





We
      own
      three Egyptian companies, GSE Lining Technology Co - Egypt, HYMA/GSE
      Manufacturing Co., and HYMA/GSE Lining Technology Co. The manufacturing
      facility, which operates 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. We own seven
      buildings with total area of 32,280 square feet and 5.0 acres of land.





**Thailand**





GSE
      Lining Technology Company Ltd. headquartered in Bangkok, Thailand, manages
      our
      Thailand operations. Our owned manufacturing facility is located in Rayong,
      Thailand, on 2.1 acres of property leased by us. Our products are manufactured
      on two blown film round die extrusion lines, one flat cast line and two
      texturing lines. We also manage the representative offices in the People’s
      Republic of China, Thailand, and a liaison office in India. In the first quarter
      of 2007, we plan to establish a sales office in Ho Chi Minh City,
      Vietnam.





**Australia**





Our
      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 our geomembranes and related products.





**Chile**





GSE
      Lining Technology Chile, S.A. headquartered in Santiago manages our
      manufacturing facility in an industrial area near Antofagasta, Chile. We own
      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 was 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. On July 19, 2006, the defendants compromised and settled the
      plaintiff’s personal injury damage claim for $1.4 million and waiver of worker’s
      compensation subrogation rights. The Company paid $900,000 of the settlement
      cost, none of which was reimbursed by its insurance carrier, Reliance National
      Insurance in Liquidation. The Texas Property and Casualty Insurance Guaranty
      Association and New York Liquidation Bureau contributed $350,000 to the
      settlement, along with $150,000 from Interstate Industrial Corp. The Company
      recorded a charge of $900,000 in the second quarter of 2006 to reflect the
      settlement of the Cicala lawsuit.





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.




-21-





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.





On
      March
      1, 2007, the Ninth Circuit Court of Appeals affirmed the district court’s
      declaration that International Technology Investment Group, LTD., whose
      shareholders also own Wembley, is the rightful owner of the 1,100,000 shares
      of
      Gundle/SLT Environmental, Inc. common stock under the 1997 Stock Subscription
      Agreement. The appellants have 90 days from the date of entry of the judgment
      to
      appeal the appellate court’s judgment.





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.





We
      are
      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.**





We
      did
      not submit any matters to a vote of our security holders during the fourth
      quarter of 2006.





**PART
      II**





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





There
      is
      no established public 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 “Item 1. Business-
      Corporate Developments”). As a result of the Merger, our common stock is no
      longer publicly traded.





We
      do not
      currently intend to declare or pay dividends on our 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 Item 7. 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.




-22-




**Successor
                  Company**
              
              **Predecessor
                  Company****Year
                  Ended**
                **December
                  31,**
              
              **Period
                  from May 18, 2004 to Dec 31,**
              
              **Period
                  from Jan. 1, 2004 to May 17,**
              
              **Year
                  Ended**
                **December
                  31,****2006**
              
              **2005**
              
              **2004**
              
              **2004**
              
              **2003**
              
              **2002****Selected
                  Statement of Income Data:**Sales
                  and operating revenue
              
              $
              373,318
              
              $
              317,618
              
              $
              217,513
              
              $
              70,393
              
              $
              274,618
              
              $
              266,970Gross
                  profit
              
              
              56,902
              
              
              56,351
              
              
              44,817
              
              
              10,286
              
              
              59,159
              
              
              56,644Operating
                  income (loss)
              
              
              19,752
              
              
              21,033
              
              
              23,451
              
              
              (8,007
              )
              
              30,208
              
              
              24,233Interest
                  expense, net
              
              
              20,917
              
              
              18,449
              
              
              12,418
              
              
              1,451
              
              
              2,064
              
              
              2,379Income
                  before income taxes
              
              
              (1,170
              )
              
              2,429
              
              
              10,978
              
              
              (9,286
              )
              
              31,519
              
              
              21,258Net
                  income (loss) before extraordinary items
              
              
              (2,513
              )
              
              694
              
              
              8,304
              
              
              (6,308
              )
              
              20,771
              
              
              12,890Extraordinary
                  items
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              25,966Net
                  income (loss)
              
              
              (2,513
              )
              
              694
              
              
              8,304
              
              
              (6,308
              )
              
              20,771
              
              
              38,856Basic
                  earnings (loss) per common shareBefore
                  extraordinary items
              
              
              *
              
              
              *
              
              
              *
              
              $
              (0.54
              )
              $
              1.81
              
              $
              1.15Extraordinary
                  items
              
              
              *
              
              
              *
              
              
              *
              
              
              
              
              
              -
              
              
              2.32Basic
                  earnings (loss) per common share
              
              
              *
              
              
              *
              
              
              *
              
              $
              (0.54
              )
              $
              1.81
              
              $
              3.47Diluted
                  earnings (loss) per common shareBefore
                  extraordinary items
              
              
              *
              
              
              *
              
              
              *
              
              $
              (0.51
              )
              $
              1.72
              
              $
              1.11Extraordinary
                  items
              
              
              *
              
              
              *
              
              
              *
              
              
              -
              
              
              -
              
              
              2.23Diluted
                  earnings (loss) per common share
              
              
              *
              
              
              *
              
              
              *
              
              $
              (0.51
              )
              $
              1.72
              
              $
              3.34**Selected
                  Balance Sheet Data:**Working
                  capital**
              
              $
              69,264
              
              $
              68,328
              
              $
              73,592
              
              $
              70,679
              
              $
              92,452
              
              $
              92,265Total
                  assets
              
              
              330,954
              
              
              316,401
              
              
              309,551
              
              
              198,262
              
              
              213,503
              
              
              202,310Total
                  debt
              
              
              179,875
              
              
              172,285
              
              
              168,604
              
              
              806
              
              
              16,722
              
              
              21,602Stockholder's
                  equity
              
              
              71,525
              
              
              69,631
              
              
              74,014
              
              
              155,557
              
              
              157,157
              
              
              132,431
  
 *
              The
                  Successor Company has no outstanding publicly held common shares
                  and
                  therefore does not report earnings per share.
  **
              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 the historical financial condition and results of
      operations should be read in conjunction with the audited consolidated financial
      statements and the notes thereto which appear in this report.





**Overview** ****




We
      are 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 resins. Our primary products consist of geosynthetic
      lining materials of membranes, drainage nets and composites, textiles, and
      clay
      liners. We sell installation of our products in the United States and Germany.
      We discontinued installation of our products in the United Kingdom as of
      December 22, 2006 due to competitive pressures on margins and the actions of
      national waste companies in contracting for installation services. Approximately
      21% of our geosynthetic products are installed by us with the balance installed
      by independent installers.





The
      demand for our geosynthetic products is driven by municipal and private solid
      waste landfill development where environmental regulations require our liner
      products. Solid waste containment represented 53% of the Company’s revenues in
      2006 and 56% of revenues in 2005. Factors influencing these regulations include
      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 81% of our product cost.
      The cost of these raw materials change due to factors outside our control,
      including worldwide capacity, market demand, and the price of feed stocks such
      as natural gas and oil. Our profitability depends on our ability to change
      our
      product prices as raw material costs change, which we have historically been
      able to do. Our profitability is also influenced by competitive pressures.
      While
      we supply 40% to 50% of the world’s geosynthetic products, most of our
      competitors are regional, family-owned businesses that bid for business along
      with us in their areas.




-23-





We
      faced
      many challenges in 2006, but despite those challenges we were successful in
      modestly increasing 2006 gross profit compared with 2005. Continued competitive
      pressures due to worldwide over capacity were felt in the European markets.
      Raw
      material costs were volatile throughout the year, with a slight decrease in
      resin prices in the fourth quarter. Increased volumes resulting from major
      projects in international markets improved the utilization of our production
      facilities compared with the prior year. Gross margins also improved in
      international markets from mining projects in South America, aquaculture
      projects in Asia and improved margins on European installation services. The
      U.S. also had increased shipments and installation services for national solid
      waste customers.





**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”).





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 up to $40.0 million. In addition, we issued $150.0 million
      of
      publicly registered 11% senior notes due in 2012. 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.





On
      December 30, 2005, we completed the 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
      for
      a total purchase price of $15.5 million plus a separate agreement for the
      purchase of the raw material and finished goods inventory which we valued at
      $2.1 million. The transaction was financed with cash and a $4.5 million seller
      note payable over a five-year period.





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%.





On
      August
      31, 2006, we acquired the rights to commercialize the storm water detention
      system owned by GeoStorage Corporation under an assignment of U.S. Patent
      Application Serial No. 11/190.629. We entered into a Technology and Patent
      Rights Agreement, along with an Employment Agreement, with Terrance G. Sheridan,
      President of GeoStorage Corporation. The Technology and Patent Rights Agreement
      requires the payment of a per cubic foot royalty payment for any “covered
      system” as defined in the agreement





On
      October 13, 2006, we completed an acquisition of the operating assets, patent
      and other intangible assets of ProGreen. The acquisition was completed pursuant
      to an asset purchase agreement for a total purchase price of $4,712,000, which
      included transaction costs of $151,000. The transaction was payable in cash
      and
      a $2.7 million three-year unsecured promissory note.




The
      Merger and SL and ProGreen asset acquisitions were 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 results
      of operations from the businesses acquired in the SL and ProGreen transactions
      are included in our historical financial information contained herein from
      their
      respective dates of acquisition.




-24-





**Results
      of Operations**





***Year
      Ended December 31, 2006 Compared to Year Ended December 31,
      2005***





Selected
      financial data:


**(in
                  thousands)****For
                  the year ending**
                **December
                  31,****2006**
              
              **2005**Sales
                  and operating revenue
              
              $
              373,318
              
              $
              317,618Cost
                  of products & services
              
              
              316,416
              
              
              261,267Gross
                  profit
              
              
              56,902
              
              
              56,351Selling,
                  general & administrative expenses
              
              
              31,313
              
              
              29,573Amortization
                  of intangibles
              
              
              5,837
              
              
              4,727Merger/Acquisition
                  related activities
              
              
              -
              
              
              1,018Operating
                  income
              
              
              19,752
              
              
              21,033Interest
                  expense
              
              
              22,088
              
              
              19,386Interest
                  income
              
              
              (1,171
              )
              
              (937
              )Foreign
                  exchange (gain) loss
              
              
              (219
              )
              
              37Change
                  in fair value of derivatives
              
              
              226
              
              
              264Minority
                  interest
              
              
              187
              
              
              497Other
                  (income), net
              
              
              (189
              )
              
              (643
              )Profit
                  (loss) before tax
              
              
              (1,170
              )
              
              2,429Income
                  tax expense
              
              
              1,343
              
              
              1,735Net
                  income (loss)
              
              $
              (2,513
              )
              $
              694





The
      Company’s worldwide sales and operating revenue of $373,318,000 increased by
      $55,700,000, or 17.5% in 2006 from $317,618,000 reported in 2005. Product prices
      were up 9.2% and units shipped were up 7.7%. Units installed decreased 4.2%
      from
      the 2005 year. At December 31, 2006, the backlog of $68.0 million was 31.1%
      higher than at December 31, 2005.





U.S.
      sales and operating revenue of $184,350,000 for 2006 was 14.3% higher than
      the
      previous year. The increase in revenues was due to a 12.4% increase in sales
      prices, resulting from higher raw material costs, while shipments were 1.6%
      higher compared with 2005. U.S. installation revenue, recognized on a cost
      percentage-of-completion basis, in 2006 was 8.3% higher than the prior year
      while installed units were down 2.7% from the prior year.





Foreign
      sales and operating revenue were $188,968,000 in 2006, a 20.9% increase from
      the
      prior year. This increase included revenues from the Chilean acquisition of
      $23,785,000. Excluding the Chilean acquisition, foreign revenues increased
      5.7%
      over the prior year. Foreign units shipped increased by 12.7% and units
      installed decreased by 14.1% in 2006 over 2005. The UK installation services
      were discontinued as of December 22, 2006 due to competitive pressures on
      margins and the actions of national waste companies in contracting for
      installation services. Foreign installation revenue in Europe, recognized on
      a
      cost percentage-of-completion basis, increased 22.5% in 2006 due to an increase
      of 42.6% in sales per unit. The change in the U.S. dollar value of the Company’s
      foreign entity functional currencies also increased 2006 foreign sales and
      operating revenue by approximately $2,504,000.





Gross
      profit in 2006 was $56,902,000 compared with $56,351,000 in 2005. Gross profit
      as a percentage of sales and operating revenue declined to 15.2% from 17.7%
      last
      year. U.S. gross profit for 2006 was 4.8% lower than 2005 primarily due to
      lower
      dollar per unit margins. Despite lower shipments in Europe, gross profit from
      foreign operations in 2006 was 6.5% higher than 2005. Lower shipments in Europe
      were partially offset by gross profit from the acquired Chilean operations.
      During the summer of 2006, raw material cost increased significantly and because
      of the world-wide competitive environment, the Company was unable to raise
      sales
      prices soon enough to match the increase in raw material cost. Change in U.S.
      dollar value of functional currencies increased 2006 gross profit by
      approximately $618,000.





Selling,
      general and administrative (“SG&A”) expenses of $31,313,000 in 2006
      increased $1,740,000 over the 2005 year. Contributing to the increase was
      $1,714,000 of expenses related to the acquired Chilean operations, a $900,000
      legal charge in connection with the settlement of the Cicala lawsuit, a one-time
      stock option compensation charge and severance expenses. These increases were
      partially offset by other expenses including other legal costs, bad debt
      expense, and incentive plan costs. Changes in the U.S. dollar value of the
      Company’s foreign entity functional currencies also increased SG&A by
      approximately $163,000.




-25-





Amortization
      of intangible expense increased 23% to $5,837,000 primarily due to intangible
      assets acquired in the Chilean acquisition. Minority interest expense decreased
      by $310,000 to $187,000 as a result of the Company’s increased ownership in the
      Canadian subsidiary, Bentofix Technologies, Inc.





Interest
      expense of $22,088,000 for the 2006 year was higher than 2005’s interest expense
      of $19,386,000. This increase was primarily due to increased interest rates,
      higher levels of debt and the accretion of the fair market value adjustment
      recorded when the Company elected to no longer apply hedge accounting. As of
      January 1, 2006, the Company was no longer able to apply the short cut method
      of
      accounting for its interest rate swap and, therefore, elected to no longer
      apply
      hedge accounting.





Other
      income was $189,000 for the 2006 year compared to other income of $643,000
      in
      2005. The 2006 amount included gains/(losses) on the sales of assets being
      offset by the change in the value of the interest rate swap. Other income in
      2005 was primarily related to gains on the sale of assets.





The
      Company’s provision for income taxes is recorded at statutory rates for each tax
      jurisdiction based on fiscal year to date results, adjusted for certain
      permanent differences.  For the year ended December 31, 2006, the Company
      recorded tax expense of $1,343,000 with a pre-tax book loss of ($1,170,000).
      Tax
      expense for 2006 included approximately $540,000 for prior years’ related to
      state income and foreign taxes. See Notes to Consolidated Financial Statements
      -
      Note 14 - Income taxes, for additional information.





***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:


**(in
                  thousands)****Successor
                  and****Predecessor****Year
                  2004****Year
                  2005**
              
              **Combined**Sales
                  and operating revenue
              
              $
              317,618
              
              $
              287,906Cost
                  of products & services
              
              
              261,267
              
              
              232,803Gross
                  profit
              
              
              56,351
              
              
              55,103Selling,
                  general & administrative expenses
              
              
              29,573
              
              
              30,770Amortization
                  of intangibles
              
              
              4,727
              
              
              3,026Merger/Acquisition
                  related activities
              
              
              1,018
              
              
              -Expenses
                  related to CHS transaction
              
              
              -
              
              
              5,863Operating
                  income
              
              
              21,033
              
              
              15,444Interest
                  expense
              
              
              19,386
              
              
              14,359Interest
                  income
              
              
              (937
              )
              
              (490
              )Foreign
                  exchange (gain) loss
              
              
              37
              
              
              168Change
                  in fair value of derivatives
              
              
              264
              
              
              -Minority
                  interest
              
              
              497
              
              
              271Other
                  (income), net
              
              
              (643
              )
              
              (556
              )Profit
                  before tax
              
              
              2,429
              
              
              1,692Income
                  tax provision (benefit)
              
              
              1,735
              
              
              (304
              )Net
                  income (loss)
              
              $
              694
              
              $
              1,996


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 $51.9 million
      was 20.0% lower than at December 31, 2004. The decline in backlog was primarily
      due to the timing of bid activity.




-26-





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 year’s 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 increase
      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 related to
      approximately $1,690,000 of cost reductions implemented in the U.S. and Europe
      in 2004 and $600,000 of lower bad debt expense. Partially offsetting this
      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 $643,000 in 2005 and other income of $556,000 in 2004 were primarily
      from gains on routine sales of assets.





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.




-27-




**Outlook**





With
      the
      opportunities that we anticipate from the two new business ventures in the
      synthetic turf and storm water markets, along with the anticipated growth that
      we see in the international markets, management is confident we will be able
      to
      meet the challenges in 2007.





Sales
      and
      operating revenue are anticipated to be higher than in 2006, primarily from
      increased sales, improvement in performance in the international markets and
      the
      impact of the new growth opportunities that we expect from the synthetic turf
      and storm water business ventures.





We
      anticipate volume levels from the 2007 national account programs will be lower
      than in the previous year. We also anticipate a strong demand in most of our
      international markets will result from resumption in some major projects in
      the
      mining sector that were delayed in 2006.





Overall
      installation activity in the U.S. and Europe is expected to increase as a result
      of a favorable backlog position and expected demand from large mining and power
      projects during 2007. We discontinued installation operations in the UK
      reflecting higher price competition for these services. Even though we expect
      to
      see some increase in overall installation activity, it will not be sufficient
      to
      offset the decline in US installation profitability resulting from the change
      in
      our business relationship with Waste Management.





Resin
      costs at the beginning of 2007 are approximately ten cents per pound lower
      than
      the average cost per pound in 2006, due to the large drop in oil prices.
      Increases in resin prices were announced for the first quarter of 2007 and
      we
      expect that these prices will remain volatile for the remaining part of the
      year
      which may contribute to lower gross profit.




We
      anticipate that the industry will continue having capacity in excess of the
      market growth, thus contributing to a continuance of competitive bid pricing
      pressure. Our intent is to maintain the 2006 margin spread over resin costs
      in
      2007. However, maintaining that spread with higher selling prices is expected
      to
      result in gross profit margins declining as a percentage of sales. For the
      year
      2007, we anticipate a decline in our gross profit as a percentage of sales,
      by
      approximately one percent.





Exclusive
      of non-cash amortization costs, we expect to have lower selling and
      administrative costs resulting from actions taken in 2006 and the current year,
      primarily personnel related.





In
      conclusion, we expect to meet our restrictive debt covenant measurements during
      2007. Meeting the covenants will be dependent on achieving growth targets in
      new
      businesses and cost containment. We anticipate 2007 EBITDA, as defined by the
      debt covenants, to remain comparable to 2006.





**Liquidity
      and Capital Resources**





***Sources
      of Liquidity***





The
      Company’s primary sources of liquidity in 2006 were cash generated from
      operations and its revolving credit facility. At December 31, 2006, the Company
      had working capital of $69,264,000 of which $13,691,000 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 2007.





Total
      capitalization as of December 31, 2006, was $251,400,000, consisting of
      $71,525,000 in stockholder’s equity and $179,875,000 of total debt. The total
      debt is reduced by a $2,406,000 non-cash, fair value adjustment for the interest
      rate swap and premium on senior notes.




-28-





***Capital
      Expenditures***





Capital
      expenditures in 2006 were $7,037,000. The Company currently anticipates 2007
      capital expenditures to be approximately $3,900,000. 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***





We
      entered into a three-year unsecured installment obligation with the seller
      of
      ProGreen for $2.7 million. The installment obligation bears interest at 5.13%
      per annum and is payable in three equal annual principal payments of $900,000
      plus accrued interest commencing October 13, 2007.





We
      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
      ours.
      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, we issued $150,000,000 of 11% senior notes due
      in
      2012. 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 senior 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 the senior notes and our senior credit facility described below
      also
      contain various covenants that limit our discretion in the operation of our
      businesses.





In
      January 2005, we entered into an interest rate swap agreement, which effectively
      converted $75,000,000 of the indebtedness represented by our 11% fixed rate
      senior notes into variable rates based on six-month LIBOR rates. Under the
      swap
      agreement, payments are made based on a variable rate; currently 11.9994%
      through May 15, 2007, 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 in
      2005.





At
      the
      time the Company entered into a swap agreement, the terms of the swap agreement
      were 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 value 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. In 2005, the FASB issued an interpretation to SFAS 133 and, as a result,
      effective January 1, 2006, the Company was no longer able to apply the short-cut
      method of accounting for its interest rate swap. The Company elected to no
      longer use hedge accounting.





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. We are also required to pay customary agency
      fees and expenses. The Company paid commitment fees of approximately $121,000
      in
      2006 and $188,000 in 2005. 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).




-29-





The
      senior credit facility is guaranteed by GEO Holdings and all of our existing
      and
      future direct or indirect domestic subsidiaries, except our foreign subsidiaries
      or Bentofix Technologies (USA), Inc., a dormant subsidiary of our
      75.5%-owned Canadian subsidiary, Bentofix Technologies, Inc., and 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, which
      become more restrictive over the term of the senior credit facility. 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,
      2006, the Company had an outstanding balance of $13,935,000 on its $25,000,000
      term loan. The Company had available $27,066,000 under its credit facility
      at
      December 31, 2006, net of $1,934,000 of issued letters of credit and $11,000,000
      of outstanding borrowings.





We
      have
      an EGP 5,000,000 (USD $876,000) 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, 2006 of EGP
      833,000 (USD $146,000).





At
      December 31, 2006, we had five local foreign credit facilities. We had credit
      facilities with two German banks in the amount of EUR 5,100,000 (USD
      $6,733,000). 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, 2006, we had EUR
      4,532,000 (USD $5,983,000) available under these credit facilities with EUR
      1,347,000 (USD $1,778,000) of bank guarantees outstanding and no borrowings
      under the line of credit.





We
      have
      two credit facilities with Egyptian banks in the amount of EGP 9,167,000 (USD
      $1,605,000). These credit facilities bear interest at various market rates
      and
      are primarily for cash management purposes. At December 31, 2006, we had EGP
      7,145,000 (USD $1,251,000) available under these credit facilities.





We
      have a
      credit facility with a Canadian bank in the amount of Canadian Dollar 500,000
      (USD $429,000) that bears interest at market rate, secured by all assets. At
      December 31, 2006, we 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.





***Sources
      and Uses of Cash***




**For
                  the Year Ended December 31,****2006**
              
              **2005**Cash
                  provided by (used in) operating activities
              
              $
              (814,000
              )
              $
              8,786,000Cash
                  used in investing activities
              
              $
              (10,538,000
              )
              $
              (12,930,000
              )Cash
                  provided by financing activities
              
              $
              3,685,000
              
              $
              2,072,000




Cash
      used
      in operating activities during 2006 was $814,000 compared with cash provided
      by
      operating activities of $8,786,000 in 2005. The difference was primarily due
      to
      the higher receivables and inventory from the Chilean operations and the shift
      from the third quarter to the fourth quarter in the business activity.





Cash
      used
      by investing activities during 2006 was $10,538,000, compared to $12,930,000
      in
      the prior year. Cash used in investing activities in 2006 was primarily due
      to
      capital expenditures of $5,367,000, cash used for the purchase of ProGreen
      of
      $4,119,000 and $2,067,000 for the increased ownership in Bentofix Technologies,
      Inc. Cash used by investing activities during 2005 was primarily for the
      acquisition of the operating assets of a geomembrane manufacturer in Chile
      for
      $11,188,000.




-30-





Cash
      provided by financing activities during 2006 was due to $8,526,000 of net
      proceeds on credit lines offset by long term debt payments of $4,272,000 and
      a
      dividend payment of $569,000. Cash provided by financing activities for 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.





***Contractual
      Obligations and Commercial Commitments***





The
      following table represents information, as of December 31, 2006, 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
                
                $
                11,000
                
                $
                11,000
                
                $
                -
                
                $
                -
                
                $
                -Long-term
                    Debt and Interest(1)
                
                
                267,701
                
                
                23,970
                
                
                68,036
                
                
                17,445
                
                
                158,250Operating
                    Leases
                
                
                854
                
                
                415
                
                
                439
                
                
                -
                
                
                -Other
                    Long-Term Liabilities Reflected in Balance Sheet(2)
                
                
                1,045
                
                
                83
                
                
                249
                
                
                166
                
                
                547Total
                
                $
                280,600
                
                $
                35,468
                
                $
                68,724
                
                $
                17,611
                
                $
                158,797
  **Other
                      Commercial**
                    **Obligations**
                  
                  **Total**
                  
                  **Less
                      Than One Year**
                  
                  **1-3
                      Years**
                  
                  **4-5
                      Years**
                  
                  **After
                      5 Years**Letters
                      of Credit
                  
                  $
                  1,934
                  
                  $
                  1,934
                  
                  $
                  -
                  
                  $
                  -
                  
                  $
                  -Bond
                      Guarantees
                  
                  
                  11,612
                  
                  
                  8,874
                  
                  
                  2,738
                  
                  
                  -
                  
                  
                  -Bank
                      Guarantees
                  
                  
                  2,132
                  
                  
                  1,104
                  
                  
                  1,028
                  
                  
                  -
                  
                  
                  -Total
                  
                  $
                  15,678
                  
                  $
                  11,912
                  
                  $
                  3,766
                  
                  $
                  -
                  
                  $
                  -
  (1)
            Long-term debt listed here is cash obligation and excludes $2,406 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 generally accepted accounting principles 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.





We
      believe the following are our most critical accounting policies. Our 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, 2006.





**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.




-31-




**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**





We
      use
      the purchase method of accounting for business combinations which requires
      us 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. We perform a goodwill impairment test annually as of December 31.
      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 us to compare the fair value of business reporting
      units to carrying value including assigned goodwill. We use 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 2006 was
      $3,740,000. Total repairs and maintenance during 2005 were $3,558,000. Total
      repairs and maintenance expense during 2004 were $2,287,000 for the Successor
      Company and $1,758,000 for the Predecessor Company.





We
      make
      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 us to make long-term forecasts
      of our future revenues and costs related to the assets subject to review.
      Forecasts require assumptions about demand for our products and future market
      conditions. Future events and unanticipated changes to assumptions could require
      a provision for impairment in a future period.




-32-




**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.





**New
      Accounting Pronouncements**





In
      June
      2006, the FASB issued Interpretation No. 48, “ *Accounting
      for Uncertainty in Income Taxes* (“FIN
      48”), an interpretation of Statement No. 109. FIN 48 clarifies the criteria and
      approach for recognition, derecognition and measurement of uncertain tax
      positions. FIN 48 is effective for fiscal years beginning after December 15,
      2006. The Company does not expect the adoption of FIN 48 to have a material
      impact on the financial position or results of operations.





**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, 2006,
      there was $13,935,000 outstanding under our floating rate credit facilities
      and
      $11,000,000 under a revolving credit agreement.





In
      January 2005, GSE entered into an interest rate swap agreement, which
      effectively converted $75,000,000 of the indebtedness represented by our 11%
      fixed rate senior notes into variable rates based on six-month LIBOR rates.
      Under the swap agreement, payments are made based on a variable rate; currently
      11.9994% through May 15, 2007, 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 other expense (income) for
      2006.





Our
      earnings are affected by changes in interest rates due to the impact those
      changes have on our variable-rate debt and derivative instruments. Holding
      other
      variables constant, including levels of indebtedness, a 50 basis point increase
      or decrease in interest rates would increase or decrease our interest expense
      by
      $437,000 annually.





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 $1,527,000 million as of December 31, 2006,
      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,
      2006,
      revenues, operating income and total assets for our foreign subsidiaries who
      do
      not use the U.S. dollar as their functional currency were $102.4 million, $7.6
      million, and $68.8 million, respectively.




-33-





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.





We
      have
      not entered into hedging transactions in 2006 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 attempted to 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
      2006 volumes sold would have increased cost of products and services by
      approximately $2,500,000.





**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.




-34-




There
      were no changes in our internal control over financial reporting during the
      quarter ended December 31, 2006, that have materially affected, or are
      reasonably likely to materially affect, our internal control over financial
      reporting.




**ITEM
      9B. Other Information.**





None.





**PART
      III**





**ITEM 10
      - DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE**




**Directors
      and Executive Officers**





The
      names, ages and current positions of our executive officers and members of
      our
      Board of Directors as of March 31, 2007, are set forth below. 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 our Board of
      Directors and the board of directors of GEO Holdings, except for Messrs. Evans
      and Goodrich who serve on our Board of Directors 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 and Director Independence —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.




**Name**
            
            **Age**
            
            **Position**Samir
                T. Badawi
            
            67
            
            President,
                Chief Executive Officer and DirectorErnest
                C. English, Jr.
            
            54
            
            Vice
                President, Chief Financial Officer, Treasurer and Assistant SecretaryGerald
                E. Hersh
            
            63
            
            Vice
                President and General Manager of North American OperationsJames
                T. Steinke
            
            60
            
            Vice
                President and General Manager of Asia/Pacific
                OperationsPaul
                A. Firrell
            
            40
            
            Vice
                President and General Manager of Europe/Africa
                OperationsDaniel
                J. Hennessy(1),
                (2)
            
            49
            
            Non-executive
                Director, Chairman of the BoardMichael
                G. Evans(2)
            
            52
            
            Independent
                DirectorMarcus
                J. George(1),
                (2)
            
            37
            
            Non-executive
                DirectorRichard
                E. Goodrich(1)
            
            63
            
            Independent
                DirectorBrian
                P. Simmons
            
            46
            
            Non-executive
                Director





(1)
            **Audit
                Committee Member**


(2)
            **Compensation
                Committee Member**




**Board
      of Directors and Executive Officers**





**Samir
      T. Badawi** has
      served as President and Chief Executive Officer (“CEO”) and as a member of our
      Board of Directors since 1995. He served as Chairman of the Board from 1995
      to
      2004. 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.





**Ernest
      C. English, Jr.** has
      served as Vice President, Chief Financial Officer (“CFO”), Treasurer and
      Assistant Secretary since February 27, 2007. From 1999 to his appointment as
      CFO, Mr. English served as Vice President and General Manager of North American
      Operations. From 1996 to 1999, he served as our Corporate Controller. From
      1994
      to 1996, Mr. English served as vice president of finance and administration
      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,
      Inc.




-35-





**Gerald
      E. Hersh** was
      appointed as Vice President and General Manager of North American Operations
      on
      February 27, 2007. From 2000 until his current role, he served as Vice President
      and General Manager of U.S. Installation Operations. From 1996 to 2000, he
      served as 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.





**James
      T. Steinke** has
      served as Vice President and General Manager of Asia/Pacific Operations since
      1999. From 1995 to 1999, he served as Vice President-International Sales for
      Central and South America. From 1993 to 1995, Mr. Steinke served as 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. Naval Nuclear Submarine Service.





**Paul
      A. Firrell** has
      served as Vice President and General Manager of Europe/Africa Operations since
      2000. From 1994 to 2000, he served as Managing Director, UK Operations, involved
      in the sales, installation, and manufacturing operations in the UK. From 1992
      to
      1994, Mr. Firrell was one of the owners of a geomembrane installation
      company in England that was acquired by GSE in 1994.





**Daniel
      J. Hennessy** became a
      member of our Board of Directors and our Chairman of the Board 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. Mr. Hennessy is a member of the board of directors
      of Penhall International Corp. and Waddington North
      America, Inc.





**Michael
      G. Evans** became
      a
      member of our Board of Directors and chairman of the Compensation Committee
      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 U.K. and the United States,
      including as a director of John Waddington Ltd. from 1996 through
      2000.





**Marcus
      J. George** became a
      member of our Board of Directors 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
      member of our Board of Directors and the audit committee chairman on December
      16, 2004. Mr. Goodrich served as Executive Vice President and Chief Financial
      Officer of Chicago Bridge & Iron Company from July 2001 until June 2006 when
      he retired. 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.  He also serves on the
      Board of Directors and chairs the compensation committee for Chart Industries,
      Inc. (NASDAQ: GTLS).




**Brian
      P. Simmons** became a
      member of our Board of Directors 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 LVI Services, Inc., MLS Holdings and Waddington North
      America, Inc.




-36-





**Audit
      Committee and Audit Committee Financial Expert**





The
      audit
      committee provides assistance to the Board of Directors in fulfilling their
      oversight responsibility to the shareholders, potential shareholders, and
      investment community relating to GSE’s financial reporting process, the quality
      and integrity of GSE’s financial statements, GSE’s systems of internal
      accounting and financial controls, the performance of GSE’s internal audit
      function and independent auditors, the independent auditor’s qualifications and
      independence, and GSE’s compliance with legal and regulatory requirements. The
      audit committee consists of Messrs. Goodrich (Chairman), Hennessy and
      George.





The
      Board
      of Directors has determined that Mr. Goodrich is an audit committee financial
      expert under the SEC rules and independent under the listing standards of the
      NYSE.





**Code
      of Ethics**




We
      have
      adopted a code of ethics that applies to each employee, and each employee of
      our
      subsidiaries, including our principal executive officer, principal financial
      officer and principal accounting officer. The Code of Ethics is available on
      our
      website at www.gseworld.com. Any amendments to, or waivers from, any provision
      of the Code of Ethics (to the extent applicable to our principal executive
      officer, principal financial officer and principal accounting officer) shall
      be
      posted on this website.




**ITEM 11
      - EXECUTIVE COMPENSATION**




**Compensation
      Discussion and Analysis**




**** This
      section provides information regarding the compensation program for our
      principal executive officer, principal financial officer and our other three
      most highly compensated executive officers, which we refer to as our named
      executive officers.  It includes information regarding the overall
      objectives of our compensation program as well as each element of compensation
      that we provide.




Objectives
      of the Executive Compensation Program




The
      Compensation Committee of our Board of Directors (the “Committee”) is
      responsible for setting the principles and strategies that guide the design
      of
      our executive compensation program and monitoring the execution of our executive
      compensation program.   The Committee has the authority to approve all
      executive compensation, including any long-term equity incentives. The Committee
      annually evaluates the performance of the CEO and each of the CEO’s direct
      reports. Based on this evaluation and the recommendations of the CEO with
      respect to the other executives, the Committee establishes and approves each
      executive’s compensation level, including base salary, annual incentive bonus,
      and any equity-based stock option award.




Executive
      Compensation Philosophy




The
      philosophy of our executive compensation program is to:




·
            reward
                superior performance for achieving specific annual and long-term
                strategic
                goals;




·
            align
                the executives’ interest with that of our
                owner;




·
            build
                incentive for future performance; and




·
              attract
                  and retain exceptional
                  personnel




The
      Committee, with input from the CEO, evaluates the performance of our executives
      and their compensation packages to ensure that we maintain our ability to retain
      highly talented key employees and attract new talent, as needed, to successfully
      grow and lead the organization.




Elements
      of Executive Compensation




Our
      executive compensation program is designed to reward superior performance and
      the achievement of both operating results and strategic objectives.  Our
      executive compensation program consists of the following elements:




·
            Base
                Salary;




·
            Annual
                Incentive Bonus;




·
            Long-term
                Equity Incentive;




·
            Post
                Employment Benefits; and




-37-




·
            Benefits
                and Perquisites




*Base
      Salary*




We
      determine annual base salary for our executives considering the executive’s
      scope of responsibility, individual performance and experience, business
      performance, and the competitive market for a similar position. The base salary
      element of the overall compensation program is used to attract and retain
      highly-qualified executives. The Committee reviews each executive’s base salary
      level on an annual basis and also monitors the impact base salary increases
      have
      on the annual incentive bonus (determined as a percentage of salary), total
      base
      salary plus annual incentive bonus, and our overall market competitiveness.
      The
      base salary for each of our named executive officers for 2006 and 2007 is set
      forth in the table below .


**Fiscal
                    Year**
                
                **Fiscal
                    Year**
                
                **Percent****Named
                      Executive Officer**
                
                
                
                **2006**
                
                **2007**
                
                **Increase**Samir
                    T. BadawiPresident
                    and Chief Executive Officer
                
                
                
                
                $
                465,000
                
                $
                480,000
                
                
                3.2
                %Ernest
                    C. EnglishVice
                    President and Chief Financial Officer
                
                
                (1
                )
                $
                209,000
                
                $
                250,000
                
                
                19.6
                %Paul
                    A. FirrellVice
                    President/General Manager Europe/
                
                
                (2
                )Middle
                    East/Africa Operations
                
                
                
                
                $
                283,910
                
                $
                293,700
                
                
                3.4
                %Gerald
                    E. HershVice
                    President North American Operations
                
                
                (1
                )
                $
                204,000
                
                $
                230,000
                
                
                12.7
                %James
                    T. SteinkeVice
                    President/General Manager Asia/PacificOperations
                
                
                (3
                )
                $
                210,000
                
                $
                218,400
                
                
                4.0
                %




(1)
              Assumed
                  position on February 27, 2007
 (2)
              Based
                  on an exchange rate 1.958 (GBP)
 (3)
              Includes
                  foreign service allowance of $35,000 and
                  $36,400


*Annual
      Incentive Bonus*




An
      annual
      incentive bonus is paid to each executive for delivering increased value to
      the
      organization. The financial targets and overall design of the annual incentive
      plan for executives generally mirrors the annual incentive compensation program
      for all other eligible, salaried employees. The Committee annually assigns
      each
      executive a target bonus as a percentage of salary. Bonus awards are based
      on
      GSE’s and the executive’s achievement of the established goals. For the year
      ended December 31, 2006, the annual performance goals included two GSE financial
      measures - (1) net income before interest (net), income taxes, depreciation
      and
      amortization (“Adjusted EBITDA”) and (2) average working capital as a percentage
      of revenue, as well as personal performance goals related to individual job
      responsibilities.




*Long-term
      Equity Incentives*




The
      long-term equity incentive component of the overall executive compensation
      plan
      is used to align the long-term interest of management with the owner. The
      Committee reviews recommendations of the CEO regarding the annual awards of
      stock options. The recommendations include an estimate of the percentage of
      stock options recommended to be granted (based on the overall amount of stock
      options that can be granted in light of reaching the GSE targets for the year).





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 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 of GEO Holdings (or a committee
      thereof).




-38-





On
      the
      closing date of the Merger, pursuant to the GEO Holdings Option Plan, options
      to
      purchase 333,600 shares of GEO Holdings common stock with a weighted average
      exercise price of $3.67 per share were granted to certain executives in exchange
      for options to purchase GSE common stock. These options represented
      approximately 10% of GEO Holdings’ common stock on a fully-diluted basis
      immediately following the completion of the Merger.





On
      March
      1, 2006, pursuant to the GEO Holdings Option Plan, the Board of Directors
      granted options to purchase 71,788 shares of GEO Holdings common stock with
      an
      exercise price of $21.35 per share to key employees. The options were fully
      vested on the grant date and all of the stock based compensation expense of
      $228,817 ($141,687 net of tax) was recognized during the first quarter of 2006
      with a corresponding increase of $141,687 in the balance sheet account
“Additional Paid-in Capital.”





On
      January 30, 2007, pursuant
      to the GEO Holdings Option Plan, the Board of Directors granted
      options to purchase 35,894 shares of GEO Holdings common stock to key employees
      at an exercise price of $21.91 per share. The options were fully vested and
      stock-based compensation expense of $109,446 ($67,857 net of tax) was recognized
      during the first quarter of 2007 with a corresponding increase of $67,857 in
      the
      balance sheet account “Additional Paid in Capital.”




In
      addition, on January 30, 2007, pursuant to the GEO Holdings Option Plan, the
      Board of Directors granted to key employees all of the options to purchase
      11,500 shares of GEO Holdings common stock that had previously been forfeited
      by
      employees who had left the Company. The exercise price was $21.35, the same
      as
      the option price granted in 2006. The options were fully vested and stock-based
      compensation expense of $38,324 ($23,761 net of tax) was recognized during
      the
      first quarter of 2007 with a corresponding increase of $23,761 in the balance
      sheet account “Additional Paid in Capital.”





*Post
      Employment Benefits*




We
      have
      entered into executive employment agreements with our named executive officers
      which provide for the payment of severance and other post-termination benefits
      depending on the nature of the termination, including, severance payments in
      the
      event of a termination following a “change in control.” The Committee believes
      that the terms and conditions of these agreements are reasonable and assist
      in
      retaining the executive talent needed to achieve our objectives. Information
      regarding the specific payments that are applicable to each termination event
      is
      provided under the heading “- Employment Agreements and Potential Benefits Upon
      Termination or Change-in-Control” below.




*Benefits
      and Perquisites*




We
      maintain a Corporate Retirement Plan (“Corporate Plan”), which is an executive
      nonqualified deferred compensation plan. Qualifying named executive officers
      can
      elect to defer compensation and take distributions after separation from GSE
      for
      service, disability, unforeseen emergency, or death. Participation in this
      plan
      requires Committee approval. Currently, there are two participants in the
      Corporate Plan. The Corporate Plan matches any contribution of 100% of the
      first
      2% contribution and 50% of the next 4% after the Company match on the Gundle/SLT
      Environmental, Inc. 401 (k) Plan.




In
      addition to the Corporate Plan, named executive officers can participate in
      the
      Gundle/SLT Environmental, Inc. 401(k) Plan. Employee contributions can range
      from 1% to 60% of eligible compensation as prescribed by law. Those over 50
      may
      contribute an additional amount as prescribed by law. We match the first 5%
      of
      employee contributions. The first 3% is matched dollar for dollar and the next
      2% is matched $.50 on the dollar.





** As
      employees of GSE, the named executive officers are eligible to participate
      in a
      basic level of life insurance, disability insurance, and a basic level of
      accidental death & disability plans at no cost to the executive. They also
      participate in the health, dental, and disability insurance plans provided
      to
      all of our employees. Named executive officers also receive annual paid vacation
      time, sick leave, holidays and bereavement days.




-39-





As
      discussed under “- Employment Agreements and Potential Benefits Upon Termination
      or Change in Control,” certain executives are entitled to car allowances and
      foreign service pay. In addition, one executive is entitled to reimbursement
      of
      certain fees paid for tax financial services.





**Compensation
      Committee Report**





The
      Compensation Committee has reviewed and discussed with management the
      Compensation Discussion and Analysis. Based upon such review and discussions,
      and such other matters deemed relevant and appropriate by the Committee, the
      Committee recommended to our Board of Directors that the Compensation Discussion
      and Analysis be included in our Annual Report on Form 10-K/A.





The
      Compensation Committee of the Board of Directors


Michael
      G. Evans (Chairman)


Daniel
      J.
      Hennessy


Marcus
      J.
      George





**Compensation
      Committee Interlocks and Insider Participation**





Decisions
      on executive compensation for the fiscal year 2006 were made by the Committee,
      based upon the recommendations of the CEO with respect to the other executives.
      During 2006, the Committee consisted of Messrs. Evans (Chairman), Hennessy
      and
      George. No member of the 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 407(e)(4) of Regulation
      S-K promulgated by the U.S. Securities Exchange Commission.





Mr.
      Hennessy is a partner and founder of CHS and Mr. George is a Director of CHS.
      CHS has 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. See “Certain
      Relationships and Related Transactions, and Director Independence - Stockholders
      Agreement” in Item 13 of Part III.




-40-








**Summary
      Compensation Table.**





The
      following table summarizes the compensation of our principal executive officer
      and our principal financial officer, as well as our other three most highly
      compensated executive officers, for the fiscal year-end December 31,
      2006.


Summary
          Compensation Table
 For
          the
          Year Ending December 31, 2006
 Non-
                    Equity
                
                AllOption
                
                Incentive
                    Plan
                
                OtherNamed
                    and Principal Position
                
                
                
                Year
                
                Salary
                    ($)
                
                Awards
                    ($) (1)
                
                Compensation
                    ($) (2)
                
                Compensation
                    ($) (3)
                
                Total
                    ($)Samir
                    T. Badawi
                
                
                
                
                
                2006
                
                
                465,000
                
                
                34,784
                
                $
                215,644
                
                
                54,721
                
                
                770,149President
                    and Chief Executive OfficerKelvin
                    R. Collard
                
                
                (4
                )
                
                2006
                
                
                233,000
                
                
                17,132
                
                
                -
                
                
                7,728
                
                
                257,860Vice
                    President and Chief Financial OfficerErnest
                    C. English
                
                
                (5
                )
                
                2006
                
                
                209,000
                
                
                12,750
                
                
                64,006
                
                
                6,751
                
                
                292,507Vice
                    President/General Manager NorthAmerica
                    OperationsPaul
                    A. Firrell
                
                
                
                
                
                2006
                
                
                283,910
                
                
                12,750
                
                
                44,124
                
                
                83,511
                
                
                424,294Vice
                    President/General Manager Europe/Middle
                    East/Africa OperationsGerald
                    E. Hersh
                
                
                (6
                )
                
                2006
                
                
                204,000
                
                
                12,750
                
                
                114,062
                
                
                12,037
                
                
                342,849Vice
                    President/General Manager USInstallation
                    OperationsJames
                    T. Steinke
                
                
                (7
                )
                
                2006
                
                
                210,000
                
                
                12,750
                
                
                21,361
                
                
                20,529
                
                
                264,640Vice
                    President/General Manager Asia/PacificOperations
  
 (1)
                The
                    amount in Option Awards reflects the dollar amount recognized
                    for
                    financial reporting purposes in the financial statements for
                    the year
                    ended December 31,2006,
                    in accordance with SFAS 123-R of awards pursuant to the GEO Holdings
                    Option Plan and includes amounts from awards granted prior to
                    2006.
                    Assumptions usedin
                    the calculation of these amounts are included in Note 13 - Stockholder's
                    Equity to our audited financial statements for the fiscal year
                    ended
                    December 31, 2006 included in thisAnnual
                    Report on Form 10-K/ A .
  (2)
                No
                    bonus was paid to named executive officer other than as part
                    of a
                    non-equity incentive plan.
  (3)
                The
                    amounts reported for each of the named executive officers in
                    "All Other
                    Compensation" are detailed below.
  (4)
                Mr.
                    Collard resigned on January 15,
                    2007.
  (5)
                Mr.
                    English was named Vice President, CFO and Assistant Secretary
                    on February
                    27, 2007.
  (6)
                Mr.
                    Hersch was named Vice President and General Manager of North
                    American
                    Operations on February 27, 2007.
  (7)
                Includes
                    foreign service pay at 20% of base
                    salary.


The
      following table shows the components of “Other Compensation” included in the
      Summary Compensation Table above.


Other
      Compensation


For
        the
        Year Ending December 31, 2006


Gundle/SLT
              
              Corporate
              
              
              
              Medical,
                  Vision
              
              
              
              Rental
                  ofName
              
              Environmental,Inc.
                  401-k Plan
              
              Retirement
                  Plan
              
              Life
                  Insurance
              
              &
                    AD&DPremiums
              
              Club
                  Dues
              
              LivingQuarters
              
              CarExpense
              
              FinancialServices
              
              TotalSamir
                  T. Badawi
              
              $
              8,800
              
              $
              31,125
              
              $
              3,576
              
              $
              3,360
              
              $
              2,360
              
              $
              -
              
              $
              5,500
              
              $
              -
              
              $
              54,721Kelvin
                  R. Collard
              
              $
              7,728
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              7,728Ernest
                  C. English
              
              $
              6,751
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              6,751Paul
                  A. Firrell
              
              $
              29,370
              
              $
              -
              
              $
              -
              
              $
              1,646
              
              $
              -
              
              $
              24,455
              
              $
              28,040
              
              $
              -
              
              $
              83,511Gerald
                  E. Hersh
              
              $
              7,850
              
              $
              4,187
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              12,037James
                  T. Steinke
              
              $
              6,781
              
              $
              -
              
              $
              -
              
              $
              3,360
              
              $
              -
              
              $
              8,238
              
              $
              -
              
              $
              2,150
              
              $
              20,529


-41-





**Grants
      of Plan-Based Award Table**





The
      following table provides information on estimated possible payouts under
      non-equity incentive plan awards made to each of the named executive officers
      for the year ended December 31, 2006.


**Grants
        of Plan-Based Awards for the Year Ended December 31,
        2006**
  Estimated
                  Possible Payouts Under Non-equityIncentive
                  Plan AwardsName
              
              Threshold
                  ($)
              
              Target
                  ($)
              
              Maximum
                  ($)Samir
                  T. Badawi
              
              
              -
              
              
              325,500
              
              
              651,000Kelvin
                  R. Collard
              
              
              -
              
              
              93,200
              
              
              186,400Ernest
                  C. English
              
              
              -
              
              
              73,150
              
              
              146,300Paul
                  A. Firrell
              
              
              -
              
              
              99,369
              
              
              198,737Gerald
                  E. Hersh
              
              
              -
              
              
              71,400
              
              
              142,800James
                  T. Steinke
              
              
              -
              
              
              61,250
              
              
              122,500


Cash
      bonuses were paid in March 2007 to the named executive officers based on the
      2006 targets related to (i) Adjusted EBITDA, (ii) average working capital as
      a
      percent of revenue and (iii) the executive’s personal goals. The threshold,
      target and maximum cash bonus award levels are based on a percentage of salary.




**Narrative
      Disclosure to Summary Compensation Table and Grants of Plan-Based Awards
      Table**




See
      “Employment Agreements and Potential Benefits Upon Termination and Change in
      Control” below for the material terms of our employment agreements with our
      named executive officers. See footnotes to the Summary Compensation Table and
      Grants of Plan-Based Awards Table for narrative with respect to these
      tables.




-42-




**Outstanding
      Equity Awards at Fiscal Year-End Table**





The
      following table shows the shares of GEO Holdings common stock covered by
      exercisable options held by our named executive officers at December 31,
      2006.


**Outstanding
        Equity Awards for the Year Ended December 31, 2006**


**Option
                  Awards**Name
              
              Number
                  of Securities Underlying Unexercised Options (#) Exercisable(1)
              
              Option
                  Exercise Price ($)
              
              Option
                Expiration
                  DateSamir
                  T. Badawi
              
              
              10,913
              
              
              21.35
              
              
              February
                  28, 2016Kelvin
                  R. Collard
              
              
              5,375
              
              
              21.35
              
              
              February
                  28, 2016Ernest
                  C. English
              
              
              4,000
              
              
              21.35
              
              
              February
                  28, 2016Paul
                  A. Firrell
              
              
              4,000
              
              
              21.35
              
              
              February
                  28, 2016Gerald
                  E. Hersh
              
              
              4,000
              
              
              21.35
              
              
              February
                  28, 2016James
                  T. Steinke
              
              
              4,000
              
              
              21.35
              
              
              February
                  28, 2016







(1)
      Options were fully vested on the date of grant




**Nonqualified
      Deferred Compensation Table**





The
      following table sets forth certain information with respect to deferrals of
      compensation by our named executive officers on a basis that is not
      tax-qualified.


Nonqualified
        Deferred Compensation in 2006


Executive
                  Contributions in
              
              Registrant
                  Contributions in
              
              Aggregate
                  Earnings
                  in
                    Last
              
              AggregateWithdrawals/
              
              AggregateBalance
                  at Last FiscalName
              
              Last
                  Fiscal Year ($) (1)
              
              Last
                  Fiscal Year ($) (2)
              
              Fiscal
                  Year ($) (3)
              
              Distributions($)
              
              Year
                    End($)Samir
                  T. Badawi
              
              
              186,424
              
              
              31,124
              
              
              175,026
              
              
              -
              
              
              1,458,486Gerald
                  Hersh
              
              
              48,037
              
              
              4,187
              
              
              56,108
              
              
              -
              
              
              373,433
  (1)
                Contributions
                    are under the Company's Corporate Retirement Plan, described
                    under
                    "Benefits and Perquisites". Amounts reported ascontributed
                    by executives to this plan are included in the Summary Compensation
                    Table.
  (2)
                Contributions
                    made by the Company are included in the "Other Compensation"
                    table but not
                    in the base salary in the SummaryCompensation
                    Table.
  (3)
                Earnings
                    on these accounts have not been disclosed by the Company in previous
                    years, and are not included in any other amounts inthe
                    tables, as the amounts required to be disclosed in this column
                    represent
                    the general market earnings of investments, notpreferential
                    earnings.


-43-





**Employment
      Agreements and Potential Benefits upon Termination or Change in
      Control**





The
      Company has executive employment agreements with the following executive
      officers:




·
            Samir
                T. Badawi;


·
            Ernest
                C. English, Jr.;


·
            Gerald
                E. Hersh;


·
            James
                T. Steinke; and


·
            Paul
                A. Firrell







Employment
      Agreement - Samir T. Badawi





Mr. Badawi’s
      employment agreement is for an initial three-year term, which began in 2004,
      with automatic one-year renewals unless terminated on not less than 90 days
      written notice. The agreement provides for an annual base salary, as well as
      annual incentive bonus and option grants at the discretion of the Committee.
      Mr.
      Badawi’s bonus can be up to 140% of his base salary based on our (1) Adjusted
      EBITDA target, (2) average working capital versus revenues and (3) the
      achievement of personal goals. The base salary amounts for 2006 and 2007 are
      included in the table above under the caption “Base Salary.”




Mr. Badawi
      is also eligible to participate in the GEO Holdings 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.





The
      agreement terminates on the death or, on written notice, the disability of
      Mr.
      Badawi. We may also terminate the agreement with or without “cause,” as defined
      in the agreement, and Mr. Badawi may terminate the agreement voluntarily or
      for
“good reason,” as defined in the agreement. If the agreement is terminated for
      cause by us, or voluntarily by Mr. Badawi, he is entitled to payments of salary
      and benefits through the date of termination.





If
      Mr. Badawi’s employment is terminated by us without cause or due to his
      disability, or by Mr. Badawi for good reason, Mr. Badawi will be
      entitled to his base salary through the date of termination as well
      as:





(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 as GSE employees; and





(3)
      A
      severance amount, payable pro rata over a period of 18 months from the date
      of termination, 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 to him for the immediately preceding full year.





If
      Mr.
      Badawi’s employment is terminated after a change in control as defined in Mr.
      Badawi’s agreement, by us without cause, due to his disability or by him good
      reason, his
      severance is increased to three times his salary and three times the bonus
      paid
      in the prior year, with the severance payment to be made by us in lump sum
      on or
      within 10 days of the date of termination, and group medical benefits are
      extended to three years.





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.





The
      agreement contains standard provisions relating to avoiding conflicts of
      interest with the Company and maintaining the confidentiality of the Company’s
      proprietary information. During the term of the executive employment agreement
      and, with respect to a termination by use 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; provided,
      however, that if
      Mr.
      Badawi receives a severance payment after a change of control as described
      above, this period is extended to three years.




-44-




Employment
      Agreements - Other Executives





Except
      as
      set forth below, the employment agreements for Messrs. English, Hersh,
      Steinke and Firrell have terms similar to Mr. Badawi’s employment agreement. The
      base salary amounts for the years 2006 and 2007 are included in the table above
      under the caption “Base Salary.”





Mr.
      English and Mr. Hersh are not entitled to the use of an automobile, while
      Mr. Steinke is entitled to use of an automobile and a chauffeur and
      Mr. Firrell is entitled to an automobile allowance.





In
      addition to the base salary, the executives are awarded an annual bonus based
      on
      our (1) Adjusted EBITDA target, (2) average working capital versus revenues
      and
      (3) the achievement of the personal goals. The annual bonus awarded to each
      of
      Messrs. English, Hersh, Steinke and Firrell can be up to 70% of their respective
      base salaries based on the foregoing criteria.




There
      are
      also no additional benefits paid to them, or additional restrictions on their
      ability to compete, if their employment is terminated in connection with a
      change of control. In addition, they are not entitled to receive additional
      payments from us if they are deemed to receive excess parachute
      payments.





Mr.
      Steinke is entitled to the following additional benefits: (1) a foreign service
      allowance based on 20% of his base salary, (2) a furnished housing unit,
      including utilities, (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, (6) an annual physical examination while Mr. Steinke
      is on foreign assignment and (7) funds for four trips per year for interim
      work
      at our offices in Houston and for home leave.





Mr.
      Firrell is entitled to the following additional benefits: (1) annual
      contributions of up to ten percent (10%) of his base salary to a pension fund
      of
      his choosing until his employment terminates, (2) private medical insurance
      on
      behalf of Mr. Firrell, his spouse and children under 21 years of age, and
      (3) life insurance for the term of the agreement with a death benefit of at
      least ₤540,000, or approximately $1,082,000 in U.S. dollars. Mr. Firrell’s
      non-competition provision is limited to six months from the date of termination.
      He is also subject to the record keeping and data protection requirements of
      the
      Data Protection Act of 1984 and/or the Data Protection Act of 1998, each of
      which are United Kingdom Acts of Parliament.




-45-







Potential
      Consideration upon Termination of Employment:




**** The
      following tables represent the potential payouts to our executives upon their
      termination of employment pursuant to the terms of their employment agreements.
      The payouts assume the triggering event indicated occurred on December 31,
      2006.
      These payouts are determined for SEC disclosure purposes and are not necessarily
      indicative of the actual amounts the executive will receive.


**Samir
                  T. Badawi****Triggering
                  Event**
              
              
              **Compensation
                  Component**
              
              **Payment
                  ($)***Terminated
                  by Company without cause or due to disability, or by Mr. Badawi
                  for good
                  reason*
              
              ·
              Pro-rated
                  bonus
              
              215,000·
              Severance,
                  payable pro rata over a period of 18 months from the termination
                  date,
                  equal to the sum of (i) one and one-half times the base salary
                  and (ii)
                  one and one-half times the bonus paid to him for the immediately
                  preceding
                  full year
              
              1,020,966·
              All
                  benefits under the Company's benefit plans and programs in which
                  he
                  participates, subject to the terms and conditions of such plans;
                provided;
                  however, that group medical benefits for him and his dependents
                  on the
                  date of termination shall be continued for a period of 18 months,
                  with
                  premiums to be paid by him at the same rate paid by employees who
                  have not
                  terminated and such period of coverage shall not be offset by any
                  period
                  of group health continuation coverage required under the Consolidated
                  Omnibus Budget Reconciliation Act of 1986, as amended
                  ("COBRA")
              
              15,930**1,251,896*****Change
                  in Control and termination by the Company****without cause, due to his disability or by him for good
                  reason*
              
              ·
              Pro-rated
                  bonus
              
              215,000·
              Severance,
                  payable in lump sum on or within 10 days, equal to the sum of 3
                  times the
                  base salary and (ii) three times the bonus paid to him for the
                  immediately
                  preceding full year
              
              2,041,900·
              Excess
                  Parachute Payment as defined by Section 280G (b) of the IRS Code
                  of
                  1986
              
              2,994,400·
              All
                  benefits under the Company's benefit plans and programs in which
                  he
                  participates, subject to the terms and conditions of such
                  plans;
                provided;
                  however, that group medical benefits for him and his dependents
                  on the
                  date of termination shall be continued for a period of 3 years,
                  with
                  premiums to be paid by him at the same rate paid by employees who
                  have not
                  terminated and such period of coverage shall not be offset by any
                  period
                  of group health continuation coverage required under the Consolidated
                  Omnibus Budget Reconciliation Act of 1986, as amended ("COBRA")
              
              31,860**5,283,160**
  **Triggering
                  Event**
              
              
              **Compensation
                  Component**
              
              **Payment
                  ($)****Ernest
                  C. English, Jr.***Terminated
                  by Company without cause or due to disability, or by Mr. English
                  for good
                  reason*
              
              ·
              Severance,
                        payable pro rata over a period of 18 months from termination
                        date, equal
                        to the sum of (i) one and one-half times base salary and
                        (ii) one and
                        one-half times the average of the bonuses paid to him for
                        the immediately
                        preceding three years
              
              431,860·
              All
                  benefits under the Company's benefit plans and programs in which
                  he
                  participates, subject to the terms and conditions of such
                  plans;
                provided;
                  however, that group medical benefits for him and his dependents
                  on the
                  date of termination shall be continued for a period of 18 months,
                  with
                  premiums to be paid by him at the same rate paid by employees who
                  have not
                  terminated and such period of coverage shall not be offset by any
                  period
                  of group health continuation coverage required under the Consolidated
                  Omnibus Budget Reconciliation Act of 1986, as amended
                  ("COBRA")
              
              15,930**447,790**
   -46-
  **Triggering
                  Event**
              
              
              **Compensation
                  Component**
              
              **Payment
                  ($)****Gerald
                  E. Hersh***Terminated
                  by Company without cause or due to disability, or by Mr. English
                  for good
                  reason*
              
              ·
              Severance,
                  payable pro rata over a period of 18 months from termination date,
                  equal
                  to the sum of (i) one and one-half times base salary and (ii) one
                  and
                  one-half times the average of the bonuses paid to him for the immediately
                  preceding three years
              
              423,490·
              All
                  benefits under the Company's benefit plans and programs in which
                  he
                  participates, subject to the terms and conditions of such
                  plans;
                provided;
                  however, that group medical benefits for him and his dependents
                  on the
                  date of termination shall be continued for a period of 18 months,
                  with
                  premiums to be paid by him at the same rate paid by employees who
                  have not
                  terminated and such period of coverage shall not be offset by any
                  period
                  of group health continuation coverage required under the Consolidated
                  Omnibus Budget Reconciliation Act of 1986, as amended
                  ("COBRA")
              
              15,930**439,420**
  **Triggering
                  Event**
              
              
              **Compensation
                  Component**
              
              **Payment
                  ($)****James
                  T. Steinke***Terminated
                  by Company without cause or due to disability, or by Mr. English
                  for good
                  reason*
              
              ·
              Severance,
                        payable pro rata over a period of 18 months from termination
                        date, equal
                        to the sum of (i) one and one-half times base salary and
                        (ii) one and
                        one-half times the average of the bonuses paid to him for
                        the immediately
                        preceding three years
              
              354,517·
              All
                  benefits under the Company's benefit plans and programs in which
                  he
                  participates, subject to the terms and conditions of such
                  plans;
                provided;
                  however, that group medical benefits for him and his dependents
                  on the
                  date of termination shall be continued for a period of 18 months,
                  with
                  premiums to be paid by him at the same rate paid by employees who
                  have not
                  terminated and such period of coverage shall not be offset by any
                  period
                  of group health continuation coverage required under the Consolidated
                  Omnibus Budget Reconciliation Act of 1986, as amended
                  ("COBRA")
              
              15,930**370,447**
  **Triggering
                  Event**
              
              
              **Compensation
                  Component**
              
              **Payment
                  ($)****Paul
                  A. Firrell**
              (1)*Terminated
                  by Company without cause or due to disability, or by Mr. English
                  for good
                  reason*
              
              ·
              Severance,
                        payable pro rata over a period of 18 months from termination
                        date, equal
                        to the sum of (i) one and one-half times base salary and
                        (ii) one and
                        one-half times the average of the bonuses paid to him for
                        the immediately
                        preceding three years
              
              558,905·
              All
                  benefits under the Company's benefit plans and programs in which
                  he
                  participates, subject to the terms and conditions of such
                  plans;
                provided;
                  however, that group medical benefits for him and his dependents
                  on the
                  date of termination shall be continued for a period of 18 months,
                  with
                  premiums to be paid by him at the same rate paid by employees who
                  have not
                  terminated and such period of coverage shall not be offset by any
                  period
                  of group health continuation coverage required under the Consolidated
                  Omnibus Budget Reconciliation Act of 1986, as amended
                  ("COBRA")
              
              31,190**590,095**
  (1)
                Based
                    on an exchange rate of 1.958 (GBP)


-47-




**Director
      Compensation**




We
      pay
      each of our independent directors, Mr. Goodrich and Mr. Evans, as
      follows:




·
            Annual
                retainer fee of $20,000, paid quarterly in
                advance;




·
            Committee
                annual retainer of $5,000, paid quarterly in advance;
                and




·
              Committee
                  chairman annual retainer of $5,000, paid quarterly in
                  advance.





Meeting
      fees for board and committees of $1,000 paid quarterly in arrears.





Although
      the independent directors are also eligible to participate in the GEO Holdings
      Option Plan, no awards have been granted to the independent directors as of
      December 31, 2006. In 2006, Mr. Goodrich purchased 2,000 shares and Mr. Evans
      purchased 1,351.35 shares of GEO Holdings common stock at $18.50 per share,
      which was the price paid by CHS for the stock in connection with the Merger.




**Director
        Compensation Table**
 **For
        the Year Ended December 31, 2006**
 Fees
                    Earned or Paid in Cash ($) (b)
                
                Total
                    ($) (h)Michael
                  G. Evans
                
                $
                36,000
                
                $
                36,000Richard
                  E. Goodrich
                
                $
                40,000
                
                $
                40,000


-48-





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





We
      are 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
      December 31, 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 December 31, 2006.


**Beneficially
                  Owned****Number
                  of**
              
              **Percentage****Name
                  of Beneficial Owner**
              
              
              
              **Shares**
              
              **of
                  Class****Five
                  Percent of More Holders:**Code
                  Hennessy & Simmons LLC
              
              
              
              
              
              2,970,386.78
              (1)
              
              99.5
              %**Directors
                  and Executive Officers:**Samir
                  T. Badawi
              
              
              
              
              
              194,913
              (2)
              
              6.5
              %Ernest
                  C. English, Jr.
              
              
              
              
              
              49,000
              (2)
              
              1.6
              %Gerald
                  E. Hersh
              
              
              
              
              
              51,600
              (2)
              
              1.7
              %Kelvin
                  R. Collard
              
              
              
              
              
              10,780
              (2)
              
              *James
                  T. Steinke
              
              
              
              
              
              40,000
              (2)
              
              1.3
              %Paul
                  Firrell
              
              
              
              
              
              23,800
              (2)
              
              *Daniel
                  J. Hennessy
              
              
              (3
              )
              
              -
              
              
              -Michael
                  G. Evans
              
              
              
              
              
              1,351
              (2)
              
              *Marcus
                  J. George
              
              
              (3
              )
              
              -
              
              
              -Richard
                  E. Goodrich
              
              
              
              
              
              2,000
              (2)
              
              *Brian
                  P. Simmons
              
              
              (3
              )
              
              -
              
              
              -All
                  directors and executive officers as a group (11persons)
              
              
              
              
              
              373,445
              (2)
              
              12.5
              %
  *
          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
                    exercisable options to acquire shares of comment stock of GEO
                    Holdings.
 
 (3)
                Mr.
                    Hennessy and Mr. Simmons are Partners, and Mr. George is a Managing
                    Director of CHS. CHS is the general partner of CHS Management
                    IV LP, which
                    is the general partner of Code Hennessy & Simmons IV LP and CHS
                    Associates IV. Mr. Hennessy, Mr. Simmons and Mr. George expressly
                    disclaim
                    beneficial ownership of the shares owned by Code Hennessy & Simmons IV
                    LP and CHS Associates IV. The address of Mr. Hennessy, Mr. Simmons
                    and Mr.
                    George is c/o Code Hennessy & Simmons LLC, 10 South Wacker Driver,
                    Chicago, Illinois 60606.


-49-





**ITEM 13
      - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE**




**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.




**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. In 2006, GSE paid CHS
      $2,069,000 under this agreement.




-50-




**Policies
      and Procedures with Respect to Related Party Transactions**





Our
      Board
      of Directors has adopted a policy and procedure that prior to any transaction,
      arrangement, or relationship or series of similar transactions, arrangements
      or
      relationships, including any indebtedness or guarantee of indebtedness, with
      a
      Related Party (as defined below) where the aggregate amount involved is expected
      to exceed $120,000 in any calendar year (each a “Related Party Transaction”),
      the audit committee must review the material facts of any Related Party
      Transaction and approve such transaction. If advanced approval is not feasible,
      then the audit committee must ratify the Related Party Transaction at its next
      regularly scheduled meeting or the transaction must be rescinded. In making
      its
      determination to approve or ratify, the audit committee should consider such
      factors as (i) the extent of the Related Party’s interest in the Related Party
      Transaction, (ii) if applicable, the availability of other sources of comparable
      products or services, (iii) whether the terms of the Related Party Transaction
      are no less favorable than terms generally available in unaffiliated
      transactions under like circumstances, (iv) the benefit to GSE, and (v) the
      aggregate value of the Related Party Transaction. For purposes of this policy
      and procedure, “Related Party” means: (i) any person who is or was an executive
      officer, director or nominee for election as a director (since the beginning
      of
      the last fiscal year); (ii) any person or group who is a greater than 5%
      beneficial owner of GSE’s voting securities; or (iii) any immediate family
      member of any of the foregoing, which means any child, stepchild, parent,
      stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law,
      daughter-in-law, brother-in-law, sister-in-law, and anyone residing in such
      person’s home (other than a tenant or employee).




As
      the
      Management Agreement with CHS Management IV LP was already in place at the
      beginning of the fiscal year ended December 31, 2006 and had previously been
      approved by our Board of Directors, the above policy and procedure was not
      required to be followed.




**Director
      Independence**




Our
      Board
      of Directors provides oversight with respect to our overall performance,
      strategic direction and key corporate policies.  It approves major
      initiatives, advises on key financial and business objectives, and monitors
      progress with respect to these matters.  Members of the Board of Directors
      are kept informed of our business by various reports and documents provided
      to
      them on a regular basis, including financial and operating reports made at
      Board
      and committee meetings by the CEO, CFO and other officers.




Our
      securities are not listed on any national securities exchange or an automated
      inter-dealer quotation system.  As a result, we are not required to have
      independent directors as members of our Board of Directors.  However, the
      Board of Directors has determined that certain of our directors would qualify
      as
      independent directors under NYSE listing standards.  These standards
      provide that no director qualifies as “independent” unless the Board of
      Directors affirmatively determines that the director has no material
      relationship with the listed company (directly or as a partner, shareholder
      or
      officer of an organization that has a relationship with the company).





The
      Board
      of Directors has reviewed the independence of our non-employee directors and
      determined that Mr. Goodrich and Mr. Evans are independent under the foregoing
      listing standards. In addition, the Board of Directors has determined that
      (i)
      the members of its audit committee, other than Mr. Hennessy and Mr. George,
      are
      independent under Rule 10A-3(b)(1) of the Securities Exchange Act of 1934 and
      the NYSE listing standards, and (ii) the members of its compensation committee,
      other than Mr. Hennessy and Mr. George, are independent under the NYSE listing
      standards.





**ITEM 14
      - PRINCIPAL ACCOUNTING FEES AND SERVICES**





**Audit
      Fees** .
      Fees
      were $458,100 and $382,900 for the years 2006 and 2005, respectively, for the
      services of Ernst & Young LLP, our independent auditor, 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 for the years 2206 and 2005 were pre-approved by our
      audit committee.





**Audit-Related
      Fees** .
      Fees
      were $8,100 and $510,200 for the years 2006 and 2005 for other services of
      Ernst
& Young LLP that were reasonably related to its audit and review of our
      financial statements, including a review of our Thailand books and records
      for a
      Thailand statutory review, 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 for the years 2006 and 2005 were pre-approved by our audit
      committee.




-51-





**Tax
      Fees.** In
      2006,
      there were no services performed or fees paid to our independent auditors.
      Fees
      of $4,100 were incurred for the year 2005 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 required to be pre-approved by our audit committee were
      pre-approved as required.





**All
      Other Fees.** Except
      as
      described above, we did not pay Ernst & Young LLP any other fees during 2006
      and 2005.




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
      2006 and 2005 services required to be pre-approved have been pre-approved as
      described above.




-52-


**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.”





(2)
      The
      following financial statement schedules:




Schedule
      II — Valuation and Qualifying Accounts (in thousands)


**Allowance
        for Doubtful Accounts:**


**Balance
                  at**
              
              
              
              
              
              
              
              **Balance****Beginning**
              
              **Charged**
              
              
              
              **Write-**
              
              **at
                  End****Description**
              
              **of
                  Year**
              
              **to
                  Expense**
              
              **Acquired**
              
              **Offs****
              
              **of
                  Year**May
                  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
              
              $
              5,222December
                  31, 2006 Allowance for doubtful accounts
              
              $
              5,222
              
              $
              (387
              )
              $
              -
              
              $
              1,237
              
              $
              3,598


**Inventory
          obsolescence and slow moving allowance:**
  **Balance
                    at**
                
                
                
                
                
                
                
                **Balance****Beginning**
                
                **Charged**
                
                
                
                **Write-**
                
                **at
                    End****of
                    Year**
                
                **to
                    Expense**
                
                **Acquired**
                
                **Offs****
                
                **of
                    Year**May
                    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
                
                $
                3,010December
                    31, 2006 Obsolescence and slow moving allowance
                
                $
                3,010
                
                $
                18
                
                $
                -
                
                $
                775
                
                $
                2,253
 **
          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.




-53-





(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.)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)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 book manager, 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
                Omitted




-54-




**Exhibit
                Number**
            
            **Description**


10.6
            
            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.*(3)10.11
            
            2006
                Director and Executive Compensation.*(2)10.12
            
            Executive
                Securities Agreement for Samir T. Badawi.*(2)10.13
            
            Executive
                Securities Agreement for James Steinke.*(2)10.14
            
            Executive
                Securities Agreement for Gerald Hersh.*(2)10.15
            
            Executive
                Securities Agreement for Ernest C. English.*(2)10.16
            
            Executive
                Securities Agreement for Paul Anthony Firrell.*(2)10.17
            
            Executive
                Securities Agreement for Dr. Mohamed Abd El Aziz Siad Ayoub.*(2)10.18
            
            GEO
                Holdings Corp. 2004 Stock Option Plan.(4)10.19
            
            Stockholders
                Agreement.(2)12.1
            
            Computation
                of Ratio of Earnings to Fixed Charges.(4)21.1
            
            Subsidiaries
                of the Registrant.(3)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).




-55-




(2)
            Incorporated
                by reference to the same numbered exhibit to Gundle/SLT’s Annual Report on
                Form 10-K for the year ended December 31, 2005 filed on March 9,
                2006.





(3)
            Incorporated
                by reference to the same numbered exhibit to Gundle/SLT’s Annual Report on
                Form 10-K for the year ended December 31, 2004 filed on February
                22,
                2005.





(4)
            Incorporated
                by reference to the same numbered exhibit to Gundle/SLT’s Annual Report on
                Form 10-K for the year ended December 31, 2006 filed on March 7,
                2007.





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





-56-




**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 30 th day of
      April, 2007.




GUNDLE/SLT
                ENVIRONMENTAL, INC.By:
            /s/ SAMIR
              T.
              BADAWISamir
                T. BadawiPresident
                and Chief Executive Officer




-57-


**INDEX
      TO FINANCIAL STATEMENTS**





**Page****Consolidated
                Annual Financial Statements:**Report
                of Independent Registered Public Accounting Firm
            
            
            F-2Consolidated
                Balance Sheets as of December 31, 2006 and 2005
            
            
            F-3Consolidated
                Statements of Income (Loss) for the Year Ended December 31, 2006
                (Successor), for the Year Ended December 31, 2005 (Successor), May
                18,
                2004 to December 31, 2004 (Successor), and January 1, 2004 to May
                17, 2004
                (Predecessor)
            
            
            F-4Consolidated
                Statements of Stockholder’s Equity for the Year Ended December 31, 2006
                (Successor), for the Year Ended December 31, 2005 (Successor), May
                18,
                2004 to December 31, 2004 (Successor), and January 1, 2004 to May
                17, 2004
                (Predecessor)
            
            
            F-5Consolidated
                Statements of Cash Flows for the Year Ended December 31, 2006 (Successor),
                Year Ended December 31, 2005 (Successor), May 18, 2004 to December
                31,
                2004 (Successor) and January 1, 2004 to May 17, 2004
                (Predecessor)
            
            
            F-6Notes
                to Consolidated Financial Statements
            
            
            F-7Supplementary
                Data
            
            
            F-34






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, 2006 and 2005 and the
      related consolidated statements of income (loss), stockholder’s equity and cash
      flows for the years ended December 31, 2006 and 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, (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. We were not engaged to perform
      an
      audit of the Company’s internal control over financial reporting. Our audits
      included consideration of internal control over financial reporting as a basis
      for designing audit procedures that are appropriate in the circumstances, but
      not for the purpose of expressing an opinion on the effectiveness of the
      Company’s internal control over financial reporting. Accordingly, we express no
      such opinion. An audit 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 at December 31, 2006 and 2005 and the consolidated results of its
      operations and its cash flows for the years ended December 31, 2006 and 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, 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.





As
      noted
      in Note 2 to the consolidated financial statements, the Company changed its
      method of accounting for stock-based compensation.




/s/
      Ernst
& Young LLP





Houston,
      Texas





February
      26, 2007




F-2




GUNDLE/SLT
        ENVIRONMENTAL, INC.
 
 CONSOLIDATED
        BALANCE SHEETS
 (in
        thousands except share amounts)
 
 **December
                  31,****2006**
              
              **2005****ASSETS**Current
                  assets:Cash
                  and cash equivalents
              
              $
              13,691
              
              $
              21,094Accounts
                  receivable:Trade,
                  net
              
              
              79,495
              
              
              58,156Other
              
              
              4,260
              
              
              4,002Contracts
                  in progress
              
              
              5,661
              
              
              2,244Inventory,
                  net
              
              
              40,323
              
              
              36,603Deferred
                  income taxes
              
              
              2,846
              
              
              3,305Prepaid
                  expenses and other
              
              
              2,741
              
              
              1,607Total
                  current assets
              
              
              149,017
              
              
              127,011Property,
                  plant and equipment, netof
                  accumulated depreciation
              
              
              87,669
              
              
              91,283Excess
                  of purchase price over fair value of net assets acquired,
                  net
              
              
              66,121
              
              
              63,616Customer
                  lists and other intangible assets, net
              
              
              18,553
              
              
              21,744Deferred
                  income taxes
              
              
              66
              
              
              1,036Other
                  assets
              
              
              9,528
              
              
              11,711TOTAL
                  ASSETS
              
              $
              330,954
              
              $
              316,401**LIABILITIES
                  AND STOCKHOLDER'S EQUITY**Current
                  liabilities:Accounts
                  payable and accrued liabilities
              
              $
              49,227
              
              $
              48,102Income
                  taxes payable
              
              
              2,873
              
              
              1,867Advance
                  billings on contracts in progress
              
              
              9,058
              
              
              1,431Short-term
                  debt
              
              
              11,000
              
              
              2,363Current
                  portion of long-term debt
              
              
              5,927
              
              
              4,272Deferred
                  income taxes
              
              
              1,668
              
              
              648Total
                  current liabilities
              
              
              79,753
              
              
              58,683Other
                  liabilities
              
              
              4,317
              
              
              4,151Deferred
                  income taxes
              
              
              11,194
              
              
              15,088Long-term
                  debt
              
              
              162,948
              
              
              165,650Minority
                  interest
              
              
              1,217
              
              
              3,198Commitments
                  and ContingenciesStockholder's
                  equity:Common
                  stock, $.01 par value, 1,000 shares authorized, 100 shares
                  issued
              
              
              -
              
              
              -Additional
                  paid-in capital
              
              
              60,771
              
              
              60,629Retained
                  earnings
              
              
              6,485
              
              
              8,998Accumulated
                  other comprehensive income
              
              
              4,269
              
              
              4Total
                  stockholder's equity
              
              
              71,525
              
              
              69,631TOTAL
                  LIABILITIES AND STOCKHOLDER'S EQUITY
              
              $
              330,954
              
              $
              316,401


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****2006**
                
                **2005**
                
                **May
                    18 to Dec 31**
                
                **Jan
                    1 to May 17**Sales
                    and operating revenue
                
                $
                373,318
                
                $
                317,618
                
                $
                217,513
                
                $
                70,393Cost
                    of products & services
                
                
                316,416
                
                
                261,267
                
                
                172,696
                
                
                60,107Gross
                    profit
                
                
                56,902
                
                
                56,351
                
                
                44,817
                
                
                10,286Selling,
                    general and administrative expenses
                
                
                31,313
                
                
                29,573
                
                
                18,382
                
                
                12,388Amortization
                    of intangibles
                
                
                5,837
                
                
                4,727
                
                
                2,984
                
                
                42Expenses
                    related to CHS transaction
                
                
                -
                
                
                -
                
                
                -
                
                
                5,863Merger/acquisition
                    related activities
                
                
                -
                
                
                1,018
                
                
                -
                
                
                -Operating
                    Income (loss)
                
                
                19,752
                
                
                21,033
                
                
                23,451
                
                
                (8,007
                )Other
                    expenses:Interest
                    expense
                
                
                22,088
                
                
                19,386
                
                
                12,720
                
                
                1,639Interest
                    income
                
                
                (1,171
                )
                
                (937
                )
                
                (302
                )
                
                (188
                )Foreign
                    exchange loss (gain)
                
                
                (219
                )
                
                37
                
                
                37
                
                
                131Change
                    in fair value of derivatives
                
                
                223
                
                
                264
                
                
                -
                
                
                -Other
                    (income) expense, net
                
                
                (186
                )
                
                (643
                )
                
                (284
                )
                
                (272
                )Minority
                    interest
                
                
                187
                
                
                497
                
                
                302
                
                
                (31
                )Income
                    (loss) before income taxes
                
                
                (1,170
                )
                
                2,429
                
                
                10,978
                
                
                (9,286
                )Provision
                    (benefit) for income taxes
                
                
                1,343
                
                
                1,735
                
                
                2,674
                
                
                (2,978
                )Net
                    income (loss)
                
                $
                (2,513
                )
                $
                694
                
                $
                8,304
                
                $
                (6,308
                )Basic
                    earnings (loss) per common share
                
                
                *
                
                
                *
                
                
                *
                
                
                (0.54
                )Diluted
                    earnings (loss) per common share
                
                
                *
                
                
                *
                
                
                *
                
                
                (0.54
                )


*
      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 share amounts)**
 **Common
                      Stock**
                  
                  **Additional
                      Paid-In**
                  
                  **Retained**
                  
                  **Accumulated
                      Other Comprehensive (Loss)**
                  
                  **Treasury
                      Stock****Shares**
                  
                  **Amount**
                  
                  **Capital**
                  
                  **Earnings**
                  
                  **Income**
                  
                  **Shares**
                  
                  **Amount**
                  
                  **Total****Predeceessor
                      Company****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
                      translation adjustment
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (1,189
                  )
                  
                  -
                  
                  
                  -
                  
                  
                  (1,189
                  )Comprehensive
                      income (loss)
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (7,497
                  )Exercise
                      of stock options
                  
                  
                  14,000
                  
                  
                  1
                  
                  
                  76
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  77Purchases
                      under the Employee Stock Purchase Plan
                  
                  
                  2,031
                  
                  
                  -
                  
                  
                  24
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  24Income
                      tax benefit from exercise of stock options
                  
                  
                  -
                  
                  
                  -
                  
                  
                  4,973
                  
                  
                  -
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  4,973Compensation
                      from extension of 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 options contributed by management
                  
                  
                  -
                  
                  
                  -
                  
                  
                  5,400
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  5,400Net
                      income
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  8,304
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  8,304Cummulative
                      translation adjustments
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  5,081
                  
                  
                  -
                  
                  
                  -
                  
                  
                  5,081Comprehensive
                      income
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  13,385**Balance
                      at December 31, 2004**
                  
                  
                  100
                  
                  
                  -
                  
                  
                  60,629
                  
                  
                  8,304
                  
                  
                  5,081
                  
                  
                  -
                  
                  
                  -
                  
                  
                  74,014Net
                      income
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  694
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  694Cumulative
                      translation adjustment
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (5,077
                  )
                  
                  -
                  
                  
                  -
                  
                  
                  (5,077
                  )Comprehensive
                      income(loss)
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (4,383
                  )**Balance
                      at December 31, 2005**
                  
                  
                  100
                  
                  
                  -
                  
                  
                  60,629
                  
                  
                  8,998
                  
                  
                  4
                  
                  
                  -
                  
                  
                  -
                  
                  
                  69,631Fair
                      value of stock options granted
                  
                  
                  -
                  
                  
                  -
                  
                  
                  142
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  142Net
                      income
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (2,513
                  )
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (2,513
                  )Cumulative
                      translation adjustment
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  4,265
                  
                  
                  -
                  
                  
                  -
                  
                  
                  4,265Comprehensive
                      income(loss)
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  1,894**Balance
                      at December 31, 2006**
                  
                  
                  100
                  
                  $
                  -
                  
                  $
                  60,771
                  
                  $
                  6,485
                  
                  $
                  4,269
                  
                  
                  -
                  
                  $
                  -
                  
                  $
                  71,525


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****2006**
              
              **2005**
              
              **May
                  18 to Dec. 31**
              
              **Jan.
                  1 to May 17**Cash
                  flows from operating activities:Net
                  income/(loss)
              
              $
              (2,513
              )
              $
              694
              
              $
              8,304
              
              $
              (6,308
              )Adjustments
                  to reconcile net income (loss) to cash provided by (used
                  in)operating
                  activitiesDepreciation
              
              
              11,893
              
              
              10,598
              
              
              6,372
              
              
              2,998Amortization
                  of debt issuance costs
              
              
              1,987
              
              
              1,987
              
              
              1,159
              
              
              736Amortization
                  of intangibles assets
              
              
              5,837
              
              
              4,727
              
              
              2,984
              
              
              42Amortization
                  of premium/discount on senior notes
              
              
              444
              
              
              (64
              )
              
              -
              
              
              -Change
                  in fair value of derivatives and other intangibles
              
              
              378
              
              
              264
              
              
              -
              
              
              -Minority
                  interest
              
              
              187
              
              
              497
              
              
              302
              
              
              (31
              )Deferred
                  income taxes
              
              
              (2,269
              )
              
              (2,603
              )
              
              839
              
              
              (2,978
              )(Gain)
                  loss on sale of assets
              
              
              (910
              )
              
              (208
              )
              
              (243
              )
              
              (190
              )Stock
                  option compensation
              
              
              229
              
              
              -
              
              
              -
              
              
              1,490Increase
                  (decrease) in cash due to changes in assets and liabilities, net
                  of acquisition:Accounts
                  receivable, net
              
              
              (19,555
              )
              
              (14,696
              )
              
              (1,179
              )
              
              450Costs
                  and estimated earnings in excess of billings on contracts in
                  progress
              
              
              (3,182
              )
              
              (575
              )
              
              2,442
              
              
              (3,480
              )Inventory
              
              
              (2,428
              )
              
              4,741
              
              
              5,861
              
              
              (7,020
              )Prepaid
                  expenses and other, net
              
              
              (982
              )
              
              629
              
              
              (763
              )
              
              -Accounts
                  payable and accrued liabilities
              
              
              1,646
              
              
              1,097
              
              
              (6,552
              )
              
              3,546Advance
                  billings on contracts in progress
              
              
              7,523
              
              
              101
              
              
              (494
              )
              
              (935
              )Income
                  taxes payable
              
              
              901
              
              
              1,597
              
              
              1,618
              
              
              (3,346
              )Cash
                  restricted for supersedeas bond
              
              
              -
              
              
              -
              
              
              18,056
              
              
              -Net
                  cash provided by (used in) operating activities
              
              
              (814
              )
              
              8,786
              
              
              38,706
              
              
              (15,026
              )Cash
                  flows from investing activities:Additions
                  to property, plant and equipment
              
              
              (7,037
              )
              
              (3,900
              )
              
              (3,486
              )
              
              (3,050
              )Proceeds
                  from the sale of assets
              
              
              1,670
              
              
              2,158
              
              
              605
              
              
              260Acquisition
                  of businesses, net of cash acquired
              
              
              (4,178
              )
              
              (11,188
              )
              
              (221,616
              )
              
              -Increase
                  in ownership of Bentofix
              
              
              (2,067
              )
              
              -
              
              
              -
              
              
              -Proceeds
                  from insurance claim
              
              
              1,074
              
              
              -
              
              
              -
              
              
              -Net
                  cash used in investing activities
              
              
              (10,538
              )
              
              (12,930
              )
              
              (224,497
              )
              
              (2,790
              )Cash
                  flows from financing activities:Proceeds
                  of lines of credit
              
              
              50,819
              
              
              7,363
              
              
              -
              
              
              -Repayments
                  of lines of credit
              
              
              (42,293
              )
              
              (5,000
              )
              
              -
              
              
              -Payments
                  of financing fees
              
              
              -
              
              
              -
              
              
              (14,071
              )
              
              -Repayment
                  of long term debt
              
              
              (4,272
              )
              
              (291
              )
              
              (7,148
              )
              
              (16,723
              )Proceeds
                  of long term debt
              
              
              -
              
              
              -
              
              
              175,000
              
              
              806Proceeds
                  from stock issuance
              
              
              -
              
              
              -
              
              
              55,229
              
              
              -Dividends
                  to minority stockholder in Bentofix
              
              
              (569
              )
              
              -
              
              
              -
              
              
              -Proceeds
                  from the exercise of stock options and purchases under theemployee
                  stock purchase plan
              
              
              -
              
              
              -
              
              
              -
              
              
              100Net
                  cash provided by (used in) financing activities
              
              
              3,685
              
              
              2,072
              
              
              209,010
              
              
              (15,817
              )Effect
                  of exchange rate changes on cash
              
              
              264
              
              
              (550
              )
              
              497
              
              
              -Net
                  increase (decrease) in cash and cash equivalents
              
              
              (7,403
              )
              
              (2,622
              )
              
              23,716
              
              
              (33,633
              )Cash
                  and cash equivalents at beginning of period
              
              
              21,094
              
              
              23,716
              
              
              -
              
              
              47,899Cash
                  and cash equivalents at end of the period
              
              $
              13,691
              
              $
              21,094
              
              $
              23,716
              
              $
              14,266Supplemental
                  cash flow disclosure:Cash
                  paid for interest
              
              $
              19,477
              
              $
              18,059
              
              $
              9,466
              
              $
              212Cash
                  paid for income taxes
              
              $
              2,555
              
              $
              2,093
              
              $
              3,286
              
              $
              1,552Fair
                  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).





The
      Company is 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. The Company offers 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 and Germany through an internal
      installation staff. Installation services were offered through an internal
      installation staff in the United Kingdom through December 22, 2006. The Company
      believes that its 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. The Company manufactures its 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 were $3,740,000 and $3,558,000 during
      2006 and 2005 respectively. Total repairs and maintenance during 2004 were
      $2,287,000 for the Successor Company and $1,758,000 for the Predecessor Company.




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


**GUNDLE/SLT
        ENVIRONMENTAL, INC.**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS -
        (Continued)**


*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 December 31. 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 customer’s 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


**GUNDLE/SLT
        ENVIRONMENTAL, INC.**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS -
        (Continued)**


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 geosynthetic 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. The Company establishes reserves when, despite
      its
      belief that its tax return positions are fully supportable, the Company believes
      that certain positions may be challenged and potentially disallowed. When facts
      and circumstances change, the Company adjusts these reserves through its
      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. (Gains)/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.




F-9


**GUNDLE/SLT
        ENVIRONMENTAL, INC.**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**


*Stock-Based
      Compensation—*





Effective
      January 1, 2006, the Company adopted SFAS 123R, *Share-Based
      Payments,* using
      the
      modified prospective transition method. Prior to 2006, the Company accounted
      for
      stock awards granted to employees under the recognition and measurement
      principles of Accounting Principles Board Opinion No. 25, *Accounting
      for Stock issued to Employees,* and
      related interpretations *.* The
      adoption of SFAS 123R on January 1, 2006, did not affect the accounting for
      equity-based compensation awards granted prior to the adoption date. ** At
      the
      time of the Merger, 333,600 fully vested Predecessor Company stock options
      held
      by certain key employees were exchanged for fully vested options to purchase
      333,600 shares of common stock of GEO Holdings. The fair value of the option
      exchange, $5.4 million, was included in determining the aggregate purchase
      price
      paid by GEO Holdings for the Company. ** From
      the
      time of the Merger until January 1, 2006, no options have been issued. As a
      result, no compensation expense has been recognized by the Company prior to
      its
      adoption of SFAS 123R. Compensation expense recognized in the first quarter
      relates to share-based awards granted by GEO Holdings to employees of the
      Company subsequent to January 1, 2006 based on the grant date fair value in
      accordance with SFAS 123R.





Compensation
      cost arising from stock options granted to employees is recognized as expense
      over the requisite service period. On March 1, 2006, pursuant to the GEO
      Holdings 2004 Stock Option Plan, the Board granted stock options with an
      exercise price of $21.35 per share to key employees of the Company representing
      71,788 shares of GEO Holdings common stock. The options were fully vested on
      the
      grant date and all of the stock based compensation of $228,817 ($141,687 net
      of
      tax) was recognized during the first quarter of 2006 with a corresponding
      increase of $141,687 to Additional Paid-in Capital.





The
      fair
      value of each option grant is estimated on the date of grant using the
      Black-Scholes option pricing model with the following weighted average
      assumptions used for grants issued on March 1, 2006.


Risk
                  Free Interest Rate
              
              
              4.89
              %Expected
                  Life
              
              
              3
                  yearsExpected
                  Volatility
              
              
              15.7
              %Expected
                  Dividend yield
              
              
              0
              %


The
      expected life of the options granted is based on the Company’s best estimates
      and expectations related to the exercising of the options issued.





Since
      GEO
      Holdings is a privately held company, it has no stock trading history to
      estimate volatility. The Company chose to use the volatility of the Dow Jones
      Building and Material Index fund. This index includes public companies that
      the
      Company believes has the most similarity to the Company’s business. The Company
      calculated volatility from the historical closing price of this index for the
      three years ended March 31, 2006.





The
      grant
      date fair value of the options granted during the three months ended March
      31,
      2006 was $3.19.





The
      following table summarizes stock options outstanding for GEO Holdings as of
      March 31, 2006 as well as activity for the year ended December 31,
      2006:


**Weighted****Range
                  of**
              
              **Average****Shares**
              
              **Exercise
                  Price**
              
              **Exercise
                  Price**Outstanding
                  at December 31, 2005
              
              
              333,600
              
              $
              2.32
                  - $11.13
              
              $
              3.67Granted
              
              
              71,788
              
              $
              21.35
              
              $
              21.35Exercised
              
              
              -
              
              
              -
              
              
              -Forfeited
              
              
              (6,125
              )
              $
              21.35
              
              $
              21.35Outstanding
                  and exercisable at December 31, 2006
              
              
              399,263
              
              $
              2.32
                  - $21.35
              
              $
              6.58




F-10


**GUNDLE/SLT
        ENVIRONMENTAL, INC.**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS -
        (Continued)**


All
      outstanding stock options are held by employees of the Company and have an
      expiration date of 10 years from the date of grant. At December 31, 2006, the
      average remaining contractual life of options outstanding and exercisable was
      7.7 years.





At
      December 31, 2006, the intrinsic value of options outstanding and exercisable
      was $5,538,000. (The intrinsic value of a stock option is the difference between
      the market value of the underlying stock and the exercise price of the option.)
      The Company estimated the underlying value of the stock using a discounted
      cash
      flow model of future anticipated cash flows discounted back to current time
      and
      adjusted for illiquidity of the stock





**(3)
      Trade receivables** **—**





Trade
      receivables consisted of the following at December 31,:


**2006**
              
              **2005****(in
                  thousands)**Direct
                  sales
              
              $
              58,433
              
              $
              46,058Contracts:Completed
              
              
              22,114
              
              
              14,000In
                  progress
              
              
              1,667
              
              
              2,801Retainage
              
              
              879
              
              
              519$
              83,093
              
              $
              63,378Allowance
                  for doubtful accounts
              
              
              (3,598
              )
              
              (5,222
              )$
              79,495
              
              $
              58,156




F-11


**GUNDLE/SLT
        ENVIRONMENTAL, INC.**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**




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





The
      following summarizes installation contracts in progress at December
      31,:


**2006**
              
              **2005****(in
                  thousands)**Costs
                  incurred on contracts in progress
              
              $
              25,924
              
              $
              23,631Estimated
                  earnings, net of losses
              
              
              9,280
              
              
              6,37235,204
              
              
              30,003Less
                  — billings to date
              
              
              38,601
              
              
              29,190$
              (3,397
              )
              $
              813Included
                  in the accompanying balance sheet under the following
                  captions:Contracts
                  in progress
              
              
              5,661
              
              
              2,244Advance
                  billings on contracts in progress
              
              
              (9,058
              )
              
              (1,431
              )$
              (3,397
              )
              $
              813





**(5)
      Inventory** **—**





Inventory
      consisted of the following at December 31,:


**2006**
              
              **2005****(in
                  thousands)**Raw
                  materials
              
              $
              15,239
              
              $
              17,644Finished
                  goods
              
              
              23,921
              
              
              18,622Supplies
              
              
              3,416
              
              
              3,347Obsolescence
                  and slow moving allowance
              
              
              (2,253
              )
              
              (3,010
              )$
              40,323
              
              $
              36,603




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





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


**Useful****lives
                  years**
              
              **2006**
              
              **2005****(in
                  thousands)**Land
              
              
              
              
              $
              5,539
              
              $
              5,770Buildings
                  and improvements
              
              
              7-30
              
              
              23,854
              
              
              23,480Machinery
                  and equipment
              
              
              3-10
              
              
              94,665
              
              
              87,546Furniture
                  and fixtures
              
              
              3-5
              
              
              2,170
              
              
              1,753126,228
              
              
              118,549Less
                  — accumulated depreciation
              
              
              
              
              
              (38,559
              )
              
              (27,266
              )$
              87,669
              
              $
              91,283


F-12


**GUNDLE/SLT
        ENVIRONMENTAL, INC.**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**




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




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


**Useful****lives
                  years**
              
              **2006**
              
              **2005****(in
                  thousands)**Customer
                  lists
              
              
              5-10
              
              $
              26,184
              
              $
              25,232Software
              
              
              3
              
              
              1,500
              
              
              1,500Patents
              
              
              17
              
              
              1,500
              
              
              -Non-compete
                  agreements
              
              
              5-10
              
              
              2,769
              
              
              2,469Other
              
              
              1
              
              
              467
              
              
              27332,420
              
              
              29,474Accumulated
                  amortization
              
              
              
              
              
              (13,867
              )
              
              (7,730
              )$
              18,553
              
              $
              21,744




Amortization
      expense over the next five years is expected to be as follows:


Year
                  Ended December 31,
              
              Customer
                  Lists
              
              Patents
              
              Software
              
              Non-compete
                  Agreements
              
              Other
              
              Total**(in
                  thousands)**2007
              
              $
              3,179
              
              $
              88
              
              $
              208
              
              $
              449
              
              $
              145
              
              $
              4,0692008
              
              
              2,774
              
              
              88
              
              
              -
              
              
              449
              
              
              -
              
              
              3,3112009
              
              
              2,337
              
              
              88
              
              
              -
              
              
              449
              
              
              -
              
              
              2,8742010
              
              
              1,989
              
              
              88
              
              
              -
              
              
              449
              
              
              -
              
              
              2,5262011
              
              
              1,172
              
              
              88
              
              
              -
              
              
              153
              
              
              -
              
              
              1,413$
              11,451
              
              $
              441
              
              $
              208
              
              $
              1,949
              
              $
              145
              
              $
              14,194




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





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





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


**2006**
              
              **2005****(in
                  thousands)**Trade
                  accounts payable
              
              $
              32,185
              
              $
              22,956Accrued
                  inventory purchases
              
              
              2,406
              
              
              6,696Self-insurance
                  reserves
              
              
              3,223
              
              
              3,201Deferred
                  revenue
              
              
              87
              
              
              2,032Compensation
                  and benefits
              
              
              4,296
              
              
              5,232Accrued
                  interest
              
              
              2,260
              
              
              2,112Taxes,
                  other than income
              
              
              1,574
              
              
              1,045Other
                  accrued liabilities
              
              
              3,196
              
              
              4,828$
              49,227
              
              $
              48,102






F-13


**GUNDLE/SLT
        ENVIRONMENTAL, INC.**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**




**(9)
      Long-term debt —**





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


**2006**
              
              **2005****(in
                  thousands)**11%
                  Senior Notes Due 2012
              
              $
              150,000
              
              $
              150,000Term
                  Loan, quarterly installments - approximately $995,000
                  8.37%
              
              
              13,935
              
              
              17,917Term
                  Loan - Egyptian bank secured by equipment, quarterly installments
                  of
                  $73,000, 14%
              
              
              146
              
              
              436Term
                  Loan - seller note with annual installments - $900,000 October
                  2007,
                  5.13%
              
              
              2,700
              
              
              -Term
                    Loan - seller note with annual installments -$900,000 January
                    2007, 5% for
                    two yearsand floating thereafter
              
              
              4,500
              
              
              4,500171,281
              
              
              172,853Less
                  — current maturities
              
              
              (5,927
              )
              
              (4,272
              )Fair
                  value of interest rate swap and premium on senior notes
              
              
              (2,406
              )
              
              (2,931
              )$
              162,948
              
              $
              165,650




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


Year
                  Ended December 31,
              
              Amount2007
              
              $
              5,9272008
              
              $
              5,7812009
              
              $
              5,7812010
              
              $
              2,8922011
              
              $
              900





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 Company is also required to pay customary agency fees
      and
      expenses. The Company paid commitment fees of approximately $121,000, $188,000
      and $69,000 for the years 2006, 2005 and 2004, respectively.




F-14


**GUNDLE/SLT
        ENVIRONMENTAL, INC.**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS -
        (Continued)**


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, which become more restrictive over the term of the senior credit
      facility. 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,
      2006, the Company made payments of $3,982,000 on its $25,000,000 term loan,
      leaving a balance of approximately $13,935,000 outstanding. The Company made
      no
      prepayments in 2006 or 2005 but made a $5 million prepayment in 2004. The
      Company had available $27,066,000 under its credit facility at December 31,
      2006, net of $1,934,000 of issued letters of credit and $11,000,000 of
      outstanding borrowings.




Foreign
      Debt -





The
      Company has an EGP 5,000,000 (USD $876,000) 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, 2006 of EGP 833,000 (USD $146,000).





At
      December 31, 2006, GSE had five local foreign credit facilities. It had credit
      facilities with two German banks in the amount of EUR 5,100,000 (USD
      $6,733,000). 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, 2006, GSE had EUR
      4,532,000 (USD $5,983,000) available under these credit facilities with EUR
      1,347,000 (USD $1,778,000) of bank guarantees outstanding and no borrowing
      under
      the line of credit.





The
      Company has two credit facilities with Egyptian banks in the amount of EGP
      9,167,000 (USD $1,605,000). 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 $2,022,000 ($354,000 USD). At December
      31,
      2006, the Company had EGP 7,145,000 (USD $1,251,000) available under these
      credit facilities.





The
      Company has a credit facility with a Canadian bank in the amount of Canadian
      Dollar 500,000 (USD $429,000) that bears interest at market rate, secured by
      all
      Canadian assets. At December 31, 2006, 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-15


**GUNDLE/SLT
        ENVIRONMENTAL, INC.**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS -
        (Continued)**


Other
      Debt -





In
      connection with the ProGreen acquisition, GSE entered into a three-year
      unsecured promissory note in the original principal amount of $2.7 million.
      The
      note bears interest at the rate of 5.13% per annum and is payable in three equal
      annual principal payments of $900,000 plus accrued interest commencing October
      13, 2007.





Derivative
      Financial Instruments -





As
      of
      December 31, 2006, the Company has an interest rate swap outstanding with a
      notional amount of $75 million. The swap was entered into in January 2005 as
      a
      mechanism to convert $75 million of fixed rate debt to variable rate debt.
      Due
      to a SFAS 133 interpretation issued in 2005, effective January 1, 2006, the
      Company is no longer able to apply the short cut method of accounting for its
      interest rate swap. As of December 31, 2005, the fair value of the interest
      rate
      swap agreement of $3,110,000 was recorded in other liabilities with a
      corresponding decrease in the carrying value of debt.





Because
      the Company no longer qualifies for the short cut method, the Company elected
      not to use hedge accounting. Beginning January 1, 2006, the Company began
      accreting the $3,110,000 reduction in the carrying value of debt as a yield
      adjustment to interest expense over the life of the debt. In 2006, accretion
      of
      this discount increased interest expense by approximately $484,000. In addition,
      on January 1, 2006, the Company began marking to market the liability for the
      change in value of the interest rate swap and reflecting the change in value
      in
      the line item titled “Change in Fair Value of Derivatives” in the Consolidated
      Statement of Income/(Loss). In 2006, the fair value of the interest rate swap
      recorded in other liabilities had increased to $3,273,000. During 2006, the
      Company recorded $163,000 of expense related to the mark-to-market change in
      value of the interest rate swap.





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, 2006 was $1,000 and is recorded in other assets.
      Changes in the fair value of these derivatives are recorded in the line item
      “Change in Fair Value of Derivatives”. For the years ended December 31, 2006 and
      2005, the expense was $60,000 and $264,000, respectively.





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. For the years ended December 31, 2006 and 2005, amortization
      of this premium reduced interest expense by approximately $40,000 and $64,000,
      respectively.





For
      the
      year 2005, the interest rate swap reduced interest expense by approximately
      $609,000.





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




F-16


**GUNDLE/SLT
        ENVIRONMENTAL, INC.**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**




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





**ProGreen
      Acquisition 2006**





On October
      13, 2006, the Company completed an acquisition of the operating assets, patent
      and other intangible assets of ProGreen Sports Surfaces, LLC. The acquisition
      was completed pursuant to an asset purchase agreement for a total purchase
      price
      of $4,712,000, which included transaction costs of $151,000. The transaction
      was
      payable in cash and a $2.7 million three-year unsecured promissory
      note.





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


Property
                  and equipment
              
              $
              100Patents
                  and other intangibles
              
              
              1,800Backlog
                  and bid valuation
              
              
              773Goodwill
              
              
              2,182Total
                  assets acquired
              
              
              4,855Current
                  liabilities
              
              
              143Net
                  assets acquired
              
              $
              4,712Cash
                  paid in 2006
              
              $
              2,012Seller
                  financed note payable
              
              
              2,700Total
                  Consideration
              
              $
              4,712




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,
      2006.





**Chile
      Acquisition 2005**




On
      December 31, 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 for a total purchase price of $15.5 million plus a separate agreement
      for the purchase of the raw material and finished goods inventory which the
      Company valued at $2.1 million. Closing costs and fees were $308,000. 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
              
              
              4,642Total
                  assets acquired
              
              
              21,266Current
                  liabilities
              
              
              3,412Net
                  assets acquired
              
              $
              17,854Cash
                  paid in 2005
              
              $
              11,188Cash
                  paid in 2006
              
              
              2,166Seller
                  financed note payable
              
              
              4,500Total
                  Consideration
              
              $
              17,854






F-17


**GUNDLE/SLT
      ENVIRONMENTAL, INC.**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**


**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.





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, 2004 is summarized as follows (in thousands):


Year
                  EndedDecember
                  31, 2004Sales
                  and operating revenue
              
              $
              287,905Net
                  income (loss)
              
              
              (5,824
              )
  F-18


**GUNDLE/SLT
      ENVIRONMENTAL, INC.**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**





**Other
      Acquisition Activity**





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.





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 into variable rates based on six-month LIBOR rates. Under the swap
      agreement, payments made or received are based on the Company paying variable
      rates; currently 11.9994% through May 15, 2007, adjusted based on LIBOR rates
      every six months thereafter, and receiving a fixed rate of 11%.  The
      fair
      value of the swap is carried as an asset or a liability on the Consolidated
      Balance Sheet. The fair value of the Company’s interest rate swap represents the
      estimated amount the Company would receive or pay to terminate the agreement
      as
      of the reporting dates. The fair value of the interest rate swap was
      ($3,273,000) and ($3,190,000) at December 31, 2006 and December 31, 2005,
      respectively, which is recorded in accounts payable and accrued liabilities.
      For
      the year 2006, the Company recorded an expense of $582,000 in “Other
      (income)/expense, net” for the cash settlements in connection with the interest
      rate swap. In 2005, the Company reduced interest expense by $609,000 for the
      cash settlement received in connection with the interest rate swap.





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, 2006 and 2005 with
      fair values of approximately $144,750,000 and $144,000,000, 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 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
                  EndedMay
                  17, 2004(in
                  thousands)Weighted
                  average common shares outstanding
              
              
              11,542Dilutive
                  securities - stock options
              
              
              -Weighted
                  average common shares outstanding assuming full dilution
              
              
              11,542




F-19


**GUNDLE/SLT
        ENVIRONMENTAL, INC.**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**




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 was
      not significant for the above computations.




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





**Predecessor**





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.





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.




F-20


**GUNDLE/SLT
      ENVIRONMENTAL, INC.**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**




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**
              **Option**
            
            **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**
              **Under**
              **Option**
            
            **Weighted**
              **Average
                Option Price**
              **Per
                Share****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****May
                17,2004**
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —**Options
                exercisable**
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —**Options
                available****for
                future grants**
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —





The
      Company applied 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.





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





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





**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 (229,487 unissued as of December 31, 2006)
      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.





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. See
      Note 2 - Summary of Significant Accounting Policies - Stock -Based Compensation
      for information on the successor plans.





F-21


**GUNDLE/SLT
        ENVIRONMENTAL, INC.**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS -
        (Continued)**


**(14)**  **Income
      taxes —**





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


**Successor**
              
              **Predecessor****Year
                  Ended**
              
              **Year
                  Ended**
              
              **2004****December
                  31,**
              
              **December
                  31,**
              
              **May
                  18 to**
              
              **Jan.
                  1 to****2006**
              
              **2005**
              
              **Dec.
                  31**
              
              **May
                  17**Domestic
              
              $
              (10,490
              )
              $
              (9,342
              )
              $
              2,997
              
              $
              (9,492
              )Foreign
              
              
              9,320
              
              
              11,771
              
              
              7,981
              
              
              206Total
              
              $
              (1,170
              )
              $
              2,429
              
              $
              10,978
              
              $
              (9,286
              )


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


**Successor**
              
              **Predecessor****Year
                  Ended**
              
              **Year
                  Ended**
              
              **2004****December
                  31,**
              
              **December
                  31,**
              
              **May
                  18 to**
              
              **Jan.
                  1 to****2006**
              
              **2005**
              
              **Dec.
                  31**
              
              **May
                  17**Current
                  expense (benefit):U.S.Federal
              
              $
              -
              
              $
              85
              
              $
              -
              
              $
              -State
              
              
              86
              
              
              -
              
              
              213
              
              
              -Total
                  U.S
              
              
              86
              
              
              85
              
              
              213
              
              
              -Foreign
              
              
              3,526
              
              
              4,253
              
              
              1,622
              
              
              -Total
                  current
              
              
              3,612
              
              
              4,338
              
              
              1,835
              
              
              -Deferred
                  expense (benefit):U.S.Federal
              
              
              (2,298
              )
              
              (1,921
              )
              
              (124
              )
              
              (1,748
              )State
              
              
              569
              
              
              (434
              )
              
              (94
              )
              
              (157
              )Total
                  U.S.
              
              
              (1,729
              )
              
              (2,355
              )
              
              (218
              )
              
              (1,905
              )Foreign
              
              
              (540
              )
              
              (248
              )
              
              1,057
              
              
              (1,073
              )Total
                  deferred
              
              
              (2,269
              )
              
              (2,603
              )
              
              839
              
              
              (2,978
              )Total
                  provision for income taxes
              
              $
              1,343
              
              $
              1,735
              
              $
              2,674
              
              $
              (2,978
              )




F-22
 
 **GUNDLE/SLT
          ENVIRONMENTAL, INC.**
 
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**


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**
            
            **Year
                Ended****December
                31,**
            
            **December
                31,**
            
            **May
                18 to**
            
            **Jan.
                1 to****2006**
            
            **2005**
            
            **Dec.
                31**
            
            **May
                17**Tax
                provision at statutory rate
            
            $
            (409
            )
            $
            850
            
            $
            3,842
            
            $
            (3,250
            )Add
                (deduct)Non
                deductible CHS transaction costs
            
            
            -
            
            
            -
            
            
            -
            
            
            1,479Meals
                and entertainment disallowance
            
            
            63
            
            
            46
            
            
            34
            
            
            27Foreign
                exchange loss on U.S. dollar amounts in foreignoperations
            
            
            -
            
            
            -
            
            
            -
            
            
            -Change
                in valuation allowance - foreign tax credits
            
            
            1,579
            
            
            1,360
            
            
            -
            
            
            -Change
                in state tax valuation allowance
            
            
            529
            
            
            -
            
            
            -
            
            
            -Taxable
                differential for foreign subsidiaries
            
            
            (427
            )
            
            (302
            )
            
            (1
            )
            
            (302
            )State
                income taxes
            
            
            67
            
            
            (282
            )
            
            60
            
            
            (102
            )Foreign
                tax credit benefit
            
            
            -
            
            
            -
            
            
            (1,241
            )
            
            -Decrease
                in previously recorded taxes as a resultof
                German tax audit
            
            
            -
            
            
            -
            
            
            -
            
            
            (668
            )Other,
                net
            
            
            (59
            )
            
            63
            
            
            (20
            )
            
            (162
            )$
            1,343
            
            $
            1,735
            
            $
            2,674
            
            $
            (2,978
            )




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


**2006**
              
              **2005**(in
                  thousands)Deferred
                  tax assets:Accrued
                  expenses
              
              $
              2,634
              
              $
              3,358Foreign
                  tax credit
              
              
              4,218
              
              
              2,730Valuation
                  allowance
              
              
              (4,746
              )
              
              (2,638
              )Net
                  operating loss carryforward
              
              
              10,151
              
              
              10,486AMT
                  carryforward
              
              
              806
              
              
              891$
              13,063
              
              $
              14,827Deferred
                  tax liabilities:Excess
                  book basis over tax basis PP&E and intangible assets
              
              
              (22,134
              )
              
              (25,321
              )Other
              
              
              (879
              )
              
              (901
              )(23,013
              )
              
              (26,222
              )Total
                  deferred tax liability
              
              $
              (9,950
              )
              $
              (11,395
              )




At
      December 31, 2006, the Company has net operating loss carryforwards for federal
      income tax purposes of $27,305,000 which will begin to expire, if unused, in
      2023. The Company also has foreign tax credit carryfowards for federal income
      tax purposes of $4,218,000 which will begin to expire, if unused, in 2009.
      In
      addition, the Company has an alternative minimum tax credit carryforward of
      $806,000, which does not expire. A valuation allowance of $1,579,000 was
      recorded in 2006 against the foreign tax credits generated on foreign earnings
      repatriated in 2006. The valuation allowance was recorded based on management’s
      best estimate that it is more likely than not that a portion of the federal
      and
      state foreign tax credits will not be realized. At December 31, 2006, the
      valuation allowance on foreign tax credits and state net operating losses was
      $4,746,000. If the Company is ultimately able to utilize all of the foreign
      tax
      credits that existed at May 18, 2004, $2,575,000 of this recorded valuation
      allowance would be allocated to reduce goodwill. During 2006, a deferred tax
      asset not given recognition in the opening balance sheet of the Chile
      acquisition (see Note 10) was realized. A reversal of the valuation allowance
      totaling $203,000 related to the utilization of that asset was recorded as
      a
      reduction to goodwill. The 2006 tax expense included $540,000 related to prior
      years’ state income and foreign taxes.





F-23





**GUNDLE/SLT
      ENVIRONMENTAL, INC.**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**




Undistributed
      retained earnings of the Company’s foreign subsidiaries amounted to
      approximately $24,146,000 at December 31, 2006. 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. 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.





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 2006, the Company
      contributed $602,000 to the plan. During 2005, the 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. 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 2006, 2005, 2004, one customer accounted
      for13%, 13%, and 20% of sales and operating revenue, respectively. At December
      31, 2006 and 2005, 18% and 12% 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.





F-24





**GUNDLE/SLT
      ENVIRONMENTAL, INC.**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**




**(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 operations for
        warranty obligations through December 31, 2006 (in
        thousands):





Balance
                at December 31, 2004
            
            $
            2,598Obligations
                adjusted
            
            
            37Obligations
                paid
            
            
            (465
            )Balance
                at December 31, 2005
            
            $
            2,170Obligations
                adjusted
            
            
            67Obligations
                paid
            
            $
            (281
            )Balance
                at December 31, 2006
            
            $
            1,956




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.





*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, 2006, the Company
      had
      $11,612,000 of bonds outstanding and $4,066,000 of guarantees issued under
      its
      bank lines.





*Litigation
      and claims —*





The
      Company was 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. On July 19, 2006, the defendants compromised and settled the
      plaintiff’s personal injury damage claim for $1.4 million and waiver of worker’s
      compensation subrogation rights. The Company paid $900,000 of the settlement
      cost, none of which was reimbursed by its insurance carrier, Reliance National
      Insurance in Liquidation. The Texas Property and Casualty Insurance Guaranty
      Association and New York Liquidation Bureau contributed $350,000 to the
      settlement, along with $150,000 from Interstate Industrial Corp. The Company
      recorded a charge of $900,000 in the second quarter of 2006 to reflect the
      settlement of the Cicala lawsuit.





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.




F-25


**GUNDLE/SLT
        ENVIRONMENTAL, INC.**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS -
        (Continued)**


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
      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.





The
      Company 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.





*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**
              
              **Year
                  Ended**
              
              **May
                  18 to**
              
              **January
                  1 to****December
                  31,**
              
              **December
                  31,**
              
              **December
                  31,**
              
              **May
                  27,****2006**
              
              **2005**
              
              **2004**
              
              **2004****(in
                  thousands)**Sales
                  to unaffiliated customers (based on thegeographic
                  location of the customer):United
                  States
              
              $
              184,350
              
              $
              151,095
              
              $
              125,462
              
              $
              37,631Europe
              
              
              77,115
              
              
              69,407
              
              
              47,391
              
              
              14,750Latin
                  & South America
              
              
              42,161
              
              
              22,548
              
              
              15,884
              
              
              4,265Far
                  East/Pacific Rim
              
              
              37,875
              
              
              28,309
              
              
              12,394
              
              
              7,081Africa
                  and Middle East
              
              
              25,691
              
              
              33,308
              
              
              10,416
              
              
              4,932Other
              
              
              6,126
              
              
              12,951
              
              
              5,966
              
              
              1,734$
              373,318
              
              $
              317,618
              
              $
              217,513
              
              $
              70,393
  Only
        sales to one country, the United States, accounted for more than 10% of total
        sales. Sales into other countries, accounted for less than 10% of total sales,
        have been aggregated into geographic regions for this presentation.
 
 F-26


**GUNDLE/SLT
        ENVIRONMENTAL, INC.**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**


**As
                  of December 31,****2006**
              
              **2005****(in
                  thousands)**Long
                  lived assets (principally property, plantand
                  equipment):United
                  States
              
              $
              50,530
              
              $
              56,014Germany
              
              
              14,559
              
              
              10,997Thailand
              
              
              8,311
              
              
              8,498Other
              
              
              14,269
              
              
              15,774$
              87,669
              
              $
              91,283




**(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 its 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 its 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. During 2006, 2005 and
      2004,
      the Company paid CHS $2,069,000, $2,016,000 and $1,287,000, respectively, under
      this agreement. At December 31, 2006 and 2005, there were no amounts payable
      to
      CHS under this agreement.





**(20)
      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 Gundle/SLT Environmental, Inc., the
      subsidiary guarantors and the non-guarantor subsidiaries.





F-27


**GUNDLE/SLT
        ENVIRONMENTAL, INC.**
 **CONDENSED
        CONSOLIDATING BALANCE SHEET**
 **(in
        thousands)**


As
                  of December 31, 2006Gundle
              
              US
                  Guarantors
              
              Non
                  US Non-Guarantors
              
              Consolidating
                  Entries
              
              Consolidated**ASSETS**Current
                  Assets:Cash
                  and Cash Equivalents
              
              $
              37
              
              $
              4,862
              
              $
              8,792
              
              $
              -
              
              $
              13,691Accounts
                  Receivable, Net
              
              
              -
              
              
              49,213
              
              
              46,025
              
              
              (11,483
              )
              
              83,755Contracts
                  in Progress
              
              
              -
              
              
              4,245
              
              
              1,416
              
              
              -
              
              
              5,661Inventory
              
              
              -
              
              
              17,618
              
              
              22,705
              
              
              -
              
              
              40,323Deferred
                  Income Taxes
              
              
              -
              
              
              2,837
              
              
              9
              
              
              -
              
              
              2,846Prepaid
                  Expenses and Other
              
              
              -
              
              
              584
              
              
              2,157
              
              
              -
              
              
              2,741Total
                  Current Assets
              
              
              37
              
              
              79,359
              
              
              81,104
              
              
              (11,483
              )
              
              149,017Property,
                  Plant and Equipment, Net
              
              
              -
              
              
              50,530
              
              
              37,163
              
              
              (24
              )
              
              87,669Goodwill
              
              
              41,420
              
              
              19,794
              
              
              4,907
              
              
              -
              
              
              66,121Customer
                  Lists and Other Intangible Assets, Net
              
              
              -
              
              
              9,254
              
              
              9,299
              
              
              -
              
              
              18,553Deferred
                  Income Taxes
              
              
              -
              
              
              -
              
              
              66
              
              
              -
              
              
              66Deferred
                  Financing Costs and Other Assets, Net
              
              
              9,270
              
              
              -
              
              
              258
              
              
              -
              
              
              9,528$
              50,727
              
              $
              158,937
              
              $
              132,797
              
              $
              (11,507
              )
              $
              330,954**LIABILITIES
                  AND STOCKHOLDER'S EQUITY**Current
                  Liabilities:Accounts
                  Payable and Accrued Liabilities
              
              $
              2,231
              
              $
              22,810
              
              $
              35,646
              
              $
              (11,460
              )
              $
              49,227Advance
                  Billings on Contracts
              
              
              -
              
              
              8,625
              
              
              433
              
              
              -
              
              
              9,058Short
                  Term Debt and Current Portion of Long-term Debt
              
              
              14,981
              
              
              900
              
              
              1,046
              
              
              -
              
              
              16,927Deferred
                  Income Taxes
              
              
              -
              
              
              -
              
              
              1,668
              
              
              -
              
              
              1,668Income
                  Taxes Payable
              
              
              -
              
              
              61
              
              
              2,812
              
              
              -
              
              
              2,873Total
                  Current Liabilities
              
              
              17,212
              
              
              32,396
              
              
              41,605
              
              
              (11,460
              )
              
              79,753Long-term
                  Debt
              
              
              157,548
              
              
              1,800
              
              
              3,600
              
              
              -
              
              
              162,948Other
                  Liabilities
              
              
              3,273
              
              
              -
              
              
              1,044
              
              
              -
              
              
              4,317Deferred
                  Income Taxes
              
              
              -
              
              
              4,806
              
              
              6,388
              
              
              -
              
              
              11,194Minority
                  Interest
              
              
              -
              
              
              -
              
              
              1,217
              
              
              -
              
              
              1,217Investments
                  in Subsidiaries and Intercompany
              
              
              (198,831
              )
              
              42,778
              
              
              12,754
              
              
              143,299
              
              
              -Stockholder's
                  Equity
              
              
              71,525
              
              
              77,157
              
              
              66,189
              
              
              (143,346
              )
              
              71,525$
              50,727
              
              $
              158,937
              
              $
              132,797
              
              $
              (11,507
              )
              $
              330,954








F-28


**GUNDLE/SLT
        ENVIRONMENTAL, INC.**
 **CONDENSED
        CONSOLIDATING BALANCE SHEET**
 **(in
        thousands)**
 As
                  of December 31, 2005Gundle
              
              US
                  Guarantors
              
              Non
                  US Non-Guarantors
              
              Consolidating
                  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
              
              
              -
              
              
              3,305Prepaid
                  Expenses and Other
              
              
              -
              
              
              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
              )
              
              91,283Goodwill
              
              
              41,420
              
              
              17,612
              
              
              4,584
              
              
              -
              
              
              63,616Customer
                  Lists and Other Intangible Assets, Net
              
              
              -
              
              
              10,351
              
              
              11,393
              
              
              -
              
              
              21,744Deferred
                  Income Taxes
              
              
              -
              
              
              982
              
              
              54
              
              
              -
              
              
              1,036Deferred
                  Financing Costs and Other Assets, Net
              
              
              11,316
              
              
              11
              
              
              384
              
              
              -
              
              
              11,711$
              52,710
              
              $
              157,009
              
              $
              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
              
              
              -
              
              
              2,654
              
              
              -
              
              
              6,635Deferred
                  Income Taxes
              
              
              -
              
              
              -
              
              
              648
              
              
              -
              
              
              648Income
                  Taxes Payable
              
              
              -
              
              
              1,077
              
              
              790
              
              
              -
              
              
              1,867Total
                  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
              
              
              (187,210
              )
              
              63,352
              
              
              11,461
              
              
              112,397
              
              
              -Stockholder's
                  Equity
              
              
              69,631
              
              
              56,811
              
              
              55,624
              
              
              (112,435
              )
              
              69,631$
              52,710
              
              $
              157,009
              
              $
              112,063
              
              $
              (5,381
              )
              $
              316,401




F-29


**GUNDLE/SLT
        ENVIRONMENTAL, INC.**
 **CONDENSED
        CONSOLIDATING STATEMENT OF OPERATIONS**
 **(in
        thousands)**


For
                  the Year Ended December 31, 2006Gundle
              
              US
                  Guarantors
              
              Non
                  US Non-Guarantors
              
              Consolidating
                  Entries
              
              ConsolidatedSales
                  and operating revenue
              
              $
              -
              
              $
              207,319
              
              $
              189,777
              
              $
              (23,778
              )
              $
              373,318Cost
                  of products and services
              
              
              -
              
              
              174,697
              
              
              165,492
              
              
              (23,773
              )
              
              316,416Gross
                  profit
              
              
              -
              
              
              32,622
              
              
              24,285
              
              
              (5
              )
              
              56,902Selling,
                  General and Administrative Expenses
              
              
              -
              
              
              21,199
              
              
              10,114
              
              
              -
              
              
              31,313Amortization
                  of intangibles
              
              
              -
              
              
              3,092
              
              
              2,745
              
              
              -
              
              
              5,837Operating
                  income (loss)
              
              
              -
              
              
              8,331
              
              
              11,426
              
              
              (5
              )
              
              19,752Other
                  expenses (income)Affiliate
                  dividend income
              
              
              -
              
              
              (1,882
              )
              
              (1,271
              )
              
              3,153
              
              
              -Other
              
              
              33,326
              
              
              (14,515
              )
              
              2,106
              
              
              5
              
              
              20,92233,326
              
              
              (16,397
              )
              
              835
              
              
              3,158
              
              
              20,922Income
                  (loss) before equity in net income fromaffiliated
                  companies and income taxes
              
              
              (33,326
              )
              
              24,728
              
              
              10,591
              
              
              (3,163
              )
              
              (1,170
              )Equity
                  in net income from affiliated companies
              
              
              (18,149
              )
              
              (6,333
              )
              
              -
              
              
              24,482
              
              
              -Provision
                  (benefit) for income taxes
              
              
              (12,664
              )
              
              11,020
              
              
              2,987
              
              
              -
              
              
              1,343Net
                  income (loss)
              
              $
              (2,513
              )
              $
              20,041
              
              $
              7,604
              
              $
              (27,645
              )
              $
              (2,513
              )




For
                  the Year Ended December 31, 2005Gundle
              
              US
                  Guarantors
              
              Non
                  US Non-Guarantors
              
              Consolidating
                  Entries
              
              ConsolidatedSales
                  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
              
              
              -
              
              
              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 equity in net income fromaffiliated
                  companies and income taxes
              
              
              (35,058
              )
              
              42,770
              
              
              11,771
              
              
              (17,054
              )
              
              2,429Equity
                  in net income from affiliated companies
              
              
              (22,430
              )
              
              (8,250
              )
              
              -
              
              
              30,680
              
              
              -Provision
                  (benefit) for income taxes
              
              
              (13,322
              )
              
              11,536
              
              
              3,521
              
              
              -
              
              
              1,735Net
                  income (loss)
              
              $
              694
              
              $
              39,484
              
              $
              8,250
              
              $
              (47,734
              )
              $
              694






F-30




**GUNDLE/SLT
        ENVIRONMENTAL, INC.**
 **CONDENSED
        CONSOLIDATING STATEMENT OF OPERATIONS**
 **(in
        thousands)**


Succesor
                  for the Period of May 18 to December 31, 2004Gundle
              
              US
                  Guarantors
              
              Non
                  US Non-Guarantors
              
              Consolidating
                  Entries
              
              ConsolidatedSales
                  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 Expenses
              
              
              -
              
              
              12,086
              
              
              6,296
              
              
              -
              
              
              18,382Amortization
                  of intangibles
              
              
              -
              
              
              1,756
              
              
              1,228
              
              
              -
              
              
              2,984Operating
                  income
              
              
              -
              
              
              14,508
              
              
              8,945
              
              
              (2
              )
              
              23,451Other
                  expenses (income)Other
              
              
              12,500
              
              
              (1,032
              )
              
              1,007
              
              
              (2
              )
              
              12,47312,500
              
              
              (1,032
              )
              
              1,007
              
              
              (2
              )
              
              12,473Income
                  (loss) before equity in net income fromaffiliated
                  companies and income taxes
              
              
              (12,500
              )
              
              15,540
              
              
              7,938
              
              
              -
              
              
              10,978Equity
                  in net income from affiliated companies
              
              
              (17,325
              )
              
              (5,259
              )
              
              -
              
              
              22,584
              
              
              -Provision
                  (benefit) for income taxes
              
              
              (3,479
              )
              
              3,474
              
              
              2,679
              
              
              -
              
              
              2,674Net
                  income (loss)
              
              $
              8,304
              
              $
              17,325
              
              $
              5,259
              
              $
              (22,584
              )
              $
              8,304




Predecessor
                  for the Period of January 1 to May 17, 2004Gundle
              
              US
                  Guarantors
              
              Non
                  US Non-Guarantors
              
              Consolidating
                  Entries
              
              ConsolidatedSales
                  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 Expenses
              
              
              -
              
              
              7,906
              
              
              4,482
              
              
              -
              
              
              12,388Amortization
                  of intangibles
              
              
              -
              
              
              42
              
              
              -
              
              
              -
              
              
              42Expenses
                  related to CHS acquisition
              
              
              -
              
              
              5,863
              
              
              -
              
              
              -
              
              
              5,863Operating
                  income
              
              
              -
              
              
              (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 equity in net income fromaffiliated
                  companies and income taxes
              
              
              93,475
              
              
              (8,010
              )
              
              208
              
              
              (94,959
              )
              
              (9,286
              )Equity
                  in net income from affiliated companies
              
              
              100,652
              
              
              (1,281
              )
              
              -
              
              
              (99,371
              )
              
              -Provision
                  (benefit) for income taxes
              
              
              (869
              )
              
              (1,036
              )
              
              (1,073
              )
              
              -
              
              
              (2,978
              )Net
                  income (loss)
              
              $
              (6,308)
                  $
              
              
              (5,693
              )
              $
              1,281
              
              $
              4,412
              
              $
              (6,308
              )




F-31


**GUNDLE/SLT
        ENVIRONMENTAL, INC.**
 **CONDENSED
        CONSOLIDATING STATEMENT OF CASH FLOWS**
 **(in
        thousands)**


For
                  the Year Ended December 31, 2006Gundle
              
              US
                  Guarantors
              
              Non
                  US Non-Guarantors
              
              Consolidating
                  Entries
              
              ConsolidatedNet
                  cash flow provided by (used in) operating activities
              
              $
              (17,296
              )
              $
              6,267
              
              $
              13,368
              
              $
              (3,153
              )
              $
              (814
              )Net
                  cash flow provided by (used in) investing activities:Additions
                  to property, plant & equipment
              
              
              -
              
              
              (3,186
              )
              
              (5,070
              )
              
              1,219
              
              
              (7,037
              )Proceeds
                  from sale of assets
              
              
              -
              
              
              2,847
              
              
              42
              
              
              (1,219
              )
              
              1,670Proceeds
                  from insurance claim
              
              
              -
              
              
              -
              
              
              1,074
              
              
              -
              
              
              1,074Acquisition
                  of business
              
              
              -
              
              
              (2,011
              )
              
              (2,167
              )
              
              -
              
              
              (4,178
              )Acquisition
                  of Minority Interest
              
              
              -
              
              
              (2,067
              )
              
              -
              
              
              -
              
              
              (2,067
              )-
              
              
              (4,417
              )
              
              (6,121
              )
              
              -
              
              
              (10,538
              )Net
                  cash flow provided by (used in) financing activities:Advances
                  on revolver
              
              
              47,000
              
              
              -
              
              
              3,819
              
              
              -
              
              
              50,819Repayments
                  on revolver
              
              
              (36,000
              )
              
              -
              
              
              (6,293
              )
              
              -
              
              
              (42,293
              )Retirement
                  of long-term debt
              
              
              (3,981
              )
              
              -
              
              
              (291
              )
              
              -
              
              
              (4,272
              )Minority
                  Interest Dividends
              
              
              -
              
              
              -
              
              
              (569
              )
              
              -
              
              
              (569
              )Intercompany
                  financing
              
              
              10,277
              
              
              (11,546
              )
              
              (1,884
              )
              
              3,153
              
              
              -17,296
              
              
              (11,546
              )
              
              (5,218
              )
              
              3,153
              
              
              3,685Effect
                  of exchange rate changes on cash
              
              
              -
              
              
              -
              
              
              264
              
              
              -
              
              
              264Net
                  decrease in cash and cash equivalents
              
              
              -
              
              
              (9,696
              )
              
              2,293
              
              
              -
              
              
              (7,403
              )Cash
                  and cash equivalents at beginning of period
              
              
              37
              
              
              14,558
              
              
              6,499
              
              
              -
              
              
              21,094Cash
                  and cash equivalents at end of period
              
              $
              37
              
              $
              4,862
              
              $
              8,792
              
              $
              -
              
              $
              13,691




For
                  the Year Ended December 31, 2005Gundle
              
              US
                  Guarantors
              
              Non
                  US Non-Guarantors
              
              Consolidating
                  Entries
              
              ConsolidatedNet
                  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
              
              
              
              
              
              2,158Acquisition
                  of business
              
              
              -
              
              
              -
              
              
              (11,188
              )
              
              -
              
              
              (11,188
              )Acquisition
                  of Minority Interest
              
              
              -
              
              
              (1,500
              )
              
              1,500
              
              
              -
              
              
              --
              
              
              (1,672
              )
              
              (11,269
              )
              
              11
              
              
              (12,930
              )Net
                  cash flow provided by (used in) financing activities:Advances
                  on revolver
              
              
              5,000
              
              
              -
              
              
              2,363
              
              
              -
              
              
              7,363Repayments
                  on revolver
              
              
              (5,000
              )
              
              -
              
              
              -
              
              
              -
              
              
              (5,000
              )Retirement
                  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
                  decrease in cash and cash equivalents
              
              
              -
              
              
              (430
              )
              
              (2,192
              )
              
              -
              
              
              (2,622
              )Cash
                  and cash equivalents at beginning of period
              
              
              37
              
              
              14,988
              
              
              8,691
              
              
              -
              
              
              23,716Cash
                  and cash equivalents at end of period
              
              $
              37
              
              $
              14,558
              
              $
              6,499
              
              $
              -
              
              $
              21,094




F-32




**GUNDLE/SLT
        ENVIRONMENTAL, INC.**
 **CONDENSED
        CONSOLIDATING STATEMENT OF CASH FLOWS**
 **(in
        thousands)**


SuccessorFor
                  the Period of May 18 - December 31, 2004Gundle
              
              US
                  Guarantors
              
              Non
                  US Non-Guarantors
              
              Consolidating
                  Entries
              
              ConsolidatedNet
                  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
                  from 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:Proceeds
                  from revolver
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Payments
                  on revolver
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Payments
                  for financing fees
              
              
              (14,071
              )
              
              -
              
              
              -
              
              
              -
              
              
              (14,071
              )Proceeds
                  from new 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
  PredecessorFor
                    the Period of January 1 - May 17, 2004Gundle
                
                US
                    Guarantors
                
                Non
                    US Non-Guarantors
                
                Consolidating
                    Entries
                
                ConsolidatedNet
                    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
                    from sale of assets
                
                
                -
                
                
                260
                
                
                -
                
                
                -
                
                
                260Other
                
                
                -
                
                
                (1,220
                )
                
                1,220
                
                
                -
                
                
                --
                
                
                (2,518
                )
                
                (272
                )
                
                -
                
                
                (2,790
                )Net
                    cash flow provided by (used in) financing activities:Proceeds
                    from new debt
                
                
                -
                
                
                -
                
                
                806
                
                
                -
                
                
                806Repayments
                    of long-term debt
                
                
                (16,721
                )
                
                -
                
                
                (2
                )
                
                -
                
                
                (16,723
                )Issuance
                    of common stock
                
                
                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 year
                
                
                68
                
                
                42,934
                
                
                4,897
                
                
                -
                
                
                47,899Cash
                    and cash equivalents at end of year
                
                $
                104
                
                $
                7,706
                
                $
                6,456
                
                $
                -
                
                $
                14,266


F-33


**GUNDLE/SLT
        ENVIRONMENTAL, INC.**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS -
        (Continued)**


**(21)
      Supplementary** **Data** **—**





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





Unaudited
      quarterly information for fiscal 2006 and 2005 is as follows (in thousands,
      except per share amounts):


**2006
                  Quarters**
              
              **2005
                  Quarters****First**
              
              **Second**
              
              **Third**
              
              **Fourth**
              
              **First**
              
              **Second**
              
              **Third**
              
              **Fourth**Net
                  Sales
              
              
              43,767
              
              
              103,194
              
              
              122,775
              
              
              103,582
              
              
              59,664
              
              
              86,965
              
              
              97,595
              
              
              73,394Gross
                  profit
              
              
              2,607
              
              
              16,400
              
              
              18,596
              
              
              19,299
              
              
              6,859
              
              
              14,360
              
              
              21,301
              
              
              13,831Income
                  (loss) beforeincome
                  taxes
              
              
              (13,111
              )
              
              335
              
              
              7,405
              
              
              4,201
              
              
              (6,166
              )
              
              1,414
              
              
              7,574
              
              
              (393
              )Net
                  income (loss)
              
              
              (8,076
              )
              
              (759)
              ***
              
              4,665
              
              
              1,657
              ***
              
              (4,860)
              *
              
              1,034
              *
              
              4,873
              
              
              (353)
              **




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





*As
      noted
      in Note 14, the first and second quarter of 2005 include tax charges of
      $1,241,000 and $119,000, 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.





***Included
      prior years’ tax adjustments related to state and foreign taxes in the second
      and fourth quarters of $390,000 and $150,000 respectively.




**(22)
      New Accounting Pronouncements** **** **—**





In
      June
      2006, the FASB issued Interpretation No. 48, “ *Accounting
      for Uncertainty in Income Taxes* (“FIN
      48”), an interpretation of Statement No. 109. FIN 48 clarifies the criteria and
      approach for recognition, derecognition and measurement of uncertain tax
      positions. FIN 48 is effective for fiscal years beginning after December 15,
      2006. The Company does not expect the adoption of FIN 48 to have a material
      impact on the financial position or results of operations.





**(23)
      Subsequent Event—**





In
      January 2007, the Board of Directors approved the granting of 35,895 stock
      options to certain employees of the Company.





F-34