<PAGE>

                                    FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                   QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
                                     OF THE
                         SECURITIES EXCHANGE ACT OF 1934

<Table>
<S>                                                                             <C>
For the Quarterly Period Ended September 30, 2002                               Commission File Number 0-21054
</Table>

                           SYNAGRO TECHNOLOGIES, INC.
             (Exact name of Registrant as specified in its Charter)

                DELAWARE                                 76-0511324
    (State or other jurisdiction of                     (IRS Employer
     incorporation or organization)                  Identification No.)

     1800 BERING DRIVE, SUITE 1000
             HOUSTON, TEXAS                                 77057
(Address of principal executive offices)                 (Zip Code)

                                 (713) 369-1700
              (Registrant's telephone number, including area code)

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 is
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                                 Yes [X] No [ ]

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the latest practicable date.

           CLASS                                OUTSTANDING AT NOVEMBER 12, 2002
-----------------------------                   --------------------------------
Common stock, par value $.002                              19,775,821


<PAGE>


                           SYNAGRO TECHNOLOGIES, INC.

                                      INDEX

<Table>
<Caption>
                                                                                 PAGE
                                                                                 ----
<S>                                                                              <C>
 PART I - FINANCIAL INFORMATION

 Condensed Consolidated Balance Sheets as of September 30, 2002,
    and December 31, 2001 (Unaudited) ......................................       3

 Condensed Consolidated Statements of Operations for the
    Three and Nine Months Ended September 30, 2002 and 2001 (Unaudited) ....       4

 Condensed Consolidated Statement of Stockholders' Equity (Unaudited) ......       5

 Condensed Consolidated Statements of Cash Flows for the
    Nine Months Ended September 30, 2002 and 2001 (Unaudited) ..............       6

 Notes to Condensed Consolidated Financial Statements ......................       7

 Management's Discussion and Analysis of Financial
 Condition and Results of Operations .......................................      18

 PART II -- OTHER INFORMATION ..............................................      25
</Table>

                                       2

<PAGE>


                           SYNAGRO TECHNOLOGIES, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS

<Table>
<Caption>
                                                                             SEPTEMBER 30,      DECEMBER 31,
                                                                                 2002               2001
                                                                           ---------------    ---------------
                                                                              (UNAUDITED)        (AUDITED)
<S>                                                                        <C>                <C>
ASSETS

Current assets:
   Cash and cash equivalents ..........................................    $       634,373    $       251,821
   Restricted cash ....................................................          3,174,251          3,281,045
   Accounts receivable, net ...........................................         56,862,038         49,531,654
   Note receivable, current portion ...................................            271,000            201,000
   Prepaid expenses and other current assets ..........................         11,010,299         10,181,030
                                                                           ---------------    ---------------
      Total current assets ............................................         71,951,961         63,446,550

Property, machinery & equipment, net ..................................        206,331,407        206,114,267

Other assets:
   Goodwill, net ......................................................        168,627,143        163,739,059
   Other, net .........................................................         10,030,150         12,867,901
                                                                           ---------------    ---------------
Total assets ..........................................................    $   456,940,661    $   446,167,777
                                                                           ===============    ===============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Current portion of long-term debt ..................................    $       661,535    $    12,880,693
   Current portion of nonrecourse project revenue bonds ...............          2,300,000          2,300,000
   Accounts payable and accrued expenses ..............................         41,791,435         40,951,059
                                                                           ---------------    ---------------
      Total current liabilities .......................................         44,752,970         56,131,752

Long-term liabilities:
   Long-term debt obligations, net ....................................        216,389,469        202,650,523
   Nonrecourse project revenue bonds, net .............................         38,717,765         40,584,848
   Other long-term liabilities ........................................         13,485,756          9,328,065
   Fair value of interest rate swap ...................................          3,392,057          5,150,502
                                                                           ---------------    ---------------
      Total long-term liabilities .....................................        271,985,047        257,713,938

COMMITMENTS AND CONTINGENCIES

Redeemable Preferred Stock, 69,792.29 shares issued and
   outstanding, redeemable at $1,000 per share ........................         76,111,718         70,431,063

Stockholders' equity:
   Preferred stock, $.002 par value, 10,000,000 shares authorized,
      none issued and outstanding .....................................                 --                 --
   Common stock, $.002 par value, 100,000,000 shares authorized,
      19,775,821 and 19,476,781 shares outstanding ....................             39,552             38,954
   Additional paid in capital .........................................        109,166,862        109,167,460
   Accumulated deficit ................................................        (43,183,159)       (45,004,998)
   Accumulated other comprehensive loss ...............................         (1,932,329)        (2,310,392)
                                                                           ---------------    ---------------
      Total stockholders' equity ......................................         64,090,926         61,891,024
                                                                           ---------------    ---------------
Total liabilities and stockholders' equity ............................    $   456,940,661    $   446,167,777
                                                                           ===============    ===============
</Table>

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

                                       3

<PAGE>



                           SYNAGRO TECHNOLOGIES, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<Table>
<Caption>
                                                                       THREE MONTHS ENDED                  NINE MONTHS ENDED
                                                                          SEPTEMBER 30,                      SEPTEMBER 30,
                                                                --------------------------------  ---------------------------------
                                                                      2002             2001             2002              2001
                                                                ---------------  ---------------  ----------------  ---------------
<S>                                                              <C>              <C>             <C>               <C>
Revenue .......................................................  $  74,711,843    $  70,066,799   $   201,026,961   $   194,662,097
Cost of services ..............................................     55,286,291       50,974,713       148,542,920       143,389,552
                                                                 -------------    -------------   ---------------   ---------------
Gross profit ..................................................     19,425,552       19,092,086        52,484,041        51,272,545

Selling, general and administrative expenses ..................      5,500,028        5,760,480        16,879,877        16,341,407
Reorganization costs ..........................................        571,000               --           571,000                --
Nonrecurring gain from litigation settlement ..................             --       (6,042,584)               --        (6,042,584)
Amortization of intangibles ...................................         27,000        1,155,904            81,417         3,438,657
                                                                 -------------    -------------   ---------------   ---------------
   Income from operations .....................................     13,327,524       18,218,286        34,951,747        37,535,065
                                                                 -------------    -------------   ---------------   ---------------
Other (income) expense:
   Other (income) expense, net ................................        130,039         (169,849)       (1,709,665)         (249,952)
   Interest expense, net ......................................      5,970,229        6,422,154        17,321,351        20,902,283
                                                                 -------------    -------------   ---------------   ---------------
      Total other expense, net ................................      6,100,268        6,252,305        15,611,686        20,652,331
                                                                 -------------    -------------   ---------------   ---------------
Income before provision for income taxes ......................      7,227,256       11,965,981        19,340,061        16,882,734
   Provision for income taxes .................................      2,745,975               --         7,348,434                --
                                                                 -------------    -------------   ---------------   ---------------
Net income before extraordinary loss on early retirement of
   debt, net of tax benefit, cumulative effect of change in
   accounting for derivatives and preferred stock dividends ...      4,481,281       11,965,981        11,991,627        16,882,734
Extraordinary loss on early retirement of debt, net of
   tax benefit of $2,751,405 ..................................             --               --         4,489,133                --
Cumulative effect of change in accounting for derivatives .....             --               --                --         1,860,685
                                                                 -------------    -------------   ---------------   ---------------
Net income before preferred stock dividends ...................      4,481,281       11,965,981         7,502,494        15,022,049
Preferred stock dividends .....................................      1,944,249        1,815,050         5,680,655         5,401,111
                                                                 -------------    -------------   ---------------   ---------------
Net income applicable to common stock .........................  $   2,537,032    $  10,150,931   $     1,821,839   $     9,620,938
                                                                 =============    =============   ===============   ===============
Earnings per share:

Basic
   Earnings per share before extraordinary loss on
      early retirement of debt, net of tax benefit and
      cumulative effect of change in accounting for
      derivatives .............................................  $         .13    $         .52   $           .32   $           .59
   Extraordinary loss on early retirement of debt, net of
      tax benefit .............................................             --               --              (.23)               --
   Cumulative effect of change in accounting for derivatives ..             --               --                --              (.10)
                                                                 -------------    -------------   ---------------   ---------------
   Net income per share .......................................  $         .13    $         .52   $           .09   $           .49
                                                                 =============    =============   ===============   ===============

Diluted
   Earnings per share before preferred stock dividends,
      extraordinary loss on early retirement of debt, net of
      tax benefit, and cumulative effect of change in
      accounting for derivatives ..............................  $         .08    $         .24   $           .23   $           .34
   Extraordinary loss on early retirement of debt, net of
      tax benefit .............................................             --               --              (.09)               --
   Cumulative effect of change in accounting for derivatives ..             --               --                --              (.04)
                                                                 -------------    -------------   ---------------   ---------------
   Net income per share .......................................  $         .08    $         .24   $           .14   $           .30
                                                                 =============    =============   ===============   ===============

Weighted average shares outstanding:
   Basic ......................................................     19,775,821       19,472,543        19,577,569        19,450,854
   Diluted ....................................................     52,816,779       49,950,589        52,197,529        49,338,398
</Table>

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

                                       4

<PAGE>


                           SYNAGRO TECHNOLOGIES, INC.
            CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                   (UNAUDITED)

<Table>
<Caption>
                                                                                               ACCUMULATED
                                          COMMON STOCK          ADDITIONAL                        OTHER
                                    ------------------------     PAID-IN      ACCUMULATED     COMPREHENSIVE
                                       SHARES       AMOUNT       CAPITAL        DEFICIT            LOSS             TOTAL
                                    -----------  -----------  -------------  -------------   ---------------    ------------
<S>                                 <C>            <C>         <C>           <C>               <C>              <C>
BALANCE, December 31, 2001 .......  19,476,781     $ 38,954   $ 109,167,460  $(45,004,998)     $(2,310,392)     $ 61,891,024
   Change in accumulated other
     comprehensive loss ..........          --           --              --            --          378,063           378,063
   Cashless exercise of warrants..     299,040          598            (598)           --               --                --
   Net income applicable to
     common stock ................          --           --              --     1,821,839               --         1,821,839
                                    ----------     --------   -------------  ------------      -----------      ------------
BALANCE, September 30, 2002 ......  19,775,821     $ 39,552   $ 109,166,862  $(43,183,159)     $(1,932,329)     $ 64,090,926
                                    ==========     ========   =============  ============      ===========      ============
</Table>


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

                                       5

<PAGE>



                           SYNAGRO TECHNOLOGIES, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<Table>
<Caption>
                                                                           NINE MONTHS ENDED SEPTEMBER 30,
                                                                       --------------------------------------
                                                                             2002                   2001
                                                                       ----------------        --------------
<S>                                                                    <C>                     <C>
Cash flows from operating activities:
   Net income applicable to common stock ...........................   $      1,821,839        $    9,620,938
   Adjustment to reconcile net income applicable
      to common stock:
        Extraordinary loss on early retirement of debt,
          net of tax benefit .......................................          4,489,133                    --
        Cumulative change in accounting for derivatives ............                 --             1,860,685
        Preferred stock dividend ...................................          5,680,655             5,401,111
        Depreciation ...............................................         11,132,686            10,134,233
        Amortization ...............................................          1,073,284             4,507,376
        Provision for deferred income taxes ........................          7,348,434                    --
        Gain on sale of property, machinery and
           equipment ...............................................           (132,634)             (231,740)
        Increase in the following, net:
           Accounts receivable .....................................         (6,152,667)           (4,882,662)
           Prepaid expenses and other assets .......................         (1,325,997)             (584,722)
        Increase (decrease) in the following:
           Accounts payable and accrued expenses
              and other liabilities ................................         (2,289,040)              391,500
                                                                       ----------------        --------------
   Net cash provided by operating activities .......................         21,645,693            26,216,719
                                                                       ----------------        --------------

Cash flows from investing activities:
      Purchase of businesses including contingent consideration,
        net of cash acquired .......................................         (3,885,661)             (999,929)
      Purchases of property, machinery and equipment ...............        (10,740,948)           (9,538,394)
      Proceeds from sale of property, machinery and
        equipment ..................................................            549,529               910,643
      Other ........................................................                 --              (435,103)
                                                                       ----------------        --------------
Net cash used in investing activities ..............................        (14,077,080)          (10,062,783)
                                                                       ----------------        --------------

Cash flows from financing activities:
      Payments on debt .............................................       (219,203,220)          (18,366,360)
      Proceeds from debt, net of issuance costs ....................        213,847,449                    --
      Debt issuance costs ..........................................                 --               (69,415)
      Increase in notes receivable .................................            (70,000)               24,430
      Increase in restricted cash ..................................         (1,760,290)           (1,737,174)
      Exercise of options and warrants .............................                 --                82,000
                                                                       ----------------        --------------
   Net cash used in financing activities ...........................         (7,186,061)          (20,066,519)
                                                                       ----------------        --------------

Net increase (decrease) in cash and cash equivalents ...............            382,552            (3,912,583)
Cash and cash equivalents, beginning of period .....................            251,821             4,597,420
                                                                       ----------------        --------------
Cash and cash equivalents, end of period ...........................   $        634,373        $      684,837
                                                                       ================        ==============

Supplemental Cash Flow Information
   Interest paid during the period .................................   $     12,227,514        $   16,771,625
   Taxes paid during the period ....................................   $        292,169        $      273,091
</Table>


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

                                       6

<PAGE>



                           SYNAGRO TECHNOLOGIES, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

(1)  BASIS OF PRESENTATION

GENERAL

The accompanying unaudited, condensed consolidated financial statements have
been prepared by Synagro Technologies, Inc. ("Synagro" or the "Company")
pursuant to the rules and regulations of the Securities and Exchange Commission.
These condensed consolidated financial statements reflect all normal recurring
adjustments which are, in the opinion of management, necessary for the fair
presentation of such financial statements for the periods indicated. Certain
information relating to the Company's organization and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles has been condensed or omitted in this Form 10-Q
pursuant to Rule 10-01 of Regulation S-X for interim financial statements
required to be filed with the Securities and Exchange Commission. However, the
Company believes that the disclosures herein are adequate to make the
information presented not misleading. The results for the nine months ended
September 30, 2002, are not necessarily indicative of future operating results.
It is suggested that these financial statements be read in conjunction with the
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the year ended December 31, 2001.

The accounting policies followed by the Company in preparing interim
consolidated financial statements are consistent with those described in the
"Notes to Consolidated Financial Statements" in the Company's Form 10-K for the
year ended December 31, 2001.

Synagro Technologies, Inc., a Delaware corporation, and collectively with its
subsidiaries is a national water and wastewater residuals management company
serving more than 1,000 municipal and industrial water and wastewater treatment
plants and has operations in 35 states and the District of Columbia. Synagro
offers many services that focus on the beneficial reuse of organic nonhazardous
residuals resulting from the water and wastewater treatment process. Synagro
provides its customers with complete, vertically-integrated services and
capabilities, including facility operations, facility cleanout services,
regulatory compliance, dewatering, collection and transportation, composting,
drying and pelletization, product marketing, incineration, alkaline
stabilization, and land application.

ACCOUNTING PRONOUNCEMENTS

Effective January 1, 2001, the Company adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by SFAS No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities,"
which requires that the Company recognize all derivative instruments as assets
or liabilities on its balance sheet and measure them at their fair value.
Changes in the fair value of a derivative are recorded in income or directly to
equity, depending on the instrument's designated use. For derivative instruments
that are designated and qualify as a cash flow hedge, the effective portion of
the gain or loss on the derivative instrument is reported as a component of
other comprehensive income and reclassified into income when the hedged
transaction affects income, while the ineffective portion of the gain or loss on
the derivative instrument is recognized currently in earnings. For derivative
instruments that are designated and qualify as a fair value hedge, the gain or
loss on the derivative instrument as well as the offsetting loss or gain on the
hedged item attributable to the hedged risk are recognized in current income
during the period of the change in fair values. The noncash transition
adjustment related to the adoption of this statement has been reflected as a
"cumulative effect of change in accounting for derivatives" of approximately
$1,861,000 charged to net income and approximately $2,058,000 charged to other
comprehensive income included in stockholders' equity as of January 1, 2001. See
Note (5) for discussion of the Company's current derivative contracts and
hedging activities.

In July 2001, the FASB issued SFAS No. 141, "Business Combinations," and No.
142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires all business
combinations initiated after June 30, 2001, to be accounted for using the
purchase method. Under SFAS No. 142, goodwill and intangible assets with
indefinite lives are no longer amortized but are reviewed annually (or more
frequently if impairment indicators arise) for impairment. Separable intangible
assets that are not deemed to have indefinite lives will be amortized over their
useful lives. Management has completed the initial impairment test required by
the provisions of SFAS No. 142 as of January 1, 2002, and determined that there
has not been an impairment of the Company's goodwill. Beginning January 1, 2002,
the Company discontinued amortizing goodwill in accordance with the provisions
of the standard.

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS No. 143 covers all legally enforceable obligations associated
with the retirement of tangible long-lived assets and provides the accounting
and reporting

                                       7
<PAGE>


requirements for such obligations. SFAS No. 143 is effective for the Company
beginning January 1, 2003. Management has yet to determine the impact that the
adoption of SFAS No. 143 will have on the Company's consolidated financial
statements.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," which supersedes SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of." SFAS No. 144 establishes a single accounting method for long-lived assets
to be disposed of by sale, whether previously held and used or newly acquired,
and extends the presentation of discontinued operations to include more disposal
transactions. SFAS No. 144 also requires that an impairment loss be recognized
for assets held-for-use when the carrying amount of an asset (group) is not
recoverable. The carrying amount of an asset (group) is not recoverable if it
exceeds the sum of the undiscounted cash flows expected to result from the use
and eventual disposition of the asset (group), excluding interest charges.
Estimates of future cash flows used to test the recoverability of a long-lived
asset (group) must incorporate the entity's own assumptions about its use of the
asset (group) and must factor in all available evidence. Management adopted SFAS
No. 144 during the first quarter of 2002 and there was no effect on the
Company's results of operations and financial position.

In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statement Nos.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections."
SFAS No. 145 requires that gains and losses from extinguishment of debt be
classified as extraordinary items only if they meet the criteria in Accounting
Principles Board Opinion No. 30 ("Opinion No. 30"). Applying the provisions of
Opinion No. 30 will distinguish transactions that are part of an entity's
recurring operations from those that are unusual and infrequent that meets
criteria for classification as an extraordinary item. SFAS No. 145 is effective
for the Company beginning January 1, 2003. The Company is currently assessing
the impact, if any, of this statement on the Company's financial position. The
Company does not expect this adoption to have a material effect on the financial
statements, except that beginning in 2003 the Company expects to reclassify its
extraordinary item, loss on early extinguishments of debt, net of tax.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS No. 146 requires that a liability for a
cost associated with an exit or disposal activity be recognized and measured
initially at fair value only when the liability is incurred. SFAS No. 146 is
effective for the Company beginning January 1, 2003. The Company is in the
process of assessing this standard and its possible impact on the Company's
financial statements and does not currently expect this adoption to have a
material effect on its financial statements.

RECLASSIFICATIONS

Certain reclassifications have been made to the prior year's financial
statements to conform to the 2002 presentation.

USE OF ESTIMATES

In preparing financial statements in conformity with accounting principles
generally accepted in the United States, management makes estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The
following are the Company's significant estimates and assumptions made in
preparation of its financial statements:

    Allowance for Doubtful Accounts -- The Company estimates losses for
    uncollectible accounts based on the aging of the accounts receivable and the
    evaluation and the likelihood of success in collecting the receivable.

    Loss Contracts -- The Company evaluates its revenue producing contracts to
    determine whether the projected revenues of such contracts exceed the direct
    cost to service such contracts. These evaluations include estimates of the
    future revenues and expenses. Accruals for loss contracts are adjusted based
    on these evaluations.

    Property and Equipment/Long-Lived Assets -- Management adopted SFAS No. 144
    during the first quarter 2002. Property and equipment is reviewed for
    impairment pursuant to the provisions of SFAS No. 144, "Accounting for the
    Impairment or Disposal of Long-Lived Assets." The carrying amount of an
    asset (group) is considered impaired if it exceeds the sum of our estimate
    of the undiscounted future cash flows expected to result from the use and
    eventual disposition of the asset (group), excluding interest charges.

    The Company has contracts for the design permitting and construction of
    biosolids processing facilities. If the permits and/or other government
    approvals are not obtained the company may not be reimbursed for its costs
    incurred. The Company has approximately $1,170,000 of design and permitting
    costs included in property at September 30, 2002.

    Goodwill -- Goodwill attributable to the Company's reporting units are
    tested for impairment by comparing the fair value of each reporting unit
    with its carrying value. Significant estimates used in the determination of
    fair value include estimates of future cash flows, future growth rates,
    costs of capital and estimates of market multiples. The Company expects to
    perform impairment tests annually during the fourth quarter, absent any
    impairment indicators.

    Purchase Accounting -- The Company estimates the fair value of assets,
    including property, machinery and equipment and its related useful lives and
    salvage values, and liabilities when allocating the purchase price of an
    acquisition.

    Income Taxes -- The Company assumes the deductibility of certain costs in
    its income tax filings and estimates the recovery of deferred income tax
    assets.

                                       8
<PAGE>

    Legal and Contingency Accruals -- The Company estimates and accrues the
    amount of probable exposure it may have with respect to litigation, claims
    and assessments.

    Self-Insurance Reserves -- Through the use of actuarial calculations, the
    Company estimates the amounts required to settle insurance claims.

Actual results could differ materially from the estimates and assumptions that
the Company uses in the preparation of its financial statements.

(2)  ACQUISITION

In August 2002, the Company purchased Earthwise Organics, Inc. and Earthwise
Trucking (collectively "Earthwise"), a Class A biosolids and manure composting
and marketing company. In connection with the purchase of Earthwise, the former
owners are entitled to receive up to an additional $4,000,000 over the next
three years if certain performance targets are met. The preliminary allocation
of the purchase price, which is subject to final adjustment, resulted in
approximately $4,057,000 of goodwill. The assets acquired and liabilities
assumed relating to the acquisition are summarized below:

<Table>
<S>                                                                    <C>
Cash paid, including transaction costs, net of cash acquired .......   $      3,336,000
Note payable to seller .............................................          1,500,000
Less: Net assets acquired...........................................           (779,000)
                                                                       ----------------
Goodwill ...........................................................   $      4,057,000
                                                                       ================
</Table>

The note payable to the former owners is due in three equal annual installments
beginning in October 2003 with interest payable quarterly at a rate of five
percent.

(3)  PREFERRED STOCK

PREFERRED STOCK

The Company is authorized to issue up to 10,000,000 shares of Preferred Stock,
which may be issued in one or more series or classes by the Board of Directors
of the Company. Each such series or class shall have such powers, preferences,
rights and restrictions as determined by resolution of the Board of Directors.
Series A Junior Participating Preferred Stock will be issued upon exercise of
the Stockholders' Rights described below.

SERIES D REDEEMABLE PREFERRED STOCK

The Company has authorized 32,000 shares of Series D Preferred Stock, par value
$.002 per share. In 2000, the Company issued a total of 25,033.601 shares of the
Series D Preferred Stock to GTCR Fund VII, L.P. and its affiliates, which is
convertible by the holders into a number of shares of the Company's common stock
computed by dividing (i) the sum of (a) the number of shares to be converted
multiplied by the liquidation value and (b) the amount of accrued and unpaid
dividends by (ii) the conversion price then in effect. The initial conversion
price is $2.50 per share, provided that in order to prevent dilution, the
conversion price may be adjusted. The Series D Preferred Stock is senior to the
Company's common stock and any other of its equity securities. The liquidation
value of each share of Series D Preferred Stock is $1,000 per share. Dividends
on each share of Series D Preferred Stock accrue daily at the rate of eight
percent per annum on the aggregate liquidation value and may be paid in cash or
accrued, at the Company's option. Upon conversion of the Series D Preferred
Stock by the holders, the holders may elect to receive the accrued and unpaid
dividends in shares of the Company's common stock at the conversion price. The
Series D Preferred Stock is entitled to one vote per share. Shares of Series D
Preferred Stock are subject to mandatory redemption by the Company on January
26, 2010, at a price per share equal to the liquidation value plus accrued and
unpaid dividends. If the outstanding shares of Series D Preferred Stock,
excluding accrued dividends, were converted at September 30, 2002, they would
represent 10,013,441 shares of common stock.

SERIES E REDEEMABLE PREFERRED STOCK

The Company has authorized 55,000 shares of Series E Preferred Stock, par value
$.002 per share. GTCR Fund VII, L.P. and its affiliates own 37,504.229 shares of
Series E Preferred Stock and certain affiliates of The TCW Group, Inc. own
7,024.58 shares. The Series E Preferred Stock is convertible by the holders into
a number of shares of the Company's common stock computed by dividing (i) the
sum of (a) the number of shares to be converted multiplied by the liquidation
value and (b) the amount of accrued and unpaid dividends by (ii) the conversion
price then in effect. The initial conversion price is $2.50 per share, provided
that in order to prevent

                                       9
<PAGE>

dilution, the conversion price may be adjusted. The Series E Preferred Stock is
senior to the Company's common stock and any other of its equity securities. The
liquidation value of each share of Series E Preferred Stock is $1,000 per share.
Dividends on each share of Series E Preferred Stock accrue daily at the rate of
eight percent per annum on the aggregate liquidation value and may be paid in
cash or accrued, at the Company's option. Upon conversion of the Series E
Preferred Stock by the holders, the holders may elect to receive the accrued and
unpaid dividends in shares of the Company's common stock at the conversion
price. The Series E Preferred Stock is entitled to one vote per share. Shares of
Series E Preferred Stock are subject to mandatory redemption by the Company on
January 26, 2010, at a price per share equal to the liquidation value plus
accrued and unpaid dividends. If the outstanding shares of Series E Preferred
Stock, excluding accrued dividends, were converted at September 30, 2002, they
would represent 17,903,475 shares of common stock.

The future issuances of Series D and Series E Preferred Stock may result in
noncash beneficial conversions valued in future periods recognized as preferred
stock dividends if the market value of the Company's common stock is higher than
the conversion price at date of issuance.

(4)  STOCKHOLDERS' RIGHTS PLAN

In December 1996, the Company adopted a stockholders' rights plan (the "Rights
Plan"). The Rights Plan provides for a dividend distribution of one preferred
stock purchase right ("Right") for each outstanding share of the Company's
Common Stock, to stockholders of record at the close of business on January 10,
1997. The Rights Plan is designed to deter coercive takeover tactics and to
prevent an acquirer from gaining control of the Company without offering a fair
price to all of the Company's stockholders. The Rights will expire on December
31, 2006.

Each Right entitles stockholders to buy one one-thousandth of a newly issued
share of Series A Junior Participating Preferred Stock of the Company at an
exercise price of $10. The Rights are exercisable only if a person or group
acquires beneficial ownership of 15 percent or more of the Company's Common
Stock or commences a tender or exchange offer which, if consummated, would
result in that person or group owning 15 percent or more of the Common Stock of
the Company. However, the Rights will not become exercisable if Common Stock is
acquired pursuant to an offer for all shares which a majority of the Board of
Directors determines to be fair to and otherwise in the best interests of the
Company and its stockholders. If, following an acquisition of 15 percent or more
of the Company's Common Stock, the Company is acquired by that person or group
in a merger or other business combination transaction, each Right would then
entitle its holder to purchase common stock of the acquiring company having a
value of twice the exercise price. The effect will be to entitle the Company
stockholders to buy stock in the acquiring company at 50 percent of its market
price.

The Company may redeem the Rights at $.001 per Right at any time on or prior to
the tenth business day following the acquisition of 15 percent or more of its
Common Stock by a person or group or commencement of a tender offer for such 15
percent ownership.

(5)  DEBT

Long-term debt obligations consist of the following:

<Table>
<Caption>
                                                            SEPTEMBER 30,      DECEMBER 31,
                                                                2002               2001
                                                          ---------------    ---------------
<S>                                                       <C>                 <C>
Revolver .............................................    $            --     $           --
Credit facility - term loans .........................         65,500,000        161,936,292
Subordinated debt ....................................        150,000,000         52,760,393
Fair value adjustment related to subordinated debt ...                 --            801,857
Note payable to seller ...............................          1,500,000                 --
Other notes payable ..................................             51,004             32,674
                                                          ---------------     --------------
          Total debt .................................    $   217,051,004     $  215,531,216
Less:
Current maturities ...................................            661,535         12,880,693
                                                          ---------------     --------------
          Long-term debt, net of current maturities ..    $   216,389,469     $  202,650,523
                                                          ===============     ==============
</Table>

CREDIT FACILITY

On May 8, 2002, the Company entered into an amended and restated Senior Credit
Agreement (the "Senior Credit Agreement") by and among the Company, Bank of
America, N.A., and certain other lenders to fund working capital for
acquisitions, to provide


                                       10
<PAGE>


working capital for operations, to refinance existing debt, to fund capital
expenditures and for other general corporate purposes. The Senior Credit
Agreement bears interest at LIBOR or prime plus a margin based on a pricing
schedule as set out in the Senior Credit Agreement.

The loan commitments under the Senior Credit Agreement are as follows:

    (i)   Revolving Loan up to $50,000,000 outstanding at any one time;

    (ii)  Term B Loans (which, once repaid, may not be reborrowed) of
          $70,000,000; and

    (iii) Letters of Credit up to $50,000,000 as a subset of the Revolving Loan.
          At September 30, 2002, the Company had approximately $22,600,000 of
          Letters of Credit outstanding.

The total credit facility can be increased to $150 million upon the request of
the Company and bank approval. The amounts borrowed under the Senior Credit
Agreement are subject to repayment as follows:

<Table>
<Caption>

                                          REVOLVING        TERM
     PERIOD ENDING DECEMBER 31,             LOAN           LOANS
-----------------------------------       ---------      --------
<S>                                       <C>            <C>
2002 ..............................            --           0.25%
2003 ..............................            --           1.00%
2004 ..............................            --           1.00%
2005 ..............................            --           1.00%
2006 ..............................            --           1.00%
2007 ..............................        100.00%          1.00%
2008 ..............................            --          94.75%
                                          -------        -------
                                           100.00%        100.00%
                                          =======        =======
</Table>


The Senior Credit Agreement includes mandatory repayment provisions related to
excess cash flows, proceeds from certain asset sales, debt issuances and equity
issuances, all as defined in the Senior Credit Agreement. These mandatory
repayment provisions may also reduce the available commitment. The Senior Credit
Agreement contains standard covenants including compliance with laws,
limitations on capital expenditures, restrictions on dividend payments,
limitations on mergers and compliance with financial covenants. The Company
believes that it is in compliance with those covenants as of September 30, 2002.
The Senior Credit Agreement is secured by all the assets of the Company and
expires on December 31, 2008. As of September 30, 2002, the Company has
outstanding under the Senior Credit Agreement approximately $65,500,000, which
was primarily used to refinance existing debt. As of September 30, 2002, the
Company has approximately $27,400,000 of unused borrowings under the Senior
Credit Agreement. The Company's Senior Credit Agreement contains various
financial covenants, including a senior debt-to-cash flow ratio, as defined,
determined at the end of each quarter. As of September 30, 2002, the maximum
senior debt that could have been outstanding while remaining in compliance with
the covenant ratios was approximately $92,900,000.

OTHER DEBT

In connection with the Earthwise acquisition, the Company entered into a
$1,500,000 note payable with the former owners of Earthwise. The note is payable
in three equal, annual installments beginning in October 2003. Interest is
payable quarterly at a rate of five percent beginning October 1, 2002.

SENIOR SUBORDINATED NOTES

In April 2002, the Company issued $150 million in principal amount of its 9 1/2
percent Senior Subordinated Notes due on April 1, 2009 (the "Notes"). The Notes
are unsecured senior indebtedness and are guaranteed by all of the Company's
existing and future domestic subsidiaries, other than subsidiaries treated as
unrestricted subsidiaries ("the Guarantors"). As of September 30, 2002, all
subsidiaries were guarantors of the Notes. Interest on the Notes accrues from
April 17, 2002, and is payable semi-annually on April 1 and October 1 of each
year, commencing October 1, 2002. On or after April 1, 2006, the Company may
redeem some or all of the Notes at any time at the redemption prices (expressed
as percentages of principal amount) listed below, plus accrued and unpaid
interest and liquidated damages, if any, on the Notes redeemed, to the
applicable date of redemption, if redeemed during the 12-month period commencing
on April 1 of the years indicated below:


                                       11
<PAGE>


<Table>
<Caption>

             YEARS                               LOAN
-------------------------------                --------
<S>                                            <C>
2006 ..........................                104.750%
2007 ..........................                102.375%
2008 and thereafter ...........                100.000%
</Table>


At any time prior to April 1, 2005, the Company may redeem up to 35 percent of
the original aggregate principal amount of the Notes with the net cash of public
offerings of equity, provided that at least 65 percent of the original aggregate
principal amount of the Notes remains outstanding after the redemption. Upon the
occurrence of specified change of control events, unless the Company has
exercised its option to redeem all the notes as described above, each holder
will have the right to require the Company to repurchase all or a portion of
such holder's Notes at a purchase price in cash equal to 101 percent of the
aggregate principal amount of the Notes repurchased plus accrued and unpaid
interest and liquidated damages, if any, on the Notes repurchased, to the
applicable date of purchase. The Notes were issued under an indenture, dated as
of April 17, 2002, among the Company, the Guarantors and Wells Fargo Bank
Minnesota, National Association, as trustee (the "Indenture"). The Indenture
limits the ability of the Company and the restricted subsidiaries to, among
other things, incur additional indebtedness and issue preferred stock, pay
dividends or make other distributions, make other restricted payments and
investments, create liens, incur restrictions on the ability of certain of its
subsidiaries to pay dividends or other payments to the Company, enter into
transactions with affiliates, and engage in mergers, consolidations and certain
sales of assets.

The Notes and the guarantees of the Guarantors are (i) unsecured; (ii)
subordinate in right of payment to all existing and future senior indebtedness
(including all borrowings under the new credit facility and surety obligations)
of Synagro and the Guarantors; (iii) equal in right of payment to all future and
senior subordinated indebtedness of Synagro and the Guarantors; and (iv) senior
in right of payment to future subordinated indebtedness of Synagro and the
Guarantors.

The net proceeds from the sale of the Notes was approximately $145 million, and
were used to repay and refinance existing indebtedness under the Company's
previously existing credit facility and subordinated debt as of April 17, 2002.

SUBORDINATED DEBT

On January 27, 2000, the Company entered into an agreement with GTCR Capital
providing up to $125 million in subordinated debt financing to fund acquisitions
and for certain other uses, in each case as approved by the Board of Directors
of the Company and GTCR Capital. The agreement was amended on August 14, 2000,
allowing, among other things, for the syndication of 50 percent of the
commitment. The loans bear interest at an annual rate of 12 percent paid
quarterly and provide warrants that are convertible into Preferred Stock at $.01
per warrant. The unpaid principal plus unpaid and accrued interest must be paid
in full by January 27, 2008. The agreement contains general and financial
covenants. Warrants to acquire 9,225.839 shares of Series C, D, and E Preferred
Stock were issued in connection with these borrowings. These warrants were
immediately exercised. This debt was repaid with the proceeds from the issuance
of the Notes.

EARLY EXTINGUISHMENT OF DEBT

In conjunction with the issuance of the Notes and entering into the Senior
Credit Agreement, the Company paid off the then outstanding subordinated debt
and credit facility. The Company recognized an extraordinary charge of
approximately $4.5 million, net of income tax benefit, relating to the write-off
of unamortized deferred financing costs and the difference in the debt carrying
value affected by prior adjustments relating to the reverse swap previously
designated as a fair value hedge.

DERIVATIVES AND HEDGING ACTIVITIES

Prior to June 25, 2001, the Company's derivative contracts consisted of interest
rate swap agreements and option agreements related to hedging requirements under
the Company's Senior Credit Agreement. The option agreements did not qualify for
hedge accounting under SFAS No. 133. Changes in the fair value of these
derivatives were recognized in earnings as interest expense of $226,000 in 2001.
The Company's interest rate swap agreements qualified for hedge accounting as
cash flow hedges of the Company's exposure to changes in variable interest
rates.

On June 25, 2001, the Company entered into a reverse swap on its 12 percent
subordinated debt, and terminated the previously existing interest rate swap and
option agreements noted above. The balance included in accumulated other
comprehensive loss included in stockholders' equity is being recognized in
future periods' income over the remaining term of the original swap agreement.


                                       12
<PAGE>

The amount to be recognized as a noncash expense during 2002 is approximately
$813,000, of which approximately $203,000 and $609,000, respectively, was
recognized in the three and nine months ended September 30, 2002. The Company
had designated the reverse swap agreement on its 12 percent subordinated debt as
a fair value hedge of changes in the value of the underlying debt as a result of
changes in the benchmark interest rate. The amount of the ineffectiveness of the
reverse swap agreement debited to interest expense, net for the three and nine
months ended September 30, 2002, totaled approximately $663,000 and $921,000,
respectively. The 12 percent subordinated debt was repaid on April 17, 2002,
with the proceeds from the sale of the Notes. Accordingly, the Company
discontinued using hedge accounting for the reverse swap agreement on April 17,
2002. From April 17, 2002, through June 25, 2002, the fair value of this
fixed-to-floating reverse swap decreased by $1.7 million. This $1.7 million
mark-to-market gain is included in other income in the Company's financial
statement. On June 25, 2002, the Company entered into a floating-to-fixed
interest rate swap agreement that is expected to substantially offset market
value changes in the Company's reverse swap agreement. The liability related to
this reverse swap agreement and the floating-to-fixed offset agreement totaling
approximately $3,900,000 is reflected in other long-term liabilities at
September 30, 2002. Gains recognized during the quarter ended September 30,
2002, related to the floating-to-fixed interest rate swap agreement were
approximately $504,000, while losses recognized related to the reverse swap
agreement during the quarter were approximately $663,000.

On July 3, 2001, the Company entered into an interest rate cap agreement
establishing a maximum fixed LIBOR rate on $125,000,000 of its floating rate
debt at an interest rate of 6 1/2 percent in order to meet the hedging
requirements of its Senior Credit Agreement. Changes in the fair value of the
agreement charged to interest expense, net, for the three and nine months ended
September 30, 2002, totaled approximately $2,000 and $65,500, respectively.

INTEREST RATE RISK

Total debt at September 30, 2002, included approximately $65,500,000 in floating
rate debt attributed to the Senior Credit Agreement at an interest rate of 4.75
percent. Total debt at November 4, 2002, included approximately $73,800,000 in
floating rate debt attributed at an average interest rate of 5.0 percent. As a
result, the Company's interest cost in 2002 will fluctuate based on short-term
interest rates. The impact on annual cash flow of a ten percent change in the
floating rate would be approximately $150,000.

(6)  NONRECOURSE TAX-EXEMPT REVENUE BONDS

<Table>
<Caption>
                                                                         SEPTEMBER 30,      DECEMBER 31,
                                                                             2002               2001
                                                                       ---------------    ---------------
<S>                                                                    <C>                 <C>
Maryland Energy Financing Administration Limited Obligation
  Solid Waste Disposal Revenue Bonds, 1996 series --
     Revenue bonds due 2002 to 2005 at stated interest
       rates of 5.55 to 5.85% .....................................    $   10,010,000      $   10,010,000
     Term revenue bond due 2010 at stated interest rate of
       6.30% ......................................................        16,295,000          16,295,000
     Term revenue bond due 2016 at stated interest rate of
       6.45% ......................................................        22,360,000          22,360,000
     Less: Restricted cash ........................................        (7,647,235)         (5,780,152)
                                                                       --------------      --------------
                                                                           41,017,765          42,884,848
     Less: Current maturities .....................................        (2,300,000)         (2,300,000)
                                                                       --------------      --------------
     Nonrecourse project revenue bonds, net of current
       maturities .................................................    $   38,717,765      $   40,584,848
                                                                       ==============      ==============
</Table>

In 1996, the Maryland Energy Financing Administration (the "Administration")
issued nonrecourse tax-exempt project revenue bonds (the "Nonrecourse Project
Revenue Bonds") in the aggregate amount of $58,550,000. The Administration
loaned the proceeds of the Nonrecourse Project Revenue Bonds to Wheelabrator
Water Technologies Baltimore L.L.C., now Synagro's wholly owned subsidiary and
known as Synagro-Baltimore, L.L.C., pursuant to a June 1996 loan agreement, and
the terms of the loan mirror the terms of the Nonrecourse Project Revenue Bonds.
The loan financed a portion of the costs of constructing thermal facilities
located in Baltimore County, Maryland, at the site of its Back River Wastewater
Treatment Plant, and in the City of Baltimore, Maryland, at the site of its
Patapsco Wastewater Treatment Plant. The Company assumed all obligations
associated with the Nonrecourse Project Revenue Bonds in connection with its
acquisition of the Bio Gro division of Waste Management, Inc. ("Bio Gro") in
2000. Nonrecourse Project Revenue Bonds in the aggregate amount of approximately
$9,885,000 have already been paid. The remaining Nonrecourse Project Revenue
Bonds bear interest at annual rates between 5.55 percent and 6.45 percent and
mature on dates between December 1, 2002, and December 1, 2016.


                                       13
<PAGE>


The Nonrecourse Project Revenue Bonds are primarily secured by the pledge of
revenues and assets related to the Company's Back River and Patapsco thermal
facilities. The underlying service contracts between the Company and the City of
Baltimore obligated the Company to design, construct and operate the thermal
facilities and obligated the City to deliver biosolids for processing at the
thermal facilities. The City makes all payments under the service contracts
directly with a trustee for the purpose of paying the Nonrecourse Project
Revenue Bonds.

At the Company's option, it may cause the redemption of the Nonrecourse Project
Revenue Bonds at any time on or after December 1, 2016, subject to redemption
prices specified in the loan agreement. The Nonrecourse Project Revenue Bonds
will be redeemed at any time upon the occurrence of extraordinary conditions, as
defined in the loan agreement.

Synagro-Baltimore, L.L.C. guarantees the performance of services under the
underlying service agreements with the City of Baltimore. Under the terms of the
Bio Gro acquisition purchase agreement, Waste Management, Inc. also guarantees
the performance of services under those service agreements. Synagro has agreed
to pay Waste Management $500,000 per year beginning in 2007 until the
Nonrecourse Project Revenue Bonds are paid or its guarantee is removed. Neither
Synagro-Baltimore, L.L.C nor Waste Management has guaranteed payment of the
Nonrecourse Project Revenue Bonds or the loan funded by the Nonrecourse Project
Revenue Bonds.

The loan agreement, based on the terms of the related indenture, requires that
the Company place certain monies in restricted fund accounts and that those
funds be used for various designated purposes (e.g., debt service reserve funds,
bond funds, etc.). Monies in these funds will remain restricted until the
Nonrecourse Project Revenue Bonds are paid.

At September 30, 2002, the Nonrecourse Project Revenue Bonds were secured by
property, machinery and equipment with a net book value of approximately
$58,468,000 and restricted cash of approximately $10,318,000, of which
approximately $7,647,000 was netted against long-term debt and the difference
was shown as restricted cash.

These Nonrecourse Project Revenue Bonds, totaling approximately $41,018,000 of
debt (net of restricted cash) as of September 30, 2002, and approximately
$2,298,000 of related interest expense for the nine months ended September 30,
2002, are excluded from the financial covenant calculations required by the
Company's Senior Credit Agreement.

(7)  COMMITMENTS AND CONTINGENCIES

REGULATORY MATTERS

Synagro's business activities are subject to environmental regulation under
federal, state and local laws and regulations. In the ordinary course of
conducting its business activities, Synagro becomes involved in judicial and
administrative proceedings involving governmental authorities at the federal,
state and local levels. Synagro is required under various regulations to procure
licenses and permits to conduct its operations. These licenses and permits are
subject to periodic renewal without which the Company's operations could be
adversely affected. There can be no assurance that regulatory requirements will
not change to the extent that it would materially affect Synagro's consolidated
financial statements.

LITIGATION

The Company's business activities are subject to environmental regulation under
federal, state and local laws and regulations. In the ordinary course of
conducting its business activities, the Company becomes involved in judicial and
administrative proceedings involving governmental authorities at the federal,
state and local levels. The Company believes that these matters will not have a
material adverse effect on its business, financial condition, results of
operations or cash flows. However, the outcome of any particular proceeding
cannot be predicted with certainty. The Company is required, under various
regulations, to procure licenses and permits to conduct its operations. These
licenses and permits are subject to periodic renewal without which the Company's
operations could be adversely affected. There can be no assurance that
regulatory requirements will not change to the extent that it would materially
affect the Company's consolidated financial statements.

Riverside County

The Company leases and operates a composting facility in Riverside County,
California, under a conditional use permit ("CUP") that expires January 1, 2010.
The CUP allows for a reduction in material intake and CUP term in the event of
noncompliance with the CUP's terms and conditions. In response to alleged
noncompliance due to excessive odor, on or about June 22, 1999, the Riverside
County Board of Supervisors attempted to reduce the Company's intake of
biosolids from 500 tons per day to 250 tons per day. The

                                       14
<PAGE>


Company believes that this was not an authorized action by the Board of
Supervisors. On September 15, 1999, the Company was granted a preliminary
injunction restraining and enjoining the County of Riverside ("County") from
restricting the Company's intake of biosolids at its Riverside composting
facility.

In the lawsuit that the Company filed in the Superior Court of California,
County of Riverside, the Company has also complained that the County's treatment
of the Company is in violation of its civil rights under U.S.C. Section 1983 and
that its due process rights were being affected because the County was
improperly administering the odor protocol in the CUP. The County alleges that
the odor "violations," as well as the Company's actions in not reducing intake,
could reduce the term of the CUP. The Company disagrees and has challenged the
County's position in the lawsuit.

No trial date has been set at this time. The Company continues to operate under
the existing CUP while the parties explore settlement. The next status
conference before the Court is scheduled for December 10, 2002. Proposed terms
of settlement set forth in an expired Memorandum of Understanding with the
County serve as the basis for continuing settlement discussions, which terms
include a plan to relocate the compost facility to a piece of land owned by the
County or other acceptable sites. The Company has incurred approximately
$568,000 of project costs for the relocation site which is included in property
at September 30, 2002. While the County has rejected the Company's most recent
offer to relocate, on October 22, 2002, the County approved a request by the
Santa Ana Watershed Project Authority ("SAWPA") to take over the process of
finding a replacement site and competitively negotiating with a company to
operate the site. This action could provide the basis for a stay of the
litigation and continued operation of the existing facility until a new facility
owned by SAWPA is operational. Development of the SAWPA facility is expected to
take approximately three years.

Whether or not the parties reach settlement based on the terms of the expired
Memorandum of Understanding or otherwise, the site may be closed. The Company
may incur additional costs related to contractual agreements, relocation and
site closure, as well as the need to obtain new permits (including some from the
County) at a new site. If the Company is unsuccessful in its efforts to either
settle or prosecute the litigation, goodwill and certain assets may be impaired.
Total goodwill associated with the operations is approximately $13,843,093 at
September 30, 2002. The financial impact associated with a site closure cannot
be reasonably estimated at this time. Although the Company feels that its case
is meritorious, the ultimate outcome of the litigation and the relocation of
the facility cannot be determined at this time.

Reliance Insurance

For the 24 months ended October 31, 2000 (the "Reliance Coverage Period"), the
Company insured certain risks, including automobile, general liability, and
worker's compensation, with Reliance National Indemnity Company ("Reliance")
through policies totaling $26 million in annual coverage. On May 29, 2001, the
Commonwealth Court of Pennsylvania entered an order appointing the Pennsylvania
Insurance Commissioner as Rehabilitator and directing the Rehabilitator to take
immediate possession of Reliance's assets and business. On June 11, 2001,
Reliance's ultimate parent, Reliance Group Holdings, Inc., filed for bankruptcy
under Chapter 11 of the United States Bankruptcy Code of 1978, as amended. On
October 3, 2001, the Pennsylvania Insurance Commissioner removed Reliance from
rehabilitation and placed it into liquidation.

Claims have been asserted and/or brought against the Company and its affiliates
related to alleged acts or omissions occurring during the Reliance Coverage
period. It is possible, depending on the outcome of possible claims made with
various state insurance guaranty funds, that the Company will have no, or
insufficient, insurance funds available to pay any potential losses. There are
uncertainties relating to the Company's ultimate liability, if any, for damages
arising during the Reliance Coverage Period, the availability of the insurance
coverage, and possible recovery for state insurance guaranty funds.

In June 2002, the Company settled a lawsuit that was pending in Jackson County,
Texas. The full amount of the settlement was paid by insurance proceeds;
however, as part of the settlement, the Company agreed to reimburse the Texas
Property and Casualty Insurance Guaranty Association an amount ranging from
$625,000 to $2,500,000, depending on future circumstances. The Company estimated
its exposure at approximately $1.9 million for the potential reimbursement to
the Texas Property and Casualty Insurance Guaranty Association for costs
associated with the settlement of the case and for unpaid insurance claims and
other costs for which coverage may not be available due to the pending
liquidation of Reliance. The Company previously recorded a special charge of
$2.2 million in its December 31, 2001, financial statements to record the
estimated exposure for this matter and related legal expenses. The Company
believes remaining accruals of $1.1 million as of September 30, 2002, are
adequate to provide for its now existing exposures. The final resolution of
these exposures could be substantially different from the amount recorded.

Design and Build Contract Risk

We participate in design and build construction operations usually as a general
contractor. Virtually all design and construction work is performed by
unaffiliated third-party subcontractors. As a consequence, we are dependent upon
the continued availability of and satisfactory performance by these
subcontractors for the design and construction of our facilities. There is no
assurance that there will be sufficient availability of and satisfactory
performance by these unaffiliated third-party subcontractors. In addition,
inadequate subcontractor resources and unsatisfactory performance by these
subcontractors could have a material adverse effect on our business, financial
condition and results of operations. Further, as the general contractor, we are
legally responsible for the performance of our contracts and if such contracts
are underperformed or non-performed by our subcontractors we could be
financially responsible. Although our contracts with our subcontractors provide
for indemnification of our subcontractors do not satisfactorily perform their
contract, there can be no assurance that such indemnification would cover our
financial losses in attempting to fulfill the contractual obligations. The
Company has experienced delays in completing the construction and performance
test requirements of a manure digestion facility. While construction has been
substantially completed, the Company is currently in the process of conducting
the performance test. The Company believes the performance test will be met,
however, there is a risk that the facility will not pass the contractual
performance requirements. The potential impact on the Company's financial
position or results of operations if the performance test is not passed can not
be determined at this time.

Other

There are various other lawsuits and claims pending against the Company that
have arisen in the normal course of business and relate mainly to matters of
environmental, personal injury and property damage. The outcome of these matters
is not presently determinable;

                                       15
<PAGE>


but, in the opinion of management, the ultimate resolution of these matters will
not have a material adverse effect on the consolidated financial condition,
results of operations or cash flows of the Company.

(8)  COMPREHENSIVE LOSS

The Company's accumulative comprehensive loss at September 30, 2002, and
December 31, 2001, is summarized as follows:

<Table>
<Caption>
                                                                        SEPTEMBER 30,       DECEMBER 31,
                                                                            2002                2001
                                                                       --------------      --------------
<S>                                                                    <C>                 <C>
Cumulative effect of change in accounting for derivatives .........    $   (2,058,208)     $   (2,058,208)
Change in fair value of derivatives ...............................        (2,200,696)         (2,200,696)
Reclassification adjustment to earnings ...........................         1,142,246             532,466
Tax benefit of changes in fair value ..............................         1,184,329           1,416,046
                                                                       --------------      --------------
                                                                       $   (1,932,329)     $   (2,310,392)
                                                                       ==============      ==============
</Table>


(9)  EARNINGS (LOSS) PER COMMON SHARE

Basic earnings per share (EPS) is computed by dividing net income applicable to
common stock by the weighted average number of common shares outstanding for the
period. For periods in which the Company has reported either an extraordinary
item or a cumulative effect of an accounting change, the Company uses income
from continuing operations as the "control number" in determining whether
potential common shares are dilutive or antidilutive. That is, the same number
of potential common shares used in computing the diluted per-share amount for
income from continuing operations has been used in computing all other reported
diluted per-share amounts even if those amounts will be antidilutive to their
respective basic per-share amounts. Diluted EPS is computed by dividing net
income before preferred stock dividends by the total of the weighted average
number of common shares outstanding for the period, the weighted average number
of shares of common stock that would be issued assuming conversion of the
Company's preferred stock, and other common stock equivalents for options and
warrants outstanding determined using the treasury stock method.


                                       16
<PAGE>



<Table>
<Caption>
                                                                        THREE MONTHS ENDED                  NINE MONTHS ENDED
                                                                           SEPTEMBER 30,                      SEPTEMBER 30,
                                                                --------------------------------   --------------------------------
                                                                      2002              2001             2002              2001
                                                                --------------    --------------   ---------------   --------------
<S>                                                             <C>               <C>              <C>               <C>
Net Income:

Net income before extraordinary loss on early retirement of
   debt, net of tax benefit, cumulative effect of change in
   accounting for derivatives and preferred stock dividends ... $    4,481,281    $   11,965,981   $   11,991,627    $   16,882,734
Extraordinary loss on early retirement of debt,
   net of tax benefit of $2,751,405 ...........................             --                --        4,489,133                --
Cumulative effect of change in accounting for derivatives .....             --                --               --         1,860,685
                                                                --------------    --------------   --------------    --------------
Net income before preferred stock dividends ...................      4,481,281        11,965,981        7,502,494        15,022,049
Preferred stock dividends .....................................      1,944,249         1,815,050        5,680,655         5,401,111
                                                                --------------    --------------   --------------    --------------
Net income applicable to common stock ......................... $    2,537,032    $   10,150,931   $    1,821,839    $    9,620,938
                                                                ==============    ==============   ==============    ==============

Earnings per share:

Basic
   Earnings per share before extraordinary loss on early
      retirement of debt, net of tax benefit and cumulative
      effect of change in accounting for derivatives .......... $          .13    $          .52   $          .32    $          .59
   Extraordinary loss on early retirement of debt,
      net of tax benefit ......................................             --                --             (.23)               --
   Cumulative effect of change in accounting for derivatives ..             --                --               --              (.10)
                                                                --------------    --------------   --------------    --------------
   Net income per share ....................................... $          .13    $          .52   $          .09    $          .49
                                                                ==============    ==============   ==============    ==============

Diluted
   Earnings (loss) per share before preferred stock
      dividends, extraordinary loss on early retirement
      of debt, net of tax benefit, and cumulative effect
      of change in accounting for derivatives ................. $          .08    $          .24   $          .23    $          .34
   Extraordinary loss on early retirement of debt,
      net of tax benefit ......................................             --                --             (.09)               --
   Cumulative effect of change in accounting for derivatives ..             --                --               --              (.04)
                                                                --------------    --------------   --------------    --------------
   Net income per share ....................................... $          .08    $          .24   $          .14    $          .30
                                                                ==============    ==============   ==============    ==============

Weighted average shares:

Weighted average shares outstanding for basic earning
   per share ..................................................     19,775,821        19,472,543       19,577,569        19,450,854
Effect of dilutive stock options ..............................         33,898            14,963          258,033            13,460
Effect of convertible preferred stock under the "if
   converted" method ..........................................     33,007,060        30,463,083       32,361,927        29,874,084
                                                                --------------    --------------   --------------    --------------
Weighted average shares outstanding for diluted
   earnings per share .........................................     52,816,779        49,950,589       52,197,529        49,338,398
                                                                ==============    ==============   ==============    ==============
</Table>

                                       17


<PAGE>


Effective January 1, 2002, the Company discontinued the amortization of goodwill
in accordance with its adoption of SFAS No. 142, "Goodwill and Other Intangible
Assets." The following shows the effect on the three and nine months ended
September 30, 2001, as if SFAS No. 142 had been adopted January 1, 2001:

 <Table>
 <Caption>

                                                                   THREE MONTHS ENDED                   NINE MONTHS ENDED
                                                                      SEPTEMBER 30,                        SEPTEMBER 30,
                                                              -----------------------------       -----------------------------
                                                                 2002              2001              2002              2001
                                                              -----------      ------------       -----------      ------------
<S>                                                           <C>              <C>                <C>              <C>
 Reported net income applicable to common
   stock ..............................................       $ 2,537,032      $ 10,150,931       $ 1,821,839      $  9,620,938
 Add back:  Goodwill amortization .....................                --         1,130,898                --         3,363,656
                                                              -----------      ------------       -----------      ------------
 Adjusted net income ..................................         2,537,032        11,281,829         1,821,839        12,984,594

 Basic income per share:
     Reported earnings per share ......................               .13               .52               .09               .49
     Adjusted earnings per share ......................               .13               .58               .09               .66

 Diluted income per share:
     Reported earnings per share ......................               .08               .24               .14               .30
     Adjusted earnings per share ......................               .08               .26               .14               .37
 </Table>


(10) RELATED PARTY

Proceeds from the sale of $150 million aggregate principal amount of Notes were
used to repay and refinance existing indebtedness under the Company's previous
credit facility as of April 17, 2002, and the Company's subordinated debt.
Affiliates of GTCR Golder Rauner LLC and The TCW Group, Inc., the Company's
major stockholders, were participating lenders under the subordinated debt, and
as such, they received the portion of the proceeds from the sale of the Notes
that were used to retire all amounts outstanding under the subordinated debt,
approximately $26,380,000 each.

As part of the purchase price of Earthwise the company entered into a $1.5
million note agreement with the former owners who stayed on as employees. The
note is paid in three equal annual installments beginning October 2003 and has
an interest rate of 5.0% paid quarterly.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

The following discussion should be read in conjunction with the consolidated
historical financial statements of the Company and related notes thereto
included elsewhere in this Form 10-Q and the Annual Report on Form 10-K, as
amended for the year ended December 31, 2001. This discussion contains
forward-looking statements regarding the business and industry of the Company
within the meaning of the Private Securities Litigation Reform Act of 1995.
These statements are based on the current plans and expectations of the Company
and involve risks and uncertainties that could cause actual future activities
and results of operations to be materially different from those set forth in the
forward-looking statements, but are not limited to those factors more thoroughly
disclosed in the Company's Annual Report on Form 10-K.

RECENT DEVELOPMENTS

In August 2002, the Company purchased Earthwise Organics, Inc. and Earthwise
Trucking. Earthwise is one of the largest Class A biosolids and manure
composting and marketing companies in California, with estimated annual revenues
of approximately $10 million.

BACKGROUND

The Company generates substantially all of its revenue by providing water and
wastewater residuals management services to municipal and industrial customers.
The Company provides its customers with complete, vertically-integrated services
and capabilities, including facility operations, facility cleanout services,
regulatory compliance, dewatering, collection and transportation, composting,
drying and pelletization, product marketing, incineration, alkaline
stabilization, and land application. The Company currently serves more than
1,000 customers in 35 states and the District of Columbia. The Company's
contracts typically have inflation price adjustments, renewal clauses and broad
force majeure provisions. In 2001, the Company experienced a contract retention
rate (both renewals and rebids) of approximately 90 percent.


                                       18
<PAGE>


Revenues under the Company's facilities operations and maintenance contracts are
recognized either when water and wastewater residuals enter the facilities or
when the residuals have been processed, depending on the contract terms. All
other revenues under service contracts are recognized when the service is
performed. The Company provides for losses in connection with long-term
contracts where an obligation exists to perform services and it becomes evident
that the projected contract costs will exceed the related revenue.

The Company's costs relating to service contracts include processing,
transportation, spreading and disposal costs, and depreciation of operating
assets. Costs relating to construction contracts primarily include subcontractor
costs related to design, permit and general construction. The Company's selling,
general and administrative expenses are comprised of accounting, information
systems, marketing, legal, human resources, regulatory compliance, and regional
and executive management costs. Historically, the Company has included
amortization of goodwill resulting from acquisitions as a separate line item in
its income statement. Beginning January 1, 2002, goodwill was no longer
amortized in accordance with SFAS No. 142, "Goodwill and Other Intangible
Assets."

HISTORICAL RESULTS OF OPERATIONS

<Table>
<Caption>
                                    THREE MONTHS ENDED SEPTEMBER 30,                      NINE MONTHS ENDED SEPTEMBER 30,
                            -----------------------------------------------     -----------------------------------------------
                                     2002                       2001                     2002                     2001
                            ---------------------      --------------------     ----------------------    ---------------------
<S>                         <C>             <C>        <C>            <C>       <C>              <C>      <C>             <C>
Revenue .................   $74,711,843     100.0%     $70,066,799    100.0%    $201,026,961     100.0%   $194,662,097    100.0%
Cost of services ........    55,286,291      74.0%      50,974,713     72.7%     148,542,920      73.9%    143,389,552     73.7%
                            -----------     -----      -----------    -----     ------------     -----    ------------    -----
Gross profit ............    19,425,552      26.0%      19,092,086     27.3%      52,484,041      26.1%     51,272,545     26.3%

Selling, general and
  administrative
  expenses ..............     5,500,028       7.4%       5,760,480      8.2%      16,879,877       8.4%     16,341,407      8.3%

Reorganization costs ....       571,000       0.8%              --       --%         571,000       0.3%             --       --%
Nonrecurring gain
  from litigation
  settlement ............            --        --%      (6,042,584)    (8.6)%             --        --%     (6,042,584)    (3.1)%
Amortization of
  intangibles ...........        27,000        --%       1,155,904      1.7%          81,417        --%      3,438,657      1.8%
                            -----------     -----      -----------    -----     ------------     -----    ------------    -----
  Income from
    operations ..........    13,327,524      17.8%      18,218,286     26.0%      34,951,747      17.4%     37,535,065     19.3%
                            -----------     -----      -----------    -----     ------------     -----    ------------    -----

Other (income) expense:
  Other income, net .....       130,039       0.2%        (169,849)    (0.3)%     (1,709,665)     (0.8)%      (249,952)    (0.1)%
  Interest expense,
    net .................     5,970,229       8.0%       6,422,154      9.2%      17,321,351       8.6%     20,902,283     10.7%
                            -----------     -----      -----------    -----     ------------     -----    ------------    -----
    Total other expense,
      net ...............     6,100,268       8.2%       6,252,305      8.9%      15,611,686       7.8%     20,652,331     10.6%
                            -----------     -----      -----------    -----     ------------     -----    ------------    -----

Income before provision
  for income taxes ......     7,227,256       9.7%      11,965,981     17.1%      19,340,061       9.6%     16,882,734      8.7%
  Provision for income
    taxes ...............     2,745,975       3.7%              --       --%       7,348,434       3.6%             --       --%
                            -----------     -----      -----------    -----     ------------     -----    ------------    -----
Net income before
  extraordinary loss
  on early retirement
  of debt, net of
  tax benefit, and
  preferred stock
  dividends .............     4,481,281       6.0%      11,965,981     17.1%      11,991,627       6.0%     16,882,734      8.7%
Extraordinary loss on
  early retirement of
  debt, net of tax
  benefit ...............            --        --%              --       --%       4,489,133       2.2%             --       --%
Cumulative effect of
  change in accounting
  for derivatives .......            --        --%              --       --%              --        --%      1,860,685      1.0%
                            -----------     -----      -----------    -----     ------------     -----    ------------    -----
Net income before
  preferred stock
  dividends .............     4,481,281       6.0%      11,965,981     17.1%       7,502,494       3.8%     15,022,049      7.7%
                                            =====                     =====                      =====                     =====
Preferred stock
  dividends .............     1,944,249                  1,815,050                 5,680,655                 5,401,111
                            -----------                -----------              ------------              ------------
Net income applicable
  to common stock .......   $ 2,537,032                $10,150,931              $  1,821,839              $  9,620,938
                            ===========                ===========              ============              ============
</Table>


For the quarter ended September 30, 2002, net sales were approximately
$74,712,000 compared to approximately $70,067,000 for the quarter ended
September 30, 2001, representing an increase of approximately $4,645,000, or 6.6
percent, with approximately $949,000 relating to the Earthwise acquisition,
which closed in August 2002, and the balance from internal growth of
approximately 5.2 percent. For the nine months ended September 30, 2002, net
sales were approximately $201,027,000 compared to approximately $194,662,000 for
the nine months ended September 30, 2001, representing an increase of
approximately $6,365,000, or 3.3 percent, with approximately $949,000 relating
to the Earthwise acquisition and the balance from internal growth of
approximately 2.8 percent.

Cost of services and gross profit for the quarter ended September 30, 2002, were
approximately $55,286,000 and approximately $19,426,000, respectively, compared
with approximately $50,975,000 and approximately $19,092,000, respectively, for
the quarter ended September 30, 2001, resulting in gross profit as a percentage
of sales of approximately 26.0 percent in 2002 and approximately 27.3 percent in
2001. The decrease in gross profit as a percentage of sales relates primarily to
increased depreciation, facility startup costs approximately ($800,000), and
lower margin design build revenues partially offset by a reduction on loss
contract accruals approximately ($750,000) no longer required. Cost of services
and gross profit for the nine months ended September 30, 2002, were
approximately $148,543,000 and approximately $52,484,000, respectively, compared
with approximately $143,390,000 and approximately

                                       19

<PAGE>


$51,272,000, respectively, for the nine months ended September 30, 2001,
resulting in gross profit as a percentage of sales of approximately 26.1 percent
in 2002 and approximately 26.3 percent in 2001. The decrease in gross profit as
a percentage of sales is due primarily to the items mentioned above partially
offset by lower storage costs in the first and second quarters of 2002.

Selling, general and administrative expenses were approximately $5,500,000, or
7.4 percent of revenue, for the quarter ended September 30, 2002, compared to
approximately $5,760,000, or 8.2 percent of revenue, for the quarter ended
September 30, 2001, representing a decrease of approximately $260,000, or 0.4
percent of revenue. The decrease relates primarily to lower legal expenses.
Selling, general and administrative expenses were approximately $16,880,000, or
8.4 percent of revenue, for the nine months ended September 30, 2002, compared
to approximately $16,341,000, or 8.4 percent of revenue, for the nine months
ended September 30, 2001, representing an increase of approximately $539,000, or
0.3 percent. The increase relates primarily to additional expenses to support
the increased revenues.

During the quarter, the Company decided to reorganize by reducing the number of
its operating regions, which resulted in approximately $344,000 of severance
costs in connection with the termination of 24 employees and approximately
$227,000 of terminated office lease arrangements. The total costs incurred of
approximately $571,000 have been reported as reorganization costs in 2002. There
were no such reorganization costs in the prior year.

During the three months ended September 30, 2001, the Company recognized a
nonrecurring gain of approximately $6,043,000 from a litigation settlement;
there is no such item in 2002.

Amortization was approximately $27,000 for the quarter ended September 30, 2002,
and $81,000 for the nine months ended September 30, 2002, compared to
approximately $1,156,000 for the quarter ended September 30, 2001, and
$3,439,000 for the nine months ended September 30, 2001. The decreases result
from the adoption of SFAS No. 142 as of January 1, 2002, which no longer allows
the Company to amortize goodwill.

As a result of the foregoing, income from operations for the three months ended
September 30, 2002, was approximately $13,328,000, or 17.8 percent of revenue,
compared to approximately $18,218,000, or 26.0 percent of revenue, for the three
months ended September 30, 2001. Income from operations for the nine months
ended September 30, 2002, was approximately $34,952,000, or 17.4 percent of
revenue, compared to approximately $37,535,000, or 19.3 percent of revenue, for
the nine months ended September 30, 2001.

Other expense, net, was approximately $6,100,000 for the quarter ended September
30, 2002, compared to approximately $6,252,000 for the quarter ended September
30, 2001, representing a decrease in expense of approximately $152,000. The
decrease relates primarily to interest savings related to reductions in debt
funded from cash flow from operations. Other expense, net, for the nine months
ended September 30, 2002, was approximately $15,612,000 compared to
approximately $20,652,000 for the nine months ended September 30, 2001. The
decrease relates primarily to interest savings related to reductions in debt
funded from cash flow from operations, a decrease in the Company's weighted
average interest rate and a gain of approximately $1,700,000 related to market
value adjustments on a fixed-to-floating interest rate swap agreement.

For the three months ended September 30, 2002, and nine months ended September
30, 2002, the Company recorded a provision for income taxes of approximately
$7,227,000 and $11,966,000, respectively. There were no tax provision
requirements in 2001 as the valuation allowance related to certain deferred
taxes offset deferred tax provision requirements. The Company's 2002 tax
provision is principally a deferred provision that will not significantly impact
cash flow since the Company has significant tax deductions in excess of book
deductions and net operating loss carryforwards available to offset taxable
income.

As a result of the foregoing, net income before extraordinary loss on early
retirement of debt, net of tax benefit, cumulative effect of change in
accounting for derivatives and preferred stock dividends, was approximately
$4,481,000 for the three months ended September 30, 2002, compared to
approximately $11,966,000 for the same period in 2001. Net income before
extraordinary loss on early retirement of debt, net of tax benefit, cumulative
effect of change in accounting for derivatives and preferred stock dividends,
was approximately $11,992,000 for the nine months ended September 30, 2002,
compared to approximately $16,883,000 for the same period in 2001.

In April 2002, the Company completed the sale of $150 million aggregate
principal amount 9 1/2 percent Senior Subordinated Notes due 2009 and used the
proceeds to pay down approximately $92 million of senior bank debt and to pay
off $53 million of 12 percent subordinated debt. In May 2002, the Company
entered into a new $150 million senior credit facility that provides for a $70
million funded term loan and up to a $50 million revolver, which can be
increased to $80 million upon the request of the Company and bank approval. The
term loan proceeds were used to pay off the existing senior debt that remained
unpaid after the Senior Subordinated Notes offering. Accordingly, the Company
recorded a $4.5 million noncash extraordinary loss on early retirement of debt,
net of tax

                                       20
<PAGE>

benefit of $2.8 million, during the three months ended June 30, 2002, which
represents the unamortized deferred debt costs related to the debt that was
repaid with the net proceeds received from the Senior Subordinated Notes and the
new senior credit facility.

LIQUIDITY AND CAPITAL RESOURCES

OVERVIEW

During the past three years, the Company's principal sources of funds were cash
generated from its operating activities and long-term borrowings. The Company
uses cash mainly for capital expenditures, working capital and debt service. In
the future, the Company expects that it will use cash principally to fund
working capital, debt service, repayment obligations and capital expenditures.
In addition, the Company may use cash to pay dividends on preferred stock and
potential earn out payments resulting from prior acquisitions. Historically, the
Company has financed its acquisitions principally through the issuance of equity
and debt securities, its credit facility, and funds provided by operating
activities.

HISTORICAL CASH FLOWS

Cash Flows from Operating Activities -- For the nine months ended September 30,
2002, cash flows from operating activities were approximately $21,646,000
compared to approximately $26,217,000 for the same period in 2001, a decrease of
approximately $4,571,000, or 17.6 percent. The decrease primarily relates to
change in working capital items.

Cash Flows from Investing Activities -- For the nine months ended September 30,
2002, cash flows used for investing activities were approximately $14,077,000
compared to approximately $10,063,000 for the same period in 2001, an increase
of approximately $4,039,000, primarily related to the purchase of Earthwise.

Cash Flows from Financing Activities -- For the nine months ended September 30,
2002, cash flows used in financing activities were approximately $7,186,000
compared to cash flows used in financing activities of approximately $20,067,000
for the same period in 2001, a decrease of approximately $12,905,000. The
decrease primarily relates to additional debt payments made in 2001 using excess
cash at the end of 2000 and cash flow from operations in 2001 compared to the
Company's use of funds in 2002 for debt issuance costs related to refinancing of
debt in April and May and the acquisition of Earthwise.

CAPITAL EXPENDITURE REQUIREMENTS

Capital expenditures for the nine months ended September 30, 2002, totaled
approximately $10,741,000 compared to approximately $9,538,000 in the first nine
months of 2001. The Company's ongoing capital expenditures program consists of
expenditures for replacement equipment, betterments, and growth. The Company
expects its capital expenditures for 2002 to be approximately $14 million to $15
million.

DEBT SERVICE REQUIREMENTS

In August 2002, the Company incurred indebtedness of $1.5 million in connection
with the Earthwise acquisition. Terms of the note require three annual, equal
installments beginning October 2003. Interest at five percent is payable
quarterly beginning October 1, 2002.

In May 2002, the Company entered into an amended and restated $150 million
senior credit facility that provides for a $70 million funded term loan and up
to a $50 million revolver, with the ability to increase the total commitment to
$150 million. The term loan proceeds were used to pay off the existing senior
debt that remained unpaid after the Senior Subordinated Notes offering. This new
facility is secured by substantially all of the Company's assets and those of
its subsidiaries (other than assets securing nonrecourse debt) and includes
covenants restricting the incurrence of additional indebtedness, liens, certain
payments and sale of assets. During the three months ended June 30, 2002, the
Company recorded a noncash extraordinary charge, net of tax, of approximately
$4.5 million, which represents the unamortized deferred debt costs related to
the debt that was repaid with the net proceeds received from the Senior
Subordinated Notes and the amended and restated senior credit facility. The
amended and restated senior credit agreement contains standard covenants
including compliance with laws, limitations on capital expenditures,
restrictions on dividend payments, limitations on mergers and compliance with
certain financial covenants. The Company believes that its effective interest
rate on the old notes and the amended and restated credit facility is not
materially different than the effective interest rate on its previously existing
debt. The Company's 2002 minimum principal payment due on its long-term debt
will decrease by approximately $12 million under the terms of the old notes and
the amended and restated credit facility compared to the terms of its previously
existing debt. Requirements for mandatory debt payments from excess cash flows,
as defined, are unchanged in the amended and restated credit facility.

                                       21
<PAGE>

In April 2002, the Company completed the sale of $150 million aggregate
principal amount of 9 1/2 percent Senior Subordinated Notes due 2009 and used
the proceeds to pay down approximately $92 million of senior bank debt and to
pay off approximately $53 million of 12 percent subordinated debt. In September
2002, the Company exchanged all of its outstanding 9 1/2 percent senior
subordinated notes due 2009 for new registered 9 1/2 percent senior subordinated
notes due 2009.

In 1996, the Maryland Energy Financing Administration (the "Administration")
issued nonrecourse tax-exempt project revenue bonds (the "Nonrecourse Project
Revenue Bonds") in the aggregate amount of $58,550,000. The Administration
loaned the proceeds of the Nonrecourse Project Revenue Bonds to Wheelabrator
Water Technologies Baltimore L.L.C., now the Company's wholly owned subsidiary
and known as Synagro - Baltimore, L.L.C., pursuant to a June 1996 loan
agreement, and the terms of the loan mirror the terms of the Nonrecourse Project
Revenue Bonds. The loan financed a portion of the costs of constructing thermal
facilities located in Baltimore County, Maryland, at the site of its Back River
Wastewater Treatment Plant, and in the City of Baltimore, Maryland, at the site
of its Patapsco Wastewater Treatment Plant. The Company assumed all obligations
associated with the Nonrecourse Project Revenue Bonds in connection with its
acquisition of Bio Gro in 2000. Nonrecourse Project Revenue Bonds in the
aggregate amount of $9,885,000 have already been paid, and the remaining
Nonrecourse Project Revenue Bonds bear interest at annual rates between 5.55
percent and 6.45 percent and mature on dates between December 1, 2002, and
December 1, 2016.

At September 30, 2002, future minimum principal payments of long-term debt are
as follows:

<Table>
<Caption>
                                                          NONRECOURSE
                                         LONG-TERM          PROJECT
    YEAR ENDING DECEMBER 31,               DEBT          REVENUE BONDS          TOTAL
---------------------------------    ---------------     -------------     ---------------
<S>                                  <C>                 <C>               <C>
2002 ............................    $       170,285     $   2,300,000     $     2,470,285
2003 ............................          1,161,535         2,430,000           3,591,535
2004 ............................          1,161,535         2,570,000           3,731,535
2005 ............................          1,161,535         2,710,000           3,871,535
2006 ............................            661,535                --             661,535
2007-2010 .......................        253,752,344        16,295,000         270,047,344
2011-2016 .......................                 --        14,712,765          14,712,765
                                     ---------------     -------------     ---------------
     Total ......................    $   258,068,769     $  41,017,765     $   299,086,534
                                     ===============     =============     ===============
</Table>


In October 2002, the Company paid $163,750 on its long-term debt.

The Company leases certain facilities and equipment under noncancelable,
long-term lease agreements. Minimum annual rental commitments under these leases
have not materially changed during the three months ended September 30, 2002.

Consistent with industry practice, we are required to post performance bonds in
connection with certain contracts on which we bid. In addition, we are often
required to post both performance and payment bonds at the time of execution of
contracts for commercial, federal, state and municipal projects. The amount of
bonding capacity offered by sureties is a function of the financial health of
the entity requesting the bonding. Although we could issue letters of credit
under our credit facility for bonding purposes, if we are unable to obtain
bonding in sufficient amounts we may be ineligible to bid or negotiate on
projects.

The Company believes it will have sufficient cash generated by its operations
and available through its amended and restated credit facility to provide for
future working capital and capital expenditure requirements that will be
adequate to meet its liquidity needs for the foreseeable future, payment of
interest on its amended and restated credit facility and payments on the
Nonrecourse Project Revenue Bonds. The Company cannot assure you, however, that
its business will generate sufficient cash flow from operations, that any cost
savings and any operating improvements will be realized or that future
borrowings will be available to it under its amended and restated credit
facility in an amount sufficient to enable the Company to pay its indebtedness
or to fund other liquidity needs. The Company may need to refinance all or a
portion of its indebtedness on or before maturity. The Company cannot assure you
that it will be able to refinance any of its indebtedness, including its credit
facility and the Notes, on commercially reasonable terms or at all.

SERIES D REDEEMABLE PREFERRED STOCK

The Company has authorized 32,000 shares of Series D Preferred Stock, par value
$.002 per share. In 2000, the Company issued a total of 25,033.601 shares of the
Series D Preferred Stock to GTCR Fund VII, L.P. and its affiliates, which is
convertible by the holders into a number of shares of the Company's common stock
computed by dividing (i) the sum of (a) the number of shares to be converted
multiplied by the liquidation value and (b) the amount of accrued and unpaid
dividends by (ii) the conversion price then in effect. The initial conversion
price is $2.50 per share provided that in order to prevent dilution, the
conversion price may be adjusted. The Series D Preferred Stock is senior to the
Company's common stock or any other of its equity securities. The liquidation
value of each share of Series D Preferred Stock is $1,000 per share. Dividends
on each share of Series D Preferred Stock accrue daily at the rate of eight
percent per annum on the aggregate liquidation value and may be paid in cash or
accrued, at the Company's option. Upon conversion of the Series D Preferred
Stock by the holders, the holders may elect to receive the accrued and unpaid
dividends in shares of the Company's common stock at the conversion price. The
Series D Preferred Stock is entitled to one vote per share. Shares of

                                       22

<PAGE>
Series D Preferred Stock are subject to mandatory redemption by the Company on
January 26, 2010, at a price per share equal to the liquidation value plus
accrued and unpaid dividends. If the outstanding shares of Series D Preferred
Stock excluding accrued dividends were converted at September 30, 2002, they
would represent 10,013,441 shares of common stock.

SERIES E REDEEMABLE PREFERRED STOCK

The Company has authorized 55,000 shares of Series E Preferred Stock, par value
$.002 per share. GTCR Fund VII, L.P. and its affiliates own 37,504.229 shares of
Series E Preferred Stock and certain affiliates of The TCW Group, Inc. own
7,024.58 shares. The Series E Preferred Stock is convertible by the holders into
a number of shares of the Company's common stock computed by dividing (i) the
sum of (a) the number of shares to be converted multiplied by the liquidation
value and (b) the amount of accrued and unpaid dividends by (ii) the conversion
price then in effect. The initial conversion price is $2.50 per share provided
that in order to prevent dilution, the conversion price may be adjusted. The
Series E Preferred Stock is senior to the Company's common stock and any other
of its equity securities. The liquidation value of each share of Series E
Preferred Stock is $1,000 per share. Dividends on each share of Series E
Preferred Stock accrue daily at the rate of eight percent per annum on the
aggregate liquidation value and may be paid in cash or accrued, at the Company's
option. Upon conversion of the Series E Preferred Stock by the holders, the
holders may elect to receive the accrued and unpaid dividends in shares of the
Company's common stock at the conversion price. The Series E Preferred Stock is
entitled to one vote per share. Shares of Series E Preferred Stock are subject
to mandatory redemption by the Company on January 26, 2010, at a price per share
equal to the liquidation value plus accrued and unpaid dividends. If the
outstanding shares of Series E Preferred Stock excluding accrued dividends were
converted at September 30, 2002, they would represent 17,903,475 shares of
common stock.

The future issuance of Series D and Series E Preferred Stock may result in
noncash beneficial conversions valued in future periods recognized as preferred
stock dividends if the market value of the Company's Common Stock is higher than
the conversion price at date of issuance.

INTEREST RATE RISK

Total debt at September 30, 2002, included approximately $65,500,000 in floating
rate debt attributed to the Senior Credit Agreement at an average interest rate
of 4.75 percent. Total debt at November 4, 2002, included approximately
$73,800,000 in floating rate debt attributed at an average interest rate of 5.0
percent. As a result, the Company's interest cost in 2002 will fluctuate based
on short-term interest rates. The impact on annual cash flow of a ten percent
change in the floating rate would be approximately $150,000.

WORKING CAPITAL

At September 30, 2002, the Company had working capital of approximately
$27,199,000 compared to approximately $7,315,000 at September 30, 2001, an
increase of approximately $19,884,000. The increase in working capital is
principally due to a decrease in current maturities of long-term debt and an
increase in trade receivables associated with increased volumes.

CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS

In preparing financial statements in conformity with accounting principles
generally accepted in the United States, management makes estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The
following are the Company's significant estimates and assumptions made in
preparation of its financial statements:

Allowance for Doubtful Accounts -- The Company estimates losses for
uncollectible accounts based on the aging of the accounts receivable and the
evaluation and the likelihood of success in collecting the receivable.

Loss Contracts -- The Company evaluates its revenue producing contracts to
determine whether the projected revenues of such contracts exceed the direct
cost to service such contracts. These evaluations include estimates of the
future revenues and expenses. Accruals for loss contracts are adjusted based on
these evaluations.

Property and Equipment/Long-Lived Assets -- Management adopted SFAS No. 144
during the first quarter 2002. Property and equipment is reviewed for impairment
pursuant to the provisions of SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." The carrying amount of an asset (group) is
considered impaired if it exceeds the sum of our estimate of the undiscounted
future cash flows expected to result from the use and eventual disposition of
the asset (group), excluding interest charges.

The Company has contracts for the design permitting and construction of
biosolids processing facilities. If the permits and/or other government
approvals are not obtained the company may not be reimbursed for its costs
incurred. The Company has approximately $1,170,000 of design and permitting
costs included in property at September 30, 2002.

Goodwill -- Goodwill attributable to the Company's reporting units are tested
for impairment by comparing the fair value of each reporting unit with its
carrying value. Significant estimates used in the determination of fair value
include estimates of future cash flows, future growth rates, costs of capital
and estimates of market multiples. The Company expects to perform impairment
tests annually during the fourth quarter, absent any impairment indicators.

                                       23
<PAGE>

Purchase Accounting -- The Company estimates the fair value of assets, including
property, machinery and equipment and its related useful lives and salvage
values, and liabilities when allocating the purchase price of an acquisition.

Income Taxes -- The Company assumes the deductibility of certain costs in its
income tax filings and estimates the recovery of deferred income tax assets.

Legal and Contingency Accruals -- The Company estimates and accrues the amount
of probable exposure it may have with respect to litigation, claims and
assessments.

Self-Insurance Reserves -- Through the use of actuarial calculations, the
Company estimates the amounts required to settle insurance claims.

Actual results could differ materially from the estimates and assumptions that
the Company uses in the preparation of its financial statements.

ACCOUNTING PRONOUNCEMENTS

Information regarding new accounting pronouncements can be found under the
"Accounting Pronouncements" section of Note (1) to the Condensed Consolidated
Financial Statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

DERIVATIVES AND HEDGING ACTIVITIES

Prior to June 25, 2001, the Company's derivative contracts consisted of interest
rate swap agreements and option agreements related to hedging requirements under
the Company's Senior Credit Agreement. The option agreements did not qualify for
hedge accounting under SFAS No. 133. Changes in the fair value of these
derivatives were recognized in earnings as interest expense of $226,000 in 2001.
The Company's interest rate swap agreements qualified for hedge accounting as
cash flow hedges of the Company's exposure to changes in variable interest
rates.

On June 25, 2001, the Company entered into a reverse swap on its 12 percent
subordinated debt, and terminated the previously existing interest rate swap and
option agreements noted above. The balance included in accumulated other
comprehensive loss included in stockholders' equity is being recognized in
future periods' income over the remaining term of the original swap agreement.
The amount to be recognized as a noncash expense during 2002 is approximately
$813,000, of which approximately $203,000 and $609,000, respectively, was
recognized in the three and nine months ended September 30, 2002. The Company
had designated the reverse swap agreement on its 12 percent subordinated debt as
a fair value hedge of changes in the value of the underlying debt as a result of
changes in the benchmark interest rate. The amount of the ineffectiveness of the
reverse swap agreement debited to interest expense, net for the three and nine
months ended September 30, 2002, totaled approximately $663,000 and $921,000,
respectively. The 12 percent subordinated debt was repaid on April 17, 2002,
with the proceeds from the sale of the Notes. Accordingly, the Company
discontinued using hedge accounting for the reverse swap agreement on April 17,
2002. From April 17, 2002, through June 25, 2002, the fair value of this
fixed-to-floating reverse swap decreased by $1.7 million. This $1.7 million
mark-to-market gain is included in other income in the Company's financial
statement. On June 25, 2002, the Company entered into a floating-to-fixed
interest rate swap agreement that is expected to substantially offset market
value changes in the Company's reverse swap agreement. The liability related to
this reverse swap agreement totaling approximately $3,900,000 is reflected in
other long-term liabilities at September 30, 2002.

On July 3, 2001, the Company entered into an interest rate cap agreement
establishing a maximum fixed LIBOR rate on $125,000,000 of its floating rate
debt at an interest rate of 6.50 percent in order to meet the hedging
requirements of its Senior Credit Agreement. Changes in the fair value of the
agreement charged to interest expense, net, for the three and nine months ended
September 30, 2002, totaled approximately $2,000 and $66,000, respectively.

INTEREST RATE RISK

Total debt at September 30, 2002, included approximately $65,500,000 in floating
rate debt attributed to the Senior Credit Agreement at an interest rate of 4.75
percent. Total debt at November 4, 2002, included approximately $73,800,000 in
floating rate debt attributed at an average interest rate of 5.0 percent. As a
result, the Company's interest cost in 2002 will fluctuate based on short-term
interest rates. The impact on annual cash flow of a ten percent change in the
floating rate would be approximately $150,000.

                                       24

<PAGE>


ITEM 4. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

The Company's Chief Executive Officer and Chief Financial Officer have evaluated
the Company's disclosure controls and procedures as of November 14, 2002, and
they concluded that these controls and procedures are effective.

CHANGES IN INTERNAL CONTROLS

There are no significant changes in internal controls or in other factors that
could significantly affect these controls subsequent to November 14, 2002.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Information regarding the Company's legal proceedings can be found under the
"Litigation" section of Note (6), "Commitments and Contingencies," to the
Condensed Consolidated Financial Statements.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(A)  Exhibit Index

       99.1   Certification of Chief Executive Officer
       99.2   Certification of Chief Financial Officer

(B)  Reports on Form 8-K

       The Company filed a Current Report on Form 8-K on August 7, 2002,
       announcing the appointment of PricewaterhouseCoopers LLP as independent
       auditors for the fiscal year ending December 31, 2002.

       The Company filed a Current Report on Form 8-K on August 12, 2002,
       correcting 2002 earnings guidance.

                                       25

<PAGE>


SIGNATURES

Pursuant to the requirements 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.

   SYNAGRO TECHNOLOGIES, INC.

   Date:  November 14, 2002                 By:       /s/ Ross M. Patten
                                               ---------------------------------
                                                    Chief Executive Officer

   Date:  November 14, 2002                 By:      /s/ J. Paul Withrow
                                               ---------------------------------
                                                    Chief Financial Officer

                                       26

<PAGE>


                                  CERTIFICATION

I,   Ross M. Patten  , certify that:

1.   I have reviewed this quarterly report on Form 10-Q of Synagro Technologies,
     Inc.;

2.   Based on my knowledge, this quarterly report does not contain any untrue
     statement of a material fact or omit to state a material fact necessary to
     make the statements made, in light of the circumstances under which such
     statements were made, not misleading with respect to the period covered by
     this quarterly report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this quarterly report, fairly present in all
     material respects the financial condition, results of operations and cash
     flows of the registrant as of, and for, the periods presented in this
     quarterly report;

4.   The registrant's other certifying officers and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a.  designed such disclosure controls and procedures to ensure that
         material information relating to the registrant, including its
         consolidated subsidiaries, is made known to us by others within those
         entities, particularly during the period in which this quarterly report
         is being prepared;

     b.  evaluated the effectiveness of the registrant's disclosure controls and
         procedures as of a date within 90 days prior to the filing date of this
         quarterly report (the "Evaluation Date"); and

     c.  presented in this quarterly report our conclusions about the
         effectiveness of the disclosure controls and procedures based on our
         evaluation as of the Evaluation Date;

5.   The registrant's other certifying officers and I have disclosed, based on
     our most recent evaluation, to the registrant's auditors and the audit
     committee of the registrant's board of directors (or persons performing the
     equivalent function):

     a.  all significant deficiencies in the design or operation of internal
         controls which could adversely affect the registrant's ability to
         record, process, summarize and report financial data and have
         identified for the registrant's auditors any material weaknesses in
         internal controls; and

     b.  any fraud, whether or not material, that involves management or other
         employees who have a significant role in the registrant's internal
         controls; and

6.   The registrant's other certifying officers and I have indicated in this
     quarterly report whether or not there were significant changes in internal
     controls or in other factors that could significantly affect internal
     controls subsequent to the date of our most recent evaluation, including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.



Date:  November 14, 2002                            /s/ Ross M. Patten
     -----------------------------          ------------------------------------
                                            Chairman and Chief Executive Officer


                                       27
<PAGE>


                                  CERTIFICATION

I,   J. Paul Withrow  , certify that:

1.   I have reviewed this quarterly report on Form 10-Q of Synagro Technologies,
     Inc.;

2.   Based on my knowledge, this quarterly report does not contain any untrue
     statement of a material fact or omit to state a material fact necessary to
     make the statements made, in light of the circumstances under which such
     statements were made, not misleading with respect to the period covered by
     this quarterly report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this quarterly report, fairly present in all
     material respects the financial condition, results of operations and cash
     flows of the registrant as of, and for, the periods presented in this
     quarterly report;

4.   The registrant's other certifying officers and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a.  designed such disclosure controls and procedures to ensure that
         material information relating to the registrant, including its
         consolidated subsidiaries, is made known to us by others within those
         entities, particularly during the period in which this quarterly report
         is being prepared;

     b.  evaluated the effectiveness of the registrant's disclosure controls and
         procedures as of a date within 90 days prior to the filing date of this
         quarterly report (the "Evaluation Date"); and

     c.  presented in this quarterly report our conclusions about the
         effectiveness of the disclosure controls and procedures based on our
         evaluation as of the Evaluation Date;

5.   The registrant's other certifying officers and I have disclosed, based on
     our most recent evaluation, to the registrant's auditors and the audit
     committee of the registrant's board of directors (or persons performing the
     equivalent function):

     a.  all significant deficiencies in the design or operation of internal
         controls which could adversely affect the registrant's ability to
         record, process, summarize and report financial data and have
         identified for the registrant's auditors any material weaknesses in
         internal controls; and

     b.  any fraud, whether or not material, that involves management or other
         employees who have a significant role in the registrant's internal
         controls; and

6.   The registrant's other certifying officers and I have indicated in this
     quarterly report whether or not there were significant changes in internal
     controls or in other factors that could significantly affect internal
     controls subsequent to the date of our most recent evaluation, including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.



Date:  November 14, 2002                            /s/ J. Paul Withrow
     -----------------------------          ------------------------------------
                                                  Chief Financial Officer

                                       28

<PAGE>

                                 EXHIBIT INDEX

    EXHIBIT
    NUMBER        DESCRIPTION
    -------       -----------

     99.1         Certification of Chief Executive Officer
     99.2         Certification of Chief Financial Officer