<PAGE>   1
                                    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

For the Quarterly Period Ended June 30, 2000      Commission File Number 0-21054

                           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 AUGUST 9, 2000
   -----------------------------      ----------------------------------
   Common stock, par value $.002                  19,435,780





<PAGE>   2
                           SYNAGRO TECHNOLOGIES, INC.

                                      INDEX

<TABLE>
<CAPTION>
                                                                         PAGE
                                                                         ----
<S>                                                                      <C>
PART I -- FINANCIAL INFORMATION

    Item 1 and Financial Statements

    Condensed Consolidated Balance Sheets as of June 30, 2000
       (Unaudited) and December 31, 1999...............................    3

    Condensed Consolidated Statements of Operations for the
       Three and Six Months Ended June 30, 2000 and 1999 (Unaudited)...    4

    Condensed Consolidated Statements of Cash Flows for the
       Six  Months Ended June 30, 2000 and 1999 (Unaudited)............    5

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

    Item 2 Management's Discussion and Analysis of Financial
              Condition and Results of Operations......................   14

    Item 3 Quantitative and Qualitative Disclosures About Market Risk..   19

PART II -- OTHER INFORMATION...........................................   20
</TABLE>




                                       2
<PAGE>   3
                           SYNAGRO TECHNOLOGIES, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                             JUNE 30,           DECEMBER 31,
                         ASSETS                                2000                 1999
                                                         ----------------      --------------
                                                           (UNAUDITED)
<S>                                                        <C>                <C>
Current Assets:
  Cash and cash equivalents                              $  2,490,095           $    180,633
  Accounts receivable, net                                 21,929,906             11,641,160
  Notes receivable                                             31,843                 90,131
  Prepaid expenses and other current assets                 7,383,046              3,745,590
                                                         ------------           ------------
          Total current assets                             31,834,890             15,657,514

Property, machinery & equipment, net                       43,732,188             15,918,674

Other Assets:
  Goodwill, net                                           138,056,968             64,280,266

  Notes receivable, long-term portion                         183,396                183,396

  Other assets                                              7,831,479              3,132,247
                                                         ------------           ------------
          Total assets                                   $221,638,921           $ 99,172,097
                                                         ============           ============

     LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
  Accounts payable and accrued expenses                  $ 13,979,942           $ 10,428,823
  Current portion of notes payable to prior owners            352,835                849,010
  Current portion of long-term debt                         5,886,158                398,040
                                                         ------------           ------------
          Total current liabilities                        20,218,935             11,675,873

Long term liabilities:
  Long term debt - net                                    119,364,349             39,936,222
  Notes payable to prior owners                               125,000              2,245,511
  Other long-tem liabilities                                1,700,000                     --
                                                         ------------           ------------
          Total long term liabilities                     121,189,349             42,181,733

COMMITMENTS AND CONTINGENCIES

Redeemable Preferred Stock                                 29,907,210                     --


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, 19,419,381 and 17,693,489 issued and
  outstanding                                                  38,858                 35,388
  Additional and paid-in capital                           97,661,967             66,406,731
  Accumulated deficit                                     (47,377,398)           (21,127,628)
                                                         ------------           ------------
          Total stockholders' equity                       50,323,427             45,314,491
                                                         ------------           ------------
          Total liabilities and stockholders' equity     $221,638,921           $ 99,172,097
                                                         ============           ============
</TABLE>

         The accompanying notes are an integral part of these Condensed
                       Consolidated Financial Statements.




                                       3
<PAGE>   4
                           SYNAGRO TECHNOLOGIES, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                               THREE MONTHS ENDED JUNE 30,      SIX MONTHS ENDED JUNE 30,
                                               ---------------------------      -------------------------

                                                  2000            1999            2000           1999
                                              ------------    ------------    ------------   ------------
<S>                                           <C>             <C>             <C>            <C>
Net sales.................................    $ 27,768,428    $ 14,917,754    $ 46,434,854   $ 23,978,231
Cost of services..........................      19,510,737      10,765,419      34,602,960     18,514,021
                                              ------------    ------------    ------------   ------------
Gross profit..............................       8,257,691       4,152,335      11,831,894      5,464,210

Selling, general and administrative
  expenses................................       2,537,462       1,566,210       5,017,382      3,220,452
Amortization of goodwill..................         815,621         345,377       1,438,135        668,028
                                              ------------    ------------    ------------    -----------
Income from operations....................       4,904,608       2,240,748       5,376,377      1,575,730

Other income (expense)....................         (17,862)         (3,840)        (13,604)        51,032
Interest expense, net.....................      (2,927,622)       (768,679)     (5,017,530)    (1,315,985)
                                              ------------    ------------    ------------   ------------
Other expenses, net.......................      (2,945,484)       (772,519)     (5,031,134)    (1,264,953)
                                              ------------    ------------    ------------   ------------
Income before provision for income
  taxes...................................       1,959,124       1,468,229         345,243        310,777

Provision for income taxes................              --              --              --             --
                                              ------------    ------------    ------------   ------------

Net income before preferred stock
   dividends and non cash beneficial
   charge.................................       1,959,124       1,468,229         345,243        310,777
Preferred stock dividends.................         591,708              --         951,134             --
Non-cash beneficial conversion charge.....       3,505,537              --      25,643,879             --
                                              ------------    ------------    ------------   ------------
Net income (loss) applicable to common
  stock...................................    $ (2,138,121)   $  1,468,229    $(26,249,770)  $    310,777
                                              ============    ============    ============   ============

Basic and diluted earnings (loss) per
  share:
  Net income per share....................    $       0.10    $       0.09    $       0.02   $       0.02
  Preferred stock dividends...............           (0.03)             --           (0.05)            --
  Non-cash beneficial conversion
    charge................................           (0.18)             --           (1.34)            --
                                              ------------    ------------    ------------   ------------
  Net income (loss) per common share......    $      (0.11)   $       0.09    $      (1.37)  $       0.02
                                              ============    ============    ============   ============

Weighted average shares outstanding,
  basic...................................      19,424,193      16,343,171      19,143,834     15,308,759
Weighted average shares outstanding,
  diluted.................................      19,424,193      17,142,759      19,143,834     16,086,432
</TABLE>



   The accompanying notes are an integral part of these Condensed Consolidated
                             Financial Statements.





                                       4
<PAGE>   5
                           SYNAGRO TECHNOLOGIES, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                               SIX  MONTHS ENDED JUNE 30,
                                                        ----------------------------------------
                                                               2000                  1999
                                                        -----------------     ------------------
                                                                       (UNAUDITED)
<S>                                                     <C>                   <C>
Cash flows from operating activities:
Net income before redeemable preferred stock
     dividends........................................     $       345,243       $       310,777
  Adjustments to reconcile net income
     provided by (used in) operating activities
       Depreciation and amortization..................           3,870,661             1,984,618
       Loss (gain) on sale of equipment...............             (17,861)               25,841

  Change in operating assets and liabilities,
     net of effects of acquired businesses:
       Accounts receivable............................          (1,214,907)           (1,835,659)
       Prepaid expenses and other.....................             580,299              (111,008)
       Accounts payable and accrued expenses..........            (348,388)             (833,276)
                                                           ---------------       ---------------
Net cash provided by (used in) operating
  activities..........................................           3,215,047              (458,707)
                                                           ---------------       ---------------

Cash flows from investing activities:
       Additions to property, machinery & equipment...          (1,837,252)           (2,016,869)
       Proceeds from sale of equipment................              85,500               224,918
       Cash paid for acquired business, net of cash
         acquired.....................................         (87,480,720)          (13,606,292)
       Proceeds from notes receivable...............                58,288               317,515
                                                           ---------------       ---------------
Net cash used in investing activities...............           (89,174,184)          (15,080,728)
                                                           ---------------       ---------------

Cash flows from financing activities:
       Proceeds from debt...........................           117,384,881            20,136,580
       Payments on debt.............................           (51,584,222)           (4,792,048)
       Debt issuance costs..........................            (6,632,303)                   --
       Sale of redeemable preferred stock...........            28,956,076                    --
       Exercise of options and warrants.............               144,167               195,099
                                                           ---------------       ---------------
Net cash provided by financing activities...........             88,268,599           15,539,631
                                                           ----------------      ---------------

Net increase in cash and cash equivalents...........              2,309,462                  196
Cash and cash equivalents, beginning of period......                180,633              414,712
                                                           ----------------      ---------------
Cash and cash equivalents, end of period............       $      2,490,095      $       414,908
                                                           ================      ===============
</TABLE>


         The accompanying notes are an integral part of these Condensed
                       Consolidated Financial Statements.




                                       5
<PAGE>   6
                           SYNAGRO TECHNOLOGIES, INC.
          CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)

<TABLE>
<CAPTION>
                                                    SIX MONTHS ENDED
                                                        JUNE 30,
                                                 ---------------------
                                                   2000         1999
                                                 --------     --------
                                                      (UNAUDITED)
<S>                                              <C>          <C>
         Supplemental Cash Flow Information

         Interest paid during the period.......  $4,472,424   $1,197,751
         Taxes paid during the period..........          --           --
</TABLE>

                   NON-CASH INVESTING AND FINANCING ACTIVITIES

During the first six months of 2000, the Company issued an aggregate of 28,744.4
shares of Series C, Series D, and Series E Preferred Stock ("Preferred Stock)
with a beneficial conversion feature. The Company recognized the value of the
beneficial conversion feature of $25,643,879 as a preferred stock dividend.

During the six month period ended June 30, 2000, the Company issued an aggregate
of 220,898 shares relating to cashless exercises of certain warrants and options
pursuant to an exemption from registration under Rule 144 of the Securities Act.




                                       6
<PAGE>   7
                           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 three and six months
ended June 30, 2000, 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, as amended, for the year ended December 31, 1999.

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, as
amended, for the year ended December 31, 1999.

The Company is engaged in the biosolids management business throughout the
United States. The Company does this through beneficial reuse of organic
materials, transportation and monitoring of biosolids, and the marketing of end
products from the treatment of such materials.

ACCOUNTING PRONOUNCEMENTS

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which became effective for financial
statements beginning after June 15, 1999. SFAS No. 133 requires a company to
recognize all derivative instruments (including certain derivative instruments
embedded in other contracts) as assets or liabilities in its balance sheet and
measure them at fair value. The statement requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. In June 1999, the FASB amended SFAS No. 133
to defer its effective date to all fiscal quarters and all fiscal years
beginning after June 15, 2000. The Company is evaluating SFAS No.133 and the
impact on existing accounting policies and financial reporting disclosures. The
Company has not historically engaged in activities or entered into arrangements
normally associated with derivative instruments. However, under the Company's
amended credit facility dated January 27, 2000, the Company is required to hedge
the interest rate on 50% of the total outstanding debt. The Company has entered
into two three year hedge agreements dated April 18, 2000 and July 28, 2000 with
Bank of America, N. A., for $35,000,000 and $15,000,000 respectively,
establishing a maximum fixed LIBOR rates of 6.28125 and 6.65 respectively. Bank
of America, N.A. at its discretion can extend the term of the agreements by
three years.




                                       7
<PAGE>   8
(2) ACQUISITIONS

1999 ACQUISITIONS

In 1999, the Company purchased Anti-Pollution Associates, Inc. and D&D Pumping,
Inc., Vital Cycle, Inc. and AMSCO, Inc. (collectively, the "1999 Acquisitions").
The 1999 acquisitions were recorded using the purchase method of accounting. The
balance sheet at December 31, 1999 includes a preliminary allocation of the
purchase price and is subject to final adjustment, which management believes
will not be material. The preliminary allocation resulted in approximately
$19,889,000 of goodwill that is being amortized over 40 years. The assets
acquired and liabilities assumed relating to the 1999 acquisitions are
summarized as follows:

            Common stock shares issued...................            3,044,784
                                                              ================
            Value of common stock issued.................     $      9,024,000
            Cash paid including transaction costs,
            net of cash acquired.........................           13,802,000
            Less: Historical net assets acquired.........            2,936,861
                                                              ----------------
            Goodwill ....................................     $     19,889,139
                                                              ================

ACQUISITION OF NATIONAL RESOURCE RECOVERY, INC.

In March 1999, Synagro completed the acquisition of all the common stock of
National Resource Recovery, Inc. ("NRR"), in a business combination accounted
for as a "pooling-of-interests" transaction. NRR, headquartered in Michigan,
provides biosolids management services. Synagro issued 1,000,001 shares of
common stock in exchange for all of the common stock of NRR. There were no
transactions between Synagro and NRR during the periods prior to the business
combination.

2000 ACQUISITIONS

Subsequent to December 31, 1999 and through June 30, 2000, the Company purchased
Residual Technologies, Limited Partnership and its affiliates (collectively
"RESTEC"), Ecosytematics, Inc., Davis Water Analysis, Inc., AKH Water
Management, Inc., Rehbein, Inc, certain assets and contracts of Whiteford
Construction Company, and Environmental Protection & Improvement Company, Inc.
("EPIC") (collectively, the "2000 Acquisitions"). In connection with the
purchase of RESTEC, the former owners are entitled to receive up to an
additional $12.0 million over the next eight years if certain performance
targets are met. In connection with the purchase of Rehbein, Inc., the former
owners are entitled to receive up to an additional $2.0 million over the next
three years if certain performance targets are met. In connection with the
purchase of EPIC, the former owners are entitled to receive up to an additional
$ 5.4 million over the next three years if certain performance targets are met.
Additionally, the Company assumed approximately $13.4 million, net of restricted
cash reserves of approximately $3,076,000, of municipal bonds in connection
with the acquisition of RESTEC. The bonds contained a provision whereby RESTEC
could defease the bonds and be released from all future obligations by placing
an equivalent amount of U.S. Securities with the bonds trustee. Subsequent to
June 30, 2000, the Company defeased the bonds utilizing the $13.5 million of
availability under its amended Senior Credit Agreement reserved for defeasance.
The 2000 Acquisitions were accounted for using the purchase method of
accounting. The preliminary allocation of the purchase prices which is subject
to final adjustment resulted in approximately $75,263,000 of goodwill that is
being amortized over 40 years. The assets acquired and liabilities assumed
relating to the 2000 Acquisitions are summarized as follows:

Common stock shares issued......................................     1,325,000
                                                                   ===========
Value of common stock issued....................................   $ 5,471,000
Cash paid including transaction costs,
   net of cash acquired.........................................    87,480,720
Less: Historical net assets acquired............................    17,688,720
                                                                   -----------
Goodwill........................................................   $75,263,000
                                                                   ===========

The following unaudited pro forma information for the periods set forth below
gives effect to the 1999 Acquisitions and 2000 Acquisitions as if they had
occurred at the beginning of 1999. The unaudited pro forma information is
presented for information purposes only and is not necessarily indicative of
actual results, which might have occurred if the acquisitions had been made at
the beginning of the periods presented. The adjustments primarily relate to the
additional interest, amortization of goodwill, preferred stock dividends and
non cash beneficial conversion charges associated with the 1999 Acquisitions
and 2000 Acquisitions.




                                       8
<PAGE>   9

<TABLE>
<CAPTION>
                                                               THREE MONTHS ENDED                       SIX MONTHS ENDED
                                                                    JUNE 30,                                JUNE 30,
                                                                   (UNAUDITED)                             (UNAUDITED)
                                                    -----------------------------------     ----------------------------------------
                                                            2000              1999                 2000                  1999
                                                    -------------------  --------------     -------------------     ----------------
<S>                                                 <C>                  <C>                <C>                     <C>
     Net sales....................................     $ 30,953,640       $ 30,958,482        $ 58,574,267           $ 56,387,522
     Net income (loss) before Preferred Stock
      Dividends...................................        1,780,700            717,011          (1,045,058)            (2,376,383)
     Net earnings (loss) applicable to Common
     Stock........................................       (2,402,496)        (3,466,415)        (28,116,255)           (29,376,580)
     Net earnings (loss) per share................
          Basic...................................            (0.13)             (0.22)              (1.53)                 (2.01)

          Diluted.................................            (0.13)             (0.22)              (1.53)                 (2.01)
</TABLE>

On April 28, 2000 the Company signed an agreement to purchase all of the
outstanding stock of Wheelabrator Water Technologies, Inc. and Residuals
Processing, Inc. (collectively "BioGro") from Waste Management, Inc. On August
14, 2000 the Company acquired BioGro for approximately $200 million, including
$53 million of assumed debt. The acquisition was financed through the issuance
of debt and preferred stock. This transaction was accounted for using the
purchase method of accounting. BioGro calendar 1999 revenues totaled
approximately $119 million.

(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 Stockholder Rights described below.

SERIES C REDEEMABLE PREFERRED STOCK

On January 26, 2000 the Company authorized 30,000 shares of Series C Preferred
Stock, par value $.002 per share. Upon approval by a majority of the Company's
shareholders and certain other conditions in March 2000, the Series C Preferred
Stock became convertible into Series D Preferred Stock at a rate of 1:1. The
Series C Preferred Stock is senior to the Common Stock or any other equity
securities of the Company. The liquidation value of each share of Series C
Preferred Stock is $1,000 per share ("Liquidation Value") plus accrued and
unpaid dividends. Dividends on each share of Series C Preferred Stock shall
accrue on a daily basis at the rate of 8% per annum on aggregate Liquidation
Value plus accrued and unpaid dividends. The Series C Preferred Stock has no
voting rights. Shares of Series C 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.

On January 27, 2000 the Company issued 17,358.824 shares of Series C Preferred
Stock, par value $.002 per share, to GTCR Fund VII, L.P. and its affiliates for
$17,358,824. On February 4, 2000 the Company issued 419.4 shares of Series C
Preferred Stock to GTCR Fund VII, L.P. and its affiliates for $419,400. On March
24, 2000 the Company issued 225.000 shares of Series C Preferred Stock to GTCR
Fund VII, L.P. and its affiliates for $225,000. On March 27, 2000 the Company
issued 1,260.000 shares of Series C Preferred Stock to GTCR Fund VII, L.P. and
its affiliates for $1,260,000. The proceeds were used primarily to fund the 2000
Acquisitions. The Company also issued warrants to GTCR Fund VII, L.P. for a
nominal price in connection with the issuance of subordinated debt, which
warrants were immediately converted into 272.058 shares of Series C Preferred
Stock.

During April 2000 all Series C Preferred Stock was converted to Series D
Preferred Stock.

SERIES D REDEEMABLE PREFERRED STOCK

On January 26, 2000 the Company authorized 32,000 shares of Series D Preferred
Stock, par value $.002 per share. The Series D Preferred Stock is convertible by
the holders into a number of shares of Common Stock computed by (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 Common Stock or any other equity securities of
the Company. The liquidation value of each share of Series D Preferred Stock is
$1,000 per share ("Liquidation Value") plus accrued and unpaid dividends.
Dividends on each share of Series D Preferred Stock shall accrue on a daily
basis at the rate of 8% per annum on the aggregate Liquidation Value plus unpaid
and accrued interest. 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.




                                       9
<PAGE>   10

On January 27, 2000 the Company issued 2,641.176 shares of Series D Preferred
Stock, par value $.002 per share, to GTCR Fund VII, L.P. and its affiliates for
$2,641,176. The proceeds were used primarily to fund the 2000 Acquisitions. The
Company also issued warrants to GTCR Fund VII, L.P. for a nominal price in
connection with the issuance of subordinated debt, which warrants were
immediately converted into 2,857.143 shares of Series D Preferred Stock.

SERIES E REDEEMABLE PREFERRED STOCK

On June 14, 2000 the Company authorized 55,000 shares of Series E Preferred
Stock, par value $.002 per share. The Series E Preferred Stock is convertible by
the holders into a number of shares of Common Stock computed by (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 Common Stock or any other equity securities of
the Company. The liquidation value of each share of Series E Preferred Stock is
$1,000 per share ("Liquidation Value") plus accrued and unpaid dividends.
Dividends on each share of Series E Preferred Stock shall accrue on a daily
basis at the rate of 8% per annum on the aggregate Liquidation Value. 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.

On June 15, 2000 the Company issued 6,840 shares of Series E Preferred Stock,
par value $.002 per share, to GTCR Fund VII, L.P. and its affiliates for
$6,840,000. The proceeds were used primarily to fund the acquisition of EPIC.
The Company also issued warrants to GTCR for a nominal price in connection with
the issuance, which were immediately converted into 1,400.00 shares of Series E
Preferred Stock.

NON-CASH BENEFICIAL CONVERSION

The Series D and Series E Preferred Stock (including Series C Preferred Stock
that will be converted into Series D Preferred Stock - see above, and the
warrants issued in connection with the subordinated debt, which were converted
into Series C Preferred Stock, Series D Preferred Stock, and Series E Preferred
Stock - see note 5) are convertible into shares of the Company's common stock at
$2.50 per share. This conversion feature was below the market price at the time
of issuance. The Company recognized the value of this beneficial conversion
feature of approximately $25,640,000 as a preferred stock dividend at the time
of issuance. The value of such preferred stock dividend has no impact on the
Company's cash flows, but reduces basic and diluted earnings applicable to
holders of Common Stock. Additionally, future issuances of Series D and Series E
Preferred Stock and warrants related to subordinated debt (see note 5) may
result in non-cash beneficial conversions valued in future periods recognized as
preferred stock dividends if the market value is higher than the conversion
price.

(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
stockholder 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.




                                       10
<PAGE>   11

In connection with the issuance of the Series C Preferred Stock, Series D
Preferred Stock, and Series E Preferred Stock to GTCR Fund VII, L.P. and its
affiliates, the Board of Directors waived the application of the rights plan.

(5)  DEBT

CREDIT FACILITY

On October 7, 1998, the Company obtained a $40 million bank credit facility (the
"Facility"). The Facility was used to retire certain debt payable to various
individuals and financial institutions. The Facility was secured by
substantially all of the Company's assets.

The Facility was due to expire October 5, 2001, and bore interest at the bank
eurodollar or reference rate plus a margin based upon a pricing schedule per the
Facility agreement. The Facility was subject to a borrowing base equal to 3.75
times earnings before interest, taxes, depreciation and amortization ("EBITDA")
based on a trailing twelve months calculation, as defined in the Facility, less
funded debt as defined (which included notes payable to prior owners, which
could be refinanced through the Facility).

The Facility required the consent of the lenders for acquisitions exceeding a
certain level of cash consideration, prohibited the payments of cash dividends,
limited the issuance of indebtedness and required the Company to comply with
certain financial covenants, including a minimum net worth requirement, maximum
senior and total debt to pro forma EBITDA and interest coverage ratio.

On January 27, 2000 the Company entered into a $110 million 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 refinance existing debt (including the Facility), to fund
capital expenditures and 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 Senior Credit Agreement
was subsequently syndicated on March 15, 2000 to a banking group, and the
capacity was increased to $120 million. The loan commitments under the Senior
Credit Agreement are as follows:

         (i.)    Revolving Loans up to $20,000,000 outstanding at any one time;

         (ii.)   Term A Loans of up to $40,000,000 were available until April
                 27, 2000; of which $13,500,000 is available for the repayment
                 or defeasement of certain indebtedness assumed in connection
                 with the acquisition of RESTEC.

         (iii.)  Term B Loans (which once repaid may not be reborrowed) of
                 $30,000,000 made on the closing date;

         (iv.)   Acquisition Loans up to $30,000,000 outstanding at any one time
                 available on a revolving basis prior to January 27, 2001
                 provided that certain approvals are obtained and certain
                 financial ratios are met; and

         (v.)    Letters of credit issuable by the Company up to $15,000,000 as
                 a subset of the Revolving Loans.

The amounts borrowed under the Senior Credit Agreement are subject to repayment
as follows:
<TABLE>
<CAPTION>
                                                         REVOLVING          TERM A            TERM B             ACQUISITION
                                                           LOANS             LOANS             LOANS                LOANS
                                                           -----             -----             -----                -----
<S>                                                        <C>               <C>               <C>                  <C>
Year 1.................................                    --                6.56%             1.00%                   0%
Year 2.................................                    --               13.75%             1.00%                6.67%
Year 3.................................                    --               15.00%             1.00%                3.33%
Year 4.................................                    --               22.50%             1.00%               10.00%
Year 5.................................                   100.00%           25.00%             1.00%               13.33%
Year 6.................................                    --               17.19%             1.00%               66.67%
Year 6 1/2.............................                    --                --               94.00%                --
                                                          -------          -------           -------              -------
                                                          100.00%          100.00%           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 for Revolving
Loans and Acquisition Loans. The Senior Credit Agreement contains standard
covenants



                                       11
<PAGE>   12
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 it is in compliance with
those covenants. The Senior Credit Agreement is secured by all the assets of the
Company and expires on July 27, 2006. The Company had total debt of
approximately $125,728,000 at June 30, 2000 net of restricted cash of
approximately $2,720,000, which was utilized in the defeasement of RESTEC Bonds
subsequent to June 30, 2000. The Company had accrued $1,700,000 at June 30, 2000
which approximates the cost of defeasement. The Bonds were recorded at fair
value net of restricted cash at the date of acquisition of RESTEC no gain or
loss was recognized upon defeasement. As of August 9, 2000, the Company has
borrowed approximately $100,000,000, ($40,000,000 of Term A Loans, $30,000,000
of Term B Loans, and $30,000,000 of Acquisition Loans) which was primarily used
to refinance existing debt, partially fund the 2000 Acquisitions, and defease
bonds acquired in the RESTEC purchase which was completed subsequent to June 30,
2000. The Company has approximately $20,000,000 available for additional
borrowing under the Senior Credit Agreement at August 9, 2000.

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 loans bear interest at an annual rate of
12% paid quarterly and provide warrants which 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. As of August 9, 2000, the Company has incurred
approximately $26,380,400 of indebtedness under the terms of the agreement,
which was used to partially fund the 2000 Acquisitions. Warrants to acquire
3,738.54 shares of Series C, D, and E Preferred Stock were issued in connection
with these borrowings. These warrants were immediately exercised by GTCR.

(6) COMMITMENTS AND CONTINGENCIES

LITIGATION

AZURIX, CORP.

The Company is involved in two related lawsuits with Azurix Corp. ("Azurix").
These cases arise from disputes between the Company and Azurix. The events
giving rise to the lawsuits began when Synagro and Azurix entered into a
confidentiality agreement, giving Azurix access to confidential and proprietary
information about Synagro for purposes of evaluating potential transactions
between the parties, including an equity investment (through a subscription
agreement) by Azurix in Synagro to provide the equity capital for pending
acquisitions and a possible merger between the two companies. Under Synagro's
lawsuit against Azurix filed in Texas (the "Texas Suit") Synagro claims that
subsequent to the confidentiality agreement, Synagro and Azurix supplemented the
confidentiality agreement by mutually consenting to the terms and conditions of
a standstill agreement under which Azurix agreed, among other things, not to
pursue, for a specified period and in the absence of Synagro's consent, the
acquisition of companies that Synagro had targeted for acquisition. Synagro
believes that Azurix breached its obligations to Synagro under the
confidentiality and standstill agreements as well as the subscription agreement.

Azurix filed on October 29, 1999, a lawsuit in Delaware (the "Delaware Suit")
seeking unspecified injunctive relief, limited declaratory relief relating to
the construction of the standstill agreement and the stock subscription
agreement entered into between the Company and Azurix, and attorneys' and
experts' fees. Azurix claims that Synagro toruously interfered in its
negotiations with a potential acquisition candidate. The Company believes the
Delaware Suit was filed by Azurix in an attempt to have the Company's dispute
with Azurix tried in Delaware under a non-jury proceeding rather than in Texas
under a jury proceeding. The Company filed the Texas Suit on November 1, 1999,
seeking injunctive relief, actual and exemplary damages, and attorneys' fees
against Azurix alleging violations of the standstill agreement and certain
confidentiality agreements governing Azurix's ability to use confidential and
proprietary information provided to Azurix by the Company. The exchanges of
information at issue occurred during negotiations regarding a $16,000,000 to
$23,000,000 investment by Azurix in the Company and a potential merger of the
companies. The Company's current petition seeks injunctive relief, actual
damages, exemplary damages, attorneys' fees, and costs arising from Azurix's
alleged misappropriation of the Company's confidential and proprietary
information. On the Company's motion, the Texas court entered a temporary
restraining order on November 2, 1999 that prohibited Azurix from, among other
things, consummating a contemplated acquisition of certain third-party companies
that were subject to the standstill agreement, and from using information
provided by the Company to Azurix during the course of their negotiations. On
November 15, 1999, on Azurix's motion, the Texas court abated the Texas Suit
pending a decision by the court hearing the Delaware Suit as to which of the two
actions should proceed. The Company subsequently filed a motion with the
Delaware court to dismiss or stay the Delaware Suit, which was granted in part
by a decision of the Delaware court, on February 3, 2000, to stay the Delaware
Suit pending the resolution of the Texas Suit. Azurix's efforts to appeal the
Delaware court's ruling have been denied. Subsequently, the Company reactivated
the Texas Suit and recently filed an amended Petition seeking additional damages
against Azurix's breach of the subscription agreement.




                                       12
<PAGE>   13

The extent of the damages, if any, in either action has not been determined and
although the Company is confident in its position, the ultimate outcome of the
foregoing matters cannot be determined at this time.

COUNTY OF RIVERSIDE

The Company operates a composting facility in Riverside County, California under
a conditional use permit ("CUP"), which expires January 1, 2010. The CUP
conditions allow for a reduction in material intake and the CUP life in the
event of noncompliance with the CUP terms and conditions. On September 15, 1999,
the Company received a preliminary injunction restraining and enjoining the
County of Riverside ("County") from restricting intake of biosolids at the
Company's Riverside composting facility based upon a June 22, 1999, order of the
Board of Supervisors of the County.

The Company has complained that its due process rights were being affected
because the County was improperly administering the odor protocol in the CUP.
Among its complaints, the Company alleges that the County was using untrained
observers to detect odor violations and that those observers were not using
scientific methods to distinguish among different sources of odors and the
levels of odor magnitude. The Court elected not to grant the Company's request
for a preliminary injunction on those issues. Rather, those issues will be
addressed during the underlying lawsuit that is still pending against the County
of Riverside.

The Company has taken the position that certain alleged odor violations asserted
by the County staff during the pending litigation were not appropriate under the
CUP. On certain of those instances, the Company has declined to reduce its
intake of biosolids. The County alleges that the Company's actions in not
reducing intake constitute violations that could reduce the term of the CUP by
as many as 63 months. The Company disagrees and is challenging the County's
position in the lawsuit.

On May 10, 2000, the Company prevailed at a hearing on its motion to amend the
complaint to allow allegations challenging the County's authority to reduce
intake and term of the CUP. The County successfully moved to strike portions of
the amended complaint and the Company has taken a Writ to the California Court
of Appeals on this ruling. Although the Company feels that its case is
meritorious, discovery has not been completed and the ultimate outcome cannot be
determined at this time.

OTHER

The Company currently and from time to time is subject to other claims and
lawsuits arising in the ordinary course of business. In the opinion of
management, the outcome of such proceedings will not have a material adverse
effect on the Company's consolidated financial position or results of
operations.




                                       13
<PAGE>   14
 (7)     EARNINGS (LOSS) PER COMMON SHARE

Basic earnings per share (EPS) excludes dilution and is computed by dividing net
income by the weighted average number of common shares outstanding for the
period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock. For purposes of the calculation, outstanding stock options,
warrants and redeemable preferred stock are considered common stock equivalents.
The adjusted number of shares for the six months ended June 30, 2000 and the
three months June 30, 2000 that would be increased related to stock options and
preferred stock were approximately 11,149,006 and 10,688,604 respectively;
however, diluted per share amounts are not applicable for loss periods. The
following table summarizes the basic EPS and diluted EPS computations for the
quarter and six months ended June 30, 2000 and 1999:


<TABLE>
<CAPTION>
                                                      THREE MONTHS ENDED JUNE 30,        SIX MONTHS ENDED JUNE 30,
                                                      ---------------------------        -------------------------
                                                          2000           1999                2000         1999
                                                      ------------   ------------        ------------  -----------
                                                                               (UNAUDITED)
<S>                                                   <C>            <C>                 <C>           <C>
      Net income before preferred stock
        dividends...................................   $ 1,959,124    $ 1,468,229       $     345,243   $  310,777
      Preferred stock dividend......................       591,708             --             951,134           --
      Non-cash beneficial conversion charge.........     3,505,537             --          25,643,879           --
                                                       -----------    -----------       -------------   ----------
      Net income (loss) applicable to common stock..   ($2,138,121)   $ 1,468,229       ($ 26,249,770)  $  310,777
                                                       ===========    ===========       =============   ===========

      Basic and diluted earnings (loss) per share:
        Net income per share before preferred
           stock dividends and non-cash beneficial
           conversion charge .......................   $      0.10    $      0.09       $        0.02   $     0.02

        Preferred stock dividends...................         (0.03)            --               (0.05)          --

        Non-cash beneficial conversion charge.......         (0.18)                             (1.34)
                                                       -----------    -----------       -------------   -----------
        Net income (loss) per common share..........   $     (0.11)   $      0.09       $       (1.37)  $     0.02
                                                       ===========    ===========       =============   ===========

      Weighted average shares outstanding,
        basic.......................................    19,424,193     16,343,171          19,143,834   15,308,759
      Weighted average shares outstanding, diluted..    19,424,193     17,142,759          19,143,834   16,086,432
</TABLE>




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 and pro forma combined 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, 1999. 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.

The Company is a national provider of biosolids management. The Company
currently performs services for municipalities, local agencies and private
industry and plans to consolidate the fragmented biosolids markets. The timing
and magnitude of acquisitions and assimilation costs may materially affect
future operating results. Accordingly, the operating results for any period may
not necessarily be indicative of the results that may be achieved for any
subsequent period.



                                       14
<PAGE>   15
Historical results are not necessarily indicative of future results of the
Company because, among other things, the businesses acquired were not under
common control or management prior to their acquisition. The timing and
magnitude of acquisitions, assimilation costs and the seasonal nature of the
biosolids management industry may materially affect operating results.
Accordingly, the operating results for any period are not necessarily
indicative of the results that may be achieved for any subsequent period.

HISTORICAL RESULTS AND OPERATIONS

<TABLE>
<CAPTION>
                                                       THREE MONTHS ENDED JUNE 30,    SIX MONTHS ENDED JUNE 30,
                                                       ----------------------------    -------------------------
                                                            2000          1999            2000          1999
                                                       -------------  -------------    ----------    -----------
<S>                                                    <C>            <C>              <C>           <C>
    Net sales.......................................   $  27,768,428  $  14,917,754   $  46,434,854  $ 23,978,231
    Cost of services................................      19,510,737     10,765,419      34,602,960    18,514,021
                                                       -------------  -------------    ------------  ------------
    Gross profit....................................       8,257,691      4,152,335      11,831,894     5,464,210

    Selling, general and administrative expenses....       2,537,462      1,566,210       5,017,382     3,220,452
    Amortization of goodwill........................         815,621        345,377       1,438,135       668,028
                                                       -------------  -------------    ------------  ------------
    Income  from operations.........................       4,904,608      2,240,748       5,376,377     1,575,730

    Other income (expense)..........................         (17,862)        (3,840)        (13,604)       51,032
    Interest expense................................      (2,927,622)      (768,679)     (5,017,530)   (1,315,985)
                                                       -------------  -------------    ------------  ------------
    Other expenses - net............................      (2,945,484)      (772,519)     (5,031,134)   (1,264,953)
                                                       -------------  -------------    ------------  ------------
    Income before provision for income taxes........       1,959,124      1,468,229         345,243       310,777

    Provision for income taxes......................              --             --              --            --
                                                       -------------  -------------    ------------  ------------

    Net income before preferred stock dividends
      and non-cash beneficial conversion charge.....       1,959,124      1,468,229         345,243       310,777
    Preferred stock dividends.......................         591,708                        951,134
    Non-cash beneficial conversion charge...........       3,505,537             --      25,643,879            --
                                                       -------------  -------------    ------------  ------------
    Net income (loss) applicable to common stock....   $  (2,138,121) $   1,468,229    $(26,249,770) $    310,777
                                                       =============  =============    ============  ============
</TABLE>


For the quarter ended June 30, 2000, net sales were approximately $27,768,000
compared to approximately $14,918,000 for the quarter ended June 30, 1999,
representing an increase of approximately $12,850,000 or 87%. The increase
relates to sales from the 1999 Acquisitions of approximately $1,712,000 and the
2000 Acquisitions of approximately $10,600,000 with the remaining increase
resulting from internal growth. For the six month period ended June 30, 2000,
net sales were approximately $46,435,000 compared to approximately $23,978,000
for the six month period ended June 30, 1999, representing an increase of
approximately $22,457,000 or 94%. The increase relates to sales from the 1999
Acquisitions of approximately $5,767,000 and the 2000 Acquisitions of
approximately $16,008,000 with the remaining increase resulting from internal
growth.

Cost of services and gross profit for the quarter ended June 30, 2000 were
approximately $19,511,000 and approximately $8,258,000, respectively, compared
with approximately $10,765,000 and approximately $4,152,000, respectively, for
the quarter ended June 30, 1999, resulting in gross profit as a percentage of
sales increasing to 30% in 2000 from 28% in 1999. The increase in gross profit
for the quarter ended June 30, 2000 relates to the 1999 Acquisitions of
approximately $300,000 and the 2000 Acquisitions of approximately $3,509,000,
and increased profits relating to the additional volumes. The gross profit
percent increase relates to higher margins on the 2000 acquisitions. Cost of
services and gross profit for the six month period ended June 30, 2000 were
approximately $34,603,000 and approximately $11,832,000, respectively, compared
with approximately $18,514,000 and approximately $5,464,000, respectively, for
the six month period ended June 30, 1999, resulting in gross profit as a
percentage of sales increasing to 26% in 2000 from 23% in 1999. The increase in
gross profit for the six month period ended June 30, 2000 relates to the 1999
Acquisitions of approximately $1,421,000 and the 2000 Acquisitions of
approximately $5,271,000, and increased profits relating to the additional
volumes. The gross profit percent increase relates to higher margins on the 2000
acquisitions.

Selling, general and administrative expenses were approximately $2,537,000 for
the quarter ended June 30, 2000 compared to approximately $1,566,000 for the
quarter ended June 30, 1999, representing an increase of approximately $971,000.
The increase for the quarter ended June 30, 2000 relates to additional selling,
general and administrative costs from the 1999 Acquisitions of approximately
$33,000 and the 2000 Acquisitions of approximately $277,000. The increase also
reflects additional marketing, human resources, and other staff at the corporate
level to support the Company's growth. Selling, general and administrative
expenses were approximately $5,017,000 for the six month period ended June 30,
2000 compared to approximately $3,220,000 for the six month period ended June
30, 1999, representing an increase of approximately $1,797,000. The increase for
the six month period ended June 30, 2000 relates to additional selling, general
and administrative costs from the 1999 Acquisitions of approximately $80,000 and
the 2000 Acquisitions of approximately $496,000. The increase also reflects
additional marketing, human resources, and other staff at the corporate level
necessary to support the Company's growth.

Amortization of goodwill was approximately $816,000 for the quarter ended June
30, 2000 and $1,438,000 for the six month period ended June 30, 2000 compared to
approximately $345,000 for the quarter ended June 30, 1999 and $668,000 for the
six month period ended June 30, 1999. The increase in goodwill amortization
relates to the 1999 Acquisitions and the 2000 Acquisitions.




                                       15
<PAGE>   16

Other income (expense) was approximately ($18,000) for the the quarter ended
June 30, 2000 compared to approximately ($4,000) for the quarter ended June 30,
1999, representing an increase in expense of approximately $14,000. Other income
(expense) was approximately ($14,000) for the six month period ended June 30,
2000 compared to approximately $51,000 for the quarter ended June 30, 1999,
representing a decrease in income of approximately $65,000. The decrease relates
to notes receivable collected during the six month period ended June 30, 1999
that were fully reserved. There were no such items during the six month period
ended June 30, 2000.

As a result of the foregoing, net income of approximately $1,959,000 before
preferred stock dividends, or $0.10 per share, was reported for the quarter
ended June 30, 2000 compared to a net income of approximately $1,468,000 before
preferred stock dividends, or $0.09 income per share, for the quarter ended June
30, 1999. Net income of approximately $345,000 before preferred stock dividends,
or $0.02 per share, was reported for the six month period ended June 30, 2000
compared to net income of approximately $311,000 before preferred stock
dividends, or $0.02 income per share, for the six month period ended June 30,
1999.

During the quarter ended June 30, 2000 and the six month period ended June 30,
2000 preferred stock dividends of approximately $3,506,000 and $25,644,000,
respectively, were recognized relating to the issuance of redeemable preferred
stock with a beneficial conversion feature in connection with the 2000
Acquisitions. Additionally, for the quarter ended June 30, 2000 and the six
month period ended June 30, 2000 preferred stock dividends of approximately
$592,000 and $951,000 respectively were recognized. See Note (3) of the notes to
condensed consolidated financial statements included herein for further
discussion. There were no such dividends during 1999.

As a result of the Company's cumulative operating losses, the Company has not
paid federal income tax since inception. As of December 31, 2000, the Company
had net operating loss carry forwards totaling approximately $10,643,000.
Utilization of the Company's net operating losses are subject to limitation
under certain circumstances.

LIQUIDITY AND CAPITAL RESOURCES

The Company has historically financed its operations principally through the
sale of equity and debt securities, a credit facility and through funds provided
by operating activities.

On January 26, 2000, the Company authorized 30,000 shares of Series C Preferred
Stock, par value $.002 per share. Upon approval by a majority of the Company's
shareholders and certain other conditions, the Series C Preferred Stock is
convertible by the holders to Series D Preferred Stock at a rate of 1:1. The
Series C Preferred Stock is senior to the Common Stock or any other equity
securities of the Company. The liquidation value of each share of Series C
Preferred Stock is $1,000 per share ("Liquidation Value") plus accrued and
unpaid dividends. Dividends on each share of Series C Preferred Stock shall
accrue on a daily basis at the rate of 8% per annum on aggregate Liquidation
Value plus accrued and unpaid dividends. The Series C Preferred Stock has no
voting rights. Shares of Series C 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 unpaid and accrued dividends.

On January 26, 2000, the Company authorized 32,000 shares of Series D Preferred
Stock, par value $.002 per share. The Series D Preferred Stock is convertible by
the holders into a number of shares of Common Stock computed by (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 Common Stock or any other equity securities of
the Company. The liquidation value of each share of Series D Preferred Stock is
$1,000 per share ("Liquidation Value") plus accrued and unpaid dividends.
Dividends on each share of Series D Preferred Stock shall accrue on a daily
basis at the rate of 8% per annum on aggregate Liquidation Value plus unpaid and
accrued interest. 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.



                                       16
<PAGE>   17
On January 27, 2000, the Company issued 17,358.824 shares of Series C Preferred
Stock, par value $.002 per share, to GTCR Fund VII, L.P. and its affiliates for
$17,358,824. On February 4, 2000, the Company issued 419.4 shares of Series C
Preferred Stock to GTCR Fund VII, L.P. and its affiliates for $419,400. On March
24, 2000, the Company issued 225.000 shares of Series C Preferred Stock to GTCR
Fund VII, L.P. and its affiliates for $225,000. On March 27, 2000, the Company
issued 1,260.000 shares of Series C Preferred Stock to GTCR Fund VII, L.P. and
its affiliates for $1,260,000. The proceeds were used primarily to fund the 2000
Acquisitions.

On January 27, 2000, the Company issued 2,641.176 shares of Series D preferred
stock, par value $.002 per share, to GTCR Fund VII, L.P. and its affiliates for
$2,641,176. The proceeds were used primarily to fund the 2000 Acquisitions in
the first quarter 2000.

The Company also issued warrants for a nominal price in connection with the
issuance of subordinated debt, which were immediately converted into 2,857.143
shares of Series D Preferred Stock and 272.058 shares of Series C Preferred
Stock.

On June 14, 2000 the Company authorized 55,000 shares of Series E Preferred
Stock, par value $.002 per share. The series E Preferred Stock is convertible by
the holders into a number of shares of Common Stock computed by (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 Common Stock or any other equity securities of
the Company. The liquidation value of each share of Series E Preferred Stock is
$1,000 per share ("Liquidation Value") plus accrued and unpaid dividends.
Dividends on each share of Series E Preferred Stock shall accrue on a daily
basis at the rate of 8% per annum on the aggregate Liquidation Value. 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.

On June 15, 2000, the Company issued 6,840 shares of Series E Preferred Stock,
par value $.002 per share, to GTCR Fund VII, L.P. and its affiliates for
$6,840,000. Additionally, the Company issued 2,009.34 warrants for a nominal
price in connection with the issuance of the preferred stock; these were
immediately converted into preferred stock. The proceeds were used primarily to
fund the acquisition of EPIC.

The Series D and Series E Preferred Stock and warrants related to subordinated
debt may result in non-cash beneficial conversions valued in future periods
recognized as preferred stock dividends if the market value is higher than the
conversion price. See Note 3 in the accompanying "Notes to the Consolidated
Financial Statements."

Through June 30, 2000, the Company had completed the 2000 Acquisitions for
aggregate consideration of approximately $90,557,000. The transactions were
accounted for using the purchase method of accounting. The preliminary
allocation of purchase prices resulted in approximately $75,263,000 of goodwill
that is being amortized over 40 years.

The Company purchased additional capital assets during the six months ended June
30, 2000 in the amount of approximately $1,837,000 and sold capital assets with
proceeds totaling approximately $85,500.

As of June 30, 2000, the Company had current maturities on long-term debt of
$6,239,000, as compared to approximately $2,906,000 in 1999. The Company's total
long-term debt was $125,728,000 at June 30, 2000, reflecting an increase of
approximately $81,865,000 over June 30, 1999. This increase is due primarily to
the funding of the 2000 Acquisitions.

On October 7, 1998, the Company obtained a $40 million bank credit facility (the
"Facility"). The Facility was used to retire certain debt payable to various
individuals and financial institutions. The Facility was secured by
substantially all of the Company's assets.

The Facility was due to expire October 5, 2001, and bore interest at the bank
eurodollar or reference rate plus a margin based upon a pricing schedule per the
Facility agreement. The Facility was subject to a borrowing base equal to 3.75
times earnings before interest, taxes, depreciation and amortization ("EBITDA")
based on a trailing twelve months calculation, as defined in the Facility, less
funded debt as defined (which includes notes payable to prior owners, which
could be refinanced through the Facility).

The Facility required the consent of the lenders for acquisitions exceeding a
certain level of cash consideration, prohibited the payments of cash dividends,
limited the issuance of indebtedness and required the Company to comply with
certain financial covenants, including a minimum net worth requirement, maximum
senior and total debt to pro forma EBITDA and interest coverage ratio.

On January 27, 2000, the Company entered into a $110 million 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 refinance existing debt (including the Facility),
to fund capital expenditures and 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 Senior Credit
Agreement was subsequently syndicated on March 15, 2000 to a banking group, and
the capacity was increased to $120 million. The loan commitments under the
Senior Credit Agreement are as follows:

                                       17
<PAGE>   18

            (i.)         Revolving Loans up to $20,000,000 outstanding at any
                         one time;

            (ii.)        Term A Loans of up to $40,000,000 were available until
                         April 27, 2000; of which $13,500,000 is available for
                         the repayment or defeasement of certain indebtedness
                         assumed in connection with the acquisition of RESTEC;


          (iii.)         Term B Loans (which once repaid may not be reborrowed)
                         of $30,000,000 made on the closing date;

           (iv.)         Acquisition Loans up to $30,000,000 outstanding at any
                         one time available on a revolving basis prior to
                         January 27, 2001 provided that certain approvals are
                         obtained and certain financial ratios are met; and

            (v.)         Letters of credit issuable by the Company up to
                         $15,000,000 as a subset of the Revolving Loans.

The amounts borrowed under the Senior Credit Agreement are subject to repayment
as follows:

<TABLE>
<CAPTION>
                                                                   REVOLVING       TERM A        TERM B      ACQUISITION
                                                                     LOANS         LOANS          LOANS         LOANS
                                                                     -----         -----          -----         -----
<S>                                                                  <C>           <C>            <C>           <C>
Year 1.......................................................             --          6.56%         1.00%            0%
Year 2.......................................................             --         13.75%         1.00%         6.67%
Year 3.......................................................             --         15.00%         1.00%         3.33%
Year 4.......................................................             --         22.50%         1.00%        10.00%
Year 5.......................................................        100.00%         25.00%         1.00%        13.33%
Year 6.......................................................             --         17.19%         1.00%        66.67%
Year 6 1/2...................................................             --             --        94.00%            --
                                                                 -----------   ------------   -----------    ----------
                                                                     100.00%        100.00%       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 for Revolving
Loans and Acquisition Loans. 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
certain financial covenants. The Company believes that it is in compliance with
those covenants. The Senior Credit Agreement is secured by all the assets of the
Company and expires on July 27, 2006. The Company had total debt of
approximately $125,728,000 at June 30, 2000 net of restricted cash of
approximately $2,720,000 which was utilized in the defeasement of RESTEC bonds
subsequent to June 30, 2000. The Company had accrued $1,700,000 at June 30, 2000
which approximates the cost of defeasement. The bonds were recorded at fair
value net of restricted cash at the date of acquisition of RESTEC, and therefore
no gain or loss was recognized on defeasement. As of August 9, 2000, the Company
has borrowed approximately $100,000,000, ($40,000,000 of Term A Loans,
$30,000,000 of Term B Loans and $30,000,000 of Acquisition Loans) which was
primarily used to refinance existing debt, partially fund the 2000 Acquisitions,
and defease bonds acquired in the RESTEC purchase. The Company has approximately
$20,000,000 available for additional borrowing under the Senior Credit
Agreement.

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 loans bear interest at an annual rate of
12% paid quarterly and provide warrants which 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. As of August 9, 2000, the Company has incurred $26,380,000
of indebtedness under the terms of the agreement which was used to partially
fund 2000 the Acquisitions. Warrants to acquire 5,138.54 shares of Series C, D,
and E Preferred Stock were issued in connection with these borrowings. These
warrants were immediately exercised by GTCR.

At June 30, 2000, the Company had working capital of approximately $11,616,000.
Accounts receivable and prepaid expenses and other currents assets increased by
approximately $13,868,000 during the six months ended June 30, 2000, primarily
due to the acquisitions and increased receivables relating to sales volumes. The
Company evaluates the collectibility of its receivables based on a specific
account-by-account review, and has an allowance of approximately $643,000 at
June 30, 2000. Accounts payable and accrued expenses increased by approximately
$3,551,000 during the six months ended June 30, 2000 primarily as a result of
acquisitions partially offset by reduced payables as a result of cash
availability. The Company believes its cash requirements for 2000 can be met
with existing cash, cash flows from operations and its borrowing availability
under the Senior Credit Agreement.


                                       18
<PAGE>   19

The increase in other assets as of June 30, 2000, related primarily to an
increase in deferred bank costs associated with the credit facility and GTCR
subordinated debt, partially offset by a reduction in pre-acquisition costs
related to acquisitions consummated in 2000.

The Company has undergone significant restructuring throughout the last three
years, including changes in senior management and refinancing of its
indebtedness. As a result of these changes, management believes the Company is
better positioned to respond to opportunities in the biosolids market and
aggressively pursue its goal of acquiring additional biosolids management
companies.

SEASONALITY

The Company's business is seasonal, and subject to certain unusual weather
conditions and unseasonably heavy rainfall that can temporarily reduce the
availability of land application sites in close proximity to the Company's
business. During the winter months, the ground is frozen which can limit the
level of land application that can be performed. Generally, the product is
stored by the customer during the winter months with transportation and land
application services performed as the ground thaws. As a result, the Company's
revenues and operational results are generally lower in the first calendar
quarter.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company utilizes financial instruments, which inherently have some degree of
market risk due to interest rate fluctuations. Management is actively involved
in monitoring exposure to market risk and continues to develop and utilize
appropriate risk management techniques. The Company is not exposed to any other
significant market risks, including commodity price risk, foreign currency
exchange risk or interest rate risks from the use of derivative financial
instruments. Management does not currently use derivative financial instruments
for trading or to speculate on changes in interest rates or commodity prices.

INTEREST RATE RISK

Total debt at August 9, 2000, included approximately $100,000,000 in floating
rate debt attributed to the bank credit facility borrowings at an average
interest rate of 10.08%. As a result, the Company's annual interest cost in 2000
will fluctuate based on short-term interest rates. The Company entered into two
three year hedge agreements dated April 18, 2000 and July 28, 2000 with Bank of
America, N.A., for $35,000,000 and $15,000,000 respectively establishing a
maximum fixed LIBOR rates of 6.28125 and 6.65 respectively. Bank of America,
N.A. at its sole discretion can extend the term of the agreements by three
year. The impact on annual cash flow of a ten-percent change in the floating
rate would be approximately $331,000 after taking into consideration the hedge
agreements.

At August 9, 2000, the Company's fixed rate debt had a book value and fair
market value of $28,433,797.




                                       19
<PAGE>   20
                           PART II - OTHER INFORMATION

ITEM 1.

LITIGATION

AZURIX, CORP.

The Company is involved in two related lawsuits with Azurix Corp. ("Azurix").
These cases arise from disputes between the Company and Azurix. The events
giving rise to the lawsuits began when Synagro and Azurix entered into a
confidentiality agreement, giving Azurix access to confidential and proprietary
information about Synagro for purposes of evaluating potential transactions
between the parties, including an equity investment (through a subscription
agreement) by Azurix in Synagro to provide the equity capital for pending
acquisitions and a possible merger between the two companies. Under Synagro's
lawsuit against Azurix filed in Texas (the "Texas Suit") Synagro claims that
subsequent to the confidentiality agreement, Synagro and Azurix supplemented the
confidentiality agreement by mutually consenting to the terms and conditions of
a standstill agreement under which Azurix agreed, among other things, not to
pursue, for a specified period and in the absence of Synagro's consent, the
acquisition of companies that Synagro had targeted for acquisition. Synagro
believes that Azurix breached its obligations to Synagro under the
confidentiality and standstill agreements as well as the subscription agreement.

Azurix filed on October 29, 1999, a lawsuit in Delaware (the "Delaware Suit")
seeking unspecified injunctive relief, limited declaratory relief relating to
the construction of the standstill agreement and the stock subscription
agreement entered into between the Company and Azurix, and attorneys' and
experts' fees. Azurix claims that Synagro tortuously interfered in its
negotiations with a potential acquisition candidate. The Company believes the
Delaware Suit was filed by Azurix in an attempt to have the Company's dispute
with Azurix tried in Delaware under a non-jury proceeding rather than in Texas
under a jury proceeding. The Company filed the Texas Suit on November 1, 1999,
seeking injunctive relief, actual and exemplary damages, and attorneys' fees
against Azurix alleging violations of the standstill agreement and certain
confidentiality agreements governing Azurix's ability to use confidential and
proprietary information provided to Azurix by the Company. The exchanges of
information at issue occurred during negotiations regarding a $16,000,000 and
$23,000,000 investment by Azurix in the Company and a potential merger of the
companies. The Company's current petition seeks injunctive relief, actual
damages, exemplary damages, attorneys' fees, and costs arising from Azurix's
alleged misappropriation of the Company's confidential and proprietary
information. On the Company's motion, the Texas court entered a temporary
restraining order on November 2, 1999 that prohibited Azurix from, among other
things, consummating a contemplated acquisition of certain third-party companies
that were subject to the standstill agreement, and from using information
provided by the Company to Azurix during the course of their negotiations. On
November 15, 1999, on Azurix's motion, the Texas court abated the Texas Suit
pending a decision by the court hearing the Delaware Suit as to which of the two
actions should proceed. The Company subsequently filed a motion with the
Delaware court to dismiss or stay the Delaware Suit, which was granted in part
by a decision of the Delaware court, on February 3, 2000, to stay the Delaware
Suit pending the resolution of the Texas Suit. Azurix's efforts to appeal the
Delaware court's ruling have been denied. Subsequently, the Company reactivated
the Texas Suit and recently filed an amended Petition seeking additional damages
against Azurix's breach of the subscription agreement.

The extent of the damages, if any, in either action has not been determined and
although the Company is confident in its position, the ultimate outcome of the
forgoing matters cannot be determined at this time.

COUNTY OF RIVERSIDE

The Company operates a composting facility in Riverside County, California under
a conditional use permit ("CUP"), which expires January 1, 2010. The CUP
conditions allow for a reduction in material intake and the CUP life in the
event of noncompliance with the CUP terms and conditions. On September 15, 1999,
the Company received a preliminary injunction restraining and enjoining the
County of Riverside ("County") from restricting intake of biosolids at the
Company's Riverside composting facility based upon a June 22, 1999, order of the
Board of Supervisors of the County.

The Company has complained that its due process rights were being affected
because the County was improperly administering the odor protocol in the CUP.
Among its complaints, the Company alleges that the County was using untrained
observers to detect odor violations and that those observers were not using
scientific methods to distinguish among different sources of odors and the
levels of odor magnitude. The Court elected not to grant the Company's request
for a preliminary injunction on those issues. Rather, those issues will be
addressed during the underlying lawsuit that is still pending against the County
of Riverside.




                                       20
<PAGE>   21

The Company has taken the position that certain alleged odor violations asserted
by the County staff during the pending litigation were not appropriate under the
CUP. On certain of those instances, the Company has declined to reduce its
intake of biosolids. The County alleges that the Company's actions in not
reducing intake constitute violations that could reduce the term of the CUP by
as many as 63 months. The Company disagrees and is challenging the County's
position in the lawsuit.

On May 10, 2000, the Company prevailed at a hearing on its motion to amend the
complaint to allow allegations challenging the County's authority to reduce
intake and term of the CUP. The County successfully moved to strike portions of
the amended complaint and the Company has taken a Writ to the California Court
of Appeals on this ruling. Although the Company feels that its case is
meritorious, discovery has not been completed and the ultimate outcome cannot be
determined at this time.

OTHER

The Company currently and from time to time is subject to other claims and
lawsuits arising in the ordinary course of business. In the opinion of
management, the outcome of such proceedings will not have a material adverse
effect on the Company's consolidated financial position or results of
operations.

ITEM 6.  FINANCIAL STATEMENTS, EXHIBITS AND REPORTS ON FORM 8-K

(A)  Exhibit Index

     27.1  Financial Data Schedule

(B)  Reports on Form 8-K

     Current Report on Form 8-K filed on April 10, 2000, Item 5

     Current Report on Form 8-K/A filed on April 11, 2000, Item 5

     Current Report on Form 8-K filed on May 12, 2000, Item 5

     Current Report on Form 8-K/A filed on June 8, 2000, Item 5

     Current Report on Form 8-K filed on June 30, 2000, Item 5





                                       21
<PAGE>   22
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:   August 14, 2000                  By:      /s/ Ross M. Patten
                                                -------------------------------
                                                     Chief Executive Officer

    Date:   August 14, 2000                  By:      /s/ J. Paul Withrow
                                                -------------------------------
                                                     Chief Financial Officer





                                       22
<PAGE>   23
                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
                         EXHIBIT
                         NUMBER                      DESCRIPTION
                         ------                      -----------
<S>                                                  <C>
                          27.1                  Financial Data Schedule
</TABLE>