<PAGE>
                                    FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

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

For the Quarterly Period Ended June 30, 2005      Commission File Number 0-21054

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

<TABLE>
<S>                                                          <C>
                 DELAWARE                                         88-0219860
     (State or other jurisdiction of                            (IRS Employer
      incorporation or organization)                         Identification No.)
</TABLE>

<TABLE>
<S>                                                               <C>
      1800 BERING DRIVE, SUITE 1000
             HOUSTON, TEXAS                                          77057
(Address of principal executive offices)                          (Zip Code)
</TABLE>

                                 (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 by check mark whether the Registrant is an accelerated filer as defined
in Rule 12b-2 of the Exchange Act.

                                 Yes [ ] No [X]

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.

<TABLE>
<CAPTION>
            CLASS                                  OUTSTANDING AT AUGUST 8, 2005
-----------------------------                      -----------------------------
<S>                                                <C>
Common stock, par value $.002                                72,130,689
</TABLE>
<PAGE>
                           SYNAGRO TECHNOLOGIES, INC.

                                     INDEX

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

Item 1.   Financial Statements

Condensed Consolidated Balance Sheets as of June 30, 2005 (Unaudited),
   and December 31, 2004 (Derived From Audited Financial Statements).....     3

 Condensed Consolidated Statements of Operations for the Three and
   Six Months Ended June 30, 2005 and 2004 (Unaudited)...................     4

Condensed Consolidated Statement of Stockholders' Equity for the Six
   Months Ended June 30, 2005 (Unaudited)................................     5

 Condensed Consolidated Statements of Cash Flows for the Six Months
    Ended June 30, 2005 and 2004 (Unaudited).............................     6

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

Item 2.   Management's Discussion and Analysis of Financial
             Condition and Results of Operations.........................    23

Item 3.   Quantitative and Qualitative Disclosures About Market Risk.....    32

Item 4.   Controls and Procedures........................................    33

PART II - OTHER INFORMATION

Item 1.   Legal Proceedings..............................................    34

Item 4.   Submission of Matter to a Vote of Security Holders.............    34

Item 6.   Exhibits.......................................................    34
</TABLE>


                                       2
<PAGE>
                           SYNAGRO TECHNOLOGIES, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                        (IN THOUSANDS EXCEPT SHARE DATA)

<TABLE>
<CAPTION>

                                                                                               JUNE 30,     DECEMBER 31,
                                                                                                 2005           2004
                                                                                             -----------   -------------
                                                                                             (UNAUDITED)   (DERIVED FROM
                                                                                                              AUDITED
                                                                                                             FINANCIAL
                                                                                                            STATEMENTS)
<S>                                                                                          <C>           <C>
                                          ASSETS
Current Assets:
   Cash and cash equivalents .............................................................     $  1,046      $    326
   Restricted cash .......................................................................        1,483           655
   Accounts receivable, net ..............................................................       67,773        63,891
   Costs and estimated earnings in excess of billings ....................................        8,176         8,099
   Prepaid expenses and other current assets .............................................       13,835        11,793
   Deferred tax assets ...................................................................        2,607         4,240
                                                                                               --------      --------
      Total current assets ...............................................................       94,920        89,004
Property, machinery & equipment, net .....................................................      226,313       225,541
Other Assets:
   Costs and estimated earnings in excess of billings ....................................        4,837         4,704
   Goodwill ..............................................................................      172,108       171,855
   Restricted cash -- construction fund ..................................................          477         1,988
   Restricted cash -- debt service fund ..................................................        8,644         7,287
   Other, net ............................................................................       15,318        14,645
                                                                                               --------      --------
      Total assets .......................................................................     $522,617      $515,024
                                                                                               ========      ========

                           LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
   Short term debt .......................................................................     $     --      $  4,000
   Current maturities of long-term debt ..................................................          607           848
   Current maturities of nonrecourse project revenue bonds ...............................        3,300         3,300
   Current maturities of capital lease obligations .......................................        2,887         3,028
   Accrued interest payable ..............................................................          579         4,018
   Accounts payable and accrued expenses .................................................       48,541        58,651
                                                                                               --------      --------
      Total current liabilities ..........................................................       55,914        73,845
Long-Term Debt:
   Long-term debt obligations, net .......................................................      191,606       178,453
   Nonrecourse project revenue bonds, net ................................................       59,042        59,028
   Capital lease obligations, net ........................................................        9,915        11,318
                                                                                               --------      --------
      Total long-term debt ...............................................................      260,563       248,799
   Other long-term liabilities ...........................................................       16,565        28,529
                                                                                               --------      --------
      Total liabilities ..................................................................      333,042       351,173

Commitments and Contingencies
Redeemable Preferred Stock, 69,792.29 shares issued and outstanding in 2004, none
   outstanding in 2005, redeemable at $1,000 per share ...................................           --        95,126

Stockholders' Equity:
   Preferred stock, $.002 par value, 10,000,000 shares authorized, none issued or
      outstanding ........................................................................           --            --
   Common stock, $.002 par value, 100,000,000 shares authorized, 71,615,144 and
      19,809,621 shares issued and outstanding in 2005 and 2004, respectively ............          143            40
   Additional paid in capital ............................................................      208,038        73,358
   Accumulated deficit ...................................................................      (18,114)       (3,875)
   Accumulated other comprehensive loss ..................................................         (492)         (798)
                                                                                               --------      --------
      Total stockholders' equity .........................................................      189,575        68,725
                                                                                               --------      --------
      Total liabilities and stockholders' equity .........................................     $522,617      $515,024
                                                                                               ========      ========
</TABLE>

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


                                       3
<PAGE>
                           SYNAGRO TECHNOLOGIES, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)
                 (IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
                                                             THREE MONTHS ENDED           SIX MONTHS ENDED
                                                                  JUNE 30,                    JUNE 30,
                                                         -------------------------   -------------------------
                                                             2005          2004          2005          2004
                                                         -----------   -----------   -----------   -----------
<S>                                                      <C>           <C>           <C>           <C>
Revenue ..............................................   $    83,532   $    82,164   $   159,746   $   154,825
Cost of services .....................................        66,561        63,253       130,737       123,597
                                                         -----------   -----------   -----------   -----------
Gross profit .........................................        16,971        18,911        29,009        31,228
Selling, general and administrative expenses .........         5,390         5,699        11,559        11,521
Transaction costs and expenses .......................         1,517            --         1,517            --
Stock option redemptions and transaction bonuses .....         6,805            --         6,805            --
Gain on sale of assets ...............................          (129)         (734)         (205)         (892)
                                                         -----------   -----------   -----------   -----------
   Income from operations ............................         3,388        13,946         9,333        20,599
Other expense:
   Interest expense, net .............................         6,086         5,582        12,601        10,751
   Debt extinguishment costs .........................        19,487            --        19,487            --
   Other expense (income), net .......................            62           (40)           59            --
                                                         -----------   -----------   -----------   -----------
      Total other expense, net .......................        25,635         5,542        32,147        10,751
                                                         -----------   -----------   -----------   -----------
Income (loss) before provision for income taxes ......       (22,247)        8,404       (22,814)        9,848
   Provision (benefit) for income taxes ..............        (8,348)        3,278        (8,575)        3,841
                                                         -----------   -----------   -----------   -----------
Net income (loss) before preferred stock dividends ...       (13,899)        5,126       (14,239)        6,007
Preferred stock dividends ............................         7,315         2,176         9,587         4,314
                                                         -----------   -----------   -----------   -----------
Net income (loss) applicable to common stock .........   $   (21,214)  $     2,950   $   (23,826)  $     1,693
                                                         ===========   ===========   ===========   ===========
Earnings (loss) per share:
   Basic net earnings (loss) per share ...............   $     (0.84)  $      0.15   $     (1.05)  $      0.09
                                                         ===========   ===========   ===========   ===========
   Diluted net earnings (loss) per share .............   $     (0.84)  $      0.09   $     (1.05)  $      0.09
                                                         ===========   ===========   ===========   ===========
Weighted average shares outstanding:
   Weighted average shares outstanding for basic
      earnings per share calculation .................    25,334,290    19,775,821    22,691,916    19,775,821
   Effect of dilutive stock options ..................            --       679,672            --            --
   Effect of convertible preferred stock under the
      "if converted" method ..........................            --    37,976,978            --            --
                                                         -----------   -----------   -----------   -----------
   Weighted average shares outstanding for diluted
      earnings per share .............................    25,334,290    58,432,471    22,691,916    19,775,821
                                                         ===========   ===========   ===========   ===========
</TABLE>

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


                                       4
<PAGE>
                           SYNAGRO TECHNOLOGIES, INC.
            CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                                   (UNAUDITED)
                        (IN THOUSANDS EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                                            ACCUMULATED
                                              COMMON STOCK      ADDITIONAL                     OTHER
                                          -------------------     PAID-IN    ACCUMULATED   COMPREHENSIVE              COMPREHENSIVE
                                            SHARES     AMOUNT     CAPITAL      DEFICIT     INCOME (LOSS)     TOTAL         LOSS
                                          ----------   ------   ----------   -----------   -------------   --------   -------------
<S>                                       <C>          <C>      <C>          <C>           <C>             <C>        <C>
BALANCE, January 1, 2005 ..............   19,809,621    $ 40     $ 73,358     $ (3,875)        $(798)      $ 68,725     $     --
   Change in other comprehensive
      income (loss) ...................           --      --           --           --           306            306          306
   Preferred stock dividends ..........           --      --       (9,587)          --            --         (9,587)          --
   Exercise of options ................      617,600       1        1,675           --            --          1,676           --
   Tax benefit from exercise of
      stock options ...................           --      --          339           --            --            339           --
   Issuance of common shares, net
      of issuance costs of $2,358 .....    9,302,326      18       37,623           --            --         37,641           --
   Conversion of preferred shares .....   41,885,597      84      104,630           --            --        104,714           --
   Net loss before preferred
      stock dividends .................           --      --           --      (14,239)           --        (14,239)     (14,239)
                                          ----------    ----     --------     --------         -----       --------     --------
BALANCE, June 30, 2005 ................   71,615,144    $143     $208,038     $(18,114)        $(492)      $189,575     $(13,933)
                                          ==========    ====     ========     ========         =====       ========     ========
</TABLE>

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


                                       5
<PAGE>
                           SYNAGRO TECHNOLOGIES, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                       SIX MONTHS ENDED JUNE 30,
                                                                                       -------------------------
                                                                                             2005       2004
                                                                                          ---------   --------
<S>                                                                                    <C>            <C>
Cash flows from operating activities:
   Net income (loss) applicable to common stock ....................................      $ (23,826)  $  1,693
   Adjustments to reconcile net income applicable to common stock to net cash
      provided (used) by operating activities:
      Preferred stock dividends and warrant accretion ..............................          9,587      4,314
      Bad debt expense .............................................................            302         --
      Depreciation and amortization ................................................         10,665      9,490
      Amortization and write-off of debt financing costs ...........................          4,919        615
      Provision (benefit) for deferred income taxes ................................         (8,575)     3,764
      Tax benefit from exercise of stock options ...................................            339         --
      Gain on sale of property, machinery and equipment ............................           (205)      (892)
      (Increase) decrease in the following, net:
         Accounts receivable .......................................................         (4,185)       803
         Costs and estimated earnings in excess of billings ........................           (209)    (1,929)
         Prepaid expenses and other current assets .................................            681      1,742
      Increase (decrease) in the following, net:
         Accrued interest payable ..................................................         (3,439)      (144)
         Accounts payable and accrued expenses and other long-term liabilities .....        (12,472)       367
                                                                                          ---------   --------
   Net cash provided (used) by operating activities ................................        (26,418)    19,823
                                                                                          ---------   --------
Cash flows from investing activities:
      Purchase of businesses .......................................................           (253)      (470)
      Purchases of property, machinery and equipment ...............................         (9,777)    (7,563)
      Proceeds from sale of property, machinery and equipment ......................            986      1,672
      Facility construction funded by restricted cash ..............................         (1,648)    (7,240)
      Decrease in restricted cash for facility construction ........................          1,648      7,240
      Increase in other restricted cash accounts ...................................         (2,323)    (2,174)
      Other ........................................................................              4       (269)
                                                                                          ---------   --------
Net cash used by investing activities ..............................................        (11,363)    (8,804)
                                                                                          ---------   --------
Cash flows from financing activities:
      Payments of debt .............................................................       (202,666)   (12,869)
      Proceeds from debt ...........................................................        189,900         --
      Net increase in bank revolver borrowings .....................................         19,600      2,000
      Debt issuance costs ..........................................................         (7,650)      (176)
      Proceeds from equity offering ................................................         37,641         --
      Proceeds from exercise of options ............................................          1,676         --
                                                                                          ---------   --------
Net cash provided (used) in financing activities ...................................         38,501    (11,045)
                                                                                          ---------   --------
Net increase (decrease) in cash and cash equivalents ...............................            720        (26)
Cash and cash equivalents, beginning of period .....................................            326        206
                                                                                          ---------   --------
Cash and cash equivalents, end of period ...........................................      $   1,046   $    180
                                                                                          =========   ========
</TABLE>

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


                                       6
<PAGE>
                           SYNAGRO TECHNOLOGIES, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

(1)  BASIS OF PRESENTATION

GENERAL

The accompanying unaudited, condensed consolidated financial statements have
been prepared by Synagro Technologies, Inc., a Delaware corporation, ("Synagro")
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
statement of such financial statements for the periods indicated. Certain
information relating to Synagro'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, Synagro 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, 2005 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 Synagro's Annual Report on Form 10-K, as amended, for
the year ended December 31, 2004.

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, 2004.

Synagro and collectively with its subsidiaries (the "Company") is a national
water and wastewater residuals management company serving more than 600
municipal and industrial water and wastewater treatment accounts with operations
in 37 states and the District of Columbia. Synagro offers many services that
focus on the beneficial reuse of organic nonhazardous residuals resulting from
the wastewater treatment process. The Company's broad range of services include
drying and pelletization, composting, product marketing, incineration, alkaline
stabilization, land application, collection and transportation, regulatory
compliance, dewatering, and facility cleanout services.

RECAPITALIZATION

On June 21, 2005, the Company closed a new $305 million senior credit agreement
(See Note 4), repaid $196.9 million of debt under its previously outstanding
senior credit agreement and 9-1/2% senior subordinated notes due 2009, converted
all outstanding shares of preferred stock into 41,885,597 shares of common
stock, and completed a $160 million offering of 9,302,326 primary and 27,847,674
secondary shares of common stock at an offering price of $4.30 per share. The
new credit agreement allows the Company to pay dividends and is expected to
result in cash interest savings of over $4 million annualized when compared to
the interest costs of the Company's previously outstanding senior and
subordinated debt. The new credit agreement, debt repayment, preferred stock
conversion, and primary and secondary common stock offering are collectively
referred to herein as the "Recapitalization".

The Company incurred certain costs and write-offs relating to the
Recapitalization, including $1.5 million of transaction costs and expenses, $5.5
million for stock option redemptions, $1.3 million for transaction bonuses and
$19.5 million of debt extinguishment costs. The $5.5 million charge for stock
options redeemed relates to 3,043,000 options that were redeemed for $5.5
million of cash. The Company also recognized as dividends $4.4 million of
previously unrecognized accretion on its preferred stock. These costs,
write-offs and accretion have been included in the Company's statements of
operations for the three and six months ended June 30, 2005.

Our board of directors adopted a dividend policy, effective upon the closing of
the Recapitalization, that the Company intends to pay an initial quarterly
dividend of approximately $0.10 per share beginning in August 2005 and to
continue to pay quarterly dividends at an annual rate of approximately $0.40 per
share for the first full year following the closing of the Recapitalization, but
only if and to the extent dividends are declared by our board of directors and
permitted by applicable law and by the terms of our new credit facility (See
Note 4). Dividend payments are not guaranteed and our board of directors may
decide, in its absolute discretion, at any time and for any reason, not to pay
dividends. Dividends on our common stock are not cumulative. On August 2, 2005,
a $0.10 per share dividend totaling $7.2 million was paid on the Company's
outstanding common stock.


                                       7
<PAGE>
The Company received total net proceeds from the offering of approximately $37.6
million, after deducting underwriting discounts and commissions and out of
pocket fees and expenses. The Company used the net proceeds from this offering,
together with $189.9 million of borrowings under the new credit facility and
other borrowings after the closing of the Recapitalization on June 21, 2005, as
follows:

     -    $47.3 million to repay in full indebtedness under the previously
          existing credit facility (including accrued interest of $0.4 million);

     -    $8.6 million to pay fees and expenses associated with the
          establishment of the new credit facility and the repayment of the
          existing credit facility and other related fees and expenses;

     -    $166.3 million to repurchase all of our outstanding 9 1/2% notes
          (including tender premium of $13.2 million and accrued interest of
          $3.1 million);

     -    $5.5 million associated with the redemption of a portion of
          outstanding options to purchase shares of common stock held by certain
          members of our senior management and board of directors; and

     -    $1.3 million to pay transaction bonuses to certain members of our
          senior management.

ACCOUNTING PRONOUNCEMENTS

In December 2002, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure -
An Amendment of FASB Statement No. 123." SFAS No. 148 provides alternative
methods of transition for a voluntary change to the fair-value-based method of
accounting for stock-based employee compensation. Companies must disclose in
both annual and interim financial statements the method used to account for
stock-based compensation. The Company will continue to apply Accounting
Principles Board ("APB") Opinion No. 25 and related interpretations in
accounting for its plans. Other than the $5.5 million of compensation expense
recognized in connection with the stock option redemptions related to the
Recapitalization, no compensation cost has been recognized in the accompanying
condensed consolidated financial statements for the Company's stock option
plans.


                                       8
<PAGE>
If the Company elected to apply SFAS No. 123, the Company's net income (loss)
and income (loss) per diluted share would have approximated the pro forma
amounts indicated below (in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                                            THREE MONTHS ENDED JUNE 30,   SIX MONTHS ENDED JUNE 30,
                                                                            ---------------------------   -------------------------
                                                                                   2005      2004               2005      2004
                                                                                 --------   ------            --------   ------
<S>                                                                         <C>             <C>           <C>            <C>
Net income (loss) applicable to common stock, as reported................        $(21,214)  $2,950            $(23,826)  $1,693
Plus: Compensation recognized on option redemptions, per APB 25 net
   of tax ...............................................................           3,404       --               3,404       --
Less: Compensation expense per SFAS No. 123, net of tax..................           1,091      289               1,351      554
                                                                                 --------   ------            --------   ------
Pro forma after effect of SFAS No. 123...................................        $(18,901)  $2,661            $(21,773)  $1,139
                                                                                 ========   ======            ========   ======
Diluted income (loss) per share, as reported.............................        $  (0.84)  $ 0.09            $  (1.05)  $ 0.09
Pro forma income (loss) per share after effect of SFAS No. 123...........        $  (0.75)  $ 0.08            $  (0.96)  $ 0.06
</TABLE>

The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model resulting in a weighted average per share
fair value of $4.30 and $2.55 for grants made during the six months ended June
30, 2005 and 2004, respectively. The following assumptions were used for option
grants made during the six months ended June 30, 2005 and 2004, respectively:
expected volatility of 264% and 114%; risk-free interest rates of 4.08% and
4.34%; expected lives of up to ten years, and expected dividends to be paid. For
the quarters ended June 30, 2005 and 2004, the weighted average fair value per
share was $4.32 and $2.74, respectively. The following assumptions were used for
option grants during the three months ended June 30, 2005 and 2004,
respectively: expected volatility of 265% and 124%; risk free interest rate of
4.08% and 4.69%; expected lives of up to ten years, and expected dividends to be
paid. The compensation expense included in the above pro forma data may not be
indicative of amounts to be included in future periods as the fair value of
options granted prior to 1995 was not determined and the Company expects future
grants.

In December 2004, SFAS No. 123 "Accounting for Stock-Based Compensation" was
revised (SFAS No. 123R). SFAS No. 123R focuses primarily on accounting for
transactions in which an entity obtains employee services in share-based payment
transactions. SFAS No. 123R is effective for annual periods beginning after June
15, 2005. The Company is in the process of evaluating the impact of the
implementation of SFAS No. 123R.

USE OF ESTIMATES

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

Allowance for Doubtful Accounts -- The Company estimates losses for
uncollectible accounts based on the aging of the accounts receivable and the
evaluation and the likelihood of success in collecting the receivable. Accounts
are written off periodically during the year as they are deemed uncollectible
when collection efforts have been unsuccessful. The allowance for doubtful
accounts was approximately $1.4 million at June 30, 2005 and $1.2 million at
December 31, 2004.

Loss Contracts -- The Company evaluates its revenue producing contracts to
determine whether the projected revenues of such contracts exceed the direct
cost to service such contracts. These evaluations include estimates of the
future revenues and expenses. Accruals for loss contracts are adjusted based on
these evaluations. An accrual for loss contracts was not required as of June 30,
2005.

Long Term Construction Contracts -- Certain long term construction projects are
accounted for using the percentage of completion method of accounting and
accordingly revenues are recorded based on estimates of total costs to be
incurred under the contract. We typically subcontract a portion of the work to
subcontractors under fixed price contracts. Costs and estimated earnings in
excess of billings included in the accompanying consolidated balance sheets
represents revenues recognized in excess of amounts billed under the terms of
contracts accounted for on the percentage of completion method of accounting.
These amounts are billable upon completion of contract performance milestones or
other specified conditions of the contract.


                                       9
<PAGE>
Property and Equipment/Long-Lived Assets - Property and equipment is reviewed
for impairment pursuant to the provisions of SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". The carrying amount of an asset
(group) is considered impaired if it exceeds the sum of the Company's estimate
of the undiscounted future cash flows expected to result from the use and
eventual disposition of the asset (group), excluding interest charges.

The Company regularly incurs costs to develop potential projects or facilities
and procure contracts for the design, permitting, construction and operations of
facilities. The Company has recorded $10.0 million in property and long-term
assets related to these activities at June 30, 2005, compared to $29.2 million
at December 31, 2004 (approximately $8.2 million and $21.8 million are
classified as construction in progress at June 30, 2005 and December 31, 2004,
respectively). The decrease as of June 30, 2005 is primarily due to the
Sacramento biosolids facility which commenced operations in December 2004 and is
now being depreciated. The Company routinely reviews the status of each of these
projects to determine if these costs are realizable.

Goodwill -- Goodwill attributable to the Company's reporting units are tested
for impairment by comparing the fair value of each reporting unit with its
carrying value. Significant estimates used in the determination of fair value
include estimates of future cash flows, future growth rates; costs of capital
and estimates of market multiples. As required under current accounting
standards, the Company tests for impairment annually at year end unless factors
indicate that an impairment may have occurred.

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

Income Taxes -- The Company assumes the deductibility of certain costs in its
income tax filings and estimates the recovery of deferred income tax assets. The
ultimate realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which the activity underlying these
assets becomes deductible. The Company considers the scheduled reversal of
deferred tax liabilities, projected future taxable income and tax planning
strategies in making this assessment. If actual future taxable income differs
from its estimates, the Company may not realize deferred tax assets to the
extent it was estimated.

Legal and Contingency Accruals -- The Company estimates and accrues the amount
of probable exposure it may have with respect to litigation, claims and
assessments. These estimates are based on management's assessment of the facts
and probabilities of the ultimate resolution of the litigation.

Self-Insurance Reserves -- The Company is substantially self-insured for
worker's compensation, employer's liability, auto liability, general liability
and employee group health claims in view of the relatively high per-incident
deductibles the Company absorbs under its insurance arrangements for these
risks. Losses up to deductible amounts are estimated and accrued based on known
facts, historical trends, industry averages and actuarial assumptions regarding
future claims development and claims incurred but not reported.

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

(2)  COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS

Activity of the Company's costs and estimated earnings in excess of billings
consists of the following:

<TABLE>
<CAPTION>
                                                           JUNE 30,   DECEMBER 31,
                                                             2005         2004
                                                           --------   ------------
                                                                (IN THOUSANDS)
<S>                                                        <C>        <C>
Costs and estimated earnings on contracts in progress...   $ 32,467     $20,262
Less -- Billings to date................................    (19,454)     (7,459)
                                                           --------     -------
Costs and estimated earnings in excess of billings on
   uncompleted contracts................................   $ 13,013     $12,803
                                                           ========     =======

Current assets..........................................   $  8,176     $ 8,099
Non current assets......................................      4,837       4,704
                                                           --------     -------
Total...................................................   $ 13,013     $12,803
                                                           ========     =======
</TABLE>

Accounts payable includes approximately $7.8 and $6.5 million at June 30, 2005
and December 31, 2004, respectively, for contracts accounted for under the
percentage of completion method of accounting, the majority of which is not
payable until the Company collects its customer billings on the related
contracts.


                                       10
<PAGE>
(3)  SHORT-TERM DEBT

In August 2004, the Company entered into a $4.0 million short term note with a
bank for the purchase of land. The note bore interest at LIBOR or prime plus a
margin and was repaid in February 2005 with borrowings on the Company's
revolving line of credit. The Company plans to use the land as part of the
development of a compost facility in Southern California.

(4)  LONG-TERM DEBT OBLIGATIONS

Long-term debt obligations consist of the following:

<TABLE>
<CAPTION>
                                                                                   JUNE 30,   DECEMBER 31,
                                                                                     2005         2004
                                                                                   --------   ------------
                                                                                        (IN THOUSANDS)
<S>                                                                                <C>        <C>
$305 million Senior Credit Facility -
   Revolving line of credit.....................................................   $ 11,400     $     --
   Term loans...................................................................    180,000           --
$150 million Senior Credit Agreement, repaid on June 21, 2005 -
   Revolver.....................................................................         --        5,100
   Term loan....................................................................         --       23,867
Subordinated debt, repaid on June 21, 2005......................................         --      150,000
Fair value adjustment of subordinated debt as a result of interest rate swaps...         --         (534)
Notes payable to former owners..................................................        807          855
Other notes payable.............................................................          6           13
                                                                                   --------     --------
      Total debt................................................................    192,213      179,301
Less: Current maturities........................................................       (607)        (848)
                                                                                   ---------    --------
      Long-term debt, net of current maturities.................................   $191,606     $178,453
                                                                                   ========     ========
</TABLE>

SENIOR CREDIT FACILITY

On June 21, 2005, the Company closed a $305.0 million new senior secured credit
facility (the "Senior Credit Facility") with a syndicate of financial
institutions, including affiliates of Banc of America Securities LLC, Lehman
Brothers Inc. and CIBC World Markets Corp.

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

     (i)  Revolving Loan up to $95.0 million outstanding at anytime;

     (ii) Term B Loans (which, once repaid, may not be reborrowed) of $180.0
          million;

     (iii) Delayed draw senior secured term loan facility of $30.0 million; and

     (iii) Letters of Credit up to $50 million as a subset of the Revolving
          Loan. At June 30, 2005, the Company had approximately $37.5 million of
          Letters of Credit outstanding.

Borrowings under the delayed draw term loan will be used to finance new facility
construction projects. The new revolver has a five-year maturity and the new
term loan and the delayed draw term loan have a seven-year maturity. The Senior
Credit Facility is secured by first priority security interests in substantially
all of the Company's assets and those of its subsidiaries (other than assets
securing nonrecourse debt). There is no amortization of the new term loan or the
delayed draw term loan. The Senior Credit Facility includes a term loan that
bears interest at LIBOR or prime rate plus a margin (2.25% for Eurodollar loans,
and 1.25% for base rate loans), and a revolver that also bears interest at LIBOR
or prime rate plus a margin based on a rate schedule (currently 2.75% for
Eurodollar loans, at 1.75% for base rate loans). Currently these rates total
approximately:

<TABLE>
<CAPTION>
           Eurodollar   Base Rate
           ----------   ---------
<S>        <C>          <C>
Revolver      6.3%         8.0%
Term          5.7%         7.5%
</TABLE>

A portion of the proceeds from the Senior Credit Facility were used to repay in
full indebtedness under the Company's previous senior credit facility and to
tender for all of its $150 million of outstanding 9 1/2% senior subordinated
notes due 2009. The Senior Credit Facility allows the Company to pay a
significant portion of its excess cash flow to shareholders through cash
dividends provided the Company maintains compliance with certain financial
covenants and certain other restrictions. The Company expects


                                       11
<PAGE>
that the Senior Credit Facility will result in cash interest savings of
approximately $4.0 million per year.

The proceeds of the delayed draw term loan will be used to partially fund new
facility construction costs in 2005 and 2006. The Company has several new
facilities under development which are scheduled to begin operations in the next
18 months. These new facilities will be operated under long-term contracts. The
development of these new facilities is consistent with the Company's strategy to
pursue new facility opportunities that provide long-term, highly predictable
cash flows. These facilities include a composting facility in Kern County,
California, an incineration facility upgrade in Woonsocket, Rhode Island, a
dewatering facility in Providence, Rhode Island, a dryer facility in Honolulu,
Hawaii and a composting facility in Los Palos, California.

The Senior Credit Facility includes mandatory repayment provisions related to
excess cash flows, proceeds from certain asset sales, debt issuances and equity
issuances, all as defined in the Credit Agreement. These mandatory repayment
provisions may also reduce the available commitment. The Credit Agreement
contains standard covenants including compliance with laws, limitations on
capital expenditures, restrictions on dividend payments, limitations on mergers
and compliance with financial covenants. The Company was in compliance with
those covenants as of June 30, 2005. The Credit Agreement is collateralized by
substantially all the assets of the Company and expires on December 31, 2012. As
of June 30, 2005, the Company had approximately $76.1 million of unused
borrowings under the Credit Agreement, including $30.0 million under the delayed
draw term loan.

On May 8, 2002, the Company entered into a $150 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, to provide working capital
for operations, to fund capital expenditures and for other general corporate
purposes. On June 21, 2005, the Senior Credit Agreement was completely repaid
with the proceeds received from the Senior Credit Facility.

SENIOR SUBORDINATED NOTES

In April 2002, the Company issued $150 million aggregate in principal amount of
its 9 1/2% Senior Subordinated Notes due on April 1, 2009 (the "Notes"). The
Notes were unsecured senior indebtedness and were guaranteed by all of the
Company's existing and future domestic subsidiaries, other than subsidiaries
treated as unrestricted subsidiaries ("Guarantors"). As of December 31, 2004,
all subsidiaries, other than the subsidiaries formed to own and operate the
Sacramento dryer project, Synagro Organic Fertilizer Company of Sacramento, Inc.
and Sacramento Project Finance, Inc. (see Note 5) and South Kern Industrial
Center, LLC, were Guarantors of the Notes. On June 21, 2005, the Notes were
repurchased with the proceeds of the Senior Credit Facility.

DERIVATIVES AND HEDGING ACTIVITIES

Effective July 1, 2005, the Company entered into interest rate cap agreements.
The first is an interest rate collar agreement on a notional amount of $86.5
million, whereby the Company will receive three month LIBOR and pay three month
LIBOR unless three month LIBOR settles below 3.52% or above 4.50%, in such a
case the Company would pay 3.52% or 4.50%, as applicable. This swap has no fair
market value at June 30, 2005, and matures in November 2006.

Also effective July 1, 2005, the Company entered into an interest rate cap
agreement on a notional amount of $73.5 million whereby the Company will receive
three month LIBOR and pay three month LIBOR unless three month LIBOR settles
above 6% in which case the Company would pay 6%. The Company paid $220,000 to
execute this cap. At June 30, 2005, this cap has a fair market value of
$181,039, accordingly, $38,961 has been recorded to other expense.

During the second quarter the Company entered into three forward starting fixed
rate swap agreements which are not effective until November 13, 2006, and mature
in May 2010. The notional amounts for each fixed rate swap are $28 million, and
the fixed rates of interest are 4.69%, 4.54%, and 4.21%. These swaps are
considered to be cash flow hedges and accordingly the fair value adjustments
will be recorded to Other Comprehensive Income. The aggregate liability for the
fair value of these agreements was $820,640 at June 30, 2005. This amount, net
of tax, totals $492,000 which has been recorded to Other Comprehensive Income
for the six months ended June 30, 2005.

On July 24, 2003, the Company entered into two interest rate swap transactions
with two financial institutions to hedge the Company's exposure to changes in
the fair value on $85 million of its Notes. The purpose of these transactions
was to convert future interest due on $85 million of the Notes to a lower
variable rate in an attempt to realize savings on the Company's future interest
payments. The terms of the interest rate swap contract and the underlying debt
instruments are identical. The Company has designated these swap agreements as
fair value hedges. On September 23, 2004, the Company unwound $18 million of
these swaps


                                       12
<PAGE>
and received a settlement payment of approximately $0.1 million that was
deducted from interest expense. On January 6, 2005, the Company unwound the
remaining $67 million of interest rate swaps and paid $0.5 million for the
settlement of these swaps. At June 21, 2005 the fair value adjustment to the
subordinated debt relating to these swaps was $0.7 million and was written off
in connection with the refinancing of the Company's debt as discussed above.

The Company previously had outstanding 12 percent subordinated debt which was
repaid on April 17, 2002, with the proceeds from the sale of the Notes. On June
25, 2002, the Company entered into a floating-to-fixed interest rate swap
agreement that substantially offsets market value changes in the Company's
reverse swap agreement. The liability related to this reverse swap agreement and
the floating-to-fixed offset agreement totaling approximately $1.8 million is
reflected in other long-term liabilities at June 30, 2005. The loss recognized
during the period ended June 30, 2005 related to the floating-to-fixed interest
rate swap agreement was approximately $8,000, while the gain recognized related
to the reverse swap agreement was approximately $31,000. The amount of the
ineffectiveness of the reverse swap agreement charged to other expense was
approximately $23,000 during the six month period ended June 30, 2005.

On June 25, 2001, the Company entered into a reverse swap on its 12%
subordinated debt and used the proceeds from the reverse swap agreement to
retire previously outstanding floating-to-fixed interest rate swap agreements
(the "Retired Swaps") and option agreements. Accordingly, the balance included
in accumulated other comprehensive loss included in stockholders' equity related
to the Retired Swaps is being recognized in future periods' income over the
remaining term of the original swap agreement. The amount of accumulated other
comprehensive income charged to interest expense during the three and six month
period ended June 30, 2005 was approximately $0.1 million and $0.2 million,
respectively. On June 21, 2005, the Company wrote off the balance included in
Accumulated Other Comprehensive Loss of $0.6 million related to the Retired
Swaps as a result of the refinancing of the Company's debt as discussed above.

(5)  NONRECOURSE PROJECT REVENUE BONDS

<TABLE>
<CAPTION>
                                                                                      JUNE 30,   DECEMBER 31,
                                                                                        2005         2004
                                                                                      --------   ------------
                                                                                           (IN THOUSANDS)
<S>                                                                                   <C>        <C>
Maryland Energy Financing Administration Limited Obligation Solid Waste Disposal
   Revenue Bonds, 1996 series --
   Revenue bonds due 2001 to 2005 at stated interest rates of 5.45% to 5.85% ......    $ 2,710     $ 2,710
   Term revenue bond due 2010 at stated interest rate of 6.30% ....................     16,295      16,295
   Term revenue bond due 2016 at stated interest rate of 6.45% ....................     22,360      22,360
                                                                                       -------     -------
                                                                                        41,365      41,365
California Pollution Control Financing Authority Solid Waste Revenue Bonds --
   Series 2002A -- Revenue bonds due 2008 to 2024 at stated interest rates
      of 4.375% to 5.50%, net of discount of $297 .................................     19,778      19,766
   Series 2002B -- Revenue bonds due 2005 at stated interest rate of 4.25%, net
      of discount of $1 ...........................................................      1,199       1,197
                                                                                       -------     -------
                                                                                        20,977      20,963
                                                                                       -------     -------
Total nonrecourse project revenue bonds ...........................................     62,342      62,328
   Less: Current maturities .......................................................     (3,300)     (3,300)
                                                                                       -------     -------
   Nonrecourse project revenue bonds, net of current maturities ...................    $59,042     $59,028
                                                                                       =======     =======
Amounts recorded in other assets as restricted cash - debt
   service fund ...................................................................    $ 8,644     $ 7,287
                                                                                       =======     =======
</TABLE>

In 1996, the Maryland Energy Financing Administration (the "Administration")
issued nonrecourse tax-exempt project revenue bonds (the "Maryland Project
Revenue Bonds") in the aggregate amount of $58.6 million. The Administration
loaned the proceeds of the Maryland Project Revenue Bonds to Wheelabrator Water
Technologies Baltimore L.L.C., now Synagro's wholly owned subsidiary known as
Synagro-Baltimore, L.L.C., pursuant to a June 1996 loan agreement, and the terms
of the loan mirror the terms of the Maryland Project Revenue Bonds. The loan
financed a portion of the costs of constructing thermal facilities located in
Baltimore County, Maryland, at the site of its Back River Wastewater Treatment
Plant, and in the City of Baltimore, Maryland, at the site of its Patapsco
Wastewater Treatment Plant. The Company assumed all obligations associated with
the Maryland Project Revenue Bonds in connection with its acquisition of the Bio
Gro division of Waste Management, Inc. ("Bio Gro") in 2000. Maryland Project
Revenue Bonds in the aggregate amount of approximately $17.2 million have
already been repaid. The remaining Maryland Project Revenue Bonds bear interest
at annual rates between 5.85% and 6.45% and mature on dates between December 1,
2005, and December 1, 2016.

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


                                       13
<PAGE>
for the purpose of paying the Maryland Project Revenue Bonds.

At the Company's option, it may cause the redemption of the Maryland Project
Revenue Bonds at any time on or after December 1, 2006, subject to redemption
prices specified in the loan agreement. The Maryland Project Revenue Bonds will
be redeemed at any time upon the occurrence of certain extraordinary conditions,
as defined in the loan agreement.

Synagro-Baltimore, L.L.C. guarantees the performance of services under the
underlying service agreements with the City of Baltimore. Under the terms of the
Bio Gro acquisition purchase agreement, Waste Management, Inc. also guarantees
the performance of services under those service agreements. Synagro has agreed
to pay Waste Management $0.5 million per year beginning in 2007 until the
Maryland Project Revenue Bonds are paid or its guarantee is removed. Neither
Synagro-Baltimore, L.L.C. nor Waste Management has guaranteed payment of the
Maryland Project Revenue Bonds or the loan funded by the Maryland Project
Revenue Bonds.

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

At June 30, 2005, the Maryland Project Revenue Bonds were collateralized by
property, machinery and equipment with a net book value of approximately $53.5
million and restricted cash of approximately $7.3 million, of which
approximately $6.9 million is in a debt service fund that is established to
partially secure certain payments and can be utilized to make the final payment
at the Company's request.

SACRAMENTO PROJECT BONDS

In December 2002, the California Pollution Control Financing Authority (the
"Authority") issued nonrecourse revenue bonds in the aggregate amount of $20.9
million (net of original issue discount of $0.4 million). The nonrecourse
revenue bonds consist of $19.7 million (net of original issue discount of $0.4
million) Series 2002-A and $1.2 million (net of original issue discount of
$9,000) Series 2002-B (collectively, the "Sacramento Bonds"). The Authority
loaned the proceeds of the Sacramento Bonds to Sacramento Project Finance, Inc.,
a wholly owned subsidiary of the Company, pursuant to a loan agreement dated
December 1, 2002. The purpose of the loan is to finance the design, permitting,
constructing and equipping of a biosolids dewatering and heat drying/pelletizing
facility for the Sacramento Regional County Sanitation District ("Sanitation
District"). The Sacramento Bonds bear interest at annual rates between 4.25% and
5.5% and mature on dates between December 1, 2006, and December 1, 2024. The
Sacramento facility commenced commercial operations in December 2004.

The Sacramento Bonds are primarily collateralized by the pledge of certain
revenues and all of the property of Sacramento Project Finance, Inc. The
facility will be owned by Sacramento Project Finance, Inc. and leased to Synagro
Organic Fertilizer Company of Sacramento, Inc., another wholly owned subsidiary
of the Company. Synagro Organic Fertilizer Company of Sacramento, Inc. will be
obligated under a lease agreement dated December 1, 2002, to pay base rent to
Sacramento Project Finance, Inc. in an amount exceeding the debt service of the
Bonds. The facility will be located on property owned by the Sanitation
District. The Sanitation District will provide the principal source of revenues
to Synagro Organic Fertilizer Company of Sacramento, Inc. through a service fee
under a contract that has been executed.

At the Company's option, it may cause the early redemption of some Sacramento
Bonds at any time or after December 7, 2007, subject to redemption prices
specified in the loan agreement.

The loan agreement requires that Sacramento Project Finance, Inc. place certain
monies in restricted accounts and that those funds be used for designated
purposes (e.g., operation and maintenance expense account, reserve requirement
accounts, etc.). Monies in these funds will remain restricted until the Bonds
are paid.

At June 30, 2005, the Sacramento Bonds are partially collateralized by
restricted cash of approximately $3.3 million, of which approximately $1.7
million is in a debt service fund that is established to secure certain payments
and can be utilized to make the final payment at the Company's request, and the
remainder is reserved for construction costs expected to be incurred after
notice to proceed is received. The Company is not a guarantor of the Bonds or
the loan funded by the Bonds.

The Maryland Project Revenue Bonds and the Sacramento Bonds are excluded from
the financial covenant calculations required by the Company's Senior Credit
Facility.


                                       14
<PAGE>
(6)  COMMITMENTS AND CONTINGENCIES

LITIGATION

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

Reliance Insurance

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

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

In June 2002, the Company settled one such claim that was pending in Jackson
County, Texas. The full amount of the settlement was paid by insurance proceeds;
however, as part of the settlement, the Company agreed to reimburse the Texas
Property and Casualty Insurance Guaranty Association an amount ranging from $0.6
to $2.5 million depending on future circumstances. The Company estimated its
exposure at approximately $1.0 million for the potential reimbursement to the
Texas Property and Casualty Insurance Guaranty Association for costs associated
with the settlement of this case and for unpaid insurance claims and other costs
for which coverage may not be available due to the pending liquidation of
Reliance. The Company believes accruals of approximately $1.0 million as of June
30, 2005, are adequate to provide for its exposures. The final resolution of
these exposures could be substantially different from the amount recorded.

DESIGN AND BUILD CONTRACT RISK

The Company participates in design and build construction operations, usually as
a general contractor. Virtually all design and construction work is performed by
unaffiliated subcontractors. As a consequence, the Company is dependent upon the
continued availability of and satisfactory performance by these subcontractors
for the design and construction of its facilities. There is no assurance that
there will be sufficient availability of and satisfactory performance by these
unaffiliated subcontractors. In addition, inadequate subcontractor resources and
unsatisfactory performance by these subcontractors could have a material adverse
effect on the Company's business, financial condition and results of operation.
Further, as the general contractor, the Company is legally responsible for the
performance of its contracts and, if such contracts are under-performed or
nonperformed by its subcontractors, the Company could be financially
responsible. Although the Company's contracts with its subcontractors provide
for indemnification if its subcontractors do not satisfactorily perform their
contract, there can be no assurance that such indemnification would cover the
Company's financial losses in attempting to fulfill the contractual obligations.

OTHER

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


                                       15
<PAGE>
but, in the opinion of the Company's management, the ultimate resolution of
these matters will not have a material adverse effect on the consolidated
financial condition, results of operations or cash flows of the Company.

SELF-INSURANCE

The Company is self-insured for losses up to deductible amounts for worker's
compensation, employer's liability, auto liability, general liability and
employee group health claims under its insurance arrangements for these risks.
Losses up to deductible amounts are estimated and accrued based upon known
facts, historical trends, industry averages, and actuarial assumptions regarding
future claims development and claims incurred but not reported.

(7)  EARNINGS PER COMMON SHARE

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

The following table summarizes the net income and weighted average shares to
reconcile basic EPS and diluted EPS for the three and six months ended June 30,
2005 and 2004.

<TABLE>
<CAPTION>
                                                                             THREE MONTHS ENDED           SIX MONTHS ENDED
                                                                                  JUNE 30,                    JUNE 30,
                                                                         -------------------------   -------------------------
                                                                             2005          2004          2005          2004
                                                                         -----------   -----------   -----------   -----------
                                                                                    (IN THOUSANDS EXCEPT SHARE DATA)
<S>                                                                      <C>           <C>           <C>           <C>
Net income (loss) applicable to common stock:
Net income (loss) before preferred stock dividends ...................   $   (13,899)  $     5,126   $   (14,239)  $     6,007
Preferred stock dividends ............................................         7,315         2,176         9,587         4,314
                                                                         -----------   -----------   -----------   -----------
Net income (loss) applicable to common stock .........................   $   (21,214)  $     2,950   $   (23,826)  $     1,693
                                                                         ===========   ===========   ===========   ===========
Earnings (loss) per share:
   Basic earnings (loss) per share ...................................   $     (0.84)  $      0.15   $     (1.05)  $      0.09
                                                                         ===========   ===========   ===========   ===========
   Diluted earnings (loss) per share .................................   $     (0.84)  $      0.09   $     (1.05)  $      0.09
                                                                         ===========   ===========   ===========   ===========
Weighted average shares outstanding for basic earnings per share .....    25,334,290    19,775,821    22,691,916    19,775,821
Effect of dilutive stock options .....................................            --       679,672            --            --
Effect of convertible preferred stock under the "if converted"
   method ............................................................            --    37,976,978            --            --
                                                                         -----------   -----------   -----------   -----------
Weighted average shares outstanding for diluted earnings per share ...    25,334,290    58,432,471    22,691,916    19,775,821
                                                                         ===========   ===========   ===========   ===========
</TABLE>

Basic and diluted EPS are the same for the three months ended June 30, 2005 and
the six months ended June 30, 2005 and 2004, because diluted EPS was less
dilutive than basic EPS ("antidilutive"). Accordingly, 38,929,610 shares
representing common stock equivalents have been excluded from the diluted EPS
calculations for the three months ended June 30, 2005 and 39,972,169 and
38,058,648 shares representing commons stock equivalents have been excluded from
the diluted EPS calculation for the six months ended June 30, 2005 and 2004,
respectively.

(8)  CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

As discussed in Note 4, as of June 30, 2005, all of the Company's 100% owned
domestic subsidiaries, except the subsidiaries formed to own and operate the
compost project in Southern California, South Kern Industrial Center, L.L.C.,
the Sacramento biosolids processing facility, Synagro Organic Fertilizer Company
of Sacramento, Inc. and Sacramento Project Finance, Inc., and Philadelphia
Biosolids Services, L.L.C. (collectively the "Non-Guarantor Subsidiaries"), are
Guarantors of the Company's Senior Credit Facility. As of December 31, 2004, the
Guarantors were guarantors of the Senior Credit Agreement and the Notes. Each of
the Guarantors is 100% owned by Synagro and the guarantees are full,
unconditional and joint and several. Additionally, the Company is not a


                                       16
<PAGE>
Guarantor for the debt of the Non-Guarantor Subsidiaries. Accordingly, the
following condensed consolidating balance sheets have been presented as of June
30, 2005 and December 31, 2004. The condensed consolidated statements of
operations and of cash flows have also been presented for the three and six
month period ended June 30, 2005 with no comparable period in the prior year as
the non-guarantor subsidiaries had no operations until December 2004.


                                       17
<PAGE>
                          CONSOLIDATING BALANCE SHEETS
                               AS OF JUNE 30, 2005
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                      NON-
                                                                     GUARANTOR      GUARANTOR
                                                         PARENT    SUBSIDIARIES   SUBSIDIARIES   ELIMINATIONS   CONSOLIDATED
                                                        --------   ------------   ------------   ------------   ------------
<S>                                                     <C>        <C>            <C>            <C>            <C>
                        ASSETS
Current Assets:
   Cash and cash equivalents ........................   $    712     $     36        $   298      $      --       $  1,046
   Restricted cash ..................................         --          387          1,096             --          1,483
   Accounts receivable, net .........................         --       66,993            780             --         67,773
   Note receivable, current .........................         --          214             --             --            214
   Prepaid expenses and other current assets ........      2,607       21,678            119             --         24,404
                                                        --------     --------        -------      ---------       --------
      Total current assets ..........................      3,319       89,308          2,293             --         94,920
Property, machinery & equipment, net ................         --      202,701         23,612             --        226,313
Other Assets:
   Goodwill .........................................         --      172,108             --             --        172,108
   Investments in subsidiaries ......................     89,291           --             --        (89,291)            --
   Intercompany .....................................    295,437           --             --       (295,437)            --
   Restricted cash -- construction fund .............         --           --            477             --            477
   Restricted cash -- debt service fund .............         --        6,929          1,715             --          8,644
   Other, net .......................................      7,713        9,507          2,935             --         20,155
                                                        --------     --------        -------      ---------       --------
      Total assets ..................................   $395,760     $480,553        $31,032      $(384,728)      $522,617
                                                        ========     ========        =======      =========       ========

         LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
   Current maturities of long-term debt .............   $     --     $    607        $    --      $      --       $    607
   Current maturities of nonrecourse project
      revenue bonds .................................         --        2,710            590             --          3,300
   Current maturities of capital lease obligations ..         --        2,887             --             --          2,887
   Accrued interest payable .........................        256          231             92                           579
   Accounts payable and accrued expenses ............         --       47,786            755             --         48,541
                                                        --------     --------        -------      ---------       --------
      Total current liabilities .....................        256       54,221          1,437             --         55,914
Long-Term Debt:
   Long-term debt obligations, net ..................    191,400          206             --             --        191,606
   Nonrecourse project revenue bonds, net ...........         --       38,655         20,387             --         59,042
   Intercompany .....................................         --      295,298            139       (295,437)            --
   Capital lease obligations, net ...................         --        9,915             --             --          9,915
                                                        --------     --------        -------      ---------       --------
      Total long-term debt ..........................    191,400      344,074         20,526       (295,437)       260,563
Other long-term liabilities .........................     14,529        2,036             --             --         16,565
                                                        --------     --------        -------      ---------       --------
      Total liabilities .............................    206,185      400,331         21,963       (295,437)       333,042
Commitments and Contingencies
Stockholders' Equity:
   Capital ..........................................    208,181       36,339          8,797        (45,136)       208,181
   Accumulated deficit ..............................    (18,114)      43,883            272        (44,155)       (18,114)
   Accumulated other comprehensive loss .............       (492)          --             --             --           (492)
                                                        --------     --------        -------      ---------       --------
      Total stockholders' equity ....................    189,575       80,222          9,069        (89,291)       189,575
                                                        --------     --------        -------      ---------       --------
Total liabilities and stockholders' equity ..........   $395,760     $480,553        $31,032      $(384,728)      $522,617
                                                        ========     ========        =======      =========       ========
</TABLE>


                                       18
<PAGE>
                          CONSOLIDATING BALANCE SHEETS
                             AS OF DECEMBER 31, 2004
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                      NON-
                                                                     GUARANTOR      GUARANTOR
                                                         PARENT    SUBSIDIARIES   SUBSIDIARIES   ELIMINATIONS   CONSOLIDATED
                                                        --------   ------------   ------------   ------------   ------------
<S>                                                     <C>        <C>            <C>            <C>            <C>
                        ASSETS
Current Assets:
   Cash and cash equivalents ........................   $     99     $     21        $   206      $      --       $    326
   Restricted cash ..................................         --          655             --             --            655
   Accounts receivable, net .........................         --       63,367            524             --         63,891
   Note receivable, current .........................         --          218             --             --            218
   Prepaid expenses and other current assets ........      4,240       19,663             11             --         23,914
                                                        --------     --------        -------      ---------       --------
      Total current assets ..........................      4,339       83,924            741             --         89,004
Property, machinery & equipment, net ................         --      202,659         22,882             --        225,541
Other Assets:
   Goodwill .........................................         --      171,855             --             --        171,855
   Investments in subsidiaries ......................     81,649           --             --        (81,649)            --
   Intercompany .....................................    280,157           --             --       (280,157)            --
   Restricted cash -- construction fund .............         --           --          1,988             --          1,988
   Restricted cash -- debt service fund .............         --        5,573          1,714             --          7,287
   Other, net .......................................      5,204       11,135          3,010             --         19,349
                                                        --------     --------        -------      ---------       --------
      Total assets ..................................   $371,349     $475,146        $30,335      $(361,806)      $515,024
                                                        ========     ========        =======      =========       ========

         LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
   Short term debt ..................................   $     --     $     --        $ 4,000      $      --       $  4,000
   Current maturities of long-term debt .............        244          604             --             --            848
   Current maturities of nonrecourse project revenue
      bonds .........................................         --        3,300             --             --          3,300
   Current maturities of capital lease obligations ..         --        3,028             --             --          3,028
   Accounts payable and accrued expenses ............      3,896       56,192          2,581             --         62,669
                                                        --------     --------        -------      ---------       --------
      Total current liabilities .....................      4,140       63,124          6,581             --         73,845
Long-Term Debt:
   Long-term debt obligations, net ..................    178,189          264             --             --        178,453
   Nonrecourse project revenue bonds, net ...........         --       38,065         20,963             --         59,028
   Intercompany .....................................         --      280,157             --       (280,157)            --
   Capital lease obligations, net ...................         --       11,318             --             --         11,318
                                                        --------     --------        -------      ---------       --------
      Total long-term debt ..........................    178,189      329,804         20,963       (280,157)       248,799
   Other long-term liabilities ......................     25,169        3,360             --             --         28,529
                                                        --------     --------        -------      ---------       --------
      Total liabilities .............................    207,498      396,288         27,544       (280,157)       351,173
Commitments and Contingencies
Redeemable Preferred Stock, 69,792.29 shares
   issued and outstanding, redeemable at $1,000
   per share ........................................     95,126           --             --             --         95,126
Stockholders' Equity:
   Capital ..........................................     73,398       36,339          2,750        (39,089)        73,398
   Accumulated deficit ..............................     (3,875)      42,519             41        (42,560)        (3,875)
   Accumulated other comprehensive loss .............       (798)          --             --             --           (798)
                                                        --------     --------        -------      ---------       --------
      Total stockholders' equity ....................     68,725       78,858          2,791        (81,649)        68,725
                                                        --------     --------        -------      ---------       --------
Total liabilities and stockholders' equity ..........   $371,349     $475,146        $30,335      $(361,806)      $515,024
                                                        ========     ========        =======      =========       ========
</TABLE>


                                       19
<PAGE>
                     CONSOLIDATING STATEMENTS OF OPERATIONS
                        THREE MONTHS ENDED JUNE 30, 2005
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                       NON-
                                                                      GUARANTOR      GUARANTOR
                                                          PARENT    SUBSIDIARIES   SUBSIDIARIES   ELIMINATIONS   CONSOLIDATED
                                                         --------   ------------   ------------   ------------   ------------
<S>                                                      <C>        <C>            <C>            <C>            <C>
   Revenue ...........................................   $     --     $82,444         $1,088        $    --        $ 83,532
   Cost of services ..................................         --      65,975            586             --          66,561
                                                         --------     -------         ------        -------        --------
   Gross Profit ......................................         --      16,469            502             --          16,971

   Selling, general and administrative expenses ......         --       5,226              2             --           5,228
   Transaction fees and expenses .....................      1,517          --             --             --           1,517
   Stock option redemptions and transaction bonuses ..      6,805          --             --             --           6,805
   Gain on sale of assets ............................         --        (129)            --             --            (129)
   Amortization ......................................         --         162             --             --             162
                                                         --------     -------         ------        -------        --------
      Income from operations .........................     (8,322)     11,210            500             --           3,388

Other expense:
   Interest expense, net .............................      5,008         768            310             --           6,086
   Interest expense - debt extinguishment costs ......     19,487          --             --             --          19,487
   Intercompany interest (income) expense ............     (6,497)      6,497             --             --              --
   Equity in earnings of subs ........................     (2,508)         --             --          2,508              --
   Other expense, net ................................         --          62             --             --              62
                                                         --------     -------         ------        -------        --------
      Total other expense, net .......................     15,490       7,327            310          2,508          25,635
                                                         --------     -------         ------        -------        --------
Income (loss) before provision (benefit) for income
   taxes .............................................    (23,812)      3,883            190         (2,508)        (22,247)
   Provision (benefit) for income taxes ..............     (9,913)      1,498             67             --          (8,348)
                                                         --------     -------         ------        -------        --------
Net income (loss) before preferred stock dividends ...    (13,899)      2,385            123         (2,508)        (13,899)
                                                         --------     -------         ------        -------        --------
Preferred stock dividends ............................      7,315          --             --             --           7,315
                                                         --------     -------         ------        -------        --------
Net income (loss) applicable to common stock .........   $(21,214)    $ 2,385         $  123        $(2,508)       $(21,214)
                                                         ========     =======         ======        =======        ========
</TABLE>

                     CONSOLIDATING STATEMENTS OF OPERATIONS
                         SIX MONTHS ENDED JUNE 30, 2005
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                           NON-
                                                                          GUARANTOR      GUARANTOR
                                                              PARENT    SUBSIDIARIES   SUBSIDIARIES   ELIMINATIONS   CONSOLIDATED
                                                             --------   ------------   ------------   ------------   ------------
<S>                                                          <C>        <C>            <C>            <C>            <C>
   Revenue ...............................................   $     --     $157,598        $2,148        $    --        $159,746
   Cost of services ......................................         --      129,590         1,147             --         130,737
                                                             --------     --------        ------        -------        --------
   Gross Profit ..........................................         --       28,008         1,001             --          29,009

   Selling, general and administrative expenses ..........         --       11,351            10             --          11,361
   Transaction fees and expenses .........................      1,517           --            --             --           1,517
   Stock option redemptions and transaction bonuses ......      6,805           --            --             --           6,805
   Gain on sale of assets ................................         --         (205)           --             --            (205)
   Amortization ..........................................         --          198            --             --             198
                                                             --------     --------        ------        -------        --------
      Income from operations .............................     (8,322)      16,664           991             --           9,333

Other expense:
   Interest expense, net .................................     10,242        1,738           621             --          12,601
   Interest expense - debt extinguishment costs ..........     19,487           --            --             --          19,487
   Intercompany interest (income) expense ................    (12,681)      12,681            --             --              --
   Equity in earnings of subs ............................     (1,595)          --            --          1,595              --
   Other expense, net ....................................         --           59            --             --              59
                                                             --------     --------        ------        -------        --------
      Total other expense, net ...........................     15,453       14,478           621          1,595          32,147
                                                             --------     --------        ------        -------        --------
Income (loss) before provision (benefit) for income
   taxes .................................................    (23,775)       2,186           370         (1,595)        (22,814)
      Provision (benefit) for income taxes ...............     (9,535)         821           139             --          (8,575)
                                                             --------     --------        ------        -------        --------
Net income (loss) before preferred stock dividends .......    (14,240)       1,365           231         (1,595)        (14,239)
Preferred stock dividends ................................      9,587           --            --             --           9,587
                                                             --------     --------        ------        -------        --------
Net income (loss) applicable to common stock .............   $(23,827)    $  1,365        $  231        $(1,595)       $(23,826)
                                                             ========     ========        ======        =======        ========
</TABLE>


                                       20
<PAGE>
                     CONSOLIDATING STATEMENTS OF CASH FLOWS
                         SIX MONTHS ENDED JUNE 30, 2005
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                            NON-
                                                                           GUARANTOR      GUARANTOR
                                                               PARENT    SUBSIDIARIES   SUBSIDIARIES   ELIMINATIONS   CONSOLIDATED
                                                             ---------   ------------   ------------   ------------   ------------
<S>                                                          <C>         <C>            <C>            <C>            <C>
Cash flows from operating activities:
   Net income (loss) applicable to common stock ..........   $ (23,826)    $  1,364       $   231        $(1,595)      $ (23,826)
   Adjustments to reconcile net income applicable
      to common stock to net cash provided by
      operating activities:
      Preferred stock dividends ..........................       9,587           --            --             --           9,587
      Bad debt expense ...................................          --          302            --             --             302
      Depreciation and amortization expense ..............          --       10,131           534             --          10,665
      Amortization and write-off of debt financing costs .       4,905           --            14             --           4,919
      Provision (benefit) for deferred income taxes ......      (9,535)         821           139             --          (8,575)
      Tax benefit from exercise of stock options .........         339           --            --             --             339
      Gain on sale of property, machinery and
         equipment .......................................          --         (205)           --             --            (205)
      Equity in earnings .................................      (1,595)          --            --          1,595              --
   (Increase) decrease in the following, net:
      Accounts receivable ................................          --       (3,929)         (256)            --          (4,185)
      Cost in excess of billings .........................          --         (209)           --             --            (209)
      Prepaid expenses and other current assets ..........         237          552          (108)            --             681
      Increase (decrease) in the following, net:
      Accrued interest payable ...........................      (3,640)         231           (30)            --          (3,439)
      Intercompany advances - trade ......................     (12,681)      12,681            --             --              --
      Accounts payable and accrued expenses
         and other long term liabilities .................         407      (12,824)          (55)            --         (12,472)
                                                             ---------     --------       -------        -------       ---------
Net cash (used in) provided by operating activities ......     (35,802)       8,915           469             --         (26,418)
                                                             ---------     --------       -------        -------       ---------
Cash flows from investing activities:
   Purchase of business ..................................          --         (253)           --             --            (253)
   Purchase of property, machinery & equipment ...........          --       (8,588)       (1,189)            --          (9,777)
   Proceeds from sale of property, machinery
      & equipment ........................................          --          986            --             --             986
   Facility construction funded by restricted cash .......          --           --        (1,648)            --          (1,648)
   Decrease in restricted cash for facility
      construction .......................................          --           --         1,648             --           1,648
   Increase in other restricted cash accounts ............          --       (1,088)       (1,235)            --          (2,323)
   Other .................................................          --            4            --             --               4
                                                             ---------     --------       -------        -------       ---------
Net cash used in investing activities ....................          --       (8,939)       (2,424)            --         (11,363)
                                                             ---------     --------       -------        -------       ---------
Cash flows from financing activities:
   Payments of debt ......................................    (197,066)      (1,600)       (4,000)            --        (202,666)
   Proceeds from debt ....................................     189,900           --            --             --         189,900
   Net increase in bank revolver borrowings ..............      19,600           --            --             --          19,600
   Debt issuance costs ...................................      (7,650)          --            --             --          (7,650)
   Proceeds from equity offering .........................      37,641           --            --             --          37,641
   Intercompany notes with subsidiaries ..................      (1,639)       1,639            --             --              --
   Capital contributions .................................      (6,047)          --         6,047             --              --
   Exercise of options ...................................       1,676           --            --             --           1,676
                                                             ---------     --------       -------        -------       ---------
Net cash provided by financing activities ................      36,415           39         2,047             --          38,501
                                                             ---------     --------       -------        -------       ---------
Net increase in cash and cash equivalents ................         613           15            92             --             720
Cash and cash equivalents, beginning of period ...........          99           21           206             --             326
                                                             ---------     --------       -------        -------       ---------
Cash and cash equivalents, end of period .................   $     712     $     36       $   298        $    --       $   1,046
                                                             =========     ========       =======        =======       =========
</TABLE>


                                       21
<PAGE>
(9)  SEGMENT INFORMATION

The Company's Chief Operating Decision Maker regularly evaluates operating
results, assesses performance and allocates resources on a geographic basis,
except for the Company's rail operations and its engineering, facilities, and
development (EFD) group which are separately managed. Accordingly, the Company
reports the results of its activities in three reporting segments, which
include: Residuals Management Operations, Rail Transportation, and EFD.

Residuals Management Operations include the Company's business activities that
are managed on a geographic basis in the Northeast, Central, South, and West
regions of the United States. These geographic areas have been aggregated and
reported as a segment because they meet the aggregation criteria of SFAS 131.
Rail Transportation includes the transfer and rail haul of materials across
several states where the material is typically either land applied or landfill
disposed. Rail Transportation is a separate segment because it is monitored
separately and because it only offers long-distance land application and
disposal services to its customers. EFD includes construction management
activities and first year of operations for certain new processing facilities as
well as the marketing and sale of certain pellets and compost fertilizers.

The Company's operations by reportable segment are summarized below (in
thousands):

<TABLE>
<CAPTION>
                                      RESIDUALS                    ENGINEERING
                                     MANAGEMENT        RAIL         FACILITIES    CORPORATE/
                                     OPERATIONS   TRANSPORTATION   DEVELOPMENT   ELIMINATIONS   CONSOLIDATED
                                     ----------   --------------   -----------   ------------   ------------
<S>                                  <C>          <C>              <C>           <C>            <C>
THREE MONTHS ENDED JUNE 30, 2005
Revenue from external services ...     $68,431        $ 8,639        $6,462        $     --        $83,532
Revenues from other segments .....         499            309            54            (862)            --
Income (loss) from operations ....      12,887          1,030            68         (10,597)         3,388

THREE MONTHS ENDED JUNE 30, 2004
Revenue from external services ...     $70,356        $10,012        $1,796        $     --        $82,164
Revenues from other segments .....          --            674            --            (674)            --
Income (loss) from operations ....      15,992          1,767          (644)         (3,169)        13,946
</TABLE>

<TABLE>
<CAPTION>
                                      RESIDUALS                    ENGINEERING
                                     MANAGEMENT        RAIL         FACILITIES    CORPORATE/
                                     OPERATIONS   TRANSPORTATION   DEVELOPMENT   ELIMINATIONS   CONSOLIDATED
                                     ----------   --------------   -----------   ------------   ------------
<S>                                  <C>          <C>              <C>           <C>            <C>
SIX MONTHS ENDED JUNE 30, 2005
Revenue from external services ...    $126,722        $15,923        $17,101       $     --       $159,746
Revenues from other segments .....         728            974             54         (1,756)            --
Income (loss) from operations ....      21,035          1,518            730        (13,950)         9,333

SIX MONTHS ENDED JUNE 30, 2004
Revenue from external services ...    $131,555        $19,618        $ 3,652       $     --       $154,825
Revenues from other segments .....          --          1,459             --         (1,459)            --
Income (loss) from operations ....      25,629          3,122         (1,245)        (6,907)        20,599
</TABLE>

The accounting policies of the Company's segments are the same as those
described for the Company in Note 1. Revenues from transactions with other
segments are based on terms substantially similar to transactions with unrelated
third party customers. The following reconciles segment income from operations
to the Company's consolidated income before provision for income taxes:

<TABLE>
<CAPTION>
                                                                THREE MONTHS ENDED JUNE 30,   SIX MONTHS ENDED JUNE 30,
                                                                ---------------------------   -------------------------
                                                                      2005       2004              2005       2004
                                                                    --------   -------           --------   -------
                                                                      (IN THOUSANDS)                (IN THOUSANDS)
<S>                                                             <C>            <C>            <C>           <C>
Segment income from operations ..............................       $ 13,985   $17,115           $ 23,283   $27,506
Corporate ...................................................        (10,597)   (3,169)           (13,950)   (6,907)
                                                                    --------   -------           --------   -------
Income from operations ......................................          3,388    13,946              9,333    20,599
Total other expense, net ....................................         25,635     5,542             32,147    10,751
                                                                    --------   -------           --------   -------
Income (loss) before provision (benefit) for income taxes ...       $(22,247)  $ 8,404           $(22,814)  $ 9,848
                                                                    ========   =======           ========   =======
</TABLE>

Corporate for the three and six months ended June 30, 2005, includes a $1.5
million charge for transaction costs and expenses and $6.8 million for stock
option redemptions and transaction bonuses related to the Recapitalization (See
Note 1). Total other expenses, net for the three and six months ended June 30,
2005, includes a $19.5 million charge for debt extinguishment costs related to
the Recapitalization (see Note 1).


                                       22
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion should be read in conjunction with our consolidated
historical financial statements 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, 2004. This discussion contains forward-looking statements
regarding our business and industry within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements are based on our current plans
and expectations and involve risks and uncertainties that could cause actual
future activities and results of operations to be materially different from
those set forth in the forward-looking statements, but are not limited to those
factors more thoroughly disclosed in our Annual Report on Form 10-K, as amended
for the year ended December 31, 2004.

BACKGROUND

We generate substantially all of our revenue by providing water and wastewater
residuals management services to municipal and industrial customers. We provide
our customers with services and capabilities, including, drying and
pelletization, composting, product marketing, incineration, alkaline
stabilization, land application, collection and transportation, regulatory
compliance, dewatering, and facility cleanout services. We currently serve more
than 600 customers in 37 states and the District of Columbia. Our contracts
typically have inflation price adjustments, renewal clauses and broad force
majeure provisions. In 2004, we experienced a contract retention rate (both
renewals and rebids) of approximately 88%.

We categorize our revenues into five types -- contract, purchase order, product
sales, design\build construction and event work.

Contract revenues are generated primarily from land application, collection and
transportation services, dewatering, incineration, composting, drying and
pelletization services and facility operations and maintenance, and are
typically performed under a contract with terms ranging from 1 to 25 years.
Contract revenues accounted for approximately 82% and 86% of total revenues in
the six months ended June 30, 2005 and 2004, respectively and 84% and 87% of
total revenues in the three months ended June 30, 2005 and 2004, respectively.

Purchase order revenues are primarily from facility operations, maintenance
services, and collection and transportation services where services are
performed on a recurring basis, but not under a long-term contract. Purchase
order revenues accounted for approximately three percent and four percent of
total revenues in the three and six months ended June 30, 2005 and 2004,
respectively.

Product sales revenues are primarily generated from sales of composted and
pelletized biosolids from internal and external facilities. Revenues from
product sales accounted for approximately three percent and four percent of
total revenues in the six months ended June 30, 2005 and 2004, respectively and
three percent of total revenues in the three months ended June 30, 2005 and
2004, respectively.

Design\build construction revenues are derived from construction projects where
we agree to design and build a biosolids facility such as a drying and
pelletization facility, composting facility, incineration facility or a
dewatering facility that we will subsequently operate once the facility
commences commercial operations. Revenues from design\build construction
projects accounted for approximately eight percent and less than one percent of
total revenues in the six months ended June 30, 2005 and 2004, respectively and
five percent and less than one percent of total revenues in the three months
ended June 30, 2005 and 2004, respectively.

Event project revenues are typically generated from digester or lagoon cleanout
projects and temporary dewatering projects. Revenue from event projects
accounted for approximately four percent and six percent of total revenues in
the six months ended June 30, 2005 and 2004, respectively and five percent and
six percent of total revenues in the three months ended June 30, 2005 and 2004,
respectively.

Revenues under our facilities operations and maintenance contracts are
recognized either when wastewater residuals enter the facility or when the
residuals have been processed, depending on the contract terms. All other
revenues under service contracts are recognized when the service is performed.
Revenues from design/build construction projects are accounted for under the
percentage-of-completion method of accounting. We provide for losses in
connection with long-term contracts where an obligation exists to perform
services and it becomes evident that the projected contract costs will exceed
the related revenue.


                                       23
<PAGE>
Our costs relating to service contracts include processing, transportation,
spreading and disposal costs, and depreciation of operating assets. Our
spreading, transportation and disposal costs can be adversely affected by
unusual weather conditions and unseasonably heavy rainfall, which can
temporarily reduce the availability of land application. Material must be
transported to either a permitted storage facility (if available) or to a local
landfill for disposal. In either case, this results in additional costs for
transporting, storage and disposal of the biosolid materials versus land
application in a period of normal weather conditions. Processing and
transportation costs can also be adversely impacted by higher fuel costs. In
order to manage this risk at processing facilities, we generally enter into
contracts that pass-through fuel cost increases to the customer, or for
contracts without pass-through provisions, we from time to time lock in our fuel
costs with our fuel suppliers for terms ranging from twelve to twenty-four
months. As of June 30, 2005, we did not have any agreements with our fuel
suppliers that locked in the unit cost of our fuel throughout fiscal 2005. We
subcontract a significant portion of our transportation requirements to numerous
contractors which enables us to minimize the impact of changes in fuel costs for
over the road equipment. We have also periodically implemented temporary fuel
surcharges with selected customers. Our costs relating to construction contracts
primarily include subcontractor costs related to design, permit and general
construction. Our selling, general and administrative expenses are comprised of
accounting, information systems, marketing, legal, human resources, regulatory
compliance, and regional and executive management costs.

Our management reviews and analyzes several trends and key performance
indicators in order to manage our business. Since approximately 85% of our
revenues are generated from municipal water and wastewater plants, we monitor
trends involving municipal generators, including, among other things, aging
infrastructure, technology advances, and regulatory activity in the water and
wastewater residuals management industry. We use this information to anticipate
upcoming growth opportunities, including new facility growth opportunities. We
also use this information to manage potential business risks such as increased
regulatory pressure or local public opposition to residuals management programs.
On an ongoing basis, our management also considers several variables associated
with the ongoing operations of the business, including, among other things:

     -    new sales (including the mix of contract and event sales) and existing
          business retention objectives necessary to maintain our high
          percentage of contract and other recurring revenues;

     -    storage and permitted landbase available to efficiently manage land
          application of biosolids, especially during inclement weather
          patterns;

     -    regulatory and permit compliance requirements and safety programs and
          initiatives specific to our business; and

     -    utility costs, fuel costs, subcontractor transportation costs,
          equipment utilization and availability, equipment purchasing activity,
          headcount, field operating overhead and selling, general and
          administrative expenses.

HISTORICAL RESULTS OF OPERATIONS

The following table sets forth certain items included in the consolidated
financial statements as a percentage of revenue for the periods indicated:

<TABLE>
<CAPTION>
                                                          THREE MONTHS ENDED JUNE 30,         SIX MONTHS ENDED JUNE 30,
                                                       --------------------------------   ---------------------------------
                                                             2005             2004              2005              2004
                                                       ---------------   --------------   ---------------   ---------------
<S>                                                    <C>       <C>     <C>      <C>     <C>       <C>     <C>       <C>
Revenue .............................................  $ 83,532  100.0%  $82,164  100.0%  $159,746  100.0%  $154,825  100.0%
Cost of services ....................................    66,561   79.7%   63,253   77.0%   130,737   81.8%   123,597   79.8%
                                                       --------  -----   -------  -----   --------  -----   --------  -----
Gross profit ........................................    16,971   20.3%   18,911   23.0%    29,009   18.2%    31,228   20.2%
Selling, general and administrative expenses ........     5,390    6.5%    5,699    6.9%    11,559    7.2%    11,521    7.4%
Transaction costs and expenses ......................     1,517    1.8%       --     --%     1,517    1.0%        --     --%
Stock option redemptions and transaction bonuses ....     6,805    8.1%       --     --%     6,805    4.3%        --     --%
Gain on sale of assets ..............................      (129)  (0.2)%    (734)  (0.9)%     (205)  (0.1)%     (892)  (0.5)%
                                                       --------  -----   -------  -----   --------  -----   --------  -----
   Income from operations ...........................     3,388    4.1%   13,946   17.0%     9,333    5.8%    20,599   13.3%
                                                       --------  -----   -------  -----   --------  -----   --------  -----
Other (income) expense:
   Other (income) expense, net ......................        62    0.1%      (40)  (0.0)%       59    0.0%        --     --%
   Debt extinguishment costs ........................    19,487   23.3%       --     --%    19,487   12.2%        --     --%
   Interest expense, net ............................     6,086    7.3%    5,582    6.8%    12,601    7.9%    10,751    6.9%
                                                       --------  -----   -------  -----   --------  -----   --------  -----
      Total other expense, net ......................    25,635   30.7%    5,542    6.8%    32,147   20.1%    10,751    6.9%
                                                       --------  -----    ------   ----    -------  -----   --------   ----
Income (loss) before provision (benefit) for
   income taxes .....................................   (22,247) (26.6)%   8,404   10.2%   (22,814) (14.3)%    9,848    6.4%
   Provision (benefit) for income taxes .............    (8,348) (10.0)%   3,278    4.0%    (8,575)  (5.4)%    3,841    2.5%
                                                       --------  -----   -------  -----   --------  -----   --------  -----
Net income (loss) before preferred stock dividends ..   (13,899) (16.6)%   5,126    6.2%   (14,239)  (8.9)%    6,007    3.9%
                                                                 =====   -------  =====   --------  =====   --------  =====
Preferred stock dividends ...........................     7,315            2,176             9,587             4,314
                                                       --------          -------          --------          --------
Net income (loss) applicable to common stock ........  $(21,214)         $ 2,950          $(23,826)         $  1,693
                                                       ========          =======          ========          ========
</TABLE>


                                       24
<PAGE>
Revenue and income from operations are summarized by reporting segment, as
follows (in thousands):

<TABLE>
<CAPTION>
                                                  FOR THE THREE MONTHS    FOR THE SIX MONTHS
                                                     ENDED JUNE 30,         ENDED JUNE 30,
                                                  --------------------   -------------------
                                                     2005       2004       2005       2004
                                                   --------   -------    --------   --------
<S>                                               <C>         <C>        <C>        <C>
Revenue
   Residuals Management Operations ............    $ 68,930   $70,356    $127,450   $131,555
   Rail Transportation ........................       8,948    10,686      16,897     21,077
   Engineering, Facilities, and Development ...       6,516     1,796      17,155      3,652
   Elimination ................................        (862)     (674)     (1,756)    (1,459)
                                                   --------   -------    --------   --------
                                                   $ 83,532   $82,164    $159,746   $154,825
                                                   ========   =======    ========   ========
Income (loss) from operations
   Residuals Management Operations ............    $ 12,887   $15,992    $ 21,035   $ 25,629
   Rail Transportation ........................       1,030     1,767       1,518      3,122
   Engineering, Facilities, and Development ...          68      (644)        730     (1,245)
   Corporate ..................................     (10,597)   (3,169)    (13,950)    (6,907)
                                                   --------   -------    --------   --------
                                                   $  3,388   $13,946    $  9,333   $ 20,599
                                                   ========   =======    ========   ========
</TABLE>


                                       25
<PAGE>
THREE MONTHS ENDED JUNE 30, 2005 COMPARED TO THREE MONTHS ENDED JUNE 30, 2004

For the three months ended June 30, 2005, net revenue was approximately $83.5
million compared to approximately $82.2 million for the three months ended June
30, 2004, representing an increase of approximately $1.4 million, or 1.7 %.
Design build construction revenues increased $4.4 million, primarily due to a
$3.9 million increase in construction revenue on the Honolulu dryer facility
project which is expected to be completed and started up by year end. Contract
revenues decreased $1.5 million due primarily to an expected $2.2 million
decrease in revenue on a long-term cleanout job partially offset by an increase
in revenues from Sacramento dryer facility that commenced operations in December
2004, and other contract changes. Event revenues decreased $1.0 million due to
timing of larger projects between years and are expected to significantly
increase in the second half of 2005. Our Residuals Management Operations
revenues for the three months ended June 30, 2005, decreased approximately $1.4
million, or two percent, to $68.9 million compared to $70.1 million for the
three months ended June 30, 2004 due primarily to decreases in contract and
event revenues. These decreases were anticipated going into the year as in
process and pre-sold event work was higher at the beginning of 2004 than 2005
and there was $2.2 million of contract revenue recognized in the second quarter
2004 on a long-term cleanout contract accounted for using the percentage of
completion accounting method that did not generate any significant revenue in
2005. Our Rail Transportation segment revenues for the three months ended June
30, 2005 decreased approximately $1.7 million or 16.3% to $8.9 million for the
three months ended June 30, 2005 compared to $10.7 million for the three months
ended June 30, 2004 due primarily to a decrease in event and purchase order
revenues from disposal services as well as a decrease in volume under contracted
land application and disposal services. Our Engineering, Facilities, and
Development revenues for the three months ended June 30, 2005, increased
approximately $4.7 million to $6.5 million compared to $1.8 million for the
three months ended June 30, 2004 due primarily to a $3.9 million increase in
construction revenues on the Honolulu, Hawaii dryer project, and an increase in
contract revenues on the Sacramento, California dryer facility that commenced
operations in December 2004, partially offset by the transfer of the Pinellas
dryer facility operations to the Residuals Management Operations Segment.

Gross profit for the three months ended June 30, 2005, was approximately $17.0
million compared to approximately $18.9 million for the three months ended June
30, 2004, a decrease of approximately $1.9 million, or 10.3%. Gross profit as a
percentage of revenue decreased to 20.3% in 2005 from 23.0% in 2004. This
decrease in gross profit and gross profit margin is a result of revenue mix
changes associated with the $4.4 million increase in low margin construction
revenue and the decrease in higher margin contract (including the $2.2 million
decrease in revenue on the long-term cleanout contract that had higher than
normal margins) and event revenue, along with a $0.6 million increase in the
cost of natural gas of certain facilities and a $0.5 million increase in
depreciation.

Selling, general and administrative expenses were approximately $5.4 million, or
6.4% of revenue, for the three months ended June 30, 2005, compared to
approximately $5.7 million, or 6.9% of revenue, for the three months ended June
30, 2004. The decrease relates primarily to favorable net reserve adjustments of
$0.8 million, offset by inflation increases.

Transaction costs incurred in connection with the Recapitalization described in
Note 1 consisted of $1.5 million in legal, accounting and underwriting fees
related to the Recapitalization.

Stock option redemptions and transaction bonuses included $1.3 million of cash
paid for transaction bonuses and $5.5 million for stock options redeemed for
certain key employees of the Company.

As a result of the foregoing, income from operations for the three months ended
June 30, 2005, was approximately $3.4 million, or 4.1% of revenue, compared to
approximately $13.9 million, or 17.0% of revenue, for the three months ended
June 30, 2004. The decrease in operating income, adjusted to exclude $8.3
million of transaction costs, bonuses and stock option redemptions is primarily
a result of revenue mix changes associated with the increase in low margin
construction revenue, a decrease in higher margin contract and event revenues,
along with a $0.6 million increase in the cost of natural gas of certain
facilities, and a $0.6 million decrease in gains from asset sales. Our Residuals
Management Operations income from operations for the three months ended June 30,
2005, totaled approximately $12.9 million compared to $16.0 million for the
three months ended June 30, 2004 due primarily to the expected decreases in
event and contract revenues (including the decrease in the long-term cleanout
contract) described above along with a $0.2 million increase in depreciation
expense and the $0.6 million increase in fuel costs described above. Our Rail
Transportation income from operations decreased from $1.8 million in 2004 to
$1.0 million in 2005 due primarily to the decrease in revenues described above,
an increase in rail transportation costs and excess equipment capacity. Our
Engineering, Facilities, and Development income from operations increased to
$0.1 million the three months ended June 30, 2005 compared to a loss of $0.6
million for the three months ended June 30, 2004 due primarily to the increase
in construction revenues and dryer facility revenues described above and related
margins. The increase in corporate loss from operations from a loss of $3.2
million in 2004 to a loss of $11.6 million in 2005, primarily relates to the
$1.5 million of transaction costs and $6.8 million of stock option redemptions
and transaction bonuses associated with the Recapitalization.


                                       26
<PAGE>
Other expense, net, for the three months ended June 30, 2005, was approximately
$25.6 million compared to approximately $5.5 million for the three months ended
June 30, 2004, representing an increase of approximately $20.1 million primarily
due to the $19.5 million of debt extinguishment costs associated with the
Recapitalization discussed in Note 1 and increase in interest expense related to
increases in market interest rates.

For the three months ended June 30, 2005, we recorded a benefit for income taxes
of approximately $8.3 million compared to a provision of $3.3 million for the
three months ended June 30, 2004. Our effective tax rate was approximately 37.5%
in the three months ended June 30, 2005 compared to 39% in the three months
ended June 30, 2004. The decrease in the effective tax rate is primarily related
to permanent differences for state taxes, meals and entertainment and similar
items that are not deductible for federal purposes and therefore reduce the
benefit recognized in loss periods. Our provision for income taxes differs from
the federal statutory rate primarily due to state income taxes. Our tax
provision is principally a deferred tax provision that will not significantly
impact cash flow since we have significant tax deductions in excess of book
deductions and net operating loss carryforwards available to offset taxable
income.

SIX MONTHS ENDED JUNE 30, 2005 COMPARED TO SIX MONTHS ENDED JUNE 30, 2004

For the six months ended June 30, 2005, revenue was approximately $159.7 million
compared to approximately $154.8 million for the six months ended June 30, 2004,
an increase of approximately $4.9 million, or 3.2%. Design build construction
revenues increased $12.9 million primarily due to a $12.0 million increase in
construction revenue on the Honolulu dryer facility project which is expected to
be completed and started up by year end. Contract revenues decreased $3.0
million due primarily to an expected $3.2 million decrease in revenue on a
long-term cleanout job partially offset by an increase in revenues from the
Sacramento dryer facility that commenced operations in December 2004, and other
contract changes. Event revenues decreased $3.3 million due to several large
event projects in 2004. Event revenues are expected to significantly increase in
the second half of 2005. Our Residuals Management Operations revenues for the
six months ended June 30, 2005, decreased approximately $4.1 million or 3.1% to
$127.5 million compared to $131.6 million for 2004 due primarily to the
decreases in contract and event revenues. These decreases were anticipated going
into the year as in process and pre-sold event work was higher at the beginning
of 2004 than 2005 and there was $3.2 million of contract revenue recognized in
the first six months of 2004 on a long-term cleanout contract accounted for
using the percentage of completion accounting method that did not generate any
significant revenue in 2005. Our Rail Transportation revenues for the six months
ended June 30, 2005, decreased approximately $4.2 million or 19.8% to $16.9
million compared to $21.1 million for 2004 due primarily to a decrease in event
and purchase order revenues from disposal services as well as a decrease in
volume under contracted land application and disposal services. Our Engineering,
Facilities, and Development revenues for the six months ended June 30, 2005,
increased approximately $13.5 million to $17.2 million compared to $3.7 million
for 2004 due primarily to an $12.0 million increase in construction revenues on
a new facility in Honolulu, Hawaii, and an increase in contract revenues on the
Sacramento, California dryer facility that commenced operations in December 2004
partially offset by the transfer of the Pinellas dryer facility operations to
the Residuals Management Operations Segment.

Gross profit for the six months ended June 30, 2005, was approximately $29.0
million compared to approximately $31.2 million for the six months ended June
30, 2004, a decrease of $2.2 million or 7.1%. Gross profit as a percentage of
revenue decreased to 18.2% in 2005 from 20.2% in 2004. This decrease in gross
profit and gross profit margin is a result of revenue mix changes associated
with the $12.9 million increase in low margin construction revenue and the
decrease in higher margin contract (including the $3.2 million decrease in
revenue on the long-term cleanout contract that had higher than normal margins)
and event revenue, along with a $0.6 million increase in the cost of natural gas
and kerosene of certain facilities and a $0.5 million increase in depreciation,
partially offset by a decrease in repair costs. Approximately $0.4 million of
the fuel increase related to an unexpected supply interruption at a dryer
facility in January 2005.

Selling, general and administrative expenses for the six months ended June 30,
2005 were approximately $11.6 million compared to approximately $11.5 million
for the six months ended June 30, 2004. Selling, general and administrative
expenses as a percentage of revenues decreased to 7.2% in the first six months
of 2005 from 7.4% in the same period of 2004.

Transaction costs incurred in connection with the Recapitalization described in
Note 1 consisted of $1.5 million in legal, accounting and underwriting fees
related to the Recapitalization.

Stock option redemptions and transaction bonuses included $1.3 million of cash
paid for transaction bonuses and $5.5 million for stock options redeemed for
certain key employees of the company.


                                       27
<PAGE>
As a result of the foregoing, income from operations for the six months ended
June 30, 2005 and 2004 was approximately $9.3 million compared to approximately
$20.6 million, respectively. This decrease in operating income adjusted to
exclude transaction costs and expenses of $1.5 million and $6.8 million of stock
option redemptions and transaction bonuses related to the Recapitalization, is
primarily a result of revenue mix changes associated with the increase in low
margin construction revenue, a decrease in higher margin contract and event
revenues, along with a $1.5 million increase in the cost of natural gas of
certain facilities, and a $0.6 million decrease in gains from asset sales,
partially offset by a decrease in repair costs. Our Residuals Management
Operations income from operations for the six months ended June 30, 2005,
totaled approximately $21.0 million compared to $25.6 million for 2004 due
primarily to the expected decreases in event and contract revenues (including
the decrease in the long-term cleanout contract revenue) described above along
with a $0.5 million increase in depreciation expense and the $1.5 million
increase in fuel costs partially offset by a decrease in repair costs. Our Rail
Transportation income from operations decreased from $3.1 million in 2004 to
$1.5 million in 2005 due primarily to the decrease in revenues described above,
an increase in rail transportation costs and excess equipment capacity. Our
Engineering, Facilities, and Development income from operations increased from a
loss of $1.2 million in 2004 to income of $0.7 million in 2005 due primarily to
construction on the Honolulu facility and dryer facility revenue changes
described above and related margins. The increase in corporate loss from
operations from a loss of $6.9 million in 2004 to a loss of $14.0 million in
2005, primarily relates to the $1.5 million of transaction costs and expenses
and $6.8 million of stock option redemptions and transaction bonuses associated
with the Recapitalization.

Other expense, net, was approximately $32.1 million for the six months ended
June 30, 2005, compared to approximately $10.8 million for the six months ended
June 30, 2004, representing an increase in other expense of approximately $21.4
million, due to the $19.5 million of debt extinguishment costs associated with
the Recapitalization discussed in Note 1, and an increase in interest expense
related to increases in market interest rates.

For the six months ended June 30, 2005, we recorded a benefit for income taxes
of approximately $8.6 million compared to a provision of $3.8 million for the
six months ended June 30, 2004. Our effective tax rate was approximately 38% in
the first six months of 2005 compared to 39% in the first six months of 2004.
The decrease in the effective tax rate is primarily related to permanent
differences for state taxes, meals and entertainment and similar items that are
not deductible for federal purposes and therefore reduce the benefit recognized
in loss periods. Our tax provision is principally a deferred tax provision that
will not significantly impact cash flow since we have significant tax deductions
in excess of book deductions and net operating loss carryforwards available to
offset future taxable income.

LIQUIDITY AND CAPITAL RESOURCES

OVERVIEW

Our principal sources of funds are cash generated from operating activities and
long-term borrowings and equity issuances. We use cash mainly for working
capital, capital expenditures, debt service repayment obligations, to pay
dividends on capital stock, the repurchase of shares and potential earn-out
payments resulting from prior acquisitions. Historically, we have financed our
acquisitions principally through the issuance of equity and debt securities, our
credit facility, and funds provided by operating activities.

HISTORICAL CASH FLOWS

Cash Flows from Operating Activities -- For the six months ended June 30, 2005,
cash flows used in operating activities were approximately $26.4 million
compared to cash flow provided of approximately $19.8 million for the same
period in 2004, a decrease of approximately $46.2 million. The decrease
primarily relates to a net loss applicable to common stock of $23.8 million
primarily resulting from transaction costs of $1.5 million, transaction bonuses
and stock option redemptions of $6.8 million and debt extinguishment costs of
$19.5 million. In addition, we had an increase in the use of working capital of
$20.5 million. The increase in working capital relates primarily to a decrease
in trade payables between periods, a decrease in interest payable due to the
repayment of debt as part of the Recapitalization (See Note 1), an increase in
trade receivables relating to timing of customer receipts, a decrease in
benefits accruals relating to the timing of cutoff of payroll between periods,
and other decreases in deferred revenues and legal reserves and other
liabilities.

Cash Flows from Investing Activities -- For the six months ended June 30, 2005,
cash flows used by investing activities were approximately $11.4 million
compared to approximately $8.8 million for the same period in 2004. This
increase is due primarily to a


                                       28
<PAGE>
$2.4 million increase in capital expenditures partially offset by a $0.7 million
decrease in proceeds from asset sales. The increase in capital expenditures
relates to $2.7 million of capital spent (excluding a project funded from
restricted cash) on new facility projects (compared to $1.4 million spent in the
first half of last year), and a $0.9 million increase in other capital
expenditures.

Cash Flows from Financing Activities -- For the six months ended June 30, 2005,
cash flows provided from financing activities were approximately $38.5 million
compared to cash flows used of approximately $11.0 million for the same period
in 2004, an increase of approximately $49.5 million. The increase primarily
relates to proceeds of $37.6 million received from the equity offering (See Note
1) and $1.6 million of proceeds received from the exercise of stock options in
2005, along with a net increase in revolver borrowings to fund cash flows from
operating activities, and proceeds from the Senior Credit Facility and the
repayment of debt and debt issuance costs related to the Recapitalization
summarized in Note 1.

CAPITAL EXPENDITURE REQUIREMENTS

Capital expenditures for the six months ended June 30, 2005, totaled
approximately $9.7 million compared to approximately $7.6 million in the same
period of 2004. Our ongoing capital expenditure program consists of expenditures
for replacement equipment, betterments and growth. We expect our capital
expenditures for 2005 to be approximately $12.0 to $13.0 million, which is in
addition to approximately $39.0 million expected to be spent on new facilities
in 2005 and 2006.

SENIOR CREDIT FACILITY

On June 21, 2005, the Company closed a $305.0 million new senior secured credit
facility (the "Senior Credit Facility") with a syndicate of financial
institutions, including affiliates of Banc of America Securities LLC, Lehman
Brothers Inc. and CIBC World Markets Corp.

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

     (i)  Revolving Loan up to $95.0 million outstanding at anytime;

     (iv) Term B Loans (which, once repaid, may not be reborrowed) of $180.0
          million;

     (v)  Delayed draw senior secured term loan facility of $30.0 million; and

     (iv) Letters of Credit up to $50 million as a subset of the Revolving Loan.
          At June 30, 2005, the Company had approximately $37.5 million of
          Letters of Credit outstanding.

Borrowings under the delayed draw term loan will be used to finance new facility
construction projects. The new revolver has a five-year maturity and the new
term loan and the delayed draw term loan have a seven-year maturity. The Senior
Credit Facility is secured by first priority security interests in substantially
all of the Company's assets and those of its subsidiaries (other than assets
securing nonrecourse debt). There is no amortization of the new term loan or the
delayed draw term loan. The Senior Credit Facility includes a term loan that
bears interest at LIBOR or prime rate plus a margin (2.25% for Eurodollar loans,
and 1.25% for base rate loans), and a revolver that also bears interest at LIBOR
or prime rate plus a margin based on a rate schedule (currently 2.75% for
Eurodollar loans, at 1.75% for base rate loans). Currently these rates total
approximately:

<TABLE>
<CAPTION>
           Eurodollar   Base Rate
           ----------   ---------
<S>        <C>          <C>
Revolver      6.3%         8.0%
Term          5.7%         7.5%
</TABLE>

A portion of the proceeds from the Senior Credit Facility were used to repay in
full indebtedness under the Company's previous senior credit facility and to
tender for all of its $150 million of outstanding 9 1/2% senior subordinated
notes due 2009. The Senior Credit Facility allows the Company to pay a
significant portion of its excess cash flow to shareholders through cash
dividends provided the Company maintains compliance with certain financial
covenants and certain other restrictions. The Company expects that the Senior
Credit Facility will result in cash interest savings of approximately $4.0
million per year.


                                       29
<PAGE>
The proceeds of the delayed draw term loan will be used to partially fund new
facility construction costs in 2005 and 2006. The Company has several new
facilities under development which are scheduled to begin operations in the next
18 months. These new facilities will be operated under long-term contracts. The
development of these new facilities is consistent with the Company's strategy to
pursue new facility opportunities that provide long-term, highly predictable
cash flows. These facilities include a composting facility in Kern County,
California, an incineration facility upgrade in Woonsocket, Rhode Island, a
dewatering facility in Providence, Rhode Island, a dryer facility in Honolulu,
Hawaii and a composting facility in Los Palos, California.

The Senior Credit Facility includes mandatory repayment provisions related to
excess cash flows, proceeds from certain asset sales, debt issuances and equity
issuances, all as defined in the Credit Agreement. These mandatory repayment
provisions may also reduce the available commitment. The Credit Agreement
contains standard covenants including compliance with laws, limitations on
capital expenditures, restrictions on dividend payments, limitations on mergers
and compliance with financial covenants. The Company was in compliance with
those covenants as of June 30, 2005. The Credit Agreement is collateralized by
substantially all the assets of the Company and expires on December 31, 2012. As
of June 30, 2005, the Company had approximately $76.1 million of unused
borrowings under the Credit Agreement, including $30.0 million under the delayed
draw term loan.

On May 8, 2002, the Company entered into a $150 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, to provide working capital
for operations, to fund capital expenditures and for other general corporate
purposes. On June 21, 2005, the Senior Credit Agreement was completely repaid
with the proceeds received from the Senior Credit Facility.

SENIOR SUBORDINATED NOTES

In April 2002, we issued $150 million aggregate in principal amount our 9 1/2%
Senior Subordinated Notes due on April 1, 2009 (the "Notes"). The Notes are
unsecured senior indebtedness and are guaranteed by all of our existing and
future domestic subsidiaries, other than subsidiaries treated as unrestricted
subsidiaries ("Guarantors"). As of December 31, 2004, all subsidiaries, other
than the subsidiaries formed to own and operate the Sacramento dryer project,
Synagro Organic Fertilizer Company of Sacramento, Inc. and Sacramento Project
Finance, Inc. and South Kern Industrial Center, LLC, were Guarantors of the
Notes. On June 21, 2005, the Notes were repurchased with the proceeds of the
Senior Credit Facility.

In 1996, the Maryland Energy Financing Administration issued nonrecourse
tax-exempt project revenue bonds (the "Maryland Project Revenue Bonds") in the
aggregate amount of $58.6 million. The Administration loaned the proceeds of the
Maryland Project Revenue Bonds to Wheelabrator Water Technologies Baltimore
L.L.C., now our wholly owned subsidiary known as Synagro -- Baltimore, L.L.C.,
pursuant to a June 1996 loan agreement, and the terms of the loan mirror the
terms of the Maryland Project Revenue Bonds. The loan financed a portion of the
construction costs of the thermal facilities located in Baltimore County,
Maryland, at the site of our Back River Wastewater Treatment Plant, and in the
City of Baltimore, Maryland, at the site of our Patapsco Wastewater Treatment
Plant. We assumed all obligations associated with the Maryland Project Revenue
Bonds in connection with our acquisition of the Bio Gro Division of Waste
Management, Inc. in 2000. Maryland Project Revenue Bonds in the aggregate amount
of $17.2 million have already been paid, and the remaining Maryland Project
Revenue Bonds bear interest at annual rates between 5.85% and 6.45% and mature
on dates between December 1, 2005, and December 1, 2016.

In December 2002, the California Pollution Control Financing Authority (the
"Authority") issued nonrecourse revenue bonds in the aggregate amount of $21.3
million. The nonrecourse revenue bonds consist of a face amount of $20.1 million
Series 2002-A and a face amount of $1.2 million Series 2002-B (taxable)
(collectively, the "Sacramento Bonds"). The Authority loaned the proceeds of the
Sacramento Bonds to Sacramento Project Finance, Inc., one of our wholly owned
subsidiaries, pursuant to a loan agreement dated December 1, 2002. The loan will
finance the acquisition, design, permitting, constructing and equipping of a
biosolids dewatering and heat drying/pelletizing facility for the Sacramento
Regional Sanitation District. The Sacramento Bonds bear interest at annual rates
between 4.25% and 5.5% and mature on dates between December 1, 2005, and
December 1, 2024.

We believe we will have sufficient cash generated by our operations and
available through our existing credit facility to provide for future working
capital and capital expenditure requirements that will be adequate to meet our
liquidity needs for the foreseeable future, including payment of interest on our
Senior Credit Facility and payments on the Maryland Project Revenue Bonds and
the Sacramento Bonds. We cannot assure, however, that our business will generate
sufficient cash flow from operations, that any cost savings and any operating
improvements will be realized or that future borrowings will be available to us
under our credit facility in an amount sufficient to enable us to pay our
indebtedness or to fund our other liquidity needs. We may need to refinance all
or a


                                       30
<PAGE>
portion of our indebtedness on or before maturity. We make no assurance that we
will be able to refinance any of our indebtedness, including our Senior Credit
Facility, on commercially reasonable terms or at all.

At June 30, 2005, future minimum principal payments of long-term debt,
nonrecourse project revenue bonds, capital lease obligations, estimated interest
expense on debt and operating lease obligations are as follows (in thousands):

<TABLE>
<CAPTION>
                                          Noncourse       Capital
                            Long-Term      Project         Lease      Estimated   Operating
Period Ended December 31,     Debt      Revenue Bonds   Obligations    Interest     Leases      Total
-------------------------   ---------   -------------   -----------   ---------   ---------   --------
<S>                         <C>         <C>             <C>           <C>         <C>         <C>
2005.....................    $    556       $ 3,300       $ 1,485      $ 14,837    $ 4,150    $ 24,328
2006.....................         103         3,480         2,787        14,680      6,015      27,065
2007.....................         108         3,710         3,507        14,293      5,191      26,809
2008.....................          46         3,935         4,129        13,740      4,151      26,001
2009.....................      11,400         4,165           761        13,387      3,953      33,666
2010-2013................     180,000        24,965           134        28,532     11,323     244,954
2014-2018................          --        10,475            --         3,765      1,491      15,731
Thereafter...............          --         8,610            --         1,650      1,000      11,260
                             --------       -------       -------      --------    -------    --------
Total....................    $192,213       $62,640       $12,803      $104,884    $37,274    $409,814
                             ========       =======       =======      ========    =======    ========
</TABLE>

Interest expense is estimated because certain of our debt have variable interest
rates. For purposes of this estimate, variable interest rates as of June 30,
2005 were utilized.

SERIES D REDEEMABLE PREFERRED STOCK

We have authorized 32,000 shares of Series D Preferred Stock, par value $.002
per share. In 2000, we issued a total of 25,033.601 shares of the Series D
Preferred Stock to GTCR Fund VII, L.P. and its affiliates, which were
convertible by the holders into a number of shares of our common stock computed
by dividing (i) the sum of (a) the number of shares to be converted multiplied
by the liquidation value and (b) the amount of accrued and unpaid dividends by
(ii) the conversion price then in effect. The initial conversion price is $2.50
per share provided that in order to prevent dilution, the conversion price may
be adjusted. The Series D Preferred Stock was senior to our common stock or any
other of its equity securities. The liquidation value of each share of Series D
Preferred Stock was $1,000 per share. Dividends on each share of Series D
Preferred Stock accrued daily at the rate of eight percent per annum on the
aggregate liquidation value. Upon conversion of the Series D Preferred Stock by
the holders, the holders may elect to receive the accrued and unpaid dividends
in shares of our common stock at the conversion price. The Series D Preferred
Stock was entitled to one vote per share. Shares of Series D Preferred Stock
were subject to mandatory redemption by us on January 26, 2010, at a price per
share equal to the liquidation value plus accrued and unpaid dividends. On June
21, 2005, holders of our preferred stock converted all of their preferred shares
into shares of our existing common stock.

SERIES E REDEEMABLE PREFERRED STOCK

We have authorized 55,000 shares of Series E Preferred Stock, par value $.002
per share. GTCR Fund VII, L.P. and our affiliates own 37,497.183 shares of
Series E Preferred Stock and certain affiliates of The TCW Group, Inc. own
7,261.504 shares. The Series E Preferred Stock were convertible by the holders
into a number of shares of our common stock computed by dividing (i) the sum of
(a) the number of shares to be converted multiplied by the liquidation value and
(b) the amount of accrued and unpaid dividends by (ii) the conversion price then
in effect. The initial conversion price was $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 our common stock and any other of our equity
securities. The liquidation value of each share of Series E Preferred Stock was
$1,000 per share. Dividends on each share of Series E Preferred Stock accrued
daily at the rate of eight percent per annum on the aggregate liquidation value.
Upon conversion of the Series E Preferred Stock by the holders, the holders may
elect to receive the accrued and unpaid dividends in shares of our common stock
at the conversion price. The Series E Preferred Stock was entitled to one vote
per share. Shares of Series E Preferred Stock are subject to mandatory
redemption by us on January 26, 2010, at a price per share equal to the
liquidation value plus accrued and unpaid dividends. On June 21, 2005, holders
of our preferred stock converted all of their preferred shares into shares of
our existing common stock.


                                       31
<PAGE>
WORKING CAPITAL

At June 30, 2005, we had working capital of approximately $39.0 million compared
to approximately $15.2 million at December 31, 2004, an increase of
approximately $23.8 million. The increase in working capital is principally due
to increased accounts receivable, a reduction in accrued interest due to the
refinancing of our debt, a reduction in accounts payable and accrued expenses
and repayment of a $4.0 million short-term note in February 2005.

ACCOUNTING PRONOUNCEMENTS

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

DERIVATIVES AND HEDGING ACTIVITIES

Effective July 1, 2005, the Company entered into interest rate cap agreements.
The first is an interest rate collar agreement on a notional amount of $86.5
million, whereby the Company will receive three month LIBOR and pay three month
LIBOR unless three month LIBOR settles below 3.52% or above 4.50%, in such case
the Company would pay 3.52% or 4.50%, as applicable. This swap has no fair
market value at June 30, 2005, and matures in November 2006.

Also effective July 1, 2005, the Company entered into an interest rate cap
agreement on a notional amount of $73.5 million whereby the Company will receive
three month LIBOR and pay three month LIBOR unless three month LIBOR settles
above 6% in which case the Company would pay 6%. The Company paid $220,000 to
execute this cap. At June 30, 2005, this cap has a fair market value of
$181,039, accordingly, $38,961 has been recorded to other expense.

During the second quarter the Company entered into three forward starting fixed
rate swap agreements which are not effective until November 13, 2006, and mature
in May 2010. The notional amounts for each fixed rate swap are $28 million, and
the fixed rates of interest are 4.69%, 4.54%, and 4.21%. These swaps are
considered to be cash flow hedges and accordingly the fair value adjustments
will be recorded to Other Comprehensive Income. The aggregate liability for the
fair value of these agreements was $820,640 at June 30, 2005. This amount, net
of tax, totals $492,000 which has been recorded to Other Comprehensive Income
for the six months ended June 30, 2005.

On July 24, 2003, the Company entered into two interest rate swap transactions
with two financial institutions to hedge the Company's exposure to changes in
the fair value on $85 million of its Notes. The purpose of these transactions
was to convert future interest due on $85 million of the Notes to a lower
variable rate in an attempt to realize savings on the Company's future interest
payments. The terms of the interest rate swap contract and the underlying debt
instruments are identical. The Company has designated these swap agreements as
fair value hedges. On September 23, 2004, the Company unwound $18 million of
these swaps and received a settlement payment of approximately $0.1 million that
was deducted from interest expense. On January 6, 2005, the Company unwound the
remaining $67 million of interest rate swaps and paid $0.5 million for the
settlement of these swaps. At June 21, 2005 the fair value adjustment to the
subordinated debt relating to these swaps was $0.7 million and was written off
in connection with the refinancing of the Company's debt as discussed above.

The Company previously had outstanding 12 percent subordinated debt which was
repaid on April 17, 2002, with the proceeds from the sale of the Notes. On June
25, 2002, the Company entered into a floating-to-fixed interest rate swap
agreement that substantially offsets market value changes in the Company's
reverse swap agreement. The liability related to this reverse swap agreement and
the floating-to-fixed offset agreement totaling approximately $1.8 million is
reflected in other long-term liabilities at June 30, 2005. The loss recognized
during the period ended June 30, 2005 related to the floating-to-fixed interest
rate swap agreement was approximately $8,000, while the gain recognized related
to the reverse swap agreement was approximately $31,000. The amount of the
ineffectiveness of the reverse swap agreement charged to other expense was
approximately $23,000 during the six month period ended June 30, 2005.

On June 25, 2001, the Company entered into a reverse swap on its 12%
subordinated debt and used the proceeds from the reverse swap agreement to
retire previously outstanding floating-to-fixed interest rate swap agreements
(the "Retired Swaps") and option agreements. Accordingly, the balance included
in accumulated other comprehensive loss included in stockholders' equity related
to the Retired Swaps is being recognized in future periods' income over the
remaining term of the original swap agreement. The amount


                                       32
<PAGE>
of accumulated other comprehensive income charged to interest expense during the
three and six month period ended June 30, 2005 was approximately $0.1 million
and $0.2 million, respectively. On June 21, 2005, the Company wrote off the
balance included in Accumulated Other Comprehensive Loss of $0.6 million related
to the Retired Swaps as a result of the refinancing of the Company's debt as
discussed above.

INTEREST RATE RISK

Total debt at June 30, 2005, included approximately $191.4 million in floating
rate debt at a base interest rate plus LIBOR. As a result, our interest cost in
2005 will fluctuate based on short-term interest rates. The impact on annual
cash flow of a ten percent change in the floating rate (i.e. LIBOR) would be
approximately $0.7 million.

ITEM 4. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Our Chief Executive Officer and Chief Financial Officer have evaluated our
disclosure controls and procedures (as such term is defined in Rules 13a-15(e)
and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) as of the end of the period covered by this quarterly report.
Based on this evaluation, such officers have concluded that these controls and
procedures are effective in ensuring that the information we are required to
disclose in reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms and is accumulated and
communicated to management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely discussions regarding required
disclosure.

There has been no change in our internal control over financial reporting (as
defined in Rules 13a-13(f) and 15d - 15(f) under the Exchange Act) that occurred
during the period covered by this quarterly report that has materially affected,
or is reasonable likely to materially affect, our internal control over
financial reporting.

During the first quarter of 2005 management implemented procedures to correct
the weaknesses in our internal control over financial reporting that existed as
of December 31, 2004. The weaknesses identified related to imputed interest on
receivables associated with a long-term contract and segment disclosures.
Technical accounting issues are now required to be analyzed documented and
reviewed by appropriate personnel on a timely basis. Management has also hired
an independent third party to assist with compliance with Rule 404 of the
Sarbanes Oxley Act of 2002.


                                       33
<PAGE>
PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS,

     On June 1, 2005, the annual meeting of stockholders was held, at which the
only item for voting was the election of directors.

Election of Directors:

<TABLE>
<CAPTION>
         DIRECTOR            VOTES FOR   VOTES WITHHELD
         --------            ---------   --------------
<S>                         <C>          <C>
Ross M. Patten              42,112,050      1,285,934
Robert C. Boucher, Jr.      42,122,625      1,275,359
Kenneth Ch'uan-k'ai Leung   42,277,867        120,117
David A. Donnini            41,995,829      1,402,155
Vincent J. Hemmer           42,119,625      1,278,359
James B. Mattly             43,374,667         23,217
Gene Meredith               43,138,968        259,016
George E. Sperzel           42,023,879      1,374,105
Alfred Tyler 2nd            43,172,571        225,413
J. Paul Withrow             41,991,356      1,406,628
</TABLE>

ITEM 6. EXHIBITS

     Exhibit Index

     1.1  Underwriting Agreement, dated as of June 15, 2005, amoung the Company,
          the Selling Stockholders listed in Schedule B thereto, and Banc of
          America Securities LLC, Lehman Brothers Inc. and CIBC World Markets
          Corp., as representatives of the several underwriters listed in
          Schedule A thereto (incorporated by reference to our Current Report on
          Form 8-K filed with the SEC on June 21, 2005).

     10.1 Credit Agreement dated as of April 29, 2005, among Synagro
          Technologies, Inc., each lender from time to time party thereto, Bank
          of America, N.A., as Administrative Agent, Swing Line Leader and L/C
          Issuer, Lehman Commercial Paper Inc., as Syndication Agent, and CIBC
          World Markets Corp., as Documentation Agent (incorporated by reference
          to our Current Report on Form 8-K/A filed with the SEC on May 23,
          2005).

     10.2 Supplement to Employment Agreement dated May 31, 2005 by and between
          Mark A. Rome and Synagro Technologies, Inc. (incorporated by reference
          to our Current Report on Form 8-K filed with the SEC on June 3, 2005).

     31.1 Certification of Chief Executive Officer

     31.2 Certification of Chief Financial Officer

     32.1 Section 1350 Certification of Chief Executive Officer

     32.2 Section 1350 Certification of Chief Financial Officer


                                       34
<PAGE>
                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                        SYNAGRO TECHNOLOGIES, INC.


Date: August 10, 2005                   By: /s/ Robert C. Boucher, Jr.
                                            ------------------------------------
                                            Chief Executive Officer and Director


Date: August 10, 2005                   By: /s/ J. Paul Withrow
                                            ------------------------------------
                                            Chief Financial Officer and Director


                                       35
<PAGE>
                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit
   No     Description
-------   -----------
<S>       <C>
1.2       Underwriting Agreement, dated as of June 15, 2005, amoung the Company,
          the Selling Stockholders listed in Schedule B thereto, and Banc of
          America Securities LLC, Lehman Brothers Inc. and CIBC World Markets
          Corp., as representatives of the several underwriters listed in
          Schedule A thereto (incorporated by reference to our Current Report on
          Form 8-K filed with the SEC on June 21, 2005).

10.3      Credit Agreement dated as of April 29, 2005, among Synagro
          Technologies, Inc., each lender from time to time party thereto, Bank
          of America, N.A., as Administrative Agent, Swing Line Leader and L/C
          Issuer, Lehman Commercial Paper Inc., as Syndication Agent, and CIBC
          World Markets Corp., as Documentation Agent (incorporated by reference
          to our Current Report on Form 8-K/A filed with the SEC on May 23,
          2005).

10.4      Supplement to Employment Agreement dated May 31, 2005 by and between
          Mark A. Rome and Synagro Technologies, Inc. (incorporated by reference
          to our Current Report on Form 8-K filed with the SEC on June 3, 2005).

31.1      Certification of Chief Executive Officer

31.2      Certification of Chief Financial Officer

32.1      Section 1350 Certification of Chief Executive Officer

32.2      Section 1350 Certification of Chief Financial Officer
</TABLE>