<PAGE>   1

                                    FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

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

For Quarter Ended September 30, 1999             Commission File Number  0-21054

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

<TABLE>
<CAPTION>

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

   1800 BERING DRIVE, SUITE 1000                           HOUSTON, TEXAS 77057
   (Address of principal executive offices)                (Zip Code)
</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 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 NOVEMBER 11, 1999
------------------------------              --------------------------------
<S>                                         <C>
 Common stock, par value $.002                        17,710,189

</TABLE>



<PAGE>   2





                           SYNAGRO TECHNOLOGIES, INC.

                                      INDEX

<TABLE>
<CAPTION>

                                                                                                       PAGE
                                                                                                      -------

<S>                                                                                                   <C>
          PART I  -- FINANCIAL INFORMATION

          Condensed Consolidated Balance Sheets as of September  30, 1999
             (Unaudited) and December 31, 1998.....................................................     3

          Condensed Consolidated Statements of Operations for the
             Three and Nine  Months Ended September  30, 1999 and 1998 (Unaudited).................     4

          Condensed Consolidated Statements of Cash Flows for the
             Nine  Months Ended September  30, 1999 and 1998 (Unaudited)...........................     5

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

          Management's Discussion and Analysis of  Financial
          Condition and Results of Operations.....................................................      13

          PART II -- OTHER INFORMATION..............................................................    18
</TABLE>






                                       2
<PAGE>   3





                           SYNAGRO TECHNOLOGIES, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>



                                                                  SEPTEMBER 30,    DECEMBER 31,
                                 ASSETS                                1999            1998
                                                                  --------------  --------------
                                                                    (UNAUDITED)
<S>                                                               <C>              <C>
Current Assets:
  Cash and cash equivalents                                       $    337,261    $    414,712
  Restricted cash, current portion                                          --         680,656
  Accounts receivable, net                                          11,267,929       6,523,944
  Note receivable                                                      118,674         436,325
  Prepaid expenses and other current assets                          2,303,530       1,679,381
                                                                  ------------    ------------
          Total current assets                                      14,027,394       9,735,018

Property, machinery & equipment, net                                16,264,747      12,394,018

Other Assets:
  Goodwill, net                                                     61,999,721      43,130,904
  Notes Receivable, long-term portion                                  183,396         262,829
  Other assets                                                       1,410,970       1,099,714
                                                                  ------------    ------------
          Total assets                                            $ 93,886,228    $ 66,622,483
                                                                  ============    ============

     LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
  Accounts payable and accrued expenses                            $ 4,950,334    $  4,043,512
  Current portion of notes payable to prior owners                   2,062,178              --
  Current portion of long-term debt                                    756,326              --
                                                                   -----------    ------------
          Total current liabilities                                  7,768,838       4,043,512

Long term liabilities:
  Long term debt - net                                              39,063,350      21,651,197
  Notes payable to prior owners                                        938,790       6,679,039
                                                                  ------------    ------------
          Total long term liabilities                               40,002,140      28,330,236

Commitments and contingencies

Stockholders' Equity:
 Preferred stock, $.002 par value, 10,000,000 shares
  authorized, none issued and outstanding                                   --              --
 Common Stock, $.002 par value, 100,000,000 shares authorized,
  17,692,489 and 13,384,138 issued and outstanding                      35,352          28,503
  Additional and paid in capital                                    66,370,366      56,495,873
  Accumulated deficit                                              (20,290,468)    (22,275,641)
                                                                  ------------    ------------
          Total stockholders' equity                                46,115,250      34,248,735
                                                                  ------------    ------------
          Total liabilities and stockholders' equity              $ 93,886,228    $ 66,622,483
                                                                  ============    ============
</TABLE>

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





                                       3
<PAGE>   4





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

<TABLE>
<CAPTION>

                                                THREE MONTHS ENDED SEPTEMBER 30,          NINE  MONTHS ENDED SEPTEMBER  30,
                                              -------------------------------------     -------------------------------------
                                                    1999                1998                 1999                 1998
                                              ----------------     ----------------     ----------------     ----------------


<S>                                           <C>                  <C>                  <C>                  <C>
Net sales...................................  $     15,856,641     $      9,849,430     $     39,834,873     $     22,505,130
Cost of services............................        11,271,832            8,053,428           29,785,853           19,468,751
                                              ----------------     ----------------     ----------------     ----------------
Gross profit................................         4,584,809            1,796,002           10,049,020            3,036,379

Selling, general and administrative.........         1,732,170            1,194,806            4,952,622            2,614,613
expenses
Amortization of goodwill....................           433,848              242,696            1,101,876              357,140
Special charges (credits), net..............                --              256,511                   --              107,501
                                              ----------------     ----------------     ----------------     ----------------


Income (loss) from operations...............         2,418,791              101,989            3,994,522              (42,875)

  Other income (expense), net...............           168,619               79,144              219,651              342,144
  Interest expense..........................          (913,014)            (500,889)          (2,229,000)          (1,023,925)
                                              ----------------     ----------------     ----------------     ----------------

Income  (loss) before provision for
income taxes................................         1,674,396             (319,756)           1,985,173             (724,656)

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

Net income (loss) before redeemable
  preferred stock dividends.................         1,674,396             (319,756)           1,985,173             (724,656)
Redeemable preferred stock dividends........                --                   --                   --            3,934,588
                                              ----------------     ----------------     ----------------     ----------------
Net earnings (loss) on common stock.........  $      1,674,396     $       (319,756)    $      1,985,173     $     (4,659,244)
                                              ================     ================     ================     ================

Income (loss) per common share equivalent:
  Net income (loss), basic..................  $           0.09     $          (0.02)    $           0.12     $          (0.45)
  Net income (loss), diluted................  $           0.09     $          (0.02)    $           0.12     $          (0.45)

Weighted average shares outstanding,
basic.......................................        17,641,495           13,030,373           16,095,245           10,295,891
Weighted average shares outstanding,
diluted.....................................        18,997,522           13,030,373           17,073,245           10,295,891
</TABLE>

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





                                       4
<PAGE>   5





                           SYNAGRO TECHNOLOGIES, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                                NINE  MONTHS ENDED SEPTEMBER 30,
                                                                --------------------------------
                                                                     1999               1998
                                                                --------------     -------------
                                                                           (UNAUDITED)
<S>                                                             <C>              <C>
Cash flows from operating activities:
  Net Income (loss) before redeemable preferred stock
     dividends...............................................   $  1,985,173     $   (724,656)
  Adjustments to reconcile net income (loss)
     provided by operating activities
       Depreciation and amortization.........................      3,202,631        1,544,618
       Gain on sale of equipment.............................       (126,531)        (174,111)
       Special charges (credits), net........................             --           29,351
  Change in operating assets and liabilities,
  net of effects of acquired businesses:
       Accounts receivable...................................     (3,151,020)        (752,240)
       Prepaid expenses and other............................       (782,048)         516,896
       Other assets..........................................             --           98,122
       Accounts payable and accrued expenses.................        285,069        1,448,560
                                                                ------------     ------------
Net cash provided by operating activities....................      1,413,274        1,986,540

Cash flows from investing activities:
       Additions to property, machinery & equipment..........     (3,240,064)      (1,698,578)
       Proceeds from sale of equipment.......................        835,087          953,456
       Cash paid for acquired business, net of cash acquired.    (13,802,090)      (2,807,119)
       Proceeds from notes receivable........................        397,084               --
       Sales (purchases) of short-term investments, net......             --          172,925
                                                                ------------     ------------
Net cash used in investing activities........................    (15,809,983)      (3,379,316)

Cash flows from financing activities:
       Proceeds from debt....................................     18,568,188        2,019,743
       Payments on debt......................................     (5,786,715)      (2,973,992)
       Decrease in restricted cash...........................        680,656           69,346
       Sale of redeemable preferred stock....................             --        3,480,432
       Preferred stock dividends.............................             --         (420,001)
       Exercise of options and warrants......................        857,129           58,537
                                                                ------------     ------------
Net cash provided by financing activities....................     14,319,258        2,234,065
                                                                ------------     ------------

Net increase (decrease) in cash and cash equivalents.........        (77,451)         841,289
Cash and cash equivalents, beginning of period...............        414,712          281,043
                                                                ------------     ------------
Cash and cash equivalents, end of period.....................   $    337,261     $  1,122,332
                                                                ============     ============
</TABLE>

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





                                       5
<PAGE>   6





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

<TABLE>
<CAPTION>

                                                            NINE  MONTHS
                                                           SEPTEMBER 30,
                                                      ---------------------
                                                         1999        1998
                                                      ----------  ---------
                                                           (UNAUDITED)
<S>                                                  <C>          <C>
            Supplemental Cash Flow Information......
             Interest paid during the period........  $2,089,185  $ 822,047
             Taxes paid during the period...........          --         --
</TABLE>

                   NON-CASH INVESTING AND FINANCING ACTIVITIES

On March 31, 1998, the Company issued 1,458,335 shares of Series B Preferred
Stock ("Preferred Stock") with a beneficial conversion feature. The Company
recognized the value of the beneficial conversion feature of $3,514,587 as a
preferred dividend. On September 10, 1998, the Preferred Stock was converted to
1,458,335 shares of common stock.

On July 9, 1999, the Company entered into a lease agreement to purchase ten
trucks with a purchase price of approximately $630,000. The transaction was
treated as a non-cash transaction.




                                       6
<PAGE>   7




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

(1)  BASIS OF PRESENTATION

General

The accompanying unaudited condensed consolidated financial statements have been
prepared by the Registrant ("Synagro Technologies, Inc." or the "Company")
pursuant to the rules and regulations of the Securities and Exchange Commission.
These condensed consolidated financial statements reflect all normal recurring
adjustments which are, in the opinion of management, necessary for the fair
presentation of such financial statements for the periods indicated. Certain
information relating to the Company's organization and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles has been condensed or omitted in this Form 10-Q
pursuant to Rule 10-01 of Regulation S-X for interim financial statements
required to be filed with the Securities and Exchange Commission. However, the
Company believes that the disclosures herein are adequate to make the
information presented not misleading. The results for the nine months ended
September 30, 1999, are not necessarily indicative of future operating results.
It is suggested that these financial statements be read in conjunction with the
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K, as amended, for the year ended December 31, 1998, and the
Company's current report on Form 8-K/A filed on July 7, 1999.

The accounting policies followed by the Company in preparing interim
consolidated financial statements are consistent with those described in the
"Notes to Consolidated Financial Statements" in the Company's Form 10-K, as
amended, for the year ended December 31, 1998, and the Company's current report
on Form 8-K/A filed on July 7, 1999.

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

ACCOUNTING PRONOUNCEMENTS

Effective December 31, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 131, "Disclosures about segments of an
enterprise and related information." SFAS No. 131 establishes new standards for
segment reporting which are based on the way management organizes segments
within a Company for making operating decisions and assessing performance.
Through September 30, 1999, the Company operated in one segment, namely, the
biosolids management business segment.

In March 1998, the AICPA issued Statement of Position ("SOP") 98-1, "Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use." The
SOP provides guidance with respect to accounting for the various types of costs
incurred for computer software developed or obtained for the Company's use. The
Company adopted SOP 98-1 in the first quarter of fiscal 1999 and it had no
effect on the Company's consolidated financial statements.

In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of Start-Up
Activities." At adoption, SOP 98-5 requires the Company to write-off any
unamortized start-up costs as a cumulative change in accounting principle and,
going forward, expense all start-up activity costs as they are incurred. The
Company adopted SOP 98-5 in the first quarter of fiscal 1999 and it had no
effect on the Company's consolidated financial statements.

In September 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which becomes effective for financial
statements beginning January 1, 2000. SFAS No. 133 requires a company to
recognize all derivative instruments (including certain derivative instruments
embedded in other contracts) as assets or liabilities in its balance sheet and
measure them at fair value. The statement requires that changes in the
derivatives fair value be recognized currently in earnings unless specific hedge
accounting criteria are met. The Company is evaluating SFAS No. 133 and the
impact on existing accounting policies and financial disclosures. However, the
Company has not to date engaged in activities or entered into arrangements
normally associated with derivative instruments. In June 1999, the FASB issued
SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - -
Deferral of the effective date of FASB statement No. 133 - - An amendment of
FASB statement No. 133". SFAS No. 137 delayed the effective date of the
requirements of SFAS No. 133 to all fiscal quarters of fiscal years beginning
after June 15, 2000.


                                       7
<PAGE>   8

(2)  ACQUISITIONS AND DISPOSITIONS

1999 Acquisitions

AMSCO, INC.

On May 3, 1999, the Company acquired AMSCO, Inc., a provider of residuals
management, recycling, and land application services in the Southeastern United
States for approximately $19,655,000. The acquisition was financed through the
issuance of 2,851,946 shares of common stock with a market trading value of
approximately $8,419,000 and approximately $11,236,000 in cash and acquisition
costs. The common stock was valued in accordance with the provisions of Emerging
Issues Task Force 95-19. The cash portion was funded through the Company's
credit facility. The transaction was recorded using the purchase method of
accounting. The accompanying balance sheet as of September 30, 1999, includes a
preliminary allocation of the purchase price and is subject to final adjustments
which management believes will not be material. The preliminary allocation
resulted in approximately $16,679,000 of goodwill that is being amortized over
40 years.

ANTI POLLUTION ASSOCIATES, INC. AND D&D PUMPING, INC.

On April 23, 1999, the Company acquired two companies located in the Florida
Keys, Anti-Pollution Associates, Inc. and D&D Pumping, Inc. (collectively,
"Anti-Pollution") for approximately $1,330,000. Anti-Pollution Associates,
Inc.'s core business is the operation and maintenance of small wastewater
treatment plants and lift stations. D&D Pumping, Inc. hauls the residuals
produced at these plants to transfer stations. The acquisition was financed
through the issuance of 192,838 shares of common stock with a market trading
value of approximately $605,000 and approximately $725,000 in cash and
acquisition costs. The common stock was valued in accordance with the provisions
of Emerging Issues Task Force 95-19. The cash portion was funded through the
Company's credit facility. The transaction was recorded using the purchase
method of accounting. The accompanying balance sheet as of September 30, 1999,
includes a preliminary allocation of the purchase price and is subject to final
adjustments which management believes will not be material. The preliminary
allocation resulted in approximately $1,136,000 of goodwill that is being
amortized over 40 years.

VITAL CYCLE, INC.

On April 8, 1999, the Company acquired Vital-Cycle, Inc. ("Vital-Cycle"), a
national marketer of heat dried biosolids to the fertilizer industry, for
approximately $1,842,000 in cash and acquisition costs. The cash was funded
through the Company's credit facility. The transaction was recorded using the
purchase method of accounting. The accompanying balance sheet as of September
30, 1999, includes a preliminary allocation of the purchase price and is subject
to final adjustments which management believes will not be material. The
preliminary allocation resulted in approximately $1,069,000 of goodwill that is
being amortized over 40 years.

NATIONAL RESOURCE RECYCLING, INC.

During March 1999, the Company completed the acquisition of all the common stock
of National Resource Recycling, Inc. ("NRR"), in a business transaction
accounted for as a "pooling-of-interests" transaction. NRR, headquartered in
Michigan, provides biosolids management services. The Company issued 1,000,001
shares of common stock in exchange for all the common stock of NRR. There


                                       8
<PAGE>   9


were no transactions between the Company and NRR during the periods prior to the
business combination.

The Company's historical financial statements have been restated to reflect the
NRR pooling transaction.

The following table summarizes the unaudited restated revenues, net income and
per share data of Synagro after giving effect to the NRR pooling transaction (in
thousands except per share data):

<TABLE>
<CAPTION>

                                               QUARTER ENDED                    NINE MONTHS ENDED
                                             SEPTEMBER 30, 1998                SEPTEMBER 30, 1998
                                    ----------------------------------  -----------------------------------

<S>                                 <C>              <C>                <C>               <C>
Revenues and net income (loss)-             Revenues  Net income (loss)          Revenues  Net income (loss)
       As reported                    $        8,552    $         (560)    $       20,062    $       (4,897)
       NRR                                     1,297               240              2,443               238
                                      --------------    --------------     --------------    --------------
       As restated                    $        9,849    $         (320)    $       22,505    $       (4,659)
                                      ==============    ==============     ==============    ==============

Basic earnings (loss) per share-
       As reported                                      $        (0.05)                      $        (0.53)
       NRR                                                        0.03                                 0.08
                                                        --------------                       --------------
       As restated                                      $        (0.02)                      $        (0.45)
                                                        ==============                       ==============

Diluted earnings (loss) per share-
       As reported                                      $        (0.05)                      $        (0.53)
       NRR                                                        0.03                                 0.08
                                                        --------------                       --------------
       As restated                                      $        (0.02)                      $        (0.45)
                                                        ==============                       ==============
</TABLE>

1998 ACQUISITIONS

During 1998, the Company purchased all the stock of A&J Cartage and related
companies ("A&J"), Recyc, Inc. ("Recyc") and Environmental Waste Recycling, Inc.
("EWR"). The assets acquired and liabilities assumed were as follows:

<TABLE>

<S>                                                    <C>
            Common stock issues                        $ 23,783,000
            Notes payable                                11,669,000
            Cash                                          9,410,000

   Less:    Historical net assets acquired                4,480,000
                                                       ------------
            Goodwill                                   $ 40,382,000
                                                       ------------
</TABLE>

The transactions were recorded using the purchase method of accounting. The
allocation of the purchase prices resulted in approximately $40,382,000 of
goodwill that is being amortized over 40 years. The common stock issued to
former owners was valued in accordance with the provisions of EITF 95-19.
Unsecured notes were issued to prior owners totaling approximately $8,128,000
with principal due in varying installments with final payment due November 2000.
The notes bear interest of 7% and have no financial covenants. The cash portions
of the purchases were financed through the Company's credit facility. The
payment agreement with EWR provided for additional cash and stock consideration
in an aggregate amount not to exceed $ 2,956,216 in the event certain financial
targets are realized during the twelve-month period after closing. In connection
with the acquisition of Recyc, the Company entered into a lease agreement with
an option to purchase with the prior owners, as trustees of a family trust of
said stockholders, providing for a lease by Recyc of a composting facility. In
addition, the Company entered into a transportation agreement with an initial
term of two years with Recyc Trucking, Inc. ("RTI"), a company owned by the
prior owners, for the provision by RTI of certain transportation services
relating to Recyc's operations.

The following unaudited pro forma information for the periods set forth below
gives effect to the acquisitions of A&J, Recyc, EWR, Amsco, Anti Pollution and
Vital Cycle as if they had occurred at the beginning of 1998. The unaudited pro
forma information is presented for information purposes only and is not
necessarily indicative of actual results, which may have occurred if the
acquisitions had been made at the beginning of the periods represented, or
future operating results.

<TABLE>
<CAPTION>

                                                          NINE MONTH PERIOD ENDED
                                                                SEPTEMBER 30
                                                                (UNAUDITED)
                                                       -------------------------------
                                                           1999              1998
                                                       -------------     -------------
<S>                                                    <C>             <C>
Net sales............................................. $ 44,046,215      $ 46,428,228
Net income (loss) before Preferred Stock Dividends....    2,465,075           970,257
Net earnings (loss) applicable to Common Stock........    2,465,075        (2,964,331)
Net earnings (loss) per share.........................
     Basic............................................         0.14             (0.18)
     Diluted..........................................         0.13             (0.18)
</TABLE>

 (3)  PREFERRED STOCK

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

SERIES B REDEEMABLE PREFERRED STOCK

On March 31, 1998, the Company issued 1,458,335 shares of Series B Preferred
Stock for $3,500,004. The Series B Preferred Stock was convertible by the
holders to Common Stock at a conversion rate of 1:1, with a beneficial
conversion feature permitting the


                                       9
<PAGE>   10


shareholders to convert their holdings to Common Stock at $2.40. The market
price of the Common Stock at date of issuance was $4.81. The Company recognized
the value of the beneficial conversion feature of approximately $3.5 million as
a preferred stock dividend. The value of such preferred stock dividend had no
impact on the Company's cash flows, but reduced basic and diluted earnings
available to holders of Common Stock.

On June 10, 1998, a cash dividend of $420,000 was paid to the holders of the
Series B Preferred Stock in connection with their conversion of the shares of
Series B Preferred Stock into 1,458,335 shares of Common Stock. All of the
shares of Series B Preferred Stock were converted to common stock at that time.

 (4)   STOCKHOLDERS' RIGHTS PLAN

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

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

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

(5)  CREDIT FACILITY

The Company has a $40 million bank credit facility with Bank of America National
Trust and Savings Association, which has the right to add participants to the
credit facility. The credit facility bears interest (which was approximately
7.98% at September 30, 1999) at the bank Eurodollar rate plus a margin based
upon a pricing schedule in the credit facility. The credit facility is secured
by substantially all of the Company's assets. At September 30, 1999, the Company
had borrowings under this credit facility of approximately $37,600,000 and
amounts available under the credit facility of approximately $1,772,000. Amounts
under the credit facility are subject to a borrowing base equal to 4.25 times
earnings before interest, taxes, depreciation and amortization ("EBITDA") based
on a trailing twelve months calculation, as defined in the credit facility less
funded debt as defined, (which includes notes payable to former owners, which
can be refinanced through the credit facility) until June 30, 1999, 4.00
until September 30, 1999, and 3.75 times thereafter. The credit facility
requires the Company to meet certain loan covenants, and the Company was in
compliance with those covenants as of September 30, 1999. The credit facility
expires in October 2001.

(6)  SPECIAL CHARGES - (CREDITS)

Special charges (credits), net were approximately $257,000 for the quarter ended
September 30, 1998 and approximately $107,000 for the nine month period ended
September 30, 1998 which were related to severance payments for two former
officers of the Company partially offset by notes receivable previously
reserved. There were no such items during the three months and nine months ended
September 30, 1999.




                                       10
<PAGE>   11




(7)  COMMITMENTS AND CONTINGENCIES

LITIGATION

AZURIX, CORP.

On November 1, 1999, Synagro was granted a temporary restraining order requiring
that Azurix return certain confidential and proprietary information to Synagro
and prohibiting Azurix, Corp. ("Azurix") from entering into any acquisition
agreement with respect to Wheelabrator Water Technologies, Inc. and Residual
Processing, Inc. (collectively, "BioGro") pending a hearing (tentatively
scheduled for November 19, 1999) for a preliminary injunction to prevent Azurix
from entering into a transaction to acquire BioGro. The lawsuit is pending in
state district court in Harris County, Texas. The lawsuit seeks a permanent
restraining order against Azurix, prohibiting it from negotiating, pursuing or
consummating the acquisition by Azurix of BioGro. The lawsuit also seeks damages
from Azurix.

The events giving rise to the lawsuit began when Synagro and Azurix entered into
a confidentiality agreement, giving Azurix access to confidential and
proprietary information about Synagro for purposes of evaluating potential
transactions between the parties, including an equity investment by Azurix in
Synagro to provide the equity capital for pending acquisitions and a possible
merger between the two companies. Subsequently, Synagro and Azurix supplemented
the confidentiality agreement by mutually consenting to the terms and conditions
of a standstill agreement under which Azurix agreed, among other things, not to
pursue, for a specified period and in the absence of Synagro's consent, the
acquisition of companies that Synagro had targeted for acquisition, including
BioGro. Synagro believes that Azurix has breached its obligations to Synagro
under the confidentiality and standstill agreements. Azurix claims Synagro
waived the standstill agreement. While Synagro believes that its claims in the
lawsuit have substantial merit, the litigation is in the early stages, making
the outcome difficult to predict.

In a related matter, Azurix has filed a petition against Synagro in the Delaware
Chancery Court for a declaratory judgment that Synagro is tortiously interfering
in its negotiations with BioGro. This litigation is also in the early stages,
which makes it difficult to assess the merits of Azurix's claims or how it will
affect Synagro's lawsuit against Azurix.

The extent of damages, if any, in either action has not yet been determined, and
the ultimate outcome of the foregoing matter can not be determined at this time.

COUNTY OF RIVERSIDE

The Company operates a composting facility in Riverside County, California under
a conditional use permit ("CUP"), which expires December 31, 2009. The permit
conditions allow for a reduction in material intake and the permit life in the
event of noncompliance with permit terms and conditions. On September 15, 1999,
the Company received a preliminary injunction restraining and enjoining the
County of Riverside from restricting intake of biosolids at the Company's
Riverside compost facility based upon a June 22, 1999, order of the Board of
Supervisors.

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

However, the Company did later obtain a temporary restraining order on September
29,1999, restraining and enjoining the County of Riverside from restricting
intake of biosolids at the composting facility where such action is based upon
unsigned complaints, or complaints not identifying odor intensity levels. The
Company is waiting for the Judge's decision from the preliminary injunction
hearing on these issues.

OTHER

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


                                       11
<PAGE>   12

(8)  EARNINGS (LOSS) PER COMMON SHARE

SFAS No. 128, "Earnings Per Share" requires dual presentation of earnings per
share (EPS): basic EPS and diluted EPS. Basic EPS excludes dilution and is
computed by dividing net income by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock. For purposes of the calculation,
outstanding stock options, warrants and redeemable preferred stock are
considered common stock equivalents. Diluted per common share amounts are not
applicable for loss periods. For the nine months ended September 30, 1999, and
the quarter ended September 30, 1999, the difference in weighted average numbers
of Common Shares between basic and diluted earnings per share of 978,000 and
1,356,047 respectively, represents the impact of stock options. The adjusted
number of shares for the nine months ended September 30, 1998 and the quarter
ended September 30, 1998, that would be increased related to stock options were
approximately 1,065,621 and 1,073,915, respectively; however, diluted per share
amounts are not applicable for loss periods. The following table summarizes the
basic EPS and diluted EPS computations for the quarter and nine months ended
September 30, 1999 and 1998:

<TABLE>
<CAPTION>

                                                   THREE MONTHS ENDED SEPTEMBER 30,     NINE MONTHS ENDED SEPTEMBER 30,
                                                   --------------------------------     --------------------------------
                                                        1999              1998               1999              1998
                                                   --------------    --------------     --------------    --------------
                                                                                  (Unaudited)
<S>                                               <C>                <C>               <C>               <C>
Net income before redeemable preferred stock
  dividends ...................................    $    1,674,396    $     (319,756)    $    1,985,173    $     (724,656)
Redeemable preferred stock dividends ..........                --                --                 --         3,934,588
                                                   --------------    --------------     --------------    --------------
Net earnings (loss) on common stock ...........    $    1,674,396    $     (319,756)    $    1,985,173    $   (4,659,244)
                                                   ==============    ==============     ==============    ==============

Basic earnings (loss) per share:
  Earnings per share prior to preferred
     dividend .................................    $         0.09    $        (0.02)    $         0.12    $        (0.07)
  Preferred stock dividend ....................                --                --                 --             (0.38)
                                                   --------------    --------------     --------------    --------------

  Basic earnings (loss) per common share ......    $         0.09    $        (0.02)    $         0.12    $        (0.45)
                                                   ==============    ==============     ==============    ==============

Diluted earnings (loss) per share:
  Earnings per share prior to preferred
     dividend .................................    $         0.09    $        (0.02)    $         0.12    $        (0.07)
  Preferred stock dividend ....................                --                --                 --             (0.38)
                                                   --------------    --------------     --------------    --------------
  Diluted earnings (loss) per common share ....    $         0.09    $        (0.02)    $         0.12    $        (0.45)
                                                   ==============    ==============     ==============    ==============

Weighted average shares outstanding, basic ....        17,641,475        13,030,373         16,095,245        10,295,891
Weighted average shares outstanding, diluted ..        18,997,522        13,030,373         17,073,245        10,295,891
</TABLE>

(9)  PROPOSED ACQUISITIONS

Synagro has signed definitive purchase agreements to acquire seven businesses
with unaudited combined revenues of approximately $39 million. Upon the closing
of these acquisitions, Synagro's annual run rate revenue will be approximately
$100 million. The aggregate purchase price of these proposed acquisitions is
approximately $71 million. To fund these acquisitions and refinance the
Company's existing debt, Synagro currently has loan commitments from a bank
group totaling in excess of $140 million of debt financing, which currently
expire on November 15, 1999. In addition, Synagro is pursuing an additional $16
million in private equity financing to conclude the capital needed to close
these proposed acquisitions. The Company expects that the closing of these
acquisitions will not occur prior to November 15, 1999 and is working with the
bank group to obtain commitments on similar debt financing upon the private
equity closing. The closing of these acquisitions is subject to the completion
of this debt and equity financing, which cannot be assured.




                                       12
<PAGE>   13





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

The following discussion should be read in conjunction with the consolidated
historical and pro forma combined financial statements of the Company and
related notes thereto included elsewhere in this Form 10-Q and the Annual Report
on Form 10-K, as amended for the year ended December 31, 1998 and the Company's
current report on Form 8-K/A filed on July 7, 1999. This discussion contains
forward-looking statements regarding the business and industry of the Company
within the meaning of the Private Securities Litigation Reform Act of 1995.
These Statements are based on the current plans and expectations of the Company
and involve risks and uncertainties that could cause actual future activities
and results of operations to be materially different from those set forth in
the forward-looking statements.

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

HISTORICAL RESULTS AND OPERATIONS

<TABLE>
<CAPTION>

                                                   THREE MONTHS ENDED SEPTEMBER 30,  NINE MONTHS ENDED SEPTEMBER 30,
                                                   --------------------------------  ------------------------------
                                                      1999               1998            1999              1998
                                                   --------------     -------------  -------------     -------------
                                                                (unaudited)                    (unaudited)

<S>                                                <C>              <C>              <C>              <C>
Net sales .....................................    $ 15,856,641     $  9,849,430     $ 39,834,873     $ 22,505,130
Cost of services ..............................      11,271,832        8,053,428       29,785,853       19,468,751
                                                   ------------     ------------     ------------     ------------
Gross profit ..................................       4,584,809        1,796,002       10,049,020        3,036,379

Selling, general and administrative ...........       1,732,170        1,194,806        4,952,622        2,614,613
expenses
Amortization of goodwill ......................         433,848          242,696        1,101,876          357,140
Special charges (credits), net ................              --          256,511               --          107,501
                                                   ------------     ------------     ------------     ------------
Income (loss) from operations .................       2,418,791          101,989        3,994,522          (42,875)

  Other income (expense), net .................         168,619           79,144          219,651          342,144
  Interest expense ............................        (913,014)        (500,889)      (2,229,000)      (1,023,925)
                                                   ------------     ------------     ------------     ------------
Income (loss) before provision for income taxes       1,674,396         (319,756)       1,985,173         (724,656)

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

Net income (loss) before redeemable
  preferred stock dividends ...................       1,674,396         (319,756)       1,985,173         (724,656)
Redeemable preferred stock dividends ..........              --               --               --        3,934,588
                                                   ------------     ------------     ------------     ------------
Net earnings (loss) on common stock ...........    $  1,674,396     $   (319,756)    $  1,985,173     $ (4,659,244)
                                                   ============     ============     ============     ============
</TABLE>


For the quarter ended September 30, 1999, net sales were approximately
$15,857,000 compared to approximately $9,849,000 for the third quarter 1998, an
increase of approximately $6,008,000 or 62%. For the nine month period ended
September 30,1999, net sales increased from approximately $22,505,000 to
approximately $39,835,000 for the same period in 1998. The increase for the
quarter relates to sales from acquisitions made in 1998 and 1999 (approximately
$5,436,000), an increase in volume relating to new contracts and event work
(approximately $1,211,000), partially offset by reduced volume relating to
non-renewal of certain low margin contracts (approximately $640,000). The
increase in sales year-to-date relates to sales from acquisitions made in 1998
and 1999 (approximately $17,740,000), an increase in volume relating to new
contracts and event work (approximately $1,837,000), partially offset by reduced
volume relating to non-renewal of low margin contracts (approximately
$2,247,000).

Cost of services and gross profit for the third quarter of 1999 were
approximately $11,272,000 and approximately $4,585,000, respectively, compared
with approximately $8,053,000 and approximately $1,796,000, respectively, for
the third quarter of 1998, resulting in gross profit as a percentage of sales
increasing to 28.9% in 1999 from 18.2% in 1998. For the nine months ended
September 30, 1999 cost of services and gross profit were approximately
$29,786,000 and $10,049,000, respectively, compared with approximately
$19,469,000 and $3,036,000, respectively, for the same period in 1998, resulting
in gross profit as a percentage of sales increasing to 25.2% in 1999 from 13.5%
in 1998. The increase in gross profit as a percentage of sales relates to
unusual weather conditions in the Mid-Atlantic Region and unseasonably heavy
rainfall in California in 1998, which caused (a) additional expenses associated
with transportation to land application sites unaffected by the conditions and
(b) increased land disposal costs which were incurred when land application
sites were not available. Landfill disposal costs and transportation costs
associated with these conditions totaled approximately $1,500,000 for the nine
month period ended September 30, 1998 and approximately $753,000 for the


                                       13
<PAGE>   14
quarter ended September 30, 1998. Additionally, the Company did not renew
certain low margin contracts during 1998. The remainder of the increase is
attributed to higher margin sales associated with certain acquisitions completed
during 1998 and 1999.

Selling general and administrative expenses were approximately $1,732,000 for
the quarter ended September 30, 1999 compared to approximately $1,195,000 for
the quarter ended September 30, 1998, an increase of approximately $537,000.
Selling general and administrative expenses were approximately $4,953,000 for
the nine months ended September 30, 1999 compared to approximately $2,615,000
for the nine months ended September 30, 1998, an increase of approximately
$2,338,000. The increase relates primarily to additional staffing at the
corporate level (approximately $181,000 for the three months ended September 30,
1999 and approximately $802,000 for the nine month period ended September 30,
1999) to implement the Company's growth strategies. The remaining difference
relates primarily to selling general and administrative expenses associated with
1998 and 1999 acquisitions (approximately $356,000 for the three months ended
September 30, 1999 and approximately $1,536,000 for the nine months ended
September 30, 1999).

Amortization of goodwill was approximately $434,000 for the quarter ended
September 30, 1999 compared to approximately $243,000 for the third quarter of
1998, an increase of approximately $191,000. For the nine month period ended
September 30, 1999, amortization of goodwill increased from approximately
$357,000 for the same period in 1998 to approximately $1,102,000. The increases
relate to acquisitions made in 1998 and 1999.

Special charges (credits), net were approximately $257,000 for the quarter ended
September 30, 1998 and $108,000 for the nine month period ended September 30,
1998. These amounts relate to severance payments to former executives partially
offset by notes receivable collected that were previously reserved. There were
no such charges or credits in 1999.

Other income (expense), net was approximately $169,000 for the quarter ended
September 30, 1999 compared to approximately $70,000 for the quarter ended
September 30, 1998, an increase of approximately $90,000. Other income
(expense), net was approximately $219,000 for the nine month period ended
September 30, 1999 compared to approximately $342,000 for the nine month period
ended September 30, 1998, a decrease of approximately $123,000. The changes
relate to gains or losses on the sale of assets.

As a result of the foregoing, net income of approximately $1,674,000 before
preferred stock dividends, or $0.09 per share, was reported for the quarter
ended September 30, 1999 compared to a net loss of approximately $320,000 before
preferred stock dividends, or $0.02 loss per share, for the quarter ended
September 30, 1998. Net income of approximately $1,985,000 before preferred
stock dividends, or $0.12 per share, was reported for the nine month period
ended September 30, 1999 compared to a net loss of approximately $725,000,
before preferred stock dividends, or $0.05 loss per share, for the nine month
period ended September 30, 1998.

During 1998, the Company paid approximately $420,000 in dividends to preferred
stock holders. Additionally, the Company recognized a preferred stock dividend
of approximately $3,514,000 related to redeemable preferred stock with a
beneficial conversion feature. See Note (3) to the notes to the financial
statements included herein for further discussion. There were no such dividends
during 1999.

As a result of the Company's cumulative operating losses, the Company has not
paid federal income tax since inception. As of December 31, 1998, the Company
had net operating loss carry forwards totaling approximately $11,690,000.
Utilization of the Company's net operating losses may be subject to limitation
under certain circumstances.

LIQUIDITY AND CAPITAL RESOURCES

The Company has historically financed its operations principally through the
sale of equity, bank credit facility arrangements or through funds provided by
operating activities.

The Company purchased additional capital assets during the nine months ended
September 30, 1999, in the amount of approximately $3,240,000 and sold capital
assets with proceeds totaling approximately $835,000.

As of September 30, 1999, the Company had current maturities of long-term debt
of approximately $2,818,000. The Company's total debt was approximately
$42,821,000 at September 30, 1999.

The Company has a $40 million bank credit facility with Bank of America National
Trust and Savings Association, which has the right to add participants to the
credit facility. The credit facility bears interest at the bank Eurodollar rate
plus a margin based upon a pricing schedule in the credit facility. The credit
facility is secured by substantially all of the Company's assets. At September
30, 1999,


                                       14
<PAGE>   15


the Company had borrowings under this credit facility of approximately
$37,600,000 and amounts available under the credit facility of approximately
$1,772,000. Amounts under the credit facility are subject to a borrowing base
equal to 4.25 times earnings before interest, taxes, depreciation and
amortization ("EBITDA") based on a trailing twelve months calculation, as
defined in the credit facility less funded debt as defined, (which includes
notes payable to former owners, which can be refinanced through the credit
facility) until June 30, 1999, 4.00 until September 30, 1999, and 3.75
times thereafter. The credit facility requires the Company to meet certain loan
covenants, and the Company was in compliance with those covenants as of
September 30, 1999. The credit facility expires in October 2001 and management
anticipates that it will renegotiate and/or refinance this credit facility prior
to that time.

At September 30, 1999, the Company had working capital of approximately
$6,259,000. The Company evaluates the collectibility of its receivables based on
a specific account-by-account review. The Company has an allowance of
approximately $197,000 at September 30, 1999. Accounts receivable increased by
approximately $4,744,000 from December 31, 1998, due primarily to 1999
acquisitions. Accounts payable and accruals increased by approximately $907,000
due to payables and accruals relating to 1999 acquisitions. The Company believes
its cash requirements for the next twelve months can be met with existing cash,
cash flows from operations and its borrowing availability under its credit
facility.

Synagro currently has loan commitments from a bank group totaling in excess of
$140 million of debt financing, which currently expire on November 15, 1999. In
addition, Synagro is pursuing an additional $16 million in private equity
financing to conclude the capital needed to close pending acquisitions. See note
(9) to notes the Condensed Consolidated Financial Statements for discussion of
proposed acquisitions.

Should the Company accelerate or revise its acquisition program, the Company may
need to seek additional financing through the public or private sale of equity
or debt securities or increase its credit facility. There can be no assurances
that the Company will secure such financing if and when it is needed, or that
such financing will be available on terms that the company deems acceptable.

YEAR 2000

IMPACT OF YEAR 2000

The Year 2000 issue exists because many computer systems and applications
currently use two-digit fields to designate the year. As the century change
occurs, computer programs, computers, and embedded microprocessors controlling
equipment with date-sensitive systems may recognize the Year 2000 as 1900, or
not at all. This inability to recognize or properly handle the Year 2000 date
may result in computer system failures or miscalculations of financial and
operational information as well as failures of equipment controlling
date-sensitive microprocessors. Most of our major customers are municipalities
with wastewater treatment plants. It is likely that most of these plants have
computer-controlled processes, some of which may slow down or even halt delivery
of biosolids. We will address these potential problem areas in the sections
below.

STATE OF READINESS

We formulated a plan to address the Year 2000 ("Y2K") issue during 1997. The
plan consisted of three phases: awareness, assessment, and renovation. In the
Awareness Phase, we established a Year 2000 committee with membership from the
executive, operations, legal, financial, and information technology departments.
This committee provides the leadership for developing the plan, assessing the
impact of Year 2000 issues, and giving directives to each of the functional
areas for implementation of the plan.

Initially we focused primarily on the assessment of our own internal systems. We
have inventoried all of the Company's computer hardware. Most of this hardware
was purchased after August 1998 from a national manufacturer, was NTSL tested
prior to shipment, and is in full compliance. The remaining hardware has been
replaced or had BIOS upgrades as needed.

The Company is using current releases Microsoft Office for our desktop suite so
no significant Year 2000 impact is expected. All of the accounting and financial
reporting functions are performed at the corporate office using third party
software from a national vendor that is Year 2000 compliant. Our remote
locations are currently running proprietary software that has been written to
collect data pertaining to the pickup, hauling, land application and composting
of biosolids. Most of these systems are written in current versions Microsoft
Access and Excel and are Year 2000 compliant. The systems that are written in
other languages have been modified and successfully tested for Year 2000
compliance. We use specialized spreading equipment in many (but not all) of our
land application operations. We have on file a statement from the vendor that
these vehicles are Year 2000 compliant. This information is also available on
the vendors Internet site.

                                       15
<PAGE>   16

We have assessed the potential for Year 2000 problems with the information
systems of our customers, vendors and sub-contractors. We have received
voluntary information concerning Year 2000 readiness from some of our customers,
vendors, sub-contractors, and other third parties. In July 1999 we mailed
questionnaires to all of our major customers asking for a statement of their
Year 2000 status. We have, to date, received no negative responses to these
questionnaires. We are currently unable to estimate the costs that we may incur
to remedy the Year 2000 issues relating to any of these parties who are not
compliant yet fail to inform us.

COSTS TO ADDRESS THE YEAR 2000 ISSUE

The cost for our Year 2000 program was approximately $70,000. Most of this cost
was for workstation computers and servers that were replaced for reasons not
involving Y2K. The rest of the cost was for modifications to existing custom
programs to make them compliant.

RISKS TO THE COMPANY

The risks to the Company involve our customers', vendors' and sub-contractors'
failure to reach compliance. Most of our customers are large municipalities that
are engaged in or have completed Y2K testing. It is possible that those
customers whose waste water treatment plants are not Y2K compliant may suffer
failures that cause those customers to delay placing orders for biosolids
removal from their wastewater treatment plants. Date functionality is typically
not used in process control application software. More common is the use of
relative time. We are still, however, dependent on our customers having an
effective Year 2000 compliance program in place. We have prepared a
questionnaire that was mailed to our major customers in July. We have not
received any negative responses from these customers. In the case of our vendors
and sub-contractors, we have taken special care in reviewing the compliance of
all of the equipment and services needed to perform day-to-day operational
functions. Most of our subcontractors are trucking companies. The information
that we receive from them is typically in the form of a manually prepared
invoice. This process should not be affected by the year change. The three
vendors for other services critical to our operation (spreading equipment,
telecommunications, and financial services) are all national suppliers of these
services and have stated that they are Year 2000 compliant in our discussions
and on their Internet sites.

Furthermore, as a result of the Company's ongoing acquisition program, our
assessment of Year 2000 issues may change. As we acquire companies, we attempt
to assess Year 2000 issues relating to their computer systems and operating
processes. Our current integration plan also attempts to have them integrated
into our business systems within a short period of time. We feel that this
minimizes our exposure to their failure to meet Y2K compliance.

If any of the above uncertainties were to occur, our business, financial
conditions, and results of operations would be adversely affected. As such,
there can be no assurance that the systems of customers, vendors, newly acquired
companies, sub-contractors, and other third party relationships on which we may
rely will be made Year 2000 compliant in a timely manner or that any such
failure to be Year 2000 compliant by another company would not have an adverse
effect on our business or consolidated results of operations, financial position
or liquidity. We are unable to assess the likelihood of such events occurring or
the extent of the effect on the Company.

CONTINGENCY PLAN

We have developed a comprehensive contingency plan to address avoidable or
unavoidable Year 2000 risks with internal information technology systems and
with customers, vendors, newly acquired companies, sub-contractors, and other
third parties.

SEASONALITY

The Company's business historically has not been seasonal, but has been subject
to certain unusual weather conditions and unseasonably heavy rainfall which can
temporarily reduce the availability of land application sites in close proximity
to the Company's business.

During 1998 and 1999, the Company acquired certain companies, whose operations
are subject to significant seasonal variations. During the winter months the
ground is frozen and land application cannot be performed. Generally, the
product is stored by the customer during the winter months with transportation
and land application services performed as the ground thaws. The Company now
expects its revenues and operational results to be generally lower in the first
calendar quarter.


                                       16
<PAGE>   17

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

INTEREST RATE RISK

Total debt at September 30, 1999, included approximately $37,600,000 in floating
rate debt attributed to the bank credit facility borrowings and a note to
another financial institution at an average interest rate of 7.98%. As a result
the Company's annual interest rate cost in 1999 will fluctuate based on
short-term interest rates. The impact on annual cash flow of a ten-percent
change in the floating rate (approximately 50 basis points) would be
approximately $188,000.

At September 30, 1999, the Company's fixed rate debt had a book value of
$5,220,644, which approximates its fair value. The floating rate debt will
mature in October 2001.



                                       17
<PAGE>   18




                           PART II - OTHER INFORMATION

ITEM 1.

LITIGATION

AZURIX, CORP.

On November 1, 1999, Synagro was granted a temporary restraining order requiring
that Azurix return certain confidential and proprietary information to Synagro
and prohibiting Azurix, Corp. ("Azurix") from entering into any acquisition
agreement with respect to Wheelabrator Water Technologies, Inc. and Residual
Processing, Inc. (collectively, "BioGro") pending a hearing (tentatively
scheduled for November 19, 1999) for a preliminary injunction to prevent Azurix
from entering into a transaction to acquire BioGro. The lawsuit is pending in
state district court in Harris County, Texas. The lawsuit seeks a permanent
restraining order against Azurix, prohibiting it from negotiating, pursuing or
consummating the acquisition by Azurix of BioGro. The lawsuit also seeks damages
from Azurix.

The events giving rise to the lawsuit began when Synagro and Azurix entered into
a confidentiality agreement, giving Azurix access to confidential and
proprietary information about Synagro for purposes of evaluating potential
transactions between the parties, including an equity investment by Azurix in
Synagro to provide the equity capital for pending acquisitions and a possible
merger between the two companies. Subsequently, Synagro and Azurix supplemented
the confidentiality agreement by mutually consenting to the terms and conditions
of a standstill agreement under which Azurix agreed, among other things, not to
pursue, for a specified period and in the absence of Synagro's consent, the
acquisition of companies that Synagro had targeted for acquisition, including
BioGro. Synagro believes that Azurix has breached its obligations to Synagro
under the confidentiality and standstill agreements. Azurix claims Synagro
waived the standstill agreement. While Synagro believes that its claims in the
lawsuit have substantial merit, the litigation is in the early stages, making
the outcome difficult to predict.

In a related matter, Azurix has filed a petition against Synagro in the Delaware
Chancery Court for a declaratory judgment that Synagro is tortiously interfering
in its negotiations with BioGro. This litigation is also in the early stages,
which makes it difficult to assess the merits of Azurix's claims or how it will
affect Synagro's lawsuit against Azurix.

The extent of damages, if any in either action has not yet been determined and
the ultimate outcome of the foregoing matter can not be determined at this time.

COUNTY OF RIVERSIDE

The Company operates a composting facility in Riverside County California under
a conditional use permit ("CUP"), which expires December 31, 2009. The permit
conditions allow for a reduction in material intake and the permit life in the
event of noncompliance with permit terms and conditions. On September 15, 1999,
the Company received a preliminary injunction restraining and enjoining the
County of Riverside from restricting intake of biosolids at the Company's
Riverside compost facility based upon a June 22, 1999, order of the Board of
Supervisors.

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

However, the Company did later obtain a temporary restraining order on September
29,1999, restraining and enjoining the County of Riverside from restricting
intake of biosolids at the composting facility where such action is based upon
unsigned complaints, or complaints not identifying odor intensity levels. The
Company is waiting for the judge's decision from the preliminary injunction
hearing on those issues.

OTHER

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

                                       18
<PAGE>   19

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

(A)      Exhibit Index

         27.1  Financial Data Schedule

(B)      Reports on Form 8-K

         July 1, 1999 8-K/A

         July 7, 1999 8-K/A

         August 25, 1999 8-K


                                       19
<PAGE>   20





SIGNATURES

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

    SYNAGRO TECHNOLOGIES, INC.

         Date: November 12, 1999      By: /s/ Ross M. Patten
                                          ----------------------------
                                          Chief Executive Officer

         Date: November 12, 1999      By: /s/ Paul Withrow
                                          -----------------------------
                                          Chief Financial Officer



                                       20
<PAGE>   21


                                  EXHIBIT INDEX
<TABLE>
<CAPTION>

Exhibit
Number   Description
------   -----------

<S>      <C>
27.1     Financial Data Schedule
</TABLE>