<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 March 31, 2003     Commission File Number 0-21054

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

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

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

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

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant is
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                                 Yes [X]  No [ ]


Indicate 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 MARCH 31, 2003
       -----------------------------       -----------------------------
<S>                                        <C>

       Common stock, par value $.002                  19,775,821
</Table>



<PAGE>


                           SYNAGRO TECHNOLOGIES, INC.

                                      INDEX

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

Condensed Consolidated Balance Sheets as of March 31, 2003 (Unaudited),
   and December 31, 2002 (Audited) .....................................     3

Condensed Consolidated Statements of Operations for the
   Three Months Ended March 31, 2003 and 2002 (Unaudited) ..............     4

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

Condensed Consolidated Statements of Cash Flows for the
   Three Months Ended March 31, 2003 and 2002 (Unaudited) ..............     6

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

Management's Discussion and Analysis of Financial
Condition and Results of Operations ....................................    20

PART II -- OTHER INFORMATION ...........................................    27
</Table>



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

<Table>
<Caption>
                                                                          MARCH 31,       DECEMBER 31,
                                                                             2003            2002
                                                                        -------------    -------------
                                                                         (UNAUDITED)        (AUDITED)
<S>                                                                     <C>              <C>
                                 ASSETS
Current Assets:
   Cash and cash equivalents ........................................   $     173,142    $     239,000
   Restricted cash ..................................................       2,478,084        1,695,517
   Accounts receivable, net .........................................      51,906,970       54,813,729
   Note receivable, current portion .................................         754,384          554,384
   Prepaid expenses and other current assets ........................      15,709,079       15,398,736
                                                                        -------------    -------------
      Total current assets ..........................................      71,021,659       72,701,366

Property, machinery & equipment, net ................................     213,626,374      213,331,158

Other Assets:
   Goodwill, net ....................................................     168,463,870      168,463,870
   Restricted cash - construction fund ..............................      17,517,660       17,732,970
   Restricted cash - debt service fund ..............................       7,908,101        7,491,176
   Other, net .......................................................      14,369,457       13,746,204
                                                                        -------------    -------------
Total assets ........................................................   $ 492,907,121    $ 493,466,744
                                                                        =============    =============

                  LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
   Current portion of long-term debt ................................   $   1,111,410    $   1,111,410
   Current portion of nonrecourse project revenue bonds .............       2,430,000        2,430,000
   Current portion of capital lease obligations .....................       1,425,879        1,279,667
   Accounts payable and accrued expenses ............................      51,366,364       48,811,464
                                                                        -------------    -------------
      Total current liabilities .....................................      56,333,653       53,632,541

Long-Term Debt:
   Long-term debt obligations, net ..................................     207,599,760      210,750,980
   Nonrecourse project revenue bonds, net ...........................      64,841,349       64,841,349
   Capital lease obligations, net ...................................       7,775,176        7,937,994
                                                                        -------------    -------------
      Total long-term debt ..........................................     280,216,285      283,530,323
Other Long-Term Liabilities:
   Other long-term liabilities ......................................       9,557,920        8,976,332
   Fair value of interest rate swap .................................       3,469,872        3,436,909
                                                                        -------------    -------------
      Total other long-term liabilities .............................      13,027,792       12,413,241
                                                                        -------------    -------------
          Total liabilities .........................................     349,577,730      349,576,105

Commitments and Contingencies

Redeemable Preferred Stock, 69,792.29 shares issued and
   outstanding, redeemable at $1,000 per share ......................      80,065,185       78,090,196

Stockholders' equity:
   Preferred stock, $.002 par value, 10,000,000 shares authorized,
      none issued and outstanding ...................................              --               --
   Common stock, $.002 par value, 100,000,000 shares authorized,
      19,775,821 and 19,775,821 shares issued and outstanding,
      respectively ..................................................          39,552           39,552
   Additional paid-in capital .......................................     109,166,862      109,166,862
   Accumulated deficit ..............................................     (44,261,920)     (41,599,663)
   Accumulated other comprehensive loss .............................      (1,680,288)      (1,806,308)
                                                                        -------------    -------------
      Total stockholders' equity ....................................      63,264,206       65,800,443
                                                                        -------------    -------------
Total liabilities and stockholders' equity ..........................   $ 492,907,121    $ 493,466,744
                                                                        =============    =============
</Table>

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


                                       3
<PAGE>

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

<Table>
<Caption>
                                                                    THREE MONTHS ENDED
                                                                         MARCH 31,
                                                               ----------------------------
                                                                   2003            2002
                                                               ------------    ------------
<S>                                                            <C>             <C>

Revenue ....................................................   $ 63,228,710    $ 56,816,527
Cost of services ...........................................     51,386,806      43,257,392
                                                               ------------    ------------
Gross profit ...............................................     11,841,904      13,559,135

Selling, general and administrative expenses ...............      6,304,751       5,795,885
                                                               ------------    ------------
   Income from operations ..................................      5,537,153       7,763,250
                                                               ------------    ------------
Other (income) expense:
   Other (income) expense, net .............................         29,642         (38,006)
   Interest expense, net ...................................      5,847,762       5,493,244
                                                               ------------    ------------
      Total other expense, net .............................      5,877,404       5,455,238
                                                               ------------    ------------
Income (loss) before provision (benefit) for income taxes ..       (340,251)      2,308,012
   Provision (benefit) for income taxes ....................       (129,295)        876,406
                                                               ------------    ------------
Net income (loss) before cumulative effect of change
   in accounting for asset retirement obligations and
   preferred stock dividends ...............................       (210,956)      1,431,606
Cumulative effect of change in accounting for
   asset retirement obligations, net of tax benefit
   of $292,000 .............................................        476,312              --
                                                               ------------    ------------
Net income (loss) before preferred stock dividends .........       (687,268)      1,431,606
Preferred stock dividends ..................................      1,974,989       1,843,427
                                                               ------------    ------------
Net loss applicable to common stock ........................   $ (2,662,257)   $   (411,821)
                                                               ============    ============

Loss per share:

Basic
   Loss per share before cumulative effect of change
      in accounting for asset retirement obligations .......   $      (0.11)   $      (0.02)
   Cumulative effect of change in accounting for
      asset retirement obligations .........................          (0.02)             --
                                                               ------------    ------------
   Net loss per share ......................................   $      (0.13)   $      (0.02)
                                                               ============    ============

Diluted
   Loss per share before cumulative effect of change
      in accounting for asset retirement obligations .......   $      (0.11)   $      (0.02)
   Cumulative effect of change in accounting for
      asset retirement obligation ..........................          (0.02)             --
                                                               ------------    ------------
   Net loss per share ......................................   $      (0.13)   $      (0.02)
                                                               ============    ============

Weighted average shares outstanding:
   Basic ...................................................     19,775,821      19,476,481
   Diluted .................................................     19,775,821      19,476,781
</Table>

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



                                       4
<PAGE>


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

<Table>
<Caption>
                                                                                                                 ACCUMULATED
                                                   COMMON STOCK               ADDITIONAL                           OTHER
                                          -------------------------------      PAID-IN        ACCUMULATED       COMPREHENSIVE
                                              SHARES           AMOUNT          CAPITAL          DEFICIT              LOSS
                                          --------------   --------------   --------------   --------------    --------------
<S>                                       <C>              <C>              <C>              <C>               <C>
BALANCE, December 31, 2002 ............       19,775,821   $       39,552   $  109,166,862   $  (41,599,663)   $   (1,806,308)
   Change in accumulated other
     comprehensive (loss) income ......               --               --               --               --           126,020
   Net loss applicable to
     common stock .....................               --               --               --       (2,662,257)               --
                                          --------------   --------------   --------------   --------------    --------------
BALANCE, March 31, 2003 ...............       19,775,821   $       39,552   $  109,166,862   $  (44,261,920)   $   (1,680,288)
                                          ==============   ==============   ==============   ==============    ==============

<Caption>



                                                             COMPREHENSIVE
                                               TOTAL          INCOME(LOSS)
                                          --------------    --------------
<S>                                       <C>               <C>
BALANCE, December 31, 2002 ............   $   65,800,443    $           --
   Change in accumulated other
     comprehensive (loss) income ......          126,020           126,020
   Net loss applicable to
     common stock .....................       (2,662,257)       (2,662,257)
                                          --------------    --------------
BALANCE, March 31, 2003 ...............   $   63,264,206    $   (2,536,237)
                                          ==============    ==============
</Table>


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



                                       5
<PAGE>


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

<Table>
<Caption>
                                                                       THREE MONTHS ENDED MARCH 31,
                                                                       ----------------------------
                                                                           2003            2002
                                                                       ------------    ------------
<S>                                                                    <C>             <C>
Cash flows from operating activities:
   Net loss applicable to common stock .............................   $ (2,662,257)   $   (411,821)
   Adjustment to reconcile net loss applicable
      to common stock to net cash provided by
      operating activities:
        Preferred stock dividend ...................................      1,974,989       1,843,427
        Cumulative effect of change in accounting for
           asset retirement obligations, net .......................        476,312              --
        Depreciation ...............................................      4,176,005       3,541,018
        Amortization ...............................................        394,605         410,558
        Provision (benefit) for deferred income taxes ..............       (129,295)        876,406
        Gain on sale of property, machinery and
           equipment ...............................................             --         (38,006)
        (Increase) decrease in the following, net:
           Accounts receivable .....................................      2,906,759       3,302,501
           Prepaid expenses and other assets .......................       (737,156)     (1,018,125)
        Increase (decrease) in the following:
           Accounts payable and accrued expenses
              and other long-term liabilities ......................      2,357,411      (3,007,691)
                                                                       ------------    ------------
   Net cash provided by operating activities .......................      8,757,373       5,498,267
                                                                       ------------    ------------

Cash flows from investing activities:
      Purchase of businesses including contingent consideration,
        net of cash acquired .......................................             --        (410,915)
      Purchases of property, machinery and equipment ...............     (4,191,045)     (3,609,412)
      Proceeds from sale of property, machinery and
        equipment ..................................................             --         210,754
      Increase in restricted cash ..................................       (984,184)       (184,187)
      Other ........................................................       (200,000)       (100,000)
                                                                       ------------    ------------
Net cash used in investing activities ..............................     (5,375,229)     (4,093,760)
                                                                       ------------    ------------

Cash flows from financing activities:
      Payments of debt .............................................     (3,448,002)       (852,311)
      Debt issuance costs ..........................................             --        (548,427)
                                                                       ------------    ------------
   Net cash used in financing activities ...........................     (3,448,002)     (1,400,738)
                                                                       ------------    ------------

Net increase (decrease) in cash and cash equivalents ...............        (65,858)          3,769
Cash and cash equivalents, beginning of period .....................        239,000         251,821
                                                                       ------------    ------------
Cash and cash equivalents, end of period ...........................   $    173,142    $    255,590
                                                                       ============    ============

Supplemental Cash Flow Information
   Interest paid during the period .................................   $    601,131    $  3,399,465
   Taxes paid during the period ....................................   $    153,509    $    241,450
</Table>


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



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

(1) BASIS OF PRESENTATION

GENERAL

The accompanying unaudited, condensed consolidated financial statements have
been prepared by Synagro Technologies, Inc. ("Synagro" or the "Company")
pursuant to the rules and regulations of the Securities and Exchange Commission.
These condensed consolidated financial statements reflect all normal recurring
adjustments which are, in the opinion of management, necessary for the fair
presentation of such financial statements for the periods indicated. Certain
information relating to the Company's organization and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles has been condensed or omitted in this Form 10-Q
pursuant to Rule 10-01 of Regulation S-X for interim financial statements
required to be filed with the Securities and Exchange Commission. However, the
Company believes that the disclosures herein are adequate to make the
information presented not misleading. The results for the three months ended
March 31, 2003, are not necessarily indicative of future operating results. It
is suggested that these financial statements be read in conjunction with the
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the year ended December 31, 2002.

The accounting policies followed by the Company in preparing interim
consolidated financial statements are consistent with those described in the
"Notes to Consolidated Financial Statements" in the Company's Form 10-K for the
year ended December 31, 2002.

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

ACCOUNTING PRONOUNCEMENTS

In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statement Nos.
4, 44, and 64, Amendment of FASB Statement No. 13 and Technical Corrections."
SFAS No. 145 requires that gains and losses from extinguishment of debt be
classified as extraordinary items only if they meet the criteria in Accounting
Principles Board Opinion No. 30 ("Opinion No. 30"). Applying the provisions of
Opinion No. 30 will distinguish transactions that are part of an entity's
recurring operations from those that are unusual and infrequent that meets
criteria for classification as an extraordinary item. SFAS No. 145 is effective
for the Company beginning January 1, 2003. As a result of this statement, in the
second quarter of 2003, the Company expects to reclassify its 2002 extraordinary
loss on early extinguishment of debt, net of tax, above the line to other
expense and income tax expenses, respectively.

On January 1, 2003, the Company adopted SFAS No. 143, "Asset Retirement
Obligations." SFAS No. 143 requires entities to record the fair value of a
liability for an asset retirement obligation in the period in which it is
incurred and a corresponding increase in the carrying amount of the related
long-lived asset. Subsequently, the asset retirement cost should be allocated to
expense using a systematic and rational method. The Company's asset retirement
obligations primarily consist of equipment dismantling and foundation removal at
certain facilities and temporary storage facilities. During the first quarter of
2003, the Company recorded a net-of-tax cumulative effect of change in
accounting principle charge of approximately $476,000 (approximately $768,000
before tax), increased liabilities of approximately $1,233,000, net properties
of approximately $465,000 and deferred tax assets of approximately $292,000 in
accordance with the provisions of SFAS No. 143. There was no impact on the
Company's cash flows as a result of adopting SFAS No. 143. The pro forma asset
retirement obligation would have been approximately $1,461,000 at January 1,
2002, and approximately $1,578,000 at December 31, 2002, had the Company adopted
SFAS No. 143 on January 1, 2002. The asset retirement obligation, which is
included on the consolidated balance sheet in Other Long-Term Liabilities, was
approximately $1,610,000 at March 31, 2003.

For the period ended March 31, 2002, the pro forma effect on net income and
earnings per share had SFAS No. 143 been adopted as of January 1, 2002, would
have been as follows:



                                       7
<PAGE>
<Table>
<Caption>
                                                      AS              PRO
                                                   REPORTED          FORMA
                                                 ------------    ------------
                                             (In thousands except per share data)
<S>                                              <C>             <C>
Loss applicable to common stock ..............   $       (412)   $       (451)
Loss per share:
   Basic .....................................          (0.02)          (0.02)
   Diluted ...................................          (0.02)          (0.02)
</Table>


In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS No. 146 requires that a liability for a
cost associated with an exit or disposal activity be recognized and measured
initially at fair value only when the liability is incurred. SFAS No. 146 is
effective for the Company beginning January 1, 2003. The Company adopted this
standard with no effect on its results of operations, cash flows and financial
position.

In December 2002, the 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 APB Opinion No. 25 and related interpretations in
accounting for its plans. Therefore, no compensation cost has been recognized in
the consolidated financial statements for the Company's stock option plans.

During 1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123, which is effective for fiscal years beginning after
December 15, 1995, establishes financial accounting and reporting standards for
stock-based employee compensation plans and for transactions in which an entity
issues its equity instruments to acquire goods and services from nonemployees.
SFAS No. 123 requires, among other things, that compensation cost be calculated
for fixed stock options at the grant date by determining fair value using an
option-pricing model. The Company has the option of recognizing the compensation
cost over the vesting period as an expense in the income statement or making pro
forma disclosures in the notes to the financial statements for employee
stock-based compensation.

The Company continues to apply APB Opinion 25 and related interpretations in
accounting for its plans. Accordingly, no compensation cost has been recognized
in the accompanying consolidated financial statements for its stock option
plans. Had the Company elected to apply SFAS No. 123, the Company's net loss and
loss per diluted share would have approximated the pro forma
amounts indicated below:

<Table>
<Caption>
                                                 PERIOD ENDED MARCH 31,
                                           --------------------------------
                                                2002              2001
                                           --------------    --------------
<S>                                        <C>               <C>
Net loss applicable to common stock
  as reported ..........................   $   (2,662,257)   $     (411,821)
Pro forma effect of SFAS No. 123 .......   $   (2,684,127)   $   (1,914,570)
Diluted loss per share-as reported .....   $        (0.14)   $        (0.10)
Pro forma effect of SFAS No. 123 .......   $        (0.14)   $        (0.10)
</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 fair value of
$0.73 and $1.50 for grants made during the quarters ended March 31, 2003 and
2002, respectively. The following assumptions were used for option grants in
2003 and 2002, respectively: expected volatility of 25 percent and 39 percent;
risk-free interest rates of 4.05 percent and 4.43 percent; expected lives of up
to ten years and no 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 November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"),
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others," an interpretation of FASB
Statements No. 5, 57 and 107 and Rescission of FASB Interpretation No. 34. FIN
45 clarifies the requirements of SFAS No. 5, "Accounting for Contingencies,"


                                       8
<PAGE>
relating to the guarantor's accounting for, and disclosure of, the issuance of
certain types of guarantees. The Company adopted the disclosure requirements of
FIN 45 in its 2002 Form 10-K. Additionally, on January 1, 2003 the accounting
requirements were adopted with no effect on the Company's results of operations,
cash flows and financial position.

USE OF ESTIMATES

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

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

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

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

The Company has contracts for the design, permitting and construction of
facilities. The Company has approximately $4,300,000 of design and permitting
costs included in other long-term assets at March 31, 2003. If the permits
and/or other government approvals are not obtained, the Company may not be
reimbursed for its costs incurred.

Goodwill - Goodwill attributable to the Company's reporting units is 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 become
known that an impairment may have occurred prior to year end.

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

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

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

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

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

(2) ACQUISITION

In August 2002, the Company purchased Earthwise Organics, Inc. and Earthwise
Trucking (collectively "Earthwise"), a Class A biosolids and manure composting
and marketing company. In connection with the purchase of Earthwise, the former
owners are


                                       9
<PAGE>


entitled to receive up to an additional $4,000,000 over the next three years if
certain performance targets are met. The preliminary allocation of the purchase
price, which is subject to final adjustment, resulted in approximately
$4,643,000 of goodwill. The assets acquired and liabilities assumed relating to
the acquisition are summarized below:

<Table>
<S>                                                                <C>
Cash paid, including transaction costs, net of cash acquired ...   $    3,580,000
Note payable to seller .........................................        1,500,000
Less:  Net assets acquired .....................................         (437,000)
                                                                   --------------
Goodwill .......................................................   $    4,643,000
                                                                   ==============
</Table>


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

(3) PREFERRED STOCK

PREFERRED STOCK

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

SERIES D REDEEMABLE PREFERRED STOCK

The Company has authorized 32,000 shares of Series D Preferred Stock, par value
$.002 per share. In 2000, the Company issued a total of 25,033.601 shares of the
Series D Preferred Stock to GTCR Fund VII, L.P. and its affiliates, which is
convertible by the holders into a number of shares of the Company's common stock
computed by dividing (i) the sum of (a) the number of shares to be converted
multiplied by the liquidation value and (b) the amount of accrued and unpaid
dividends by (ii) the conversion price then in effect. The initial conversion
price is $2.50 per share, provided that in order to prevent dilution, the
conversion price may be adjusted. The Series D Preferred Stock is senior to the
Company's common stock and any other of its equity securities. The liquidation
value of each share of Series D Preferred Stock is $1,000 per share. Dividends
on each share of Series D Preferred Stock accrue daily at the rate of eight
percent per annum on the aggregate liquidation value and may be paid in cash or
accrued, at the Company's option. Upon conversion of the Series D Preferred
Stock by the holders, the holders may elect to receive the accrued and unpaid
dividends in shares of the Company's common stock at the conversion price. The
Series D Preferred Stock is entitled to one vote per share. Shares of Series D
Preferred Stock are subject to mandatory redemption by the Company on January
26, 2010, at a price per share equal to the liquidation value plus accrued and
unpaid dividends. If the outstanding shares of Series D Preferred Stock,
excluding accrued dividends, were converted at March 31, 2003, they would
represent 10,013,441 shares of common stock.

SERIES E REDEEMABLE PREFERRED STOCK

The Company has authorized 55,000 shares of Series E Preferred Stock, par value
$.002 per share. GTCR Fund VII, L.P. and its affiliates own 37,504.229 shares of
Series E Preferred Stock and certain affiliates of The TCW Group, Inc. own
7,024.58 shares. The Series E Preferred Stock is convertible by the holders into
a number of shares of the Company's common stock computed by dividing (i) the
sum of (a) the number of shares to be converted multiplied by the liquidation
value and (b) the amount of accrued and unpaid dividends by (ii) the conversion
price then in effect. The initial conversion price is $2.50 per share, provided
that in order to prevent dilution, the conversion price may be adjusted. The
Series E Preferred Stock is senior to the Company's common stock and any other
of its equity securities. The liquidation value of each share of Series E
Preferred Stock is $1,000 per share. Dividends on each share of Series E
Preferred Stock accrue daily at the rate of eight percent per annum on the
aggregate liquidation value and may be paid in cash or accrued, at the Company's
option. Upon conversion of the Series E Preferred Stock by the holders, the
holders may elect to receive the accrued and unpaid dividends in shares of the
Company's common stock at the conversion price. The Series E Preferred Stock is
entitled to one vote per share. Shares of Series E Preferred Stock are subject
to mandatory redemption by the Company on January 26, 2010, at a price per share
equal to the liquidation value plus accrued and unpaid dividends. If the
outstanding shares of Series E Preferred Stock, excluding accrued dividends,
were converted at March 31, 2003, they would represent 17,903,475 shares of
common stock.



                                       10
<PAGE>


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

(4) STOCKHOLDERS' RIGHTS PLAN

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

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

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

(5) DEBT

Long-term debt obligations consist of the following:

<Table>
<Caption>
                                                               MARCH 31,       DECEMBER 31,
                                                                 2003              2002
                                                            --------------    --------------
<S>                                                         <C>               <C>
Credit facility - term loans ............................   $   57,185,030    $   60,336,250
Subordinated debt .......................................      150,000,000       150,000,000
Notes payable to seller .................................        1,500,000         1,500,000
Other notes payable .....................................           26,140            26,140
                                                            --------------    --------------
          Total debt ....................................   $  208,711,170    $  211,862,390
Less:  Current maturities ...............................       (1,111,410)       (1,111,410)
                                                            --------------    --------------
          Long-term debt, net of current maturities .....   $  207,599,760    $  210,750,980
                                                            ==============    ==============
</Table>


CREDIT FACILITY

On January 27, 2000, the Company entered into a $110 million amended and
restated Senior Credit Agreement (the "Senior Credit Agreement") by and among
the Company, Bank of America, N.A., and certain other lenders to fund working
capital for acquisitions, to refinance existing debt, to provide working capital
for operations, to fund capital expenditures and for other general corporate
purposes. The Senior Credit Agreement was subsequently syndicated on March 15,
2000, and amended August 14, 2000, and February 25, 2002, increasing the
capacity.

On May 8, 2002, the Company entered into an amended and restated Senior Credit
Agreement by and among the Company, Bank of America, N.A., and certain other
lenders to fund working capital for acquisitions, to provide working capital for
operations, to refinance existing debt, to fund capital expenditures and for
other general corporate purposes. The Senior Credit Agreement bears interest at
LIBOR or prime plus a margin based on a pricing schedule as set out in the
Senior Credit Agreement.

During May 2003, the Company amended its credit facility to increase the
revolving loan commitment to approximately $95,000,000.

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


                                       11
<PAGE>


      (i)   Revolving Loan up to $95,000,000 outstanding at any one time;

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

      (iii) Letters of Credit up to $50,000,000 as a subset of the Revolving
            Loan. At March 31, 2003, the Company had approximately $25,922,771
            of Letters of Credit outstanding.

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

<Table>
<Caption>
                               REVOLVING          TERM
PERIOD ENDING DECEMBER 31,        LOAN            LOANS
--------------------------    ------------    ------------
<S>                           <C>             <C>

2002 ..................                 --            0.25%
2003 ..................                 --            1.00%
2004 ..................                 --            1.00%
2005 ..................                 --            1.00%
2006 ..................                 --            1.00%
2007 ..................             100.00%           1.00%
2008 ..................                 --           94.75%
                              ------------    ------------
                                    100.00%         100.00%
                              ============    ============
</Table>


The Senior Credit Agreement includes mandatory repayment provisions related to
excess cash flows, proceeds from certain asset sales, debt issuances and equity
issuances, all as defined in the Senior Credit Agreement. These mandatory
repayment provisions may also reduce the available commitment. The Senior Credit
Agreement contains standard covenants including compliance with laws,
limitations on capital expenditures, restrictions on dividend payments,
limitations on mergers and compliance with financial covenants. The Company
believes that it is in compliance with those covenants as of March 31, 2003. The
Senior Credit Agreement is secured by all the assets of the Company and expires
on December 31, 2008. As of March 31, 2003, the Company had approximately
$24,000,000 of unused borrowings under the Senior Credit Agreement.

SENIOR SUBORDINATED NOTES

In April 2002, the Company issued $150 million in principal amount of its 9 1/2
percent Senior Subordinated Notes due on April 1, 2009 (the "Notes"). The Notes
are unsecured senior indebtedness and are guaranteed by all of the Company's
existing and future domestic subsidiaries, other than subsidiaries treated as
unrestricted subsidiaries ("the Guarantors"). As of March 31, 2003, all
subsidiaries, other than the subsidiaries formed to own and operate the
Sacramento dryer project (see Note 6), were Guarantors of the Notes. Interest on
the Notes accrues from April 17, 2002, and is payable semi-annually on April 1
and October 1 of each year, commencing October 1, 2002. On or after April 1,
2006, the Company may redeem some or all of the Notes at the redemption prices
(expressed as percentages of principal amount) listed below, plus accrued and
unpaid interest and liquidated damages, if any, on the Notes redeemed, to the
applicable date of redemption, if redeemed during the 12-month period commencing
on April 1 of the years indicated below:

<Table>
<Caption>
          YEARS                          LOAN
-------------------------------        --------
<S>                                    <C>

2006 ..........................        104.750%
2007 ..........................        102.375%
2008 and thereafter ...........        100.000%
</Table>


At any time prior to April 1, 2005, the Company may redeem up to 35 percent of
the original aggregate principal amount of the Notes with the net cash of public
offerings of equity, provided that at least 65 percent of the original aggregate
principal amount of the Notes remains outstanding after the redemption. Upon the
occurrence of specified change of control events, unless the Company has
exercised its option to redeem all the Notes as described above, each holder
will have the right to require the Company to repurchase


                                       12
<PAGE>


all or a portion of such holder's Notes at a purchase price in cash equal to 101
percent of the aggregate principal amount of the Notes repurchased plus accrued
and unpaid interest and liquidated damages, if any, on the Notes repurchased, to
the applicable date of purchase. The Notes were issued under an indenture, dated
as of April 17, 2002, among the Company, the Guarantors and Wells Fargo Bank
Minnesota, National Association, as trustee (the "Indenture"). The Indenture
limits the ability of the Company and the restricted subsidiaries to, among
other things, incur additional indebtedness and issue preferred stock, pay
dividends or make other distributions, make other restricted payments and
investments, create liens, incur restrictions on the ability of certain of its
subsidiaries to pay dividends or other payments to the Company, enter into
transactions with affiliates, and engage in mergers, consolidations and certain
sales of assets.

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

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

SUBORDINATED DEBT

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

EARLY EXTINGUISHMENT OF DEBT

In conjunction with the issuance of the Notes and entering into the Senior
Credit Agreement, the Company paid off the then outstanding subordinated debt
and credit facility. The Company recognized during the three months ended June
30, 2002 an extraordinary charge of approximately $4.5 million, net of income
tax benefit, relating to the write-off of unamortized deferred financing costs
and the difference in the debt carrying value affected by prior adjustments
relating to the reverse swap previously designated as a fair value hedge.

NOTES PAYABLE TO SELLER

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

DERIVATIVES AND HEDGING ACTIVITIES

On June 25, 2001, the Company entered into a reverse swap on its 12 percent
subordinated debt. Accordingly, the balance included in accumulated other
comprehensive loss included in stockholders' equity is being recognized in
future periods' income over the remaining term of the original swap agreement.
The amount of accumulated other comprehensive loss recognized as a noncash
expense for each of the quarters ended March 31, 2003 and 2002, was
approximately $126,000.

The 12 percent subordinated debt was repaid on April 17, 2002, with the proceeds
from the sale of the Notes. Accordingly, the Company discontinued using hedge
accounting for the reverse swap agreement on April 17, 2002. From April 17,
2002, through June 25, 2002, the fair value of this fixed-to-floating reverse
swap decreased by $1.7 million. This $1.7 million mark-to-market gain was
included in other income in the second quarter of 2002 financial statements. On
June 25, 2002, the Company entered into a floating-to-fixed interest rate swap
agreement that is expected to substantially offset market value changes in the
Company's reverse swap agreement. The liability related to this reverse swap
agreement and the floating-to-fixed offset agreement totaling approximately
$3,470,000 is reflected in other long-term liabilities at March 31, 2003. The
gain recognized during the quarter ended March 31,


                                       13
<PAGE>
2003, related to the floating-to-fixed interest rate swap agreement was
approximately $467,000, while the loss recognized related to the reverse swap
agreement was approximately $500,000. The amount of the ineffectiveness of the
reverse swap agreement debited to other income was approximately $33,000 for the
three months ended March 31, 2003.

On July 3, 2001, the Company entered into an interest rate cap agreement
establishing a maximum fixed LIBOR rate on $125,000,000 of its floating rate
debt at an interest rate of 6 1/2 percent in order to meet the hedging
requirements of its Senior Credit Agreement. Changes in the fair value of the
agreement charged to interest expense, net, totaled $0 and $30,000 for the three
months ended March 31, 2003 and 2002, respectively.

(6) NONRECOURSE PROJECT REVENUE BONDS

<Table>
<Caption>
                                                                             MARCH 31,     DECEMBER 31,
                                                                                2003            2002
                                                                           ------------    ------------
<S>                                                                        <C>             <C>
Maryland Energy Financing Administration Limited Obligation
  Solid Waste Disposal Revenue Bonds, 1996 series --
     Revenue bonds due 2002 to 2005 at stated interest
       rates of 5.65% to 5.85% .........................................   $  7,710,000    $  7,710,000
     Term revenue bond due 2010 at stated interest rate of 6.30% .......     16,295,000      16,295,000
     Term revenue bond due 2016 at stated interest rate of 6.45% .......     22,360,000      22,359,870
                                                                           ------------    ------------
                                                                             46,365,000      46,364,870
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% .....................     19,715,349      19,715,349
     Series 2002B -- Revenue bonds due 2006 at stated
       interest rate of 4.25% ..........................................      1,191,000       1,191,000
                                                                           ------------    ------------
                                                                             20,906,349      20,906,349
                                                                           -------------   ------------
Total nonrecourse project revenue bonds ................................     67,271,349      67,271,219
     Less:  Current maturities .........................................     (2,430,000)     (2,430,000)
                                                                           ------------    ------------
     Nonrecourse project revenue bonds, net of current maturities ......   $ 64,841,349    $ 64,841,219
                                                                           ============    ============

 Amounts recorded in other assets as restricted cash -
     debt service fund .................................................   $  7,908,101    $  7,491,176
                                                                           ============    ============
</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 $58,550,000. 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 and known
as Synagro-Baltimore, L.L.C., pursuant to a June 1996 loan agreement, and the
terms of the loan mirror the terms of the 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
$12,185,000 have already been repaid. The remaining Maryland Project Revenue
Bonds bear interest at annual rates between 5.65 percent and 6.45 percent and
mature on dates between December 1, 2003, and December 1, 2016.

The Maryland Project Revenue Bonds are primarily collateralized by the pledge of
revenues and assets related to our Back River and Patapsco thermal facilities.
The underlying service contracts between us and the City of Baltimore obligated
us 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 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.



                                       14
<PAGE>


Synagro-Baltimore, L.L.C. guarantees the performance of services under the
underlying service agreements with the City of Baltimore. Under the terms of the
Bio Gro acquisition purchase agreement, Waste Management, Inc. also guarantees
the performance of services under those service agreements. Synagro has agreed
to pay Waste Management $500,000 per year beginning in 2007 until the 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 March 31, 2003, the Maryland Project Revenue Bonds were collateralized by
property, machinery and equipment with a net book value of approximately
$57,391,000 and restricted cash of approximately $8,115,000, of which
approximately $6,193,000 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.

In December 2002, the California Pollution Control Financing Authority (the
"Authority") issued nonrecourse revenue bonds in the aggregate amount of
$20,906,349 (net of original issue discount of $368,661). The nonrecourse
revenue bonds consist of $19,715,349 (net of original issue discount of
$359,661) Series 2002-A ("Series A") and $1,191,000 (net of original issue
discount of $9,000) Series 2002-B ("Series B") (collectively, the "Bonds"). The
Authority loaned the proceeds of the 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 Sanitation District. The Bonds bear
interest at annual rates between 4.25 percent and 5.5 percent and mature on
dates between December 1, 2006, and December 1, 2024. Currently, the Company is
in the design and permitting phases of the project.

The Bonds are primarily collateralized by the pledge of certain revenues, all of
the property of Sacramento Project Finance, Inc., and a standby letter of credit
for $2,500,000. The facility will be owned by Sacramento Project Finance, Inc.
and leased to Synagro Organic Fertilizer Company of Sacramento, Inc., a 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 Sacramento Regional County Sanitation District
("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 Series A and
Series B Bonds 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 March 31, 2003, the Bonds are partially collateralized by restricted cash of
approximately $19,232,000, of which approximately $1,714,000 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.

Nonrecourse Project Revenue Bonds are excluded from the financial covenant
calculations required by the Company's Senior Credit Facility.

(7) COMMITMENTS AND CONTINGENCIES

REGULATORY MATTERS

Synagro's business activities are subject to environmental regulation under
federal, state and local laws and regulations. In the ordinary course of
conducting its business activities, Synagro becomes involved in judicial and
administrative proceedings involving governmental authorities at the federal,
state and local levels. Synagro is required under various regulations to procure
licenses and


                                       15
<PAGE>


permits to conduct its operations. These licenses and permits are subject to
periodic renewal without which the Company's operations could be adversely
affected. There can be no assurance that regulatory requirements will not change
to the extent that it would materially affect Synagro's consolidated financial
statements.

LITIGATION

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

RIVERSIDE COUNTY

The Company leases land and operates a composting facility in Riverside County,
California, under a conditional use permit ("CUP") that expires on January 1,
2010. The CUP allows for a reduction in material intake and CUP term in the
event of noncompliance with the CUP's terms and conditions. In response to
alleged noncompliance due to excessive odor, on or about June 22, 1999, the
Riverside County Board of Supervisors attempted to reduce the Company's intake
of biosolids from 500 tons per day to 250 tons per day. The Company believes
that this was not an authorized action by the Board of Supervisors. On September
15, 1999, the Company was granted a preliminary injunction restraining and
enjoining the County of Riverside ("County") from restricting the Company's
intake of biosolids at its Riverside composting facility.

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

No trial date has been set at this time. The Company continues to operate under
the existing CUP while the parties explore settlement. The next status
conference before the Court is scheduled for July 7, 2003. Proposed terms of
settlement set forth in an expired Memorandum of Understanding with the County
serve as the basis for continuing settlement discussions, which terms include a
plan to relocate the compost facility to a piece of land owned by the County or
other acceptable sites. While the County has rejected the Company's most recent
offer to relocate, on October 22, 2002, the County approved a request by the
Santa Ana Watershed Project Authority ("SAWPA") to take over the process of
finding a new site and competitively negotiating with a company to operate the
site. This action provided the basis for a stay of the litigation which the
County approved on January 7, 2003. The stay is for six months, until July 7,
2003. During this time, the County has asked that SAWPA show progress in
developing a new facility. If SAWPA shows progress toward a replacement
operation, the County and the Company will begin discussions toward a
settlement, which will allow operations to continue at the existing facility
until such time as a new SAWPA-owned or endorsed facility becomes operational.
Development of the SAWPA facility will take approximately three years.

Whether or not the parties reach settlement based on the terms of the expired
Memorandum of Understanding or otherwise, the site may be closed. The Company
may incur additional costs related to contractual agreements, relocation and
site closure, as well as the need to obtain new permits (including some from the
County) at a new site. The Company has incurred approximately $645,000 of
project costs in connection with a new facility, which is included in property
at March 31, 2003. If the Company is unsuccessful in its efforts to either
settle or prosecute the litigation, goodwill and certain assets may be impaired.
Total goodwill associated with the reporting unit is approximately $20.6 million
at March 31, 2003. The financial impact associated with site closure prior to
the expiration of our CUP cannot be reasonably estimated at this time. Although
the Company feels that its case is meritorious, the ultimate outcome of the
litigation cannot be determined at this time.

RELIANCE INSURANCE

For the 24 months ended October 31, 2000 (the "Reliance Coverage Period"), the
Company insured certain risks, including automobile, general liability, and
worker's compensation, with Reliance National Indemnity Company ("Reliance")
through policies


                                       16
<PAGE>
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
$625,000 to $2,500,000 depending on future circumstances. The Company estimated
its exposure at approximately $1.9 million for the potential reimbursement to
the Texas Property and Casualty Insurance Guaranty Association for costs
associated with the settlement of 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
million as of March 31, 2003, 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

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

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 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.

 (8) COMPREHENSIVE LOSS

The Company's accumulated comprehensive loss at March 31, 2003, and December 31,
2002, is summarized as follows:

<Table>
<Caption>
                                                                  MARCH 31,     DECEMBER 31,
                                                                    2003            2002
                                                                ------------    ------------
<S>                                                             <C>             <C>
Cumulative effect of change in accounting for derivatives ...   $ (2,058,208)   $ (2,058,208)
Accumulated fair value of derivatives previously
  designated as hedges ......................................     (2,200,696)     (2,200,696)
Reclassification adjustment to earnings .....................      1,548,764       1,345,506
Tax benefit of changes in fair value ........................      1,029,852       1,107,090
                                                                ------------    ------------
                                                                $ (1,680,288)   $ (1,806,308)
                                                                ============    ============
</Table>


                                       17
<PAGE>
(9) EARNINGS (LOSS) PER COMMON SHARE

Basic earnings per share (EPS) is computed by dividing net income applicable to
common stock by the weighted average number of common shares outstanding for the
period. When not antidilutive, diluted EPS is computed by dividing net income
before preferred stock dividends by total weighted average 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. Due to losses in each period, EPS
and diluted EPS are the same for each of the three month periods ended March 31,
2003 and 2002. Diluted EPS for the three month periods ending March 31, 2003 and
2002 excludes shares assuming conversion of the Company's preferred stock and
certain other common stock equivalents for options outstanding determined using
the treasury stock method totaling 34,418,346 and 31,763,044, respectively,
because their inclusion would be antidilutive.

<Table>
<Caption>
                                                                     THREE MONTHS ENDED
                                                                         MARCH 31,
                                                               ----------------------------
                                                                   2003            2002
                                                               ------------    ------------
<S>                                                            <C>             <C>
Net loss applicable to common stock:

Net income (loss) before cumulative effect of change in
   accounting for asset retirement obligations and
   preferred stock dividends ...............................   $   (210,956)   $  1,431,606
Cumulative effect of change in accounting for
   asset retirement obligations ............................        476,312              --
                                                               ------------    ------------
Net income (loss) before preferred stock dividends .........       (687,268)      1,431,606
Preferred stock dividends ..................................      1,974,989       1,843,427
                                                               ------------    ------------
Net loss applicable to common stock ........................   $ (2,662,257)   $   (411,821)
                                                               ============    ============

Loss per share:

Basic
   Loss per share before cumulative effect of change in
      accounting for asset retirement obligations ..........   $      (0.11)   $      (0.02)
   Cumulative effect of change in accounting for asset
      retirement obligations ...............................          (0.02)             --
                                                               ------------    ------------
   Net loss per share ......................................   $      (0.13)   $      (0.02)
                                                               ============    ============

Diluted
   Loss per share before cumulative effect of change
      in accounting for asset retirement obligations .......   $      (0.11)   $      (0.02)
   Cumulative effect of change in accounting for asset
      retirement obligations ...............................          (0.02)             --
                                                               ------------    ------------
   Net loss per share ......................................   $      (0.13)   $      (0.02)
                                                               ============    ============

Weighted average shares:

Weighted average shares outstanding for basic earnings
   per share calculation ...................................     19,775,821      19,476,781
Weighted average shares outstanding for diluted earnings
   per share calculation ...................................     19,775,821      19,476,781
</Table>


(10) CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

As discussed in Note 6, as of March 31, 2003, all of the Company's subsidiaries,
except the Non-Guarantor Subsidiaries, are Guarantors for the Notes.
Additionally, the Company is not a Guarantor for the debt of the Non-Guarantor
Subsidiaries. Accordingly, the following condensed consolidating balance sheet
as of March 31, 2003, has been provided. As the Non-Guarantor Subsidiaries had
insignificant operations and cash flows from December 31, 2002 through March
31, 2003, no condensed consolidating statements of operations or cash flows have
been provided.



                                       18
<PAGE>
                     CONDENSED CONSOLIDATING BALANCE SHEETS
                             (DOLLARS IN THOUSANDS)

<Table>
<Caption>
                                                                                  MARCH 31, 2003
                                                      --------------------------------------------------------------------------
                                                                                        NON-
                                                                       GUARANTOR     GUARANTOR
                                                         PARENT       SUBSIDIARIES   SUBSIDIARIES   ELIMINATIONS   CONSOLIDATED
                                                      ------------    ------------   ------------   ------------    ------------
<S>                                                   <C>             <C>            <C>            <C>             <C>
                      ASSETS
Current Assets:
  Cash and cash equivalents .......................   $         76    $         98   $         --   $         --    $        174
  Restricted cash .................................             --           2,478             --             --           2,478
  Accounts receivable, net ........................             --          51,907             --             --          51,907
  Note receivable, current portion ................             --             754             --             --             754
  Prepaid expenses and other current assets .......             --          15,709             --             --          15,709
                                                      ------------    ------------   ------------   ------------    ------------
          Total current assets ....................             76          70,946             --             --          71,022
Property, machinery & equipment, net ..............             --         213,328            298             --         213,626
Other Assets:
  Goodwill ........................................             --         168,464             --             --         168,464
  Investments in subsidiaries .....................         74,820              --             --        (74,820)             --
  Restricted cash - construction fund .............             --                         17,518             --          17,518
  Restricted cash - debt service fund .............             --           6,194          1,714             --           7,908
  Other, net ......................................          6,113           6,064          2,192             --          14,369
                                                      ------------    ------------   ------------   ------------    ------------
          Total assets ............................   $     81,009    $    464,996   $     21,722   $    (74,820)   $    492,907
                                                      ============    ============   ============   ============    ============

       LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
  Current portion of long-term debt ...............   $      1,111    $         --   $         --   $         --    $      1,111
  Current portion of nonrecourse project revenue ..             --           2,430             --             --           2,430
bonds
  Current portion of capital lease obligations ....             --           1,426             --             --           1,426
  Accounts payable and accrued expenses ...........             --          51,069            298             --          51,367
                                                      ------------    ------------   ------------   ------------    ------------
          Total current liabilities ...............          1,111          54,925            298             --          56,334

Long-Term Debt:
  Long-term debt obligations, net .................        206,074           1,526             --             --         207,600
  Nonrecourse project revenue bonds, net ..........             --          43,935         20,906             --          64,841
  Intercompany ....................................       (272,975)        272,975             --             --              --
  Capital lease obligations, net ..................             --           7,775             --             --           7,775
                                                      ------------    ------------   ------------   ------------    ------------
     Total long-term debt .........................        (66,901)        326,211         20,906             --         280,216
Other Long-Term Liabilities:
  Other long-term liabilities .....................             --           9,558             --             --           9,558
  Fair value of interest rate swap ................          3,470              --             --             --           3,470
                                                      ------------    ------------   ------------   ------------    ------------
     Total other long-term liabilities ............          3,470           9,558             --             --          13,028
          Total liabilities .......................        (62,320)        390,694         21,204             --         349,578

Commitments and Contingencies
Redeemable Preferred Stock,
  69,792.29 shares issued and outstanding,
  redeemable at $1,000 per share ..................         80,065              --             --             --          80,065
Stockholders' Equity:
  Capital .........................................        109,206          38,572            518        (39,090)        109,206
  Accumulated deficit .............................        (44,262)         35,730             --        (35,730)        (44,262)
  Accumulated other comprehensive loss ............         (1,680)             --             --             --          (1,680)
                                                      ------------    ------------   ------------   ------------    ------------
          Total stockholders' equity ..............         63,264          74,302            518        (74,820)         63,264
                                                      ------------    ------------   ------------   ------------    ------------
Total liabilities and stockholders' equity ........   $     81,009    $    464,996   $     21,722   $    (74,820)   $    492,907
                                                      ============    ============   ============   ============    ============
</Table>


                                       19
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion should be read in conjunction with the consolidated
historical financial statements of the Company and related notes thereto
included elsewhere in this Form 10-Q and the Annual Report on Form 10-K, as
amended, for the year ended December 31, 2002. This discussion contains
forward-looking statements regarding the business and industry of the Company
within the meaning of the Private Securities Litigation Reform Act of 1995.
These statements are based on the current plans and expectations of the Company
and involve risks and uncertainties that could cause actual future activities
and results of operations to be materially different from those set forth in the
forward-looking statements, but are not limited to those factors more thoroughly
disclosed in the Company's Annual Report on Form 10-K.

RECENT EVENTS

On May 7, 2003 the Company announced the acquisition of Aspen Resources, Inc.
("Aspen"), located in Wisconsin. Aspen land applies organic residuals from pulp
and paper mills, and biosolids from municipalities throughout the Midwest. The
acquisition will add approximately $3 million in annual revenues.

Additionally, on May 7, 2003 the Company announced that a newly constructed
state of the art biosolids heat drying and pelletization facility designed and
built by the Company is now providing service for Pinellas County, Florida.

BACKGROUND

The Company generates substantially all of its revenue by providing water and
wastewater residuals management services to municipal and industrial customers.
The Company provides its customers with complete, vertically-integrated services
and capabilities, including facility operations, facility cleanout services,
regulatory compliance, dewatering, collection and transportation, composting,
drying and pelletization, product marketing, incineration, alkaline
stabilization, and land application. The Company currently serves more than
1,000 customers in 35 states and the District of Columbia. The Company's
contracts typically have inflation price adjustments, renewal clauses and broad
force majeure provisions. In 2002, the Company experienced a contract retention
rate (both renewals and rebids) of approximately 87 percent.

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

The Company's costs relating to service contracts include processing,
transportation, spreading and disposal costs, and depreciation of operating
assets. Costs relating to construction contracts primarily include subcontractor
costs related to design, permit and general construction. The Company's selling,
general and administrative expenses are comprised of accounting, information
systems, marketing, legal, human resources, regulatory compliance, and regional
and executive management costs.

HISTORICAL RESULTS OF OPERATIONS

<Table>
<Caption>
                                                                           THREE MONTHS ENDED MARCH 31,
                                                          -------------------------------------------------------------
                                                                      2003                             2002
                                                          ----------------------------     ----------------------------
<S>                                                       <C>             <C>              <C>             <C>
Revenue ...............................................   $ 63,228,710           100.0%    $ 56,816,527           100.0%
Cost of services ......................................     51,386,806            81.3%      43,257,392            76.1%
                                                          ------------    ------------     ------------    ------------
Gross profit ..........................................     11,841,904            18.7%      13,559,135            23.9%

Selling, general and administrative expenses ..........      6,304,751            10.0%       5,795,885            10.2%
                                                          ------------    ------------     ------------    ------------
  Income from operations ..............................      5,537,153             8.7%       7,763,250            13.7%
                                                          ------------                     ------------

Other (income) expense:
  Other (income) expense, net .........................         29,642             --%          (38,006)           (0.1)%
  Interest expense, net ...............................      5,847,762             9.2%       5,493,244             9.7%
                                                          ------------    ------------     ------------    ------------
    Total other expense, net ..........................      5,877,404             9.2%       5,455,238             9.6%
                                                          ------------    ------------     ------------    ------------

Income (loss) before provision (benefit) for
 income taxes .........................................       (340,251)           (0.5)%      2,308,012             4.1%
  Provision (benefit) for income taxes ................       (129,295)           (0.2)%        876,406             1.6%
                                                          ------------    ------------     ------------    ------------
Net income (loss) before cumulative effect
 of change in accounting for asset retirement
 obligations and preferred stock dividends ............       (210,956)           (0.3)%      1,431,606             2.5%
                                                                          ------------                     ------------

Cumulative effect of change in accounting for asset
  retirement obligations ..............................        476,312             0.7%              --              --%
                                                          ------------    ------------      -----------    ------------

Net income (loss) before preferred stock dividends ....       (687,268)           (1.2)%      1,431,606             2.5%
                                                                          ============                     ============
Preferred stock dividends .............................      1,974,989                        1,843,427
                                                          ------------                      -----------
Net loss applicable to common stock ...................   $ (2,662,257)                     $  (411,821)
                                                          ============                      ===========
</Table>


                                       20
<PAGE>


For the three months ended March 31, 2003, net sales were approximately
$63,229,000 compared to approximately $56,817,000 for the three months ended
March 31, 2002, representing an increase of approximately $6,412,000, or 11
percent. Approximately $1,610,000 of the increase relates to the Earthwise
acquisition, which closed in August 2002, and the balance from internal growth
of 8.5 percent.

Cost of services and gross profit for the three months ended March 31, 2003,
were approximately $51,387,000 and approximately $11,842,000, respectively,
compared with approximately $43,257,000 and approximately $13,559,000,
respectively, for the three months ended March 31, 2002, resulting in gross
profit as a percentage of sales of approximately 18.7 percent in 2003 and
approximately 23.7 percent in 2002. Due to excessive snow and rain in the
Mid-Atlantic and Southeast regions of our business, the Company was not able to
access land to apply material for most of the quarter. The decrease in gross
profit as a percentage of sales relates primarily to approximately $2,000,000 of
higher than expected handling, storage and disposal costs due to these weather
conditions, approximately $800,000 of margin on lost volume due to adverse
weather and $612,000 of additional depreciation expense related to assets
purchased in 2002, partially offset by an increase in other volumes.

Selling, general and administrative expenses of approximately $6,300,000, or 10
percent of revenue, for the three months ended March 31, 2003, compares with
approximately $5,768,000, or 10.2 percent of revenue, for the three months ended
March 31, 2002.

As a result of the foregoing, income from operations for the three months ended
March 31, 2003, was approximately $5,537,000, or 8.7 percent of revenue,
compared to approximately $7,763,000, or 13.7 percent of revenue, for the three
months ended March 31, 2002.

Other expense, net, was approximately $5,877,000 for the three months ended
March 31, 2003, compared to approximately $5,455,000 for the three months ended
March 31, 2002, representing an increase in expense of approximately $422,000.
The increase relates primarily to an increase in the Company's average interest
rate partially offset by a reduction in debt.

As a result of the foregoing, net loss before cumulative effect of change in
accounting for asset retirement obligations and preferred stock dividends was
approximately $211,000 for the three months ended March 31, 2003, compared to
net income of approximately $1,432,000 for the same period in 2002. On January
1, 2003, the Company adopted SFAS No. 143, "Asset Retirement Obligations." SFAS
No. 143 requires entities to record the fair value of a liability for an asset
retirement obligation in the period in which it is incurred and a corresponding
increase in the carrying amount of the related long-lived asset. Subsequently,
the asset retirement cost should be allocated to expense using a systematic and
rational method. During the first quarter of 2003, the Company recorded a
net-of-tax cumulative effect of change in accounting principle charge of
approximately $476,000 (approximately $768,000 before tax). There were no such
transactions in 2002.

During May 2003, the Company amended its credit facility to increase the
revolving loan from approximately $50 million to approximately $95 million.

LIQUIDITY AND CAPITAL RESOURCES

OVERVIEW

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

HISTORICAL CASH FLOWS

Cash Flows from Operating Activities -- For the three months ended March 31,
2003, cash flows from operating activities were approximately $8,757,000
compared to approximately $5,498,000 for the same period in 2002, an increase of
approximately $3,259,000, or 59 percent. The increase primarily relates to an
increase in accrued interest that was paid in April 2003.


                                       21
<PAGE>

Cash Flows from Investing Activities -- For the three months ended March 31,
2003, cash flows used for investing activities were approximately $5,375,000
compared to approximately $4,094,000 for the same period in 2002, an increase of
approximately $1,281,000, primarily related to additional equipment purchases
and an increase in restricted cash.

Cash Flows from Financing Activities -- For the three months ended March 31,
2003, cash flows used in financing activities were approximately $3,448,000
compared to cash flows used in financing activities of approximately $1,401,000
for the same period in 2002, an increase of approximately $2,047,000. The
increase primarily relates to payments on outstanding debt.

CAPITAL EXPENDITURE REQUIREMENTS

Capital expenditures for the three months ended March 31, 2003, totaled
approximately $4,191,000 compared to approximately $3,609,000 in the first three
months of 2002. The Company's ongoing capital expenditures program consists of
expenditures for replacement equipment, betterments, and growth. The Company
expects its capital expenditures for 2003 to be approximately $13 million to $14
million.

DEBT SERVICE REQUIREMENTS

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

In May 2002, the Company entered into a new $150 million senior credit facility
that provides for a $70 million funded term loan and up to a $50 million
revolver, with the ability to increase the total commitment to $150 million. The
term loan proceeds were used to pay off the existing senior debt that remained
unpaid after the private placement of our 9 1/2 percent Senior Subordinated
Notes due 2009. This new facility is secured by substantially all of the
Company's assets and those of its subsidiaries (other than assets securing
nonrecourse debt) and includes covenants restricting the incurrence of
additional indebtedness, liens, certain payments and sale of assets. The new
senior credit agreement contains standard covenants, including compliance with
laws, limitations on capital expenditures, restrictions on dividend payments,
limitations on mergers and compliance with certain financial covenants. During
May 2003, the Company amended its credit facility to increase the revolving loan
to approximately $95 million. Requirements for mandatory debt payments from
excess cash flows, as defined, are unchanged in the new credit facility.

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

In 1996, the Maryland Energy Financing Administration issued nonrecourse
tax-exempt project revenue bonds (the "Maryland Project Revenue Bonds") in the
aggregate amount of $58,550,000. The Administration loaned the proceeds of the
Maryland Project Revenue Bonds to Wheelabrator Water Technologies Baltimore
L.L.C., now our wholly owned subsidiary and known as Synagro -- Baltimore,
L.L.C., pursuant to a June 1996 loan agreement, and the terms of the loan mirror
the terms of the 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. in 2000. Maryland Project Revenue Bonds in the aggregate
amount of $12,185,000 have already been paid, and the remaining Maryland Project
Revenue Bonds bear interest at annual rates between 5.65 percent and 6.45
percent and mature on dates between December 1, 2003, and December 1, 2016.

In December 2002, the California Pollution Control Financing Authority (the
"Authority") issued nonrecourse revenue bonds ("Sacramento Biosolids Facility
Project") in the aggregate amount of $21,275,000. The nonrecourse revenue bonds
consist of $20,075,000 Series 2002-A and $1,200,000 Series 2002-B (taxable)
(collectively, the "Bonds"). The Authority loaned the proceeds of the Bonds to
Sacramento Project Finance, Inc., a wholly owned subsidiary of the Company,
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 Bonds bear interest at annual rates between 4.25
percent and 5.5 percent and mature on dates between December 1, 2006, and
December 1, 2024.


                                       22
<PAGE>

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

SERIES D REDEEMABLE PREFERRED STOCK

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


                                       23
<PAGE>


Series D Preferred Stock are subject to mandatory redemption by the Company on
January 26, 2010, at a price per share equal to the liquidation value plus
accrued and unpaid dividends. If the outstanding shares of Series D Preferred
Stock excluding accrued dividends were converted at March 31, 2003, they would
represent 10,013,441 shares of common stock.

SERIES E REDEEMABLE PREFERRED STOCK

The Company has authorized 55,000 shares of Series E Preferred Stock, par value
$.002 per share. GTCR Fund VII, L.P. and its affiliates own 37,504.229 shares of
Series E Preferred Stock and certain affiliates of The TCW Group, Inc. own
7,024.58 shares. The Series E Preferred Stock is convertible by the holders into
a number of shares of the Company's common stock computed by dividing (i) the
sum of (a) the number of shares to be converted multiplied by the liquidation
value and (b) the amount of accrued and unpaid dividends by (ii) the conversion
price then in effect. The initial conversion price is $2.50 per share provided
that in order to prevent dilution, the conversion price may be adjusted. The
Series E Preferred Stock is senior to the Company's common stock and any other
of its equity securities. The liquidation value of each share of Series E
Preferred Stock is $1,000 per share. Dividends on each share of Series E
Preferred Stock accrue daily at the rate of eight percent per annum on the
aggregate liquidation value and may be paid in cash or accrued, at the Company's
option. Upon conversion of the Series E Preferred Stock by the holders, the
holders may elect to receive the accrued and unpaid dividends in shares of the
Company's common stock at the conversion price. The Series E Preferred Stock is
entitled to one vote per share. Shares of Series E Preferred Stock are subject
to mandatory redemption by the Company on January 26, 2010, at a price per share
equal to the liquidation value plus accrued and unpaid dividends. If the
outstanding shares of Series E Preferred Stock excluding accrued dividends were
converted at March 31, 2003, they would represent 17,903,475 shares of common
stock.

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

INTEREST RATE RISK

Total debt at March 31, 2003, included approximately $57,185,000 in floating
rate debt attributed to the Senior Credit Agreement at a base interest rate plus
2.5 percent, or approximately 4.5 percent. As a result, the Company's interest
cost in 2003 will fluctuate based on short-term interest rates. The impact on
annual cash flow of a ten percent change in the floating rate would be
approximately $199,000.

WORKING CAPITAL

At March 31, 2003, the Company had working capital, excluding current debt, of
approximately $19,655,000 compared to approximately $22,219,000 at March 31,
2002, a decrease of approximately $2,564,000. The decrease in working capital is
principally due to an increase in accrued expenses and a decrease in trade
receivables, partially offset by an increase in restricted cash.

CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS

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

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

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

Property and Equipment/Long-Lived Assets - Management adopted SFAS No. 144
during the first quarter 2002. Property and equipment is reviewed for impairment
pursuant to the provisions of SFAS No. 144, "Accounting for the Impairment or
Disposal of


                                       24
<PAGE>


Long-Lived Assets." The carrying amount of an asset (group) is considered
impaired if it exceeds the sum of our estimate of the undiscounted future cash
flows expected to result from the use and eventual disposition of the asset
(group), excluding interest charges.

The Company has contracts for the design, permitting and construction of
biosolids processing facilities. If the permits and/or other government
approvals are not obtained, the Company may not be reimbursed for its costs
incurred. The Company has approximately $4,300,000 of design and permitting
costs included in other long-term assets at March 31, 2003.

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

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

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

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

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

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

ACCOUNTING PRONOUNCEMENTS

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

DERIVATIVES AND HEDGING ACTIVITIES

On June 25, 2001, the Company entered into a reverse swap on its 12 percent
subordinated debt. Accordingly, the balance included in accumulated other
comprehensive loss included in stockholders' equity is being recognized in
future periods' income over the remaining term of the original swap agreement.
The amount of accumulated other comprehensive loss recognized as a noncash
expense for each of the quarters ended March 31, 2003 and 2002, was
approximately $126,000.

The 12 percent subordinated debt was repaid on April 17, 2002, with the proceeds
from the sale of the Notes. Accordingly, the Company discontinued using hedge
accounting for the reverse swap agreement on April 17, 2002. From April 17,
2002, through June 25, 2002, the fair value of this fixed-to-floating reverse
swap decreased by $1.7 million. This $1.7 million mark-to-market gain was
included in other income in the second quarter of 2002 financial statements. On
June 25, 2002, the Company entered into a floating-to-fixed interest rate swap
agreement that is expected to substantially offset market value changes in the
Company's reverse swap agreement. The liability related to this reverse swap
agreement and the floating-to-fixed offset agreement totaling approximately
$3,470,000 is reflected in other long-term liabilities at March 31, 2003. The
gain recognized during the quarter ended March 31, 2003, related to the
floating-to-fixed interest rate swap agreement was approximately $467,000, while
the loss recognized related to the reverse swap agreement was approximately
$500,000. The amount of the ineffectiveness of the reverse swap agreement
debited to other income was approximately $33,000 for the three months ended
March 31, 2003.



                                       25
<PAGE>


On July 3, 2001, the Company entered into an interest rate cap agreement
establishing a maximum fixed LIBOR rate on $125,000,000 of its floating rate
debt at an interest rate of 6 1/2 percent in order to meet the hedging
requirements of its amended and restated Senior Credit Agreement. Changes in the
fair value of the agreement charged to interest expense, net, totaled $0 and
$30,000 for the three months ended March 31, 2003 and 2002, respectively.

INTEREST RATE RISK

Total debt at March 31, 2003, included approximately $57,185,000 in floating
rate debt attributed to the Senior Credit Agreement at a base interest rate plus
2.5 percent, or approximately 4.5 percent. As a result, the Company's interest
cost in 2003 will fluctuate based on short-term interest rates. The impact on
annual cash flow of a ten percent change in the floating rate would be
approximately $199,000.

ITEM 4. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

The Company's Chief Executive Officer and Chief Financial Officer have evaluated
the Company's disclosure controls and procedures (as such term is defined in
Rules 13a-14(c) and 15d-14(c) under the Securities Act of 1934, as amended (the
"Exchange Act") as of May 15, 2003, (the "Evaluation Date"). Based on this
evaluation, such officers have concluded that these controls and procedures are
effective in alerting them on a timely basis to material information relating to
the Company (including its consolidated subsidiaries) required to be included in
the Company's periodic filings under the Exchange Act.

CHANGES IN INTERNAL CONTROLS

There are no significant changes in internal controls or in other factors that
could significantly affect these controls subsequent to May 15, 2003.


                                       26
<PAGE>


PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(A) Exhibit Index

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

(B) Reports on Forms 8-K.




                                       27
<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:    May 15, 2003                  By:  /s/ Ross M.  Patten
                                                 ------------------------------
                                                 Chief Executive Officer

     Date:    May 15, 2003                  By:  /s/ J. Paul Withrow
                                                 ------------------------------
                                                 Chief Financial Officer



                                       28
<PAGE>

                                  CERTIFICATION

I, Ross M. Patten , certify that:

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

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

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

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

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

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

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

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

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

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

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


Date:     May 15, 2003                             /s/ Ross M.  Patten
                                           ------------------------------------
                                           Chairman and Chief Executive Officer



                                       29
<PAGE>


                                  CERTIFICATION

I, J. Paul Withrow , certify that:

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

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

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

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

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

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

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

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

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

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

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


Date:    May 15, 2003                              /s/ J. Paul Withrow
                                           ------------------------------------
                                                 Chief Financial Officer



                                       30
<PAGE>

                               INDEX TO EXHIBITS


<Table>
<Caption>
EXHIBIT
NUMBER          DESCRIPTION
-------         -----------
<S>             <C>

 99.1           Certification of Chief Executive Officer

 99.2           Certification of Chief Financial Officer
</Table>