<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 September 30, 2001
                         Commission File Number 0-21054

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

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

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


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

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


                               Yes [X] No [ ]


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


                  CLASS                    OUTSTANDING AT NOVEMBER 6, 2001
      -----------------------------        -------------------------------
      Common stock, par value $.002                  19,476,780



<PAGE>



                           SYNAGRO TECHNOLOGIES, INC.

                                      INDEX


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

Condensed Consolidated Balance Sheets as of September 30, 2001,
 (Unaudited) and December 31, 2000 .....................................        3

Condensed Consolidated Statements of Operations for the
 Three and Nine Months Ended September 30, 2001 and 2000 (Unaudited) ...        4

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

Condensed Consolidated Statements of Cash Flows for the
 Nine Months Ended September 30, 2001 and 2000 (Unaudited) .............        6

Notes to Condensed Consolidated Financial Statements ...................        8

Management's Discussion and Analysis of Financial
Condition and Results of Operations ....................................       17

PART II -- OTHER INFORMATION ...........................................       22
</Table>




                                       2
<PAGE>




                           SYNAGRO TECHNOLOGIES, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS


<Table>
<Caption>
                                                                           SEPTEMBER 30,      DECEMBER 31,
                                                                               2001               2000
                                                                           -------------      -------------
                                                                            (UNAUDITED)
<S>                                                                        <C>                <C>
ASSETS
Current assets:
   Cash and cash equivalents .........................................     $     684,837      $   4,597,420
   Restricted cash ...................................................         1,995,456          2,085,039
   Accounts receivable, net ..........................................        54,008,743         50,073,651
   Note receivable, current portion ..................................           181,000            188,903
   Prepaid expenses and other current assets .........................         9,632,984         10,385,755
                                                                           -------------      -------------
      Total current assets ...........................................        66,503,020         67,330,768

Property, machinery & equipment, net .................................       205,767,247        198,466,357

Other assets:
   Goodwill, net .....................................................       165,684,454        166,698,921
   Other, net ........................................................        10,332,695         11,324,546
                                                                           -------------      -------------
Total assets .........................................................     $ 448,287,416      $ 443,820,592
                                                                           =============      =============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Current portion of long-term debt .................................     $  12,302,380      $   9,265,380
   Current portion of tax-exempt project revenue bonds ...............         2,185,000          2,185,000
   Accounts payable and accrued expenses .............................        42,112,406         36,313,941
                                                                           -------------      -------------
      Total current liabilities ......................................        56,599,786         47,764,321
Long-term liabilities:
   Long-term debt obligations, net ...................................       211,040,963        230,358,453
   Nonrecourse tax-exempt project revenue bonds, net .................        41,297,014         43,123,771
   Other long-term liabilities .......................................         7,828,818          5,642,737
   Fair value of interest rate swap ..................................         3,599,047                  0

COMMITMENTS AND CONTINGENCIES

Redeemable Preferred Stock, 69,792.29 shares issued and
   outstanding, redeemable at $1,000 per share .......................        68,584,416         63,367,178

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,
      19,476,780 and 19,435,780 shares outstanding ...................            38,954             38,872
   Additional paid in capital ........................................       109,167,460        109,085,542
   Accumulated deficit ...............................................       (45,939,344)       (55,560,282)
   Accumulated other comprehensive income ............................        (3,929,698)                --
                                                                           -------------      -------------
      Total stockholders' equity .....................................        59,337,372         53,564,132
                                                                           -------------      -------------
Total liabilities and stockholders' equity ...........................     $ 448,287,416      $ 443,820,592
                                                                           =============      =============
</Table>


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





                                       3
<PAGE>


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

<Table>
<Caption>
                                                                      THREE MONTHS ENDED                 NINE MONTHS ENDED
                                                                         SEPTEMBER 30,                      SEPTEMBER 30,
                                                                    2001              2000              2001              2000
                                                                -------------     -------------     -------------     -------------
<S>                                                             <C>               <C>               <C>               <C>
Sales .....................................................     $  70,066,799     $  53,512,995     $ 194,662,097     $  99,947,848
Cost of services ..........................................        51,219,882        38,778,632       144,135,617        73,381,592
                                                                -------------     -------------     -------------     -------------
Gross profit ..............................................        18,846,917        14,734,363        50,526,480        26,566,256

Selling, general and administrative expenses ..............         5,515,311         4,080,764        15,595,342         9,098,552
Nonrecurring gain from litigation settlement ..............        (6,042,584)               --        (6,042,584)               --
Amortization of goodwill ..................................         1,155,904         1,040,131         3,438,657         2,478,266
                                                                -------------     -------------     -------------     -------------
   Income from operations .................................        18,218,286         9,613,468        37,535,065        14,989,438
                                                                -------------     -------------     -------------     -------------
Other (income) expense:
   Other (income) expense, net ............................          (169,849)           32,842          (231,738)           46,447
   Interest expense, net ..................................         6,422,154         5,873,980        20,884,069        10,891,509
                                                                -------------     -------------     -------------     -------------
      Total other expense, net ............................         6,252,305         5,906,822        20,652,331        10,937,956
                                                                -------------     -------------     -------------     -------------
Income before provision for income taxes ..................        11,965,981         3,706,646        16,882,734         4,051,482
     Provision for income taxes ...........................                --                --                --                --
                                                                -------------     -------------     -------------     -------------
Net income before preferred stock dividends,
   noncash beneficial conversion charge, and
   cumulative effect of change in accounting for
   derivatives ............................................        11,965,981         3,706,646        16,882,734         4,051,482
Preferred stock dividends .................................         1,815,050         1,282,703         5,401,111         2,233,837
Noncash beneficial conversion charge ......................                --        11,401,389                --        37,045,268
Cumulative effect of change in accounting for
   derivatives ............................................                --                --         1,860,685                --
                                                                -------------     -------------     -------------     -------------
Net income (loss) applicable to common stock ..............     $  10,150,931     $  (8,977,446)    $   9,620,938     $ (35,227,623)
                                                                =============     =============     =============     =============

Earnings per share:
   Net income before preferred stock dividends, noncash
      beneficial conversion charge, and cumulative
      effect of change in accounting for derivatives ......     $        0.61     $        0.19     $        0.87     $        0.21
   Preferred stock dividends ..............................             (0.09)            (0.06)            (0.28)            (0.12)
                                                                -------------     -------------     -------------     -------------
      Subtotal ............................................              0.52              0.13              0.59              0.09
   Noncash beneficial conversion charge ...................                --             (0.59)               --             (1.92)
   Cumulative effect of change in accounting for
     derivatives ..........................................                --                --             (0.10)               --
                                                                -------------     -------------     -------------     -------------

Net income (loss) per common share, basic .................     $        0.52     $       (0.46)    $        0.49     $       (1.83)
                                                                =============     =============     =============     =============

Net income (loss) per common share, diluted ...............     $        0.24     $       (0.46)    $        0.30     $       (1.83)
                                                                =============     =============     =============     =============

Weighted average shares outstanding, basic ................        19,472,543        19,433,850        19,450,854        19,241,211
Weighted average shares outstanding, diluted ..............        49,950,589        19,433,850        49,338,398        19,241,211
</Table>


              The accompanying notes are an integral part of these
                       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          INCOME          TOTAL
                                           ----------    ------------    ------------   ------------   -------------   ------------
<S>                                        <C>           <C>             <C>            <C>            <C>             <C>
BALANCE, December 31, 2000 ............    19,435,780    $     38,872    $109,085,542   $(55,560,282)  $          --   $ 53,564,132
   Change in comprehensive income .....                                                                  (3,929,698)     (3,929,698)
   Exercise of options and warrants ...        41,000              82          81,918             --              --         82,000
   Net income applicable to
    common stock ......................            --              --              --      9,620,938              --      9,620,938
                                           ----------    ------------    ------------   ------------   -------------   ------------
BALANCE, September 30, 2001 ...........    19,476,780    $     38,954    $109,167,460   $(45,939,344)  $  (3,929,698)  $ 59,337,372
                                           ==========    ============    ============   ============   =============   ============
</Table>

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


                                        5
<PAGE>


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

<Table>
<Caption>
                                                                                NINE MONTHS ENDED SEPTEMBER 30,
                                                                                    2001               2000
                                                                                -------------      -------------
<S>                                                                             <C>                <C>
Cash flows from operating activities:
   Net income before preferred stock dividends,
      noncash beneficial conversion charge, and
      cumulative effect of change in accounting
      for derivatives .....................................................     $  16,882,734      $   4,051,482
   Adjustment to reconcile to net cash provided by operating activities:
        Depreciation ......................................................        10,134,233          4,892,707
        Amortization ......................................................         4,507,376          2,499,381
        Gain on sale of property, machinery and
          equipment .......................................................          (231,740)           (46,447)
        (Increase) decrease in the following, excluding the effects
          of acquisitions:
          Accounts receivable .............................................        (4,882,662)        (8,921,678)
          Prepaid expenses and other assets ...............................          (584,722)         1,266,951
          Accounts payable, accrued expenses and other liabilities ........           391,500          1,378,292
                                                                                -------------      -------------
   Net cash provided by operating activities ..............................        26,216,719          5,120,688
                                                                                -------------      -------------

Cash flows from investing activities:
      Purchase of businesses including contingent consideration,
        net of cash acquired ..............................................          (999,929)      (240,091,564)
      Purchases of property, machinery and equipment ......................        (9,538,394)        (3,896,673)
      Proceeds from sale of property, machinery and
        equipment .........................................................           910,643            107,000
      Proceeds from notes receivable ......................................            24,430             68,097
      Other ...............................................................          (435,103)                --
                                                                                -------------      -------------
Net cash used in investing activities .....................................       (10,038,353)      (243,813,140)
                                                                                -------------      -------------

Cash flows from financing activities:
      Proceeds from debt ..................................................                --        260,692,462
      Payments on debt ....................................................       (18,366,360)       (70,937,893)
      Debt issuance costs .................................................           (69,415)       (10,450,110)
      Increase in restricted cash .........................................        (1,737,174)                --
      Issuance of preferred stock, net of offering costs ..................                --         59,428,679
      Exercise of options and warrants ....................................            82,000            166,367
                                                                                -------------      -------------
   Net cash provided by (used in) financing activities ....................       (20,090,949)       238,899,505
                                                                                -------------      -------------

Net increase (decrease) in cash and cash equivalents ......................        (3,912,583)           207,053
Cash and cash equivalents, beginning of period ............................         4,597,420            180,633
                                                                                -------------      -------------
Cash and cash equivalents, end of period ..................................     $     684,837      $     387,686
                                                                                =============      =============
</Table>


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




                                       6
<PAGE>


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

<Table>
<Caption>

                                              NINE MONTHS ENDED
                                                SEPTEMBER 30,
                                         ---------------------------
    Supplemental Cash Flow Information      2001            2000
    ----------------------------------   -----------     -----------
<S>                                      <C>             <C>


    Interest paid during the period ..   $17,945,937     $10,445,928
    Taxes paid during the period .....            --              --

</Table>


                   NONCASH INVESTING AND FINANCING ACTIVITIES

During 2000, the Company issued an aggregate of 57,746.93 shares of Series C,
Series D, and Series E Preferred Stock ("Preferred Stock") with an eight percent
dividend and a beneficial conversion feature. Additionally, the Company
recognized both the value of the dividend of approximately $3,938,000
($2,233,837 through September 30, 2000) and the value of the beneficial
conversion feature of approximately $37,045,000 as a preferred stock dividend
and a noncash beneficial conversion charge, respectively. Dividends totaling
$5,401,000 include the eight percent dividend on preferred stock and accretion
thereon.




                                       7
<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 and nine months
ended September 30, 2001, are not necessarily indicative of future operating
results. It is suggested that these financial statements be read in conjunction
with the financial statements and notes thereto included in the Company's Annual
Report on Form 10-K, as amended, for the year ended December 31, 2000.

The accounting policies followed by the Company in preparing interim
consolidated financial statements are consistent with those described in the
"Notes to Consolidated Financial Statements" in the Company's Form 10-K, as
amended on April 30, 2001, for the year ended December 31, 2000.

The Company is a national provider of residuals management services. The Company
is engaged in the business of managing biosolids and other organic materials for
beneficial reuse throughout the United States. The Company's services include,
among other things, land application, compliance monitoring, cleanout services,
facilities operations and maintenance, and the marketing of end products from
the treatment of such materials.

ACCOUNTING PRONOUNCEMENTS

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

In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No.
141, "Business Combinations," and No. 142, "Goodwill and Other Intangible
Assets." SFAS 141 requires all business combinations initiated after June 30,
2001, to be accounted for using the purchase method. Under SFAS 142, goodwill
and intangible assets with indefinite lives are no longer amortized but are
reviewed annually (or more frequently if impairment indicators arise) for
impairment. Separable intangible assets that are not deemed to have indefinite
lives will be amortized over their useful lives. Management is currently
evaluating whether the initial impairment test required upon adoption of the
provisions of SFAS 142 will have an effect, if any, on the results of operations
and financial position of the Company. Beginning January 1, 2002, pursuant to
SFAS 142, the Company will no longer amortize goodwill, which will increase
operating earnings by approximately $4.5 million each year.

In June 2001, the Financial Accounting Standards Board issued SFAS No. 143,
"Accounting for Asset Retirement Obligations". SFAS No. 143 covers all legally
enforceable obligations associated with the



                                       8
<PAGE>

retirement of tangible long-lived assets and provides the accounting and
reporting requirements for such obligations. SFAS No. 143 is effective for the
Company beginning January 1, 2003. Management has yet to determine the impact
that the adoption of SFAS No. 143 will have on the Company's consolidated
financial statements.

In August 2001, the Financial Accounting Standards Board issued SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets", which
supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of." SFAS No. 144 establishes a single
accounting method for long-lived assets to be disposed of by sale, whether
previously held and used or newly acquired, and extends the presentation of
discontinued operations to include more disposal transactions. SFAS No. 144 also
requires that an impairment loss be recognized for assets held-for-use when the
carrying amount of an asset (group) is not recoverable. The carrying amount of
an asset (group) is not recoverable if it exceeds the sum of the undiscounted
cash flows expected to result from the use and eventual disposition of the asset
(group), excluding interest charges. Estimates of future cash flows used to test
the recoverability of a long-lived asset (group) must incorporate the entity's
own assumptions about its use of the asset (group) and must factor in all
available evidence. SFAS No. 144 is effective for the Company for the quarter
ending March 31, 2002. Management has yet to determine the impact that the
adoption of SFAS No. 144 will have on the Company's consolidated financial
statements.

RECLASSIFICATIONS

Certain reclassifications have been made to the prior year's financial
statements to conform to the 2001 presentation.

USE OF ESTIMATES

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

(2)  ACQUISITIONS

During 2000, the Company purchased Residual Technologies, Limited Partnership
and its affiliates (collectively "RESTEC"), Ecosytematics, Inc., Davis Water
Analysis, Inc., AKH Water Management, Inc., Rehbein, Inc, certain assets and
contracts of Whiteford Construction Company, Environmental Protection &
Improvement Company, Inc. ("EPIC"), and the Bio Gro Division of Waste
Management, Inc. ("Bio Gro") (collectively, the "2000 Acquisitions"). The 2000
Acquisitions were accounted for using the purchase method of accounting. The
allocation of the purchase prices resulted in approximately $108,452,000 of
goodwill.

(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 is issuable upon exercise of the
Stockholder Rights described below.

SERIES C REDEEMABLE PREFERRED STOCK

On January 26, 2000, the Company authorized 30,000 shares of Series C Preferred
Stock, par value $.002 per share. Upon approval by a majority of the Company's
shareholders and certain other conditions in March 2000, the Series C Preferred
Stock became convertible into Series D Preferred Stock at a rate of 1:1. The
Series C Preferred Stock is senior to the Common Stock or any other equity
securities of the Company. The liquidation value of each share of Series C
Preferred Stock is $1,000 per share ("Liquidation Value") plus accrued and
unpaid dividends. Dividends on each share of Series C Preferred Stock shall
accrue on a daily basis at the rate of 8 percent per annum on aggregate
Liquidation Value plus accrued and unpaid dividends. The Series C Preferred
Stock has no voting rights. Shares of Series C Preferred Stock are subject to
mandatory redemption by the Company on January 26, 2010, at a price per share
equal to the Liquidation Value plus accrued and unpaid dividends.



                                       9
<PAGE>

On January 27, 2000, the Company issued 17,358.824 shares of Series C Preferred
Stock, par value $.002 per share, to GTCR Fund VII, L.P. and its affiliates for
$17,358,824. On February 4, 2000, the Company issued 419.400 shares of Series C
Preferred Stock to GTCR Fund VII, L.P. and its affiliates for $419,400. On March
24, 2000, the Company issued 225.000 shares of Series C Preferred Stock to GTCR
Fund VII, L.P. and its affiliates for $225,000. On March 27, 2000, the Company
issued 1,260.000 shares of Series C Preferred Stock to GTCR Fund VII, L.P. and
its affiliates for $1,260,000. The proceeds were used primarily to fund certain
of the 2000 Acquisitions. The Company also issued warrants to GTCR Fund VII,
L.P. for a nominal price in connection with the issuance of subordinated debt,
which were immediately exercised for 272.058 shares of Series C Preferred Stock.
During April 2000, all Series C Preferred Stock was converted to Series D
Preferred Stock.

SERIES D REDEEMABLE PREFERRED STOCK

On January 26, 2000, the Company authorized 32,000 shares of Series D Preferred
Stock, par value $.002 per share. The Series D Preferred Stock is convertible by
the holders into a number of shares of Common Stock computed by (i) the sum of
(a) the number of shares to be converted multiplied by the Liquidation Value and
(b) the amount of accrued and unpaid dividends by (ii) the conversion price then
in effect. The initial conversion price is $2.50 per share, provided that in
order to prevent dilution, the conversion price may be adjusted. The Series D
Preferred Stock is senior to the Common Stock or any other equity securities of
the Company. The liquidation value of each share of Series D Preferred Stock is
$1,000 per share ("Liquidation Value") plus accrued and unpaid dividends.
Dividends on each share of Series D Preferred Stock shall accrue on a daily
basis at the rate of 8 percent per annum on the aggregate Liquidation Value. 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.

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

SERIES E REDEEMABLE PREFERRED STOCK

On June 14, 2000, the Company authorized 55,000 shares of Series E Preferred
Stock, par value $.002 per share. The Series E Preferred Stock is convertible by
the holders into a number of shares of Common Stock computed by (i) the sum of
(a) the number of shares to be converted multiplied by the Liquidation Value and
(b) the amount of accrued and unpaid dividends by (ii) the conversion price then
in effect. The initial conversion price is $2.50 per share, provided that in
order to prevent dilution, the conversion price may be adjusted. The Series E
Preferred Stock is senior to the Common Stock or any other equity securities of
the Company. The liquidation value of each share of Series E Preferred Stock is
$1,000 per share ("Liquidation Value") plus accrued and unpaid dividends.
Dividends on each share of Series E Preferred Stock shall accrue on a daily
basis at the rate of 8 percent per annum on the aggregate Liquidation Value. The
Series E Preferred Stock is entitled to one vote per share. Shares of Series E
Preferred Stock are subject to mandatory redemption by the Company on January
26, 2010, at a price per share equal to the Liquidation Value plus accrued and
unpaid dividends.

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

On August 14, 2000, the Company issued 25,768.744 shares of Series E Preferred
Stock to GTCR Fund VII, L.P. and its affiliates, and 3,233.788 shares to
TCW/Crescent Lenders. Additionally, the Company issued 2,589.635 and 229.88
warrants to GTCR Fund VII, L.P. and its affiliates, and TCW/Crescent Lenders,
respectively, in connection with the issuance of the preferred stock; these
warrants were immediately converted into Series E Preferred Stock. The proceeds
of approximately $29,003,000 were used to partially fund the Bio Gro
acquisition.

NONCASH BENEFICIAL CONVERSION

The Series D and Series E Preferred Stock, including Series C Preferred Stock
that was converted into Series D Preferred Stock (see above), the warrants
issued in connection with the subordinated debt and warrants issued in
connection with the issuance of Preferred Stock, which were exercised for Series
C Preferred Stock, Series D Preferred Stock, and Series E Preferred Stock, are
convertible into shares of the Company's common stock at $2.50 per share. This
conversion price of $2.50 was below the market price of the Company's common
stock at the dates of issuance. Financial accounting rules require that the
Company record a "noncash beneficial conversion charge" for the difference
between the market price and the conversion price at the date of issuance of
this preferred stock. Accordingly,



                                       10
<PAGE>

during 2000, the Company recognized the value of this beneficial conversion
feature of approximately $37,045,000 as a noncash beneficial conversion charge
at the dates of issuance. The value of such preferred stock dividend has no
impact on the Company's cash flows, but reduces basic and diluted earnings
applicable to holders of Common Stock. Additionally, future issuances of Series
D and Series E Preferred Stock and warrants related to subordinated debt and
issuance of Preferred Stock may result in noncash beneficial conversions valued
in future periods recognized as noncash beneficial conversion charges.

The increase in redeemable preferred stock of approximately $5,217,000 during
the nine months ended September 30, 2001, relates primarily to the eight percent
preferred stock dividend and accretion of preferred stock.

(4)  STOCKHOLDERS' RIGHTS PLAN

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

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

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

In connection with the issuance of the Series C Preferred Stock, Series D
Preferred Stock, and Series E Preferred Stock to GTCR Fund VII, L.P. and its
affiliates, and TCW/Crescent Lenders, the Board of Directors waived the
application of the Rights Plan.

(5)  DEBT

Long-term debt obligations consist of the following:

<Table>
<Caption>
                                                                                           SEPTEMBER 30,     DECEMBER 31,
                                                                                               2001              2000
                                                                                          --------------    --------------
                                                                                            (unaudited)
<S>                                                                                       <C>               <C>
Credit facility - acquisition and term loans .......................................      $  168,464,407    $  185,499,999
Subordinated debt ..................................................................          52,760,393        52,760,393
Fair value adjustment related to subordinated debt .................................           2,085,869                --
Capital lease obligations ..........................................................                  --           626,819
Other notes payable ................................................................              32,674           736,622
                                                                                          --------------    --------------
       Total debt ..................................................................         223,343,343       239,623,833
Less:
    Current maturities .............................................................          12,302,380         9,265,380
                                                                                          --------------    --------------
       Long-term debt, net of current maturities ...................................      $  211,040,963    $  230,358,453
                                                                                          ==============    ==============
</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 fund capital
expenditures and other general corporate purposes. The Senior Credit Agreement
bears interest at LIBOR or prime plus a margin based on a pricing schedule as
set out in the Senior Credit Agreement. The Senior Credit Agreement was
subsequently syndicated on March 15, 2000, to a banking group, and the capacity
was increased to $120 million. The Senior Credit



                                       11
<PAGE>

Agreement was amended and resyndicated on August 14, 2000, to a banking group,
and the capacity was increased to $230 million. The loan commitments under the
Senior Credit Agreement are as follows:

         (i.)     Revolving Loans up to $30,000,000 outstanding at any one time;

         (ii.)    Term A Loans (which, once repaid, may not be reborrowed) of
                  $50,000,000;

         (iii.)   Term B Loans (which, once repaid, may not be reborrowed) of
                  $100,000,000;

         (iv.)    Acquisition Loans up to $50,000,000 outstanding at any one
                  time available on a revolving basis prior to February 14,
                  2002, provided that certain approvals are obtained and certain
                  financial ratios are met; and

         (v.)     Letters of credit issuable by the Company up to $20,000,000 as
                  a subset of the Revolving Loans. At September 30, 2001, the
                  Company had approximately $9,187,000 of letters of credit
                  outstanding.

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

Period Ending December 31,
<Table>
<Caption>
                                                         REVOLVING          TERM A            TERM B             ACQUISITION
                                                           LOANS             LOANS             LOANS                LOANS
                                                         ---------          ------            ------             -----------
<S>                                                      <C>               <C>               <C>                 <C>
2000 ..................................                       --             5.00%              .50%                  0%
2001 ..................................                       --            15.00%             1.00%                  0%
2002 ..................................                       --            22.50%             1.00%               5.00%
2003 ..................................                       --            17.50%             1.00%               6.67%
2004 ..................................                       --            20.00%             1.00%              11.67%
2005 ..................................                   100.00%           20.00%             1.00%              76.66%
2006 ..................................                       --               --             94.50%                 --
                                                          -------          -------           -------             -------
                                                          100.00%          100.00%           100.00%             100.00%
                                                          =======          =======           =======             =======
</Table>



The Senior Credit Agreement includes mandatory repayment provisions related to
excess cash flows, proceeds from certain asset sales, debt issuances and equity
issuances, all as defined in the Senior Credit Agreement. These mandatory
repayment provisions may also reduce the available commitment for Revolving
Loans and Acquisition Loans. The Senior Credit Agreement contains standard
covenants including compliance with laws, limitations on capital expenditures,
restrictions on dividend payments, limitations on mergers and compliance with
certain financial covenants. The Company believes that it is in compliance with
those covenants as of September 30, 2001. The Senior Credit Agreement is secured
by all the assets of the Company and expires on July 27, 2006. As of September
30, 2001, the Company has borrowed approximately $168,464,000 ($39,071,000 of
Term A Loans, $90,782,000 of Term B Loans, and $38,611,000 of Acquisition
Loans), which was primarily used to refinance existing debt, partially fund the
2000 Acquisitions, and to retire bonds assumed in the RESTEC acquisition. As of
September 30, 2001, the Company has approximately $31,000,000 of unused
borrowings under the Senior Credit Agreement. The Company's Senior Credit
Agreement contains various financial covenants, including a senior debt-to-cash
flow ratio, as defined, determined at the end of each quarter. As of September
30, 2001, the maximum senior debt that could have been outstanding while
remaining in compliance with the senior debt-to-cash flow ratio was
approximately $199,400,000. As of November 6, 2001, the Company has borrowed
approximately $176,464,000 ($39,071,000 of Term A Loans, $90,782,000 of Term B
Loans, $38,611,000 of Acquisition Loans, and $8,000,000 of Revolving Loans) with
approximately $23,000,000 of unused borrowings remaining under the Senior Credit
Agreement.

SUBORDINATED DEBT

On January 27, 2000, the Company entered into an agreement with GTCR Capital
providing up to $125 million in subordinated debt financing to fund acquisitions
and for certain other uses, in each case as approved by the Board of Directors
of the Company and GTCR Capital. The agreement was amended on August 14, 2000,
allowing, among other things, for GTCR Capital to syndicate a portion of the
commitment. The loans bear interest at an annual rate of 12 percent paid
quarterly and provide warrants that are convertible into Preferred Stock at $.01
per warrant. The unpaid principal plus unpaid and accrued interest must be paid
in full by January 27, 2008. The agreement contains general and financial
covenants. As of September 30, 2001, the Company has borrowed approximately
$52,760,000 of indebtedness under the terms of the agreement, which was used to
partially fund the 2000 Acquisitions. Warrants to acquire 9,225.839



                                       12
<PAGE>

shares of Series C, D, and E Preferred Stock were issued in connection with
these borrowings. These warrants were immediately exercised.

DERIVATIVES AND HEDGING ACTIVITIES

During the three months ended June 30, 2001, the Company's derivative contracts
consisted of interest rate swap agreements and option agreements related to
hedging requirements under the Company's Senior Credit Agreement. The option
agreements did not qualify for hedge accounting under SFAS 133. Changes in the
fair value of these derivatives were recognized in earnings. The Company's
interest rate swap agreements qualified for hedge accounting as cash flow hedges
of the Company's exposure to changes in variable interest rates.

On June 25, 2001, the Company entered into a reverse swap on its subordinated
debt, and terminated the previously existing interest rate swap and option
agreements noted above. The balance included in other comprehensive income
included in stockholders' equity is being recognized in future periods' income
over the remaining term of the original swap agreement. The Company has
designated the reverse swap agreement on its subordinated debt as a fair value
hedge of changes in the value of the underlying debt as a result of changes in
the benchmark interest rate. The liability related to the reverse swap agreement
totaling approximately $3,599,000 is reflected in other long-term liabilities at
September 30, 2001; additionally, a fair value adjustment on the Company's
subordinated debt of approximately $2,086,000 is reflected in long-term debt at
September 30, 2001. The amount of the ineffectiveness of the reverse swap
agreement recognized in interest expense for the three months ended September
30, 2001, is approximately $604,000.

On July 3, 2001, the Company entered into an interest rate cap agreement
establishing a maximum fixed LIBOR rate on $125,000,000 of its floating rate
debt at an interest rate of 6.5 percent in order to meet the hedging
requirements of its Senior Credit Agreement. Changes in the fair value of the
agreement are recognized in earnings.

INTEREST RATE RISK

Total debt at September 30, 2001, included approximately $168,464,000 in
floating rate debt attributed to borrowings under the Senior Credit Agreement at
an average interest rate of 7.83 percent. As a result, the Company's annual
interest cost in 2001 will fluctuate based on short-term interest rates. The
Company has entered into an interest rate cap agreement at July 3, 2001,
establishing a maximum fixed LIBOR rate on $125,000,000 of its floating rate
debt at an interest rate of 6.50 percent and entered into a reverse swap
agreement at June 25, 2001, on its subordinated debt in order to manage risk and
reduce exposure to interest rate fluctuations as required under the Company's
bank credit facility. The Company has designated the reverse swap agreement as a
fair value hedge. The impact on annual cash flow of a ten percent change in the
floating rate would be approximately $652,000 after taking into consideration
the hedge agreements.

(6) NONRECOURSE TAX-EXEMPT REVENUE BONDS

<Table>
<Caption>
                                                                                            SEPTEMBER 30,     DECEMBER 31,
                                                                                                2001              2000
                                                                                            -------------     ------------
                                                                                            (unaudited)
<S>                                                                                          <C>              <C>
Maryland Energy Financing Administration Limited Obligation Solid
    Waste Disposal Revenue Bonds, 1996 series -
       Revenue bonds due 2001 to 2005 at stated interest rates of 5.45% to 5.85% ...       $  12,195,000     $ 12,195,000
       Term revenue bond due 2010 at stated interest rate of 6.30% .................          16,295,000       16,295,000
       Term revenue bond due 2016 at stated interest rate of 6.45% .................          22,360,000       22,360,000
       Less:  Restricted cash ......................................................          (7,367,986)      (5,541,229)
                                                                                           -------------     ------------
                                                                                              43,482,014       45,308,771
       Less:  Current maturities ...................................................          (2,185,000)      (2,185,000)
                                                                                           -------------     ------------
       Nonrecourse tax-exempt revenue bonds, net of current maturities .............       $  41,297,014     $ 43,123,771
                                                                                           =============     ============
</Table>



The revenue bonds (the "Nonrecourse Bonds") and the term revenue bonds (the
"Term Revenue Bonds") (collectively, the "Project Revenue Nonrecourse Tax-Exempt
Bonds") were issued in 1996 by the Maryland Energy Financing Administration
pursuant to the Maryland Energy Financing Act. The Company assumed all
obligations associated with the Project Revenue Bonds in connection with its
acquisition of Bio Gro. The proceeds of the Project Revenue Bonds were loaned
pursuant to a June 1996 financing agreement for the purposes of financing the
costs of the construction of thermal operations located in Baltimore County,
Maryland, at the site of Baltimore's Back River Wastewater Treatment Plant and
in the City of Baltimore, Maryland, at the site of Baltimore's Patapsco
Wastewater Treatment Plant. Both facilities were in operation prior to 1998.

                                       13
<PAGE>

The Project Revenue Bonds are primarily secured by the pledge of revenues and
assets related to the Company's Back River and Patapsco thermal facilities. The
underlying service contracts between the Company and the City of Baltimore
("Baltimore") obligated the Company to design, construct and operate the thermal
facilities and obligated Baltimore to deliver biosolids for processing at the
thermal facilities. The Company and Baltimore have agreed that Baltimore will
deposit all payments made by Baltimore to the Company under the service
contracts directly with a trustee for the purpose of maintaining a reserve fund
to service debt requirements.

The Project Revenue Bonds can be redeemed at the option of the Company at any
time on or after December 1, 2006, subject to redemption prices specified in the
financing agreement. The Project Revenue Bonds can be redeemed at the option of
the Company under certain extraordinary conditions, as defined in the financing
agreement. Additionally, the Term Revenue Bonds are subject to mandatory sinking
fund requirements prior to final maturity, beginning on December 1, 2006.

Synagro Baltimore, Inc. ("SBI"), a wholly owned subsidiary of the Company, has
guaranteed the performance of services under the underlying service agreements
with the City of Baltimore. Waste Management, Inc., under the terms of the Bio
Gro Acquisition purchase agreement, is guaranteeing the performance of services
under the underlying service agreements with First Union National Bank (the
"Trustee"). The Company is required to pay Waste Management, Inc. $500,000 per
year beginning in 2007 until the bonds are fully extinguished or the guarantee
is removed. Neither SBI nor Waste Management has guaranteed payment of debt
service on the Project Revenue Bonds.

Restricted cash represents monies held by the Trustee for the loan agreement
between the Maryland Energy Financing Administration and SBI. The loan, based on
the terms of the related indenture, requires that certain monies be placed in
restricted fund accounts to be used for various designated purposes (i.e., debt
service reserve funds, bond funds, etc.). The debt service reserve fund and the
principal fund have been presented net of long-term debt in the September 30,
2001, balance sheet. Monies in the funds will remain restricted until such time
as the related loan matures or is paid off, whichever occurs first. SBI was in
compliance with the reserve requirements as of September 30, 2001.

At September 30, 2001, the Project Revenue Bonds were collateralized by
property, plant and equipment with a net book value of approximately $60,621,000
and restricted cash of approximately $9,362,000, of which approximately
$7,368,000 is netted against long-term debt and the difference is shown as
restricted cash.

(7) COMMITMENTS AND CONTINGENCIES

REGULATORY MATTERS

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

LITIGATION

The Company is a defendant in a lawsuit in which the plaintiff claims that the
death of an individual was allegedly caused by certain biosolids disposed of by
a wholly owned subsidiary of the Company. The litigation is currently in the
discovery phase concerning causation. The Company plans to file a motion
challenging causation. Trial is currently scheduled for February 2002. The
Company is vigorously defending itself in the litigation. The extent of damages,
if any, in this action has not been determined and although the Company is
confident in its position, the ultimate outcome of the foregoing litigation
cannot be determined at this time.

AZURIX CORP.

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




                                       14
<PAGE>
These matters were resolved pursuant to a favorable settlement entered into with
Azurix Corporation in August 2001. Proceeds received by the Company, net of
attorneys' fees, totaled approximately $6 million, which has been recorded on
the Company's statements as a nonrecurring gain from litigation settlement.

RIVERSIDE COUNTY

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

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

The Company has taken the position that certain alleged odor violations asserted
by the County staff during the pending litigation were not appropriate under the
CUP. On certain of those instances, the Company has declined to reduce its
intake of biosolids. The County alleges that the odor "violations," as well as
Company's actions in not reducing intake, could reduce the term of the CUP to
January 2002. The Company disagrees and is challenging the County's position in
the lawsuit. The Company has amended the Complaint to add a claim of violation
of the Company's civil rights under U.S.C. Section 1983 based upon the County's
unfair treatment of the Company.

No trial date has been set at this time. The case is currently subject to an
agreed stay while the parties are exploring settlement. If the site is closed,
the Company may incur additional costs related to contractual agreements and
site closure. Additionally, goodwill and certain assets may be impaired. Total
goodwill associated with the operations is approximately $13,938,000 at
September 30, 2001. The financial impact associated with a site closure cannot
be reasonably estimated at this time. Although the Company feels that its case
is meritorious, the ultimate outcome 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, and worker's
compensation, with Reliance National Indemnity Company ("Reliance") through
policies totaling $26 million in annual coverage. On May 29, 2001, a
Pennsylvania Court 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.

On January 21, 2000, several plaintiffs filed suit in the District Court of
Jackson County, Texas (the "Lopez Suit") against the Company's wholly owned
subsidiary, Synagro of Texas-CDR, Inc. The Lopez Suit was later amended to name
the Company as an additional defendant. The suit arises out of an automobile
accident involving a vehicle operated by Synagro of Texas - CDR, Inc., in which
one person was killed and two others were injured. The Lopez Suit was set for
trial in November 2001; however, on October 16, 2001, as a result of the Texas
Insurance Commissioner's finding that Reliance was impaired, a notice of
automatic 180-day stay was filed in the Lopez Suit. Due to the stay, the Lopez
Suit is not currently set for trial. The Lopez plaintiffs are seeking
unspecified damages from the Company and its affiliates, which, if awarded, may
or may not exceed the Company's $26 million insurance policy limits. On November
13, 2001, the Company filed a petition for intervention in the Pennsylvania
Court requesting that the Court approve and order Reliance to fund a $12 million
settlement that Reliance had proposed regarding the Lopez Suit (the
"Intervention Action")

The Company and its affiliates are vigorously defending themselves against this
lawsuit. It is also not possible at this time to predict the impact that the
liquidation of Reliance may have on the ultimate resolution of the Lopez Suit or
on the Company's ability to pay any amounts it may be liable for in connection
with the resolution of this lawsuit. It is possible, depending on the outcome of
the AON Suit (discussed below) and the Intervention Action, that the Company
will have no (or insufficient) insurance funds available to pay any potential
losses. Such a result could have a materially adverse impact on the Company's
financial condition or results of operations in future periods. However, due to
uncertainties relating to (1) the Company's ultimate liability, if any, for
damages in the Lopez case; (2) the availability of the insurance coverage; (3)
the potential for recovery from the AON suit; or (4) the Intervention Action,
the Company has not recorded any loss accruals related to the Lopez case at this
time.


                                       15

<PAGE>
Other third parties have asserted claims and/or brought suit against the Company
and its affiliates related to alleged acts or omissions occurring during the
Reliance Coverage Period. Although the ultimate outcome cannot be predicted at
this time, management believes that the cost of these other claims and/or suits
(other than the Lopez case) will either be covered by state guaranty fund
proceeds or will not be material to the Company.

AON

On October 4, 2001, the Company filed suit against its insurance broker, AON
Risk Services of Texas, Inc. ("AON"), and the several insurance companies that
reinsured the policies issued by Reliance (the "Reinsurers") (the "AON Suit").
In the AON Suit, the Company is seeking a judgment against AON for any and all
sums that the Company may become liable for as a result of any settlement of, or
the entry of any judgment in, the Lopez Suit, and any and all costs associated
with defense thereof, as a result of the Company's assertion of negligence by
AON in placing the entirety of the Company's insurance coverage with Reliance
and AON's failure to obtain "cut through endorsements" to the Reliance policies
which would enable the Company to proceed directly against the Reinsurers. The
Company is also seeking a declaratory judgment against the Reinsurers declaring
that the Reinsurers owe the Company a duty of defense and indemnity in the Lopez
Suit as a result of the Reinsurers' participation in the investigation,
evaluation, and handling of the Lopez Suit, and as a result of any "cut through
endorsements" that may have been obtained by AON. The AON Suit is at an early
stage, and the ultimate outcome of this litigation, including amounts, if any,
that may be recovered by the Company, cannot be determined at this time.

OTHER

There are various other lawsuits and claims pending against Synagro that have
arisen in the normal course of Synagro's 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 management, the
ultimate resolution of these matters will not have a material adverse effect on
the consolidated financial condition or results of operations of Synagro.

(8) COMPREHENSIVE INCOME

The Company's comprehensive income for the three and nine months ended September
30, 2001 and 2000, is summarized as follows:

<Table>
<Caption>
                                                                         THREE MONTHS ENDED             NINE MONTHS ENDED
                                                                            SEPTEMBER 30,                  SEPTEMBER 30,
                                                                        2001            2000            2001            2000
                                                                    ------------    ------------    ------------    ------------
<S>                                                                 <C>             <C>             <C>             <C>
Net income (loss) applicable to common stock ....................   $ 10,150,931    $ (8,977,446)   $  9,620,938    $(35,227,623)
Other comprehensive income (loss)
    Cumulative effect of change in accounting for derivatives ...             --              --      (2,058,208)             --
    Change in fair value of derivatives .........................             --              --      (2,200,696)             --
    Reclassification adjustment to earnings .....................       (203,260)             --         329,206              --
                                                                    ------------    ------------    ------------    ------------
       Subtotal .................................................       (203,260)             --      (3,929,698)             --
                                                                    ------------    ------------    ------------    ------------
Comprehensive income (loss) .....................................   $  9,947,671    $ (8,977,446)   $  5,691,240    $(35,227,623)
                                                                    ============    ============    ============    ============
</Table>



(9) EARNINGS (LOSS) PER COMMON SHARE

Basic earnings per share ("EPS") are computed by dividing net income applicable
to common stock by the weighted average number of common shares outstanding for
the period. Diluted EPS is computed by dividing net income before preferred
stock dividends by the total of the weighted average number of common shares
outstanding for the period, the weighted average number of shares of common
stock that would be issued assuming conversion of the Company's preferred stock,
and other common stock equivalents for options and warrants outstanding
determined using the treasury stock method. Basic and diluted EPS are the same
for the three and nine months ended September 30, 2000, because diluted earnings
per share was less dilutive than basic earnings per share ("antidilutive"). The
shares excluded from diluted EPS assuming conversion of the Company's preferred
stock and common stock equivalents for options and warrants outstanding
determined using the treasury stock method for the three and nine months ended
September 30, 2000, were approximately 23,923,909 and 14,238,131, respectively.
The adjusted number of shares for diluted EPS for the three months ended
September 30, 2001, includes approximately 30,478,046 shares, of which
approximately 30,463,083 shares relate to preferred stock and approximately
14,963 shares relate to stock options and warrants. The adjusted number of
shares for diluted EPS for the nine months ended September 30, 2001, includes
approximately 29,887,594 shares, of which approximately 29,874,084 shares relate
to preferred stock and approximately 13,460 shares relate to stock options and
warrants.



                                       16
<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 and 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, 2000. This discussion contains
forward-looking statements regarding the business and industry of the Company
within the meaning of the Private Securities Litigation Reform Act of 1995.
These statements are based on the current plans and expectations of the Company
and involve risks and uncertainties that could cause actual future activities
and results of operations to be materially different from those set forth in the
forward-looking statements.

The Company is a national provider of residuals management services. The Company
currently performs services for municipalities, local agencies and private
industry and has historically engaged in acquisitions as part of its growth
strategy. The timing and magnitude of acquisitions and assimilation costs may
materially affect future operating results. Accordingly, the operating results
for any period may not necessarily be indicative of the results that may be
achieved for any subsequent period.

HISTORICAL RESULTS AND OPERATIONS

<Table>
<Caption>
                                                                THREE MONTHS ENDED                NINE MONTHS ENDED
                                                                   SEPTEMBER 30,                     SEPTEMBER 30,
                                                               2001             2000             2001             2000
                                                           -------------    -------------    -------------    -------------
<S>                                                        <C>              <C>              <C>              <C>
Sales ..................................................   $  70,066,799    $  53,512,995    $ 194,662,097    $  99,947,848
Cost of services .......................................      51,219,882       38,778,632      144,135,617       73,381,592
                                                           -------------    -------------    -------------    -------------
Gross profit ...........................................      18,846,917       14,734,363       50,526,480       26,566,256

Selling, general and administrative expenses ...........       5,515,311        4,080,764       15,595,342        9,098,552
Nonrecurring gain from litigation settlement ...........      (6,042,584)              --       (6,042,584)              --
Amortization of goodwill ...............................       1,155,904        1,040,131        3,438,657        2,478,266
                                                           -------------    -------------    -------------    -------------
   Income from operations ..............................      18,218,286        9,613,468       37,535,065       14,989,438
                                                           -------------    -------------    -------------    -------------
Other (income) expense:
   Other (income) expense, net .........................        (169,849)          32,842         (231,738)          46,447
   Interest expense, net ...............................       6,422,154        5,873,980       20,884,069       10,891,509
                                                           -------------    -------------    -------------    -------------
      Total other expenses, net ........................       6,252,305        5,906,822       20,652,331       10,937,956
                                                           -------------    -------------    -------------    -------------
Income before provision for income taxes ...............      11,965,981        3,706,646       16,882,734        4,051,482
     Provision for income taxes ........................              --               --               --               --
                                                           -------------    -------------    -------------    -------------
Net income before preferred stock dividends,
   noncash beneficial conversion charge,
   and cumulative effect of change in accounting for
   derivatives .........................................      11,965,981        3,706,646       16,882,734        4,051,482
Preferred stock dividends ..............................       1,815,050        1,282,703        5,401,111        2,233,837
Noncash beneficial conversion charge ...................              --       11,401,389               --       37,045,268
Cumulative effect of change in accounting for
  derivatives ..........................................              --               --        1,860,685               --
                                                           -------------    -------------    -------------    -------------
Net income (loss) applicable to common stock ...........   $  10,150,931    $  (8,977,446)   $   9,620,938    $ (35,227,623)
                                                           =============    =============    =============    =============
</Table>



For the three months ended September 30, 2001, net sales were approximately
$70,067,000 compared to approximately $53,513,000 for the three months ended
September 30, 2000, representing an increase of approximately $16,554,000 or 31
percent. The increase relates to the full year impact of the 2000 Acquisitions
of approximately $11,201,000 with the remaining increase resulting from internal
growth. For the nine months ended September 30, 2001, net sales were
approximately $194,662,000 compared to approximately $99,948,000 for the nine
months ended September 30, 2000, representing an increase of approximately
$94,714,000 or 95 percent. The increase relates to sales from the 2000
Acquisitions of approximately $87,038,000 with the remaining increase resulting
from internal growth.

Cost of services and gross profit for the three months ended September 30, 2001,
were approximately $51,220,000 and approximately $18,847,000, respectively,
compared with approximately $38,779,000 and approximately $14,734,000,
respectively, for the three months ended September 30, 2000, resulting in gross
profit as a percentage of sales of approximately 27 percent in 2001 compared to
approximately 28 percent in 2000. The increase in gross profit for the three
months ended September 30, 2001, relates to the 2000 Acquisitions (approximately
$3,655,000) and increased profits relating to internal growth. The reduction in
gross profit as a percentage of sales relates primarily to a pass-through
construction revenue on the previously announced $4.5 million contract to design
and build a manure-to-energy anaerobic digester pilot facility for the Inland
Empire Utilities Agency. Cost of services and gross profit for the nine months
ended September 30, 2001, were approximately $144,136,000 and approximately
$50,526,000, respectively, compared with approximately $73,382,000 and
approximately $26,566,000, respectively, for the nine months ended September 30,
2000, resulting in


                                       17
<PAGE>
gross profit as a percentage of sales of approximately 26 percent in 2001
compared to approximately 27 percent in 2000. The increase in gross profit for
the nine months ended September 30, 2001, relates to the 2000 Acquisitions
(approximately $23,466,000) and increased profits associated with internal
growth.

Selling, general and administrative expenses were approximately $5,515,000 for
the three months ended September 30, 2001, compared to approximately $4,081,000
for the three months ended September 30, 2000, representing an increase of
approximately $1,434,000. The increase for the three months ended September 30,
2001, relates to additional selling, general and administrative costs associated
with the 2000 Acquisitions and the timing of certain legal and project
development expenses. Selling, general and administrative expenses were
approximately $15,595,000 for the nine months ended September 30, 2001, compared
to approximately $9,099,000 for the nine months ended September 30, 2000,
representing an increase of approximately $6,496,000. The increase for the nine
months ended September 30, 2001, relates to additional selling, general and
administrative costs associated with the 2000 Acquisitions and additional
marketing, human resources, and other staff at the corporate level.

Amortization of goodwill was approximately $1,156,000 for the three months ended
September 30, 2001, and $3,439,000 for the nine months ended September 30, 2001,
compared to approximately $1,040,000 for the three months ended September 30,
2000, and $2,478,000 for the nine months ended September 30, 2000. The increase
relates to the 2000 Acquisitions.

During the three months ended September 30, 2001, the Company had an
approximately $6,043,000 nonrecurring gain from a litigation settlement. See
Note (7) for further discussion.

Other expense, net was approximately $6,252,000 for the three months ended
September 30, 2001, compared to approximately $5,907,000 for the three months
ended September 30, 2000, representing an increase in expense of approximately
$345,000. Other expense, net for the nine months ended September 30, 2001, was
approximately $20,652,000 compared to approximately $10,938,000 for the nine
months ended September 30, 2000. The increase relates primarily to interest
expense, which increased due to additional debt incurred to fund the 2000
Acquisitions partially offset by lower market interest rates and savings from
debt repayments.

As a result of the foregoing, net income before preferred stock dividends,
noncash beneficial conversion charges, and change in accounting for derivatives
of approximately $11,966,000, or $0.61 per share, was reported for the three
months ended September 30, 2001, compared to a net income before preferred stock
dividends, noncash beneficial conversion charges, and change in accounting for
derivatives of approximately $3,707,000, or $0.19 per share, for the three
months ended September 30, 2000. Net income before preferred stock dividends,
noncash beneficial conversion charges, and change in accounting for derivatives
of approximately $16,883,000, or $0.87 per share, was reported for the nine
months ended September 30, 2001, compared to net income before preferred stock
dividends, noncash beneficial conversion charges, and change in accounting for
derivatives of approximately $4,052,000, or $0.21 per share, for the nine months
ended September 30, 2000.

During the three months ended September 30, 2001, and the nine months ended
September 30, 2001, the Company recognized preferred stock dividends of
approximately $1,815,000 and $5,401,000, respectively, compared to approximately
$1,283,000 and $2,234,000 for the three months ended September 30, 2000, and the
nine months ended September 30, 2000, respectively. The dividends relate to the
issuance of redeemable preferred stock for the 2000 Acquisitions. Additionally,
for the three months ended September 30, 2000, and the nine months ended
September 30, 2000, noncash beneficial conversion charges of approximately
$11,402,000 and $37,045,000 were recognized in connection with the 2000
Acquisitions; there were no such charges in 2001. See Note (3) for further
discussion.

The Company has generated net operating loss ("NOL") carryforwards of
approximately $35 million available to reduce future income taxes through fiscal
2000. These carryforwards begin to expire in 2008. A change in ownership, as
defined by federal income tax regulations, could significantly limit the
Company's ability to utilize its carryforwards. Accordingly, the Company's
ability to utilize its NOLs to reduce future taxable income and tax liabilities
may be limited. Additionally, because federal tax laws limit the time during
which these carryforwards may be applied against future taxes, the Company may
not be able to take full advantage of these attributes for federal income tax
purposes. As the Company has incurred taxable losses in recent years and the
utilization of these carryforwards could be limited as discussed above, a
valuation allowance has been established to substantially offset the net
deferred tax asset at September 30, 2001, and December 31, 2000. The Company
currently expects that it will record a tax provision beginning in fiscal 2002,
substantially all of which is expected to be deferred due to significant excess
accelerated tax depreciation deductions.


LIQUIDITY AND CAPITAL RESOURCES

The Company has historically financed its operations principally through its
credit facility and through funds provided by operating activities.

The Company purchased capital assets during the nine months ended September 30,
2001, in the amount of approximately $9,538,000 and sold capital assets with
proceeds totaling approximately $911,000.

As of September 30, 2001, the Company had current maturities on long-term debt
and current maturities on nonrecourse tax-exempt revenue bonds totalling
approximately $14,487,000, as compared to approximately $11,450,000 at December
31, 2000. The Company's long-term debt and nonrecourse tax-exempt revenue bonds
totaled approximately $266,825,000 at September 30, 2001, reflecting a decrease
of approximately $18,107,000 from December 31, 2000. This decrease is due
primarily to principal payments made with funds generated from operating
activities on the Company's Senior Credit Agreement during the nine months ended
September 30, 2001.



                                       18
<PAGE>

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 fund capital
expenditures and other general corporate purposes. The Senior Credit Agreement
bears interest at LIBOR or prime plus a margin based on a pricing schedule as
set out in the Senior Credit Agreement. The Senior Credit Agreement was
subsequently syndicated on March 15, 2000, to a banking group, and the capacity
was increased to $120 million. The Senior Credit Agreement was amended and
resyndicated on August 14, 2000, to a banking group, and the capacity was
increased to $230 million. The loan commitments under the Senior Credit
Agreement are as follows:

         (i.)     Revolving Loans up to $30,000,000 outstanding at any one time;

         (ii.)    Term A Loans (which, once repaid, may not be reborrowed) of
                  $50,000,000;

         (iii.)   Term B Loans (which, once repaid, may not be reborrowed) of
                  $100,000,000;

         (iv.)    Acquisition Loans up to $50,000,000 outstanding at any one
                  time available on a revolving basis prior to February 14,
                  2002, provided that certain approvals are obtained and certain
                  financial ratios are met; and

         (v.)     Letters of credit issuable by the Company up to $20,000,000 as
                  a subset of the Revolving Loans. At November 6, 2001, the
                  Company had approximately $9,687,000 letters of credit
                  outstanding.

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

Period Ending December 31,

<Table>
<Caption>
                                                         REVOLVING          TERM A            TERM B           ACQUISITION
                                                           LOANS             LOANS             LOANS              LOANS
                                                         ---------          ------            ------           -----------
<S>                                                       <C>              <C>               <C>                 <C>
2000 ..................................                       --             5.00%              .50%                  0%
2001 ..................................                       --            15.00%             1.00%                  0%
2002 ..................................                       --            22.50%             1.00%               5.00%
2003 ..................................                       --            17.50%             1.00%               6.67%
2004 ..................................                       --            20.00%             1.00%              11.67%
2005 ..................................                   100.00%           20.00%             1.00%              76.66%
2006 ..................................                       --               --             94.50%                 --
                                                         --------          -------           -------             -------
                                                          100.00%          100.00%           100.00%             100.00%
                                                         ========          =======           =======             =======
</Table>



The Senior Credit Agreement includes mandatory repayment provisions related to
excess cash flows, proceeds from certain asset sales, debt issuances and equity
issuances, all as defined in the Senior Credit Agreement. These mandatory
repayment provisions may also reduce the available commitment for Revolving
Loans and Acquisition Loans. The Senior Credit Agreement contains standard
covenants including compliance with laws, limitations on capital expenditures,
restrictions on dividend payments, limitations on mergers and compliance with
certain financial covenants. The Company believes that it is in compliance with
those covenants as of September 30, 2001. The Senior Credit Agreement is secured
by all the assets of the Company and expires on July 27, 2006. As of September
30, 2001, the Company has borrowed approximately $168,464,000 ($39,071,000 of
Term A Loans, $90,782,000 of Term B Loans, and $38,611,000 of Acquisition
Loans), which was primarily used to refinance existing debt, partially fund the
2000 Acquisitions, and to retire bonds assumed in the RESTEC acquisition. As of
September 30, 2001, the Company has approximately $31,000,000 of unused
borrowings under the Senior Credit Agreement. The Company's Senior Credit
Agreement contains various financial covenants, including a senior debt-to-cash
flow ratio, as defined, determined at the end of each quarter. As of September
30, 2001, the maximum senior debt that could have been outstanding while
remaining in compliance with the senior debt-to-cash flow ratio was
approximately $199,400,000. As of November 6, 2001, the Company has borrowed
approximately $176,464,000 ($39,071,000 of Term A Loans, $90,782,000 of Term B
Loans, $38,611,000 of Acquisition Loans, and $8,000,000 of Revolving Loans) with
approximately $23,000,000 of unused borrowings remaining under the Senior Credit
Agreement.

On January 27, 2000, the Company entered into an agreement with GTCR Capital
providing up to $125 million in subordinated debt financing to fund acquisitions
and for certain other uses, in each case as approved by the Board of Directors
of the Company and GTCR Capital. The agreement was amended on August 14, 2000,
allowing, among other things, for GTCR Capital to syndicate a portion of the
commitment. The loans bear interest at an annual rate of 12 percent paid
quarterly and provide warrants that are convertible into Preferred



                                       19
<PAGE>

Stock at $.01 per warrant. The unpaid principal plus unpaid and accrued interest
must be paid in full by January 27, 2008. The agreement contains general and
financial covenants. As of September 30, 2001, and November 6, 2001, the Company
has borrowed approximately $52,760,000 of indebtedness under the terms of the
agreement, which was used to partially fund the 2000 Acquisitions. Warrants to
acquire 9,225.839 shares of Series C, D, and E Preferred Stock were issued in
connection with these borrowings. These warrants were immediately exercised.

During August 2000, the Company assumed certain revenue bonds in connection with
the Bio Gro Acquisition. The revenue bonds (the "Revenue Bonds") and the term
revenue bonds (the "Term Revenue Bonds") (collectively, the "Project Revenue
Bonds") were issued in 1996 by the Maryland Energy Financing Administration
pursuant to the Maryland Energy Financing Act. The proceeds of the Project
Revenue Bonds were loaned to the Company pursuant to a June 1996 financing
agreement for the purposes of financing the costs of the construction of the
Company's thermal operations located in Baltimore County, Maryland, at the site
of Baltimore's Back River Wastewater Treatment Plant and in the City of
Baltimore, Maryland, at the site of Baltimore's Patapsco Wastewater Treatment
Plant. Both facilities were in operation prior to 1998.

The Project Revenue Bonds are primarily secured by the pledge of revenues and
assets related to the Company's Back River and Patapsco thermal facilities. The
underlying service contracts between the Company and Baltimore obligated the
Company to design, construct and operate the thermal facilities and obligated
Baltimore to deliver biosolids for processing at the thermal facilities. The
Company and Baltimore have agreed that Baltimore will deposit all payments made
by Baltimore to the Company under the service contracts directly with a trustee
for the purpose of maintaining a reserve fund to service debt requirements.

At September 30, 2001, the Project Revenue Bonds were collateralized by
property, plant and equipment with a net book value of approximately $60,620,954
and restricted cash of approximately $9,362,000.

The Project Revenue Bonds can be redeemed at the option of the Company at any
time on or after December 1, 2006, subject to redemption prices specified in the
financing agreement. The Project Revenue Bonds can be redeemed at the option of
the Company under certain extraordinary conditions, as defined in the financing
agreement. Additionally, the Term Revenue Bonds are subject to mandatory sinking
fund requirements prior to final maturity, beginning on December 1, 2006.

Synagro Baltimore, Inc. ("SBI"), a wholly owned subsidiary of the Company, has
guaranteed the performance of services under the underlying service agreements
with the City of Baltimore. Waste Management, Inc., under the terms of the Bio
Gro Acquisition purchase agreement, is guaranteeing the performance of services
under the underlying service agreements with First Union National Bank (the
"Trustee"). The Company is required to pay Waste Management, Inc. $500,000 per
year beginning in 2007 until the bonds are fully extinguished or the guarantee
is removed. Neither SBI nor Waste Management has guaranteed payment of debt
service on the Project Revenue Bonds.

Restricted cash represents monies held by the Trustee for the loan agreement
between the Maryland Energy Financing Administration and SBI. The loan, based on
the terms of the related indenture, requires that certain monies be placed in
restricted fund accounts to be used for various designated purposes (i.e., debt
service reserve funds, bond funds, etc.). The debt service reserve fund and the
principal fund has been presented net of debt in the accompanying balance
sheets. Monies in the funds will remain restricted until such time as the
related loan matures or is paid off, whichever occurs first. SBI was in
compliance with the reserve requirements as of September 30, 2001.

At September 30, 2001, the Company had working capital of approximately
$9,903,000. Accounts receivable, notes receivable, and prepaid expenses and
other currents assets increased by approximately $3,174,000 during the nine
months ended September 30, 2001, primarily due to reduced receivables. The
Company evaluates the collectibility of its receivables based on a specific
account-by-account review, and has an allowance of approximately $2,125,000 at
September 30, 2001. Accounts payable and accrued expenses increased by
approximately $5,798,000 during the nine months ended September 30, 2001
primarily due to the 2000 Acquisitions. The Company believes its cash
requirements for 2001 can be met with existing cash, cash flows from operations
and its borrowing availability under the current debt agreements.

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

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company utilizes financial instruments, which inherently have some degree of
market risk due to interest rate fluctuations. Management is actively involved
in monitoring exposure to market risk and continues to develop and utilize
appropriate risk management



                                       20
<PAGE>

techniques. The Company is not exposed to any other significant market risks,
including commodity price risk or foreign currency exchange risk, from the use
of derivative financial instruments. Management does not currently use
derivative financial instruments for trading or to speculate on changes in
commodity prices or foreign currency exchange rates.

INTEREST RATE RISK

Total debt at September 30, 2001, and November 6, 2001, included approximately
$168,464,000 and $176,464,000, respectively, in floating rate debt attributed to
borrowings under the Senior Credit Agreement at an average interest rate of 7.83
percent and 5.92 percent, respectively. As a result, the Company's annual
interest cost in 2001 will fluctuate based on short-term interest rates. The
Company entered into an interest rate cap agreement at July 3, 2001,
establishing a maximum fixed LIBOR rate on $125,000,000 of its floating rate
debt at an interest rate of 6.50 percent and entered into a reverse swap
agreement at June 25, 2001, on its subordinated debt in order to manage risk and
reduce exposure to interest rate fluctuations as required under the Company's
Senior Credit Agreement. The Company has designated its interest rate cap
agreement as an effective cash flow hedge and the reverse swap agreement as an
effective fair value hedge. The impact on annual cash flow of a ten percent
change in the floating rate would be approximately $652,000 after taking into
consideration the hedge agreements.

At September 30, 2001, the book value of the Company's fixed-rate debt
approximated the fair market value of approximately $98,361,000.



                                       21
<PAGE>
                           PART II - OTHER INFORMATION
ITEM 1.

LITIGATION

The Company is a defendant in a lawsuit in which the plaintiff claims that the
death of an individual was allegedly caused by certain biosolids disposed of by
a wholly owned subsidiary of the Company. The litigation is currently in the
discovery phase concerning causation. The Company plans to file a motion
challenging causation. Trial is currently scheduled for February 2002. The
Company is vigorously defending itself in the litigation. The extent of damages,
if any, in this action has not been determined and although the Company is
confident in its position, the ultimate outcome of the foregoing litigation
cannot be determined at this time.

AZURIX CORP.

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

These matters were resolved pursuant to a favorable settlement entered into with
Azurix Corporation in August 2001. Proceeds received by the Company, net of
attorneys' fees, totaled approximately $6 million, which has been recorded on
the Company's statements as a nonrecurring gain from litigation settlement.

RIVERSIDE COUNTY

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

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

The Company has taken the position that certain alleged odor violations asserted
by the County staff during the pending litigation were not appropriate under the
CUP. On certain of those instances, the Company has declined to reduce its
intake of biosolids. The County alleges that the odor "violations," as well as
Company's actions in not reducing intake, could reduce the term of the CUP to
January 2002. The Company disagrees and is challenging the County's position in
the lawsuit. The Company has amended the Complaint to add a claim of violation
of the Company's civil rights under U.S.C. Section 1983 based upon the County's
unfair treatment of the Company.

No trial date has been set at this time. The case is currently subject to an
agreed stay while the parties are exploring settlement. If the site is closed,
the Company may incur additional costs related to contractual agreements and
site closure. Additionally, goodwill and certain assets may be impaired. Total
goodwill associated with the operations is approximately $13,938,000 at
September 30, 2001. The financial impact associated with a site closure cannot
be reasonably estimated at this time. Although the Company feels that its case
is meritorious, the ultimate outcome 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, and worker's
compensation, with Reliance National Indemnity Company ("Reliance") through
policies totaling $26 million in annual coverage. On May 29, 2001, a
Pennsylvania Court 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.

                                       22
<PAGE>
On January 21, 2000, several plaintiffs filed suit in the District Court of
Jackson County, Texas (the "Lopez Suit") against the Company's wholly owned
subsidiary, Synagro of Texas-CDR, Inc. The Lopez Suit was later amended to name
the Company as an additional defendant. The suit arises out of an automobile
accident involving a vehicle operated by Synagro of Texas - CDR, Inc., in which
one person was killed and two others were injured. The Lopez Suit was set for
trial in November 2001; however, on October 16, 2001, as a result of the Texas
Insurance Commissioner's finding that Reliance was impaired, a notice of
automatic 180-day stay was filed in the Lopez Suit. Due to the stay, the Lopez
Suit is not currently set for trial. The Lopez plaintiffs are seeking
unspecified damages from the Company and its affiliates, which, if awarded, may
or may not exceed the Company's $26 million insurance policy limits. On November
13, 2001, the Company filed a petition for intervention in the Pennsylvania
Court requesting that the Court approve and order Reliance to fund a $12 million
settlement that Reliance had proposed regarding the Lopez Suit (the
"Intervention Action")

The Company and its affiliates are vigorously defending themselves against this
lawsuit. It is also not possible at this time to predict the impact that the
liquidation of Reliance may have on the ultimate resolution of the Lopez Suit or
on the Company's ability to pay any amounts it may be liable for in connection
with the resolution of this lawsuit. It is possible, depending on the outcome of
the AON Suit (discussed below) and the Intervention Action, that the Company
will have no (or insufficient) insurance funds available to pay any potential
losses. Such a result could have a materially adverse impact on the Company's
financial condition or results of operations in future periods. However, due to
uncertainties relating to (1) the Company's ultimate liability, if any, for
damages in the Lopez case; (2) the availability of the insurance coverage; (3)
the potential for recovery from the AON suit; or (4) the Intervention Action,
the Company has not recorded any loss accruals related to the Lopez case at this
time.

Other third parties have asserted claims and/or brought suit against the Company
and its affiliates related to alleged acts or omissions occurring during the
Reliance Coverage Period. Although the ultimate outcome cannot be predicted at
this time, management believes that the cost of these other claims and/or suits
(other than the Lopez case) will either be covered by state guaranty fund
proceeds or will not be material to the Company.

AON

On October 4, 2001, the Company filed suit against its insurance broker, AON
Risk Services of Texas, Inc. ("AON"), and the several insurance companies that
reinsured the policies issued by Reliance (the "Reinsurers") (the "AON Suit").
In the AON Suit, the Company is seeking a judgment against AON for any and all
sums that the Company may become liable for as a result of any settlement of, or
the entry of any judgment in, the Lopez Suit, and any and all costs associated
with defense thereof, as a result of the Company's assertion of negligence by
AON in placing the entirety of the Company's insurance coverage with Reliance
and AON's failure to obtain "cut through endorsements" to the Reliance policies
which would enable the Company to proceed directly against the Reinsurers. The
Company is also seeking a declaratory judgment against the Reinsurers declaring
that the Reinsurers owe the Company a duty of defense and indemnity in the Lopez
Suit as a result of the Reinsurers' participation in the investigation,
evaluation, and handling of the Lopez Suit, and as a result of any "cut through
endorsements" that may have been obtained by AON. The AON Suit is at an early
stage, and the ultimate outcome of this litigation, including amounts, if any,
that may be recovered by the Company, cannot be determined at this time.

OTHER

There are various other lawsuits and claims pending against Synagro that have
arisen in the normal course of Synagro's 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 management, the
ultimate resolution of these matters will not have a material adverse effect on
the consolidated financial condition or results of operations of Synagro.

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

(A)  Exhibit Index

(B)  Reports on Form 8-K

     None


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<PAGE>
SIGNATURES

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

    SYNAGRO TECHNOLOGIES, INC.

    Date:  November 14, 2001                By:      /s/ ROSS M. PATTEN
                                                -------------------------------
                                                     Chief Executive Officer


    Date:  November 14, 2001                By:      /s/ J. PAUL WITHROW
                                                -------------------------------
                                                     Chief Financial Officer






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<PAGE>



                                  EXHIBIT INDEX


<Table>
<Caption>
EXHIBIT
NUMBER                             DESCRIPTION
-------                            -----------
<S>      <C>
3.1      Restated Certificate of Incorporation of Synagro Technologies, Inc.
         (the "Company") dated August 16, 1996. (Exhibit 3.1 to the Company's
         Post-Effective Amendment No. 1 to Registration Statement No. 33-95028,
         dated October 25, 1996, is incorporated herein by reference.)

3.2      Bylaws of the Company dated August 5, 1996. (Exhibit 3.2 to the
         Company's Post-Effective Amendment No. 1 to Registration Statement No.
         33-95028, dated October 25, 1996, is incorporated herein by reference.)

4.1      Specimen Common Stock Certificate of the Company. (Exhibit 4.1 to the
         Company's Registration Statement on Form 10, dated December 29, 1992,
         is incorporated herein by reference.)

4.2      Specimen Warrant Certificate of the Company. (Exhibit 4.2 to the
         Company's Registration Statement on Form S-1 (No. 33-95028), dated July
         27, 1995, and as amended, is incorporated herein by reference.)

4.3      Rights Agreement, dated as of December 20, 1996, between the Company
         and Intercontinental Registrar & Transfer Agency, Inc., as Rights
         Agent, which includes as Exhibit A thereto the Synagro Technologies,
         Inc. Statement of Designations, Preferences, Limitations and Relative
         Rights of its Series A Junior Participating Preferred Stock, and as
         Exhibit C thereto the Form of Rights Certificate. (Incorporated by
         reference to Exhibit No. 4.1 to Registrant's Registration Statement on
         Form 8-A dated December 27, 1996.)

4.4      Certificate of Designation, Preferences, Rights and Limitations of
         Series B Preferred Stock of Synagro Technologies, Inc. (Exhibit 4.4 to
         the Company's Annual Report on Form 10-K for the year ended 1997, is
         incorporated herein by reference.)

4.5      Registration Rights Agreement dated as of March 31, 1998, among the
         Company, Environmental Opportunities Fund, L.P., Environmental Fund
         (Cayman), L.P. and other purchasers of the Company's Series B Preferred
         Stock as listed on Exhibit A thereto. (Exhibit 4.5 to the Company's
         Annual Report on Form 10-K for the year ended 1997, is incorporated
         herein by reference.)

4.6      Specimen Series B Preferred Stock Certificate. (Exhibit 4.6 to the
         Company's Annual Report on Form 10-K for the year ended 1997, is
         incorporated herein by reference.)

4.7      Certificate of Designations, Preferences and Rights of Series C
         Convertible Preferred Stock of Synagro Technologies, Inc. (Exhibit 2.4
         to the Company's Current Report on Form 8-K, dated February 17, 2000,
         is herein incorporated by reference.)

4.8      Certificate of Designations, Preferences and Rights of Series D
         Convertible Preferred Stock of Synagro Technologies, Inc. (Exhibit 2.5
         to the Company's Current Report on Form 8-K, dated February 17, 2000,
         is herein incorporated by reference.)

4.9      Certificate of Designations, Preferences and Rights of Series E
         Convertible Preferred Stock of Synagro Technologies, Inc. (Exhibit 2.3
         to the Company's Current Report on Form 8-K, dated June 30, 2000, is
         herein incorporated by reference.)

4.10     Amended and Restated Warrant Agreement, dated August 14, 2000, by and
         between Synagro Technologies, Inc. and GTCR Capital Partners, L.P.
         (Exhibit 2.6 to the Company's Current Report on Form 8-K, dated August
         28, 2000, is herein incorporated by reference.)

4.11     TCW/Crescent Warrant Agreement dated August 14, 2000, by and among
         Synagro Technologies, Inc. and TCW/Crescent Mezzanine partners II,
         L.P., TCW/Crescent Mezzanine Trust II, TCW Leveraged Income Trust,
         L.P., TCW Leveraged Income Trust II, L.P., and TCW Leveraged Income
         Trust IV, L.P. (Exhibit 2.5 to the Company's Current Report on Form
         8-K, dated August 28, 2000, is herein incorporated by reference.)
</Table>



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<PAGE>

<Table>
<S>      <C>
 4.12    Form of Stock Purchase Warrant (Exhibit 2.7 to the Company's Current
         Report on Form 8-K, dated August 28, 2000, is herein incorporated by
         reference.)

 4.13    Amended and Restated Registration Agreement dated August 14, 2000, by
         and between Synagro Technologies, Inc., GTCR Fund VII. L.P., GTCR
         Co-Invest, L.P., GTCR Capital Partners, L.P., TCW/Crescent Mezzanine
         Partners II, L.P., TCW/Crescent Mezzanine Trust II, TCW Leveraged
         Income Trust, L.P., TCW Leveraged Income Trust II, L.P., and TCW
         Leverage Income Trust IV, L.P. (Exhibit 2.8 to the Company's Current
         Report on Form 8-K, dated August 28, 2000, is herein incorporated by
         reference.)

 4.14    Stockholders Agreement dated August 14, 2000, by and between Synagro
         Technologies Inc., GTCR Fund VII, L.P., GTCR Co-Invest, L.P., GTCR
         Capital Partners, L.P., TCW/Crescent Mezzanine Partners II, L.P.,
         TCW/Crescent Mezzanine Trust II, TCW Leveraged Income Trust, L.P., TCW
         Leveraged Income Trust II, L.P., and TCW Leveraged Income Trust IV,
         L.P. (Exhibit 2.9 to the Company's Current Report on Form 8-K, dated
         August 28, 2000, is herein incorporated by reference.)

 4.15    Form of TCW/Crescent Warrant (Exhibit 2.10 to the Company's Current
         Report on Form 8-K, dated August 28, 2000, is herein incorporated by
         reference.)

 4.16    Form of GTCR Warrant (Exhibit 2.11 to the Company's Current Report on
         Form 8-K, dated August 28, 2000, is herein incorporated by reference.)

10.1     Synagro Technologies, Inc. Subscription Agreement, dated as of March
         31, 1998, among the Company, Environmental Opportunities Fund, L.P.,
         Environment Opportunities Fund (Cayman), L.P. and other purchasers of
         the Company's Series B Preferred Stock as listed on Exhibit A thereto.
         (Exhibit 10.1 to the Company's Annual Report on Form 10-K for the year
         ended 1997, is incorporated herein by reference.)

10.2     Form of Indemnification Agreement. (Appendix F to the Company's Proxy
         Statement on Schedule 14A for Annual Meeting of Stockholders, dated May
         9, 1996, is incorporated herein by reference.)

10.3     Amended and Restated 1993 Stock Option Plan dated August 5, 1996.
         (Exhibit 4.1 to the Company's Registration Statement on Form S-8 (No.
         333-64999), dated September 30, 1998, is incorporated herein by
         reference.)

10.4     Amended and Restated Credit Agreement dated January 27, 2000, by and
         among Synagro Technologies, Inc., Bank of America, N.A., Canadian
         Imperial Bank of Commerce, and certain other lenders. (Exhibit 2.4 to
         the Company's Current Report on Form 8-K, dated August 28, 2000, is
         herein incorporated by reference.)

10.5     Agreement and Plan of Merger dated October 20, 1999, by and among
         Synagro Technologies, Inc., RESTEC Acquisition Corp., New England
         Treatment Company Inc., Paul A. Toretta, Frances A. Guerrera, Frances
         A. Guerrera, as executrix of the Estate of Richard J. Guerrera, and
         Frances A. Guerrera and Robert Dionne, as Co-Trustee of the Richard J.
         Guerrera Revocable Trust under Agreement dated November 2, 1998, as
         amended by that certain Letter Amendment dated January 7, 2000, and
         that certain Second Amendment to Agreement and Plan of Merger dated
         January 26, 2000. (Exhibit 2.1, 2.3 and 2.4 to the Company's Current
         Report on Form 8-K, dated February 11, 2000, are herein incorporated by
         reference.)

10.6     Purchase and Sale Agreement dated October 20, 1999, by and among
         Synagro Technologies, Inc., Paul A. Toretta, Eileen Toretta, as Trustee
         of the Paul A. Toretta 1998 Grant, Frances A. Guerrera, Frances A.
         Guerrera, as executrix of the Estate of Richard J. Guerrera, and
         Frances A. Guerrera and Robert Dionne, as Co-Trustees of the Richard J.
         Guerrera Revocable Trust under Agreement dated November 2, 1998, as
         amended by that certain Letter Amendment dated January 7, 2000, and
         that certain Second Amendment to Purchase and Sale Agreement and dated
         January 26, 2000. (Exhibit 2.2, 2.3 and 2.5 to the Company's Current
         Report on Form 8-K, dated February 11, 2000, are herein incorporated by
         reference.)

10.7     Stock Purchase Agreement dated October 20, 1999, by and among Synagro
         Technologies, Inc., Christopher J. Schrader and Kathleen Schrader.
         (Exhibit 2.1 to the Company's Current Report on Form 8-K, dated
         February 22, 2000, is herein incorporated by reference.)
</Table>



                                       26
<PAGE>

<Table>
<S>      <C>
10.8     Asset Purchase Agreement dated October 26, 1999, by and between Synagro
         Technologies, Inc. and Whiteford Construction Co., Inc. (Exhibit 2.1 to
         the Company's Current Report on Form 8-K, dated April 10, 2000, is
         herein incorporated by reference.)

10.9     Amendment No. 1 to the Asset Purchase Agreement dated March 24, 2000,
         by and between Synagro Technologies, Inc. and Whiteford Construction
         Co., Inc. (Exhibit 2.2 to the Company's Current Report on Form 8-K,
         dated April 10, 2000, is herein incorporated by reference.)

10.10    Stock Purchase Agreement dated October 26, 1999, by and among Synagro
         Technologies, Inc., Gerald L. Rehbein and Gordon W. Rehbein. (Exhibit
         2.3 to the Company's Current Report on Form 8-K, dated April 10, 2000,
         is herein incorporated by reference.)

10.11    Amendment No. 2 to the Stock Purchase Agreement dated March 27, 2000,
         by and among Synagro Technologies, Inc., Gerald L. Rehbein and Gordon
         W. Rehbein. (Exhibit 2.5 to the Company's Current Report on Form 8-K,
         dated April 10, 2000, is herein incorporated by reference.)

10.12    Earnout Agreement dated March 27, 2000, by and among Synagro
         Technologies, Inc., Gerald L. Rehbein and Gordon W. Rehbein. (Exhibit
         2.6 to the Company's Current Report on Form 8-K, dated April 10, 2000,
         is herein incorporated by reference.)

10.13    Stock Purchase Agreement dated March 31, 2000, by and between Synagro
         Technologies, Inc. and Compost America Holding Company, Inc. (Exhibit
         2.1 to the Company's Current Report on Form 8-K, dated June 30, 2000,
         is incorporated herein by reference.)

10.14    Earnout Agreement dated June 15, 2000, by and among Synagro
         Technologies, Inc. and Compost America Holding Company, Inc. (Exhibit
         2.2 to the Company's Current Report on Form 8-K, dated June 30, 2000,
         is incorporated herein by reference.)

10.15    Purchase Agreement dated January 27, 2000, by and between Synagro
         Technologies, Inc. and GTCR Fund VII, L.P. (Exhibit 2.1 to the
         Company's Current Report on Form 8-K, dated February 17, 2000, is
         herein incorporated by reference.)

10.16    Professional Services Agreement, dated January 27, 2000, by and between
         Synagro Technologies, Inc. and GTCR Fund VII, L.P. (Exhibit 2.7 to the
         Company's Current Report on Form 8-K, dated February 17, 2000, is
         herein incorporated by reference.)

10.17    Senior Subordinated Loan Agreement, dated January 27, 2000, by and
         among Synagro Technologies, Inc., certain subsidiary guarantors and
         GTCR Capital Partners, L.P. (Exhibit 2.2 to the Company's Current
         Report on Form 8-K, dated February 17, 2000, is herein incorporated by
         reference.)

10.18    Stock Purchase Agreement dated April 28, 2000, by and among Synagro
         Technologies Inc., Resco Holdings, Inc., Waste Management Holdings
         Inc., and Waste Management Inc. (Exhibit 2.1 to the Company's Current
         Report on Form 8-K, dated August 28, 2000, is herein incorporated by
         reference.)

10.19    Amended and Restated Monitoring Agreement dated August 14, 2000, by and
         between Synagro Technologies, Inc., GTCR Golder Rauner, L.L.C., and
         TCW/Crescent Mezzanine Partners II, L.P., TCW/Crescent Mezzanine Trust
         II, TCW Leveraged Income Trust, L.P., TCW Leveraged Income Trust II,
         L.P., and TCW Leveraged Income Trust IV, L.P. (Exhibit 2.12 to the
         Company's Current Report on Form 8-K, dated August 28, 2000, is herein
         incorporated by reference.)

10.20    Employment Agreement dated February 19, 1999, by and between Synagro
         Technologies, Inc. and Ross M. Patten. (Exhibit 10.20 to the Company's
         Current Report on Form 10-K/A, dated April 30, 2001, is herein
         incorporated by reference.)
</Table>

                                       27


<PAGE>


<Table>
<S>      <C>
10.21    Employment Agreement dated February 19, 1999, by and between Synagro
         Technologies, Inc. and Mark A. Rome. (Exhibit 10.21 to the Company's
         Current Report on Form 10-K/A, dated April 30, 2001, is herein
         incorporated by reference.)

10.22    Employment Agreement dated February 19, 1999, by and between Synagro
         Technologies, Inc. and Alvin L. Thomas II. (Exhibit 10.22 to the
         Company's Current Report on Form 10-K/A, dated April 30, 2001, is
         herein incorporated by reference.)

10.23    Employment Agreement dated May 10, 1999, by and between Synagro
         Technologies, Inc. and J. Paul Withrow. (Exhibit 2.11 to the Company's
         Current Report on Form 8-K, dated February 17, 2000, is herein
         incorporated by reference.)

10.24*   Employment Agreement dated January 1, 2000, by and between Synagro
         Technologies, Inc. and Randall S. Tuttle.

10.25    Amendment Concerning Employment Rights dated January 27, 2000, by and
         between Synagro Technologies, Inc. and Ross M. Patten. (Exhibit 2.8 to
         the Company's Current Report on Form 8-K, dated February 17, 2000, is
         herein incorporated by reference.)

10.26    Amendment Concerning Employment Rights dated January 27, 2000, by and
         between Synagro Technologies, Inc. and Mark A. Rome. (Exhibit 2.9 to
         the Company's Current Report on Form 8-K, dated February 17, 2000, is
         herein incorporated by reference.)

10.27    Amendment Concerning Employment Rights dated January 27, 2000, by and
         between Synagro Technologies, Inc. and Alvin L. Thomas, II. (Exhibit
         2.10 to the Company's Current Report on Form 8-K, dated February 17,
         2000, is herein incorporated by reference.)

10.28    Amendment Concerning Employment Rights dated January 27, 2000, by and
         between Synagro Technologies, Inc. and J. Paul Withrow. (Exhibit 2.12
         to the Company's Current Report on Form 8-K, dated February 17, 2000,
         is herein incorporated by reference.)

10.29    2000 Stock Option Plan dated October 31, 2000. (Exhibit A to the
         Company's Proxy Statement on Schedule 14A for Annual Meeting of
         Stockholders, dated September 28, 2000, is herein incorporated by
         reference.)

10.30*   Employment Agreement dated September 1, 2001, by and between Synagro
         Technologies, Inc. and James P. Carmichael.
</Table>

*        Filed herewith.





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