SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                              -----------------

                                    FORM 10-K/A
(MARK ONE)

[X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
         EXCHANGE ACT OF 1934

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 

[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                         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        (I.R.S. employer identification no.)
   incorporation or organization)

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

      REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 369-1700

         Securities registered pursuant to Section 12(g) of the Act:

                          Common Stock, $.002 Par Value
                         Preferred Stock Purchase Rights
                                (Title of Class)

      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 was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __

      Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x]

      The number of shares outstanding of the issuer's Common Stock as of
February 26, 1999 was 13,251,705. The aggregate market value of the 8,120,544
shares of the Company's Common Stock held by non-affiliates of the Company,
based on the market price of the Common Stock of $3.875 per share as of February
26, 1999, was approximately $31,467,108.

      The registrant's proxy statement to be filed in connection with the
registrant's 1999 Annual Meeting of Stockholders is incorporated by reference
into Part III of this report.
<PAGE>
                          1998 FORM 10-K ANNUAL REPORT

                                TABLE OF CONTENTS


ITEM                                                                 PAGE
----                                                                 ----
                                     PART I

  1    History of the Business....................................     1
       Business of the Company....................................     1
       Mergers, Acquisitions and Dispositions.....................     2
       Government Regulation......................................     3
       Marketing..................................................     5
       Seasonality................................................     5
       Bonding Requirements.......................................     5
       Competition................................................     6
       Patent and Trademarks......................................     6
       Employees..................................................     6
       Factors Which May Effect Future Results....................     6
  2    Properties.................................................     7
  3    Legal Proceedings..........................................     8
  4    Submission of Matters to a Vote of Security Holders........     8


                                     PART II

  5    Market for Registrant's Common Equity and Related
       Stockholder Matters........................................     9
  6    Selected Financial Data....................................     9
  7    Management's Discussion and Analysis of Financial Condition
       and Results of Operations..................................    10
       Results of Operations......................................    10
       Bonding....................................................    13
       Liquidity and Capital Resources............................    13
       Year 2000..................................................    15
 7A    Quantitative and Qualitative Disclosures About Market Risk.    16
  8    Financial Statements and Supplementary Data................    16
  9    Changes in and Disagreements with Accountants on Accounting
       and Financial Disclosure...................................    16


                                    PART III

 10    Directors and Executive Officers of the Registrant.........    17
 11    Executive Compensation.....................................    17
 12    Security Ownership of Certain Beneficial Owners and
       Management.................................................    17
 13    Certain Relationships and Related Transactions.............    17


                                     PART IV

 14    Exhibits. Financial Statement Schedules and Reports on Form
       8-K........................................................    18
       Financial Statements.......................................    18
       Exhibit Index..............................................    18
<PAGE>
      This annual report on Form 10-K contains "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, that involve
risks and uncertainties. When used in this document, the words "anticipate,"
"believe," "estimate" and "expect" and similar expressions, as they relate to
the Company, are intended to identify forward-looking statements. Such
statements reflect the current views of the Company with respect to future
events and are subject to certain risks, uncertainties and assumptions,
including those discussed in Item 1 below. The Company's actual results could
differ materially from those anticipated in the forward-looking statements as a
result of these factors. See "Business" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources."

                                     PART I

ITEM 1.   BUSINESS.

HISTORY OF THE COMPANY

      Synagro Technologies, Inc. ("Synagro" or the "Company") was originally
incorporated on May 9, 1986 as a Nevada corporation under the name N-Viro
Recovery, Inc. On October 28, 1994, the Company changed its name to "Synagro
Technologies, Inc." to reflect the diversity of biosolids treatment services
provided by the Company.

      The Company reincorporated in Delaware on August 16, 1996 by means of a
merger (the "Reincorporation Merger") of the Company with and into a
wholly-owned subsidiary of the Company in Delaware known as Synagro
Technologies, Inc. ("Synagro Delaware"). On the effective date of the
Reincorporation Merger, each issued and outstanding share of common stock of the
Company was converted into one share of common stock of Synagro Delaware (the
"Common Stock"). Synagro Delaware succeeded to all of the assets, liabilities
and business of the Company and possesses all of the rights and powers of the
Company. (Synagro Delaware and the Company are collectively referred to
hereinafter as the "Company").

BUSINESS OF THE COMPANY

      The Company engages in the business of biosolids management, primarily
through beneficial reuse programs. The Company provides transportation,
treatment, site monitoring, land application and environmental regulatory
compliance services with respect to biosolids to local and state agencies,
municipalities and private companies. The Company's services also include
dredging, dewatering, and cleaning out municipal and industrial lagoons and
digesters. The Company currently operates under approximately 212 contracts.
Pursuant to these contracts, the Company provides a variety of biosolids
management options to prospective customers. These methods include land
application, composting, lime stabilization, and drying/pelletizing. These
biosolids management services account for substantially all of the Company's
revenues.

      There are two standards of pathogen reduction--Class A and Class B. The
Company is able to treat biosolids with Class A pathogen reduction and certain
levels of vector attraction reduction (i.e., insects and rodents), to produce
"Exceptional Quality Biosolids." Exceptional Quality Biosolids can be
beneficially used on the land without limitations or site restrictions.
Biosolids that are not Exceptional Quality, also known as Class B biosolids,
while less expensive to process, are subject to monitoring and detailed record
keeping requirements. These alternative methods provide choices to prospective
customers who may prefer to use methods which currently require lower initial
cost, but which may require additional future costs for monitoring of the
related disposal sites.

      The Company primarily conducts its business through its wholly-owned
subsidiaries, CDR Environmental, Inc., a Texas corporation ("CDR"), Pima Gro
Systems, Inc., an Arizona corporation ("Pima Gro"), A&J Cartage, Inc., a
Wisconsin corporation, Michigan Organic Resources, Inc., a Michigan corporation,
A&J Cartage Southeast, Inc., a Florida corporation, Recyc, Inc. a California
company and Environmental Waste Recycling, Inc., a North Carolina corporation.
The Company's subsidiaries operate throughout the United States.

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<PAGE>
MERGERS, ACQUISITIONS AND DISPOSITIONS

      The Company's business plan has developed through the acquisition of
privately held biosolids treatment companies and their integration into the
business operations of the Company and its subsidiaries. The Company's
acquisition strategy has been developed with the intent to increase the
efficiency and profitability of each of these acquisition targets through
operational and marketing synergies with the Company's existing business
operations. There can be no assurances that the Company's acquisition strategy
will generate these synergies or result in profitable operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

      ENVIRONMENTAL WASTE RECYCLING, INC. In November 1998, the Company
purchased the stock of Environmental Waste Recycling, Inc. ("EWR"). The
consideration paid in this transaction was based on management's analysis of
historical and projected sales and earnings of EWR, the estimated market value
of EWR and the synergies estimated to be achieved through the transaction.

      The purchase price was approximately $9,487,000 consisting of 865,125
shares of Common Stock with a market trading value of approximately $2,812,000,
$200,000 in debt and approximately $6,475,000 in cash and acquisition costs. The
Common Stock was valued in accordance with the provisions of Emerging Issues
Task Force ("EITF") 95-19. The transaction was recorded using the purchase
method of accounting. The balance sheet at December 31, 1998 includes a
preliminary allocation of the purchase price and is subject to final adjustments
which management believes will not be material. The preliminary allocation
resulted in approximately $7,091,000 of goodwill that is being amortized over 40
years. The purchase agreement provides for the payment of additional cash and
stock consideration in an aggregate amount not to exceed $2,956,216 in the event
certain financial targets are realized during the twelve-month period after
closing. The Company financed the cash portion of the merger consideration with
borrowings under its credit facility with Bank of America.

      RECYC, INC. In July 1998, the Company purchased the stock of Recyc, Inc.
("Recyc"). The consideration paid in this transaction was based on management's
analysis of historical and projected sales and earnings of Recyc, the estimated
market value of Recyc, and the synergies estimated to be achieved through the
transaction.

      The purchase price was approximately $15,573,000 consisting of 1,475,323
shares of Common Stock with a market trading value of approximately $8,573,000,
approximately $2,305,000 in new debt, approximately $3,341,000 in assumed debt,
and approximately $1,354,000 in cash and acquisition costs. The Common Stock was
valued in accordance with the provisions of EITF 95-19. The transaction was
recorded using the purchase method of accounting. The balance sheet at December
31, 1998 includes a preliminary allocation of the purchase price and is subject
to final adjustments which management believes will not be material. The
preliminary allocation resulted in approximately $14,964,000 of goodwill, that
is being amortized over 40 years. The unsecured note issued to the prior owners
is payable in November 2000. The note bears an annual interest rate of 7% and
interest is paid quarterly with the first payment made in November 1998. The
note has no financial covenants. The principal owed under the promissory note
may be offset, and up to 375,000 of the shares issued to the owners may be
returned to the Company, if certain post-closing conditions are not met as
defined in the purchase agreement. In connection with the acquisition, the
Company entered into a lease agreement for a composting facility with the prior
owners of Recyc, as trustees of a family trust of the prior owners. The Company
has a five year purchase option for $2,250,000. In addition, the Company entered
into a transportation agreement with Recyc Trucking, Inc. ("RTI"), a company
owned by prior owners of Recyc, with an initial term of two years for the
provision by RTI of certain transportation services relating to Recyc's
operations.

      A&J  COMPANIES.  In June 1998,  the Company  purchased  the stock of A&J
Cartage,  Inc., Michigan Organics  Resources,  Inc. and A&J Cartage Southeast,
Inc.  (collectively  "A&J").  The  consideration  paid in this transaction was
based on management's  analysis of historical and projected sales and earnings
of A&J, the estimated  market value of A&J and the  synergies  estimated to be
achieved through the transaction.

      The purchase price was approximately $19,802,000, consisting of 1,812,533
shares of Common Stock with a market trading value of approximately $12,398,000,
approximately $5,823,000 debt, and approximately 

                                       2
<PAGE>
$1,581,000 in cash and acquisition costs. The Common Stock was valued in
accordance with the provisions of EITF 95-19. The transactions were recorded
using the purchase method of accounting. The balance sheet at December 31, 1998
includes a preliminary allocation of the purchase price and is subject to final
adjustments, which management believes will not be material. The preliminary
allocation resulted in approximately $17,372,000 of goodwill which is being
amortized over 40 years. The unsecured notes issued to the prior owner are
payable quarterly through January 2001 with the first installment paid January
1, 1999. The notes bear an annual interest rate of 7% and have no financial
covenants.

      BFI ORGANICS DIVISION. Effective August 1997, the Company purchased
certain assets and revenue contracts of the Organics Division of Browning Ferris
Industries, Inc. in the District of Columbia, Georgia, Maryland, Ohio,
Pennsylvania, and Virginia for approximately $946,000. The acquisition was
financed through the issuance of third-party debt, which bears an interest rate
equal to 30 day commercial paper plus 2.77%.

      PIMA GRO SYSTEMS, INC. Effective July 1996, the Company entered into an
agreement pursuant to which the Company acquired 100% of the issued and
outstanding stock of Pima Gro. The consideration paid in the transaction was
determined based on management's analysis of historical and projected sales and
earnings of Pima Gro, the estimated market value of Pima Gro and the synergies
estimated to be achieved through the transaction.

      The purchase price for the acquisition of Pima Gro was approximately
$3,096,000, consisting of 155,000 shares of Common Stock, with a market trading
value of approximately $223,000, cash of approximately $1,277,000, and a
promissory note in the aggregate principal amount of approximately $1,595,000.
The Common Stock was valued in accordance with the provision of EITF 95-19. The
promissory note issued by the Company had interest at the rate of 8% per annum
and was payable in four semi-annual installments of principal and accrued
interest, commencing January 1, 1997; final payment was made on July 1, 1998.
The note had no financial covenants.

      ORGANI-GRO. In December 1996, the Company determined the Organi-Gro
operation, which focused on poultry bedding production and sales, was not
consistent with the Company's core business of biosolids management. In March
1997, the Company sold the operations of Organi-Gro to its former owners.
Consideration included two subordinated notes of approximately $1.4 million, the
assumption of approximately $978,000 in debt and approximately $392,000 in trade
payables, for which the Company is not contingently liable. As a result of the
sale, the Company recorded a charge to operations in the fourth quarter of 1996
amounting to approximately $2,500,000 to adjust the carrying value of
Organi-Gro's net assets to its estimated fair market value. These charges are
included in "losses on assets held for sale and other special charges (credits)"
in the Company's consolidated statements of operations for the year ended
December 31, 1996.

GOVERNMENT REGULATION

      Federal and state environmental authorities regulate the activities of the
Company's primary customers, wastewater treatment plants ("WWTP"), and enforce
standards for the WWTP's discharge (effluent wastewater) via permits issued
under the authority of the Clean Water Act ("CWA") and state water quality
control acts. The treatment of wastewater produces wastewater solids and sewage
sludge, and the treatment of these materials produces biosolids. To the extent
demand for the Company's biosolids treatment methods is created by the need to
comply with such environmental laws and regulations, any modification of the
standards created by such laws and regulations may reduce the demand for the
Company's biosolids treatment methods. Changes in these laws or regulations may
also adversely affect the operations of the Company by imposing additional
regulatory compliance costs on the Company, requiring the modification of and/or
adversely affecting the market for the Company's biosolids management services.

      The Company operates in a highly regulated environment and the WWTP's and
other plants at which the Company's biosolids management services may be
implemented are usually required to have permits, registrations and/or approvals
from federal, state and/or local governments for the operation of such
facilities. State and/or local authorities, in some jurisdiction, have
prohibited and, in other jurisdictions, have sought and may seek to prohibit the
land application or agricultural use of biosolid products.

                                       3
<PAGE>
      Any of the permits, registrations or approvals noted above, or
applications therefor, may be subject to denial, revocation or modification
under various circumstances. In addition, if new environmental legislation or
regulations are enacted or existing legislation or regulations are amended or
are enforced differently, the Company may be required to obtain additional
operating permits, registrations or approvals. The process of obtaining a
required permit, registration or approval can be lengthy and expensive and the
issuance of such permit or the obtaining of such approval may be subject to
public opposition. There can be no assurances that the Company will be able to
meet applicable regulatory requirements or that further attempts by state or
local authorities to prohibit the land application or agricultural use of
biosolids will not be successful.

      During 1998, the Recyc composting facility was cited for three permit
violations involving odor and vector control. While these citations are under
appeal, such infractions can result in a reduction of the term of the operating
permit in increments of three months. The Company has implemented odor and
vector control measures that should minimize that exposure; however there can be
no assurance that violations will not recur in the future.

      The CWA, as amended, regulates the use and disposal of sewage sludge and
biosolids and establishes use and disposal standards for sewage sludge and
biosolids that are applicable to approximately 35,000 publicly and privately
owned WWTP's in the United States. Under this regulation, sewage sludge and
biosolids may be surface disposed or incinerated, or biosolids may be applied to
land for beneficial use in accordance with the requirements established by the
regulation. Biosolids and sewage sludge may also be disposed in municipal solid
waste landfills.

      Land application regulations apply to generators of sewage sludge and
biosolids, persons who treat sewage sludge and biosolids and persons who apply
biosolids to land. Beneficial use through land application includes placement on
agricultural land, non-agricultural land (forests and range lands), public
contact sites (parks and golf courses), reclamation sites and home gardens.
"Land application" in the context of the regulation includes bulk and bagged
biosolids and biosolids products.

      Any biosolids used for land application must have pollutant concentration
levels below the ceiling concentrations established for nine inorganic
pollutants. Biosolids that contain at least one of the nine pollutants in
concentrations exceeding the ceiling limits cannot be applied to land. Biosolids
that have pollutant concentration below certain levels are not subject to
cumulative loading rates.

      Biosolids with pollutant concentration below certain levels are considered
to be "High Quality Biosolids". High Quality Biosolids that meet one of six
Class A pathogen reduction alternatives and meet one of eight vector attraction
reduction options are considered to be Exceptional Quality Biosolids and are not
subject to either the general requirements or the management practices of the
regulations. Exceptional Quality Biosolids may be used as fertilizers and may be
applied to a site in most states without the requirement of a permit.

      In addition, many states enforce landfill restrictions for nonhazardous
biosolids and some states have site restrictions or other management practices
governing lands. These regulations typically require a permit to sell or use
biosolid products as landfill cover material. There can be no assurance that
landfill operators will be able to obtain required permits.

      There are two classifications for pathogen reduction: Class A and Class B.
There are three alternative methods available to achieve Class B and six
alternative methods available to achieve Class A. Each alternative for Class A
requires testing for pathogen densities (fecal coliform or salmonella bacteria).
Class A treatment methods include composting, heat drying, heat treatment,
thermophilic aerobic digestion and alkaline stabilization.

      The Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA") generally imposes strict, joint and several liability for cleanup
costs upon (1) present owners and operators of facilities at which hazardous
substances were disposed; (2) past owners and operators at the time of disposal;
(3) generators of hazardous substances that were disposed at such facilities;
and (4) parties who arranged for the disposal of hazardous substances at such
facilities. CERCLA Section 107 liability extends to cleanup costs necessitated
by a release or threat of release of a hazardous substance. However, the
definition of "release" under CERCLA excludes 

                                       4
<PAGE>
the "normal application of fertilizer." EPA regulations regard biosolids applied
to land as a fertilizer substitute or soil conditioner. The EPA has indicated in
a published document that it considers biosolids applied to land in compliance
with the applicable regulations not to constitute a "release." Although the
biosolids and alkaline waste products may contain hazardous substances (as
defined under CERCLA), the Company has developed plans to manage the risk of
CERCLA liability, including training of operators, regular testing of the
biosolids and the alkaline admixtures to be used in treatment methods and
reviewing incineration and other permits held by the entities from which
alkaline admixtures are obtained.

      The Company currently maintains environmental impairment liability
insurance in the amount of $10,000,000, which is deemed to be adequate; however,
the Company could be adversely affected by a claim that is not covered or is
only partially covered by liability insurance.

      Many states have regulations or guidelines covering the land application
of biosolids which set either a maximum allowable concentration or maximum
pollutant loading rate for at least one pollutant. In addition, some states have
established management practices for land application of biosolids. In some
jurisdictions, state and/or local authorities have imposed permit requirements
for, or have prohibited, the land application or agricultural use of biosolid
products, including Exceptional Quality Biosolids. There can be no assurance
that any such permits will be issued or that any further attempts to require
permits for, or to prohibit, the land application or agricultural use of
biosolid products will not be successful.

MARKETING

      The Company markets its services by soliciting prospective customers,
attending trade shows, obtaining referrals and competitive bidding on potential
contracts. The Company's primary marketing and promotion targets are: (i)
government personnel (municipal, county and state); (ii) WWTP operators and
landfill operators; (iii) politicians; (iv) consulting engineers and
construction contractors; (v) equipment and building products manufacturers and
distributors; (vi) the agricultural and horticultural industry; (vii)
transportation service companies; and (viii) the public.

      The Company provides services for the transportation, treatment and land
application and composting of biosolids as well as compliance monitoring for all
of the above. The Company primarily markets Class B biosolids processing and
land applications to customers who prefer this method due to higher costs
associated with Class A biosolids processing methods.

SEASONALITY

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

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

BONDING REQUIREMENTS

      Commercial, federal, state and municipal projects often require
contractors to post both performance and payment bonds at the execution of a
contract. Contractors without adequate bonding may be ineligible to bid or
negotiate on many projects. The Company has frequently been required to obtain
such bonds, and the Company will continue to be required to obtain such bonds in
the future, particularly with government contracts. As of December 31, 1998, the
Company had a bonding capacity of approximately $20,000,000, with approximately
$7,878,000 utilized as of that date. Management believes the existing capacity
is sufficient to meet bonding needs 

                                       5
<PAGE>
for the foreseeable future, but is also currently negotiating to expand that
availability as new contract opportunities arise. To date, no payments have been
made by any bonding company for bonds issued for the Company.

COMPETITION

      The Company provides a variety of services relating to the transportation
and treatment of biosolids. The Company is in direct and indirect competition
with other businesses which provide some or all of the same services. While
most of the private (non-governmental) competitors are small, privately-owned
businesses, some are larger, more firmly established and have greater capital
resources.

      The Company competes principally through offering quality services at
competitive prices. Management of the Company believes that the full range of
biosolids management services provided by the Company provides a competitive
advantage over other entities which offer a lesser complement of services.
However, there can be no assurances that the Company will be able to achieve and
maintain a competitive position.

PATENTS AND TRADEMARKS

      The Company makes use of its trade secrets or "know-how" developed in the
course of its experience in the marketing of the Company's services. To the
extent that the Company relies upon trade secrets, unpatented know-how and the
development of improvements in establishing and maintaining a competitive
advantage in the market for the Company's services, there can be no assurances
that such proprietary technology will remain a trade secret or that others will
not develop substantially equivalent or superior technologies to compete with
the Company's services.

EMPLOYEES

      As of February 26, 1999, the Company had approximately 294 full-time
employees. These employees include: 4 executive officers, 7 non-executive
officers, 28 operations managers, 11 environmental specialists, 27 maintenance
personnel, 73 drivers, 24 land applications specialists, 77 general operation
specialists and 43 financial and administrative employees. Additionally, the
Company uses contract labor for various operating functions, including hauling
and spreading services, when it is economically advantageous. The loss of the
services of key employees could have an adverse effect on the Company's
business.

      The Company's employees are not represented by a labor union or covered by
a collective bargaining agreement, and the Company believes it has good
relations with its employees. The Company provides its employees with certain
benefits, including health, life and dental insurance and 401(k) benefits.

FACTORS WHICH MAY AFFECT FUTURE RESULTS

      ACQUISITION STRATEGY. The Company's current strategy is to expand as a
provider of biosolids management and beneficial reuse of organic materials and
related services through an on-going acquisition program of businesses in the
biosolids management industry in selected markets. Inherent in such strategy are
certain risks, such as increasing demand for liquidity and capital resources and
increasing debt service requirements. The market for such acquisition prospects
is highly competitive, and management expects that certain potential acquirers
will have significantly greater capital than the Company. The success of the
Company's strategy and its ability to repay increased debt service will depend
in part on the Company's ability to continue to contract for, finance and
integrate into its business future acquisitions. There can be no assurance the
current strategy will result in the desired effect of improving the Company's
competitive position and financial condition.

      POTENTIAL ACQUISITION LIABILITIES. The Company has expanded its business
operations significantly since 1992 through the acquisition of existing
businesses. Liabilities may exist with respect to future acquisition candidates
or completed acquisitions that the Company has failed or has been unable to
discover, including liabilities arising from non-compliance with environmental
laws by prior owners, and for which the Company, as a successor owner, may be
responsible. Warranties and indemnity provisions in such related acquisition
agreements, 

                                       6
<PAGE>
if obtained, may not fully cover any actually determined liabilities due to
their limited scope, amount or duration, or other reasons. Additionally, the
indemnitor or warrantor may not be sufficiently solvent or have sufficient
assets to satisfy any resulting claim by the Company, in which case the
Company's financial condition and results of operations could be materially
adversely affected.

      GOODWILL. The consolidated balance sheet at December 31, 1998, includes
goodwill representing approximately 67.1% of assets and 127.8% of stockholders'
equity. An intangible asset, goodwill arises when a buyer accounts for a
business acquisition under the purchase method of accounting and the purchase
price exceeds the fair value of the tangible and separately measurable
intangible net assets of that business. Generally accepted accounting principles
require that the buyer amortize this and all other intangible assets over the
period benefited. This amortization represents a noncash deduction in the
determination of current operating net income which does not affect cash flows,
but does reduce reported earnings.

The Company has determined the estimated benefits period for goodwill to be 20
to 40 years with a substantial majority of such goodwill with a life of 40
years. If the Company has understated or overlooked a material intangible asset
having a benefit period less than the amortization period being used, or has
overlooked factors indicating that a shorter benefit period for goodwill is
appropriate, (1) earnings reported in periods immediately following the
acquisition will be overstated and (2) earnings subsequently would be burdened
by a continuing charge without the associated benefit to income that is expected
in arriving at the consideration paid for acquisitions. Earnings in later years
also could be significantly affected if management then determines that the
remaining balance of goodwill has become impaired. The Company has reviewed all
the factors and related future cash flows considered in arriving at the amount
paid for acquisitions. The Company has concluded that (1) the anticipated future
cash flows associated with the intangible assets recognized in the acquisitions
will continue throughout the period of amortization selected and (2) no
persuasive evidence exists that any material portion will dissipate over a
shorter period. The Company's conclusion may prove to be incorrect. Moreover, if
generally accepted accounting principles are amended, as the Financial
Accounting Standards Board has tentatively decided, to require the Company to
amortize purchase goodwill over a period of less than 20 years, the value of
Common Stock could drop as a result of a perception that the higher noncash
charges would adversely affect the Company's financial condition or results of
operations. The Company believes that an increase in the amortization rate will
not have an impact on its ability to borrow under its credit facility.

ITEM 2.   PROPERTIES.

      The Company currently leases approximately 11,300 square feet of office
space located in Houston, Texas. This facility serves as the Company's principal
place of business. The Company pays approximately $16,500 per month on this
office space which expires in February 2004. The Company also leases district
offices in: Hockley, Texas; Redlands, California; Oxford, Pennsylvania;
Milwaukee, Wisconsin; Marona, Arizona; Suisun City, California; Corona,
California; Wyoming, Michigan; and Advance, North Carolina.

      The Company owns a 35 acre farm in Maysville, Arkansas with a 130,000
square foot composting facility for the processing of biosolids.

      The Company currently leases a 162.39 acre composting facility in
Riverside County California. The term of the lease is 30 years commencing July
1998 and terminating July 2028. The Company has the option to terminate this
lease upon 30 days written notice in the event the Conditional Use Permit
("CUP") (as defined in the agreement) expires. The CUP may be reduced by 3
months for permit violations. The Company also has a 5 year option to purchase
the property for $2,250,000 which expires in July 2003. Currently, the Company
pays rent in the amount of $36,000 per annum for the first three years and
$192,000 per annum thereafter.

      The Company maintains permits, registrations or licensing agreements on
approximately 173,000 acres of land for applications of biosolids.

                                       7
<PAGE>
ITEM 3.   LEGAL PROCEEDINGS.

      The Company is involved in litigation and claims arising in the ordinary
course of its business. Management believes, based on consultation with legal
counsel and accruals provided, that the ultimate outcome of these matters will
not have a material adverse impact on the Company's operations or financial
position.

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

      None.



                                       8
<PAGE>
                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

      The Company's Common Stock has been listed for trading on The Nasdaq
SmallCap Market ("Nasdaq"), under the symbol "SYGR", since October 1994. The
reported high and low bid prices of the Company's Common Stock on The Nasdaq for
the past two fiscal years as adjusted for the reverse stock split are as
follows:

                                                       HIGH        LOW
                                                       ----        ----
                 YEAR ENDED DECEMBER 31, 1998

                    1st Quarter....................   $5.19       $ 2.41
                    2nd Quarter....................    8.16         5.06
                    3rd Quarter....................    6.25         2.75
                    4th Quarter....................    4.50         2.56

                 YEAR ENDED DECEMBER 31, 1997
                    1st Quarter....................    3.00         1.88
                    2nd Quarter....................    2.38         1.50
                    3rd Quarter....................    3.66         1.94
                    4th Quarter....................    4.25         2.50

      As of February 26, 1999, the Company had 13,251,705 shares of Common Stock
issued and outstanding. On that date, the market price for the Company's Common
Stock on the Nasdaq was $3.875 per share. As of February 26, 1999, the Company
had 257 stockholders of record.

      On November 5, 1998, the Company issued 865,125 shares of Common Stock to
the former owners of EWR in connection with the acquisition of that entity
pursuant to an exemption from registration under Section 4(2) of the Securities
Act.

      On July 24, 1998, the Company issued 1,475,323 shares of Common Stock to
the former owners of Recyc in connection with the acquisition of that entity
pursuant to an exemption from registration under Section 4(2) of the Securities
Act.

      On June 23, 1998, the Company issued 1,812,533 shares of Common Stock to
the former shareholders of A&J in connection with the acquisition of that entity
by the Company pursuant to an exemption from registration under Section 4(2) of
the Securities Act.

      On March 31, 1998, the Company issued 1,458,335 shares of Series B
Preferred Stock, $.002 par value per share (the "Preferred Stock"), with a
beneficial conversion feature. The Company recognized the value of the
beneficial conversion feature of approximately $3,514,000 as a preferred stock
dividend. On June 10, 1998, the Preferred Stock was converted into 1,458,335
shares of Common Stock.

      Historically, the Company has not paid any dividends on its Common Stock
and has no present plans to pay such dividends. The payment of any future
dividends on Common Stock would depend, among other things, upon the current and
retained earnings and financial condition of the Company. Also, the Company has
a bank covenant restricting dividend payments.

ITEM 6.   SELECTED FINANCIAL DATA.

      The following table sets forth selected financial data with respect to the
Company and should be read in conjunction with the Consolidated Financial
Statements:

                                       9
<PAGE>
                                            YEAR ENDED DECEMBER 31
                                 ---------------------------------------------

                                   1998     1997     1996     1995     1994
                                 -------- -------- -------- -------- --------
                                  (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)      
                                 
Net sales......................  $ 29,967  $25,303  $22,977  $17,976  $13,197
Gross profit...................     4,961    4,296    3,723    2,858    2,502
Selling, general and
administrative expenses........     4,630    3,669    6,141    4,150    3,900
Other charges (credits), net...      (64)    (721)    4,842    2,444    3,169
Interest expense, net..........     1,441      924      673      938      626
Net income (loss) before
redeemable preferred stock
dividends......................     (737)      832  (7,589)  (4,553)  (4,165)
Redeemable preferred stock       
dividend.......................   $ 3,935       --     --       --       --
Net income (loss) .............   (4,672)      832  (7,589)  (4,553)  (4,165)
Net income (loss) per share
(basic and diluted)............     (.46)      .11   (1.21)    (1.59)* (2.19)*
Working capital (deficit)......     5,250    (796)  (2,075)    1,889    (667)
Total assets...................    64,393   19,848   18,631   20,212   23,154
Total long-term debt, net......    26,794    5,495    8,263    4,448    8,396
Stockholders' equity...........    33,702    7,381    3,802   10,972   10,212

*As adjusted for the 1 for 15 reverse split consummated on July 3, 1995.

ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
       RESULTS OF OPERATIONS.

      The following discussion and analysis of the Company's operations should
be read in conjunction with the "Business of the Company," "Government
Regulation" and "Competition" sections herein. Certain statements are
forward-looking, based on the Company's expectations and, as such, these
statements are subject to uncertainty and risks.

RESULTS OF OPERATIONS

      The following table sets forth certain items included in the Selected
Financial Data, as a percentage of net sales for the periods indicated:

                                                   YEAR ENDED DECEMBER 31,
                                                 1998        1997       1996
                                              ---------   ---------  -------
STATEMENT OF OPERATIONS DATA:
Net sales.................................      100%        100%       100%
Gross profit..............................      16.6        17.0       16.2
Selling, general and administrative expenses    15.5        14.5       26.7
Other charges (credits), net..............       (.2)       (2.9)      21.1
Interest expense, net.....................       4.8         3.7        2.9
Net income (loss) before redeemable
preferred dividends.......................      (2.5)        3.3      (33.0)


RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998 AND 1997.

      For the year ended December 31, 1998, net sales were approximately
$29,967,000 compared to approximately $25,303,000 for the same period in 1997,
an increase of approximately $4,664,000 or 18.4%. The increase relates to the
acquisitions of A&J (approximately $4,378,000), Recyc (approximately
$2,713,000), EWR (approximately $1,269,000), the purchase of certain revenue
contracts from BFI's organics division (approximately $2,119,000), partially
offset by the divestiture of Organi-Gro (approximately $1,608,000), reduced
volume in Arkansas and Dallas (approximately $3,021,000) due to non-renewal of
certain low margin contracts, and lower volumes related to operations in the
Houston area (approximately $837,000).

     Cost of operations and gross profit for the year ended December 31, 1998
were approximately $25,006,000 and $4,961,000 respectively, compared to
approximately $21,007,000 and $4,296,000 respectively for the year ended 1997,
resulting in a decrease in gross profit as a percentage of sales from 17.0% in
1997 to 16.6% in 1998.

                                       10
<PAGE>
Gross profit increased by approximately $665,000 due primarily to the increased
net sales volume associated with businesses acquired. The decrease in gross
profit as a percentage of sales was primarily a result of unusual weather
conditions in the Mid-Atlantic Region, unseasonably heavy rainfall in
California, and a new biosolids land application restriction for certain months
of the year in one California county, which resulted in (a) additional expenses
incurred by the Company to transport material to land application sites
unaffected by the conditions and (b) land disposal costs which were incurred
when land application sites were not available, Specifically, landfill disposal
costs increased by approximately $1,180,000 compared to 1997 levels.
Additionally, costs associated with transporting material to alternate land
application sites increased by approximately $400,000 for the year ended 1998.
These costs were partially offset by higher margins of the biosolids composting
operation obtained in the Recyc acquisition.

      Selling, general and administrative expenses were approximately $4,630,000
for the year ended December 31, 1998 compared to approximately $3,669,000 for
1997, an increase of approximately $961,000, or 26.2%. The increase relates
primarily to increased corporate staffing (approximately $466,000) to implement
the Company's acquisitions strategies, additional selling, general and
administrative costs associated with the businesses acquired (approximately
$938,000), partially offset by the divestiture of Organi-Gro (approximately
$164,000), staff reductions at the operational level implemented throughout 1997
(approximately $196,000), and a reduction of bonuses paid based upon operating
results (approximately $146,000).

      Interest expense for the year ended December 31, 1998 was approximately
$1,411,000 compared to approximately $924,000 for the same period in 1997. The
increase in interest expense is related to the additional debt incurred to
finance acquisitions.

      Other charges (credits) were ($63,799) for the year ended December 31,
1998, compared to ($721,268) for the same period 1997. The decrease resulted
from less income being recognized in 1998 related to notes receivable previously
reserved of approximately ($280,000), partially offset by current year severance
costs of approximately $220,000. See note (11) to the Notes to Consolidated
Financial Statements.

      Other income for the year ended December 31, 1998 was approximately
$309,000 compared to approximately $407,000 for the same period in 1997. The
decrease relates primarily to a reduction in gains on sale of assets.

      As a result of the foregoing, a net loss of approximately $737,000 before
redeemable preferred stock dividends, or $.07 per share, was reported at
December 31, 1998, compared to net income of approximately $832,000 before
redeemable preferred stock dividends, or $.11 per share, in 1997.

      In the first quarter of 1998, the Company recognized a redeemable
preferred stock dividend of approximately $3,514,000, related to redeemable
Preferred Stock issued with a beneficial conversion feature. The value of this
Preferred Stock dividend had no impact on the Company's cash flows. See note (9)
to the Notes to Consolidated Financial Statements. During the second quarter of
1998, the Company paid $420,000 in cash dividends to holders of Series B
Preferred Stock.

      The Company has incurred substantial losses since inception and,
therefore, has not been subject to federal income taxes. As of December 31,
1998, the Company had generated net operating loss carryforwards for financial
reporting purposes of approximately $11.7 million. These carryforwards will
begin to expire in the year 2004 through 2018. The Company's ability to utilize
these carryforwards is limited by a "change in ownership", as such term is
defined by the federal income tax laws and regulations. As the Company has
incurred losses in recent years and the utilization of these carryforwards may
be limited as discussed above, a valuation allowance has been established to
fully offset the deferred tax asset at December 31, 1998.

                                       11
<PAGE>
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996.

      The Company's net sales increased by approximately $2,326,000, or 10.1%,
in 1997 as compared to 1996. The increase in sales is attributable to certain
BFI contracts acquired in 1997 (approximately $3,068,000) and the impact of
having a full year of revenue for PimaGro which was acquired in July 1996
(approximately $3,837,000), partially offset by the divestiture of Organi-Gro
(approximately $4,595,000).

      Gross profit increased to approximately $4,296,000, or 17.0% of sales, in
1997, compared to approximately $3,723,000, or 16.2% of sales, in 1996. The
gross profit increase of approximately $573,000 was due primarily to a full year
of gross profits associated with PimaGro acquired in July 1996 which provided
incremental gross profits of approximately $750,000 during 1997. The gross
profit percentage increase from 16.2% to 17.0% related primarily to the
acquisition of PimaGro in 1996, which generated a gross profit margin of
approximately 18.4% during 1997, and the sale of Organi-Gro in 1997, which had a
gross profit margin of 10%. PimaGro in 1997 improved its gross margin
percentage from 16.7% for the half year of operations in 1996 to 18.4% in 1997
as a result of continued reductions in operating costs through obtaining land
applications sites closer to waste generators.

      Selling, general and administrative expenses decreased to approximately
$3,669,000, or 14.5% of sales, in 1997, compared to $6,141,000, or 26.7% of
sales, in 1996. The decrease of approximately $2,472,000 resulted from (i)
reduced expenses related to the sale of Organi-Gro which was sold in March 1997
($500,000), (ii) the integration of administrative functions of Pima Gro into
the corporate offices during 1997 which reduced selling, general and
administrative expenses by approximately $178,000 in 1997 from 1996, (iii)
reduced legal expenses of approximately $900,000 during 1997 compared to 1996
due to additional legal claims provisions in 1996, and (iv) expenses of
approximately $695,000 in 1996 related to the clean-up of its N-Viro processing
facilities, which were closed during 1996, that did not occur in 1997.

      Other charges (credits) decreased to approximately $721,000 in 1997 from
approximately $4,842,000 in 1996. The decrease relates to charges related to the
sale of assets of Organi-Gro, the write-off of the Company's interests in the
N-Viro Technology recognized in 1996, and credits in 1997 for realization of
Organi-Gro notes which had been previously reserved. See notes 5 and 11 to the
Notes to Consolidated Financial Statements.

      Other income and expense (net) was in line with 1996 expenses, but
interest expense increased in 1997 to approximately $924,000, compared to
approximately $673,000 in 1996. The increase in interest expense is a result

                                       12
<PAGE>
of additional debt incurred throughout the year due to acquisitions.

      As a result of the foregoing, net income of approximately $832,000 was
reflected in 1997, as compared to a net loss of approximately $7,589,000 in
1996.

RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995.

      The Company's net sales increased by approximately $5,001,000, or 27.8%,
in 1996 as compared to 1995. This increase in sales was directly attributable to
the acquisition of Pima Gro in July 1996. No other significant changes occurred
in the sale of other services or products in relation to the respective periods.

      During the year ended December 31, 1996, cost of goods sold and gross
profit increased to approximately $19,254,000 and $3,723,000, respectively, from
approximately $15,118,000 and $2,858,000, respectively, for the year ended
December 31, 1995. Gross profit as a percent of sales increased to 16.2% in 1996
from 15.9% in 1995 primarily due to the acquisition of PimaGro.

      Selling, general and administrative expenses increased to approximately
$6,141,000, or 26.7% of sales, for 1996 as compared to $4,150,000, or 23.1% of
sales, in 1995. The increase in such expenses relates to the selling, general
and administrative expenses of PimaGro for the six months following its
acquisition on July 1, 1996 and additional provisions related to legal claims of
approximately $800,000. The additional legal provision relates to five claims,
including former employee agreement disputes, various contract disputes and
acquisition claims.

     In the fourth quarter of 1996, management evaluated the future value of the
investments made in Organi-Gro and the N-Viro technologies. Organi-Gro, which
manufactures and sells poultry bedding, had generated losses in 1995 and 1996
and was inconsistent with the Company's future business strategies. As a result,
the Company decided to sell all of the assets of Organi-Gro (which was
accomplished in March 1997). It was also determined at that time, to discontinue
operations relating to the N-Viro process. The Company had certain agency rights
and had invested in property and equipment relating to the N-Viro process. By
December 1996, the Company had limited customers and the Company saw no
significant prospects for making the venture financially justifiable in the
future. As a result, the property and equipment were written down to the
estimated fair value and the carrying value of the agency rights was charged to
operations. These decisions resulted in a charge to operations for the year
ended December 31, 1996 of approximately $4,842,000. See notes 5 and 11 to the
Notes to the Consolidated Financial Statements.

      Interest expense for 1996 was approximately $673,000, as compared to
approximately $938,000 for 1995. This decrease of approximately $265,000 was
directly attributable to reduced average debt levels throughout the year prior
to assumption of debt related to the purchase of Pima Gro.

      As a result of the foregoing, a net loss of approximately $7,589,000 was
reflected in 1996 as compared to a net loss of approximately $4,553,000 in 1995.

BONDING

      The amount of bonding capacity offered by sureties is a function of
financial health of the Company requesting the bonding. As of December 31, 1998,
the Company had a bonding capacity of approximately $20,000,000 with
approximately $7,878,000 utilized as of that date. Management believes the
existing capacity is sufficient to meet bonding needs for the foreseeable
future, but is also currently negotiating to expand that availability as new
contract opportunities arise. To date, no payments have been made by any bonding
company for bonds issued for the Company.

LIQUIDITY AND CAPITAL RESOURCES

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

                                       13
<PAGE>
      On March 31, 1998, the Company issued Series B Preferred Stock for total
cash consideration of $3,500,004. This Series B Preferred Stock was convertible
into common stock on a 1:1 ratio at a conversion price of $2.40 per share. On
June 10, 1998, a cash dividend of $420,000 was paid to the holders of Series B
Preferred Stock; concurrently, the holders converted the Preferred Shares into
1,458,335 shares of Common Stock.

      During 1998, the Company acquired A&J, EWR and Recyc for aggregate
consideration of approximately $45,517,000 including approximately $9,410,000 in
cash including acquisition costs. The preliminary allocations of the purchase
prices resulted in goodwill of approximately $39,426,000, that is being
amortized over 40 years.

      The Company purchased additional capital assets during 1998 in the amount
of approximately $1,712,000 and sold capital assets with proceeds totaling
approximately $2,081,000.

      As of December 31, 1998, the Company had current maturities on long-term
debt of approximately $4,756,000, as compared to approximately $2,552,000 in
1997. The Company currently has the intent and ability to refinance the current
maturities with its credit facility and has classified the 1998 portion of this
debt as long-term indebtedness in the consolidated balance sheet as of December
31, 1998. The Company's long-term portion of debt was approximately $22,038,000
in 1998, reflecting an increase of approximately $16,544,000 over 1997. This
increase is due primarily to the funding of the acquisitions of A&J, Recyc and
EWR, and the assumption of debt pursuant to such acquisitions.

     In October 1998, the Company obtained a new $40 million bank credit
facility with Bank of America National Trust and Savings Association, which has
the right to add participants to the credit facility. In November 1998, the
credit facility was amended and in December 1998, Bank of America assigned a
portion of the credit facility to Union Bank of California. The credit facility
was used to retire certain debt payable to various individuals and financial
institutions and fund the acquisition of EWR. The credit facility bears interest
at the bank eurodollar rate plus a margin based upon a pricing schedule in the
credit facility. The weighted average interest rate in 1998 was 7.51%. The
credit facility is secured by substantially all of the Company's assets. At
December 31, 1998, the Company had borrowings from this credit facility of
approximately $18,200,000 and amounts available under the credit facility of
approximately $2,579,000. Amounts under the credit facility are subject to a
borrowing base equal to 4 times earnings before interest, taxes, depreciation
and amortization ("EBITDA") based on a trailing twelve months calculation, as
defined in the credit facility less funded debt as defined, (which includes
notes payable to former owners, which can be refinanced through the credit
facility) until March 1999, and 3.5 times thereafter. The credit facility
requires the Company to meet certain loan covenants, and the Company was in
compliance with those covenants as of December 31, 1998. The credit facility
expires in October 2001 and management anticipates that it will renegotiate
and/or refinance this credit facility prior to that time. As of February 26,
1999, approximately $4,685,000 was available to the Company for additional
borrowing under the facility.

      At December 31, 1998, the Company had working capital of approximately
$5,250,000. Accounts receivable and prepaid expenses and other currents assets
increased by approximately $2,251,000 and $308,000, respectively, primarily due
to the acquisitions of A&J, Recyc, and EWR. The Company evaluates the
collectibility of its receivables based on a specific account-by-account review.
The Company had allowances of approximately $197,000 and $190,000 at December
31, 1998 and 1997, respectively, and writeoffs of approximately $13,000 and
$98,000 in 1998 and 1997, respectively. Accounts payable and accrued
expenses decreased by approximately $126,000 as a result of (a) the reduction of
legal accruals by approximately $650,000 (the Company had 5 significant legal
matters open at the close of 1997 and only 2 significant legal matters pending
at December 31, 1998), (b) reduced trade payables and other accruals of
approximately $294,000, of which $949,000 relates to reduced check processing
time offset by $655,000 of additional trade payables relating to acquisitions,
and (c) an increase in accrued interest of approximately $218,000 related to
additional debt incurred for the above acquisitions. The Company believes its
cash requirements for 1999 can be met with existing cash, cash flows from
operations and its borrowing availability under its credit facility.

      The increase in other assets as of December 31, 1998 related primarily to 
an increase in deferred bank costs of approximately $360,000 associated with the
credit facility, and non-compete agreements of approximately $307,000 with
former owners of acquired companies.

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

                                       14
<PAGE>
      On March 1, 1999, the Company acquired all of the outstanding stock of
National Resource Recovery, Inc. ("NRR") in exchange for 1,000,001 shares of the
Company's Common Stock. NRR is a biosolids company with operations in Michigan.

YEAR 2000

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

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

      To date our primary focus has been on the assessment of our own internal
systems. We have inventoried all of the Company's computer hardware. Most of
this hardware was purchased after August of 1998 from a national manufacturer,
was NTSL tested prior to shipment, and is in full compliance. The remaining
hardware will either be replaced or have BIOS upgrades by the end of the third
quarter 1999.

      The Company is using Microsoft Office for our desktop suite so no
significant Year 2000 impact is expected. All significant accounting and
financial reporting functions are performed at the corporate office using third
party software from a national vendor that is Year 2000 compliant. Our remote
locations are currently running proprietary software that has been written to
collect data pertaining to the pickup, hauling, land application and composting
of biosolids. There are potential issues concerning Year 2000 that could arise
if these systems are not Year 2000 compliant. We are currently implementing a
new Manifest and Compliance System that is Year 2000 compliant. The
implementation of this new system is expected to be completed by the fall of
1999. Additionally, there is the possibility that some of the spreading
equipment that we use in our land application process has embedded
microprocessors. We are currently reviewing all of this equipment to ensure its
Year 2000 compliance. If the equipment cannot be made compliant, there are
alternative land application methods available that are compliant.

      We have recently begun to assess the potential for Year 2000 problems with
the information systems of our customers, vendors, sub-contractors and other
third parties. We have received some preliminary information concerning Year
2000 readiness from some of our customers, vendors, sub-contractors, and other
third parties. Additionally, we are preparing questionnaires, which we expect to
mail in spring of 1999. We expect to engage in discussions with those parties
who have failed to show proof of compliance prior to the summer of 1999 in an
attempt to determine the extent to which we are vulnerable to those parties'
non-compliance. We are currently unable to estimate the costs that we may incur
to remedy the Year 2000 issues relating to these parties.

      COSTS TO ADDRESS THE YEAR 2000 ISSUE. Our costs to date for our Year 2000
program have not been material. Although we have not completed our assessment,
we do not currently believe that the future costs associated with our Year 2000
compliance program will be material.

      RISK TO THE COMPANY. The risks to the Company involve the failure of our
customers, vendors, sub-contractors and third parties failure to reach
compliance. Some customers may suffer failures that cause those customers to
delay placing orders for biosolids removal from their wastewater treatment
plants. Date functionality 

                                       15
<PAGE>
is typically not used in process control application software. More common is
the use of relative time. We are still, however, dependent on our customers
having an effective Year 2000 compliance program in place. In the case of our
vendors and sub-contractors, we will take special care in reviewing the
compliance of all of the equipment and services needed to perform day to day
operational functions. This includes spreading equipment, transportation
equipment, necessary power, telecommunications, and financial services.

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

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

      CONTINGENCY PLAN. We are in the process of developing a comprehensive
contingency plan to address avoidable or unavoidable Year 2000 risks with
internal information technology systems and with customers, vendors, newly
acquired companies, sub-contractors, and other third parties. We expect to have
this plan completed by the summer of 1999.


ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

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

INTEREST RATE RISK

      Total debt at December 31, 1998, included approximately $18,622,000 in
floating rate debt attributed to the bank credit facility borrowings and a note
to another financial institution at an average interest rate of 7.51%. As a
result, the Company's annual interest cost in 1999 will fluctuate based on
short-term interest rates. The impact on annual cash flow of a ten-percent
change in the floating rate (approximately 50 basis points) would be
approximately $94,000.

      At December 31, 1998, the Company's fixed rate debt had a book value and
fair market value of $8,172,645. The floating rate debt will mature in October
2001.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

      The financial statements required by this Item 8 are incorporated herein
by reference as set forth on pages F-1 to F-19 attached hereto.

ITEM 9.  CHANGES IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
         FINANCIAL DISCLOSURE.

      None

                                       16
<PAGE>
                                    PART III

ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information regarding the Company's
current directors and executive officers:

<TABLE>
<CAPTION>
                                                                                             COMMON STOCK
                                                                                          BENEFICIALLY OWNED(1)
                                                                                             MARCH 31, 1999
                                                                            DIRECTOR/     ---------------------
                                                                             OFFICER                 PERCENT OF
   NAME                                  POSITION                      AGE    SINCE      SHARES(2)     CLASS
   ----                                  --------                      ---  ---------    ---------   ----------
<S>                                                                     <C>    <C>        <C>           <C> 
Ross M. Patten                Director, Chief Executive Officer         55     1998       323,334       2.2%
                              and Chairman Of Board                                                    
                                                                                                       
Paul C. Sellew                Chief Operating Officer and               41     1998       100,000        *
                              President                                                                
                                                                                                       
Mark A. Rome                  Executive Vice President and              32     1998       93,334         *
                              Chief Development Officer                                                
                                                                                                       
Alvin L. Thomas II            Executive Vice President and              33     1998       67,012         *
                              General Councel                                                          
                                                                                                       
Randy E. Jennings             Senior Vice President and Chief           44     1998       40,000         *
                              Financial Officer                                                        
                                                                                                       
Irwin I. Gelbart              Director                                  61     1991       50,000         *

Dr. J. Mark Myers             Director                                  50     1996       33,127         *

Kenneth Ch'uan-k'ai Leung     Director                                  54     1998    1,278,167(3)     8.9%

Alfred Tyler II               Director                                  56     1998       50,697         *

Gene Meredith                 Director                                  57     1998       16,667         *
</TABLE>
-----------
      *     Less than 1% of outstanding shares.

      (1)   Accept as otherwise noted, each person has sole voting and 
            investment power with respect to the shares listed.

      (2)   Includes shares underlying stock options, as follows: Mr. Patten-
            -323,334; Mr. Sellew- -100,000; Mr. Rome- -93,334; Mr. Thomas-
            -66,667;Mr. Jennings- -40,000; Mr. Gelbart- -50,000; Dr. Myers-
            -3,334; Mr. Leung- -16,667; Mr. Meredith- -16,667; and Mr. Tyler II-
            -16,667.

      (3)   Includes shares of 1,112,125 and 137,875 held by the Environmental
            Opportunities Fund L.P. and Environmental Opportunities Fund 
            (Cayman) L.P. respectively, where Mr. Leung is Chief Investment 
            Officer.

                                       17
<PAGE>
      ROSS M. PATTEN was appointed by the Board of Directors to Chief Executive
Officer in February 1998, additionally Mr. Patten was elected to position of
Chairman of the Board of Directors in August 1998. Prior to joining the Company,
Mr. Patten enjoyed a successful 17 year career at Browning - Ferris Industries
Inc., where he last served as divisional vice president - - corporate
development. He also served as executive vice president for development of
Wheelabrator Technologies, a Waste Management, Inc subsidiary, and director and
vice president - - business development at Resource NE, Inc. prior to it's
acquisition by Waste Management, Inc, Mr. Patten was a founder, principal and
managing director of Bedford Capital, an investment firm specializing in
environmental companies, and of Bedford Management, which provides consulting
services to publicly held waste management and environment related companies in
the areas of growth and acquisition strategy formation and implementation.

      PAUL C. SELLEW was appointed President and Chief Operating Officer In
November 1998, Mr. Sellew has extensive experience in organic materials
management. He was the founder and former President and Chairman of the Board at
Earthgrow, Inc., the second largest commercial composting company in the country
prior to it's sale in February 1998. In addition, Mr. Sellew's business ventures
include International Process Systems (IPS), Inc. a composting technology
company, and ALLGro Inc., a composting marketing company, both of which were
sold to Wheelabrator Technologies, Inc. in 1991.

      MARK A. ROME was appointed Executive Vice President and Chief Development
Officer during 1998. Mr. Rome, an attorney and CPA, joined from Sanders Morris
Mundy, an investment banking firm specializing in industry consolidations. He
previously practiced tax and corporate law at Fulbright & Jaworski, an
international law firm headquartered Houston. Mr. Rome recieved his law degree
from the University of Texas School of Law and a Master's in Professional
Accounting from the University of Texas Graduate School of Business.

      ALVIN L. THOMAS II was appointed Executive Vice President and General
Councel during 1998. Mr. Thomas practiced law with the national law firm Littler
Mendelson, P.C. prior to joining Synagro. Mr. Thomas has also practiced law with
the international law firm of Fulbright & Jaworski, LLP. Mr. Thomas received
his law degree from the University of Pittsburgh School of Law and a LL.M. in
Taxation from New York University School of Law. His legal background is
broad-based with emphasis in tax law, employment law, corporate law and
litigation.

      RANDY E. JENNINGS was appointed Senior Vice President and Chief Financial
Officer during 1998. Mr. Jennings has held a series of progressively more
responsible accounting and finance positions with publicly held companies during
his 15-year career. From 1992 to 1998, he was Assistant Corporate Controller at
Browning-Ferris Industries, Inc. Mr. Jennings is a graduate of the University of
Texas, a licensed Certified Public Accountant, and Certified Management
Accountant.

      IRWIN I. GELBART has been Vice President of Fed Met Stainless & Alloys
Corporation, a distributor of flat rolled stainless steel products and a
subsidiary of Federal Industries, a publicly traded company based in
Mississauga, Canada, since November 1994. From April 1991 to November 1994, Mr.
Gelbart was Vice President and General Manager of the Samuel Stainless Rolled
Products Division of Samuel Whittar, Inc.; a distributor and service center for
flat rolled steel products. From 1987 to 1991, he served as General Manager of
ELG Haniel Trading Corporation, a distributor of flat rolled steel products in
Inwood, New York. Mr. Gelbart founded and was President of GSI Trading
Corporation (New York) and Stainless International, Inc. (Pennsylvania) from
1966 to 1987. He also founded and is presently a director of, Dai Ichi Metal
Co., Ltd., Hong Kong, which distributes flat rolled steel products to the
People's Republic of China.

      J. MARK MYERS, MD, F.A.C.S., has been associated with Millard-Henry
Clinic, P.A. in Russellville, Arkansas in the private practice of general
surgery since 1981; Dr. Myers was associated with McPheeter's Clinic in Poplar
Bluff, Missouri in the private practice of general surgery. Dr. Myers was Chief
of Staff of St. Mary's Hospital in Russellville, Arkansas from 1990 to 1992.

                                       18
<PAGE>

      KENNETH CH'UAN-K'AI LEUNG is a managing director of investment banking at
Sanders Morris Mundy and is the Chief Investment Officer of the Environmental
Opportunities Fund, Ltd. Additionally, he is the Editor of Environmental Review.
Previously, Mr. Lueng was associated with Smith Barney for 17 years, and before
that with F. Eberstadt & Company, Inc., Chemical Bank and Chase Manhattan Bank.
He received his B.A. from Fordham College and his M.B.A. from Columbia
University. Mr. Leung serves on the boards of Zahren Alternative Power Corp.,
Independent Environmental Services, Inc., Capital Environmental Resources Inc.,
and Avista Resources, Inc.

      ALFRED TYLER II, currently a Director of US Liquids, Inc., has been
associated with the environmental services industry for over 20 years, serving
most recently as President and CEO of Enviro-Gro Technologies until that
provider of biosolids management services was sold in 1992 to Wheelabrator
Technologies Inc. He also heads a private investment company, is President of a
landfill and construction company, and is Managing Director of Bedford Capital
Corp., a New York environmental consulting firm.

      GENE MEREDITH served more than 15 years in senior management roles in the
solid waste industry. He was a Regional Vice President at Browning-Ferris
Industries, Inc., and Chairman, President and CEO of Mid-American Waste Systems.
He previously served as a director of USA Waste Services, Envirofil, Inc., and
as a general manager of a waste company in St. Paul, Minnesota. Mr. Meredith
also has a law degree, and spent five years as Senior Partner at Meredith &
Addicks in St. Paul, Minnesota.

EXECUTIVE OFFICER TENURE

      The executive officers of the Company served at the pleasure of the Board
of Directors and were subject to annual appointment by the Board at its first
meeting following the annual meeting of stockholders. Messrs. Patten, Sellew,
Rome and Thomas have employment agreements beginning in 1999 with 2 year terms.


SECTION 16 (A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

      Section 16 (a) of the Securities Exchange Act of 1934, as amended,
requires the Company's executive officers, directors and persons who own more
than 10% of a registered class of the Company's equity Securities, to file
reports of ownership with the Securities and Exchange Commission (the
"Commission"). With respect to the year ended December 31, 1998, the Company
believes that all requirements applicable to the Company's executive officers,
directors and 10% shareholders have been met.

ITEM 11.  EXECUTIVE COMPENSATION

      The following table reflects all forms of compensation for services to the
Company for the periods indicated of each individual who was the chief executive
officer at any time during the period (the "Named Executives").

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                   LONG - TERM COMPENSATION   
                                                                                  --------------------------
                                                            ANNUAL COMPENSATION                   STOCK
                                                            -------------------   RESTRICTED   OPTION AWARDS  
NAME AND PRINCIPAL POSITION                          YEAR    SALARY      BONUS      STOCK        (SHARES)     
---------------------------                          ----   --------   --------   ----------   -------------  
<S>                                                  <C>    <C>        <C>        <C>          <C>            
Donald L. Thone (1) ..............................   1998   $100,312       --        --              --    
President, Chief Executive Officer and               1997   $150,000   $ 33,125      --           444,326  
Chairman of the Board of Directors                   1996   $150,000   $155,000      --           246,296  

Ross M. Patten (2) ...............................   1998   $134,038       --        --           485,000  
President, Chief Executive Officer and
Chairman of the Board of Director
</TABLE>

                                       19
<PAGE>

(1) Served as President and Chief Executive Officer until February 1998 and
    Chairman of the Board of Directors until August 1998.

(2) Served as President and Chief Executive Officer from February 1998 until
    November 1998 and thereafter as Chief Executive Officer. Additionally has
    served as Chairman of the Board of Directors since August 1998.

EMPLOYMENT AGREEMENTS

      Mr. Patten is employed by the Company under an employment agreement
effective April 16, 1998 for duration of twenty-four consecutive months. The
annual salary under the respective employment agreement is $150,000.
Additionally, Mr. Patten may be entitled to such bonus awards as may be approved
by the Board of Directors, and is entitled to participate in any applicable
profit-sharing, stock option or similar benefit plan. The employment agreement
automatically renews for successive twenty-four month periods annually, unless
terminated by prior written notice. If employment is terminated without cause,
Mr. Patten is entitled to a severance payment equal to 200% of the sum of his
annual salary and bonus for the proceeding year. The agreement contains
confidentiality and non-compete provisions. The employment agreement contains a
provision vesting any unvested stock options upon a change-of-control.


                                       20
<PAGE>
OPTION GRANTS

      The following table sets fourth certain information with respect to stock
options granted to the Named Executives during 1998.
<TABLE>
<CAPTION>

                                    INDIVIDUAL GRANTS (2)                  POTENTIAL REALIZABLE VALUE
                          -------------------------------------------        AT ASSUMED ANNUAL RATES
                          PERCENT OF TOTAL                              APPRECIATION FOR OPTION TERM (1)
                OPTIONS   OPTIONS GRANTED TO   EXERCISE   EXPIRATION    --------------------------------
    NAME        GRANTED   EMPLOYEES IN YEAR     PRICE        DATE             5%                  10%
    ----        -------   ------------------   --------   ----------     ------------        -----------
<S>             <C>              <C>             <C>        <C>  <C>     <C>                 <C>        
Ross M. Patten  485,000          22.3%          $ 3.25      2/18/08      $    991,295        $ 2,512,137
</TABLE>
(1)   Potential values stated are a result of using the Commissions method of
      calculation of 5% and 10% appreciation in value from the date of grant to
      the end of the option term. Such assumed rates of appreciation and
      potential realizable values are not necessarily indicative of the
      appreciation, if any, that may be realized in future periods.


(2)   Unvested options will immediately vest upon a change of control of the
      Company, including acquisition by any person or group of persons of at
      least 25% of the common stock of the Company, a merger resulting in the
      existing stockholders of the Company owning less than 50% of the
      outstanding stock of the Company following the merger, termination of
      employment without cause and election by the stockholders of a director
      not nominated by a majority of the board.

OPTION EXERCISES AND YEAR-END VALUES

      The following table sets forth information with respect to the exercised
and unexercised options to purchase shares of common stock for each of the Named
Executives held by them at December 31, 1998. Of the Named Executives, none
exercised stock options during 1998.

<TABLE>
<CAPTION>
                                                                                      VALUE OF UNEXERCISED
                                                        NUMBER OF UNEXERCISED        IN-THE-MONEY OPTIONS AT
                                                     OPTIONS AT DECEMBER 31, 1998       DECEMBER 31, 1998
                      SHARES ACQUIRED     VALUE      ----------------------------   ----------------------------
     NAME              ON EXERCISE       REALIZED    EXERCISABLE    UNEXERCISABLE   EXERCISABLE    UNEXERCISABLE
     ----             ---------------    --------    -----------    -------------   -----------    -------------
<S>                                                    <C>             <C>            <C>            <C>   
 Donald L. Thone                                       690,622                        $761,018
 Ross M. Patten                                        161,667         323,333        $ 80,834       $161,666
</TABLE>
(1)   Value of in-the-money options calculated based on the closing price per
      share of the common stock on December 31, 1998 ($3.75 per share) as
      reported by the NASDAQ Small Cap Market.

                                       21
<PAGE>                                                              
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

PRINCIPAL STOCKHOLDERS

      The following table sets fourth certain information regarding the
beneficial ownership of the Company's common stock at March 31, 1999, by each
stockholder that is known by the Company to own beneficially more than 5% of the
outstanding common stock.

        NAME OF PERSON                                NUMBER OF       PERCENT
   OR IDENTITY OF GROUP SHARES                         SHARES         OF CLASS
   ---------------------------                        ---------       ---------
James A. Jalovec .................................    1,947,860 (1)        13.6%
  2841 South 5th Court
  Milwaukee, WI 53207

GroWest, Inc. ....................................    1,475,323            11.0%
  114 Business Center Drive
  Corona, CA 91720

Kenneth Ch'uan-k'ai Leung ........................    1,278,167 (2)         8.9%
  126 E. 56th Street, 24th Floor
  New York, NY 10022

Donald L. Thone ..................................      973,955 (1)         6.8%
  410 Prestwick Ct.
  Houston, TX 77057

James Rosendall ..................................      900,001             6.3%
  323 Martindale Street
  Sparsa, MI 49345

Grace A. Draman ..................................      778,613             5.5%
  149 Yadkin Valley Road
  Advance, NC 27006

(1)   Includes exercisable options as of March 31, 1999, as follows: Mr. Thone 
      690,622 and Mr. Jalovec 221,332.


(2)   Includes Shares of 1,112,125 and 137,875 held by the Environmental
      Opportunities Fund L.P. and Environmental Opportunities Fund (Cayman) L.P.
      respectively, where Mr. Leung is Chief Investment Officer.

MANAGEMENT STOCKHOLDERS

      The following table sets fourth information regarding the beneficial
ownership of the Company's common stock at March 31, 1999, by (i) all directors,
(ii) the Chief Executive Officer and other executive officers and (iii) all
directors and executive officers as a group.

                                                       NUMBER OF       PERCENT
NAME OF PERSON OR IDENTITY OF GROUP                    SHARES (1)      OF CLASS
-----------------------------------                    ----------      --------
Ross M. Patten .....................................      323,334           2.2%
Paul C. Sellew .....................................      100,000             *
Mark A. Rome .......................................       93,334             *
Alvin L. Thomas II .................................       67,012             *
Randy E. Jennings ..................................       40,000             *
Irwin I. Gelbart ...................................       50,000             *
Dr. J. Mark Myers ..................................       33,127             *
Kenneth Ch'uan-k'ai Leung (2) ......................    1,278,167           8.9%
Gene Meredith ......................................       50,697             *
Alfred Tyler II ....................................       16,667             *

All directors and executive officers
 as a group (9 persons) ............................    2,052,338 (3)      14.4%

*     Less than 1% of outstanding shares.

(1)   Includes shares underlying outstanding stock options, as follows: Mr.
      Patten--323,334;Mr.Sellew--100,000; Mr. Rome--93,334; Mr. Thomas--66,667;
      Mr. Jennings--40,000; Mr. Gelbart--50,000; Dr. Myers--3,334; Mr.
      Leung--16,667; Mr. Meredith -16,667; and Mr. Tyler II--16,667.

                                       22
<PAGE>
(2)   Includes shares of 1,112,125 and 137,875 held by the Environmental
      Opportunities Fund L.P. and Environmental Opportunities Fund (Cayman) L.P.
      respectively, where Mr. Leung is Chief Investment Officer.

(3)   Includes (without duplication) all shares referred to above.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      The Company has entered into the following transactions with James A.
      Jalovec and GroWest, Inc., the prior owners of certain purchased Companies
      or their affiliates. The prior owners hold 13.1% and 11.0% of the
      outstanding shares including exercisable options as of March 31, 1999,
      respectively.

      The Company issued notes in the amount of $6,454,750 to prior owners of
      certain purchased companies as partial consideration of the acquisition
      price. These notes had a balance of $6,361,822 at December 31, 1998. The
      terms of the outstanding notes include varying principal installments
      starting August 1998 and continuing through November 2000 and annual
      interest rates of 7% to be paid quarterly. The notes have no financial
      covenants. The note related to the Recyc acquisition with a balance of
      approximately $2,212,000 at December 31, 1998 may be offset if certain
      postclosing conditions are not met. No adjustments have been made as of
      December 31, 1998. Additionally, the Company has notes to prior owners
      relating to non-compete agreements; these notes have a balance of $200,000
      at December 31, 1998. The notes are paid in varying installments and have
      an annual imputed interest rate of 9%.
      These notes have no financial covenants.

      Concurrent with certain acquisitions, the Company entered into various
      agreements with prior owners to lease land and buildings used in the
      Company's operations. The terms of the lease range from three years to
      thirty years and provide for certain escalations in rental expense. One
      such lease which expires in 2028 has an option to terminate upon 30 days
      notice in the event a conditional use permit (as defined in the agreement)
      relating to the leased land expires. Additionally, the Company has a five
      year option to purchase such leased property for $2,250,000, which expires
      in 2003. Currently, the Company pays rent in the amount of $36,000 per
      annum for the first three years and $192,000 per annum thereafter on the
      lease. The charges for the lease costs are being expensed on a
      straight-line basis. Included in 1998 rent expense was approximately
      $210,500 of rent paid to related parties.

      Notwithstanding any apparent (or actual) conflict of interest that may
      have existed with respect to the financial arrangement, the Board of
      Directors is of the opinion that these arrangements are as favorable to
      the Company as any that would have been negotiated at arm's length with
      similar situated third parties under the same circumstances.

                                       23
<PAGE>
                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a)   1.     FINANCIAL STATEMENTS.

      Synagro Technologies, Inc. and Subsidiaries consolidated balance sheets as
of December 31, 1998 and 1997, and related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1998.

      2.    FINANCIAL SCHEDULES.

      All financial statement schedules are omitted for the reason that they are
not required or are not applicable, or the required information is shown in the
financial statements or the notes thereto.

      3.    EXHIBITS


 EXHIBIT                 DESCRIPTION OF EXHIBIT

   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).

  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. 333-18029), dated December 17, 1996, is incorporated herein by
            reference).


                                       24
<PAGE>

  10.4      6% Promissory Note made by Custom Poultry to Organi-Gro and the
            Company in the principal amount of $1,152,381, dated April 1, 1997
            (Exhibit 10.8 to the Company's Annual Report on Form 10-K for the
            year ended December 31, 1996, is incorporated herein by reference).

  10.5      Guaranty of Tony D. Childers ("Childers") for 6% Promissory Note
            made by Custom Poultry to Organi-Gro, dated April 1, 1997 (Exhibit
            10.9 to the Company's Annual Report on Form 10-K for the year ended
            December 31, 1996, is incorporated herein by reference).

  10.6      6% Promissory Note made by Hodges to Organi-Gro and the Company in
            the principal amount of $308,203, dated April 1, 1997. (Exhibit
            10.10 to the Company's Annual Report on Form 10-K for the year ended
            December 31, 1996, is incorporated herein by reference).


  10.7      Guaranty of Childers and Jack Hodges for 6% Promissory Note made by
            Hodges to Organi-Gro, dated April 1, 1997 (Exhibit 10.11 to the
            Company's Annual Report on Form 10-K for the year ended December 31,
            1996, is incorporated herein by reference).

**10.8      Credit Agreement entered into among Synagro Technologies, Inc.,
            various financial institutions, and Bank of America National Trust
            and Savings Association, dated as of October 7, 1998; First 
            Amendment to Credit Agreement dated as of November 2, 1998; Second 
            Amendment to Credit Agreement dated as of November 13, 1998; 
            Assigment Agreement dated as of December 4, 1998.

**21.1      Subsidiaries of Synagro Technologies, Inc.

 *23.1      Consent of Arthur Andersen LLP.

**27.1      Financial Data Schedule.

-------------
*  Filed herewith.

** Filed with the Company's Form 10-K for the year ended December 31, 1998, 
   Dated April 15, 1999.

(b) REPORTS ON FORM 8-K.

      On December 16, 1998, the Company filed a Current Report on Form 8-K
listing the acquisition of Environmental Waste Recycling, Inc.




                                       25
<PAGE>

                           SYNAGRO TECHNOLOGIES, INC.

                  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS




Report of Independent Public Accountants                                 F-2

Consolidated Balance Sheets as of December 31, 1998 and 1997             F-3

Consolidated Statements of Operations for the Years Ended December 31,
1998, 1997 and 1996                                                      F-4

Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1998,
1997 and 1996                                                            F-5

Consolidated Statements of Cash Flows for the Years Ended December 31,
1998, 1997 and 1996                                                      F-6

Notes to Consolidated Financial Statements                               F-8


                                      F-1
<PAGE>
                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Synagro Technologies, Inc.:

We have audited the accompanying consolidated balance sheets of Synagro
Technologies, Inc. (a Delaware corporation), and subsidiaries as of December 31,
1998 and 1997, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Synagro
Technologies, Inc., and subsidiaries as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.


ARTHUR ANDERSEN LLP


Houston, Texas
April 15, 1999


                                      F-2
<PAGE>
                           SYNAGRO TECHNOLOGIES, INC.

                           CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                              DECEMBER 31
                                                                     ----------------------------
                                                                           1998            1997
                                                                     ------------    ------------
<S>                                                                  <C>             <C>         
                               ASSETS
CURRENT ASSETS:
   Cash and cash equivalents .....................................   $    255,115    $    166,994
   Short-term investments ........................................           --            64,504
   Restricted cash, current portion ..............................        680,656         172,925
   Accounts receivable, net of allowance of $196,770
     and $189,862 ................................................      6,193,720       3,942,355
   Notes receivable, current portion .............................        378,538         500,133
   Prepaid expenses and other current assets .....................      1,638,181       1,330,018
                                                                     ------------    ------------

                     Total current assets ........................      9,146,210       6,176,929

PROPERTY, MACHINERY AND EQUIPMENT, net ...........................     10,763,073       8,914,588

OTHER ASSETS:
   Goodwill, net of accumulated amortization of $1,594,918 and
    $966,079......................................................     43,130,904       4,333,277
   Restricted cash, long-term portion ............................           --           173,387
   Notes receivable, long-term portion ...........................        262,829            --
   Other .........................................................      1,089,533         249,938
                                                                     ------------    ------------
                     Total assets ................................   $ 64,392,549    $ 19,848,119
                                                                     ============    ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:

   Current portion of long-term debt .............................   $       --      $  2,552,401
   Notes payable to prior owners, current portion ................           --           398,890
   Accounts payable and accrued expenses .........................      3,896,047       4,021,610
                                                                     ------------    ------------
                     Total current liabilities ...................      3,896,047       6,972,901
LONG-TERM DEBT:
   Long-term debt ................................................     20,115,209       5,494,549
   Notes payable to prior owners .................................      6,679,039            --
                                                                     ------------    ------------
                     Total long-term debt.........................     26,794,248       5,494,549

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
   Preferred stock, $.002 par value, 10,000,000 shares authorized,
     none issued and outstanding .................................           --              --
   Common stock, $.002 par value, 100,000,000 shares authorized,
     13,251,705 shares and 7,610,305 issued and outstanding ......         26,503          15,221
   Additional paid-in capital ....................................     56,305,873      25,323,915
   Accumulated deficit ...........................................    (22,630,122)    (17,958,467)
                                                                     ------------    ------------
                     Total stockholders' equity ..................     33,702,254       7,380,669
                                                                     ------------    ------------
                     Total liabilities and stockholders' equity ..   $ 64,392,549    $ 19,848,119
                                                                     ============    ============
</TABLE>

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

                                      F-3
<PAGE>
                           SYNAGRO TECHNOLOGIES, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS

             FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996


<TABLE>
<CAPTION>
                                                               1998           1997             1996
                                                          ------------    ------------    ------------
<S>                                                       <C>             <C>             <C>         
NET SALES .............................................   $ 29,966,511    $ 25,303,069    $ 22,977,404

COST OF SERVICES ......................................     25,005,754      21,007,387      19,254,903
                                                          ------------    ------------    ------------

                       Gross profit ...................      4,960,757       4,295,682       3,722,501

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ..........      4,629,859       3,668,765       6,141,013

OTHER CHARGES (CREDITS):
   Loss on assets held for sale and other special
     charges / (credits) ..............................        (63,799)       (721,286)      4,841,807
                                                          ------------    ------------    ------------
                        Income (loss) from operations .        394,697       1,348,203      (7,260,319)
                                                          ------------    ------------    ------------

OTHER INCOME (EXPENSE):
   Other income, net ..................................        309,484         407,177         344,095
   Interest ...........................................     (1,441,251)       (923,879)       (672,706)
                                                          ------------    ------------    ------------
                                                            (1,131,767)       (516,702)       (328,611)
                                                          ------------    ------------    ------------

NET INCOME (LOSS) BEFORE REDEEMABLE PREFERRED DIVIDENDS
AND INCOME TAXES ......................................       (737,070)        831,501      (7,588,930)
PROVISION FOR INCOME TAXES ............................           --              --              --
                                                          ------------    ------------    ------------

NET INCOME (LOSS) BEFORE REDEEMABLE PREFERRED DIVIDENDS       (737,070)        831,501      (7,588,930)

REDEEMABLE PREFERRED STOCK DIVIDENDS ..................      3,934,585            --              --
                                                          ------------    ------------    ------------
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK ..........   $ (4,671,655)   $    831,501    $ (7,588,930)
                                                          ============    ============    ============ 
INCOME PER COMMON AND COMMON SHARE EQUIVALENT:
   Net income (loss), basic ...........................   $       (.46)   $        .11    $      (1.21)
   Net income (loss), diluted .........................   $       (.46)   $        .11    $      (1.21)

WEIGHTED AVERAGE SHARES OUTSTANDING, BASIC ............     10,207,248       7,545,113       6,266,759
WEIGHTED AVERAGE SHARES OUTSTANDING, DILUTED ..........     10,207,248       7,740,344       6,266,759

</TABLE>

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

                                      F-4
<PAGE>
                           SYNAGRO TECHNOLOGIES, INC.

               CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

             FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

<TABLE>
<CAPTION>
                                                             COMMON STOCK               ADDITIONAL                 
                                                    ----------------------------         PAID-IN        ACCUMULATED
                                                        SHARES           AMOUNT          CAPITAL          DEFICIT            TOTAL
                                                    -----------     ------------     ------------     ------------     ------------ 
<S>                                                   <C>           <C>              <C>              <C>              <C>         
BALANCE, December 31, 1995 ....................       6,052,757     $     12,106     $ 22,160,585     $(11,201,038)    $ 10,971,653

   Shares issued in acquisition ...............         155,000              310          222,425             --            222,735
   Conversion of long-term debt ...............         144,344              289          189,711             --            190,000
   Exercise of options ........................           3,333                7            6,659             --              6,666
   Net loss ...................................            --               --               --         (7,588,930)      (7,588,930)
                                                    -----------     ------------     ------------     ------------     ------------ 
BALANCE, December 31, 1996 ....................       6,355,434           12,712       22,579,380      (18,789,968)       3,802,124

   Redemption of warrants, net ................       1,324,243            2,648        2,947,412             --          2,950,060
   Shares exchanged in repayment of
    notes receivable ..........................         (74,372)            (149)        (212,867)            --           (213,016)
   Exercise of options ........................           5,000               10            9,990             --             10,000
   Net income .................................            --               --               --            831,501          831,501
                                                    -----------     ------------     ------------     ------------     ------------ 
BALANCE, December 31, 1997 ....................       7,610,305           15,221       25,323,915      (17,958,467)       7,380,669

Shares issued in acquisitions .................       4,152,981            8,306       23,773,983             --         23,782,289
Conversion of preferred stock .................       1,458,335            2,916        3,429,968             --          3,432,884

Issuance of warrants ..........................            --               --            200,000             --            200,000
Exercise of options and warrants ..............          30,084               60           63,422             --             63,482
Preferred stock dividends .....................            --               --          3,514,585       (3,934,585)        (420,000)
Net loss ......................................            --               --               --           (737,070)        (737,070)
                                                    -----------     ------------     ------------     ------------     ------------ 

BALANCE, DECEMBER 31, 1998 ....................      13,251,705     $     26,503     $ 56,305,873     $(22,630,122)     $ 33,702,254
                                                    ===========     ============     ============     ============     ============ 
</TABLE>

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

                                      F-5
<PAGE>
                           SYNAGRO TECHNOLOGIES, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

             FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

<TABLE>
<CAPTION>
                                                                 1998           1997           1996
                                                             -----------    -----------    -----------
<S>                                                          <C>            <C>            <C>         
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income (loss) before preferred stock dividends ....   $  (737,070)   $   831,501    $(7,588,930)
Adjustments to reconcile net income (loss) to net cash
  provided by (used in) operating activities-
       Depreciation ......................................     1,668,397      1,498,255      1,951,518
       Amortization ......................................       667,845        228,895        255,690
Loss on assets held for sale and other special
  charges (credits) ......................................      (251,476)      (721,286)     4,841,807
       Gain on sale of property, machinery and equipment .      (145,333)      (251,470)      (261,319)
       Other .............................................          --         (113,133)          --
(Increase) decrease in the following, excluding
  the effects of acquisitions-
           Accounts receivable ...........................      (429,644)    (1,408,821)      (635,872)
           Inventory .....................................          --             --          111,429
           Prepaid expenses and other current assets .....      (141,349)    (1,111,794)       758,253
           Other assets ..................................      (316,093)      (143,407)       (27,627)
Increase (decrease) in the following, excluding
  the effects of acquisitions-
           Accounts payable and accrued expenses .........      (809,327)        (9,315)     1,472,235
                                                             -----------    -----------    -----------
Net cash provided by (used in) operating
  activities .............................................      (494,050)    (1,200,575)       877,184
                                                             -----------    -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchase of businesses, net of cash acquired ..........    (9,411,182)          --       (1,277,265)
   Purchase of property, machinery and equipment .........    (1,712,407)    (1,089,076)    (1,404,815)
   Proceeds from sale of property, machinery and equipment     2,081,026        456,564        640,404
   Sales of short-term investments, net ..................        64,504        495,496        455,743
   Proceeds from notes receivable ........................       138,999        121,286           --
                                                             -----------    -----------    -----------
        Net cash used in investing activities ............    (8,839,060)       (15,730)    (1,585,933)
                                                             -----------    -----------    -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from debt ....................................     7,728,701      1,082,410      5,797,696
   Payments on debt ......................................    (1,049,492)    (3,301,330)    (7,135,023)
   Increase in restricted cash ...........................      (334,344)          (950)        (5,105)
   Preferred stock dividend ..............................      (420,000)          --             --
   Redemption of warrants, net ...........................          --        2,950,060           --
   Issuance of preferred stock, net of offering costs ....     3,432,884           --             --
   Exercise of options and warrants.......................        63,482         10,000          6,666
                                                             -----------    -----------    -----------

Net cash provided by (used in) financing
  activities .............................................     9,421,231        740,190     (1,335,766)
                                                             -----------    -----------    -----------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .....        88,121       (476,115)    (2,044,515)

CASH AND CASH EQUIVALENTS, beginning of year .............       166,994        643,109      2,687,624
                                                             -----------    -----------    -----------

CASH AND CASH EQUIVALENTS, end of year ...................   $   255,115    $   166,994    $   643,109
                                                             ===========    ===========    ===========
</TABLE>





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

                                      F-6
<PAGE>
                           SYNAGRO TECHNOLOGIES, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

             FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                                   (Continued)

                                            1998        1997        1996
                                          --------    --------    --------
SUPPLEMENTAL CASH FLOW INFORMATION:
   Interest paid                          $891,462    $942,877    $760,339

   Taxes paid                                  ---         ---         ---

                  NONCASH INVESTING AND FINANCING ACTIVITIES

On March 31, 1998, the Company issued 1,458,335 shares of Series B Preferred
Stock, $.002 par value per share (the "Preferred Stock"), with a beneficial
conversion feature. The Company recognized the value of the beneficial
conversion feature of $3,514,585 as a preferred dividend.

On June 10, 1998, the Preferred Stock was converted into 1,458,335 shares of the
Company's Common Stock.

The Company sold the operations of a wholly-owned subsidiary in 1997. The net
assets and liabilities sold were approximately $978,000 net of a loss allowance
of approximately $2.4 million and assumed debt by the purchaser was
approximately $978,000 in exchange for a note receivable of approximately $1.4
million which was initially reserved at the date of sale. (NOTE 11)

In 1997, $946,000 of assets were purchased in accordance with a purchase and
sale agreement. The purchase was financed through debt.

In 1997, approximately $213,000 of notes receivable was repaid with 74,372
shares of Common Stock.

In 1996, $190,000 of debentures were converted into 144,344 shares of Common
Stock.

In 1996, $1,325,150 of machinery and equipment was acquired with debt.



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


                                      F-7
<PAGE>
                           SYNAGRO TECHNOLOGIES, INC.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)   BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES --

BUSINESS AND ORGANIZATION

Synagro Technologies, Inc., a Delaware corporation ("Synagro"), and collectively
with its subsidiaries (the "Company") is engaged in the biosolids management
business. The Company does this through beneficial reuse of organic materials,
transportation and monitoring of biosolids, and the marketing of end products
from the treatment of such materials. The Company is headquartered in Houston,
Texas and operates throughout the United States.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Synagro and its
wholly owned subsidiaries. All intercompany accounts and transactions have been
eliminated.

CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

The Company considers all investments with an original maturity of three months
or less when purchased to be cash equivalents. Short-term investments have
maturities greater than three months at the date of purchase. At December 31,
1997, short-term investments consisted of certificates of deposit. All
short-term investments have been classified as held-to-maturity at December 31,
1997. These investments have various maturity dates which do not exceed one
year. These securities are carried at cost, which approximates fair value.

PROPERTY, MACHINERY AND EQUIPMENT

Property, machinery and equipment is stated at cost. Depreciation is being
provided using straight-line and accelerated methods over estimated useful lives
of three to twenty years. Leasehold improvements are capitalized and amortized
over the lesser of the life of the lease or the estimated useful life of the
asset.

Expenditures for repairs and maintenance are charged to expense when incurred.
Expenditures for major renewals and betterments, which extend the useful lives
of existing equipment, are capitalized and depreciated. Upon retirement or
disposition of property, machinery and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the statements of operations.

In the second quarter of 1997, the Company changed the estimated useful
lives of certain fixed assets. The change which had an impact of less than
one-half of $0.01 on net income per share did not materially effect the
Company's results of operations.

GOODWILL

Goodwill represents the aggregate purchase price paid by the Company in
acquisitions accounted for as a purchase over the fair value of the net tangible
assets acquired. Goodwill is amortized on a straight-line basis over the
estimated period of benefit ranging from 20 to 40 years.

In the event that facts and circumstances indicate that goodwill may be
impaired, an evaluation of recoverability would be performed. If an evaluation
were required, the estimated future undiscounted cash flows associated with the
asset would be compared to the asset's carrying amount to determine if a
write-down to market value or discounted cash flow value was necessary. The
Company believes the goodwill remaining as of December 31, 1998, is fully
realizable.

At December 31, 1998, goodwill of approximately $3,879,000 is being amortized
over a 20 year life. The Company's remaining goodwill is being amortized over a
40 year life. Goodwill amortization expense was $255,690, $228,895 and $628,839
for 1996, 1997 and 1998, respectively.

                                      F-8
<PAGE>
OTHER ASSETS

Included in other assets are non-compete agreements. These agreements are valued
at cost and amortized on a straight-line basis over the term of the agreement,
which is generally for two to five years. Amortization expense was approximately
$40,000 in 1998 and -0- in 1997 and 1996, respectively. Additionaly, the Company
had deferred financing costs in connection with the credit facility disclosed in
Note 6, the costs are being expensed over the term of the agreement.

REVENUE RECOGNITION

Revenues are recognized as services are completed and provided.

USE OF ESTIMATES

In preparing financial statements in conformity with generally accepted
accounting principles, 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.

LONG-LIVED ASSETS

Effective January 1, 1996, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of." SFAS No. 121 requires that
long-lived assets and certain identifiable intangibles held and used by an
entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. The
Company's adoption of SFAS No. 121 did not have a material effect on the
Company's financial position or results of its operations.

RECLASSIFICATIONS

Certain reclassifications have been made to the prior years' financial
statements to conform with the 1998 presentation.

CONCENTRATION OF CREDIT RISK

The Company provides services to a broad range of geographical regions. The
Company's credit risk primarily consists of receivables from a variety of
customers including, state and local agencies, municipalities and private
industries. The Company reviews its accounts receivable and provides allowances
as deemed necessary.

INCOME TAXES

The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes". This standard provides the method for determining
the appropriate asset and liability for deferred taxes which are computed by
applying applicable tax rates to temporary (timing) differences. Therefore,
expenses recorded for financial statement purposes before they are deducted for
tax purposes create temporary differences which give rise to deferred tax
assets. Expenses deductible for tax purposes before they are recognized in the
financial statements create temporary differences which give rise to deferred
tax liabilities.

NEW ACCOUNTING PRONOUNCEMENTS

Effective December 31, 1998, the Company adopted SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information." SFAS No. 131
establishes new standards for segment reporting which are based on the way
management organizes segments within a company for making operating decisions
and assessing performance. Through December 31, 1998, the Company operated in
one segment namely, the biosolids management business segment.


                                      F-9
<PAGE>
In February 1998, the Financial Accounting Standards Board (the "FASB") issued
SFAS No. 132, "Employers Disclosures about Pensions and Other Postretirement
Benefits," which becomes effective for financial statements for the year ended
December 31, 1998. SFAS No. 132 requires revised disclosures about pensions and
other postretirement benefit plans. The Company has adopted the provisions of
SFAS No. 132, and it does not have a material effect on the Company's
consolidated financial position or result of operations.

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

In March 1998, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." The SOP provides guidance with
respect to accounting for the various types of costs incurred for computer
software developed or obtained for the Company's use. The Company is required to
and will adopt SOP 98-1 by the first quarter of fiscal 1999 and believes that
adoption will not have a material effect on its consolidated financial position
or result of operations.

In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of Start-Up
Activities," which requires costs of start-up activities to be expensed as
incurred, and upon adoption, previously deferred costs should be charged as a
cumulative effect of a change in accounting principle. The statement is
effective for financial statements beginning after December 15, 1998. The
adoption of this standard is not expected to have a material effect on the
Company's consolidated financial position or result of operations.

(2)   ACQUISITIONS -

Environmental Waste Recycling, Inc.

     On November 5, 1998, the Company acquired Environmental Waste Recycling
Inc. ("EWR"), a biosolids management company for approximately $9,487,000. The
acquisition was financed through the issuance of 865,125 shares of Common Stock
with a market value of approximately $2,812,000, $200,000 in debt and
approximately $6,475,000 in cash and acquisition costs. The Common Stock was
valued in accordance with the provisions of Emerging Issues Task Force ("EITF")
95-19. The transaction was recorded using the purchase method of accounting. The
accompanying balance sheet as of December 31, 1998, includes a preliminary
allocation of the purchase price and is subject to final adjustments which
management believes will not be material. The preliminary allocation resulted in
approximately $7,091,000 of goodwill, that is being amortized over 40 years. The
purchase agreement provides for the payment of additional cash and stock
consideration in an aggregate amount not to exceed $2,956,216 in the event
certain financial targets are realized during the twelve-month period after
closing. The Company financed the cash portion of the merger consideration with
borrowings under its credit facility with Bank of America.


                                      F-10
<PAGE>
Recyc, Inc.

On July 24, 1998, the Company acquired Recyc, Inc. ("Recyc"), a biosolids
composting company, for approximately $15,573,000. The acquisition was financed
through the issuance of 1,475,323 shares of Common Stock with a market trading
value of approximately $8,573,000, $5,646,000 in debt, and $1,354,000 in cash
and acquisition costs. The Common Stock issued was valued in accordance with the
provisions of EITF 95-19. The transaction was recorded using the purchase method
of accounting. The accompanying balance sheet as of December 31, 1998, includes
a preliminary allocation of the purchase price and is subject to final
adjustments which management believes will not be material. The accompanying
balance sheet as of December 31, 1998 includes a preliminary allocation
resulting in approximately $14,964,000 of goodwill that is being amortized over
40 years. An unsecured note in the approximate amount of $2,305,000 was issued
to the prior owner with principal due November, 2000. The note bears annual
interest of 7% and is payable quarterly with the first payment made in November
1998. The note has no financial covenants. The principal owed under the
promissory note may be offset, and up to 375,000 of the shares issued to the
prior owners may be returned to the Company if certain postclosing conditions
are not met. In connection with the acquisition, the Company entered into a
lease agreement with an option to purchase with the prior owners, as trustees of
a family trust of said stockholders, providing for the lease by Recyc of a
composting facility. In addition, the Company entered into a transportation
agreement with an initial term of two years with Recyc Trucking, Inc., ("RTI"),
a company owned by the prior owners, for the provision by RTI of certain
transportation services relating to Recyc's operations.

A & J Cartage and Related Companies

On June 23, 1998, the Company purchased the stock of A&J Cartage, Inc., a
Wisconsin company, Michigan Organic Resources, Inc., a Michigan company, and A&J
Cartage Southeast, Inc., a Florida company (collectively "A&J") all of which
provide biosolids management services, for approximately $19,802,000. The
acquisitions were financed through the issuance of 1,812,533 shares of Common
Stock with a market trading value of approximately $12,398,000, approximately
$5,823,000 in debt and $1,581,000 in cash and acquisition costs. The Common
Stock issued was valued in accordance with the provisions of EITF 95-19. The
transactions were recorded using the purchase method of accounting. The
accompanying balance sheet as of December 31, 1998, includes a preliminary
allocation of the purchase price and is subject to final adjustments which
management believes will not be material. The preliminary allocation resulted in
approximately $17,372,000 of goodwill that is being amortized over 40 years. The
unsecured notes issued to the prior owner are payable in quarterly installments
with the first installment due January 1, 1999. The notes bear annual interest
rate of 7%. The notes have no financial covenants.

The Company purchased all of the common stock of A&J, Recyc and EWR during 1998.
The assets acquired and liabilities assumed were as follows for the year ended
December 31, 1998.


Net cash paid including
 acquisition costs ........................        $  9,410,000
Fair value of tangible assets
  acquired ................................          (6,091,000)
Liabilities assumed .......................             655,000

Notes payable - Issued and Assumed ........          11,669,000 

Common Stock issued .......................          23,783,000
                                                   ------------
Goodwill ..................................        $ 39,426,000
                                                   ============ 

BFI Organics Division

Effective August 1, 1997, the Company purchased certain assets and revenue
contracts of the Organics Division of Browning Ferris Industries, Inc. in the
District of Columbia, Georgia, Maryland, Ohio, Pennsylvania, and Virginia for
approximately $946,000. The acquisition was financed through the issuance of
third-party debt. The debt bears an interest rate equal to 30 day commercial
paper plus 2.77%.


                                      F-11
<PAGE>
Pima Gro Systems, Inc.

Effective July 1, 1996, the Company acquired all the issued and outstanding
stock of Pima Gro Systems, Inc., and Pima Gro Systems 2, Inc. (collectively,
PimaGro), a company engaged in the business of recycling and transportation of
biosolids. The aggregate purchase price was approximately $3,096,000, consisting
of approximately $1,277,000 in cash, $1,595,000 in notes payable and 155,000
shares of the Company's Common Stock valued at approximately $223,000, subject
to an additional contingent sum on the purchase price of $5.20 for each dollar
by which the pretax earnings of PimaGro, for each of the fiscal years during
1996 through 1998, exceed the base amount of $380,000 in 1996 and, subject to
certain adjustments to the base amount, during the two following fiscal years.
The additional contingent sum may be payable by the Company, if at all, in cash,
Common Stock or promissory notes, or any combination thereof. Such amounts which
may be payable as contingent sum payments will be held in escrow until March 31,
1999, and subject to reduction based on amounts expended by the Company for
certain capital expenditures and costs reserved for the development of certain
business sites. As of December 31, 1998, there were no additional contingent
amounts payable by the Company. The acquisition has been accounted for under the
purchase method and, accordingly, the operating results of PimaGro have been
included in the operating results of the Company since the date of acquisition.
The excess of the total acquisition cost over the fair value of the net assets
acquired (goodwill) in the amount of $1,419,000 is being amortized on a
straight-line basis over 40 years.

The Company purchased all of the common stock of PimaGro during 1996. The
assets acquired and liabilities assumed were as follows for the year ended
December 31, 1996:

                                                     
Net cash paid .............................................         $ 1,277,000
Fair value of tangible assets acquired ....................          (4,792,000)
Liabilities assumed .......................................           3,116,000 
Notes payable - issued ....................................           1,595,000 
Common Stock issued .......................................             223,000 
                                                                    -----------
Goodwill ..................................................         $ 1,419,000
                                                                    ===========

The following unaudited pro forma information for the periods set forth below
gives effect to the acquisitions of A&J, Recyc and EWR as if they had occurred
at the beginning of 1997. The unaudited pro forma information is presented for
information purposes only and is not necessarily indicative of actual results
which might have occurred if the acquisitions had been made at the beginning of
the periods presented.

<TABLE>
<CAPTION>
                                                              YEAR ENDED
                                                         DECEMBER 31 (UNAUDITED)
                                                     ----------------------------  
                                                         1998              1997
                                                     ------------      ----------  
<S>                                                  <C>               <C>       
Net sales ........................................   $ 44,673,978      47,400,708

Net income (loss) before Preferred Stock Dividends      1,055,921       2,790,560

Net income (loss) applicable to Common Stock .....     (2,878,664)      2,790,560


Net income (loss) per share ......................           (.23)            .24
          Basic
          Diluted ................................           (.23)            .23
</TABLE>

(3)   PROPERTY, MACHINERY AND EQUIPMENT --

Property, machinery and equipment consists of the following:

                                      F-12
<PAGE>
<TABLE>
<CAPTION>
                                                                   DECEMBER 31
                                                                   -----------
                                          ESTIMATED USEFUL 
                                            LIFE-IN YEARS       1998          1997
                                            ------------- -----------   -----------
<S>                                                       <C>           <C>        
Land .................................           --       $   444,958   $   576,884
Buildings ............................            20             --         252,093
Machinery and equipment ..............          3-10       15,004,869    12,678,260
Office furniture and equipment .......          3-10          531,302       362,578
Leasehold improvements ...............            20          181,683        93,080
Construction in process ..............           --           225,644       116,725
                                                          -----------   -----------
                                                           16,388,456    14,079,620
Less- Accumulated depreciation and                        
  amortization .......................                      5,625,383     5,165,032
                                                          -----------   -----------
                                                          $10,763,073   $ 8,914,588
                                                          ===========   ===========
</TABLE>


                                                       
(4)   DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS --

Activity of the Company's allowance for doubtful accounts consists of the
following:

                                                                DECEMBER 31,
                                                                ------------
                                                           1998          1997
                                                        ---------     ---------
                                                       
Balance at beginning of year .......................    $ 189,862     $ 287,514
Deductions for recoveries and for uncollectible
   receivables written off .........................      (13,092)      (97,652)
Allowance for doubtful accounts of purchased
companies at acquisition date ......................       20,000          --
                                                        =========     =========
Balance at end of year .............................    $ 196,770     $ 189,862
                                                        =========     =========

Accounts payable and accrued expenses consist of the following:

                                                              DECEMBER 31
                                                     ---------------------------
                                                         1998             1997
                                                     ----------       ----------
Accounts payable .............................       $2,673,395       $2,461,811
Accrued legal and other claims costs .........          287,378          937,065
Accrued salaries and benefits ................           72,616           77,803
Accrued interest .............................          294,723           77,025
Other accrued expenses .......................          567,935          467,906
                                                     ----------       ----------
                   Total .....................       $3,896,047       $4,021,610
                                                     ==========       ==========

                                      F-13
<PAGE>
(5)   AGENCY RIGHTS --

The Company had the exclusive agency rights to market the "N-Viro Process" in
the southwestern United States. The "N-Viro Process" is a process to convert
biological organic waste into marketable products. The Company acted as the
agent to collect all of the fees from any licensees and to pay to N-Viro
International any amounts not payable to the Company as compensation pursuant to
the agency and license agreements.

In December 1996, the Company decided to wind down and discontinue its
operations relating to the N-Viro Process and accordingly determined that a
permanent impairment had occurred in the value of the agency rights. The
carrying value of the agency rights of approximately $1,178,000 was charged to
operations. In addition, the Company sold certain assets related to these
operations and recorded a charge to operations in the fourth quarter of 1996
amounting to approximately $1,200,000 to adjust the carrying values of these
assets to their estimated fair market values. These charges are included in
"loss on assets held for sale and other special charges (credits)" in the
accompanying consolidated statements of operations. The remaining assets in the
amount of approximately $397,000 in 1998 and 1997, respectively, have been
classified as property, machinery and equipment in the accompanying consolidated
balance sheet at December 31, 1998 and 1997.

(6)   LONG-TERM DEBT OBLIGATIONS --

Long-term debt obligations consist of the following:
<TABLE>
<CAPTION>
                                                                                     DECEMBER 31
                                                                              -------------------------  
                                                                                  1998          1997
                                                                              -----------   -----------
<S>                                                                           <C>           <C>        
Term loan with a bank, repaid with credit facility ........................   $      --     $ 4,000,000
Revolving credit facility with a bank .....................................    18,200,000     1,037,270
Economic development revenue bonds ........................................       630,000       945,000
Note payable to a financial institution, maturing in varying installments
   through the year 2002, secured by certain assets of the
   Company, with an interest rate of 4% ...................................       245,757       300,000
Notes payable to financial institution and individuals, maturing in varying
   installments through the year 2001, secured by equipment with
   interest rates ranging from 8% to 10% ..................................     1,039,452     1,764,680
                                                                              -----------   -----------
                                   Total debt .............................    20,115,209     8,046,950
Less:

Current maturities ........................................................          --       2,552,401
                                                                              -----------   -----------
                            Long-term debt, net of current maturities .....   $20,115,209   $ 5,494,549
                                                                              ===========   ===========
</TABLE>
CREDIT FACILITY

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

The Facility expires October 5, 2001, and bears interest at the bank eurodollar
rate plus a margin based upon a pricing schedule per the Facility agreement
(7.4% at December 31, 1998). The weighted average interest rate in 1998 was
7.51%. The Facility is subject to a borrowing base equal to 4 times earnings
before interest, taxes, depreciation and amortization ("EBITDA") based on a
trailing twelve months calculation, as defined in the Facility, less funded debt
as defined, (which includes notes payable to prior owners, which can be
refinanced through the Facility), until March 1999, and 3.75 times EBITDA
thereafter. Amounts available for additional borrowing under the Facility at
December 31, 1998 totaled approximately $2,579,000.

The Facility requires the consent of the lenders for acquisitions exceeding a
certain level of cash consideration, prohibits the payments of cash dividends,
limits the issuance of indebtedness and requires the Company to comply with
certain financial covenants, including a minimum net worth requirement, maximum
senior and total debt to pro forma EBITDA and interest coverage ratio. The
Company was in compliance with all covenants as of December 31, 1998.


                                      F-14
<PAGE>
The Facility was used to payoff the Company's previous facility with LaSalle
National Bank ("LaSalle") which had been obtained through two of the Company's
subsidiaries. The previous facility consisted of a $5 million revolving line of
credit and a $5 million term loan. The amount under the line of credit was
subject to a borrowing base of 85% of eligible accounts receivable, as defined
in the agreement. The term loan required principal payments of $1 million a
year. The revolving line of credit required the Company to direct all its
account debtors to make all payments on the accounts to a lockbox designated by,
and under the control of, LaSalle. Additionally, the bank had the right to
accelerate borrowings outstanding in the event the bank reasonably felt insecure
for any material reason. As a result, in order to comply with EITF Pronouncement
95-22, the Company classified the revolving line of credit portion of the
Facility as a current liability in the accompanying balance sheet as of December
31, 1997. This previous facility was to expire in September 1999.

REVENUE BONDS

The economic development revenue bonds are expected to be paid in September
1999. Interest was payable at 6.7 and 6.9 percent per annum in 1998 and 1997,
respectively. Included in the accompanying consolidated balance sheets as of
December 31, 1998 and 1997, is restricted cash of $680,656 and $346,312,
respectively, for future payment of principal and interest on the bonds.

NOTES PAYABLE TO PRIOR OWNERS

The Company issued notes in the amount of $8,050,311 to prior owners of certain
purchased companies as partial consideration of the acquisition price. These
notes had a balance of $6,361,822 and $398,890 at December 31, 1998 and 1997
respectively. The terms of the outstanding notes include varying principal
installments starting August 1998 and continuing through November 2000 and
annual interest rates of 7% to be paid quarterly. The notes have no financial
covenants. The note related to the Recyc acquisition with a balance of
approximately $2,212,000 at December 31, 1998 may be offset if certain
postclosing conditions are not met. No adjustments have been made as of December
31, 1998. Additionally, the Company has notes to prior owners relating to
non-compete agreements; these notes have a balance of $317,217 at December 31,
1998. The notes are paid in varying installments starting July 1998, and have an
annual imputed interest rate of 9%. These notes have no financial covenants.

At December 31, 1998, future principal payments of total long-term debt are as
follows:

                                   
         YEAR ENDING         LONG-TERM            NOTES PAYABLE TO
         DECEMBER 31           DEBT                  PRIOR OWNERS
         -----------        -----------         ---------------------
         1999               $ 1,229,525               $ 3,526,552
         2000                   210,600                 2,969,154
         2001                18,429,327                   100,000
         2002                   245,757                    83,333
                            -----------               -----------
        Total               $20,115,209               $ 6,679,039
                            ===========               ===========
                                                        
                                      F-15
<PAGE>                       
The Company had current maturities on total long term debt of $4,756,077 at
December 31, 1998. The Company has the ability and intent to refinance such
maturities related to long term debt with the Facility and has therefore
classified such indebtedness as long-term in the consolidated balance sheet as
of December 31, 1998. The Company estimates the fair value of long-term debt as
of December 31, 1998 and 1997, to be approximately the same as the recorded
value.

 (7)  INCOME TAXES --

Significant components of the Company's deferred tax liabilities and assets for
federal income taxes consist of the following:

                                                             DECEMBER 31
                                                       ------------------------
                                                           1998         1997
                                                       -----------  -----------
Deferred tax assets-
   Net operating loss carryforwards ................   $ 3,978,000  $ 3,756,000
   Accrual not currently deductible for tax purposes       157,000      240,000
   Allowance for bad debts .........................       200,000       65,000
   Write-off of assets not currently deductible for
     tax purposes ..................................       520,000      505,000
   Other ...........................................         1,000        1,000
                                                       -----------  -----------
                     Total deferred tax assets .....     4,856,000    4,567,000

Valuation allowance for deferred tax assets ........    (4,160,000)  (4,143,000)

Deferred tax liability-
   Differences between book and tax bases of fixed
     assets ........................................      (696,000)    (424,000)
                                                       -----------  -----------
                     Net deferred tax liability ....   $      --    $      --
                                                       ===========  ===========

As of December 31, 1998, the Company has generated net operating loss ("NOL")
carryforwards of approximately $11,690,000 available to reduce future income
taxes. These carryforwards begin to expire in 2004 through 2018. 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 losses in recent years and the
utilization of these carryforwards could be limited as discussed above, a
valuation allowance has been established to fully offset the net deferred tax
asset at December 31, 1998 and 1997. The valuation allowance increased $17,000
and $357,000 for the year ended December 31, 1998 and 1997, respectively, due to
the Company's tax losses.

(8)   COMMITMENTS AND CONTINGENCIES --

LEASES

The Company leases certain facilities for its corporate and operations offices
under non-cancelable long-term lease agreements. Minimum annual rental
commitments under these leases are as follows:

Year ending December 31-
1999                                                                  $1,034,401
2000                                                                     705,958
2001                                                                     460,934
2002                                                                     414,339
2003 and thereafter                                                    6,656,999
                                                                      ----------
                                                                      $9,272,631
                                                                      ==========

Rental expense was $1,060,703, $530,685 and $633,751 for 1998, 1997 and 1996,
respectively.

     Concurrent with certain acquisitions, the Company entered into various
agreements with prior owners to lease land and buildings used in the Company's
operations. The terms of these leases range from three years to thirty years and
provide for certain escalations in rental expense. One such lease which expires
in 2028 has an option to terminate upon 30 days notice in the event a
conditional use permit (as defined in the agreement) relating to the leased land
expires. Additionally the Company has a 5 year option to purchase such leased
property for $2,250,000 which expires in July 2003. Currently, the Company pays
rent in the amount of $36,000 per annum for the first three years and $192,000
per annum thereafter on the lease. The charge for the lease costs are being
expensed on a straight-line basis. Included in 1998 rent expense above is
approximately $210,500 of rent paid to related parties.

                                      F-16
<PAGE>
LITIGATION

The Company is involved in litigation and claims arising in the ordinary course
of its business. Management believes, based on consultation with legal counsel
and accruals provided, that the ultimate outcome of these matters will not have
a material adverse impact on the Company's operations or financial position.

(9)   STOCKHOLDERS' EQUITY --

COMMON STOCK AND WARRANTS

In October 1995, the Company completed a secondary public offering of its Common
Stock. The offering consisted of 500,000 units at $12.00 per unit, each unit
consisting of six shares of Common Stock and six redeemable Common Stock
purchase warrants. The 3,000,000 warrants have an exercise price of $2.40 per
share and expire in October 2000. These warrants are redeemable by the Company
at $0.10 per warrant, subject to certain events occurring. The underwriters were
issued a warrant which expires in October 2000 to purchase 50,000 units
(includes 300,000 warrants) at $16.20 per unit. During 1998 approximately 4,646
warrants were converted to Common Stock.

On December 23, 1996, the Company called the 3,000,000 warrants for redemption
on February 22, 1997. Prior to redemption, 1,324,243 warrants were converted
into Common Stock providing net proceeds to the Company of $3,117,636 in 1997.
In February 1997, the remaining 1,675,757 warrants were redeemed by the Company
for $167,576.

The Company had issued warrants to purchase 16,667 shares of Common Stock, which
were exercisable at $90.00 per share that expired December 1998.

     On October 7, 1998 the Company issued warrants to purchase 170,000 shares
of Common Stock, in connection with the new Facility (Note 6). The warrants are
exercisable at $6.00 and expire October 2002. The Company estimated the fair
market value of the warrants to be approximately $200,000, which was recorded as
deferred loan costs and additional paid in capital. These deferred loan costs
are being amortized over the term of the credit facility.

PREFERRED STOCK -

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

SERIES B REDEEMABLE PREFERRED STOCK

      On March 31, 1998, the Company issued 1,458,335 shares of Series B
Preferred Stock for $3,500,004. The Series B Preferred Stock is convertible by
the holders to Common Stock at a rate of 1:1, with a beneficial conversion
feature permitting the shareholders to convert their holdings to Common Stock at
$2.40. The market price of the Common Stock at date of issuance was $4.81. The
Company recognized the value of the beneficial conversion feature of
approximately $3.5 million as a Preferred Stock dividend. The value of such
Preferred Stock dividend had no impact on the Company's cash flows, but reduced
basic and diluted earnings available to holders of Common Stock.

      On June 10, 1998, a cash dividend of $420,000 was paid to the holders of
Series B Preferred Stock as consideration for converting the shares of Series B
Preferred Stock held by them into 1,458,335 shares of Common Stock. All of the
shares of Series B Preferred Stock were converted to Common Stock at that time.

                                      F-17
<PAGE>
EARNINGS PER SHARE

The FASB issued SFAS No. 128, "Earnings Per Share" in February 1997.
Implementation of SFAS No. 128 is required for periods ending after December 15,
1997. SFAS No. 128 requires dual presentation of earnings per share ("EPS");
basic EPS and diluted EPS. Basic EPS excludes dilution and is computed by
dividing net income by the weighted average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue Common Stock were exercised or converted
into Common Stock. For purposes of the calculation, outstanding stock options,
warrants and redeemable preferred stock are considered Common Stock equivalents.
For the year ended December 31, 1997, the difference in weighted average numbers
of Common Stock between basic and diluted earnings per share represents the
impact of stock options. The adjusted number of shares for the years ended
December 31, 1998 and December 31, 1996 that would be increased related to stock
options were approximately 990,772 and -0-, respectively; however, diluted per
share amounts are not applicable for loss periods. The following table
summarizes the basic EPS and diluted EPS computations for the fiscal years 1998,
1997 and 1996.

<TABLE>
<CAPTION>
                                                          1998           1997              1996         
                                                     ------------    -------------    -------------
<S>                                                  <C>             <C>              <C>           
Net income (loss) before redeemable:
   Preferred stock dividends                         $   (737,070)   $     831,501    $  (7,588,930)
   Redeemable preferred stock dividends                 3,934,585             --               --   
                                                     ------------    -------------    -------------
   Net earnings (loss) on Common Stock               $ (4,671,655)   $     831,501    $  (7,588,930)
                                                     ============    =============    ============= 
Basic earnings (loss) per share:
   Earning per share prior to preferred stock 
     dividends....................................   $       (.07)   $         .11    $       (1.21)
   Preferred stock dividends .....................           (.39)            --               --
                                                     ------------    -------------    -------------
   Basic earnings (loss) per common share ........   $       (.46)   $         .11    $       (1.21)
                                                     ============    =============    =============
Diluted earnings (loss) per share:
   Earnings per share prior to preferred dividends   $       (.07)   $         .11    $       (1.21)
   Preferred stock dividends .....................           (.39)            --               --
                                                     ------------    -------------    -------------
   Diluted earning (loss) per common share .......   $       (.46)   $         .11    $       (1.21)
                                                     ============    =============    =============
Weighted average number of common shares, basic ..     10,207,248        7,545,113        6,266,579
Weighted average shares outstanding, diluted .....     10,207,248        7,740,344        6,266,579
</TABLE>

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% 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% 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% 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% 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% or more of its Common
Stock by a person or group or commencement of a tender offer for such 15%
ownership.


                                      F-18
<PAGE>
(10)  STOCK OPTION PLANS

At December 31, 1998, the Company had outstanding stock options granted under
the Amended and Restated 1993 Stock Option Plan ("the Plan") for officers,
directors and key employees of the Company.

Under the Plan, the Company has reserved 1,325,171 shares of Common Stock for
issuance. The exercise price of options granted shall be at least 100 percent
(110 percent for 10 percent or greater stockholders) of the fair value of Common
Stock on the date of grant. Options must be granted within 10 years from the
date of the Plan and become exercisable at such times as determined by the Plan
committee. Options are exercisable for no longer than five years for certain 10
percent or greater stockholders and for no longer than 10 years for others.

A summary of the Company's stock option plans as of December 31, 1998, 1997 and
1996, and changes during those years is presented below:

                                                                        WEIGHTED
                                                                        AVERAGE
                                            SHARES UNDER EXERCISE       EXERCISE
                                               OPTION    PRICE RANGE     PRICE
                                               ------    -----------     -----

Options outstanding at December 31, 1995 .     91,928  $ 2.00 to 10.80   $9.24
   Granted ...............................    174,667    2.00             2.00
   Canceled/expired ......................   (162,662)   2.00 to 10.80    5.12
   Exercised .............................     (3,333)   2.00             2.00
                                            ---------

Options outstanding at December 31, 1996 .    100,600    2.00 to 10.80    3.57
   Granted ...............................    206,000    2.00 to  3.50    2.13
   Canceled/expired ......................    (29,000)   2.00 to 10.80    2.91
   Exercised .............................     (5,000)   2.00             2.00
                                            ---------

Options outstanding at December 31, 1997 .    272,600    2.00 to 8.25     2.58
   Granted ...............................    772,000    2.75 to 5.75     2.91
   Canceled/expired ......................    (11,556)   2.00             2.00
   Exercised .............................    (25,438)   2.00             2.00
                                            ---------

Options outstanding at December 31, 1998 .  1,007,606    2.00 to 8.25      2.85
                                            =========


Exercisable at December 31, 1998 .........    430,106    2.00 to 8.25      3.20
                                            =========

At December 31, 1998, there were 267,794 options for shares of Common Stock
reserved under the Plan for the future grants.

OTHER OPTIONS

In addition to options issuable under the Plan, the Company has other options
outstanding to employees and directors of the Company. The options were issued
at exercise prices equal to the fair market value at the grant date of the
options.


                                      F-19
<PAGE>
The following summarizes the stock option transactions of the "other" options:
<TABLE>
<CAPTION>
                                                                               WEIGHTED
                                                                               AVERAGE
                                             SHARES UNDER EXERCISE           EXERCISABLE
                                                OPTION    PRICE RANGE           PRICE
                                             ------------ -----------           -----
<S>                                          <C>        <C>            <C>         
Options outstanding at December 31, 1995 .      400,000   $2.00                $  2.00
   Granted ...............................      221,296    2.00                   2.00
                                             ------------                                                            
Options outstanding at December 31, 1996 .      621,296    2.00                   2.00
   Granted ...............................      806,800    2.00 to 3.38           3.03
                                             ------------                                                            
Options outstanding at December 31, 1997 .    1,428,096    2.00 to 3.38           2.58
   Granted ...............................    1,400,000    2.75 to 6.94           4.29
   Canceled ..............................     (162,163)   3.38                   3.38
                                             ------------                                                            
Options outstanding at December 31, 1998 .    2,665,933    2.00 to 6.94           4.09
                                             ------------                                                            
Exercisable at December 31, 1998 .........    1,662,602   $2.00 to 6.94        $  4.06
                                             ============                                                            
</TABLE>
During 1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123, which is effective for fiscal years beginning after
December 15, 1995, establishes financial accounting and reporting standards for
stock-based employee compensation plans and for transactions in which an entity
issues its equity instruments to acquire goods and services from non-employees.
SFAS No. 123 requires, among other things, that compensation cost be calculated
for fixed stock options at the grant date by determining fair value using an
option-pricing model. The Company has the option of recognizing the compensation
cost over the vesting period as an expense in the income statement or making pro
forma disclosures in the notes to the financial statements for employee
stock-based compensation.

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

                                            1998          1997             1996
                                     -----------    ----------    -------------
Net income (loss)
   As reported ...................   $(4,671,655)   $  831,501    $  (7,588,930)
   Pro forma for FAS No. 123 .....   $(5,943,126)   (1,309,604)      (7,781,351)

Diluted earnings (loss) per share-   
   As reported ...................   $      (.46)   $      .11    $       (1.21)
   Pro forma for FAS No. 123 .....          (.58)         (.17)           (1.24)

The following ranges of options were outstanding as of December 31, 1998:

 Outstanding
Shares Under  Exercise Price  Weighted Average  Weighted Average  
   Option         Range        Exercise Price   Contractual Life   Exercisable
------------  --------------  ----------------  ----------------   -----------
 2,225,969     $2.00 - 3.00        $2.48              8.76 years    1,299,138
   927,637      3.01 - 4.50         3.31              8.4             601,637
   106,333      4.51 - 6.75         4.98              8.0              45,000
   413,600      6.76 - 8.25         6.98              9.4             146,933

The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model resulting in a weighted average fair value of
$3.59, $2.79, and $.78 per share for grants made during the years ended December
31, 1998, 1997, and 1996, respectively. The following assumptions were used for
option grants in 1998, 1997 and 1996, respectively: expected volatility of 92
percent, 70 percent and 87 percent; risk-free interest rates of 5.66 percent,
6.45 percent, and 6.47 percent; expected lives of up to 6.3 years and no
expected dividends to be paid. The compensation expense included in the above
pro forma net income data, may not be indicative of amounts to be included in
future periods as the fair value of options granted prior to 1995 was not
determined.

                                      F-20
<PAGE>
(11)  OTHER CHARGES (CREDITS) TO OPERATIONS --

SALE OF ORGANI-GRO, INC.

In March 1997, the Company sold the operations of Organi-Gro, a wholly-owned
subsidiary, to its former owners. Consideration included two subordinated notes
of approximately $1.4 million, the assumption of approximately $978,000 in debt
and approximately $392,000 in trade payables for which the Company is not
contingently liable. As a result of the sale, the Company recorded a charge to
operations in the fourth quarter of 1996 amounting to approximately $2.5 million
to adjust the carrying value of Organi-Gro's net assets to its estimated fair
market value. These charges (credits) are included in "losses on assets held for
sale and other special charges (credits)" for the year ended December
31, 1996. The first note of approximately $1.152 million ("Note 1") is to be
repaid from the proceeds received from the sale of products by the purchaser
which is to be remitted on a monthly basis with a total amount of approximately
$604,000 due no later than September 16, 1998. The remaining balance of
approximately $548,000 is payable in equal monthly installments of
approximately $11,000 including interest for 59 months. Note 1 bears interest at
an annual rate of 6%. The second note of approximately $308,000 ("Note 2") is
payable in equal monthly installments of $3,700 including interest for 48 months
following the first anniversary date of Note 2 with the unpaid balance due March
31, 2002 and bears interest at an annual rate of 6%. The notes were reserved at
the date of sale due to considerable doubt relative to realization.

In December 1997, Note 2 was substantially paid off. The Company received Common
Stock held by former owners with a market trading value of approximately
$213,000, and charged against the reserve approximately $45,000. The remaining
balance of $50,000 is to be paid off by providing repair services on equipment
in the amount of $1,000 per month with $41,000 remaining outstanding as of
December 31, 1998. Additionally, the Company has received approximately $332,000
in cash since inception on Note 1. The monthly installments of $11,000 relating
to Note 1 have been received on a timely basis and are current, resulting in a
$375,000 balance outstanding as of December 31, 1998. The portion of Note 1
which had a remaining balance of approximately $445,000, which was due no later
than September 16, 1998, was not paid when due. The former owners were unable to
pay the remainder without liquidating some of the assets securing the note. The
Company agreed to accept $265,000 in cash in full payment of the installment
due, which was received in January 1999. The remaining balance of the
installment due was charged against the allowance.

The Company has recognized special credits related to such notes of
approximately $721,000 in 1997 and $380,000 in 1998. Based upon historical
collections, the financial condition of the obligor to meet future debt
installments and the underlying value of the assets securing the loan, the
Company expects the unreserved amount of approximately $641,000 at December 31,
1998 to be realizable. Subsequent to year-end through February 26, 1999, the
Company has collected approximately $287,000 on the notes.

SEVERANCE CHARGES

During 1998, the company recorded a charge of approximately $320,000 related to
severance costs of two former officers. The charge is included in "Other Charges
(credits)" for the year ended December 31, 1998.

(12)  EMPLOYEE BENEFIT PLANS --

Certain of the Company's subsidiaries sponsor various defined contribution
retirement plans for full time and some part-time employees. The plans cover
employees at all of the Company's operating locations. The defined contribution
plans provide for contributions ranging from 1% to 15% of covered employees'
salaries or wages. The Company may make a matching contribution as a percentage
set at the end of each plan year. The matching contributions totaled
approximately $38,000 for 1998, approximately $28,000 for 1997 and approximately
$22,000 for 1996.

(13)  EVENTS SUBSEQUENT TO DATE OF AUDITORS' REPORT (UNAUDITED) --

ACQUISITION OF NATIONAL RESOURCE RECYCLING, INC.

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

The following table summarizes the unaudited restated revenues, net income and
per share data of Synagro after giving effect to the pooling transaction (in
thousands, except per share data).
<TABLE>
<CAPTION>
                                                    YEARS ENDED DECEMBER 31,
                              -------------------------------------------------------------------
                                     1996                    1997                    1998
                              --------------------    --------------------   --------------------
                                           NET                      NET                    NET
                              REVENUES    INCOME      REVENUES    INCOME     REVENUES    INCOME
                              --------   ---------    --------   ---------   --------   ---------
<S>                           <C>        <C>          <C>        <C>         <C>        <C>       
Revenues and net income-
  As reported .............   $ 22,977   $  (7,589)   $ 25,303   $     832   $ 29,967   $  (4,672)
  NRR (unaudited)..........      1,197           2       2,733         203      3,598         200
                              --------   ---------    --------   ---------   --------   ---------
     As Restated ..........   $ 24,174   $  (7,587)   $ 28,036   $   1,035   $ 33,565   $  (4,472)
                              ========   =========    ========   =========   ========   =========
Basic earnings per share-
  As reported .............              $   (1.21)              $    0.11              $   (0.46)
  NRR .....................                    .17                    0.01                   0.06
                                          ---------              ---------              ---------
     As restated ..........              $   (1.04)              $    0.12              $   (0.40)
                                          =========              =========              =========
Diluted earnings per share-
  As reported .............              $   (1.21)              $    0.11              $   (0.46)
  NRR .....................                     --                    0.01                   0.06
                                          ---------              ---------              ---------
     As restated ..........              $   (1.04)              $    0.12              $   (0.40)
                                          =========              =========              =========
</TABLE>    

                                      F-21

<PAGE>
                                   SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) 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 on April 30, 1999.

                                          SYNAGRO TECHNOLOGIES, INC.


                                          By:  /s/ ROSS M. PATTEN
                                               Ross M. Patten
                                               Chairman of the Board and
                                               Chief Executive Officer


      Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on April 30, 1999.


By:      /s/ ROSS M. PATTEN                 Chairman of the Board and Chief 
             Ross M. Patten                    Executive Officer


By:      /s/ PAUL SELLEW                    President
             Paul Sellew


By:      /s/ RANDY JENNINGS                 Chief Financial Officer
             Randy Jennings                 (Principal Accounting Officer)


By:      /s/ IRWIN I. GELBART               Director
             Irwin I. Gelbart


By:      /s/ GENE MEREDITH                  Director
             Gene Meredith


By:      /s/ KENNETH CHUAN-KAI LEUNG        Director
             Kenneth Chuan-kai Leung

By:      /s/ ALFRED TYLER, 2ND              Director
             Alfred Tyler, 2nd


By:      /s/ DR. MARK MYERS                 Director
             Dr. Mark Myers

<PAGE>
                                  EXHIBIT INDEX

 EXHIBIT                 DESCRIPTION OF EXHIBIT

   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).

  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. 333-18029), dated September 30, 1998, is incorporated herein by
            reference).

  10.4      6% Promissory Note made by Custom Poultry to Organi-Gro and the
            Company in the principal amount of $1,152,381, dated April 1, 1997
            (Exhibit 10.8 to the Company's Annual Report on Form 10-K for the
            year ended December 31, 1996, is incorporated herein by reference).

  10.5      Guaranty of Tony D. Childers ("Childers") for 6% Promissory Note
            made by Custom Poultry to Organi-Gro, dated April 1, 1997 (Exhibit
            10.9 to the Company's Annual Report on Form 10-K for the year ended
            December 31, 1996, is incorporated herein by reference).

  10.6      6% Promissory Note made by Hodges to Organi-Gro and the Company in
            the principal amount of $308,203, dated April 1, 1997. (Exhibit
            10.10 to the Company's Annual Report on Form 10-K for the year ended
            December 31, 1996, is incorporated herein by reference).

  10.7      Guaranty of Childers and Jack Hodges for 6% Promissory Note made by
            Hodges to Organi-Gro, dated April 1, 1997 (Exhibit 10.11 to the
            Company's Annual Report on Form 10-K for the year ended December 31,
            1996, is incorporated herein by reference).

**10.8      Credit Agreement entered into among Synagro Technologies, Inc.,
            various financial institutions, and Bank of America national Trust
            and Savings Association, dated as of October 7, 1998; First
            Amendment to Credit Agreement dated as of November 2, 1998; Second
            Amendment to Credit Agreement dated as of November 13, 1998;
            Assigment Agreement dated as of December 4, 1998

**21.1      Subsidiaries of Synagro Technologies, Inc.

 *23.1      Consent of Arthur Andersen LLP

**27.1      Financial Data Schedule.

* Filed herewith.

** Filed with the Company's Form 10-K for the year ended December 31, 1998, 
   Dated April 15, 1999.