<PAGE>   1

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

                                   FORM 10-K
(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, 1999

[  ]          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                  (IRS Employer
     Incorporation or organization)                   Identification No.)

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

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

          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 (Section 229.405 of this chapter) 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 March 27,
2000 was 19,023,878. The aggregate market value of the 14,905,167 shares of the
Company's Common held by non-affiliates of the Company, based on the market
price of the Common Stock of $4.1875 per share as of March 27, 2000, was
approximately $62,415,387.

Portions of the registrant's proxy statement to be filed in connection with the
registrant's 2000 Annual Meeting of Stockholders are incorporated by reference
into Part III of this report.

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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.

BUSINESS OF THE COMPANY

The Company engages in the business of biosolids management, primarily through
beneficial reuse programs. The Company provides transportation, processing
(which primarily consists of lime stabilization, composting and thermal), 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 500 contracts. 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 with very few limitations or site restrictions.
Biosolids that are not Exceptional Quality, also known as Class B biosolids,
while less expensive to process, are subject to more 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, which operate throughout the United States.

MERGERS AND ACQUISITIONS

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."

2000 ACQUISITIONS

Through March 27, 2000, the Company purchased Residual Technologies, Limited
Partnership and its affiliates (collectively referred to as "RESTEC"),
Ecosystematics, Inc., Davis Water Analysis, Inc., AKH Water Management, Inc. and
Rehbein, Inc. Additionally, the Company

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purchased certain Bio-solids assets and revenue contracts of Whiteford
Construction Company. Collectively, these acquisitions are referred to as the
"2000 Acquisitions." The 2000 Acquisitions have combined annual revenues of
approximately $32,700,000. In connection with the purchase of RESTEC, the former
owners are entitled to receive up to an additional $12,000,000 over the next
eight years if certain performance targets are met. In connection with the
purchase of Rehbein, Inc., the former owners are entitled to receive up to an
additional $1,984,000 over the next three years if certain performance targets
are met. The 2000 Acquisitions were recorded using the purchase method of
accounting. The preliminary allocation resulted in approximately $49,854,000 of
goodwill that is being amortized over 40 years. The assets acquired and
liabilities assumed relating to these acquisitions are summarized as follows:

     Common stock shares issued                        1,325,000
                                                    ============
     Value of common stock issued                   $  5,963,000
     Cash paid including transactions costs,
        net of cash acquired                          47,916,000

     Less:        Historical net assets acquired       4,025,000
                                                    ------------

     Goodwill                                       $ 49,854,000
                                                    ============

1999 ACQUISITIONS

During 1999, the Company purchased Anti-Pollution Associates, Inc., D&D
Pumping, Inc., Vital-Cycle, Inc. and AMSCO, Inc. Collectively these
acquisitions are referred to as the "1999 Acquisitions." The 1999 Acquisitions
have combined annual revenues of approximately $14,500,000. The transactions
were recorded using the purchase method of accounting. The balance sheet at
December 31, 1999 includes a preliminary allocation of the purchase price and
is subject to final adjustment which management believes will not be material.
The preliminary allocation resulted in approximately $19,459,000 of goodwill
that is being amortized over 40 years. The assets acquired and liabilities
assumed relating to these acquisitions are summarized as follows:

     Common stock shares issued                        3,044,784
                                                    ============
     Value of common stock issued                   $  9,024,000
     Cash paid including transaction costs,
        net of cash acquired                          13,802,000

     Less:        Historical net assets acquired       3,367,000
                                                    ------------

     Goodwill                                       $ 19,459,000
                                                    ============

The Company also completed a business combination with National Resource
Recovery, Inc., accounted for as a pooling-of-interests.

1998 ACQUISITIONS

During 1998, the Company purchased A&J Cartage, Inc. ("A&J") and related
companies, Recyc, Inc. ("Recyc") and Environmental Waste Recycling, Inc.
("EWR"). Collectively, these acquisitions are referred to as the "1998
Acquisitions." The transactions were recorded using the purchase method of
accounting. The balance sheet at December 31, 1999 includes an allocation of
the purchase price that resulted in approximately $42,643,000 of goodwill
that is being amortized over 40 years. The assets acquired and liabilities
assumed relating to these acquisitions are summarized as follows:

     Common stock shares issued                        4,152,981
                                                    ============
     Value of common stock issued                   $ 23,783,000
     Notes payable-issued and assumed                 11,669,000
     Cash paid including transaction costs,
        net of cash acquired                           9,410,000

     Less:        Historical net assets acquired       2,219,000
                                                    ------------

     Goodwill                                       $ 42,643,000
                                                    ============


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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, as amended ("CWA"), and state water
quality control acts. The treatment of wastewater produces and effluent and
wastewater solids. The treatment of these solids produces biosolids. To the
extent demand for the Company's biosolids treatment methods is created by the
need to comply with the 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 jurisdictions, have prohibited and, in
other jurisdictions, have sought and may seek to prohibit or restrict the land
application, agricultural use of biosolid products, thermal processing or
composting.

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, agricultural use of biosolids,
thermal processing or biosolids composting will not be successful.

The EPA regulations at 40 C.F.R. Part 503, 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, 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.

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 regulations 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 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.

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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 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 believed 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. 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) consulting engineers and construction contractors; (iv)
equipment and building products manufacturers and distributors; (v) the
agricultural and horticultural industry; (vi) transportation service companies;
and (vii) the public.

The Company provides services for the transportation, processing, land
application as well as compliance monitoring, for all its customers. 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 is seasonal, and subject to certain unusual weather
conditions and unseasonably heavy rainfall that can temporarily reduce the
availability of land application sites in close proximity to the Company's
business. During the winter months, the ground is frozen which can limit the
level of land application that can 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. As a result, the Company's
revenues and operational results are generally lower in the first calendar
quarter.

BONDING

Commercial, federal, state and municipal projects often require contractors to
post both performance and payment bonds at the execution of a contract. The
amount of bonding capacity offered by sureties is a function of financial health
of the Company requesting the bonding. 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 anticipates it will continue
to be required to obtain such bonds in the future, particularly with government
contracts. As of March 27, 2000, the Company had a bonding capacity of
approximately $25,000,000 with approximately $13,000,000 utilized as of that
date. Management believes the existing capacity is sufficient to meet bonding
needs for the foreseeable future. To date, no payments have been made by any
bonding company for bonds issued by the Company.

COMPETITION

The Company provides a variety of services relating to the transportation and
treatment of biosolids. The Company is in direct and

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indirect competition with other businesses that provide some or all of the same
services including municipalities, water companies, municipal solid waste
companies, fertilizer companies and farmer operations. 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 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 March 27, 2000, the Company had approximately 561 full-time employees.
These employees include: 6 executive officers, 7 non-executive officers, 35
operations managers, 21 environmental specialists, 24 maintenance personnel,
127 drivers, 157 land application specialists, 111 general operation
specialists, 13 sales employees and 60 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 generally 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's most recent acquisition,
Rehbein, Inc. is a party to three union collective bargaining agreements that
currently involve less than 20 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 program of acquiring 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, financial condition and operating results.

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, 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, 1999, includes goodwill
representing approximately 64.8% of assets and 141.9% 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


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benefited. This amortization represents a noncash deduction in the
determination of current operating net income and 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 an
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. During 1999,
the Financial Accounting Standards Board (the "FASB") issued a formal proposal
on this subject. Under the proposal, the current maximum write-off period for
goodwill would be reduced from 40 years to 20 years for most companies. The 20
year write-off period may apply only to acquisitions occurring after a future
effective date that the FASB will set. Should the FASB's final pronouncement
apply only to business combinations consummated after a future date as currently
proposed, there should be no impact on the amortization expense for our
previously consummated acquisitions that use a 40 year goodwill life. However,
if the FASB ultimately effects a change that requires us to apply a reduced
amortization period on our previous acquisitions, our future operating results
would be negatively impacted.

ITEM 2. PROPERTIES

The Company currently leases approximately 11,300 square feet of office space
at its principle place of business located in Houston, Texas. The Company pays
approximately $16,500 per month on this office space, which expires in February
2004. The Company also leases operational facilities in: Houston, Texas;
Oxford, Pennsylvania; Suisun City, California; Corona, California; Sparta,
Michigan; Advance, North Carolina; Greenwich, Connecticut; Whiteford, Maryland;
Wisconsin Rapids, Wisconsin; Tavernier, Florida; Hugo, Minnesota; and
International Falls, Minnesota.

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 (the "CUP"),
which expires January 1, 2010, 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 300,000 acres of land for applications of biosolids.

ITEM 3. LEGAL PROCEEDINGS

LITIGATION

AZURIX, CORP.

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

Azurix filed on October 29, 1999, a lawsuit in Delaware (the "Delaware Suit")
seeking unspecified injunctive relief; limited declaratory relief relating to
the construction of the standstill agreement and the stock subscription
agreement entered into between the Company and Azurix, and attorneys' and
experts' fees. Azurix alleges that Synagro tortiously interfered in its
negotiations with a potential acquisition candidate. The Company believes the
Delaware Suit was filed by Azurix in an attempt to have the Company's dispute
with Azurix tried in Delaware under a non-jury proceeding rather than in Texas
under a jury proceeding. The Company filed the Texas Suit on November 1, 1999,
seeking injunctive relief, actual and exemplary damages, and attorneys' fees
against Azurix alleging violations of the standstill agreement and certain
confidentiality agreements governing Azurix's ability to use confidential and
proprietary information provided to Azurix by the Company. The exchanges of
information at issue occurred during negotiations regarding a $16,000,000 up to
$23,000,000 investment by Azurix in the Company and a potential merger of the
companies. The Company's current petition seeks injunctive relief, actual
damages, exemplary damages, attorneys' fees, and costs arising from Azurix's
alleged misappropriation of the Company's confidential and proprietary
information. On the Company's motion, the Texas court entered a temporary
restraining order on November 2, 1999 that prohibited Azurix from, among other
things, consummating a contemplated acquisition of certain third-party companies
that were subject to the standstill agreement, and from using information
provided by the Company to Azurix during the course of their negotiations. On
November 15, 1999, on Azurix's motion, the Texas court abated the Texas Suit
pending a decision by the court hearing the Delaware Suit as to which of the two
actions should proceed. The Company subsequently filed a motion with the
Delaware court to dismiss or stay the Delaware Suit, which was granted in part
by a decision of the Delaware court, on February 3, 2000, to stay the Delaware
Suit pending the resolution of the Texas Suit. Azurix's efforts to appeal the
Delaware court's ruling have been denied. Subsequently, the Company reactivated
the Texas Suit and intends to file an amended Petition seeking additional
damages against Azurix's breach of the subscription agreement.


<PAGE>   8
The extent of the damages, if any, in either action has not been determined and
although the Company is confident in its position, the ultimate outcome of the
forgoing matters cannot be determined at this time.

COUNTY OF RIVERSIDE

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

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

The Company has taken the position that certain alleged odor violations
asserted by the County staff during the pending litigation were not appropriate
under the CUP. On certain of those instances, the Company has declined to reduce
its intake of biosolids. The County alleges that the Company's actions in
not reducing intake constitute violations that could reduce the term of the CUP
by as many as 63 months. The Company disagrees and is challenging the County's
position in the lawsuit.

Although the Company feels that it has a meritorious case, the case is in the
early stages and the ultimate outcome cannot be determined at this time.

OTHER

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

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

None.
<PAGE>   9



                                    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 are as follows:

                                                         High        Low
                                                         ----        ---
      Year Ended December 31, 1999

           1st Quarter..............................    $ 4.88      $ 2.97
           2nd Quarter..............................      6.38        3.13
           3rd Quarter..............................      6.94        4.75
           4th Quarter..............................      6.84        3.50


      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

As of March 27, 2000, the Company had 19,023,878 shares of Common Stock issued
and outstanding. On that date, the market price for the Company's Common Stock
on the Nasdaq was $4.1875 per share. As of March 27, 2000, the Company had 265
stockholders of record.

On January 27, 2000, the Company issued 1,325,000 shares of Common Stock to the
former owners of Residual Technologies, Limited Partnership and certain
affiliates, in connection with the acquisition of that entity pursuant to an
exemption of registration under Section 4 (2) of the Securities Act.

On May 3, 1999, the Company issued 2,851,946 shares of Common Stock to the
former owners of AMSCO, Inc. in connection with the acquisition of that entity
pursuant to an exemption from registration under Section 4 (2) of the
Securities Act.

On April 23, 1999, the Company issued 192,838 shares of Common Stock to the
former owners of Anti-Pollution Associates, Inc. and D&D Pumping, Inc. in
connection with the acquisition of those entities pursuant to an exemption from
registration under Section 4 (2) of the Securities Act.

On March 1, 1999, the Company issued 1,000,001 shares of Common Stock to the
former owners of National Resource Recovery, Inc. in connection with the
acquisition of that entity pursuant to an exemption from registration under
Section 4(2) of the Securities Act.

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 bank and
preferred stock covenants restricting dividend payments.


                                       8
<PAGE>   10



ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth selected financial data with respect to the
Company, which has been restated for the acquisition of National Resource
Recovery, Inc., which was accounted for as a pooling transaction and should be
read in conjunction with the Consolidated Financial Statements:
<TABLE>
<CAPTION>
                                                                  YEAR ENDED DECEMBER 31
                                                                  ----------------------
                                                    1999         1998         1997        1996       1995
                                                    ----         ----         ----        ----       ----
                                                           (in thousands, except per share amounts)
<S>                                              <C>         <C>          <C>         <C>         <C>
Net sales                                         $ 56,463    $ 33,565     $ 28,036    $ 24,175    $ 18,893
Gross profit                                        13,992       5,449        4,797       3,868       3,011
Selling, general and administrative expenses         6,876       4,181        3,576       5,982       3,729
Goodwill and agency fee amortization                 1,527         629          229         256         505
Other charges (credits), net                         1,500         (64)        (721)      4,842       2,444
Interest expense, net                                3,236       1,558        1,007         730         982
Net income (loss) before redeemable
           preferred stock dividend                  1,148        (537)       1,116      (7,582)     (4,507)
Redeemable preferred stock dividend                     --       3,935           --          --          --
Net income (loss)                                    1,148      (4,472)       1,116      (7,582)     (4,507)
Net income (loss) per share (basic and diluted)        .07        (.40)         .13       (1.04)      (1.17)*
Working capital (deficit)                            3,982       5,692         (805)     (2,181)      1,763
Total assets                                        99,172      66,622       21,166      19,386      20,750
Total long-term debt, net                           42,182      28,330        6,114       8,637       4,781
Stockholders' equity                                45,314      34,249        7,727       3,864      10,893
</TABLE>

*     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:
<TABLE>
<CAPTION>
                                                                YEAR ENDED DECEMBER 31,
                                                               1999       1998      1997
                                                               ----       ----      ----
<S>                                                          <C>        <C>       <C>
Statement of Operations Data:
Net sales................................................       100%       100%      100%
Gross profit.............................................      24.8       16.2      17.1
Selling, general and administrative expenses.............      12.2       12.5      12.8
Goodwill amortization....................................       2.7        1.9       0.8
Other charges (credits), net.............................       2.7        (.2)     (2.6)
Interest expense, net....................................       5.7        4.6       3.6
Net income (loss) before redeemable preferred dividends..       2.0       (1.6)      4.0
</TABLE>

RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999 AND 1998

For the year ended December 31, 1999, net sales were approximately $56,463,000
compared to approximately $33,565,000 for the same period in 1998, an increase
of approximately $22,898,000, or 68%. The increase relates to additional
revenue from acquisitions (approximately $23,259,000), an increase in volumes
relating to new contracts and event work (approximately $1,675,000), and by
reduced volumes due to non-renewal of certain low margin contracts
(approximately $2,037,000).

Cost of operations and gross profit for the year ended December 31, 1999, were
approximately $42,471,000 and $13,992,000, respectively, compared to
approximately $28,116,000 and $5,449,000, respectively, for the year ended
1998, resulting in an increase in gross profit as a percentage of sales to
24.8% in 1999 from 16.2% in 1998. The increase in gross profit as a percentage
of sales was primarily a result of unusual inclement weather conditions in the
Mid-Atlantic region in 1998 and unseasonably heavy rainfall in

                                       9
<PAGE>   11
California in 1998 which resulted in (a) additional expenses incurred by the
Company to transport material to land application sites (approximately
$400,000) unaffected by the conditions and (b) land disposal costs
(approximately $1,180,000), which were incurred when land application sites
were not available. Additionally the Company did not renew certain low margin
contracts. The remainder of the increase is primarily attributed to higher
margin sales associated with certain acquisitions completed during 1998 and
1999.

Selling, general and administrative expenses were approximately $6,876,000 for
the year ended December 31, 1999, compared to approximately $4,181,000 for
1998, an increase of approximately $2,695,000 or 64.5%. The increase relates
primarily to increased corporate staffing (approximately $765,000) to implement
the Company's acquisitions strategies, additional selling, general and
administrative costs associated with the businesses acquired (approximately
$1,858,000) and other increases in various selling, general and administrative
expenses.

Amortization of goodwill increased from approximately $629,000 in 1998 to
approximately $1,527,000 in 1999 due to acquisitions.

Other charges (credits), net increased to approximately $1,500,000 in 1999 from
approximately ($64,000) in 1998. The increase relates to approximately
$1,500,000 in charges for legal, accounting and financing costs related to the
proposed preferred stock and merger discussions with Azurix, both of which were
terminated in October 1999, and several other legal matters relating to prior
years. Additionally, in 1998 the Company recognized income on notes receivables
previously reserved; there was no such transaction in 1999. See Note (10) to the
Notes to Consolidated Financial Statements.

Interest expense for the year ended December 31, 1999, was approximately
$3,236,000 compared to approximately $1,558,000 for the same period in 1998.
The increase in interest expense is related to the additional debt incurred to
finance acquisitions.

Other income for the year ended December 31, 1999, was approximately $294,000
compared to approximately $318,000 for the same period in 1998. The decrease
relates primarily to a reduction on gains on sale of assets.

As a result of the foregoing, net income of approximately $1,148,000 before
redeemable preferred stock dividends, or $.07 per share, was reported at
December 31, 1999, compared to a net loss of approximately $537,000 before
redeemable preferred stock dividends, or $.05 loss per share, in 1998.

As of December 31, 1999, the Company generated net operating loss ("NOL")
carryforwards of approximately $10,643,000 available to reduce future income
taxes. These carryforwards begin to expire in 2008 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 substantially offset the net
deferred tax asset at December 31, 1999 and 1998. The valuation allowance
decreased $699,000 and $54,000 for the year ended December 31, 1999, and
December 31, 1998 respectively due to the Company's utilization of NOL
carryforwards.

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

For the year ended December 31, 1998, net sales were approximately $33,565,000
compared to approximately $28,036,000 for the same period in 1997, an increase
of approximately $5,529,000, or 19.7%. The increase relates to additional
revenues from acquisitions (approximately $10,479,000), increased volume in
Michigan (approximately $856,000), partially offset by the divestiture of
Organi-Gro, Inc. in 1997 ("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 $28,116,000 and $5,449,000, respectively, compared to
approximately $23,239,000 and $4,797,000, respectively, for the year ended
1997, resulting in a decrease in gross profit as a percentage of sales from
17.1% in 1997 to 16.2% in 1998. Gross profit increased by approximately
$652,000 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 (approximately $400,000) to land application sites unaffected by the
conditions and (b) land disposal costs which were incurred when land
application sites were not available (approximately $1,180,000). 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 $4,181,000 for
the year ended December 31, 1998, compared to approximately $3,576,000 for
1997, an increase of approximately $605,000, or 16.9%. The increase relates
primarily to increased corporate staffing (approximately $466,000) to implement
the Company's acquisitions strategies, additional selling, general and

                                      10
<PAGE>   12
administrative costs associated with the businesses acquired (approximately
$537,000), 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).

Amortization expense increased from approximately $229,000 to approximately
$629,000 due to acquisitions.

Interest expense for the year ended December 31, 1998, was approximately
$1,558,000 compared to approximately $1,007,000 for the same period in 1997.
The increase in interest expense is related to the additional debt incurred to
finance acquisitions.

Other charges (credits), net 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 $318,000
compared to approximately $409,000 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 $537,000 before
redeemable preferred stock dividends, or $.05 per share, was reported at
December 31, 1998, compared to net income of approximately $1,116,000 before
redeemable preferred stock dividends, or $.13 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 (8) 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.

                                      11
<PAGE>   13
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.

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

On January 26, 2000, the Company authorized 32,000 shares of Series D Preferred
Stock. The Series D Preferred Stock is convertible by the holders into a number
of shares of Common Stock computed by (i) the sum of (a) the number of shares to
be converted multiplied by the Liquidation Value and (b) the amount of accrued
and unpaid dividends by (ii) the conversion price then in effect. The initial
conversion price is $2.50 per share; provided that in order to prevent dilution,
the conversion price may be adjusted. The Series D Preferred Stock is senior to
the Common Stock or any other equity securities of the Company. The liquidation
value of each share of Series D Preferred Stock is $1,000 per share
("Liquidation Value") plus accrued and unpaid dividends. Dividends on each share
of Series D Preferred Stock shall accrue on a daily basis at the rate of 8% per
annum on aggregate Liquidation Value plus unpaid and accrued interest. The
Series D Preferred Stock is entitled to one vote per share. Shares of Series D
Preferred Stock are subject to mandatory redemption by the Company on January
26, 2010, at a price per share equal to the Liquidation Value plus accrued and
unpaid dividends.

On January 27, 2000, the Company issued 17,358.824 shares of Series C Preferred
Stock, par value $.002 per share, of the Company, to GTCR Fund VII, L.P. and
its affiliates for $17,358,824, on February 4, 2000, the Company issued 419.4
shares of Series C Preferred Stock, par value $.002 per share, of the Company,
to GTCR Fund VII, L.P. and its affiliates for $419,400, on March 24, 2000, the
Company issued 225.000 shares of Series C Preferred Stock, par value $.002 per
share, of the Company, to GTCR Fund VII, L.P. and its affiliates for $225,000,
and on March 27, 2000, the Company issued 1,260.000 shares of Series C
Preferred Stock, par value $.002 per share, of the Company, to GTCR Fund VII,
L.P. and its affiliates for $1,260,000. The proceeds were used to partially
fund the 2000 Acquisitions.

On January 27, 2000, the Company issued 2,641.176 shares of Series D Preferred
Stock, par value $.002 per share, of the Company, to GTCR Fund VII, L.P. and
its affiliates for $2,641,176. The proceeds were used to partially fund the
2000 Acquisitions

The Series D Preferred Stock and warrants related to subordinated debt may
result in non-cash beneficial conversions valued in future periods recognized
as Preferred Stock dividends if the market value is higher than the conversion
price. See Note 8 in the accompanying "Notes to the Consolidated Financial
Statements."

The Company also issued warrants for a nominal price in connection with the
issuance of subordinated debt, which were immediately converted into 2,857.143
shares of Series D Preferred Stock and 272.058 shares of Series C Preferred
Stock.

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.

Through March 27, 2000, the Company had completed the 2000 Acquisitions for
aggregate consideration of approximately $53,879,000. The transactions were
accounted for using the purchase method of accounting. The preliminary
allocation resulted in approximately $49,854,000 of goodwill that is being
amortized over 40 years.

The Company purchased additional capital assets during 1999 in the amount of
approximately $4,043,000 and sold capital assets with proceeds totaling
approximately $1,103,000.

As of December 31, 1999, the Company had current maturities on long-term debt
of $3,309,228, as compared to approximately $4,130,000 in 1998. The Company
currently has the intent and ability to refinance a portion of the current
maturities with its credit facility and has classified that portion of this debt
as long-term indebtedness in the consolidated balance sheet as of December 31,
1999. The

                                      12
<PAGE>   14
Company's long-term portion of debt was $40,119,555 in 1999, reflecting an
increase of approximately $15,920,000 over 1998. This increase is due primarily
to the funding of the acquisitions.

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
or reference rate plus a margin based upon a pricing schedule per the Facility
agreement (8.875% at December 31, 1999). The weighted average interest rate in
1999 was 7.827%. The Facility is subject to a borrowing base equal to 4.25
times earnings before interest, taxes, depreciation and amortization ("EBITDA")
based on a trailing twelve months calculation, as defined in the Facility, less
funded debt as defined, (which includes notes payable to prior owners, which
can be refinanced through the Facility), until June 30, 1999, 4.00 until
September 30, 1999, and 3.75 times EBITDA thereafter. Amounts available for
additional borrowing under the Facility at December 31, 1999, totaled
approximately $1,400,000.

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 Facility was used to pay off 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. This previous facility was to expire in
September 1999.

On January 27, 2000 the Company entered into a $110 million amended and restated
Senior Credit Agreement, ("the Senior Credit Agreement") by and among the
Company, Bank America, N.A. and certain other lenders for acquisitions working
capital, to refinance existing debt (including the Facility), for capital
expenditures and other general corporate purposes. The credit agreement bears
interest at Libor or prime plus a margin based on a pricing schedule as set out
in the Senior Credit Agreement. The Senior Credit Agreement was syndicated on
subsequently, March 15, 2000 to a banking group, and the capacity was increased
to $120 million. The loan commitments under the Senior Credit Agreement are as
follows:

      (i.)  Revolving Loans up to $20,000,000 outstanding at any one time;

     (ii.)  Term A Loans of up to $40,000,000 are available until April
            27, 2000; except that $13,500,000 of this amount is available
            until June 26, 2000 for the repayment or defeasement of certain
            indebtedness assumed in connection with the acquisition of
            RESTEC;

    (iii.)  Term B Loans (which once repaid may not be reborrowed) of
            $30,000,000 made on the closing date;

     (iv.)  Acquisition Loans up to $30,000,000 outstanding at any one time
            available on a revolving  basis prior to January 27, 2001 provided
            that certain approvals are obtained and certain financial ratios
            are met;

     (v.)   Letters of credit issuable by the Company up to $15,000,000 as a
            subset of the Revolving Loans.

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


               Revolving      Term A       Term B    Acquisition
                 Loans        Loans        Loans        Loans
               ---------      ------       ------    -----------
Year 1            --            6.56%        1.00%          0%
Year 2            --           13.75%        1.00%       6.67%
Year 3            --           15.00%        1.00%       3.33%
Year 4            --           22.50%        1.00%      10.00%
Year 5         100.00%         25.00%        1.00%      13.33%
Year 6            --           17.19%        1.00%      66.67%
Year 6 1/2        --             --         94.00%        --
               ------         ------       ------      ------
               100.00%        100.00%      100.00%     100.00%
               ======         ======       ======      ======

The Senior Credit Agreement includes mandatory repayment provisions related to
excess cash flows, proceeds from certain asset sales, debt issuances and equity
issuances, all as defined in the Senior Credit Agreement. These mandatory
repayment provisions may also reduce the available commitment for Revolving
Loans and Acquisition Loans. The Senior Credit Agreement contains standard
covenants including compliance with laws, limitations on capital expenditures,
restrictions on dividend payments, limitations on mergers and compliance with
certain financial covenants. The Company believes that it was in compliance with
those covenants as of March 27, 2000. The Senior Credit Agreement is secured by
all the assets of the Company and expires on July 27, 2006. As of March 27,
2000, the Company has borrowed approximately $56,500,000, ($26,500,000 of Term A
Loans and $30,000,000 of Term B Loans) which was primarily used to refinance
existing debt and partially fund 2000 Acquisitions and has approximately
$62,848,000 available to the Company for additional borrowing under the Senior
Credit Agreement.

On January 27, 2000 the Company entered into an agreement with GTCR Capital
providing up to $125 million in subordinated debt financing to fund acquisitions
and for certain other uses, in each case as approved by the Board of Directors
of the Company and GTRC Capital. The loans bear interest at an annual rate of
12% paid quarterly and provide warrants which are convertible into Preferred
Stock at $.01 per warrant. The unpaid principal plus unpaid and accrued interest
must be paid in full January 27, 2008. The agreements contain certain general
and financial covenants. As of March 27, 2000, the Company has incurred
$21,904,000 of indebtedness under the terms of the agreement which was used to
partially fund 2000 Acquisitions. Warrants to acquire 3,129,201 shares of
Series C Redeemable Preferred Stock were issued in connection with these
borrowings. These warrants were immediately exercised by GTCR. (See note (8))

At December 31, 1999, the Company had working capital of approximately
$3,982,000. Accounts receivable and prepaid expenses and other currents assets
increased by approximately $5,546,000 during fiscal 1999, primarily due to the
acquisitions. The Company evaluates the collectibility of its receivables based
on a specific account-by-account review. The Company had allowances of
approximately $373,000 and $197,000 at December 31, 1999 and 1998, respectively,
and writeoffs of approximately $3,000 and $13,000 in 1999 and 1998,
respectively. Accounts payable and accrued expenses increased by approximately
$4,385,000 during fiscal 1999 primarily as a result of additional trade payables
relating to acquisitions. The Company believes its cash requirements for 2000
can be met with existing cash, cash flows from operations and its borrowing
availability under the Senior Credit Agreement.

The increase in other assets as of December 31, 1999, related primarily to an
increase in deferred bank costs associated with the credit facility, GTCR
Subordinated Debt, and preacquisition costs related to acquisitions consummated
in 2000.

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

                                      13
<PAGE>   15
YEAR 2000

In the prior year, the Company implemented a Year 2000 program and used both
internal and external resources to assess and replace or reprogram computers,
software and other equipment as needed. Key areas of the Company's operations
that were addressed included external customers, external suppliers and
internal computers, software and potential back-up and contingency plans. To
date the Company has not experienced any significant Year 2000 issues. We will
continue to monitor our mission critical computer applications and those of our
suppliers and vendors throughout the year 2000 to ensure that any latent Year
2000 matters that may arise are addressed promptly.

The cost of our Year 2000 program was approximately $75,000. Most of this cost
was for workstation computers and servers that were replaced for reasons not
involving Year 2000.

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 currently 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, 1999, included approximately $38,600,000 in floating
rate debt attributed to the bank credit facility borrowings at an interest rate
of 8.875%. As a result, the Company's annual interest cost in 2000 will
fluctuate based on short-term interest rates. The impact on annual cash flow of
a ten-percent change in the floating rate (approximately 85 basis points) would
be approximately $328,000.

At December 31, 1999, the Company's fixed rate debt had a book value and fair
market value of $4,829,000. The floating rate debt will mature in July 2006.

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-21 attached hereto.

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

None.


                                      14

<PAGE>   16
                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information regarding the executive officers and directors of the Company and
compliance with Section 16(a) of the Exchange Act will be incorporated by
reference under the caption "Election of Directors" in the Company's Proxy
Statement for the 2000 Annual Meeting of Stockholders. The Company intends to
file the Proxy Statement within 120 days from the fiscal year-end.

ITEM 11.  EXECUTIVE COMPENSATION

Information regarding executive compensation will be incorporated by reference
under the caption "Other Information--Executive Compensation" in the Company's
Proxy Statement for the 2000 Annual Meeting of Stockholders. The Company
intends to file the Proxy Statement within 120 days from the fiscal year-end.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information regarding security ownership of certain beneficial owners and
management will be incorporated by reference under the caption "Other
Information--Principal Stockholders" and "Election of Directors--Management
Stockholdings" in the Company's Proxy Statement for the 2000 Annual Meeting of
Stockholders. The Company intends to file the Proxy Statement within 120 days
from the fiscal year-end.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information regarding certain relationships and related transactions will be
incorporated by reference under the caption "Other Information--Certain
Transactions" in the Company's Proxy Statement for the 2000 Annual Meeting of
Stockholders. The Company intends to file the Proxy Statement within 120 days
from the fiscal year-end.

                                    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, 1999 and 1998, and related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1999.

      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)

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

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

    4.9    Registration Rights Agreement dated January 27, 2000, by and among
           Synagro Technologies, Inc., GTCR Fund VII, Inc. and GTCR Capital
           Partners, L.P. (Exhibit 2.6 to the Company's Current Report on Form
           8-K, dated February 17, 2000, is herein incorporated by reference)

   4.10    Warrant Agreement, dated January 27, 2000, by and between Synagro
           Technologies, Inc. and GTCR Capital Partners, L.P. (Exhibit 2.13 to
           the Company's Current Report on Form 8-K, dated February 17, 2000, is
           herein incorporated by reference)

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

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

   10.3    Amended and Restated 1993 Stock Option Plan dated August 5, 1996.
           (Exhibit 4.1 to the Company's Registration Statement on Form S-8
           (No. 333-18029), 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)


                                      15
<PAGE>   17
  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;
           Assignment Agreement dated as of December 4, 1998. (Exhibit 10.8 to
           the Company's Annual Report on Form 10-K for the year ended December
           31, 1999, is incorporated herein by reference)

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

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

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

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

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

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

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

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

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

  10.18    Monitoring Agreement, dated January 27, 2000, by and between Synagro
           Technologies, Inc. and GTCR Capital Partners, L.P. (Exhibit 2.15 to
           the Company's Current Report on Form 8-K, dated February 17, 2000,
           is herein incorporated by reference)

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

  10.20    Amended and Restated Credit Agreement, dated January 27, 2000, by and
           among Synagro Technologies, Inc., Bank of America, N.A., Canadian
           Imperial Bank of Commerce, and certain other lenders. (Exhibit 2.3 to
           the Company's Current Report on Form 8-K, dated February 17, 2000, is
           herein incorporated by reference)

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

 *10.22    First Amendment to Senior Subordinated Loan Agreement dated
           March 6, 2000 by and among Synagro Technologies, Inc., Bank of
           America, N.A., Canadian Imperial Bank of Commerce, and various
           financial institutions.

 *21.1     Subsidiaries of Synagro Technologies, Inc.

 *23.1     Consent of Arthur Andersen LLP

 *27.1     Financial Data Schedule.

------------------

 *  Filed herewith.

(b) REPORTS ON FORM 8-K.

On February 11, 2000, the Company filed a Current Report on Form 8-K listing
the acquisition of Residual Technologies, Limited Partnership and its
affiliates.

On February 17, 2000, the Company filed a Current Report on Form 8-K listing
three financial transactions.

On February 22, 2000, the Company filed a Current Report on Form 8-K listing
the acquisition of Ecosystematics, Inc.


                                      16
<PAGE>   18


                           SYNAGRO TECHNOLOGIES, INC.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Public Accountants...............................     F-2

Consolidated Balance Sheets as of December 31, 1999 and 1998...........     F-3

Consolidated Statements of Operations for the Years Ended
        December 31, 1999, 1998 and 1997...............................     F-4

Consolidated Statements of Stockholders' Equity for the Years Ended
        December 31, 1999, 1998 and 1997...............................     F-5

Consolidated Statements of Cash Flows for the Years Ended
        December 31, 1999, 1998 and 1997...............................     F-6

Notes to Consolidated Financial Statements.............................     F-8


                                      F-1

<PAGE>   19


                    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, 1999 and 1998, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1999. 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 auditing standards generally
accepted in the United States. 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, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States.





ARTHUR ANDERSEN LLP

Houston, Texas
March 27, 2000


                                      F-2
<PAGE>   20


                           SYNAGRO TECHNOLOGIES, INC.

                          CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                                 DECEMBER 31,
                                                                        --------------------------------

                                                                            1999               1998
                                                                        --------------     -------------
<S>                                                                     <C>               <C>
         ASSETS
 Current Assets:
      Cash and cash equivalents                                         $      180,633   $      414,712
      Restricted cash, current portion                                              --          680,656
      Accounts receivable, net                                              11,641,160        6,523,944
      Note receivable, current portion                                          90,131          436,325
      Prepaid expenses and other current assets                              3,745,590        1,679,381
                                                                        --------------   --------------
           Total current assets                                             15,657,514        9,735,018

 Property, machinery & equipment, net                                       15,918,674       12,394,018

 Other Assets:
      Goodwill, net of accumulated amortization                             64,280,266       43,130,904
         of $3,151,635 and $1,624,918, respectively
      Notes receivable, long-term portion                                      183,396          262,829
      Other                                                                  3,132,247        1,099,714
                                                                        --------------   --------------
 Total assets                                                           $   99,172,097   $   66,622,483
                                                                        ==============   ==============

 LIABILITIES AND STOCKHOLDERS' EQUITY

 Current Liabilities:
      Current portion of long-term debt                                        398,040               --
      Notes payable to prior owner - current portion                           849,010               --
      Accounts payable and accrued expenses                             $   10,428,823   $    4,043,512
                                                                        --------------   --------------
            Total current liabilities                                       11,675,873        4,043,512

 Long-term liabilities:
       Long-term debt obligations                                           39,936,222       21,651,197
       Notes payable to prior owners                                         2,245,511        6,679,039
                                                                        --------------   --------------
            Total long-term liabilities                                     42,181,733       28,330,236

 COMMITMENTS AND CONTINGENCIES

 Stockholders' Equity:
       Preferred stock, $.002 par value, 10,000,000 shares authorized,
           none issued and outstanding                                              --               --
      Common Stock, $.002 par value, 100,000,000 shares authorized,
           17,693,489, shares and 14,251,706 issued and outstanding             35,388           28,503
      Additional paid in capital                                            66,406,731       56,495,873
      Accumulated deficit                                                  (21,127,628)     (22,275,641)
                                                                        --------------   --------------
           Total stockholders' equity                                       45,314,491       34,248,735
                                                                        --------------   --------------
 Total liabilities and stockholders' equity                             $   99,172,097   $   66,622,483
                                                                        ==============   ==============
</TABLE>



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

                                      F-3

<PAGE>   21

                           SYNAGRO TECHNOLOGIES, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS

              FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

<TABLE>
<CAPTION>
                                                                                1999             1998            1997
                                                                           -------------    -------------   -------------
<S>                                                                        <C>              <C>             <C>
Net sales                                                                  $  56,462,757    $  33,564,831   $  28,036,056
Cost of service                                                               42,470,937       28,116,069      23,239,213
                                                                           -------------    -------------   -------------
Gross profit                                                                  13,991,820        5,448,762       4,796,843

Selling, general and administrative expenses                                   6,875,928        4,180,635       3,576,006

Goodwill amortization                                                          1,526,717          628,839         228,895

Other charges (credits), net                                                   1,499,501          (63,799)       (721,286)
                                                                           -------------    -------------   -------------
                           Income from operations                              4,089,674          703,087       1,713,228
                                                                           -------------    -------------   -------------

Other income (expense):
   Other income, net                                                             294,438          317,714         409,283
    Interest                                                                  (3,236,099)      (1,558,219)     (1,006,790)
                                                                           -------------    -------------   -------------
                              Total                                           (2,941,661)      (1,240,505)       (597,507)
                                                                           -------------    -------------   -------------

Income (loss) before redeemable preferred dividends and income taxes           1,148,013         (537,418)      1,115,721
Income tax provision                                                                  --               --              --
                                                                           -------------    -------------   -------------
Income (loss) before redeemable  preferred dividends                           1,148,013         (537,418)      1,115,721
Redeemable preferred stock dividends                                                  --        3,934,585              --
                                                                           -------------    -------------   -------------
Net income (loss) applicable to common stock                               $   1,148,013    $  (4,472,003) $    1,115,721
                                                                           ==============   =============  ==============

Income per common and common share equivalent:
   Net income (loss), basic                                                        $ .07            $(.40)          $ .13
   Net income (loss), diluted                                                      $ .07            $(.40)          $ .13

Weighed average shares outstanding , basic                                    16,481,399       11,207,249       8,545,114
Weighed average shares outstanding, diluted                                   17,479,376       11,207,249       8,740,345
</TABLE>


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

                                      F-4

<PAGE>   22


                           SYNAGRO TECHNOLOGIES, INC.

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

              FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

<TABLE>
<CAPTION>
                                                        COMMON STOCK              ADDITIONAL
                                                        ------------               PAID-IN        ACCUMULATED
                                                    SHARES          AMOUNT         CAPITAL          DEFICIT          TOTAL
                                                    ------          ------         -------          -------          -----
<S>                                             <C>             <C>             <C>              <C>             <C>

BALANCE, December 31, 1996....................     7,355,435       $  14,712     $22,769,380     $(18,919,359)      $3,864,733

      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..............................            --              --              --        1,115,721        1,115,721
                                                -------------   -------------   -------------    -------------   --------------
BALANCE, December 31, 1997....................     8,610,306          17,221      25,513,915      (17,803,638)       7,727,498

      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
      Preferred stock dividends...............            --              --       3,514,585       (3,934,585)        (420,000)
      Exercise of options and warrants........        30,084              60          63,422               --           63,482
      Net loss................................            --              --              --         (537,418)        (537,418)
                                                -------------   -------------   -------------    -------------   --------------
BALANCE, DECEMBER 31, 1998....................    14,251,706          28,503      56,495,873      (22,275,641)      34,248,735
                                                -------------   -------------   -------------    -------------   --------------

      Shares issued in acquisitions...........     3,044,784           6,090       9,018,123               --        9,024,213
      Exercise of options and warrants........       396,999             795         892,735               --          893,530
      Net income..............................            --              --              --        1,148,013        1,148,013
                                                -------------   -------------   -------------    -------------   --------------
BALANCE, DECEMBER 31, 1999....................    17,693,489       $  35,388     $66,406,731     $(21,127,628)     $45,314,491
                                                =============   =============   =============    =============   ==============
</TABLE>






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

                                      F-5

<PAGE>   23

                           SYNAGRO TECHNOLOGIES, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

              FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
                                                                                 1999             1998             1997
                                                                                 ----             ----             ----
<S>                                                                          <C>              <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net income (loss) before preferred stock dividends...................   $ 1,148,013       $ (537,418)     $ 1,115,721
        Adjustments to reconcile net income (loss) to net cash
        provided by (used in) operating activities-
          Depreciation....................................................     2,913,260        1,856,866        1,610,268
          Amortization....................................................     1,602,714          667,845          228,895
          Loss on assets held for sale and other
          credits.........................................................            --         (251,476)        (721,286)
          Gain on sale of property, machinery and equipment...............      (151,426)        (145,333)        (251,470)
          Other...........................................................            --               --         (113,133)
     Increase in the following, excluding
     the effects of acquisitions-
                Accounts receivable.......................................    (3,674,251)        (596,818)      (1,466,866)
                Prepaid expenses and other current assets.................    (1,871,724)        (161,355)      (1,124,110)
                Other assets..............................................    (2,108,530)        (338,832)        (118,950)
     Increase (decrease) in the following, excluding
     the effects of acquisitions-
                Accounts payable and accrued expenses.....................      3,339,810        (787,629)          (9,482)
                                                                           --------------    -------------   --------------
            Net cash provided by (used in) operating
            activities....................................................      1,197,866        (294,150)        (850,413)
                                                                           --------------    -------------   --------------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Purchase of businesses, net of cash acquired.........................   (13,802,090)      (9,411,182)              --
     Purchase of property, machinery and equipment........................    (4,043,026)      (2,557,826)      (1,634,722)
     Proceeds from sale of property, machinery and equipment                   1,103,463        2,081,026          456,564
     Sales of short-term investments, net.................................            --           64,504          495,496
     Proceeds from notes receivable.......................................       425,627          138,999          121,286
                                                                           --------------    -------------   --------------

            Net cash used in investing activities.........................   (16,316,026)      (9,684,479)        (561,376)
                                                                           --------------    -------------   --------------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Proceeds from debt...................................................    19,274,802        8,419,768        1,360,945
     Payments on debt.....................................................    (5,964,907)      (1,049,492)      (3,301,330)
     (Increase) decrease in restricted cash...............................                       (334,344)            (950)
                                                                              680,656
     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.....................................       893,530           63,482           10,000
                                                                           --------------    -------------   --------------
            Net cash provided by financing
            activities....................................................    14,884,081       10,112,298        1,018,725
                                                                           --------------    -------------   --------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS......................      (234,079)         133,669         (393,064)
CASH AND CASH EQUIVALENTS, beginning of year..............................       414,712          281,043          674,107
                                                                           --------------    -------------   --------------
CASH AND CASH EQUIVALENTS, end of year....................................    $  180,633        $ 414,712       $  281,043
                                                                           ==============    =============   ==============
</TABLE>



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

                                      F-6

<PAGE>   24
                           SYNAGRO TECHNOLOGIES, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

              FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
                                  (Continued)

                                           1999         1998        1997
                                           ----         ----        ----

SUPPLEMENTAL CASH FLOW INFORMATION:
      Interest paid.................... $3,293,798   $1,008,430   $1,025,788

      Taxes paid.......................         --           --           --

                   NON-CASH INVESTING AND FINANCING ACTIVITIES

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 (see Note 10).

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.

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.

On July 9, 1999, the Company entered into a capital lease agreement to purchase
ten trucks with a purchase price of approximately $660,000.




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

                                      F-7

<PAGE>   25


                           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 services business. The Company provides transportation, processing,
site monitoring, and 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 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. As discussed further in Note 2, the Company acquired National
Resource Recovery, Inc., on March 1, 1999, in a transaction accounted for as a
pooling-of-interests. The historical consolidated financial statements of the
Company have been restated for all periods presented for the effect of the
pooling-of-interests transaction.

CASH EQUIVALENTS

The Company considers all investments with an original maturity of three months
or less when purchased to be cash equivalents.

PROPERTY, MACHINERY AND EQUIPMENT

Property, machinery and equipment is stated at cost. Depreciation is being
provided using the straight-line method 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, 1999, is fully
realizable.

At December 31, 1999, 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, $228,895, $628,839 and
$1,526,717 for 1997, 1998 and 1999, respectively.

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 $76,000 in 1999,

                                      F-8
<PAGE>   26
$40,000 in 1998, and $0 in 1997, respectively. Additionally, the Company had
deferred financing costs in connection with the credit facility disclosed in
Note 5; 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 accounting principles
generally accepted in the United States, management makes estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

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 1999 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 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

In the first quarter of 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income," which requires the display of comprehensive income and
its components in the financial statements. Comprehensive income represents all
non-stockholder related changes in equity of an entity during the reporting
period, including net income and changes directly to equity, which are excluded
from net income. For the three years ended December 31, 1999, there are no
material differences between the Company's "traditional" and "comprehensive"
net income.

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, 1999, the Company operated in
one segment namely, the biosolids management business segment.

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.

                                      F-9
<PAGE>   27
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. In June 1999 the FASB amended SFAS No. 133
to defer its effective date to all fiscal quarters and all fiscal years
beginning after June 15, 2000. The Company is evaluating SFAS No.133 and the
impact on existing accounting policies and financial reporting disclosures. The
Company has not historically engaged in activities or entered into arrangements
normally associated with derivative instruments. However, under the Company's
amended credit facility dated January 27, 2000, the Company is required to
hedge 50% of the facility. The Company is currently reviewing the derivatives
available to hedge their position.

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
adopted SOP 98-1 in the first quarter of fiscal 1999, which did 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 adoption of this
standard did not have a material effect on the Company's consolidated financial
position or result of operations.

(2) ACQUISITIONS --

1999 ACQUISITIONS

In 1999, the Company purchased Anti-Pollution Associates, Inc. and D&D Pumping,
Inc., Vital Cycle, Inc. and AMSCO, Inc. ("1999 Acquisitions"). The transactions
were recorded using the purchase method of accounting. The balance sheet at
December 31, 1999 includes a preliminary allocation of the purchase price and is
subject to final adjustment which management believes will not be material. The
preliminary allocation resulted in approximately $19,459,000 of goodwill that is
being amortized over 40 years. The assets acquired and liabilities assumed
relating to these acquisitions are summarized as follows:


           Common stock shares issued                       3,044,784
                                                         ============
           Value of common stock issued                  $  9,024,000
           Cash paid including tranaction costs,
              net of cash acquired                         13,802,000

           Less:    Historical net assets acquired          3,367,000
                                                        --------------

           Goodwill                                      $ 19,459,000
                                                        ==============

ACQUISITION OF NATIONAL RESOURCE RECOVERY, INC.

In March 1999, Synagro Technologies completed the acquisition of all the common
stock of National Resource Recovery, Inc. ("NRR"), in a business combination
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.

                                     F-10
<PAGE>   28



The following table summarizes the 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,
                                                      ------------------------

                                                   1998                       1997
                                                   ----                       ----
                                                          NET                        NET
                                          REVENUES      INCOME        REVENUES      INCOME
                                          --------      ------        --------      ------
<S>                                      <C>          <C>            <C>           <C>
Revenues and net income-
   As previously reported ............     $29,967     $ (4,672)       $25,303       $  832
   NRR ...............................       3,598          200          2,733          284
                                           -------     --------        -------       ------

        As restated...................     $33,565     $ (4,472)       $28,036       $1,116
                                           =======     =========       =======       ======

Basic earnings per share-
   As previously reported.............                 $  (0.46)                     $ 0.11
     NRR..............................                     0.06                        0.02
                                                       ---------                     ------

        As restated...................                 $  (0.40)                     $ 0.13
                                                       =========                     ======

Diluted earnings per share-
   As previously reported.............                 $  (0.46)                     $ 0.11
   NRR................................                     0.06                        0.02
                                                       ---------                     ------

           As restated                                 $  (0.40)                     $ 0.13
                                                       =========                     ======
</TABLE>

1998 ACQUISITIONS

During 1998, the Company purchased A&J Cartage and related companies, Recyc,
Inc., and Environmental Waste Recycling, Inc. ("1998 Acquisitions"). The
transaction was recorded using the purchase method of accounting. The balance
sheet at December 31, 1999 includes an allocation of the purchase price that
resulted in approximately $42,643,000 of goodwill, that is being amortized
over 40 years. The assets acquired and liabilities assumed relating to these
acquisitions are summarized as follows:


     Common stock shares issued                           4,152,981
                                                       ============
     Value of common stock issued                      $ 23,783,000
     Notes payable-issued and assumed                    11,669,000
     Cash paid including transaction costs, net of
       cash acquired                                      9,410,000

     Less:        Historical net assets acquired          2,219,000
                                                     ---------------

     Goodwill                                          $ 42,643,000
                                                     ===============

The following unaudited pro forma information for the periods set forth below
gives effect to the 1998 Acquisitions and 1999 Acquisitions as if they had
occurred at the beginning of 1998. The unaudited pro forma information is
presented for information purposes only and is not necessarily indicative of
actual results, which might have occurred if the acquisitions had been made at
the beginning of the periods presented.

                                                         YEAR ENDED
                                                        DECEMBER 31
                                                 ----------------------------
                                                        (UNAUDITED)
                                                     1999            1998
                                                 ------------    ------------
Net sales                                        $ 60,784,996    $ 63,276,532
Net income before Preferred Stock Dividends         1,541,945       3,258,099
Net earnings (loss) applicable to Common Stock      1,541,945        (676,486)
Net earnings (loss) per share
          Basic                                  $        .09    $       (.04)
          Diluted                                $        .08    $       (.04)


                                     F-11
<PAGE>   29
2000 ACQUISITIONS

Subsequent to December 31, 1999 and through March 27, 2000, the Company
purchased Residual Technologies, Limited Partnership ("RESTEC"), and certain of
its affiliates, Ecosytematics, Inc., Davis Water Analysis, Inc., AKH Water
Management, Inc., and Rehbein, Inc; additionally, the Company purchased certain
assets and revenue contracts of Whiteford Construction Company (collectively
"2000 Acquisitions"). In connection with the purchase of RESTEC, the former
owners are entitled to receive up to an additional $12,000,000 over the next
eight years if certain performance targets are met. In connection with the
purchase of Rehbein, Inc., the former owners are entitled to receive up to an
additional $2,000,000 over the next three years if certain performance targets
are met. Additionally, the Company assumed approximately $13.4 million, net of
cash reserves, of municipal bonds in connection with the acquisition of RESTEC.
The bonds are currently in default due to violations in change in control
provisions and certain other financial convenants. Accordingly, the bonds are
subject to redemption by the bondholders. The bonds also contain a provision
whereby RESTEC can defease the bonds and be released from all future obligations
by placing an equivalent amount of U.S. Securities with the bonds trustee. The
Company plans to defease the bonds and has $13.5 million of availability under
its amended Senior Credit Agreement reserved for defeasance. The transactions
were accounted for using the purchase method of accounting. The preliminary
allocation resulted in approximately $49,854,000 of goodwill, that is being
amortized over 40 years. The assets acquired and liabilities assumed relating to
these acquisitions are summarized as follows:

    Common stock shares issued                            1,325,000
                                                       ============
    Value of common stock issued                       $  5,963,000
    Cash paid including transaction costs,
       net of cash acquired                              47,916,000

    Less:        Historical net assets acquired           4,025,000
                                                    ----------------

    Goodwill                                           $ 49,854,000
                                                    ================

(3) PROPERTY, MACHINERY AND EQUIPMENT --

Property, machinery and equipment consists of the following:
<TABLE>
<CAPTION>
                                                                                     DECEMBER 31,
                                                                        -----------------------------------
                                                   ESTIMATED USEFUL
                                                     LIVE-IN YEARS           1999                  1998
                                                     -------------      -------------         -------------
<S>                                                <C>                 <C>                   <C>
Land                                                      N/A           $     350,000         $     444,958
Machinery and equipment                                  3-10              22,344,938            17,116,636
Office furniture and equipment                           3-10               1,065,551               552,264
Leasehold improvements                                   7-20                 461,494               197,265
Construction in process                                   --                  342,087               225,644
                                                                        -------------         -------------
                                                                           24,564,070            18,536,767

Less- Accumulated depreciation and amortization                             8,645,396             6,142,749
                                                                        -------------         -------------
                                                                        $  15,918,674         $  12,394,018
                                                                        =============         =============
</TABLE>

(4)   DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS --

Activity of the Company's allowance for doubtful accounts consists of the
following:
<TABLE>
<CAPTION>
                                                                              DECEMBER 31,
                                                                     -------------------------------
                                                                          1999              1998
                                                                     -------------      ------------
<S>                                                                  <C>                <C>
  Balance at beginning of year                                       $    196,770       $    189,862
(Expenses) for uncollectible
   receivables written off                                                 (2,874)          (13,092)
 Allowance for doubtful accounts of purchased companies
  at acquisition date                                                     179,000             20,000
                                                                     -------------      ------------
 Balance at end of year                                              $     372,896      $    196,770
                                                                     =============      ============
</TABLE>

Accounts payable and accrued expenses consist of the following:

<TABLE>
<CAPTION>
                                                                              DECEMBER 31,
                                                                     -------------------------------
                                                                          1999              1998
                                                                     -------------      ------------
<S>                                                                  <C>                <C>
Accounts payable                                                     $ 6,856,859         $ 2,790,668
Accrued legal and other claims costs                                     395,963             287,378
Accrued salaries and benefits                                             70,288             102,808
Accrued interest                                                         237,024             294,723
Accrued taxes                                                            200,000                  --
Other accrued expenses                                                 2,668,689             567,935
                                                                     -----------         -----------
                   Total                                             $10,428,823         $ 4,043,512
                                                                     ===========         ===========
</TABLE>

                                     F-12
<PAGE>   30
(5) LONG-TERM DEBT OBLIGATIONS --

Long-term debt obligations consist of the following:

<TABLE>
<CAPTION>

                                                                                           December 31
                                                                                 ----------------------------
                                                                                      1999           1998
                                                                                 -------------- -------------
<S>                                                                              <C>            <C>
Revolving credit facility with a bank                                            $  38,600,000  $  18,200,000
Economic development revenue bonds                                                          --        630,000
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        245,757
Capital lease obligations                                                              786,775        233,557
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 11%                                               701,730      2,341,883
                                                                                 -------------  -------------
                                   Total debt                                       40,334,262     21,651,197
Less:
Current maturities                                                                     398,040             --
                                                                                 -------------  -------------
                            Long-term debt, net of current maturities            $  39,936,222  $  21,651,197
                                                                                 =============  =============

</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
or reference rate plus a margin based upon a pricing schedule per the Facility
agreement (8.875% at December 31, 1999). The weighted average interest rate in
1999 was 7.827%. The Facility is subject to a borrowing base equal to 4.25
times earnings before interest, taxes, depreciation and amortization ("EBITDA")
based on a trailing twelve months calculation, as defined in the Facility, less
funded debt as defined, (which includes notes payable to prior owners, which
can be refinanced through the Facility), until June 30, 1999, 4.00 until
September 30, 1999, and 3.75 times EBITDA thereafter. Amounts available for
additional borrowing under the Facility at December 31, 1999, totaled
approximately $1,400,000.

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 Facility was used to pay off 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. This previous facility was to expire in
September 1999.

On January 27, 2000 the Company entered into a $110 million amended and restated
Senior Credit Agreement, ("the Senior Credit Agreement") by and among the
Company, Bank America, N.A. and certain other lenders for acquisitions working
capital, to refinance existing debt (including the Facility), for capital
expenditures and other general corporate purposes. The credit agreement bears
interest at Libor or prime plus a margin based on a pricing schedule as set out
in the Senior Credit Agreement. The Senior Credit Agreement was subsequently
syndicated on March 15, 2000 to a banking group, and the capacity was increased
to $120 million. The loan commitments under the Senior Credit Agreement are as
follows:

      (i.)  Revolving Loans up to $20,000,000 outstanding at any one time;

     (ii.)  Term A Loans of up to $40,000,000 are available until April
            27, 2000; except that $13,500,000 of this amount is available
            until June 26, 2000 for the repayment or defeasement of certain
            indebtedness assumed in connection with the Acquisition of
            RESTEC;

    (iii.)  Term B Loans (which once repaid may not be reborrowed) of
            $30,000,000 made on the closing date;

     (iv.)  Acquisition Loans up to $30,000,000 outstanding at any one time
            available on a revolving  basis prior to January 27, 2001 provided
            that certain approvals are obtained and certain financial ratios
            are met;

     (v.)   Letters of credit issuable by the Company up to $15,000,000 as a
            subset of the Revolving Loans.

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


               Revolving      Term A       Term B    Acquisition
                 Loans        Loans        Loans        Loans
               ---------      ------       ------    -----------
Year 1            --            6.56%        1.00%          0%
Year 2            --           13.75%        1.00%       6.67%
Year 3            --           15.00%        1.00%       3.33%
Year 4            --           22.50%        1.00%      10.00%
Year 5         100.00%         25.00%        1.00%      13.33%
Year 6            --           17.19%        1.00%      66.67%
Year 6 1/2        --             --         94.00%        --
               ------         ------       ------      ------
               100.00%        100.00%      100.00%     100.00%
               ======         ======       ======      ======

The Senior Credit Agreement includes mandatory repayment provisions related to
excess cash flows, proceeds from certain asset sales, debt issuances and equity
issuances, all as defined in the Senior Credit Agreement. These mandatory
repayment provisions may also reduce the available commitment for Revolving
Loans and Acquisition Loans. The Senior Credit

                                     F-13

<PAGE>   31
Agreement contains standard covenants including compliance with laws,
limitations on capital expenditures, restrictions on dividend payments,
limitations on mergers and compliance with certain financial covenants. The
Company believes that it was in compliance with those covenants as of March 27,
2000. The Senior Credit Agreement is secured by all the assets of the Company
and expires on July 27, 2006. As of March 27, 2000, the Company has borrowed
approximately $56,500,000, ($26,500,000 of Term A Loans and $30,000,000 of Term
B Loans) which was primarily used to refinance existing debt and partially fund
2000 Acquisitions. The Company has approximately $62,848,000 available to the
Company for additional borrowing under the Senior Credit Agreement at March 27,
2000.

SUBORDINATED DEBT

On January 27, 2000 the Company entered into an agreement with GTCR Capital
providing up to $125 million in subordinated debt financing to fund acquisitions
and for certain other uses, in each case as approved by the Board of Directors
of the Company and GTRC Capital. The loans bear interest at an annual rate of
12% paid quarterly and provide warrants which are convertible into Preferred
Stock at $.01 per warrant. The unpaid principal plus unpaid and accrued interest
must be paid in full January 27, 2008. The agreements contain certain general
and financial covenants. As of March 27, 2000, the Company has incurred
$21,904,000 of indebtedness under the terms of the agreement which was used to
partially fund 2000 Acquisitions. Warrants to acquire 3,129,201 shares of
Series C Redeemable Preferred Stock were issued in connection with these
borrowings. These warrants were immediately exercised by GTCR. (See note (8))

REVENUE BONDS

The economic development revenue bonds were paid in September 1999. Interest
was payable at 6.7 percent per annum in 1998 and 1999. Included in the
accompanying consolidated balance sheet as of December 31, 1998 is restricted
cash of $680,656 for September 1999 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 $2,845,522 and $6,361,822 at December 31, 1999 and 1998,
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 $783,344 at December 31, 1999, may be offset if certain
postclosing conditions are not met. No adjustments have been made as of
December 31, 1999. Additionally, the Company has notes to prior owners relating
to non-compete agreements; these notes have a balance of $248,999 and $317,217
at December 31, 1999, and 1998, respectively. 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, 1999, future principal payments of total long-term debt are as
follows:

    YEAR ENDING                       LONG-TERM              PAYABLE TO
    DECEMBER 31,                         DEBT               PRIOR OWNERS
   ---------------------            --------------          ------------

     2000                             $  398,040             $2,911,188
     2001                             39,224,541                100,000
     2002                                334,004                 83,333
     2003                                 95,232                     --
     2004 and thereafter                 282,445                     --
     -----                          ------------             ----------
     Total                          $ 40,334,262             $3,094,521
                                    ============             ==========

The Company had current maturities on total long-term debt of $3,309,228 at
December 31, 1999. Through March 27, 2000, the Company has refinanced 1,247,050
of such maturities related to current maturities of long-term debt through
borrowings under the Senior Credit Agreement and has therefore been classified
as long-term in the consolidated balance sheet as of December 31, 1999. The
Company estimates the fair value of long-term debt as of December 31, 1999 and
1998, to be approximately the same as the recorded value.

CAPITAL LEASES

The Company operates under lease agreements, which are accounted for as capital
leases. The capitalized costs and accumulated depreciation of equipment under
capital leases were as follows:

                                                   ASSET BALANCES AT
                                                     DECEMBER 31,
                                             ------------------------------
                                                 1999             1998
                                             -------------     ------------
   Equipment                                  $ 1,054,825       $  391,370

   Less:  Accumulated depreciation                140,472           61,844
                                             -------------     ------------
                                             $    914,353       $  329,526
                                             =============     ============

                                     F-14
<PAGE>   32
The following is a schedule by year of future minimum lease payments under
capital leases together with the present value of present net minimum lease
payments as of December 31, 1999:

         YEAR ENDED DECEMBER 31,

         2000                                         $    213,918
         2001                                              213,918
         2002                                              120,796
         2003                                              120,796
         2004 and thereafter                               307,278

         Total minimum lease payments                      976,706

         Less:  Amount representing interest               189,931
                                                      -------------

         Present value of minimum lease payments      $    786,775
                                                      =============


  (6) INCOME TAXES --

Significant components of the Company's deferred tax liabilities and assets for
federal income taxes consist of the following:
<TABLE>
<CAPTION>
                                                                                  DECEMBER 31
                                                                      --------------------------------
                                                                           1999              1998
                                                                      --------------    --------------
<S>                                                                   <C>               <C>
Deferred tax assets-
   Net operating loss carryforwards                                    $   3,619,000     $   3,992,000
   Alternative minimum tax credit                                             40,000                --
   Accrual not currently deductible for tax purposes                         200,000           157,000
   Allowance for bad debts                                                   210,000           200,000
   Write-off of assets not currently deductible for tax purposes             447,000           520,000
   Other                                                                       2,000             1,000
                                                                       -------------     -------------
                     Total deferred tax assets                             4,518,000         4,870,000
Valuation allowance for deferred tax assets                              (3,326,000)       ( 4,025,000)
Deferred tax liability-

   Differences between book and tax bases of fixed assets                (   658,000)      (   845,000)
   Differences between book and tax bases of goodwill                    (   334,000)               --
                                                                       -------------     -------------

                     Total deferred tax liabilities                       (  992,000)               --
                                                                       -------------     -------------

                     Net deferred tax asset                            $     200,000     $          --
                                                                       ===============   =============
</TABLE>

As of December 31, 1999, the Company generated net operating loss ("NOL")
carryforwards of approximately $10,643,000 available to reduce future income
taxes. These carryforwards begin to expire in 2008 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 substantially offset the net
deferred tax asset at December 31, 1999 and 1998. The valuation allowance
decreased $699,000 and $54,000, for the year ended December 31, 1999 and
December 31, 1998, respectively, due to the Company's utilization of NOL
carryforwards.

                                      F-15

<PAGE>   33
(7) 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,
             ------------
              2000                          $  1,161,422
              2001                               838,290
              2002                               750,580
              2003                               684,823
                 2004 and thereafter           6,387,501
                                            -------------
                                            $  9,822,616
                                            =============

Rental expense was $1,367,983, $1,060,703 and $530,685 for 1999, 1998 and 1997,
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
is being expensed on a straight-line basis. Included in 1999 rent expense above
is approximately $326,000 of rent paid to related parties.

LITIGATION

AZURIX, CORP.

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

Azurix filed on October 29, 1999, a lawsuit in Delaware (the "Delaware Suit")
seeking unspecified injunctive relief; limited declaratory relief relating to
the construction of the standstill agreement and the stock subscription
agreement entered into between the Company and Azurix, and attorneys' and
experts' fees. Azurix claims that Synagro tortously interfered in its
negotiations with a potential acquisition candidate. The Company believes the
Delaware Suit was filed by Azurix in an attempt to have the Company's dispute
with Azurix tried in Delaware under a non-jury proceeding rather than in Texas
under a jury proceeding. The Company filed the Texas Suit on November 1, 1999,
seeking injunctive relief, actual and exemplary damages, and attorneys' fees
against Azurix alleging violations of the standstill agreement and certain
confidentiality agreements governing Azurix's ability to use confidential and
proprietary information provided to Azurix by the Company. The exchanges of
information at issue occurred during negotiations regarding a $16,000,000 up to
$23,000,000 investment by Azurix in the Company and a potential merger of the
companies. The Company's current petition seeks injunctive relief, actual
damages, exemplary damages, attorneys' fees, and costs arising from Azurix's
alleged misappropriation of the Company's confidential and proprietary
information. On the Company's motion, the Texas court entered a temporary
restraining order on November 2, 1999 that prohibited Azurix from, among other
things, consummating a contemplated acquisition of certain third-party companies
that were subject to the standstill agreement, and from using information
provided by the Company to Azurix during the course of their negotiations. On
November 15, 1999, on Azurix's motion, the Texas court abated the Texas Suit
pending a decision by the court hearing the Delaware Suit as to which of the two
actions should proceed. The Company subsequently filed a motion with the
Delaware court to dismiss or stay the Delaware Suit, which was granted in part
by a decision of the Delaware court, on February 3, 2000, to stay the Delaware
Suit pending the resolution of the Texas Suit. Azurix's efforts to appeal the
Delaware court's ruling have been denied. Subsequently, the Company reactivated
the Texas Suit and intends to file an amended Petition seeking additional
damages against Azurix's breach of the subscription agreement.

                                     F-16
<PAGE>   34
The extent of the damages, if any, in either action has not been determined and
although the Company is confident in its position, the ultimate outcome of the
forgoing matters cannot be determined at this time.

COUNTY OF RIVERSIDE

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

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

The Company has taken the position that certain alleged odor violations
asserted by the County staff during the pending litigation were not appropriate
under the CUP. On certain of those instances, the Company has declined to reduce
its intake of biosolids. The County alleges that the Company's actions in
not reducing intake constitute violations that could reduce the term of the CUP
by as many as 63 months. The Company disagrees and is challenging the County's
position in the lawsuit.

Although the Company feels that it has a meritorious case, the case is in the
early stages and the ultimate outcome cannot be determined at this time.

OTHER

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

(8) 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 Facility (Note 5). The warrants are
exercisable at $6.00 and expire October 2002. The Company estimated the fair
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

                                     F-17
<PAGE>   35
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.

SERIES C REDEEMABLE PREFERRED STOCK

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

On January 27, 2000 the Company issued 17,358.824 shares of Series C Preferred
Stock, par value $.002 per share, of the Company, to GTCR Fund VII, L.P. and
its affiliates for $17,358,824, on February 4, 2000 the Company issued 419.4
shares of Series C Preferred Stock, par value $.002 per share, of the Company,
to GTCR Fund VII, L.P. and its affiliates for $419,400, on March 24, 2000 the
Company issued 225.000 shares of Series C Preferred Stock, par value $.002 per
share, of the Company, to GTCR Fund VII, L.P. and its affiliates for $225,000,
and on March 27, 2000 the Company issued 1,260.000 shares of Series C Preferred
Stock, par value $.002 per share, of the Company, to GTCR Fund VII, L.P. and
its affiliates for $1,260,000. The proceeds were used to partially fund the
2000 Acquisitions. The Company also issued warrants for a nominal price in
connection with the issuance of subordinated debt, which were immediately
converted into 272.058 shares of Series C Preferred Stock.

SERIES D REDEEMABLE PREFERRED STOCK

On January 26, 2000 the Company authorized 32,000 shares of Series D Preferred
Stock. The series D Preferred Stock is convertible by the holders into a number
of shares of Common Stock computed by (i) the sum of (a) the number of shares
to be converted multiplied by the liquidation value and (b) the amount of
accrued and unpaid dividends by (ii) The conversion price then in effect. The
initial conversion price is $2.50 per share; provided that in order to prevent
dilution, the conversion price may be adjusted. The Series D Preferred Stock is
senior to the Common Stock or any other equity securities of the Company. The
liquidation value of each share of Series D Preferred Stock is $1,000 per
share("Liquidation Value") plus accrued and unpaid dividends. Dividends on each
share of Series D Preferred Stock shall accrue on a daily basis at the rate of
8% per annum on aggregate Liquidation Value. The Series D Preferred Stock is
entitled to one vote per share. Shares of Series D Preferred Stock are subject
to mandatory redemption by the Company on January 26, 2010, at a price per share
equal to the Liquidation Value plus accrued and unpaid dividends.

On January 27, 2000 the Company issued 2,641.176 shares of Series D Preferred
Stock, par value $.002 per share, of the Company, to GTCR Fund VII, L.P. and its
affiliates for $2,641,176. The proceeds were used to partially fund the 2000
Acquisitions. The Company also issued warrants for a nominal price in connection
with the issuance of subordinated debt, which were immediately converted into
2,857.143 shares of Series D Preferred Stock.

NON-CASH BENEFICIAL CONVERSION

The Series D Preferred Stock (including Series C that will be converted into
Series D - see above, and the warrants issued in connection with the
subordinated debt which were converted into Series C and Series D Preferred
Stock - see note 5) are or will be converted into shares of the Company's common
stock at $2.50 per share. This conversion feature was or is expected to be below
the market price at the time of issuance or conversion. The Company will
recognize the value of this beneficial conversion feature of approximately
$25,000,000 as a preferred stock dividend at time of issuance or conversion to
Series D Preferred Stock. The value of such preferred stock dividend has no
impact on the Company's cash flows, but reduces basic and diluted earning
applicable to holders of Common Stock. This transaction will be recorded in the
first quarter of 2000. Additionally, future issuances of Series D Preferred
Stock and Warrants related to subordinated debt-see note 5 may result in
non-cash beneficial conversions valued in future periods recognized as
Preferred Stock dividends if the market value is higher than the conversion
price.


                                     F-18
<PAGE>   36
EARNINGS PER SHARE

Basic earnings per share ("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 years ended December 31, 1999, and 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 year ended December 31, 1998, that would be increased related to stock
options were approximately 990,772; 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 1999, 1998 and 1997.
<TABLE>
<CAPTION>
                                                                                 Year ended December 31,
                                                                     -----------------------------------------------
                                                                            1999          1998              1997
                                                                     -------------    -------------     ------------
<S>                                                                  <C>              <C>               <C>
Net income (loss) before redeemable preferred stock dividends        $   1,148,013    $   (537,418)     $  1,115,721
           Redeemable preferred stock dividends                                 --      (3,934,585)               --
                                                                     -------------    -------------     ------------
           Net earnings (loss) on  common stock                      $   1,148,013    $ (4,472,003)     $  1,115,721
                                                                     =============    =============     ============


Basic earnings (loss) per share:
            Earning per share prior to preferred dividends           $         .07    $       (.05)     $        .13
            Preferred stock dividends                                           --            (.35                --
                                                                     -------------    -------------     ------------
            Basic earnings (loss) per common share                   $         .07    $       (.40)     $        .13

Diluted earnings (loss) per share:
             Earnings per share prior to preferred dividends         $         .07    $       (.05)     $        .13
             Preferred Stock Dividends                                          --              --                --
                                                                     -------------    -------------     ------------
             Diluted earning (loss) per common share                 $         .07    $       (.40)     $        .13
                                                                    .0


Weighted average number of common shares, basic                         16,481,399      11,207,249         8,545,114
Weighted average shares outstanding, diluted                            17,479,376      11,207,249         8,740,345
</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
stockholders 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.

(9) STOCK OPTION PLANS

At December 31, 1999, 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 1,769,349 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.

                                     F-19
<PAGE>   37
A summary of the Company's stock option plans as of December 31, 1999, 1998 and
1997, and changes during those years is presented below:
<TABLE>
<CAPTION>
                                                                                               WEIGHTED
                                                                                                 AVERAGE
                                                        SHARES UNDER           EXERCISE         EXERCISE
                                                           OPTION            PRICE RANGE          PRICE
                                                        ------------      ------------------   ---------
<S>                                                     <C>               <C>                  <C>
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                                                  842,000            2.75 to 5.75        2.91
   Canceled/expired                                          (6,389)           2.00                2.00
   Exercised                                                (25,438)           2.00                2.00
                                                        -----------

Options outstanding at December 31, 1998                  1,082,773            2.00 -8.25          2.86
   Granted                                                  354,000            3.13 -6.31          4.13
   Canceled/expired                                         (66,778)           2.00 -6.94          2.68
   Exercised                                                150,333            2.00 -6.31          2.20
                                                        -----------

Options outstanding at December 31, 1999                  1,219,662            2.00 -8.25          3.31

Exercisable at December 31, 1999                            753,669       $    2.0 0-8.25         $ 3.31
                                                        ===========
</TABLE>

At December 31, 1999, there were 355,083 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.

The following summarizes the stock option transactions of the "other" options:

<TABLE>
<CAPTION>
                                                                                             WEIGHTED
                                                                                              AVERAGE
                                                   SHARES UNDER           EXERCISE           EXERCISE
                                                      OPTION             PRICE RANGE           PRICE
                                                   ------------      -------------------    ----------
<S>                                                <C>               <C>                    <C>
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                                           1,402,265            2.75 to 6.94           4.29
   Canceled                                           (137,474)           3.38                   3.38
                                                   -----------

Options outstanding at December 31, 1998             2,692,887            2.00 to 6.94           4.08
                                                   -----------
   Granted                                             276,728            3.13 to 6.31           6.30
   Exercised                                          (141,666)           2.00 to 6.31           2.51
   Canceled                                           (178,668)           6.94                   6.94
                                                   -----------

Options outstanding at December 31, 1999             2,649,281            2.00 to 6.94           4.21
                                                   -----------

Exercisable at December 31, 1999                     2,130,885       $    2.00 to 6.94      $    4.21
                                                   ===========
</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

                                     F-20
<PAGE>   38
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:
<TABLE>
<CAPTION>
                                                 1999                1998                1997
                                            --------------      --------------      ---------------
<S>                                         <C>                 <C>                 <C>
      Net income (loss)
         As reported                        $ 1,148,013         $(4,472,003)        $   1,115,721
         Pro forma for FAS No. 123          $(1,979,002)        $(5,743,474)        $  (1,025,384)
      Diluted earnings (loss) per share-
         As reported                        $       .07         $      (.40)        $         .13
         Pro forma for FAS No. 123                 (.11)               (.51)                 (.12)
</TABLE>

The following ranges of options were outstanding as of December 31, 1999:
<TABLE>
<CAPTION>
 OUTSTANDING
SHARES UNDER           EXERCISE PRICE      WEIGHTED AVERAGE         WEIGHTED AVERAGE
  OPTION                   RANGE           EXERCISE PRICE      CONTRACTUAL LIFE (IN YEARS)     EXERCISABLE
------------         ----------------      ----------------    ---------------------------     -----------
<S>                  <C>                   <C>                 <C>                             <C>
  1,491,970          $ 2.00 to 2.99         $   2.40                    5.66                    1,267,405
  1,654,420            3.00 to 4.50             3.22                    8.4                     1,178,650
    487,621            4.51 to 6.75             6.01                    9.24                      203,567
    234,932            6.76 to 8.25             7.02                    8.33                      234,932
</TABLE>



The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model resulting in a weighted average fair value
of $4.57, $3.59, and $2.79 for grants made during the years ended December 31,
1999, 1998, and 1997, respectively. The following assumptions were used for
option grants in 1999, 1998 and 1997, respectively: expected volatility of 86
percent, 92 percent and 70 percent; risk-free interest rates of 5.88 percent,
5.66 percent, and 6.45 percent; expected lives of up to 10 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 and the Company expects future grants.

(10) OTHER CHARGES (CREDITS) TO OPERATIONS

In 1999, the Company incurred approximately $1.5 million of charges for legal,
accounting, and financing costs related to the proposed preferred stock
investment and the merger discussion with Azurix, both of which were terminated
by Azurix in October 1999, and several other legal matters related to events
occuring in prior years.

During 1998, the Company recorded a charge of approximately $320,000 related to
severance costs of two former officers.

The Company has recognized other credits related to notes that were issued in
connection with the sale of its poultry operation in 1996. The notes were
reserved at the date of sale due to considerable doubt relative to realization.
The Company has recognized other credits related to such notes of approximately
$721,000 in 1997 and $380,000 in 1998. The Company expects the remaining
unreserved balance of approximately $273,527 at December 31, 1999 to be
realizable.

(11) 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 $34,000 for 1999, approximately $46,000 for 1998 and
approximately $28,000 for 1997.

                                     F-21
<PAGE>   39


                                   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 March 27, 2000.

                                            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 March 27, 2000.

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

By:   /s/ RANDALL TUTTLE                    President
             Randall Tuttle

By:   /s/ J. PAUL WITHROW                   Chief Financial Officer
           J. Paul Withrow                  (Principal Accounting Officer)

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/ DAVID A DONNINI                   Director
             David A. Donnini


<PAGE>   40


                                 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)

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

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

    4.9    Registration Rights Agreement dated January 27, 2000, by and among
           Synagro Technologies, Inc., GTCR Fund VII, Inc. and GTCR Capital
           Partners, L.P. (Exhibit 2.6 to the Company's Current Report on Form
           8-K, dated February 17, 2000, is herein incorporated by reference)

   4.10    Warrant Agreement, dated January 27, 2000, by and between Synagro
           Technologies, Inc. and GTCR Capital Partners, L.P. (Exhibit 2.13 to
           the Company's Current Report on Form 8-K, dated February 17, 2000, is
           herein incorporated by reference)

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

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

   10.3    Amended and Restated 1993 Stock Option Plan dated August 5, 1996.
           (Exhibit 4.1 to the Company's Registration Statement on Form S-8
           (No. 333-18029), 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)

<PAGE>   41
  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;
           Assignment Agreement dated as of December 4, 1998. (Exhibit 10.8 to
           the Company's Annual Report on Form 10-K for the year ended December
           31, 1999, is incorporated herein by reference)

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

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

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

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

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

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

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

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

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

  10.18    Monitoring Agreement, dated January 27, 2000, by and between Synagro
           Technologies, Inc. and GTCR Capital Partners, L.P. (Exhibit 2.15 to
           the Company's Current Report on Form 8-K, dated February 17, 2000,
           is herein incorporated by reference)

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

  10.20    Amended and Restated Credit Agreement, dated January 27, 2000, by and
           among Synagro Technologies, Inc., Bank of America, N.A., Canadian
           Imperial Bank of Commerce, and certain other lenders. (Exhibit 2.3 to
           the Company's Current Report on Form 8-K, dated February 17, 2000, is
           herein incorporated by reference)

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

 *10.22    First Amendment to Senior Subordinated Loan Agreement dated
           March 6, 2000 by and among Synagro Technologies, Inc., Bank of
           America, N.A., Canadian Imperial Bank of Commerce, and various
           financial institutions.

 *21.1     Subsidiaries of Synagro Technologies, Inc.

 *23.1     Consent of Arthur Andersen LLP

 *27.1     Financial Data Schedule.

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 *  Filed herewith.