SYNAGRO TECHNOLOGIES INC, POS AM, 1996-10-25

SYNAGRO TECHNOLOGIES INC
POS AM, 1996-10-25
REFUSE SYSTEMS

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<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 25, 1996
REGISTRATION NO. 33-95028
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

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

POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933
------------------------

SYNAGRO TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C> <C>
DELAWARE 4953 76-0511324
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) Number)
</TABLE>

16000 STUEBNER AIRLINE
SUITE 420
SPRING, TEXAS 77379
713-370-6700

(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)

DON L. THONE
CHIEF EXECUTIVE OFFICER
SYNAGRO TECHNOLOGIES, INC.
16000 STUEBNER AIRLINE
SUITE 420
SPRING, TEXAS 77379
713-370-6700

(Name and address, including zip code, and telephone
number, including area code, of agent for service)
------------------------

COPIES TO:

MATTHIAS & BERG LLP
Attn: Jeffrey P. Berg, Esq.
515 South Flower Street
Seventh Floor
Los Angeles, California 90071
Phone: (213) 895-4200
Fax:(213) 895-4058
------------------------

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT
------------------------

If any of the securities being registered on this Form are to be offered on
a delayed basis pursuant to Rule 415 under the Securities Act of 1933, check the
following box. /X/
------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.

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- --------------------------------------------------------------------------------
<PAGE>
SYNAGRO TECHNOLOGIES, INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K.
SHOWING LOCATION IN THE PROSPECTUS OF INFORMATION
REQUIRED BY ITEMS 1 THROUGH 12, PART I, OF FORM S-1

<TABLE>
<CAPTION>
REGISTRATION STATEMENT ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUS
- ---------------------------------------------------------------- -----------------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statements and Outside
Front Cover Page of Prospectus..................... Outside Front Cover Page of Prospectus

2. Inside Front and Outside Back Cover Pages of
Prospectus......................................... Inside Front and Outside Back Cover Pages of
Prospectus; Additional Information

3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges.......................... Prospectus Summary; Risk Factors; Selected Financial
Data

4. Use of Proceeds...................................... Use of Proceeds

5. Determination of Offering Price...................... Plan of Distribution

6. Dilution............................................. Dilution

7. Selling Security Holders............................. Not Applicable

8. Plan of Distribution................................. Outside Front Cover Page of Prospectus; Plan of
Distribution

9. Description of Securities to Be Registered........... Outside Front Cover Page of Prospectus; Dividend
Policy; Shares Eligible for Future Sale;Description
of Securities

10. Interests of Named Experts and Counsel............... Legal Matters

11. Information with Respect to the Registrant........... Outside Front Cover Page of Prospectus; Prospectus
Summary;Risk Factors; Dividend Policy;
Capitalization; Selected Financial Data;
Management's Discussion and Analysis of Financial
Condition and Results of Operations; Business;
Management; Compensation of Executive Officers and
Directors; Certain Relationships and Related
Transactions; Shares Eligible for Future Sale;
Financial Statements.

12. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities..................... Not Applicable
</TABLE>
<PAGE>
SYNAGRO TECHNOLOGIES, INC.

50,000 UNITS

EACH UNIT CONSISTING OF SIX SHARES OF COMMON STOCK AND
SIX REDEEMABLE COMMON STOCK PURCHASE WARRANTS
--------------------------

3,300,000 SHARES OF COMMON STOCK

UNDERLYING REDEEMABLE COMMON STOCK PURCHASE WARRANTS

This Prospectus relates to the offering (the "Offering") by Synagro
Technologies, Inc., a Delaware corporation (the "Company"), of the following
securities (collectively, the "Securities"): (i) 3,000,000 shares of common
stock, par value $0.002 par value (the "Common Stock"), of the Company issuable
upon the exercise of the Company's Redeemable Common Stock Purchase Warrants
(the "Registered Warrants")(1), (ii) 50,000 units (the "Underwriters' Units"),
each Underwriters' Unit consisting of six (6) shares of Common Stock and six (6)
Redeemable Common Stock Purchase Warrants (the "Underwriters' Warrants"),
issuable upon the exercise of the warrants (the "Underwriters' Unit Purchase
Warrants") to purchase such Underwriters' Units(2), and (iii) 300,000 shares of
Common Stock issuable upon the exercise of the Underwriters' Warrants(3). The
Registered Warrants and the Underwriters' Warrants are sometimes collectively
referred to herein as the "Public Warrants," the Public Warrants and the
Underwriters' Unit Purchase Warrants are sometimes collectively referred to
herein as the "Warrants," and the Public Units and the Underwriters' Units are
sometimes collectively referred to herein as the "Units."

Each Underwriters' Unit Purchase Warrant entitles the holder to purchase one
Underwriters' Unit at an exercise price of $16.20 per Underwriters' Unit,
commencing at any time after October 12, 1996 and until October 11, 2000. Each
Public Warrant entitles the holder thereof to purchase one share of Common Stock
at an exercise price of $2.40 per share, commencing at any time after the date
of this Prospectus and until October 11, 2000. The Public Warrants are subject
to redemption by the Company at $0.10 per Public Warrant, at any time after
October 12, 1996, on thirty days' prior written notice, if the closing bid
quotation of the Common Stock in the NASDAQ Small-Cap Market has equaled or
exceeded $3.00 per share for ten consecutive trading days. See "Description of
Securities" and "Plan of Distribution."

The Common Stock and Public Warrants included in the Units have traded
separately since March 16, 1996. The Company's Common Stock is currently listed
for trading in the NASDAQ Small-Cap Market under the symbol "SYGR." On October
21, 1996, the last reported sales price for the Common Stock in the NASDAQ
Small-Cap Market was $2.5625 per share. See "Risk Factors" and "Price Range of
Common Stock."
--------------------------

THESE SECURITIES ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK AND
IMMEDIATE SUBSTANTIAL DILUTION FROM THE PUBLIC OFFERING PRICE. PROSPECTIVE
INVESTORS SHOULD CAREFULLY CONSIDER THE SECTION ENTITLED "RISK FACTORS" (AT PAGE
6 OF THIS PROSPECTUS) AND "DILUTION" CONCERNING THE COMPANY AND THIS OFFERING.
---------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS(4) COMPANY(5)
<S> <C> <C> <C>
Per Share of Common Stock underlying Public
Warrants......................................... $2.40 $0.00 $2.40
Per Underwriters' Unit, consisting of six (6)
shares of Common Stock and six (6) Public
Warrants......................................... $16.20 $0.00 $16.20
Per Share of Common Stock Underlying Underwriters'
Warrants......................................... $2.40 $0.00 $2.40
Total (6).......................................... $8,730,000 $0.00 $8,730,000
</TABLE>

(FOOTNOTES ON NEXT PAGE)

THE DATE OF THIS PROSPECTUS IS OCTOBER 25, 1996.
<PAGE>
(FOOTNOTES FROM COVER PAGE)

(1) The 3,000,000 Public Warrants form a part of the 500,000 units (the "Public
Units") which were previously issued by the Company in connection with the
Company's public offering (the "Public Offering") in October, 1995 through
Joseph Charles & Associates, Inc. and Nutmeg Securities, Ltd., as
representatives (the "Representatives") of the underwriters with respect to
the Public Offering. See "Plan of Distribution."

(2) The Underwriters' Unit Purchase Warrants were sold for $100 to the
Representatives as part of their compensation in connection with the Public
Offering. See "Description of Securities--Underwriters' Unit Purchase
Warrants."

(3) Each Underwriters' Warrant entitles the holder thereof to purchase one share
of Common Stock at an exercise price of $2.40 per share, subject to
adjustment in certain circumstances. The Underwriters' Warrants are
identical to the Public Warrants offered in the Public Offering. See
"Description of Securities--Warrants."

(4) Does not include additional compensation which may be paid by the Company to
the Representatives in connection with the Company's agreement to pay the
Representatives a warrant solicitation fee of five percent (5%) of the
exercise price of the Registered Warrants exercised beginning October 12,
1996, and to the extent not inconsistent with the guidelines of the National
Association of Securities Dealers, Inc. ("NASD") and the rules and
regulations of the Securities and Exchange Commission (the "Commission").
See "Plan of Distribution."

(5) Before deducting expenses of this Offering payable by the Company, estimated
at $38,000. See "Use of Proceeds."

(6) Assumes that all of the Warrants will be exercised. There can be no
assurances that all of such securities will be exercised.
<PAGE>

AVAILABLE INFORMATION

The Company has filed with the Commission, a Registration Statement on Form
S-1 under the Securities Act of 1933, as amended (the "Securities Act") with
respect to the securities offered hereby. This Prospectus does not contain all
the information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
Securities, reference is made to the Registration Statement and the exhibits and
schedules filed as a part thereof. Statements made in this Prospectus as to the
contents of any contract or any other document referred to are not necessarily
complete, and, in each instance, reference is made to the copy of such contract
or document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference to such exhibits.
The Registration Statement, including exhibits and schedules thereto, may be
inspected without charge at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the regional offices of the Commission at 7 World Trade
Center, 13th Floor, New York, New York 10048 and at 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2411. Copies of the Registration Statement
and the exhibits and schedules thereto may be obtained from the Commission at
such offices upon payment of prescribed rates.

The Company is currently subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and in
accordance therewith files reports, proxy statements and other information with
the Commission. Such reports, proxy statements and other information may be
inspected and copied at the public reference facilities of the Commission at
450 Fifth Street, N.W., Washington D.C. 20549; at its New York Regional Office,
Room 1400, 7 World Trade Center, New York, New York 10048; and at its Chicago
Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2411, and copies of such materials can be obtained from the Public
Reference Section at prescribed rates. The Company intends to furnish its
stockholders with annual reports containing audited financial statements and
such other periodic reports as the Company may determine to be appropriate or as
may be required by law.

Further, the Company's most recent reports, proxy and information
statements and other information may be inspected and copied at the offices of
The NASDAQ Stock Market, 1735 K Street, N.W., Washington, D.C. 20006-1506, at
prescribed rates.

<PAGE>

PROSPECTUS SUMMARY

THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION IN THIS PROSPECTUS. THIS
SUMMARY SHOULD BE READ IN CONJUNCTION WITH, AND IS QUALIFIED IN ITS ENTIRETY BY,
THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES
THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. THE SECURITIES OFFERED HEREBY
INVOLVE A HIGH DEGREE OF RISK. INVESTORS SHOULD CAREFULLY CONSIDER THE
INFORMATION SET FORTH UNDER THE HEADING "RISK FACTORS."

THE COMPANY

GENERAL. The Company engages in the business of the management of
biosolids through beneficial reuse of organic materials, including biosolids.
The Company offers a variety of services with respect to this business,
including the transportation, treatment and monitoring of biosolids, and the
marketing of end products from the treatment of such materials.

On July 3, 1995, the Company effectuated a reverse split of the issued and
outstanding shares of the Company's Common Stock on a 1-for-15 basis. Unless
otherwise indicated to the contrary, all references in this Prospectus to
numbers of shares of Common Stock and per share purchase prices assume the
effect of such reverse stock split.

The Company primarily conducts its business through its wholly-owned
subsidiaries, CDR Environmental, Inc. ("CDR"), Pima Gro Systems, Inc. ("Pima
Gro") and Organi-Gro, Inc. ("Organi-Gro"). Unless the context requires
otherwise CDR, Pima Gro and Organi-Gro are collectively referred to herein as
the "Company."

CDR ENVIRONMENTAL, INC. CDR is in the business of transporting, treating,
site monitoring and assisting in preparing documentation with respect to
biosolids and wastewater products.

CDR provides transportation, treatment, site monitoring, land application
and environmental regulatory compliance services with respect to biosolids and
wastewater products, to local and state agencies, municipalities and private
industries. CDR's vehicles pick up and transport biosolids and other organic
waste materials to sites operated by the Company or by third parties, such as
municipalities or private companies. CDR's services include the dredging of
sludge ponds and cleaning out municipal and industrial lagoons.

CDR also operates and maintains a fleet of trucks which pump, collect and
transport liquid or solid municipal biosolids to various land application or
treatment sites for tipping fees. These tipping fees, which are fees generated
by CDR in connection with the collection, transportation and treatment of
biosolids, constitute approximately ninety-five percent (95%) of CDR's sources
of revenues. CDR's vehicles are registered with federal, state and local
governmental agencies for such transportation purposes.

<PAGE>

CDR treats certain biosolids through the application of a patented sludge
treatment technology licensed by the Company, known as the N-Viro Technology.
The Company has obtained the exclusive agency, distribution and licensing rights
to the N-Viro Technology in certain territories, including the States of Texas,
Oklahoma, Arkansas, Louisiana, Arizona and New Mexico.

The Company markets and licenses the use of the N-Viro Technology to
provide construction management of turnkey facilities by third parties, to
construct and operate facilities under Synagro's direct ownership or that of
third parties, to supply alkaline admixtures, such as CKD, and to market
derivative products developed through the use of the N-Viro Technology. CDR
serves as a sublicensee of the N-Viro Technology in the states of Texas and
Arkansas. Through June 30, 1996, the Company had generated nominal net sales
through the commercialization of the N-Viro Technology and other business
operations. There can be no assurances that a significant market will develop
for the N-Viro Technology or that the Company will ever generate significant
revenues from the commercialization of the N-Viro Technology.

PIMA GRO. Pima Gro is in the business of providing transportation, site
monitoring, land application and environmental regulatory compliance services,
with respect to biosolids and wastewater products, to local and state agencies,
municipalities and private industries. Pima Gro's vehicles pick up and
transport biosolids and other organic waste materials primarily from
municipalities to permitted agricultural sites operated by third parties.

Pima Gro also provides professional management and consulting services for
treatment of biosolids and the monitoring and land application of treated
biosolids. Pima Gro operates under approximately 20 contracts with various
state and local agencies, municipalities and private industries with respect to
sewage treatment and other waste products.

Pima Gro also operates and maintains a fleet of trucks which receive,
collect and transport liquid or solid biosolids to various land application or
treatment sites for tipping fees. These tipping fees, which are fees generated
by Pima Gro in connection with the collection, transportation and treatment of
biosolids, constitute substantially all of Pima Gro's sources of revenues.

ORGANI GRO. Organi-Gro is in the business of and primarily generates
revenues from buying, hauling and selling wood waste products to poultry growers
and wholesalers and building products manufacturers. Organi-Gro principally
operates in Arkansas, the leading poultry growing state in the United States.
Organi-Gro services the poultry market with a single source service and product
program including the delivery of bedding materials to the poultry farms, the
transportation of organic waste off-site, and the processing of the waste and
its disposal or reuse. Organi-Gro buys, hauls and sells poultry bedding
products to poultry growers and wholesalers. Wood shavings, chips and sawdust
are purchased from local sawmills, and resold either as bedding materials for
poultry growers, or to manufacturers of building materials.

The Company's principal executive offices are located at 16000 Stuebner
Airline, Suite 420, Spring, Texas 77379, (713) 370-6700.

<PAGE>

THE OFFERING

Securities Offered by the
Company...................... This Offering relates to the following
securities (collectively, the
"Securities"): (i) 3,000,000 shares of
common stock, par value $0.002 (the
"Common Stock"), of the Company issuable
upon the exercise of the Company's
Redeemable Common Stock Purchase
Warrants (the "Registered Warrants"),
(ii) 50,000 units (the "Underwriters'
Units"), each Underwriters' Unit
consisting of six (6) shares of Common
Stock and six (6) Redeemable Common
Stock Purchase Warrants (the
"Underwriters' Warrants"), issuable upon
the exercise of the warrants (the
"Underwriter' Unit Purchase Warrants")
to purchase such Underwriters' Units,
and (iii) 300,000 shares of Common Stock
issuable upon the exercise of the
Underwriters' Warrants. See
"Description of Securities" and "Plan of
Distribution."

Description of Warrants........ Each Underwriters' Unit Purchase Warrant
entitles the holder to purchase one
Underwriters' Unit at an exercise price
of $16.20 per Underwriters' Unit,
commencing at any time after October 12,
1996 and until October 11, 2000.

Each Public Warrant entitles the holder
thereof to purchase one share of Common
Stock at an exercise price of $2.40 per
share, commencing at any time after the
date of this Prospectus and until
October 11, 2000. The Public Warrants
are subject to redemption by the Company
at $0.10 per Public Warrant, at any time
after October 12, 1996, on thirty days'
prior written notice, if the closing bid
quotation of the Common Stock in the
NASDAQ Small-Cap Market has equaled or
exceeded $3.00 per share for ten
consecutive trading days. See
"Description of Securities" and "Plan
of Distribution."

Common Stock Outstanding(1):
Before the Offering.......... 6,352,102 shares
After the Offering(2)........ 9,952,102 shares

Public Warrants Outstanding(1)(2)(3):
Before the Offering.......... 3,000,000 warrants
After the Offering........... 0 warrants

<PAGE>

Use of Proceeds................ The Company intends to use the net
proceeds of this offering for working
capital and general corporate purposes.
See "Use of Proceeds."

Risk Factors and Dilution..... The securities offered hereby are
speculative and involve a high degree of
risk and immediate substantial dilution.
These factors include, but are not
limited to risks related to the
Company's historical lack of
profitability, legislative and
regulatory restrictions impacting the
Company's business operations and
industry and the market for the
securities offered hereby. See "Risk
Factors" and "Dilution."

NASDAQ Small-Cap Market Symbols(4)

Common Stock.................. SYGR
Warrants...................... SYGRW

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

(1) Does not include shares of Common Stock that are reserved for issuance upon
exercise of the Warrants or the Underwriters' Warrants or pursuant to either of
two stock option plans of the Company, certain other options, warrants and
convertible securities of the Company. These numbers give effect to a reverse
stock split of the issued and outstanding shares of Common Stock on a 1-for-15
basis effectuated as of July 3, 1995. See "Price Range of Common Stock,"
"Management - Stock Option Plans," "Description of Securities" and
"Underwriting."

(2) Assumes the exercise in full of the 50,000 Underwriters' Unit Purchase
Warrants and the 3,300,000 Public Warrants (including the 300,000 Public
Warrants which form a part of the 50,000 Underwriters' Units). See "Plan of
Distribution."

(3) Does not include 52,667 other warrants which are issued and outstanding and
are not being registered in connection with this Offering. See "Description of
Securities - Other Warrants."

(4) The Company's Common Stock is currently listed for trading in the NASDAQ
Small-Cap Market under the symbol "SYGR." The Company has applied for the
listing of the Units and the Warrants for trading in the NASDAQ Small-Cap
Market. See "Risk Factors" and "Price Range of Common Stock."

<PAGE>

SUMMARY FINANCIAL INFORMATION
(In Thousands, except for Per Share Data)

The following charts reflect selected financial data with respect to the
Company's consolidated statements of operations and balance sheets during the
years 1991-1995, and as adjusted to give effect to the reverse split of the
Company's Common Stock on a 1-for-15 basis, effectuated as of July 3, 1995, for
all of the relevant periods:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31,(1) JUNE 30,
------------------------------------------------------- --------------------
1995 1994 1993 1992 1991 1996 1995
------------------------------------------------------- --------------------
STATEMENT OF OPERATIONS DATA
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales $17,976 $13,197 $9,482 $438 $0 $8,491 $8,990
Income (loss) from
operations ($976) ($1,175) ($1,455) ($338) ($31) $269 $30
Net income (loss) ($4,553) ($4,165) ($1,999) ($423) ($31) $326 ($ 351)

Net income (loss)
per share ($1.59) ($2.19) ($1.27) ($0.53) ($0.07) $0.05 ($0.18)

Weighted average
common shares
outstanding 2,864 1,902 1,577 802 468 6,194 1,984

DECEMBER 31,
----------------------------------------------------------- June 30, 1996
1995 1994 1993 1992 1991 Actual As Adjusted(2)

BALANCE SHEET DATA --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Working capital (deficit) $1,889 ($667) $285 ($2,209) ($2) $2,429 $11,121
Total assets $20,212 $23,154 $19,931 $8,920 $8 $18,264 $26,956
Total liabilities $9,241 $12,942 $11,276 $5,899 $2 $6,776 $6,776
Long-term debt, less
current portion $4,429 $6,138 $6,280 $2,604 $0 $3,304 $3,304
Long-term notes to
related parties $19 $2,258 $1,050 $0 $0 $0 $0
Stockholders' equity $10,972 $10,212 $8,655 $3,021 $6 $11,488 $20,180
</TABLE>

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

(1) The information for the years ended December 31, 1995, 1994 and 1993 was
derived from the Company's audited financial statements included elsewhere
in this Prospectus.

(2) PRO FORMA to give effect to: (i) the exercise of the Underwriters' Unit
Purchase Warrants and the 3,300,000 Public Warrants (including the 300,000
Underwriters' Warrants which form a part of the Underwriters' Units)
offered by the Company, and (ii) the application of the net proceeds
therefrom estimated at approximately $8,692,000. See "Use of Proceeds,"
"Capitalization" and "Description of Securities."

<PAGE>

RISK FACTORS

PROSPECTIVE INVESTORS SHOULD CONSIDER THE FOLLOWING RISK FACTORS, TOGETHER
WITH THE OTHER INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS, PRIOR TO
PURCHASING THE SECURITIES OFFERED HEREBY.

LACK OF PROFITABILITY. Although the Company has achieved profitable
operations during the six (6) months ended June 30, 1996, the Company incurred
net losses of $4,553,169 and $4,164,795 for the years ended December 31, 1995
and 1994, respectively. Further, as of June 30, 1996, the Company had an
accumulated deficit of approximately $10,874,843. The Company has historically
financed its operations principally through the sale of equity and debt
securities and through funds provided by operating activities. On October 18,
1995, the Company completed the Public Offering of 500,000 Public Units of the
Company's securities, resulting in net proceeds to the Company of $4,920,000.
Management currently believes that, as of the date of this Prospectus and for
the foreseeable future, the Company will be able to finance costs of operations
from revenues. However, there can be no assurances that the Company will
operate profitably in the future or generate positive cash flow from operations,
or that capital in excess of the net proceeds of the Public Offering or from the
proceeds of the exercise of the Warrants in connection with this Prospectus, if
any, will not be required in order to meet certain existing obligations of the
Company with respect to certain previously completed acquisitions or other
existing debt obligations or to accomplish the Company's current growth
strategy. There can be no assurances that the Company will be able to obtain an
alternative source of financing on terms favorable to the Company or at all.
See "Use of Proceeds," "Management's Discussion and Analysis of Results of
Operations and Financial Condition" and "Description of Securities."

HIGHLY LEVERAGED BUSINESS OPERATIONS. As of June 30, 1996, the Company had
short-term borrowings in the aggregate amount of $380,166 and long-term
borrowings in the aggregate amount of $5,184,792, the current portion of which
was $1,880,902. The Company also had short-term borrowings to affiliates as of
June 30, 1996 in the aggregate amount of approximately $125,000, which are
secured by certain assets of the Company. The Company has agreed not to sell
any securities of the Company until October 17, 1997, without the consent of the
Representatives, which consent the Representatives have agreed will not be
unreasonably withheld. See "Management's Discussion and Analysis of Results of
Operations and Financial Condition," "Business-Mergers and Acquisitions,"
"Certain Relationships and Related Transactions" and "Description of
Securities."

POTENTIAL ENVIRONMENTAL LIABILITY. The Comprehensive Environmental
Response, Compensation and Liability Act of 1980, amended ("CERCLA"), and
comparable state enactments, impose strict liability (liability without fault)
for the releases of hazardous substances at a particular site. Liable parties
include owners and operators of the site, parties who created the hazardous
substances released at the site and parties who arranged for the transportation
of hazardous substances to such site. Municipal wastewater residuals
(biosolids) are required by each state and the federal government to have a
waste classification code so that determinations can be made on the disposition
of the material. This classification test, the Toxicity Characteristic Leachate
Procedure (TCLP), is conducted by the generator of the material and filed with
state and federal agencies along with reports on disposition of the material.
The Company regularly reviews the results of these and other tests for certain
hazardous and toxic substances which would preclude material from a wastewater
facility being recycled. In addition, the Company monitors, on a state and
federal prescribed basis, the biosolids and by-products used at the Company's
facilities and the end products produced at such facilities for hazardous and
toxic substances that may harm the environment. Nevertheless, the biosolids,
by-products and end products have the potential to contain hazardous substances.
The Company could face claims by governmental authorities, private individuals
and other person alleging that hazardous substances were released during the
treatment process or from the use of end products. The Company also may be
exposed to certain environmental claims resulting from the actions of its end
product customers. The Company currently maintains environmental impairment
liability insurance in the amount of $6,000,000. The Company could be
materially adversely affected by a claim that is only partially covered by
liability insurance. See "Business - Government Regulation."

<PAGE>

RELIANCE ON ENVIRONMENTAL REGULATION. Federal and state environmental
legislation and regulations require substantial expenditures by wastewater
sludge generators and impose liabilities on such entities for noncompliance.
Environmental laws and regulations are, and will continue to be, a principal
factor affecting the marketability of the Company's services and products. Any
changes in these laws or regulations may affect the operations of the Company by
imposing additional regulatory compliance costs on the Company, requiring the
Company to modify the Company's treatment processes and/or adversely affecting
the market for the Company's services or products. To the extent that demand
for the Company's services and products is created by the need to comply with
such environmental laws and regulations, any modification of the standards
created by such laws and regulations may reduce the demand for the Company's
services and products, thereby adversely affecting the Company's business and
prospects. The relaxation of any of these regulations or the strict enforcement
thereof could adversely affect the Company's business and prospects. See
"Business - Marketing."

REGULATORY REQUIREMENTS OF OPERATIONS. The Company operates in a highly
regulated environment and the wastewater treatment and other plants at which the
Company's treatment processes may be implemented are required to have permits
and approvals from federal, state and local governments for the operation of
such facilities. Any of such permits or approvals or applications therefor, may
be subject to denial, revocation or modification under various circumstances.
In addition, in the event 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
or approvals. The process of obtaining a required permit or approval may be
lengthy and expensive and the issuance of such permits or the obtaining of such
approval may be subject to public opposition. There can be no assurances that
the Company will be able to meet applicable regulatory requirements or that
further attempts by state or local authorities to prohibit the land application
or agricultural use of biosolids will not be successful. In addition, the
construction of biosolid treatment facilities may require a number of permits
and approvals, and may in certain instances require an environmental impact
study. The permitting and approval process is frequently lengthy and may be
subject to public opposition. There can be no assurances that the Company will
be successful in obtaining required permits and approvals. Any such failure
might have a material adverse impact on the Company's business and prospects.
See "Business - Government Regulation."

NEED FOR ADDITIONAL FINANCINGS FOR ACQUISITION STRATEGY. The Company's
current business plan includes a strategy for expanding as a provider of
biosolids management and beneficial reuse of organic materials and related
services and includes an on-going acquisition program of businesses in the
biosolids management industry in selected markets. The market for such
acquisition prospects is highly competitive and management expects that certain
potential acquirors will have significantly greater capital than the Company.
In addition, financing for such acquisitions may not be available to the Company
on commercially reasonable terms. The Company does not currently have any
commitments to acquire any such other business entity. In the event the Company
cannot obtain the additional financing needed to fulfill its acquisition
strategy, the Company may be unable to achieve its proposed acquisition
strategy. See "Business - Mergers and Acquisitions" and "Certain Relationships
and Related Transactions."

POTENTIAL ACQUISITION LIABILITIES. The Company has expanded its business
operations significantly since 1992 through the acquisition of existing
business. Liabilities may exist with respect to prospective acquisition
candidates or completed acquisitions that the Company fails or is unable or has
failed or 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 or the indemnitor or warrantor may not be
sufficiently solvent or have sufficient assets to satisfy any resulting claim by
the Company. See "Business - Mergers and Acquisitions."

<PAGE>

LARGER AND MORE ESTABLISHED COMPETITION. The Company directly and
indirectly competes with other businesses, including businesses in the solid
waste collection and disposal business. In many cases, these competitors are
larger and more firmly established than the Company. In addition, many of such
competitors have greater marketing and development budgets and greater capital
resources than the Company. Accordingly, there can be no assurance that the
Company will be able to achieve and maintain a competitive position in the
Company's industry. See "Business - Competition."

RISK OF MARKET ACCEPTANCE OF THE COMPANY'S PRODUCTS AND SERVICES. There can
be no assurances that wastewater sludge generators who may be potential
customers of the Company will view any of the Company's biosolids treatment
methods as an economically and environmentally acceptable technology for the
treatment and recycling of wastewater sludges, that the Company will be
successful in marketing the Company's products or services, or that the economic
terms under which wastewater sludge generators may be willing to use the
Company's services will be profitable to the Company. Moreover, there can be no
assurances that producers of the by-products used in the Company's treatment
methods will supply such by-products to the Company at economically acceptable
prices. Further, there can be no assurances that the Company's services and
products will obtain commercial acceptance in the market. In addition, a
particular wastewater sludge generator may be subject to environmental
regulations which may affect or prevent its ability to use the Company's
treatment methods. See "Business - Marketing."

BUSINESS SUBJECT TO WEATHER CONDITIONS. Although the Company provides its
services on a year-round basis, the Company's services may be adversely affected
by inclement weather conditions. Extended periods of rain, cold weather or
other inclement weather conditions may result in delays in commencing or
completing projects, in whole or in part. Any such delays may adversely affect
the Company's operations and profitability and may adversely affect the
performance of other projects due to scheduling and staffing conflicts. See
"Business."

DEPENDENCE ON ABILITY TO SECURE BONDING. In order to bid successfully on
and secure contracts to perform environmental services of the nature offered by
the Company, the Company frequently must provide surety bonds with respect to
each respective project. Thus, the number and size of contracts which the
Company can perform is directly dependent upon the Company's ability to obtain
bonding which, in turn, is dependent upon the Company's net worth and liquid
working capital. There can be no assurance that the Company will have adequate
bonding capacity to bid on all of the projects which it would otherwise bid upon
were it to have such bonding capacity or that it will in fact be successful in
obtaining additional jobs on which it may bid. See "Use of Proceeds" and
"Business - Bonding Requirements."

RISK OF COST OVERRUNS. Historically, the majority of the Company's
contracts are on a fixed price or per unit basis. Cost overruns on projects
covered by such contracts due to such things as unanticipated price increases,
unanticipated problems, inefficient project management, inaccurate estimation of
labor or material costs or disputes over the terms and specification of contract
performance could have a material adverse effect on the Company and its
operations. There can be no assurance that cost overruns will not occur in the
future and have a material adverse effect on the Company. In addition, in order
to remain competitive in the future, the Company may have to agree to enter into
more fixed price and per unit contracts than in the past. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business."

DEPENDENCE ON KEY PERSONNEL. The Company is dependent upon the skills of
its management team. There is strong competition for qualified personnel in the
biosolids treatment industry, and the loss of key personnel or an inability to
continue to attract, retain and motivate key personnel could adversely affect
the Company's business. There can be no assurances that the Company will be
able to retain its existing key personnel or to attract additional qualified
personnel. The Company does not have key-man life insurance on any employees of
the Company. See "Management."

<PAGE>

RELIANCE ON PATENT PROTECTION AND PROPRIETARY TECHNOLOGY. A portion of the
Company's business is dependent upon patented technology, certain of which is
licensed by the Company and certain of which is owned by the Company. To the
extent the Company or the owners of the patented technology are unsuccessful in
protecting proprietary rights to such technology or such technology may infringe
on proprietary rights of third parties, that portion of the Company's business
could suffer. In addition, there can be no assurances that others will not
independently develop similar or superior technologies which will enable them to
provide superior products or services. Further, there can be no assurances that
patentable improvements on such technology will be developed or that existing or
improved technology will have competitive advantages or not be challenged by
third parties. The Company also has certain proprietary rights in certain
registered trademarks related to the Company's products. No assurance can be
given that the trademarks will afford the Company with any competitive
advantages. See "Business - Patents."

BROAD DISCRETION IN APPLICATION OF PROCEEDS. The net proceeds of this
Offering will be $8,692,000, if all of the Public Warrants and Underwriters'
Unit Purchase Warrants are exercised, less any warrant solicitation fee. These
net proceeds will be utilized for working capital and general corporate
purposes. Accordingly, the Company will have broad discretion as to the
application of such proceeds. See "Use of Proceeds."

EFFECT OF TECHNOLOGICAL CHANGE ON OPERATIONS. The market for the Company's
biosolids treatment business operations is characterized by rapidly changing
technology. There can be no assurance that products, services or technologies
developed by others will not render obsolete or otherwise significantly diminish
the value of the Company's products and services. See "Business - Competition."

RISK OF LOSING NASDAQ SMALL-CAP MARKET LISTING. The Company's Common Stock
and Public Warrants are currently quoted in the NASDAQ Small-Cap Market. The
failure of the Company to meet the maintenance requirements of the NASDAQ
Small-Cap Market could result in the Company's securities being delisted from
the NASDAQ Small-Cap Market, with the result that the Company's securities would
trade on the OTC Electronic Bulletin Board or in the "pink sheets" maintained by
the National Quotation Bureau, Inc., which are generally considered to be less
efficient markets. Among other consequences, delisting from the NASDAQ
Small-Cap Market may cause a decline in the stock price, difficulty in
conducting trades and difficulty in obtaining future financing. See "Plan of
Distribution."

DISCLOSURE RELATING TO LOW-PRICED STOCKS. The Company's Common Stock and
Public Warrants are currently listed for trading in the NASDAQ Small-Cap Market.
If, at any time, the Company's securities are not listed for trading in the
NASDAQ Small-Cap Market, the Company's securities could become subject to the
"penny stock rules" adopted pursuant to Section 15 (g) of the Exchange Act. The
penny stock rules apply to non-NASDAQ companies whose common stock trades at
less than $5.00 per share or which have tangible net worth of less than
$5,000,000 ($2,000,000 if the company has been operating for three or more
years). Such rules require, among other things, that brokers who trade "penny
stock" to persons other than "established customers" complete certain
documentation, make suitability inquiries of investors and provide investors
with certain information concerning trading in the security, including a risk
disclosure document and quote information under certain circumstances. Many
brokers have decided not to trade "penny stock" because of the requirements of
the penny stock rules and, as a result, the number of broker-dealers willing to
act as market makers in such securities is limited. In the event that the
Company's securities become subject to the "penny stock rules," there may
develop an adverse impact on the market for the Company's securities. See "Plan
of Distribution."

<PAGE>

RISK OF REDEMPTION OF PUBLIC WARRANTS. Commencing October 12, 1996, the
Company may redeem the Public Warrants for $0.10 per Public Warrant, at any
time after the closing bid quotation of the Common Stock in the NASDAQ Small-Cap
Market has equaled or exceeded $3.00 for ten consecutive trading days. Notice
of redemption of the Public Warrants could force the holders thereof: (i) to
exercise Public Warrants and pay the exercise price at a time when it may be
disadvantageous or difficult for the holders to do so, (ii) to sell the Public
Warrants at the then current market price when they might otherwise wish to hold
the Public Warrants, or (iii) to accept the redemption price, which is likely to
be less than the market value of the Public Warrants at the time of the
redemption. See "Description of Securities - Public Warrants."

INVESTORS MAY BE UNABLE TO EXERCISE PUBLIC WARRANTS. For the life of the
Public Warrants, the Company will use its best efforts to maintain a current
registration statement with the Securities and Exchange Commission (the
"Commission") relating to the shares of Common Stock issuable upon exercise of
the Public Warrants. If the Company elects not to maintain a current
registration statement because the market price of the Common Stock underlying
the Public Warrants is less than the exercise price, or any number of other
reasons, the Public Warrantholders would be unable to exercise the Public
Warrants and the Public Warrants may become valueless. Although the
Representatives of the Public Offering agreed not knowingly to sell the Public
Warrants in any jurisdiction in which they are not registered or otherwise
qualified in connection with the sale of the Units in the Public Offering, a
purchaser of the Public Warrants may, subsequent to the effective date of the
Public Offering, relocate or have relocated to a jurisdiction in which the
shares of Common Stock underlying the Public Warrants are not so registered or
qualified. In addition, a purchaser of the Public Warrants in the open market
may reside in a jurisdiction in which the shares of Common Stock underlying the
Public Warrants are not registered or qualified. If the Company is unable or
chooses not to register or qualify or maintain the registration or qualification
of the shares of Common Stock underlying the Public Warrants for sale in all of
the states in which the Public Warrantholders reside, the Company would not
permit such Public Warrants to be exercised and Public Warrantholders in those
states may have no choice but either to sell their Public Warrants or let them
expire. Prospective investors and other interested persons who wish to know
whether or not shares of Common Stock may be issued upon the exercise of Public
Warrants by Public Warrantholders in a particular state should consult with the
securities department of the state in question or send a written inquiry to the
Company. The Company's ability to maintain a current registration statement in
effect covering the underlying Common Stock will be subject to the same
conditions and risks related to the maintenance of a current registration
statement related to the shares of Common Stock underlying the Public Warrants.
See "Description of Securities - Public Warrants."

EFFECT OF OUTSTANDING PUBLIC WARRANTS AND UNDERWRITERS' UNIT PURCHASE
WARRANTS. Until October 11, 2000, the holders of the Public Warrants and
Underwriters' Unit Purchase Warrants are given an opportunity to profit from a
rise in the market price of the Common Stock, with a resulting dilution in the
interests of the other stockholders. The shares of Common Stock underlying the
Public Warrants and the Underwriters' Units underlying the Underwriters' Unit
Purchase Warrants have certain registration rights. Further, the terms on which
the Company might obtain additional financing during that period may be
adversely affected by the existence of the Public Warrants and Underwriters'
Unit Purchase Warrants. The holders of the Public Warrants and Underwriters'
Unit Purchase Warrants may exercise such securities at a time when the Company
might be able to obtain additional capital through a new offering of securities
on terms more favorable than those provided herein. See "Description of
Securities" and "Plan of Distribution."

LACK OF DIVIDENDS ON COMMON STOCK. The Company has paid no dividends on
its Common Stock to date and there are no plans for paying dividends in the
foreseeable future. The Company intends to retain earnings, if any, to provide
funds for the expansion of the Company's business. See "Dividend Policy" and
"Description of Securities."

<PAGE>

POTENTIAL ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS. The
Company's Certificate of Incorporation includes certain provisions which are
intended to protect the Company's stockholders by rendering it more difficult
for a person or persons to obtain control of the Company without cooperation of
the Company's management. These provisions include certain super majority
requirements for the amendment of the Company's Certificate of Incorporation and
Bylaws. Such provisions are often referred to as "anti-takeover" provisions.
The inclusion of such "anti-takeover" provisions in the Certificate of
Incorporation may delay, deter or prevent a takeover of the Company which the
stockholders may consider to be in their best interests, thereby possibly
depriving holders of the Company's securities of certain opportunities to sell
or otherwise dispose of their securities at above-market prices, or limit the
ability of stockholders to remove incumbent directors as readily as the
stockholders may consider to be in their best interests. See "Description of
Securities - Certain Business Combinations and Other Provisions of Certificate
of Incorporation."

DILUTION. The exercise price of the shares of Common Stock underlying the
Underwriters' Unit Purchase Warrants and Public Warrants is substantially higher
than the book value per share of the Common Stock. Consequently, the exercise
of the Underwriters' Unit Purchase Warrants and Public Warrants into shares of
Common Stock will result in immediate and substantial dilution to the holders of
such securities. See "Dilution" and "Description of Securities."

SHARES ELIGIBLE FOR FUTURE SALE; ISSUANCE OF ADDITIONAL SHARES. Future
sales of shares of Common Stock by the Company and its stockholders could
adversely affect the prevailing market price of the Common Stock. There are
currently 5,709,769 shares of Common Stock which are freely tradeable or
eligible for resale pursuant to Rule 144 promulgated under the Securities Act.
Of the restricted shares, 484,000 shares of Common Stock held by certain of the
Company's officers and directors will be subject to certain lock-up agreements
with the Representative during the eighteen (18) month period following October
12, 1995. Further, the Company has granted options to purchase up to an
additional 713,062 shares of Common Stock and warrants to purchase up to
3,052,667 shares of Common Stock. The Company also has issued warrants (the
"Underwriters' Warrants") to the Underwriters in connection with the Public
Offering to purchase up to 50,000 Units, which are being registered in
connection with this Registration Statement. Sales of substantial amounts of
Common Stock in the public market, or the perception that such sales may occur,
could have a material adverse effect on the market price of the Common Stock.
Pursuant to its Certificate of Incorporation, the Company has the authority to
issue additional shares of Common Stock and Preferred Stock. The issuance of
such shares could result in the dilution of the voting power of Common Stock
purchased in the Offering. See "Description of Securities," "Shares Eligible
for Future Sale," "Principal Stockholders" and "Description of Securities."

FUTURE ISSUANCES OF PREFERRED STOCK. The Company's Certificate of
Incorporation, as amended, authorizes the issuance of preferred stock with such
designation, rights and preferences as may be determined from time to time by
the Board of Directors, without shareholder approval. In the event of the
issuance of additional series of preferred stock, the preferred stock could be
utilized, under certain circumstances, as a method of discouraging, delaying or
preventing a change in control of the Company. Although the Company has no
present intention to issue any shares of its preferred stock, there can be no
assurances that the Company will not do so in the future. See "Description of
Securities."

LIMITATIONS ON DIRECTOR LIABILITY. The Company's Certificate of
Incorporation provides, as permitted by governing Delaware law, that a director
of the Company shall not be personally liable to the Company or its stockholders
for monetary damages for breach of fiduciary duty as a director, with certain
exceptions. These provisions may discourage stockholders from bringing suit
against a director for breach of fiduciary duty and may reduce the likelihood of
derivative litigation brought by stockholders on behalf of the Company against a
director. In addition, the Company's Certificate of Incorporation and Bylaws
provide for mandatory indemnification of directors and officers to the fullest
extend permitted by Delaware law. See "Management."

<PAGE>

USE OF PROCEEDS

The net proceeds to the Company from the exercise of the Underwriters' Unit
Purchase Warrants and the Public Warrants, if exercised in full, are estimated
to be $8,692,000, after deducting approximately $38,000 of estimated Offering
expenses. This does not include additional compensation which may be paid to
the Representatives by the Company arising from the Company's agreement that it
pay to the Representatives a solicitation fee of five percent (5%), or a maximum
of $360,000 of the aggregate exercise price of the Public Warrants exercised
after October 12, 1996 through the efforts and with the assistance of the
Representatives. See "Plan of Distribution." However, there can be no assurance
that all such Underwriters' Unit Purchase Warrants or Public Warrants will be
exercised. The Company intends to use the net proceeds from this Offering for
working capital and other general corporate purposes. The Company will have
broad discretion as to the application of such proceeds.

Pending full utilization of the proceeds of this Offering, the Company may
invest the net proceeds in short-term, investment grade, interest bearing
securities. See "Business."

DIVIDEND POLICY

No dividend has been declared or paid by the Company since inception on the
Company's Common Stock. The Company does not anticipate that any dividends will
be declared or paid in the future on the Company's Common Stock. See
"Description of Securities."

<PAGE>

PRICE RANGE OF COMMON STOCK

As of the date of this Prospectus, the Company had 6,352,102 shares of
Common Stock issued and outstanding. Further, the Company had issued and
outstanding warrants to purchase an additional 3,052,667 shares of Common Stock
and to purchase 50,000 Underwriters' Units, and options to purchase an
additional 713,062 shares of Common Stock.

The Company's Common Stock has been listed for trading in the NASDAQ
Small-Cap market, under the symbol "SYGR" since October, 1994, and was
previously listed for trading under the symbol "NVRO" since on or about July 14,
1993. On July 3, 1995, the Company effectuated a reverse split of the Common
Stock on a 1-for-15 basis, with trading commencing on a post-split basis in the
NASDAQ Small-Cap Market on or about July 14, 1995. The market prices for the
Common Stock in the tables set forth below do not give effect to such reverse
split and reflect the actual market prices of the Common Stock during such
periods. However, such prices may not necessarily reflect the price of the
Common Stock if such reverse split had been effected as of such periods. The
following table sets forth quotations for the bid and asked prices for the
Common Stock for the periods indicated below, based upon quotations between
dealers, without adjustments for stock splits, dividends, retail mark-ups,
mark-downs or commissions, and therefore, may not represent actual transactions:
<TABLE>
<CAPTION>
BID PRICES ASKED PRICES
---------- ------------
HIGH LOW HIGH LOW
---- --- ---- ---
YEAR ENDED DECEMBER 31, 1993
<S> <C> <C> <C> <C>
1st Quarter. . . . . . . . 5 5/8 1 6 1/4 1 5/8
2nd Quarter. . . . . . . . 6 7/8 3 1/2 8 4 3/4
July 1 - July 13 . . . . . 6 1/4 4 1/2 6 3/4 6 1/8
July 14 - September 30 . . 6 3/4 4 3/4 7 5 1/8
Fourth Quarter . . . . . . 8 3/4 5 1/8 9 5 1/4

YEAR ENDED DECEMBER 31, 1994

1st Quarter. . . . . . . . 5 3/4 2 7/8 5 7/8 3 1/8
2nd Quarter. . . . . . . . 3 5/8 1 5/8 3 7/8 1 7/8
3rd Quarter. . . . . . . . 2 5/8 1 5/8 2 3/4 1 13/16
4th Quarter. . . . . . . . 2 1/2 1 9/16 2 5/8 1 13/32

YEAR ENDED DECEMBER 31, 1995

1st Quarter. . . . . . . . 1 1/2 5/8 1 9/16 13/16
2nd Quarter. . . . . . . . 1 5/16 15/16 13/32
July 3 - July 12 . . . . . 13/32 5/16 7/16 3/8
July 14 - September 29 . . 6 3/8 1 5/8 6 1/2 2 1/8
4th Quarter. . . . . . . . 2 7/16 1 1/4 2 3/4 1 1/2

YEAR ENDING DECEMBER 31, 1996

1st Quarter. . . . . . . . 2 3/8 1 3/16 2 1/2 1 1/4
2nd Quarter. . . . . . . . 1 15/32 1 1 1/2 1 3/32
3rd Quarter. . . . . . . . 1 21/32 1 1 23/32 1 1/16
</TABLE>

<PAGE>

On October 21, 1996, the market price for the Company's Common Stock in
the NASDAQ Small-Cap Market was approximately $2.5625 per share. As of April
12, 1996, without giving effect to the number of stockholders whose shares are
held in "street name," the Company had approximately 251 stockholders of record.
Management believes that the Company had approximately 2,200 beneficial
stockholders as of April 12, 1996. On July 3, 1995, the Company effectuated a
reverse split of the Common Stock on a 1-for-15 basis, with trading commencing
on a post-split basis in the NASDAQ Small-Cap Market on or about July 14, 1995.
The market prices for the Common Stock in the tables set forth above do not give
effect to such reverse split and reflect the actual market prices of the Common
Stock during such periods.

The transfer agent for the Common Stock is Intercontinental Registrar &
Transfer Agency, Inc., 900 Buchanan Boulevard, Suite One, Boulder City, Nevada
89005.

<PAGE>

DILUTION

The net tangible book value of the Common Stock at June 30, 1996 was
$6,384,602 or $1.01 per share. Net tangible book value per share is determined
by dividing the Company's tangible net worth (tangible assets less liabilities)
by the 6,352,102 shares of Common Stock outstanding as of such date. (1) Net
tangible book value per share represents the difference between the amount per
share paid by the purchasers after the exercise in full of the Warrants, and the
pro forma net tangible book value per share after the exercise in full of the
Warrants.

After giving effect to the exercise in full of the Warrants at a weighted
average exercise price of $2.40 per share, and the receipt of the net proceeds
therefrom, and without giving effect to any other changes since such date and
excluding any warrant solicitation fees, the adjusted net tangible book value of
Company as of June 30, 1996 would have been approximately $15,076,000 or $1.52
per share. This represents an immediate increase in net tangible book value of
$0.51 per share to current stockholders and an immediate dilution in net
tangible book value of $0.905 per share to purchasers of Common Stock after the
exercise in full of the Warrants, as illustrated in the following table:

<TABLE>
<CAPTION>
<S> <C> <C>
Weighted average exercise price per share(2) . . . . . . . $2.425
Net tangible book value per share at June 30, 1996 . . . $1.01
Increase in net tangible book value per share
attributable to new stockholders. . . . . . . . . . $0.51
----
Pro forma net tangible book value after the exercise
in full of the Underwriters' Unit Purchase
Warrants and Public Warrants . . . . . . . . . . . . . .
$1.520
------
------
Dilution per share to new stockholders . . . . . . . . . . $0.905
------
------
</TABLE>

The following table illustrates at June 30, 1996, with respect to existing
stockholders and investors assuming the exercise in full of the Warrants, a
comparison of the number of shares of Common Stock acquired from the Company,
the percentage ownership of such shares, the total capital stock and paid in
capital contributed, the percentage of total investment and the average price
paid per share:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- ------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1) 6,352,102 64% 22,172,891 72% $3.49
New stockholders 3,600,000 36% 8,730,000 28% $2.43
--------- ---- ---------- ---- -----
All stockholders(3) 9,952,102 100% 30,902,691 100%
--------- ---- ---------- ---- -----
--------- ---- ---------- ---- -----
</TABLE>

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

(1) As of the date of this Prospectus, the Company had 6,352,102 shares of
Common Stock issued and outstanding. These numbers give effect to a
reverse split of the issued and outstanding shares of Common Stock on
a 1-for-15 basis effectuated as of July 3, 1995. See "Description of
Securities."

(2) Weighted average exercise price reflects the assumed exercise of the
50,000 Underwriters' Unit Purchase Warrants into 300,000 shares of
Common Stock at an exercise price of $2.70 per share and the 3,300,000
Public Warrants (including the 300,000 Underwriters' Warrants) into
3,300,000 shares of Common Stock at an exercise price of $2.40 per
share.

(3) Does not include shares of Common Stock that are reserved for issuance
pursuant to certain stock option plans of the Company, and certain
other options, warrants and convertible securities of the Company.
See "Management - Stock Option Plans" and "Description of Securities."

<PAGE>

CAPITALIZATION

The following table sets forth the capitalization of the Company as of June
30, 1996, and as adjusted to reflect the exercise in full of the Warrants at a
weighted average exercise price of $2.425 per share. See "Plan of
Distribution." This table should be read in conjunction with the financial
statements and related notes included elsewhere in this Prospectus:

JUNE 30, 1996
ACTUAL AS ADJUSTED(1)
------ --------------
LONG-TERM DEBT

Long-term debt,
excluding current portion $3,303,890 $3,303,890

Long-term debt-related parties,
excluding current portion 0 0

STOCKHOLDERS' EQUITY:

Preferred Stock, par value
$0.002, authorized
10,000,000 shares

Common Stock, par value
$0.002; 100,000,000 shares
authorized: issued and
outstanding 6,352,102
shares; 9,952,102 as adjusted 12,395 19,904

Additional paid-in-capital 22,350,290 31,034,781

Accumulated deficit (10,874,843) (10,874,843)
----------- -----------

Total stockholders' equity 11,487,842 20,179,842
----------- -----------
----------- -----------

Total capitalization $14,791,732 $23,483,732
----------- -----------
----------- -----------

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

(1) As of the date of this Prospectus, the Company had 6,352,102 shares of
Common Stock issued and outstanding. These numbers reflect the
exercise in full of the Public Warrants issued at a weighted average
exercise price of $2.425 per share. These numbers give effect to a
reverse split of the issued and outstanding shares of Common Stock on
a 1-for-15 basis effectuated as of July 3, 1995. Does not include
shares of Common Stock that are reserved pursuant to certain stock
option plans of the Company, and certain other options, warrants and
convertible securities of the Company. See "Management - Stock Option
Plans" and "Description of Securities."

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION

GENERAL

The Company engages in the business of management through beneficial reuse
of organic materials, including sewage sludge (biosolids). The Company offers a
variety of services with respect to this business including the transportation,
treatment and monitoring of biosolids.

The following discussion reflects the financial condition and results of
operations of the Company for the six (6) months ended June 30, 1996 and 1995
and the years ended December 31, 1995, 1994 and 1993. Because of these material
changes, annual results may not be indicative of future performance.

The Company has experienced rapid growth during the periods presented below
due to certain acquisitions. See "Business - Mergers and Acquisitions." Any
variance in results of operations during the relevant periods will be discussed
below, where appropriate.

The following discussion should be read in conjunction with the attached
condensed consolidated financial statement and notes thereto, and with the
Company's audited financial statements and notes thereto for the fiscal years
ended December 31, 1995, 1994 and 1993 and the unaudited financial statements
and notes thereto for the six (6) months ended June 30, 1996 and 1995.

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

<TABLE>
<CAPTION>
Six Months Ended June 30 Year Ended December 31
------------------------ ----------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----

STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C>
Net sales 100% 100% 100% 100% 100%

Gross profit 19.9 20.0 15.9 19.0 22.5
Selling, general and administrative 16.7 19.8 20.0 25.2 35.8
Interest expense, net 3.4 5.3 5.2 4.7 6.1
Other-asset impairment 0.0 0.0 13.6 25.0 0.0
Net profit (loss) 3.8 (3.9) (25.3) (31.6) (21.1)
</TABLE>

RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995. For
the first half of 1996, net sales decreased approximately 6% to $8,491,413 from
$8,989,624 for the same period in 1995. This decrease was primarily the result
of a lack of sales from a pelletized organic waste division which was closed in
July, 1995 and the Ft. Smith, Arkansas waste treatment plant's closing due to
tornado damage.

Cost of goods sold in the first half of 1996 decreased to $6,801,919 from
$7,182,774 for the same period in 1995. The decrease in cost of goods sold was
attributable to cost eliminated as a result of the sale of the sawmill in March,
1996 and the closing of the pelletized organic waste division.

<PAGE>

Gross profit decreased in the first half of 1996 to $1,689,494 from
$1,806,850 principally due to the decrease in sales. The gross profit
percentage remained constant from the first half of 1995 to the first half of
1996.

Selling, general and administrative expenses decreased $356,449 for the six
months ended June 30, 1996, compared to the same period in 1995. This decrease
was directly the result of management's cost reduction efforts throughout fiscal
1996.

Second quarter interest expense decreased to $166,008 from $260,750 in the
second quarter of 1995. Interest expense for the first six months of 1996 was
$287,454, or a decrease of $189,700 from the same period in 1995. This decrease
was attributable to the retirement of certain debt obligations.

During the first six (6) months of 1996, the Company recognized a gain on
disposal of fixed assets of $248,454. There was no such gain recognized during
the first half of 1995.

As a result of the foregoing, the Company reported net income of $326,195
during the first six (6) months of 1996 compared to a net loss of ($351,171)
during the same period in 1995.

Due to the Company's cumulative operating losses, the Company has not paid
income tax since inception. As of December 31, 1995, the Company had net
operating loss carryforwards totaling approximately $5,500,000. Utilization of
the Company's net operating loss may be subject to limitation under certain
circumstances.

RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994. The
Company's net sales increased by $4,778,788, or 36%, in fiscal 1995 as compared
to fiscal 1994. This increase in sales was directly attributable to sales from
poultry bedding and wood waste materials from the October, 1994 acquisitions of
Childers Brothers, Thompson, and Hodges. No other significant changes occurred
in the sale of other services or products in relation to the respective periods.

During the year ended December 31, 1995, cost of goods sold and gross
profit increased to $15,117,950 and $2,858,099, respectively, from $10,695,468
and $2,501,793, respectively, for the year ended December 31, 1994. Gross
profit, as a percentage of sales, decreased to 16% in 1995 from 19% in 1994.
This decrease in gross profit was directly attributable to the full year's
results in 1995 related to the October, 1994 acquisitions of Childers Brothers,
Thompson and Hodges, in which gross margins were historically significantly
lower as a percent of sales than the Company's other operations.

Selling, general and administrative expenses increased to $3,588,221, or
20% of sales in 1995 as compared to $3,328,052, or 25% of sales for the year
ended 1994. The increase in absolute dollars of such expenses was primarily the
result of an increase in the allowance for doubtful accounts reserve of
$181,000. Historically, the Company has had minimal bad debt expense.

Interest expense for 1995 was $937,586 as compared to $626,172 for 1994.
This increase of $311,414 was directly attributable to the October, 1994
acquisitions and the related debt assumed in connection with these acquisitions.

In the first quarter of 1996, certain changes in events caused management
to take charges in the amount of approximately $2,444,025 directly related to
asset impairments as follows:

<PAGE>

1. The Company had continued to invest in the Company's sawmill
operations in Arkansas in an attempt to produce its own shavings for the poultry
bedding and wood waste markets and brought this facility to a production mode in
the last part of 1995. In evaluating the efficiency of the mill for the
remainder of 1995 and through March 1996, management determined that sufficient
production quantities could not be sustained to justify further consideration.
This decision resulted in a charge to fixed assets of $1,091,991 and an
associated goodwill charge of $286,000 at December 31, 1995.

2. At December 31, 1994, the Company had an investment in Pan American
N-Viro of approximately $776,034. Pan American N-Viro was formed in 1994 to
market the N-Viro Process in South and Central America and the Caribbean with
the intent of generating a substantial revenue base prior to the end of 1995.
Subsequent evaluation of this business venture and a review of the marketing
efforts through March 28, 1996, revealed continued losses for the year ending
December 31, 1995 of $152,000 and total losses since the formation of Pan
American N-Viro of $244,178. Further, there were no sales generated in this
period and very little indication of significant future sales prospects. Based
on management's decision to stop any future cash contributions to Pan American
N-Viro, the Company decided to write off the investment in Pan American N-Viro
in full as of December 31, 1995.

3. In 1995, management determined that a charge to operations of $290,000
was required to properly reflect the current fair market value of certain assets
held for resale pertaining to the Company's then existing pelletized poultry
waste products division. This decision was made based on a previous decision to
discontinue these operations in 1994 and based on market indications as of
February, 1996 for the sale of these assets. See "Results of Operations for the
Years Ended December 31, 1994 and 1993."

As a result of the foregoing, a net loss of $4,553,169 was reflected in
fiscal 1995 as compared to a net loss of $4,164,795 in fiscal 1994.

RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993. For
the year ended December 31, 1994, net sales increased approximately 39% to
$13,197,261 from $9,481,893 for the year ended December 31, 1993. This increase
primarily reflects net sales attributable to the July, 1993 acquisitions of
Organi-Gro and Thone Brothers and the October, 1994 acquisitions of Childers
Brothers, Thompson and Hodges, partially offset by some drop in sales volume
from the previous period.

Cost of goods sold and gross profit for the Company during the year ended
December 31, 1994 increased to $10,695,468 and $2,501,793, respectively, from
$7,345,764 and $2,136,129, respectively, in the year ended December 31, 1993,
resulting in a corresponding decrease in gross profit percentage of 19% in 1994
from 23% in 1993. The decrease in gross profit is attributable to increased
personnel costs, increased raw materials costs, and increased costs required by
recent implementation of state and federal regulations affecting the Company's
biosolids management operations. Additionally, the Company has not been able to
generate significant sales of its organic soil amendments, which resulted in a
negative gross profit for such line of business.

Selling, general and administrative expenses increased to $3,676,685 during
the year ended December 31, 1994 from $3,590,903 during the year ended December
31, 1993. Stated as a percentage of net sales, selling, general and
administrative expenses represented 28% of the year ended December 31, 1994 net
revenues versus 38% of the year ended December 31, 1993 net revenues. In 1993,
selling, general and administrative expenses included an allowance for bad debt
in the aggregate amount of $292,310 attributable mainly to one customer, the
Company recovered approximately $31,000 of this amount in 1994. Legal costs
incurred to defend the Company from pending litigation amounted to approximately
$150,000 and are considered one-time expenses.

<PAGE>

Interest expense for the year ended December 31, 1994 was $626,172, or an
increase of $50,188 from year ended December 31, 1993.

In the fourth quarter of 1994, the Company consummated an agreement with
N-Viro International Corporation whereby the Company contributed its agency
rights to the N-Viro Technology for South and Central America and Costa Rica in
exchange for 50% ownership in Pan-American N-Viro, Inc. Based on management's
decision to stop any future cash contributions to Pan American N-Viro, the
Company decided to write off the investment in Pan American N-Viro in full as of
December 31, 1995. See "Business - Agency Distributorship and License
Agreement."

For the year ended December 31, 1994, the Company elected to set up loss
reserves in the amount of $876,573 for a legal settlement and a write down of
its investment in a limited partnership. On August 2, 1994, the Company agreed
to sell its investment in a limited partnership interest in exchange for shares
of the Company's Common Stock valued at the average closing bid price for the
30-day periods before and after the date of the agreement. This agreement was
completed in 1995. Accordingly, the Company elected to set up loss reserves in
the amount of $685,573. The Company's determination of the permanent impairment
and the amount of the allowance on the value of the investment in the limited
partnership was based on the market value of the 40,000 shares of the Company's
Common Stock during the 30-day periods to and after August 2, 1994.

In March, 1995, as a result of a settlement agreement with Don R.
Couperthwaite, the Company transferred 100% of the stock of Agkone, Inc. to Mr.
Couperthwaite in exchange for the cancellation of 20,000 shares of the Company's
Common Stock owned by Mr. Couperthwaite. The shares of Common Stock were valued
at the average closing bid price for the month prior to and the month after the
date at which the major terms of the exchange were determined. Accordingly, the
Company set up a loss reserve at December 31, 1994 in the amount of $191,000.

Additionally, for the year ended December 31, 1994, the Company reviewed
the results of the operations of Organi-Gro's pelletized poultry waste product
division and concluded that due to the fact that no significant revenues have
been generated by these products since its purchase in July, 1993, and that
there were not any increases in sales volumes expected in the near future,
management determined to discontinue the operations of that division of
Organi-Gro. Accordingly, as this product division constituted the business
operations of Organi-Gro at the time of the July, 1993 acquisition, goodwill
less amortization attributable to the purchase in the net amount of $2,424,294
was permanently written off in 1994. Although management believes that the
goodwill should be written off, there was no corresponding reduction in the
value of the other assets of Organi-Gro's operations which consist of plant and
equipment. As of the end of fiscal 1994, the net book value of plant and
equipment was $1,917,450 and the most recent appraised value was $2,223,804.

Due to the net operating loss generated in 1994, which was not limited by
ownership changes, the Company determined that a deferred tax asset could be
recognized to the extent of deferred tax liabilities, which resulted in an
income tax benefit to the Company in the amount of $897,000.

As a result of the foregoing, during the year ended December 31, 1994, the
Company reported a loss of $4,164,795, as compared to a loss of $1,999,364 in
the year ended December 31, 1993.

BONDING. The amount of bonding capacity offered by sureties is a function
of financial health of the company requesting the bonding. As of October 15,
1996, the Company had a bonding capacity of approximately $10,000,000, with
$1,050,000 being utilized as of such date, which management believes is
sufficient to meet bonding needs for the foreseeable future. See "Liquidity and
Capital Resources."

<PAGE>

LIQUIDITY AND CAPITAL RESOURCES. The Company has historically financed its
operations principally through the sale of equity and debt securities and
through funds provided by operating activities. Cash and cash equivalents were
$2,642,927 as of June 30, 1996, $297,014 of which is long-term restricted cash.
The primary utilization of cash was for equipment purchases and significant
reductions in accounts payable and long term debt.

During the six (6) month period ended June 30, 1996, the Company expended
approximately $577,686 for capital equipment purchases. Additionally, the
Company completed sales of certain assets associated with the pelletizing
facility and a sawmill in Arkansas for gross proceeds of $991,200. These assets
had an aggregate net book value of $696,223, resulting in a recognized gain of
approximately $251,000.

In connection with the acquisition of Pima Gro on July 18, 1996, the
Company paid cash in the aggregate amount of approximately $1,227,000 and issued
a promissory note in the aggregate amount of approximately of $1,600,000.

As of June 30, 1996, the Company had long-term borrowings in the aggregate
amount of $5,309,792, the current portion of which was $2,005,902. The Company
reduced its long-term borrowings by approximately $1,650,000 during the first
half of 1996. This reduction in debt was serviced through a use of working
capital, the conversion of $190,000 of debt to Common Stock and an increase in
short-term borrowings of $160,097.

At June 30, 1996, the Company had positive working capital of approximately
$2,429,111. Management believes that the Company will be able to continue to
reflect positive working capital throughout 1996. However, there can be no
assurances to this effect.

BUSINESS

HISTORY OF THE COMPANY

Synagro Technologies, Inc. ("Synagro" or the "Company") was incorporated on
May 9, 1986, under the laws of the State of Nevada.

As of November 30, 1992, the Company completed a reorganization agreement
with CDR Environmental, Inc., a Texas corporation ("CDR"), a previously
unaffiliated corporation, pursuant to which CDR became a wholly-owned
subsidiary of the Company.

As of January, 1993, the Company completed reorganization agreements with
three (3) additional companies, Bio-Star, Inc., Gro-Mor, Inc. and K-3
Environmental Services, Inc., each of which was merged into CDR.

As of July, 1993, the Company entered into two (2) agreements pursuant to
which the Company acquired Thone Brothers Trucking, Inc. ("Thone Brothers") and
Organi-Gro, Inc. ("Organi-Gro"). The Company merged the business operations of
Thone Brothers into CDR, and Organi-Gro became a separate wholly-owned
subsidiary of the Company. In connection with the merger, Don Thone became a
director of the Company. Mr. Thone currently also serves as Chief Executive
Officer of the Company.

<PAGE>

As of October 1, 1994 the Company entered into three (3) agreements
pursuant to which the Company acquired into the operations of Organi-Gro
substantially all of the assets and assumed certain liabilities of Childers
Brothers Trucking, Inc. ("Childers"), Thompson Shaving Service, Inc.
("Thompson") and Hodges Heavy Duty Truck Parts and Services, Inc. ("Hodges"),
and acquired certain assets and assumed certain liabilities of Zeiler Timber
Products, Inc. ("Zeiler"). The Company acquired such assets and assumed such
liabilities, in three (3) separate transactions. In connection with these
transactions, Tony Childers became a director of the Company and the President
of Organi-Gro.

On or about October 28, 1994, the Company changed its name to "Synagro
Technologies, Inc." to reflect the diversity of biosolids treatment services
provided by the Company.

On October 18, 1995, the Company completed an underwritten secondary public
offering of the Company's securities pursuant to which the Company issued
500,000 Public Units of the Company's securities, at a purchase price of $12.00
per Public Unit, each Public Unit consisting of six (6) shares of Common Stock
and Registered Warrants to purchase up to six (6) additional shares of Common
Stock.

As of July 18, 1996, the Company entered into an agreement pursuant to
which the Company acquired 100% of the issued and outstanding securities of Pima
Gro Systems, Inc. and Pima Gro Systems 2, Inc. (collectively "Pima Gro").

At a meeting of the Company's stockholders on June 10, 1996 and reconvened
on June 28, 1996, the stockholders adopted a resolution approving a change in
the Company's state of incorporation from Nevada to Delaware. The Company
effectuated the transactions contemplated by this resolution on August 16, 1996
and reincorporated to Delaware by means of a merger (the "Reincorporation
Merger") of the Company with and into a wholly-owned subsidiary of the Company
in Delaware known as Synagro Technologies, Inc. ("Synagro Delaware"). On the
effective date of the Reincorporation Merger, each issued and outstanding share
of Common Stock of the Company was converted into one share of Common Stock of
Synagro-Delaware. Synagro-Delaware has succeeded to all of the assets,
liabilities and business of the Company and possesses all of the rights and
powers of the Company. (Synagro-Delaware and the Company are collectively
referred to hereinafter as the "Company".)

BUSINESS OF THE COMPANY

The Company engages in the business of the management of biosolids through
beneficial reuse of organic materials, including sewage sludge. The Company
offers a variety of services with respect to this business, including the
transportation, treatment and monitoring of biosolids, and the marketing of end
products from the treatment of such materials.

The Company primarily conducts its business through its wholly-owned
subsidiaries, CDR, Pima Gro and Organi-Gro, which currently generate
substantially all of the Company's revenues. Unless the context requires
otherwise CDR, Pima Gro and Organi-Gro are collectively referred to herein as
the "Company."

BUSINESS OF CDR ENVIRONMENTAL, INC. CDR is in the business of
transporting, treating, site monitoring and assisting in preparing documentation
with respect to biosolids and wastewater products. CDR has continuously been in
business in the State of Texas since 1983. In July, 1993, the business
operations of Thone Brothers merged into CDR. CDR's primary operations are
currently within the area of 100 miles from the center of Houston, Texas and in
the State of Arkansas. To a lesser extent, CDR conducts business in the States
of Georgia, Louisiana, Mississippi, Missouri, Oklahoma and South Carolina.

<PAGE>

CDR provides transportation, treatment, site monitoring, land application
and environmental regulatory compliance services with respect to biosolids and
wastewater products, including poultry waste to local and state agencies,
municipalities and private industries. CDR's vehicles pick up and transport
biosolids and other organic waste materials to sites operated by the Company or
by third parties, such as municipalities or private companies. CDR's services
include the dredging of sludge ponds and cleaning out municipal and industrial
lagoons.

CDR also provides professional management and consulting services for
treatment of biosolids and the monitoring and land application of treated
biosolids. CDR currently operates under approximately 350 contracts with
various state and local agencies, municipalities and private industries with
respect to sewage treatment and other waste products. These entities include
municipal utility districts, municipalities and private businesses. These
contracts are generally performed and renewable on an annual basis with these
entities. CDR provides a variety of methods of treatment of biosolids as a
means of offering options to prospective customers who may prefer alternative
methods of biosolids treatment. These methods include land application,
pumping, transportation and dewatering of biosolids. CDR treats biosolids
through the application of a patented sludge treatment technology licensed by
the Company, known as the N-Viro Technology, which the Company believes meet the
Exceptional Quality standard for treated biosolids. CDR provides an alternative
method of biosolids treatment by transporting the biosolids to certain
registered sites, adding lime to the biosolids as a stabilizing agent (lime
stabilization) and depositing the lime stabilized biosolids at the sites (land
application), a process which does not meet the higher standards of treated
biosolids produced from the use of the N-Viro Technology. These alternative
methods provide a broader variety of choice to prospective customers who may
prefer to continue 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 has acquired certain agency and licensing rights to market a
patented sludge treatment technology using cement kiln dust ("CKD") and other
related materials and an alkaline pasteurization process (the "N-Viro
Technology") in certain states in the southwestern United States, developed and
owned by N-Viro International Corporation ("N-Viro International"), a publicly
traded company.

The Company has obtained the exclusive agency, distribution and licensing
rights to the N-Viro Technology in certain territories, including the States of
Texas, Oklahoma, Arkansas, Louisiana, Arizona and New Mexico (the "United States
Territories"), and Central America and South America, excluding Mexico and
Puerto Rico (the "Central and South American Territories") (collectively, the
"Territories"). The Company has assigned the rights to the Central and South
American Territories to Pan American N-Viro, Inc., an Ohio corporation ("Pan
American N-Viro"), an entity owned 50% each by the Company and N-Viro
International. However, the Company has decided to discontinue future cash
contributions to the operations of Pan American N-Viro. Based on management's
decision to stop any future cash contributions to Pan American N-Viro, the
Company decided to write off the investment in Pan American N-Viro in full as of
December 31, 1995. See "Business - Exclusive License Rights for Central and
South American Territories" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

<PAGE>

CDR provides land application and lime stabilization services to its
customers at 14 land application sites in Texas on which CDR has the right to
apply biosolids, with a combined total acreage of approximately 13,290 acres. In
October, 1993, CDR received a permit to convert 40 acres of an 800 acre farm in
Hockley, Texas to a recycling center for the manufacture and sale of N-Viro
Soil, a by-product of biosolids treated through the N-Viro Technology. See
"Business - The N-Viro Technology."

CDR currently owns an 80 acre farm with approximately 144,000 gallons of
storage tanks for biosolids located in Dardanelle, Arkansas for beneficial reuse
of waste. The Company received a permit in November, 1993 to operate a facility
for the manufacture and sale of N-Viro Soil on a 30 acre site owned by the
Company in Maysville, Arkansas. CDR currently provides services relating to the
N-Viro Technology for the city of Fort Smith, Arkansas at this site.

Although the Company may not market the N-Viro Technology outside of the
Territories in which the Company serves as an agent or licensee of N-Viro
International, the Company and CDR may conduct business using alternative
methods of the treatment of biosolids throughout the world.

BUSINESS OF ORGANI-GRO, INC. Organi-Gro is in the business of and
primarily generates revenues from buying, hauling and selling wood waste
products to poultry growers and wholesalers and building products manufacturers.
Organi-Gro principally operates in Arkansas, the leading poultry growing state
in the United States.

Organi-Gro services the poultry market with a single source service and
product program including the delivery of bedding materials to the poultry
farms, the transportation of organic waste off-site, and the processing of the
waste and its disposal or reuse. Organi-Gro buys, hauls and sells poultry
bedding products to poultry growers and wholesalers. Wood shavings, chips and
sawdust are purchased from local sawmills, and resold either as bedding
materials for poultry growers, as bulking agents for the composting of
nitrogen-rich poultry litter into fertilizer for use on pastures and farmlands,
or to manufacturers of building materials.

Organi-Gro's executive offices are located in Russellville, Arkansas.
Organi-Gro owns a 30 acre farm in Maysville, Arkansas, and has a 130,000 square
foot facility in which Organi-Gro composts poultry litter. The composting
process involves the interaction of oxygen windrowing, moisture, temperature,
pH, electrical conductivity (total salts) and microbiological activity to digest
the poultry litter and the accompanying bedding material and convert it to a
brown, crumbly organic matter. The organic matter has a relatively low level of
nitrogen, phosphorus and potassium (2-3-2 to 4-5-4 depending on the individual
composting procedure and the initial organic material), but is relatively high
in organic matter, humic acids, trace elements and micro-nutrients.

Organi-Gro primarily generates revenues from the sale of wood waste
products, wood shavings and sawdust. Organi-Gro has discontinued the operations
of its sawmill facility in Clarksville, Arkansas, and has decided to purchase
wood waste products from local producers. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

<PAGE>

BUSINESS OF PIMA GRO SYSTEMS, INC. Pima Gro is in the business of
providing transportation, site monitoring, land application and environmental
regulatory compliance services, with respect to biosolids and wastewater
products, to local and state agencies, municipalities and private industries.
Pima Gro's vehicles pick up and transport biosolids and other organic waste
materials primarily from municipalities to permitted agricultural sites operated
by third parties. Pima Gro's primary operations are currently in the States of
California and Arizona. To a lesser extent, Pima Gro conducts business in the
States of Nevada and Indiana, and the District of Columbia.

Pima Gro also distributes biosolids products, including soil amendments,
under the trade name "Hyper Gro."

The Company anticipates that the acquisition of Pima-Gro will expand the
Company's operating capacity into established businesses in the biosolids
treatment industry in the States of California and Arizona and certain other
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. The Company currently has acquired business operations of other
entities located in the southwestern United States, primarily in the States of
Arkansas, Texas, California and Arizona.

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."

ACQUISITION OF CDR ENVIRONMENTAL, INC. As of November 30, 1992, the
Company entered into a reorganization agreement with CDR pursuant to which the
Company acquired one hundred percent (100%) of the issued and outstanding
capital stock of CDR from Don R. Couperthwaite in exchange for 133,333 shares of
the Company's Common Stock and a cash payment in the amount of approximately
$1,160,000. In connection with the reorganization agreement, CDR became a
wholly-owned subsidiary of the Company, and Mr. Couperthwaite became a director
and officer of the Company. As of July, 1994, Mr. Couperthwaite was either
terminated or resigned from all capacities as a director, officer and employee
of the Company. See "Compensation of Executive Officers and Directors."

<PAGE>

ACQUISITION OF THONE BROTHERS TRUCKING, INC. AND ORGANI-GRO, INC. As of
July, 1993, the Company entered into two (2) agreements, pursuant to which the
Company acquired one hundred percent (100%) of the common stock of: (i) Thone
Brothers in exchange for 66,667 shares of the Company's Common Stock, and (ii)
Organi-Gro in exchange for $100,000 in cash and a secured promissory note in the
principal amount of approximately $1,050,000, bearing interest at the rate of
nine percent (9%) PER ANNUM, which was paid in full as of March 8, 1996. Both
of these companies were engaged in the business of the transportation and/or
treatment of biosolids and poultry waste, primarily in the State of Arkansas.

In connection with these transactions, the Company merged the business
operations of Thone Brothers into CDR, and Organi-Gro became a separate
wholly-owned subsidiary of the Company. These acquisitions have expanded the
Company's operating capacity into established businesses in the biosolids
treatment industry in the State of Arkansas and in other states.

ACQUISITION OF CHILDERS BROTHERS TRUCKING, INC. As of October 1, 1994, the
Company acquired into the operations of Organi-Gro substantially all of the
assets and assumed certain liabilities of Childers Brothers Trucking, Inc.
("Childers Brothers"), Thompson Shaving Service, Inc. ("Thompson") and Hodges
Heavy Duty Truck Parts and Services, Inc. ("Hodges") and Zeiler Timber Products,
Inc. ("Zeiler").

Childers Brothers and Thompson were engaged in the business of buying,
hauling and selling bedding and wood waste materials related to the poultry and
building products industries. Hodges was engaged in the business of truck
repair.

The Company acquired such assets and assumed such liabilities in three (3)
separate transactions. These acquisitions have expanded the Company's operating
capacity into established businesses in the poultry and building products
industry in the State of Arkansas and certain other surrounding states.

In connection with these transactions, the Company issued an aggregate of
16,667 shares of Common Stock, paid cash in the aggregate amount of $150,000,
issued promissory notes in the aggregate principal amount of $850,000 and
assumed certain liabilities in an approximate aggregate amount not to exceed
$4,500,000.

The promissory note, issued by Organi-Gro and guaranteed by the Company,
bears interest at the rate of 7.75% PER ANNUM and is payable in eight (8) equal
quarterly principal installments of $106,250 each commencing October 1, 1995,
with all outstanding accrued and unpaid interest due on July 1, 1997. The
amount of $300,000 of the obligation was converted into 150,000 shares of Common
Stock, and $125,000 remains outstanding on the promissory note as of June 30,
1996.

The Company has granted to an affiliate of Tony D. Childers a security
interest for repayment of the promissory note in certain collateral relating to
the operations of CDR and Organi-Gro in the State of Arkansas, including
equipment and accounts receivable related to such business operations, and in
certain real properties owned by Organi-Gro. See "Certain Relationships and
Related Transactions."

ACQUISITION OF PIMA GRO SYSTEMS, INC. As of July 18, 1996, the Company
entered into an agreement pursuant to which the Company acquired 100% of the
issued and outstanding securities of Pima Gro.

<PAGE>

In connection with this transaction, the purchase price for the acquisition
of Pima Gro was approximately $3,100,000, subject to certain adjustments set
forth below. The Company issued an aggregate of 155,000 shares of the Company's
Common Stock, paid cash in the aggregate amount of approximately $1,277,000, and
issued a promissory note in the aggregate principal amount of approximately
$1,600,000. The shares of Common Stock issued to the former stockholders of
Pima Gro were valued, as of July 18, 1996, for the purposes of the transaction,
at $1.437 per share as of June 10, 1996, the date of the letter of intent with
respect to the transaction.

The amount of consideration paid in the transaction was determined based on
management's analysis of historical and projected sales of Pima Gro, the
estimated market value of Pima Gro and the synergies to be achieved through the
transaction.

As of the most recent fiscal year end for Pima Gro (December 31, 1995),
Pima Gro had sales of approximately $8,545,000 and net income of approximately
$380,000.

The promissory note, issued by the Company, bears interest at the rate of
8% PER ANNUM and is payable in four (4) semi-annual installments of principal
and accrued interest, commencing January 1, 1997, with the final payment due on
July 1, 1998. The promissory note is secured by a pledge of the securities of
Pima Gro acquired by the Company in connection with the transaction and a letter
of credit in the amount of approximately $463,000.

In the event that the Company borrows money from any source, utilizing the
assets of Pima Gro as collateral, the promissory note will become automatically
due and payable, unless there is no increase in the amount of debt imposed on
Pima Gro's assets. However, in the event that the amount of such debt
increases, the excess (up to the amount of the unpaid balance on the promissory
note) will be deposited into an escrow and paid as scheduled payments on the
promissory note come due.

The final amount of the promissory note will be subject to adjustment based
on the net asset value of Pima Gro, as of the closing date of the transaction,
as reflected on an unaudited closing balance sheet of Pima Gro to be prepared by
the Company within 60 days following the closing date. In the event that such
net asset value is determined to be less than $1,947,243, as of June 30, 1996,
and there exists a difference greater than $25,000 between the net asset value
of Pima Gro as reflected on the closing balance sheet and the audited financial
statements of Pima Gro as of December 31, 1995 delivered at closing, the amount
of the promissory note will reduced by such excess amount.

The Company has agreed to pay an additional contingent sum on the purchase
price of $4.16 for each dollar by which the pre-tax earnings of Pima Gro, for
each of the fiscal years during 1996-1998, exceed the base amount of $380,000 in
1996 and, subject to certain adjustments to the base amount, during the two (2)
following fiscal years. The additional contingent sum may be payable by the
Company, if at all, in cash, Common Stock or promissory notes, or any
combination thereof. Such amounts which may be payable as contingent sum
payments will be held in escrow until March 31, 1999, and subject to reduction
based on amounts expended by the Company for certain capital expenditures and
costs reserved for the development of certain business sites.

<PAGE>

In connection with this agreement, Wilson Nolan has agreed to enter into a
three (3) year employment agreement with Pima Gro at the annual base rate of
$150,000, plus other benefits. Mr. Nolan will serve as the Chief Executive
Officer and a director of Pima Gro. In addition, Mr. Nolan entered into a
non-competition agreement with the Company for a period of six (6) years
following the date of the employment agreement. In consideration of the
non-competition agreement, the Company has agreed to pay Mr. Nolan an additional
contingent sum based on the contingent sum formula payable to the former Pima
Gro stockholders described above, except that Mr. Nolan will be entitled to
receive $1.04 for each dollar by which the pre-tax earnings of Pima Gro exceed
the relevant base amount for each of the fiscal years during 1996-1998.

Further, the former stockholders of Pima Gro have granted a proxy to Don
Thone, Chief Executive Officer of the Company, to vote any shares issued in
connection with the transaction for a period of three (3) years following the
closing date.

ADDITIONAL ACQUISITIONS. As of January, 1993, the Company acquired one
hundred percent (100%) of the common stock of Bio-Star, Inc., Gro-Mor, Inc. and
K-3 Environmental Services, Inc., all of which were Texas corporations engaged
in the business of the transportation and/or treatment of biosolids and
wastewater products. As of April, 1994, the Company acquired all of the assets
and related liabilities of Border Farms, Inc. The Company merged the business
operations of these companies into CDR. The Company completed these four (4)
separate transactions in consideration for, in the aggregate, 62,185 shares of
Common Stock and cash in the amount of approximately $1,147,000.

AGENCY DISTRIBUTORSHIP AND LICENSE AGREEMENTS

In July, 1992, the Company purchased the exclusive agency rights to market
the N-Viro Technology in the United States Territories, from certain
unaffiliated entities which previously had acquired such agency rights, and
obtained the exclusive right to license the N-Viro Technology in the Central and
South American Territories from N-Viro International.

The Company is required to act as the agent for N-Viro International, to
collect fees from licensees of the N-Viro Technology and to make certain
payments to N-Viro International as compensation pursuant to the terms of each
respective agency and license agreement. Further, the Company will be required
to find sources for the alkaline materials and to coordinate the administration
and negotiation of pricing, availability, loading and delivery of alkaline
materials to such licensees.

N-Viro International has agreed to communicate to the Company for the
benefit of such licensees any information regarding improvements to the N-Viro
Technology. If the Company or N-Viro International develop any commercially
viable improvement in the N-Viro Technology, then certain economic benefits
under the license may be derived by the party who developed such improvement.

N-Viro International has agreed to provide the Company with technological
assistance necessary to enable the Company to: (i) provide licensees with
sufficient information and assistance to enable such licensees to make full and
effective use of the N-Viro Technology; (ii) promote the use of alkaline
materials by licensees in the Territories; and (iii) promote the sales of
alkaline materials in the Territories.

Through June 30, 1996, the Company has only generated nominal net sales
through the commercialization of the N-Viro Technology. There can be no
assurances that a significant market will develop for the N-Viro Technology.

<PAGE>

ACQUISITION OF AGENCY RIGHTS FOR TEXAS, OKLAHOMA, ARKANSAS, LOUISIANA,
ARIZONA AND NEW MEXICO. As of July 14, 1992, the Company entered into an
agreement with N-Viro Recovery Systems, Inc., an Ohio corporation ("N-Viro
Systems"), an unaffiliated entity, pursuant to which the Company purchased
certain assets from N-Viro Systems, including the exclusive agency rights to
distribute the N-Viro Technology in the States of Texas, Oklahoma, Arkansas and
Louisiana and certain equipment in exchange for $1,239,500, which has been paid
in full.

Pursuant to this agreement, the Company has agreed to pay N-Viro Systems a
royalty payment of $0.50 per wet ton for all sludge processed using the N-Viro
Technology in these territories until August 4, 1999. N-Viro International has
asserted a claim that only N-Viro International has the right to assign, assess
and collect fees and royalties for the use of the N-Viro Technology and that
N-Viro Systems may not assess or collect such fees or royalties from the Company
with respect to the N-Viro Technology. No assurances can be given that N-Viro
Systems will not assert such a claim against the Company for payment of such
royalties, or that such a claim will not be successful.

In or about June, 1992, the Company entered into an agreement with American
N-Viro Resources, Inc. ("N-Viro Resources"), an unaffiliated entity, to purchase
the exclusive agency rights to distribute the N-Viro Technology in the States of
Arizona and New Mexico in exchange for $200,000, which has been paid in full.

As an agent for the N-Viro Technology in the United States Territories, the
Company generally does not operate as a licensee of the N-Viro Technology.
However, the Company seeks to engage licensees to market and effect operations
with respect to the N-Viro Technology. The Company may use CDR, or other
prospectively acquired subsidiaries as licensees for the N-Viro Technology in
the United States Territories. See "Business - Business of CDR Environmental,
Inc.," "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and "Certain Relationships and Related Transactions."

As compensation for the performance of its duties as agent/distributor in
the United States Territories, the Company is entitled to receive: (i) fifty
percent (50%) of all initial license fees up to $10,000 and seventy-five percent
(75%) of all initial license fees in excess of $10,000 payable to N-Viro
International pursuant to any such license agreement; (ii) fifty percent (50%)
of all royalties payable to N-Viro International pursuant to any such license
agreement; and (iii) at no additional cost, a license to use the N-Viro
Technology in the United States Territories. Further, the Company is required
to pay N-Viro International ten percent (10%) of total sales of N-Viro Soil less
direct transportation costs, with a minimum quarterly payment of $5,000 from all
fees payable under this agreement beginning with the third quarter of 1992,
increasing by twenty-five percent (25%) per year until and including the sixth
anniversary of such agreement, and thereafter, no such payment shall be
required. This agreement terminates on December 31, 1997, and shall be
automatically renewed for up to fifteen (15) successive periods of two (2) years
each unless terminated by the Company.

EXCLUSIVE LICENSE OF RIGHTS FOR CENTRAL AND SOUTH AMERICAN TERRITORIES. As
of July 24, 1992, the Company entered into an agreement with N-Viro
International to acquire an exclusive license to market the N-Viro Technology in
South America and Central America, excluding Mexico, Puerto Rico and Costa Rica,
in exchange for a $1,000,000 license fee and other consideration. In December,
1992, Synagro acquired the agency rights to the N-Viro Technology for Costa Rica
from N-Viro Systems in exchange for $25,000.

In December, 1994, the Company entered into an agreement with N-Viro
International pursuant to which the parties agreed to transfer the Company's
rights under these two (2) agreements to Pan American N-Viro for the purpose of
marketing the N-Viro Technology in such South and Central American and Caribbean
territories, with N-Viro International contributing $150,000 in cash and its
marketing and technical expertise to the business operation. The parties also
each agreed to contribute up to $100,000 in cash to the business operation, on
an as needed basis, and to contribute additional staffing to the business
operation, as necessary. The Company has not contributed any amount to Pan
American N-Viro as of the date of this Report. The

<PAGE>

Company also paid to N-Viro International the sum of $260,000 as unpaid
licensing fees owing through the second quarter of 1994 and the Company was
released from its obligations to make minimum royalty payments to N-Viro
International under the original license agreement with N-Viro International.

In March, 1996, the Company decided to discontinue future cash
contributions to the operations of Pan American N-Viro. Based on management's
decision to stop any future cash contributions to Pan American N-Viro, the
Company decided to write off the investment in Pan American N-Viro in full as of
December 31, 1995. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

THE N-VIRO TECHNOLOGY

The N-Viro Technology involves a process to transform sewage sludge which
may be beneficially used (biosolids) through the use of N-Viro International's
proprietary Advanced Alkaline Stabilization with Subsequent Accelerated Drying
(the "N-Viro Process").

The N-Viro Process involves the mixing of dewatered biosolids (compressed
sludge to lower water content) with an alkaline admixture (byproduct dust from
cement or lime kilns, as well as certain fly ashes and other products of coal,
coke or petroleum combustion). The mixture is subjected to a controlled period
of monitoring, mechanical turning and drying, in which a blending of biosolids
cake and admixture occurs. During the monitoring period, the mixture heats,
stabilizes and pasteurizes, odorous compounds are broken down, various
components are neutralized (acidic compounds) or immobilized (trace metals), and
the granular appearance of a soil-like product (the "N-Viro Soil") is achieved.

The application of the N-Viro Process to biosolids creates a treated
biosolid which the Company believes meets certain standards (Exceptional
Quality) established by the United States Environmental Protection Agency
("EPA") for pathogen and vector reduction and pollutant content in the treated
product. Biosolids which satisfy the Exceptional Quality standards may be
disposed of in a variety of methods and upon certification that the biosolids
meet such standards, and may be deposited on locations which do not require
prior governmental authorization or future regulatory monitoring. Biosolids
which fail to meet the Exceptional Quality standards, and meet certain other
standards established by the EPA may be used for such disposal methods and
beneficial uses, but are subject to strict monitoring and record keeping
requirements and may only be disposed of on governmentally authorized deposit
sites. See "Business - Government Regulation."

N-Viro Soil is suitable for a variety of agriculture and industry-related
applications, including topsoil blending, land and soil reclamation and
enhancement, home lawns and gardens, top soil substitute, potting soil base and
nursery planting medium. The product handles easily, has low odor and odor
potential, is stable during storage, and provides a generally beneficial
combination of alkalinity and organics as are found in natural or manufactured
soils. Independent horticultural tests conducted by Dr. Terry Logan of Ohio
State University in 1991 with N-Viro supplemented natural soils have shown
accelerated and increased germination levels and increased crop yields for a
number of vegetable and grain crops.

The N-Viro Process converts municipal and industrial wastewater biosolids
with low pollutant concentrations into a beneficial soil conditioner or
enhancer. The Company believes that the soil product materially meets the EPA
Class A Pathogen Reduction rules relating to coliform, virus and bacterial
counts, and when the product meets certain standards related to the reduction of
attractiveness to vectors such as flies and rats and certain levels of pollutant
controls, the Company believes that the product meets the Exceptional Quality
standards for the treatment of biosolids. Biosolid-based products meeting the
Exceptional Quality standard may be applied to a land surface or incorporated
into soil in which any crops may be grown for direct or indirect human
consumption without a site-specific permit from federal regulators. See
"Business - Government Regulation."

<PAGE>

In practical terms, the N-Viro Process requires: (i) a suitable, open
operations area; (ii) provisions for transfer and storage of alkaline admixture,
typically involving pneumatic transfer from highway trailers to silos; (iii)
mechanical blending of alkaline admixture and dewatered sludge cake to provide
complete contact without breaking the structure to the point of producing a
paste-like material. The mixing unit requires enclosure to prevent dust release
and to permit collection for treatment of byproduct ammonia offgas; (iv) a
windrow processing area; and (v) finished product storage area and equipment for
loading or packaging.

Although attention is required to matters such as sludge cake moisture
content, mixing proportions, temperature conditions and pH level, the
implementation of the N-Viro Process does not require significant precision by
current industrial standards. Design of individual facilities is appropriately
contracted to qualified consulting engineering firms, equipment and construction
materials can be procured in local markets and construction can be undertaken by
medium-sized construction firms. The major operating supply, the alkaline
admixture, requires sourcing from a cement or lime plant, facilities which are
located in reasonable proximity to most major population centers to support
construction and industrial production.

The N-Viro Process is protected by four (4) United States patents and
corresponding patents in sixteen (16) foreign countries held by N-Viro
International. N-Viro International has also filed one additional United States
patent application relating to an improvement to the N-Viro Process and has
filed patent applications relating to the basic N-Viro Process in ten (10)
additional foreign countries. The United States patents were issued to J.
Patrick Nicholson and to J. Patrick Nicholson and Jeffrey C. Burnham, and
assigned to N-Viro Energy, which thereafter assigned the rights to the patents
to N-Viro International in connection with its initial public offering. The
patents relate to a method of decontaminating wastewater biosolids to a level
that meets or exceeds EPA PFRP standards, wherein lime or kiln dust and/or other
alkaline materials are mixed with wastewater biosolids in sufficient quantity to
raise the pH of the mixture to 12 and above for a predetermined time. The
United States patents expire between 2002 and 2009. See "Business - Patents and
Trademarks."

The Company has been advised that N-Viro International continues to
investigate methods to shorten drying time, substitute various other materials
for use as alkaline admixtures, improve the quality and attractiveness of
N-Viro Soil to a variety of end-users and to protect the proprietary rights of
the N-Viro Process. There can be no assurances as to the extent to which N-Viro
International will take steps to protect its proprietary rights to the N-Viro
Process. Further, there can be no assurances that any improvements to the
N-Viro Process will be developed or the extent to which any such improvements
will be patentable or will provide any competitive advantage to the N-Viro
Process.

GOVERNMENT REGULATION

Federal and state environmental legislation and regulations require
substantial expenditures by wastewater sludge generators and impose liabilities
on such entities for noncompliance. Environmental laws and regulations are, and
will continue to be, a principal factor affecting the marketability of the
biosolids treatment methods marketed by the Company. Any changes in these laws
or regulations may 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 treatment methods.
To the extent that demand for the Company's biosolids treatment methods is
created by the need to comply with such environmental laws and regulations, any
modification of the standards created by such laws and regulations may reduce
the demand for the Company's biosolids treatment methods, thereby adversely
affecting the Company's business prospects.

The Company operates in a highly regulated environment and the wastewater
treatment and other plants at which the Company's biosolids treatment methods
may be implemented are required to have permits, registrations and approvals
from federal, state and local governments for the operation of such facilities.
Moreover, each facility is typically required to obtain a state permit for the
processing of Exceptional Quality biosolids, such as N-Viro Soil, or a
registration for the land application of certain other treated biosolids. In

<PAGE>

some jurisdictions, state and/or local authorities have prohibited and, in other
jurisdictions, have sought and may seek to prohibit, the land application or
agricultural use of biosolid products, including Exceptional Quality biosolid
products, and the Company may be required to obtain local or site specific
permits.

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

In March, 1993, the EPA adopted the regulations under the Clean Water Act
of 1987 (40 CFR 503) which regulate methods for the disposal and use of
biosolids. These regulations address the issues of treating biosolids generated
from the treatment of domestic sewage and septage and the subsequent disposition
of treated biosolids. These regulations establish biosolid use and disposal
standards applicable to approximately 35,000 public and privately owned
wastewater treatment plants in the United States, including approximately 12,750
Public Owned Treatment Works (POTWs). Under these regulations, biosolids may be
disposed of in municipal solid waste landfills approved under Subtitle D of the
Resource Conservation and Recovery Act ("RCRA"), or may be surface disposed,
incinerated or land applied for beneficial use in accordance with the
requirements established by regulations. These regulations have required
compliance with the new standards since February 19, 1995.

Land application regulations apply to generators (sources) of biosolids,
persons who treat the biosolids or apply treated biosolids to land and persons
who own the land to which the treated biosolids is applied. Uses for land
application include agricultural land, non-agricultural land (forest, range
lands) public contract sites (parks and golf courses), disturbed land
reclamation (mines and gravel pits) and home gardens.

Any biosolids used for land application must meet one of two sets of
standards established by the EPA for pollutant limits. The first set
establishes the maximum concentrations for ten pollutants in biosolids which may
be applied to the land for beneficial use. The second set establishes the
maximum concentration levels for the same ten pollutants which would allow
virtually unlimited use of the biosolids. The second set also constitutes the
pollutant concentrations, which when combined with Class A pathogen reduction
and certain levels of vector (i.e. pests, such as insects and rodents)
attraction reduction, form the definition for "Exceptional Quality Biosolids."
This term is used to designate sludge or sludge products which can be used
beneficially on the land without limitations and without site restrictions.

There are two standards of pathogen reduction. These standards are
classified as Class A or Class B. The standard of classification of biosolids
as Class A or Class B is based on pathogen levels in the treated biosolids.
Biosolids which meet the Class A standards for pathogen reduction and certain
standards for reduction of attraction to vectors and meet the lower pollutant
levels of the Exceptional Quality biosolids may be applied to a site (which does
not require a permit for disposal) without the need for further monitoring under
EPA regulations. However, biosolids which do not meet the Exceptional Quality
standards, but which otherwise meet the Class A or Class B standards of pathogen
reduction and other less strict standards for pollutant control and vector
attraction, may only be applied to sites which have obtained governmental
permits for such deposit, and further, are subject to continuous monitoring and
detailed record keeping with respect to the monitoring of the site, including
the limitation of crop growing and grazing on such sites for specified periods
of time after land application of the biosolids, and the continued monitoring of
record keeping for the disposal site.

<PAGE>

Class A pathogen reduction and vector attraction reduction requires
treating sludge to meet certain levels for indicator bacteria (such as fecal
coliform or salmonella). To meet the Exceptional Quality standard, sludge must
be treated with one of several alternative methods. These methods include heat
disinfection, alkaline stabilization, specialized laboratory testing and
composting. Sludge which meets the Exceptional Quality standard does not impose
ongoing site management restrictions.

The N-Viro Process, including the mixing of alkaline products (CKD or lime)
with dewatered sludge, with the effect of a heating and pasteurization process,
and the windrowing (turning of material for air drying) and drying of the
mixture creates a form of treated sludge, the N-Viro Soil, which the Company
believes meets the EPA Exceptional Quality requirements.

In January, 1988, N-Viro Energy received correspondence from the EPA to the
effect that the EPA's Pathogen Equivalency Committee had received materials
provided to the EPA by N-Viro Energy requesting the existing Process to Further
Reduce Pathogens (PFRP) equivalency determination with respect to the N-Viro
Process. The EPA advised N-Viro Energy that such committee found the
Alternative #2 process to be equivalent to a PFRP under the existing EPA
regulations. The committee also found that an alternative process, when
conducted in temperatures above the mean of 5 degrees C for the first seven (7)
days of treatment, was considered equivalent to a PFRP under the then existing
EPA regulations. However, the committee further stated until sufficient data
was presented to the committee that demonstrated that such process was effective
in temperatures below those described above, such process did not qualify as
equivalent to a PFRP. The Company does not actively market such alternative
process and does not currently intend to market this alternative in the
foreseeable future. Although this finding was made under the former EPA
regulations, which have subsequently been modified under the recently published
40 CFR 503 regulations, the Company believes that, assuming the use of the
N-Viro Process with biosolids and alkaline admixtures which do not exceed
permitted pollutant control levels, such processes continue to meet the
standards of the current EPA regulations. However, since the EPA has not
specifically tested the N-Viro Process under the standards imposed by the
current 40 CFR 503 regulations, there can be no assurances that biosolids
treated using the N-Viro Process will satisfy the Exceptional Quality standard.

CERCLA imposes strict, joint and several liability upon owners and
operators of facilities where a release of hazardous substances has occurred,
upon parties who generated hazardous substances that were released at such
facilities and upon parties who arranged for the transportation of hazardous
substances to such facilities. The Company believes that the N-Viro Process
poses little risk of releasing hazardous substances into the environment which
could result in liability under CERCLA. 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 the N-Viro Process and alternative treatment methods
and reviewing incineration and other permits held by the entities from whom
alkaline admixtures are obtained.

The Company currently maintains environmental impairment liability
insurance in the amount of $6,000,000. The Company could be materially
adversely affected by a claim that is only partially covered by liability
insurance.

<PAGE>

In February, 1993, the EPA reported that 42 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 and 41 states have set restrictions on the growing of crops on soil to
which such biosolids have been applied. These state regulations typically
require an N-Viro facility to obtain a permit for the sale of N-Viro Soil for
agricultural use, and may require a site-specific permit by the user of N-Viro
Soil. In addition, in some jurisdictions, state and/or local authorities have
imposed permit requirements for, or have prohibited, the land application or
agricultural use of biosolid products, including Exceptional Quality biosolids
product permits. 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.

In addition, many states enforce landfilling restrictions for nonhazardous
biosolids. Although states have not set maximum pollutant concentrations for
biosolids that are landfilled, the EPA reported in February, 1993 that 31 states
have some site restrictions or other management practices governing landfills.
These regulations typically require a permit to sell or use biosolid products as
landfill cover material. There can be no assurances that N-Viro facilities or
landfill operators will be able to obtain required permits.

MARKETABLE END PRODUCTS

The N-Viro Process provides the benefit of recycling otherwise perceived as
valueless and undesirable waste products, such as sludge and by-product alkaline
materials, into N-Viro Soil. This end product may be marketed as soil
conditioners or topsoil substitutes and for landfill cover materials. The
N-Viro Process has been marketed and licensed by N-Viro International in the
United States and on an international basis. However, the Company has generated
nominal revenues from the sale of N-Viro Soil.

The Company must receive a general permit from a governmental agency which
provides approval for the applicable treatment of the biosolids to the
Exceptional Quality standards under EPA regulations in order to produce N-Viro
Soil or any other Exceptional Quality biosolid on a particular landsite.
Biosolids which meet the Exceptional Quality standards may be applied outside of
a permitted site, whereas biosolids which do not meet the EPA Exceptional
Quality standards may only be applied to specifically permitted disposal or
application sites. The Company believes that N-Viro Soil, produced according to
the N-Viro Process specifications, meets the EPA's Exceptional Quality
standards, and has a potentially larger market for its beneficial use than the
non-Exceptional Quality biosolids which are subject to more stringent
regulations of disposal, monitoring and record keeping. For the Company to be
able to market the product using the N-Viro Soil name, the product must meet
N-Viro Energy's specifications for the N-Viro Process. However, the Company has
generated nominal revenues from sales of N-Viro Soil products. There can be no
assurances that the Company will be able to generate significant revenues from
the marketing of the N-Viro Process.

The Company currently operates a facility on a 40 acre site in Hockley,
Texas which utilizes the N-Viro Process and other ancillary treatment processes.
CDR has received a permit for a processing site permit from the State of Texas,
which will allow the Company to market N-Viro Soil and other Exceptional Quality
biosolids to customers for use, without restriction, as end products such as
soil conditioners, topsoil substitutes and for landfill cover materials. The
Company currently stores the finished N-Viro Soil at its treatment facility in
Hockley, Texas. There can be no assurances that there will be a market for the
N-Viro Soil product. Further, there can be assurances that any other states in
the Territories will issue permits to allow the marketing of the N-Viro Soil in
such Territories.

<PAGE>

N-Viro International currently has obtained product liability insurance for
N-Viro Soil in the amount $5,000,000. This insurance coverage provides coverage
for property damage and injuries to persons arising out of N-Viro Soil produced
by N-Viro facilities operating throughout the world. Although the Company is
insured under this policy with respect to N-Viro Soil, the Company does not
currently carry its own product liability insurance. There can be no assurances
that N-Viro International will continue to carry such coverage or that the
Company will be able to obtain its own product liability insurance coverage with
respect to the N-Viro Soil.

The Company also markets wood waste by-products on a wholesale basis to
poultry growers and building materials manufacturers through the operations of
Organi-Gro.

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 process promotion targets for the
treatment of biosolids, including municipal sludge, poultry and wood wastes,
are: (i) government personnel (municipal, county and state); (ii) POTW
operators, landfill operators; (iii) politicians; (iv) consulting engineers and
construction contractors; (v) equipment and building products manufacturers and
distributors; (vi) the agricultural and horticultural industry; (vii)
transportation service companies; and (viii) the public.

The Company provides services, through the operations of CDR, for the
treatment of biosolids, including the transportation of municipal sludge, and
providing monitoring and assistance services in compliance with governmental
regulatory provisions. The Company primarily markets methods of biosolids
processing and beneficial use for customers who prefer to use processing methods
which may produce non-Exceptional Quality biosolids, particularly because the
Company's business operations are located in states where there exists
significant amounts of open land for land application.

The Company also provides services, through the operations of Organi-Gro,
for the treatment of wood and poultry waste products and the marketing of waste
by-products. Organi-Gro primarily markets wood-based by-products for resale to
poultry growers and building materials manufacturers.

The Company provides services related to the N-Viro Process in the states
of Arkansas, Louisiana and Texas and continues to market the N-Viro Process in
the Territories. The Company also shares a royalty based on the volume of
biosolids processed in the Territories with N-Viro International and the
Company's sublicensees. However, the Company has generated nominal revenues
through sales of the N-Viro Process as of June 30, 1996. There can be no
assurances that the Company will generate significant revenues from the
marketing of the N-Viro Process.

BONDING REQUIREMENTS

Commercial, federal, state and municipal projects, often require
contractors to post both performance and payment bonds at the execution of a
contract. Performance bonds guarantee that the project will be completed and
payment bonds guarantee that vendors will be paid for equipment and other
purchases. 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 it should be assumed that the Company will continue to be
required to obtain such bonds in the future, particularly with government
contracts. The Company obtains required bonds on a case-by-case basis, as
needed, and has experienced problems in obtaining necessary bonds for large
projects. As of October 15, 1996, the Company had a bonding capacity of
approximately $10,000,000, with $1,050,000 being utilized as of such date, which
management believes is sufficient to meet bonding needs for the foreseeable
future. However, the Company could experience such difficulties in the future
if the total amount of the bonds then outstanding against the Company exceeds
the

<PAGE>

limits imposed by bonding companies based on the financial condition of the
Company at the time. Bonds typically cost between 1 and 3 percent of the cost
of a project. To date, no payments have been made by any bonding company for
bonds issued for the Company.

COMPETITION

The Company provides a variety of services relating to the treatment of
biosolid waste materials, including municipal sludges and wood and poultry
wastes. The Company is in direct and indirect competition with other
businesses, some of which are larger, more firmly established and have greater
capital resources. Many of these competitors provide aspects of the services
provided by the Company, and a few competitors provide a broader number of
services. These companies market processes which may meet or exceed the
Exceptional Quality standards utilized in the N-Viro Process.

Since November, 1992, the Company has engaged in a business plan of the
acquisition of privately held companies which provide varieties and alternative
methods for the treatment and processing of biosolids, including the
acquisitions of Pima Gro, CDR, Thone Brothers, Organi-Gro and Childers Brothers.
This business plan has enabled the Company to offer alternative treatment
methods to the N-Viro Process and to diversify the Company's services to
prospective customers. There can be no assurances that the Company will be
able to achieve and maintain a competitive position.

Management of the Company believes that the full range of treatment
services provided by the Company provides a competitive advantage over other
entities which offer a lesser variety of services.

The Company's biosolids waste treatment division competes principally
through offering quality services at competitive prices. These methods are
enhanced by the Company's ownership of facilities and trucks and equipment
utilized in the delivery of the Company's services, which allow the Company to
maintain costs and quality controls over its services.

Although the Company has generated nominal revenues from the marketing of
the Company's licensing and agency rights to the N-Viro Process and by providing
treatment services related to the N-Viro Process through CDR, management of the
Company believes that the N-Viro Process has advantages to existing and
potential competitive processes for management of biosolids. The Company
believes that the N-Viro Process offers several advantages over other treatment
methods of biosolids, such as lower construction and operating costs for an
N-Viro facility, and N-Viro Soil, which the Company believes is an Exceptional
Quality biosolid product with multiple uses. Nevertheless, other processes may
meet with greater marketing success than the N-Viro Process. In addition, many
municipalities and other potential licensees may have already made significant
capital expenditures to implement competing processes and may be unwilling to
abandon such projects. However, the Company has had limited success from the
marketing of the N-Viro Process. There can be no assurances whether any
competing treatment process will be more or less successful than the N-Viro
Process or any alternative treatment methods offered by the Company. Further,
the development of new technologies, cost reductions or improvements in existing
technologies, may make the Company's N-Viro Process non-competitive or obsolete.

<PAGE>

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.

In connection with the Company's agency distributorship and license
agreements with N-Viro International, the Company has obtained the rights to
market and use N-Viro International's current and future trade secrets,
technical processes and information and know-how related to the N-Viro
Technology, including certain United States patents and processes relating to
the N-Viro Technology owned by N-Viro International, and the rights to use the
trademark "N-Viro A.A.," in the licensed territories.

There can be no assurances as to the range or degree of protection any
patent or registration which may be licensed by the Company will afford, that
such patents or registrations will provide any competitive advantages for the
Company, or that others will not obtain patents or registrations similar to any
patents or registrations licensed by the Company. There can be no assurances
that any current or future patents or registrations licensed by the Company will
not be challenged by third parties, invalidated, rendered unenforceable or
designed around, or that the Company's competitors will not independently
develop technologies which are substantially equivalent or superior to the
technologies licensed by the Company and which do not infringe patents or
proprietary rights of the Company.

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 October 21, 1996, the Company had approximately 138 full-time
employees, including 52 employees in the Company's Texas offices and 86 in the
Company's Arkansas offices. These employees include two (2) executive officers
and one (1) non-executive officer, five (5) operations managers, two (2)
environmental specialists, fourteen (14) maintenance personnel, forty-seven (47)
drivers, nine (9) general operations employees, sixteen (16) clerical/support
staff members, thirty-seven (37) agricultural field crew employees, and five (5)
sales members. The Company intends to hire additional personnel as the
development of the Company's business makes such action appropriate. The loss
of the services of key employees could have a material adverse effect on the
Company's business. Since there is intense competition for qualified personnel
knowledgeable of the Company's industry, no assurances can be given that the
Company will be successful in retaining and recruiting needed personnel.

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

PROPERTIES

The Company currently leases approximately 3,700 square feet of office
space located at 16000 Stuebner Airline, Suite 420, Spring, Texas 77379. This
facility serves as the Company's principal place of business. The Company pays
approximately $3,100 per month on a lease expiring in January, 2001. The
Company also leases additional facilities on a 430 acre site in Hockley, Texas
under a five (5) year lease with a current monthly rental payment of $5,000.

<PAGE>

The Company owns a 35 acre farm in Maysville, Arkansas with a 130,000
square foot composting facility for the processing of biosolids. The Maysville
site is subject to a note secured by a deed of trust in the amount of
approximately $1,000,000 held by an unaffiliated third party, with the
underlying loan personally guaranteed by Don Thone. The Company also owns two
(2) acres of land in Russellville, Arkansas with a 4,200 square foot office
building which serves as the Company's Arkansas division facilities. The
Company also owns eighty (80) acres of land in Dardenelle, Arkansas on which the
Company has approximately 144,000 gallons of storage facilities for biosolids.

The Company owns an eleven (11) acre property located in Clarksville,
Arkansas which serves as a wood shaving mill facility. The Company also leases
a three (3) acre property in Clarksville, Arkansas, on which the Company has a
3,500 square foot warehouse building. The lease on this property expires in
July, 2000, and the Company pays rent of $300 per month on the property.

The Company owns a seven (7) acre property in Russellville, Arkansas which
serves as the corporate headquarters for Organi-Gro. The property has a 4,000
square foot office facility, a 10,000 square foot 8-bay truck stop and mechanic
shop and a 5,000 square foot warehouse used for the storage of poultry bedding
products.

The Company leases a five (5) acre property in Ozark, Arkansas, at an
annual rent of $2,400, which lease expires in July, 1997. The Company also owns
an eight (8) acre property in Huntsville, Arkansas, a three and one-half acre
property in Neosho, Missouri and a ten (10) acre property in Tonitown, Arkansas,
and leases a one acre property in Baxter Springs, Kansas. Each of these
properties is primarily used for the storage and distribution of poultry bedding
products.

The Company also leases a 5,600 square foot facility in Redlands,
California as a corporate office for the operations of Pima Gro. The Company
pays a monthly rent of $2,800 on the lease which expires in February, 2000. The
Company also leases additional facilities which are used as truck maintenance
yards in California, Arizona and Maryland in connection with the operations of
Pima Gro.

LEGAL PROCEEDINGS

On January 5, 1996, GFL Ultra Fund, Ltd. ("Ultra"), GFL Advantage Fund,
Ltd. ("Advantage") and Genesee Service Corporation ("Service") (collectively,
"Plaintiffs") filed an action against the Company in the United States District
Court for the Western District of Washington. On May 1, 1996, the action was
transferred to the United States District Court for the Southern District of
Texas (Case No. H-96-1458). On or about September 13, 1996, Plaintiffs filed a
Third Amended Complaint ("Complaint") for Securities Fraud, Violations of State
Securities Act, Breach of Contract, Negligent Misrepresentation, Constructive
Trust, Civil Conspiracy and Tortious Interference with a Contract and/or
Business Relationship against the Company and an unaffiliated corporate entity
and its principal. The Complaint seeks damages on behalf of Ultra in an
unspecified amount, representing the amount Ultra allegedly lost as a result of
its investment with the Company, and damages as prescribed by State Securities
Acts. It also seeks consequential damages in the unspecified amount on behalf
of Ultra and Service, and damages on behalf of Service for tortious
interference. The Complaint seeks the sum of $600,000, together with interest
thereon and proceeds therefrom, on behalf of Advantage. It also seeks costs,
including attorneys' fees.

<PAGE>

On or about July 19, 1994, the Company and Ultra entered into a
Subscription Agreement ("Subscription Agreement"), whereby Ultra agreed to pay
the Company $2,400,000 for 2 units of the Company's securities, each unit
consisting of 223,776 shares of the Company's common stock and a convertible
promissory note in the principal amount of $900,000, bearing interest at the
rate of 9.5% per annum and convertible into shares of common stock on the terms
and conditions set forth therein. Ultra delivered the first payment of
$1,200,000 to the Company on or about July 19, 1994, and the Company issued to
Ultra a first convertible promissory note in the amount of $900,000 ("First
Note") and 223,776 shares of its common stock pursuant to the exemption provided
by Regulation S to the Securities Act. Ultra delivered the second payment of
$1,200,000 to the Company on or about August 11, 1994, and the Company issued to
Ultra a second convertible promissory note in the amount of $900,000 ("Second
Note") and 223,776 shares of its common stock pursuant to the exemption provided
by Regulation S to the Securities Act. These transactions were entered into
with Ultra based upon its representations that it was not a U.S. Person under
Regulation S and the Company's belief that the transactions were exempt from
registration under the Securities Act pursuant to Regulation S based upon said
representations. The same is true as to Ultra's conversion of portions of these
notes into common stock of the Company prior to December, 1995. However, the
Company then received information that U.S. Persons claim to be investors in
Ultra and that Ultra may be a U.S. Person under Regulation S and not qualified
under the exemption. Based thereon, the Company has refused to issue Ultra
unrestricted certificates for the shares of the Company's common stock which
have been issued to Ultra as a result of its conversion of portions of said
notes since December, 1995, and, as a result thereof, this proceeding was
instituted. On or about January 8, 1996, the Company delivered to Ultra a check
in the amount of approximately $1,276,000 as full and final payment of the
balance due on the First and Second Notes, together with accrued interest
thereon. The damages sought by Ultra allegedly result from the Company's
placing on the converted shares the restrictive legend which impairs Ultra's
ability to market the shares.

It is the Company's position that in or about July, 1995, Ultra agreed to
loan the Company the additional sum of $600,000 in exchange for a promissory
note in said amount and 540,000 (pre-reverse stock split) common stock purchase
warrants exercisable into shares of the Company's common stock. The Company
contends that pursuant thereto, Ultra delivered the $600,000 on or about July
28, 1995, and the Company issued to Ultra a promissory note ("Third Note") in
the amount of $600,000, and a warrant certificate for the warrants. The
Complaint alleges that the $600,000 delivered to the Company belonged to
Advantage, not Ultra, and was an unauthorized transfer. The Complaint seeks to
impose a constructive trust upon said funds and to obtain the return thereof,
including interest and any proceeds therefrom. The Company does not dispute the
obligation to repay these funds, but contends that said repayment of the
principal amount is not due until January 31, 1997, pursuant to the terms of the
Third Note. On or about February 2, 1996, Genesee International Inc., as fund
manager for Ultra, gave the Company notice of default and made demand on the
Company for payment of the quarterly interest installment due on the Third Note
on January 31, 1996. The Company believes this is completely inconsistent with
the allegations of the Complaint and confirms its position with respect to the
Third Note. The Company made payment of the January 31, 1996 quarterly interest
installment within the cure period in accordance with the Third Note.

<PAGE>

The Company denies any liability in connection with these transactions,
other than the obligation to repay the $600,000 loan, together with interest
thereon, pursuant to the terms of the Third Note. On or about October 8, 1996,
the Company filed an answer and counterclaim, denying liability as set forth
above, and raising affirmative defenses. The counterclaim seeks damages in an
unspecified amount against Ultra for violation of the Securities Exchange Act
and fraud. It also seeks declaratory relief against Ultra for a finding that
the Company has made payment of the First and Second Notes in full, that its
obligations pursuant to the First and Second Notes and the Subscription
Agreement have been fully performed and that the First and Second Notes be
declared canceled. Finally, it seeks declaratory relief against Ultra and
Advantage for a finding that the Third Note was issued in consideration of the
$600,000 loan, that the Company has performed all of its obligations pursuant
thereto and that the principal balance, plus accrued interest thereon, is not
due and payable until January 31, 1997, pursuant to the terms of the Third Note.
The Company intends to vigorously pursue defense of this action and prosecution
of its counterclaims if a settlement cannot be reached. There can be no
assurances as to the resolution of this matter.

On October 11, 1995, Sabino Cortez and Roy Lister, the former owners of the
Agkone technology, who sold their interests in the Agkone technology in
connection with the Company's acquisition of Agkone in April, 1994, filed an
action against the Company in the District Court of Erath County, Texas. The
plaintiffs have asserted claims against the Company for damages alleged to have
been sustained following the completion of the acquisition, including, but not
limited to the alleged failure of the Company to issue certificates for shares
in connection with the transaction and to comply with certain provisions of the
letter of intent between the parties executed prior to the completion of the
transactions. Management believes that the Company has valid defenses to all of
these claims and intends to defend this action vigorously. However, there can
be no assurances as to the resolution of this matter.

Except as set forth above, the Company knows of no material legal actions,
pending or threatened, or judgments entered against the Company or any officer
or director of the Company in his capacity as such.

<PAGE>

MANAGEMENT

The directors of the Company currently have terms which will end at the
next annual meeting of the stockholders of the Company or until their successors
are elected and qualified, subject to their prior death, resignation or removal.
Officers serve at the discretion of the Board of Directors. There are no family
relationships among any of the Company's directors and executive officers.

The following table sets forth certain information concerning the members
of the Board of Directors and the current executive officers of the Company:

NAME POSITION AGE
---- -------- ---

Don L. Thone Director and Chief 49
Executive Officer

Daniel L. Shook Director, Chief Financial Officer,
Secretary and Vice President of Finance 43

Irwin I. Gelbart Director 59

Tony D. Childers Director 47

DON L. THONE has been a director of the Company since July, 1993 and Chief
Executive Officer of the Company since January, 1994. He was the President of
the Company's Organi-Gro subsidiary from July, 1993 until November 30, 1994.
Mr. Thone was a co-owner of Organi-Gro since its inception in 1990 until its
acquisition by the Company as well as co-owner and president of Thone Brothers
from 1984 until its acquisition by the Company and merger into CDR. In
addition, from 1983 to 1990, he served as owner and manager of River Valley
Propane, Inc. Mr. Thone received his Masters of Education in 1975 from
Northeastern State University and a Bachelor's of Science from Arkansas Tech
University in 1970. From 1985 to 1989, he served on the Arkansas Liquified Gas
Board by appointment of then Governor Bill Clinton.

DANIEL L. SHOOK has been a director and the Chief Financial Officer and
Vice President of Finance of the Company since March, 1996 and Secretary of the
Company since October 8, 1996. Mr. Shook served as the Vice President-Finance
and Chief Financial Officer of U.S. Zinc Corp, a multi-state manufacturer from
December, 1994 until January, 1996. He served as the Vice President-Finance,
Chief Financial Officer and Treasurer of Gundle Environmental Systems, Inc., a
public company which manufactured and installed HDPE liners at sanitary and
hazardous landfills, from 1986 to December, 1994. Mr. Shook received a BBA
degree in accounting from Ferris State University in 1977 and has been a
certified public accountant since 1980.

IRWIN I. GELBART has been a director of the Company since December, 1991.
Mr. Gelbart currently serves as Vice President of Fed Met Stainless & Alloys
Corporation, a distributor of flat rolled stainless steel products, and a
subsidiary of Federal Industries, a publicly traded company based in
Mississauga, Canada. From 1991 to November, 1994, Mr. Gelbart served as Vice
President/General Manager of Samuel Stainless Rolled Products division of
Samuel-Whittar, Inc., distributors and a service center for flat rolled steel
products, which division is responsible for the distribution and purchasing of
stainless flat rolled products in the domestic and international markets. From
1987 to 1991, he served as General Manager of ELG Haniel Trading Corporation, a
distributor of flat rolled steel products in Inwood, New York. From 1966 to
1987, he founded and has served as President of GSI Trading Corporation (New
York) and Stainless International, Inc. (Pennsylvania), during which he
developed an international and domestic marketing network for stainless steel
and carbon steel flat rolled products. From 1975 to the present, he founded and
has served as a director of

<PAGE>

Dai Ichi Metal Co., Ltd., Hong Kong, which distributes flat rolled steel
products to the People's Republic of China. Mr. Gelbart received a Bachelor's
Degree in International Economics from the Baruch School of Business (New York)
in 1965.

TONY D. CHILDERS has been a director of the Company since November 30,
1994. Mr. Childers was the owner of Childers Brothers since its inception in
1979 until its acquisition by the Company in October, 1994. Mr. Childers was
also a director and principal stockholder of Hodges, Thompson and Zeiler prior
to their acquisition by the Company in October, 1994.

<PAGE>

COMPENSATION OF
EXECUTIVE OFFICERS AND DIRECTORS

SUMMARY COMPENSATION TABLE

The following table sets forth certain information concerning compensation
of certain of the Company's executive officers, including the Company's Chief
Executive Officer and all executive officers whose total annual salary and bonus
exceeded $100,000, for the years ended December 31, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
Summary Compensation Table

- ---------------------------------------------------------------------------------------------------------------------------------
Annual Compensation Long Term Compensation
---------------------------------- ----------------------------------
Awards Payouts
- ---------------------------------------------------------------------------------------------------------------------------------

Name Restricted Securities
principal Other annual stock underlying LTIP All other
position Year Salary Bonus compensation award(s) Options/SARs payouts compensation
($) ($) (#) ($) ($)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Don L. Thone1 1995 $128,846 0 0 0 246,296 0 0
1994 $ 99,692 0 0 0 0 0 0

Tony D. Childers 1995 $100,000 0 0 0 0 0 0

- ---------------------------------
</TABLE>
1. Mr. Thone was named as the Company's Chief Executive Officer in
January, 1994. He has been a director of the Company since July, 1993 and was
the President of the Company's Organi-Gro, Inc. subsidiary from July, 1993 until
November 30, 1994.

<PAGE>

OPTION/SAR GRANTS TABLE

The following table sets forth certain information concerning grants of
stock options to certain of the Company's executive officers, including the
Company's Chief Executive Officer and all executive officers whose total annual
salary and bonus exceeded $100,000, for the year ended December 31, 1995:
<TABLE>
<CAPTION>
Potential
Realizable Value at
Assumed Annual
Rates of Stock Price
Appreciation
Individual Grants For Option Term1
- ------------------------------------------------------------------------------------------------------------------------------------
Number of % of
Securities Total
Underlying Options/
Options/ SARs Exercise
SARs Granted to or Base
Granted Employees Price Expiration
Name (#) in Fiscal Year ($/Share) Date 5% ($) 10%($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Don L. Thone 2 245,900 92% $2.00 3 5/19/00 $105,737 $228,687
396 4 $10.80 5/19/00 0 0

- --------------------------
</TABLE>
1. This chart assumes a market price of $2.00 for the Common Stock with
respect to determining the "potential realizable value" of the shares of Common
Stock underlying the options described in the chart, and gives effect to any
reduction for the payment of the exercise price for such option. Further, the
chart assumes the annual compounding of such assumed market price over the
relevant periods, without giving effect to commissions or other costs or
expenses relating to potential sales of such securities.

2. Mr. Thone was named as the Company's Chief Executive Officer in
January, 1994. He has been a director of the Company since July, 1993 and was
the President of the Company's Organi-Gro, Inc. subsidiary from July, 1993 until
November 30, 1994.

3. The exercise price of these options was reduced from $10.80 to $2.00
per share in March, 1996. See "Certain Relationships and Related Transactions."

4. Less than 1%.

<PAGE>

EMPLOYMENT AGREEMENTS

As of May 26, 1995, and as amended as of June 10, 1996, the Company entered
into a five (5) year employment agreement with Don L. Thone, pursuant to which
the Company has agreed to pay Mr. Thone an annual base salary of $150,000, plus
other benefits. The Company also granted options to Mr. Thone to purchase up to
246,296 shares of Common Stock in connection with his employment agreement,
179,629 of which are currently vested. As of January 29, 1996, the Company
entered into a five (5) year employment agreement with Daniel Shook, pursuant to
which the Company has agreed to pay Mr. Shook an annual base salary of $125,000,
plus other benefits. The Company also granted options to Mr. Shook to purchase
up to 125,000 shares of Common Stock in connection with his employment
agreement, 41,666 of which are currently vested. As of October 1, 1994,
Organi-Gro entered a five (5) year employment agreement with Tony D. Childers,
pursuant to which Organi-Gro has agreed to pay Mr. Childers an annual base
salary of $100,000, plus other benefits. These employees will also be entitled
to participate in stock option and bonus plans which may be adopted by the
Company for officers and directors of the Company and its subsidiaries. In the
event of their involuntary termination other than for cause or certain other
circumstances, they will be entitled to receive the unpaid balance of their
salary for the remaining term of the agreement.

RESTATED STOCK OPTION PLAN

As of March 7, 1996, the Company's Board of Directors approved an Amended
and Restated 1993 Stock Option Plan (the "Restated Stock Option"), which was
approved by the stockholders of the Company as of June 28, 1996.

The Company has reserved for issuance thereunder an aggregate of 540,000
shares of Common Stock. The Restated Stock Option Plan provides for the grant
to employees of the Company of incentive stock options within the meaning of
Section 422 of the Code, and for the grant to employees and consultants of
nonstatutory stock options.

The Restated Stock Option limits the number of shares that can be granted
to any one individual in any fiscal year to 125,000 shares.

A description of the Restated Stock Option Plan is set forth below. The
description is intended to be a summary of the material provisions of the
Restated Stock Option Plan and does not purport to be complete.

GENERAL. The general purposes of the Restated Stock Option Plan are to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to employees and consultants of
the Company and to promote the success of the Company's business. It is
intended that these purposes will be effected through the granting of stock
options, which may be either "incentive stock options" as defined in Section 422
of the Code, or nonstatutory stock options.

The Restated Stock Option Plan provides that options may be granted to the
employees (including officers and directors who are employees) and consultants
of the Company, or of any parent or subsidiary of the Company. Incentive stock
options may be granted only to employees. An employee or consultant who has
been granted an option may, if otherwise eligible, be granted additional
options.

The Company has granted options to purchase 9,167 shares of Common Stock
under the Restated Stock Option Plan. Of the 9,167 options granted as of the
date of this Prospectus, 7,244 options have vested as of such date, and the
remaining 1,923 options may vest subject to certain schedules.

<PAGE>

These options have been previously granted by the Board of Directors at
exercise prices which the Company believes to have been determined at the fair
market value of the Company's Common Stock as of the date of grant, and are to
be granted pursuant to the Restated Stock Option Plan.

ADMINISTRATION OF AND ELIGIBILITY UNDER RESTATED STOCK OPTION PLAN. The
Restated Stock Option Plan, as adopted, provides for the issuance of options to
purchase shares of Common Stock to officers, directors, employees, independent
contractors and consultants of the Company and its subsidiaries as an incentive
to remain in the employ of or to provide services to the Company and its
subsidiaries. The Restated Stock Option Plan authorizes the issuance of
incentive stock options ("ISOs"), non-qualified stock options ("NSOs") and stock
appreciation rights ("SARs") to be granted by a committee (the "Committee") to
be established by the Board of Directors to administer the Restated Stock Option
Plan, which will consist of at least two outside directors of the Company.

Subject to the terms and conditions of the Restated Stock Option Plan, the
Committee will have the sole authority to determine: (a)the persons
("optionees") to whom options to purchase shares of Common Stock and SARs will
be granted, (b) the number of options and SARs to be granted to each such
optionee, (c) the price to be paid for each share of Common Stock upon the
exercise of each option, (d) the period within which each option and SAR will be
exercised and any extensions thereof, and (e) the terms and conditions of each
such stock option agreement and SAR agreement which may be entered into between
the Company and any such optionee.

All officers, directors and employees of the Company and its subsidiaries
and certain consultants and other persons providing significant services to the
Company and its subsidiaries will be eligible to receive grants of options and
SARs under the Restated Stock Option Plan. However, only employees of the
Company and its subsidiaries are eligible to be granted ISOs.

STOCK OPTION AGREEMENTS. All options granted under the Restated Stock
Option Plan will be evidenced by an option agreement or SAR agreement between
the Company and the optionee receiving such option or SAR. Provisions of such
agreements entered into under the Restated Stock Option Plan need not be
identical and may include any term or condition which is not inconsistent with
the Restated Stock Option Plan and which the Committee deems appropriate for
inclusion.

INCENTIVE STOCK OPTIONS. Except for ISOs granted to stockholders
possessing more than ten percent (10%) of the total combined voting power of all
classes of the securities of the Company or its subsidiaries to whom such
ownership is attributed on the date of grant ("Ten Percent Stockholders"), the
exercise price of each ISO must be at least 100% of the fair market value of the
Company's Common Stock as determined on the date of grant. ISOs granted to Ten
Percent Stockholders must be at an exercise price of not less than 110% of such
fair market value.

Each ISO must be exercised, if at all, within ten (10) years from the date
of grant, but, within five (5) years of the date of grant in the case of ISO's
granted to Ten Percent Stockholders.

An optionee of an ISO may not exercise an ISO granted under the Restated
Stock Option Plan so long as such person holds a previously granted and
unexercised ISO.

The aggregate fair market value (determined as of time of the grant of the
ISO) of the Common Stock with respect to which the ISOs are exercisable for the
first time by the optionee during any calendar year shall not exceed $100,000.

<PAGE>

NON-QUALIFIED STOCK OPTIONS. The exercise price of each NSO will be
determined by the Committee on the date of grant. The Company hereby undertakes
not to grant any non-qualified stock options under the Restated Stock Option
Plan at an exercise price less than 85% of the fair market value of the Common
Stock on the date of grant of any non-qualified stock option under the Restated
Stock Option Plan.

The exercise period for each NSO will be determined by the Committee at the
time such option is granted, but in no event will such exercise period exceed
ten (10) years from the date of grant.

STOCK APPRECIATION RIGHTS. Each SAR granted under the Restated Stock
Option Plan will entitle the holder thereof, upon the exercise of the SAR, to
receive from the Company, in exchange therefor, an amount equal in value to the
excess of the fair market value of the Common Stock on the date of exercise of
one share of Common Stock over its fair market value on the date of exercise of
one share of Common Stock over its fair market value on the date of grant (or in
the case of an SAR granted in connection with an option, the excess of the fair
market of one share of Common Stock at the time of exercise over the option
exercise price per share under the option to which the SAR relates), multiplied
by the number of shares of Common Stock covered by the SAR or the option, or
portion thereof, that is surrendered.

SARs will be exercisable only at the time or times established by the
Committee. If an SAR is granted in connection with an option, the SAR will be
exercisable only to the extent and on the same conditions that the related
option could be exercised. The Committee may withdraw any SAR granted under the
Restated Stock Option Plan at any time and may impose any conditions upon the
exercise of an SAR or adopt rules and regulations from time to time affecting
the rights of holders of SARs.

TERMINATION OF OPTION AND TRANSFERABILITY. In general, any unexpired
options and SARs granted under the Restated Stock Option Plan will terminate:
(a) in the event of death or disability, pursuant to the terms of the option
agreement or SAR agreement, but not less than six (6) months or more than twelve
(12) months after the applicable date of such event, (b) in the event of
retirement, pursuant to the terms of the option agreement or SAR agreement, but
no less that thirty (30) days or more than three (3) months after such
retirement date, or (c) in the event of termination of such person other than
for death, disability or retirement, until thirty (30) days after the date of
such termination. However, the Committee may in its sole discretion accelerate
the exercisability of any or all options or SARs upon termination of employment
or cessation of services.

The options and SARs granted under the Restated Stock Option Plan generally
will be non-transferable, except by will or the laws of descent and
distribution.

ADJUSTMENTS RESULTING FROM CHANGES IN CAPITALIZATION. The number of shares
of Common Stock reserved under the Restated Stock Option Plan and the number and
price of shares of Common Stock covered by each outstanding option or SAR under
the Restated Stock Option Plan will be proportionately adjusted by the Committee
for any increase or decrease in the number of issued and outstanding shares of
Common Stock resulting from any stock dividends, split-ups, consolidations,
recapitalizations, reorganizations or like event.

AMENDMENT OR DISCONTINUANCE OF STOCK OPTION PLAN. The Board of Directors
has the right to amend, suspend or terminate the Restated Stock Option Plan at
any time. Unless sooner terminated by the Board of Directors, the Restated
Stock Option Plan will terminate on February 16, 2003, the tenth (10th)
anniversary date of the effectiveness of the Restated Stock Option Plan.

<PAGE>

COMPENSATION OF DIRECTORS

The Company currently grants to its directors, options to purchase up to
133 shares of Common Stock for each meeting of the Board of Directors which they
attend (up to 1,333 options), and reimburses directors for travel expenses
incurred by directors for the benefit of the Company. The Company has obtained
directors' and officers' liabilities insurance with a $1,000,000 limit of
liability. The policy period expires in March, 1997.

INDEMNIFICATION OF OFFICERS AND DIRECTORS

The Company's Certificate of Incorporation and Bylaws designate the
relative duties and responsibilities of the Company's officers, establish
procedures for actions by directors and stockholders and other items. The
Company's Certificate of Incorporation and Bylaws also contain extensive
indemnification provisions which will permit the Company to indemnify its
officers and directors to the maximum extent provided by Delaware law.

The Company's stockholders have approved a form of indemnification
agreement (the "Indemnification Agreements") which provide certain officers,
directors, employees and agents ("Indemnitees") of the Company who may enter
into Indemnification Agreements with the Company with the maximum
indemnification allowed under applicable law. Since the Delaware statute is
non-exclusive, it is possible that certain claims beyond the scope of the
statute may be indemnifiable. The Indemnification Agreements provide a scheme
of indemnification which may be broader than that specifically provided by
Delaware law. It has not yet been determined, however, to what extent the
indemnification expressly permitted by Delaware law may be expanded, and
therefore the scope of indemnification provided by the Indemnification
Agreements may be subject to future judicial interpretation.

The Indemnification Agreements provide that the Company shall indemnify an
Indemnitee who is or was a party or is threatened, pending or completed action
or proceeding whether civil, criminal, administrative or investigative by reason
of the fact that the Indemnitee is or was a director, officer, key employee or
agent of the Company or any subsidiary of the Company. The Company shall
advance all expenses, judgments, fines, penalties and amounts paid in settlement
(including taxes imposed on Indemnitee on account of receipt of such payouts)
incurred by the Indemnitee in connection with the investigation, defense,
settlement or appeal of any civil or criminal action or proceeding as described
above. The Indemnitee shall repay such amounts advanced only if it shall be
ultimately determined that he or she is not entitled to be indemnified by the
Company. The advances paid to the Indemnitee by the Company shall be delivered
within 20 days following a written request by the Indemnitee. Any award of
indemnification to an Indemnitee, if not covered by insurance, would come
directly from the assets of the Company, thereby affecting a stockholder's
investment.

The Indemnification Agreements set forth a number of procedural and
substantive matters which are not addressed or are addressed in less detail in
Delaware law, including the following:

<PAGE>

First, in the event an action is instituted by the Indemnitee under the
Indemnification Agreements to enforce or interpret any of the terms therein,
Indemnitee shall be entitled to be paid all costs and expenses, including
reasonable attorneys' fees, incurred by the Indemnitee with respect to such
action, unless as a part or such action, a court of competent jurisdiction
determines that each of the material assertions made by the Indemnitee were not
made in good faith or were frivolous. In the event of an action instituted by
or in the name of the Company under the Indemnification Agreements or to enforce
or interpret any of the terms therein, the Indemnitee shall be entitled to be
paid all costs and expenses, including reasonable attorneys' fees, incurred by
the Indemnitee in the defense of such action, unless as a part of such action
the court determines that each of the Indemnitee's material defenses to such
action were made in bad faith or were frivolous. Delaware law does not set
forth any procedure for contesting a corporation's determination of a party's
right to indemnification.

Second, the Indemnification Agreements explicitly provide for partial
indemnification of costs and expenses in the event that an Indemnitee is not
entitled to full indemnification under the terms of the Indemnification
Agreement. Delaware law does not specifically address this issue. Delaware law
does, however, provide that to the extent that an Indemnitee has been successful
on the merits, he or she shall be entitled to such indemnification.

Third, in the event the Company shall be obligated to pay the expenses of
any proceeding against the Indemnitee, the Company shall be entitled to assume
the defense of such proceeding, with counsel approved by the indemnified party,
which approval shall not be unreasonably withheld, upon the delivery to the
Indemnitee of written notice of its election to do so. The Company shall have
the right to conduct such defense as it sees fit in its sole discretion,
including the right to settle any claim against Indemnitee without the consent
of the Indemnitee.

Fourth, indemnification provided by the Indemnification Agreements is not
exclusive of any rights to which the Indemnitee may be entitled under the
Company's Certificate of Incorporation, its Bylaws, any agreement, any vote of
stockholders or disinterested directors, Delaware law, or otherwise. The
indemnification provided under the Indemnification Agreements continues for any
action taken or not taken while serving in an indemnified capacity even though
the Indemnitee may have ceased to serve in such capacity at the time of the
action, suit or other covered proceeding.

Finally, the Indemnification Agreements provide for certain exceptions to
indemnification which include the following: (a) indemnification for liabilities
where the law prohibits indemnification; (b) indemnification or advancement of
expenses with respect to proceedings or claims initiated or brought voluntarily
by an Indemnitee and not by way of defense, except with respect to proceedings
brought to establish or enforce a right to indemnification under the
Indemnification Agreements or any statute or law or otherwise as required under
Section 145 of the Delaware General Corporation Law; and (c) indemnification for
expenses in the payment of profits arising from the purchase and sale by the
Indemnitee of securities in violation of Section 16(b) of the Exchange Act or
any similar or successor statute.

TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL AGREEMENTS

Except as set forth in employment agreements of certain employees of the
Company and its subsidiaries, the Company has no compensatory plans or
arrangements which relate to the resignation, retirement or any other
termination of an executive officer or key employee with the Company or a change
in control of the Company or a change in such executive officer's or key
employee's responsibilities following a change in control.

<PAGE>

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Board of Directors has no standing compensation committee or other
board committee performing equivalent functions. The following officers and
employees of the Company, who are also directors of the Company, participated in
deliberations of the Company's Board of Directors concerning executive
compensation: Don L. Thone and Daniel L. Shook.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

As of February 24, 1995, the Company entered into an agreement with Don R.
Couperthwaite, a former officer and director of pursuant to which: (i) the
Company agreed to transfer to Mr. Couperthwaite all of the capital stock of the
Company's former Agkone subsidiary to Mr. Couperthwaite in exchange for 21,067
shares of Common Stock, (ii) the Company agreed to assign certain land
registrations in Texas to Mr. Couperthwaite with respect to the processing of
biosolids, to terminate the covenant not to compete in Mr. Couperthwaite's
employment agreement, and to release Mr. Couperthwaite's personal guarantees on
certain obligations of the Company, and (iii) Mr. Couperthwaite agreed to sell
the balance of his 112,266 shares of the Company's Common Stock, subject to
certain restrictions.

On October 25, 1995, Don L. Thone and Tony D. Childers agreed to convert
the amounts of $500,000 and $300,000, respectively, owing to them by the Company
in connection with the acquisitions of Organi-Gro and Childers Brothers,
respectively, into 250,000 and 150,000 shares of Common Stock, respectively, at
a conversion price equal to $2.00 per share. The conversion price was based on
an amount equal to the per Unit offering price ($12.00) in connection with the
Public Offering as divided by the number of shares of Common Stock (6) included
in each Unit.

In March, 1996, the Company completed payment on the obligation to Don L.
Thone on the $1,050,000 promissory note issued in connection with the July, 1993
acquisition of Organi-Gro, Inc.

As of March 30, 1996, the amount of approximately $377,500 of principal,
which remains owing to an affiliate of Mr. Childers on the promissory note
issued by the Company in connection with the acquisition of Childers Brothers,
is secured by certain collateral of CDR and Organi-Gro, including a security
interest in certain equipment and accounts receivable relating to the Arkansas
operations of such entities and in certain real properties owned by Organi-Gro.
The obligation is due and payable on July 1, 1997.

As of June 30, 1996, the Company had an aggregate of $3,280,989 of debt
which is personally guaranteed by stockholders of the Company, of which $300,000
related to notes payable and $2,980,989 related to long-term debt. The Company
has agreed to use its best efforts to obtain the release of these personal
guarantees.

In December, 1994, Don L. Thone loaned the Company the amount of $400,000
to pay an obligation of the Company owing to the Adair County Development
Authority. The obligation underlying the promissory note accrued interest at
the rate of 10% PER ANNUM. The Company repaid this obligation on November 7,
1995 from the proceeds of the Public Offering.

In 1994 and 1995, the Company paid approximately $77,000 and $253,000,
respectively, for fuel and equipment parts sold by Lazy Earl's Truck Plaza, an
affiliate of Tony D. Childers.

<PAGE>

On May 19, 1995, the Company issued options to purchase up to 246,296 and
200,000 shares of Common Stock at an exercise price of $10.80 per share to Don
L. Thone and Givigest, respectively. Of these options, the exercise price of
245,900 of the options granted to Mr. Thone and all of the options granted to
Givigest was reduced to $2.00 per share in March, 1996. The options were issued
to Mr. Thone in connection with the execution of his employment agreement and to
Givigest as compensation for consulting services provided to the Company. The
shares of Common Stock underlying these options have certain demand and
piggyback registration rights. The 246,296 options granted to Mr. Thone were
reissued as of August 19, 1996 in connection with the execution of the Amendment
No. 1 to Employment Agreement between the Company and Mr. Thone.

The Company believes that all such transactions with affiliates of the
Company have been entered into on terms no less favorable to the Company than
could have been obtained from independent third parties. The Company hereby
undertakes that any transactions and loans with officers, directors and five
percent (5%) or greater stockholders, following the date of this Report, will be
on terms no less favorable to the Company than could be obtained from
independent third parties and will be approved by a majority of the independent,
disinterested directors of the Company.

COMPLIANCE WITH SECTION 16 OF THE
SECURITIES EXCHANGE ACT OF 1934

Section 16(a) of the Exchange Act requires the Company's directors and
executive officers and the holders of more than 10% of the Company's Common
Stock to file with the Commission initial reports of ownership and reports of
changes in ownership of equity securities of the Company. Based solely upon a
review of such forms, or on written representations form certain reporting
persons that no other reports were required for such persons, the Company
believes that all reports required pursuant to Section 16(a) with respect to its
executive officers, directors and 10% stockholders for the 1995 fiscal year were
timely filed.

<PAGE>

PRINCIPAL STOCKHOLDERS

The following table reflects, as of the date of this Prospectus, the
beneficial Common Stock ownership of: (a) each director of the Company, (b)
each executive officer named in the summary compensation table, (c) each person
known by the Company to be a beneficial holder of five percent (5%) or more of
its Common Stock, and (d) all executive officers and directors of the Company as
a group:

NAME AND ADDRESS NO. OF PERCENT #
OF BENEFICIAL OWNER SHARES BEFORE OFFERING AFTER OFFERING*
- ------------------- ------ --------------- ---------------
Don L. Thone 1 496,629 7.60 4.58

Irwin I. Gelbart 2 2,931 3 3

Tony D. Childers 4 167,000 2.63 1.68

Kennedy Capital
Management, Inc. 5, 6 2,400,000 37.78 24.12

AT&T Master Pension
Trust 6 984,000 15.49 9.89

Daniel L. Shook 7 41,666 3 3

Andrew Lassack 8 663,800 9.55 6.67

All officers and
directors as a group 9 708,226 10.77 6.96
(4 persons)

___________________________

# Pursuant to the rules of the Commission, shares of Common Stock which an
individual or group has a right to acquire within 60 days pursuant to the
exercise of options or warrants are deemed to be outstanding for the
purpose of computing the percentage ownership of such individual or group,
but are not deemed to be outstanding for the purpose of computing the
percentage ownership of any other person shown in the table.

* Assumes the exercise in full of the 50,000 Underwriters' Unit Purchase
Warrants and the 3,300,000 Public Warrants (including the 300,000 Public
Warrants which form a part of the 50,000 Underwriters' Units).

1. Includes options to purchase up to 179,629 shares of Common Stock. Does
not include an additional 66,667 options, which may vest subject to certain
schedules. The address for Mr. Thone is 16000 Stuebner Airline, Suite 420,
Spring, Texas 77379. In addition, Mr. Thone has been granted a proxy to
vote the 155,000 shares of Common Stock owned by the former stockholders of
Pima Gro, and any other shares of Common Stock which may be issued to such
persons in connection with the Company's acquisition of Pima Gro, for a
period of three (3) years following July 18, 1996, the closing date of the
transaction.

<PAGE>

2. Includes certain stock options to purchase up to 2,931 shares of Common
Stock. Does not include an additional 1,735 options, which may vest
subject to certain schedules. The address for Mr. Gelbart is 77 North
Village Avenue, Rockville Center, New York 11570.

3. Less than 1%.

4. The address for Mr. Childers is 3813 South Arkansas Avenue, Russellville,
Arkansas 72801.

5. Kennedy Capital Management, Inc., the address of which is 425 North New
Ballas Road, Suite 181, St. Louis, Missouri 63141, is the beneficial owner
of an aggregate of 1,200,000 shares of Common Stock and 1,200,000
Registered Warrants.

6. As per a Schedule 13G filed by AT&T Master Pension Trust as the named
reporting person, dated February 8, 1996, (i) 492,000 shares and 492,000
Registered Warrants are held for the AT&T Master Pension Trust account,
with respect to a portion of whose assets Kennedy Capital Management, Inc.
acts as investment advisor, and (ii) such securities are held by Northern
Trust Co., as trustee of the AT&T Master Pension Trust.

7. Includes certain stock options to purchase up to 41,666 shares of Common
Stock. Does not include an additional 83,334 options, which may vest
subject to certain schedules. The address for Mr. Shook is 16000 Stuebner
Airline, Suite 420, Spring, Texas 77379.

8. As per a Schedule 13D filed by Andrew Lassack, dated September 23, 1996,
Mr. Lassack is the beneficial owner of 67,600 shares of Common Stock and
Warrants to purchase up to an additional 596,200 shares of Common Stock.
The address for Mr. Lassack is 7 St. Cloud Lane, Boca Raton, Florida 33431.

9. Includes certain stock options to purchase up to 224,226 shares of Common
Stock. Does not include an additional 151,736 options, which may vest
subject to certain schedules.

<PAGE>

DESCRIPTION OF SECURITIES

GENERAL

The Company's authorized capital stock consists of 100,000,000 shares of
Common Stock, par value $0.002 per share, and 10,000,000 shares of preferred
stock, par value $0.002. As of the date of this Prospectus, there were issued
and outstanding 6,352,102 shares of Common Stock and no shares of preferred
stock. There were also issued and outstanding warrants to purchase up to
3,052,667 shares of Common Stock and options to purchase up to 713,062 shares
of Common Stock.

PUBLIC UNITS

The Company issued 500,000 Public Units of the Company's securities in
connection with Public Offering of the Company's securities completed on October
18, 1995. Each Public Unit consists of six (6) shares of Common Stock and
Registered Warrants to purchase up to six (6) additional shares of Common Stock.
The Company's Units traded in the NASDAQ Small-Cap Market from October 12, 1995
until on or about March 16, 1996, on which date the Units were delisted from
trading in connection with the separation of the Common Stock from the Public
Warrants which comprised the Units. See "Description of Securities -
Underwriters' Unit Purchase Warrants."

COMMON STOCK

Holders of the Common Stock are entitled to cast one vote for each share
held of record, to receive such dividends as may be declared by the Board of
Directors out of legally available funds and to share ratably in any
distribution of the Company's assets after payment of all debts and other
liabilities, upon liquidation, dissolution or winding up. Holders of the Common
Stock do not have preemptive rights or other rights to subscribe for additional
shares, and the Common Stock is not subject to redemption. The outstanding
shares of Common Stock are validly issued, fully paid and nonassessable.

Under Delaware law, each holder of a share of Common Stock is entitled to
one vote per share for each matter submitted to the vote of the stockholders,
and cumulative voting is allowed for the election of directors, if provided for
in the Certificate of Incorporation. The Company's Certificate of Incorporation
does not provide for cumulative voting.

PREFERRED STOCK

The Board of Directors is expressly authorized from time to time to provide
for the issuance of shares of preferred stock in one or more series, with such
voting powers and with such designations, preferences and other rights and
qualifications, limitations or restrictions thereof as shall be stated and
expressed in the resolution providing for the issue thereof adopted by the Board
of Directors. The Board of Directors may issue such preferred stock without
stockholder approval, and the voting and conversion rights of such stock
potentially could adversely affect the voting power of the holders of Common
Stock.

<PAGE>

WARRANTS

PUBLIC WARRANTS. Each Public Warrant entitles the holder thereof to
purchase one share of Common Stock at an exercise price of $2.40 per share at
any time until October 11, 2000. The right to exercise Public Warrants will
terminate at the close of business on October 11, 2000. The Public Warrants
contain provisions that protect the Public Warrantholders against dilution by
adjustment of the exercise price in certain events, including, but not limited
to stock dividends, stock splits, reclassification or mergers. Public
Warrantholders will not possess any rights as a stockholder of the Company.
Shares of Common Stock, when issued upon the exercise of the Public Warrants in
accordance with the terms thereof, will be fully paid and nonassessable.

Commencing October 12, 1996, the Company may redeem some or all of the
Public Warrants at a call price of $0.10 per Public Warrant, upon 30 days' prior
written notice if the closing bid quotation of the Common Stock in the NASDAQ
Small-Cap Market has equaled or exceeded $3.00 for ten consecutive trading days.

The Public Warrants may be exercised only if a current prospectus relating
to the underlying Common Stock is then in effect and only if the shares are
qualified for sale under the securities laws of the state or states in which the
purchaser resides. So long as the Public Warrants are outstanding, the Company
has undertaken to file all post-effective amendments to the registration
statement for the Public Warrants required to be filed under the Securities Act,
and to take appropriate action under federal law and the securities laws of
those states where the Public Warrants were initially offered to permit the
issuance and resale of the Common Stock issuable upon exercise of the Public
Warrants. However, there can be no assurance that the Company will be in a
position to effect such action, and the failure to do so may cause the exercise
of the Public Warrants and the resale or other disposition of the Common Stock
issued upon such exercise to become unlawful.

The Company has agreed with the Representatives that the Company will pay
the Representatives a warrant solicitation fee of five percent (5%) of the
exercise price of the Public Warrants exercised beginning October 12, 1996, and
to the extent not inconsistent with the guidelines of the NASD and the rules and
regulations of the Securities and Exchange Commission.

UNDERWRITERS' UNIT PURCHASE WARRANTS. In connection with the Public
Offering, the Company sold to the Representatives, for $100, Underwriters' Unit
Purchase Warrants to purchase from the Company up to 50,000 Underwriters' Units
at an exercise price equal to $16.20 per Underwriters' Unit. The Underwriters'
Unit Purchase Warrants are exercisable for a period of four (4) years commencing
October 12, 1996, and are not transferable except to the Representatives or
members of the underwriting syndicate.

The Company has granted certain registration rights with respect to the
securities underlying the Underwriters' Unit Purchase Warrants. The
Underwriters' Unit Purchase Warrants contain anti-dilution provisions providing
for adjustment of the number of warrants and exercise price under certain
conditions.

OTHER WARRANTS. The Company also has issued and outstanding, non-callable
warrants to purchase 16,667 shares of Common Stock at an exercise price of
$90.00 per share, which expire in February, 1998, and 36,000 shares of Common
Stock at an exercise price of $7.50 per share, which have certain demand and
piggyback registration rights and expire in July, 2000.

<PAGE>

OPTIONS

The Company has issued and outstanding options to purchase 713,062 shares
of Common Stock to various employees, officers, directors and consultants of the
Company.

Of the 713,062 options, 685,129 options have an exercise price of $2.00 per
share, 13,600 options have an exercise price of $8.25 per share, and 14,333
options have an exercise price of $5.25 per share.

TRANSFER AND WARRANT AGENT

The transfer and warrant agent for the Company's securities is
Intercontinental Registrar & Transfer Agency, Inc., 900 Buchanan Boulevard,
Suite One, Boulder City, Nevada 89005, (702) 293-6717.

CERTAIN BUSINESS COMBINATION AND OTHER PROVISIONS OF CERTIFICATE OF
INCORPORATION

The Company's Certificate of Incorporation includes certain provisions
which are intended to protect the Company's stockholders by rendering it more
difficult for a person or persons to obtain control of the Company without
cooperation of the Company's management. These provisions include certain
supermajority requirements for the amendment of the Company's Certificate of
Incorporation and Bylaws. Such provisions are often referred to as
"anti-takeover" provisions.

The inclusion of such "anti-takeover" provisions in the Certificate of
Incorporation may delay, deter or prevent a takeover of the Company which the
stockholders may consider to be in their best interests, thereby possibly
depriving holders of the Company's securities of certain opportunities to sell
or otherwise dispose of their securities at above-market prices, or limit the
ability of stockholders to remove incumbent directors as readily as the
stockholders may consider to be in their best interests.

BUSINESS COMBINATIONS WITH SUBSTANTIAL STOCKHOLDERS. Delaware law contains
a statutory provision which is intended to curb abusive takeovers of Delaware
corporations. Section 203 of the Delaware General Corporation Law addresses the
problem by preventing certain business combinations of the corporation with
interested stockholders within three years after such stockholders become
interested. Section 203 provides, with certain exceptions, that a Delaware
corporation may not engage in any of a broad range of business combinations with
a person or an affiliate, or associate of such person, who is an "interested
stockholder" for a period of three (3) years from the date that such person
became an interested stockholder unless: (i) the transaction resulting in a
person becoming an interested stockholder, or the business combination, is
approved by the Board of Directors of the corporation before the person becomes
an interested stockholder; (ii) the interested stockholder acquired 85% or more
of the outstanding voting stock of the corporation in the same transaction that
makes such person an interested stockholder (excluding shares owned by persons
who are both officers and directors of the corporation, and shares held by
certain employee stock ownership plans); or (iii) on or after the date the
person becomes an interested stockholder, the business combination is approved
by the corporation's board of directors and by the holders of at least 66-2/3%
of the corporation's outstanding voting stock at an annual or special meeting,
excluding shares owned by the interested stockholder. Under Section 203, an
"interested stockholder" is defined as any person who is: (i) the owner of
fifteen percent (15%) or more of the outstanding voting stock of the corporation
or (ii) an affiliate or associate of the corporation and who was the owner of
fifteen percent (15%) or more of the outstanding voting stock of the corporation
at any time within the three (3) year period immediately prior to the date on
which it is sought to be determined whether such person is an interested
stockholder.

<PAGE>

A corporation may, at its option, exclude itself from the coverage of
Section 203 by amending its certificate of incorporation or bylaws by action of
its stockholders to exempt itself from coverage, provided that such bylaw or
certificate of incorporation amendment shall not become effective until twelve
(12) months after the date it is adopted. The Company has not adopted such an
amendment to the Certificate of Incorporation.

SUPERMAJORITY REQUIRED FOR AMENDMENT. In order to insure that the
substantive provisions set forth in the Certificate of Incorporation are not
circumvented by the amendment of such Certificate of Incorporation pursuant to a
vote of a majority of the voting power of the Company's outstanding shares, the
Certificate of Incorporation also provides that any amendment, change or repeal
of the provisions contained in the Certificate of Incorporation with respect to:
(i) the Company's capitalization, (ii) amendment of the Bylaws, (iii)
determination by the Board of the number of directors, (iv) filling Board
vacancies, (v) the requirement that stockholder action be taken at an annual or
special meeting, (vi) requirements with respect to appraisal rights for
stockholders, or (vii) the amendment of the provision imposing such
supermajority requirement for amendment of the Certificate of Incorporation,
shall require the affirmative vote of the holders of at least 66 2/3% of the
voting power of all outstanding shares of voting stock, including, in any
instance where the repeal or amendment is proposed by an interested stockholder
or its affiliate or associate, the affirmative vote of a majority of the voting
power of all outstanding shares of voting stock held by persons other than such
interested stockholder or its affiliates or associates. However, only the
affirmative vote of the majority of the voting power of all outstanding shares
of voting stock is required if the amendment of any of the foregoing provisions
is approved by a majority of the Continuing Directors (as such term is defined
in the Certificate of Incorporation).

The Certificate of Incorporation permits the Board of Directors to adopt,
amend or repeal any or all of the Company's bylaws without stockholder action
and provide that such bylaws may also be adopted, amended or repealed by its
stockholders, but only if approved by holders of 66 2/3% or more of the voting
power of all outstanding shares of voting stock, including in any instance in
which the alteration is proposed by an interested stockholder or by affiliates
or associate of any interested stockholder, the affirmative vote of the holders
of at least a majority of voting power of all outstanding shares of voting stock
held by persons other than the interested stockholder who proposed such action.
However, the only stockholder vote required if the modification is approved by a
majority of the continuing directors is the affirmative vote of the majority of
the voting power of all outstanding shares of voting stock.

SHARES ELIGIBLE FOR FUTURE SALE

As of the date of this Prospectus, the Company had issued and outstanding
6,352,102 shares of Common Stock. There are currently 5,709,769 shares of
Common Stock which are freely tradeable or which are currently eligible for
resale under Rule 144 promulgated under the Securities Act. Of the restricted
shares, 484,000 shares of Common Stock held by certain of the Company's officers
and directors will be subject to certain lock-up agreements with the
Representative during the eighteen (18) month period following October 12, 1995.
Further, the Company has issued and outstanding options to purchase up to
713,062 shares of Common Stock and warrants to purchase up to 3,052,667 shares
of Common Stock. The Company also has issued warrants to the Underwriters which
are being registered in connection with this Registration Statement. Additional
shares of Common Stock may become eligible for sale in the public market from
time to time upon exercise of warrants and stock options.

Holders of restricted securities must comply with the requirements of Rule
144 in order to sell their shares in the open market. In general, under Rule
144 as currently in effect, any affiliate of the Company and any person (or
persons whose sales are aggregated) who has beneficially owned his or her
restricted shares for at least two years, may be entitled to sell in the open
market within any three-month period in brokerage transactions or to
marketmakers a number of shares that does not exceed the greater of: (i) 1% of
the then outstanding shares of the Company's Common Stock (63,521 shares as of
the date of this Prospectus, and

<PAGE>

96,521 shares, assuming the exercise in full of the Warrants), or (ii) the
average weekly trading volume reported in the NASDAQ Small-Cap Market during the
four calendar weeks preceding such sale. Sales under Rule 144 are also subject
to certain limitations on manner of sale, notice requirement and availability of
current public information about the Company. Nonaffiliates who have held their
restricted shares for three years are entitled to sell their shares under Rule
144 without regard to any of the above limitations, provided they have not been
affiliates of the Company for the three months preceding such sale. An
aggregate of 540,000 shares of Common Stock will be reserved for issuance to
employees of the Company pursuant to the Company's Restated Stock Option Plan.

The Company can make no prediction as to the effect, if any, that sales of
shares of Common Stock or the availability of shares for sale will have on the
market price of Common Stock. Nevertheless, sales of significant amounts of
Common Stock could adversely affect the prevailing market price of the Common
Stock, as well as impair the ability of the Company to raise capital through the
issuance of additional equity securities.

The Company has agreed not to sell any securities of the Company or to
reduce the exercise or conversion price of any currently issued and outstanding
options, warrants or other convertible securities of the Company until October
17, 1997, without the consent of the Representative, which consent the
Representative has agreed will not be unreasonably withheld.

PLAN OF DISTRIBUTION

This Offering is made by the Company in connection with the exercise of
outstanding: (i) 3,000,000 Registered Warrants to purchase shares of the
Company's Common Stock which were previously sold to the public as part of
500,000 Public Units in the Company's Public Offering pursuant to the prospectus
dated October 12, 1995, (ii) Underwriters' Unit Purchase Warrants to purchase
50,000 Underwriters' Units of the Company's securities, each Underwriters' Unit
consisting of six (6) shares of Common Stock and six (6) Underwriters' Warrants
which were issued to the Representatives of the Public Offering in connection
with the Public Offering, and (iii) 300,000 Underwriters' Warrants to purchase
shares of the Company's Common Stock that are part of the Underwriters' Units.

There is no minimum number of shares of Common Stock or Underwriters' Units
which must be purchased upon the exercise of the Public Warrants or
Underwriters' Unit Purchase Warrants, respectively, except that one Public
Warrant is required to purchase one share Common Stock and one Underwriters'
Unit Purchase Warrant is required to purchase one Underwriters' Unit, and no
fractional shares of Common Stock or Underwriters' Units respectively, will be
issued. There are no arrangements to escrow any of the funds to be paid in
connection with the exercise of the Warrants. All payments made pursuant to the
exercise of the Warrants will be made to Synagro Technologies, Inc., 16000
Stuebner Airline, Suite 420, Spring, Texas 77379, Attention: Daniel Shook, Chief
Financial Officer, and may be used by the Company immediately upon receipt.

A registered holder may exercise his or her Warrants by surrendering the
certificate representing the Warrants, respectively, together with a Warrant
exercise form on the Warrant certificate properly completed and signed with full
payment of the exercise price payable to the Company. Warrants may be exercised
in whole or in part. If Warrants are exercised in part, a new Warrant
certificate will be issued for the remaining number of Warrants. No fractional
shares of Common Stock or Underwriters' Units will be issued upon the exercise
Public Warrants or Underwriters' Unit Purchase Warrants, respectively. Rather,
they will be settled for cash. All payments must be received by the Company
prior to the expiration date or the redemption date established by the Company
and Warrants not exercised prior to the expiration date shall expire.

<PAGE>

The exercise price of $2.40 per share for each Public Warrant and $16.20
for each Underwriters' Unit Purchase Warrant was arbitrarily determined by the
Company in negotiation with the Representatives in the Company's Public Offering
and the price bears no relationship to the Company's assets, earnings, book
value or to any other established criteria of value. Thus, the exercise prices
of the Warrants should not be considered an indication of the actual value of
the Company. Therefore, holders of Warrants are subject to an increased risk
that the prices of the Company's securities have been arrived at arbitrarily.

The Company has agreed with the Representatives that the Company will pay
the Representatives a warrant solicitation fee of five percent (5%) of the
exercise price of the Registered Warrants exercised beginning one year after the
effective date of this Registration Statement, and to the extent not
inconsistent with the guidelines of the NASD and the rules and regulations of
the Commission. Such Registered Warrant solicitation fee will be paid to the
Representatives if: (i) the market price of the Common Stock on the date the
Registered Warrant is exercised is equal to or greater than the exercise price
of the Registered Warrant; (ii) the exercise of the Registered Warrant was
solicited by an NASD member firm; (iii) prior specific written approval for
exercise is received from the customer if the Warrant is held in a discretionary
account; (iv) disclosure of this compensation arrangement is made prior to or
upon the exercise of the Registered Warrant; (v) solicitation of the exercise is
not in violation of Rule 10b-6 of the Exchange Act; and (vi) solicitation of the
exercise is in compliance with NASD notice to Members 81-38. In addition,
unless granted an exemption by the Commission from its Rule 10b-6 under the
Exchange Act, the Representatives will be prohibited from engaging in any market
making activities or solicited brokerage activities with regard to the Company's
securities for the period from nine (9) business days prior to any solicitation
of the exercise of any Registered Warrant or nine business days prior to the
exercise of any Registered Warrant based on prior solicitation until the later
of the termination of such solicitation activity or the termination (by waiver
or otherwise) of any right the Representatives may have to receive a fee for the
exercise of the Registered Warrants following such solicitation. As a result,
the Representatives may be unable to continue to provide a market for the
Company's securities during certain periods while the Registered Warrants are
exercisable.

LEGAL MATTERS

Certain matters with respect to the validity of the Securities offered
hereby will be passed upon for the Company by Matthias & Berg LLP, 515 South
Flower Street, Seventh Floor, Los Angeles, California 90071. Matthias & Berg
LLP currently owns 3,000 shares of Common Stock and options to purchase up to
14,333 shares of Common Stock, exercisable at $5.25 per share, which are the
subject of a currently effective registration statement on Form S-8.

EXPERTS

The audited financial statements of the Company as of December 31, 1995 and
1994 and the related statements of operations, stockholders' equity and cash
flows for the years ended December 31, 1995, 1994 and 1993, included elsewhere
in this Prospectus, have been so included in reliance on the report of Singer
Lewak Greenbaum & Goldstein LLP (successors to the practice of Shillan Abrams &
Company), independent certified public accountants, given on the authority of
such firm as experts in auditing and accounting.

<PAGE>

SYNAGRO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 1995, 1994 AND 1993
AND SIX MONTHS ENDED
JUNE 30, 1996 AND 1995 (UNAUDITED)

<PAGE>

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors and Stockholders
Synagro Technologies, Inc.

We have audited the accompanying consolidated balance sheets of Synagro
Technologies, Inc. and Subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Synagro
Technologies, Inc. and Subsidiaries as of December 31, 1995 and 1994, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended December 31, 1995, in conformity
with generally accepted accounting principles.

Singer Lewak Greenbaum & Goldstein LLP
(SUCCESSORS TO THE PRACTICE OF SHILLAN ABRAMS & COMPANY,
WHO AUDITED THE FINANCIAL STATEMENTS FOR THE YEAR ENDED
DECEMBER 31, 1993)
Los Angeles, California
February 28, 1996

<PAGE>
Synagro Technologies, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31, 1994 and 1995, and
June 30, 1996 (Unaudited)

ASSETS

December 31, June 30,
----------------------------- -------------
1994 1995 1996
------------ ------------- -------------
(Unaudited)
<S> <C> <C> <C>
Current assets
Cash (note 2) $ 322,062 $ 2,687,624 $ 723,641
Certificates of deposit (note 8) 1,015,743 1,542,272
Restricted cash, current portion (note 9) 75,000 80,000 80,000
Accounts receivable, net of allowance for
doubtful accounts of $36,622, $217,724 and
$217,724 (notes 8 and 9) 2,229,494 1,723,937 2,048,198
Notes receivable 621,150
Inventory (notes 3, 8 and 9) 908,600 448,977 450,729
Prepaid expenses and other current assets 343,244 725,849 435,315
-------------- ------------- -------------
Total current assets 3,878,400 6,682,130 5,901,305

Property, machinery and equipment, net
(notes 4, 8, 9 or 10) 10,422,881 7,348,081 6,889,326

Other assets
Agency rights, net of accumulated amortization
of $89,583, $126,875 and $145,520 (note 5) 1,215,617 1,178,325 1,159,680
Investment in partnership (note 6) 1,200,000
Investment in Pan-American N-Viro, Inc. (note 7) 776,034
Cost in excess of fair value of net assets acquired,
net of accumulated amortization of $355,861,
$581,956 and $697,995 5,112,538 4,059,599 3,943,560
Restricted cash, long-term portion (note 9) 161,432 260,257 297,014
Machinery and equipment held for sale
(note 15) 605,000
Other 387,212 78,994 73,041
-------------- ------------- -------------
$ 23,154,114 $ 20,212,386 $ 18,263,926
-------------- ------------- -------------
-------------- ------------- -------------

</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

2
<PAGE>
Synagro Technologies, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31, 1994 and 1995, and
June 30, 1996 (Unaudited)

LIABILITIES AND STOCKHOLDERS' EQUITY

December 31, June 30,
----------------------------- -------------
1994 1995 1996
------------ ------------- -------------
(Unaudited)
<S> <C> <C> <C>
Current liabilities
Current portion of long-term debt (note 9) $ 1,022,611 $ 2,024,408 $ 1,880,902
Notes payable (note 8) 589,252 220,069 380,166
Current portion of notes payable - related
parties (note 10) 456,250 489,952 125,000
Accounts payable and accrued expenses 2,260,806 1,872,145 932,107
Advances from officers/stockholders 19,261
Accrued interest 197,694 186,118 154,019
-------------- ------------- -------------
Total current liabilities 4,545,874 4,792,692 3,472,194

Long-term debt (note 9) 6,137,946 4,429,291 3,303,890
Long-term notes payable - related parties (note 10) 2,258,476 18,750
Commitments and contingencies (notes 5, 11 and 17)

Stockholders' equity (notes 12, 13 and 17)
Preferred stock: $.002 par value, authorized
10,000,000 shares, none issued and outstanding
Common stock: $.002 par value, authorized
100,000,000 shares, issued and outstanding
1,957,449, 6,052,757 and 6,197,101 3,915 12,106 12,395
Additional paid-in capital 16,855,772 22,160,585 22,350,290
Accumulated deficit (6,647,869) (11,201,038) (10,874,843)
-------------- ------------- -------------

Total stockholders' equity 10,211,818 10,971,653 11,487,842
-------------- ------------- -------------

$ 23,154,114 $ 20,212,386 $ 18,263,926
-------------- ------------- -------------
-------------- ------------- -------------
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

3
<PAGE>

Synagro Technologies, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, 1993, 1994 and 1995, and
six months ended June 30, 1995 and 1996 (Unaudited)

Six Months Ended
Years Ended December 31, June 30,
--------------------------------------------- -------------------------
1993 1994 1995 1995 1996
-------------- ------------- ------------- ---------- -----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net sales $ 9,481,893 $ 13,197,261 $ 17,976,049 $ 8,989,624 $ 8,491,413
Cost of goods sold 7,345,764 10,695,468 15,117,950 7,182,774 6,801,919
-------------- ------------- ------------- ---------- -----------
Gross profit 2,136,129 2,501,793 2,858,099 1,806,850 1,689,494

Selling, general and administrative
expenses 3,393,280 3,328,052 3,588,221 1,653,261 1,303,962
Amortization of cost in excess of
fair value of net assets acquired 197,623 348,633 246,376 123,189 116,039
-------------- ------------- ------------- ---------- ----------
Income (loss) from operations (1,454,774) (1,174,892) (976,498) 30,400 269,493
-------------- ------------- ------------- ---------- ----------
Other income (expense)
Other income 31,394 131,444 120,780 30,848 95,702
Interest (575,984) (626,172) (937,586) (477,154) (287,454)
Financing costs (32,042) (381,118)
Gain on disposal of fixed assets 248,454
Write-off of fixed assets (note 15) (1,381,991)
Write-off of cost in excess of fair
value of net assets acquired (note 15) (2,424,294) (286,000)
Write-down of investment in partner-
ship (note 6) (685,573)
Legal (settlement) recovery (note 14) (191,000) 65,278 119,028
Equity in loss from investment in
Pan-American N-Viro, Inc. (note 7) (59,266) (776,034) (54,293)
-------------- ------------- ------------- ---------- -----------
(544,590) (3,886,903) (3,576,671) (381,571) 56,702
-------------- ------------- ------------- ---------- -----------
Income (loss) before benefit for (1,999,364) (5,061,795) (4,553,169) (351,171) 326,195
income taxes

Benefit for income taxes (note 13) 897,000
-------------- ------------- ------------- ---------- ----------
Net income (loss) $ (1,999,364) $ (4,164,795) $ (4,553,169) $ (351,171) $ 326,195
-------------- ------------- ------------- ---------- ----------
-------------- ------------- ------------- ---------- -----------
Net income (loss) per share $(1.27) $(2.19) $(1.59) $(0.18) $ 0.05
-------------- ------------- ------------- ---------- -----------
-------------- ------------- ------------- ---------- -----------
Weighted average common shares
outstanding 1,577,136 1,902,497 2,864,195 1,983,726 6,193,912
-------------- ------------- ------------- ---------- -----------
-------------- ------------- ------------- ---------- -----------

</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

4
<PAGE>

Synagro Technologies, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended December 31, 1993, 1994 and 1995, and
six months ended June 30, 1996 (Unaudited)

Common Stock Additional
------------------------------ Paid-In Accumulated
Shares Amount Capital Deficit Total
-------------- ------------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992 1,183,636 $2,367 $3,502,436 $(483,710) $3,021,093

Sale of common stock (note 12) 53,333 107 439,893 440,000
Exercise of warrants (note 12) 396,000 792 3,563,208 3,564,000
Offering costs (803,556) (803,556)
Exercise of options 667 1 19,999 20,000
Shares issued for acquisitions 127,083 254 2,998,184 2,998,438
Conversion of convertible
promissory note payable (note 12) 34,878 70 1,307,858 1,307,928
Conversion of other debt 1,768 4 106,088 106,092
Net loss (1,999,364) (1,999,364)
-------------- ------------- ------------- ---------- ----------

Balance, December 31, 1993 1,797,365 3,595 11,134,110 (2,483,074) 8,654,631

Sale of common stock (note 12) 126,410 253 5,669,847 5,670,100
Offering costs 9,657 19 (415,438) (415,419)
Shares issued for acquisitions 23,283 47 454,391 454,438
Shares issued for equipment 717 1 12,362 12,363
Exercise of options 17 500 500
Net loss (4,164,795) (4,164,795)
-------------- ------------- ------------- ---------- ----------
Balance, December 31, 1994 1,957,449 3,915 16,855,772 (6,647,869) 10,211,818

Sale of common stock (note 12) 3,000,000 6,000 5,994,000 6,000,000
Conversion of long-term
debt (note 9) 715,709 1,431 1,468,527 1,469,958
Conversion of long-term
debt-related parties (note 10) 400,000 800 799,200 800,000
Offering costs 12,867 26 (1,382,928) (1,382,902)
Exercise of options 18,999 38 121,676 121,714
Shares issued for services 8,800 18 29,216 29,234
Shares repurchased in legal
settlement (note 14) (20,000) (40) (500,960) (501,000)
Repurchase of shares (1,067) (2) (23,998) (24,000)
Shares exchanged for investment
(note 6) (40,000) (80) (1,199,920) (1,200,000)
Net loss (4,553,169) (4,553,169)
-------------- ------------- ------------- ---------- ----------
Balance, December 31, 1995 6,052,757 12,106 22,160,585 (11,201,038) 10,971,653

Conversion of long-term debt
(note 9) (unaudited) 144,344 289 189,711 190,000
Adjustment to common stock (unaudited) (6) (6)
Net income (unaudited) 326,195 326,195
-------------- ------------- ------------- ---------- ----------
Balance, June 30, 1996
(unaudited) 6,197,101 $12,395 $22,350,290 $(10,874,843) $11,487,842
-------------- ------------- ------------- ---------- ----------
-------------- ------------- ------------- ---------- ----------
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

5
<PAGE>

Synagro Technologies, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1993, 1994 and 1995, and
six months ended June 30, 1995 and 1996 (unaudited)

December 31,
---------------------------------------------
1993 1994 1995
-------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(1,999,364) $(4,164,795) $(4,553,169)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities
Depreciation 929,800 1,319,544 1,681,616
Amortization 303,454 476,321 505,295
Deferred income taxes (897,000)
Equity in loss in Pan-American N-Viro, Inc. 59,266 776,034
Write-off of cost in excess of fair value of net
assets acquired 2,424,294 286,000
Write-down of investment in partnership 685,573
Write-down on property, machinery and equipment 1,381,991
Loss (gain) on sale of machinery and equipment 19,700 (19,196) (5,597)
Stock issued for payment of interest and services 57,928 64,196
Conversion of accrued interest into note payable 64,726 33,533
Payment of notes receivable by services provided
Legal settlement (recovery) 191,000 (119,028)
(Increase) decrease in:
Accounts receivable (68,387) (446,296) 505,557
Inventory (81,407) (117,500) 459,623
Prepaid expenses and other current assets 29,157 (158,573) (362,655)
Other assets (107,840) 80,900
Payments for deferred financing cost (209,000) (106,042)
Increase (decrease) in:
Accounts payable and accrued expenses 63,511 298,785 (197,709)
Accrued interest 173,096 (10,666) (11,576)
Income taxes payable (121,114) (15,055)
-------------- ------------- -------------
Net cash provided by (used in) operating activities (801,466) (437,672) 338,069

Cash flows from investing activities:
Purchase of businesses, net of cash acquired (20,221) (409,337)
Purchase of machinery and equipment (554,451) (1,086,356) (1,224,110)
Proceeds from sale of machinery and equipment 90,315 171,600 559,033
Distributions from partnership investment 114,427
Net purchases of certificates of deposits (43,000) (1,015,743)
Payments on due from officer/stockholder 75,721
Other (41,720) 4,775
-------------- ------------- -------------
Net cash used in investing activities (335,929) (1,362,318) (1,680,820)

Cash flows from financing activities:
Proceeds from notes payable 1,546,245 901,299 752,000
Payments on notes payable (932,022) (1,579,363) (1,471,183)
Proceeds from long-term debt 289,428 2,573,143 2,786,284
Payments on long-term debt (1,885,663) (6,059,098) (3,147,655)
Payments on advances from officer/stockholder (25,232) (63,722) (19,261)
Decrease (increase) in restricted cash 61,973 68,760 (103,825)
Deferred offering costs (128,663) 128,663
Sale of common stock 4,024,000 5,670,600 6,121,714
Purchase of common stock (24,000)
Offering costs (956,600) (415,419) (1,314,424)
-------------- ------------- -------------

Net cash provided by (used in) financing activities 2,122,129 967,537 3,708,313
-------------- ------------- -------------
Net (decrease) increase in cash 984,734 (832,453) 2,365,562

Cash, beginning of period 169,781 1,154,515 322,062
-------------- ------------- -------------
Cash, end of period $ 1,154,515 $ 322,062 $ 2,687,624
-------------- ------------- -------------
-------------- ------------- -------------

June 30,
-----------------------
1995 1996
---------- ----------
<S> <C> <C>
Cash flows from operating activities: (Unaudited)
Net income (loss) $(351,171) $326,195
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities
Depreciation 854,131 799,049
Amortization 199,638 134,685
Deferred income taxes
Equity in loss in Pan-American N-Viro, Inc. 54,293
Write-off of cost in excess of fair value of net
assets acquired
Write-down of investment in partnership
Write-down on property, machinery and equipment
Loss (gain) on sale of machinery and equipment 5,004 (248,454)
Stock issued for payment of interest and services 26,799
Conversion of accrued interest into note payable 33,533
Payment of notes receivable by services provided 88,800
Legal settlement (recovery) (119,028)
(Increase) decrease in:
Accounts receivable 85,518 (324,261)
Inventory 93,420 (1,752)
Prepaid expenses and other current assets 63,229 248,659
Other assets
Payments for deferred financing cost (104,999)
Increase (decrease) in:
Accounts payable and accrued expenses (328,718) (940,037)
Accrued interest 43,118 (32,099)
Income taxes payable
---------- -----------
Net cash provided by (used in) operating activities 554,767 50,785

Cash flows from investing activities:
Purchase of businesses, net of cash acquired
Purchase of machinery and equipment (920,567) (577,686)
Proceeds from sale of machinery and equipment 368,916 443,491
Distributions from partnership investment
Net purchases of certificates of deposits (526,529)
Payments on due from officer/stockholder
Other (33,715) (14,768)
---------- -----------
Net cash used in investing activities (585,366) (675,492)

Cash flows from financing activities:
Proceeds from notes payable 402,000 780,007
Payments on notes payable (166,083) (619,910)
Proceeds from long-term debt 2,066,284 700,000
Payments on long-term debt (1,847,487) (2,162,610)
Payments on advances from officer/stockholder (11,217)
Decrease (increase) in restricted cash (118,934) (36,757)
Deferred offering costs (147,929)
Sale of common stock 86,717 (6)
Purchase of common stock (24,000)
Offering costs (10,000)
---------- -----------

Net cash provided by (used in) financing activities 229,351 (1,339,276)
---------- ----------
Net (decrease) increase in cash 198,752 (1,963,983)

Cash, beginning of period 322,062 2,687,624
---------- ----------
Cash, end of period $ 520,814 $ 723,641
---------- -----------
---------- -----------

</TABLE>

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

6
<PAGE>

Synagro Technologies, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1993, 1994 and 1995, and
the six months ended June 30, 1995 and 1996 (unaudited)
(Continued)

Supplemental Cash Flow Information

Year Ended December 31, June 30,
---------------------------------------- --------------------------
1993 1994 1995 1995 1996
----------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
(Unaudited)
Interest paid $ 344,960 $ 572,112 $ 880,668 $ 392,005 $ 304,819

Taxes paid 96,927 0 0 0 0

</TABLE>

Non Cash Investing and Financing Activities

The Company has purchased all of the common stock of various entities. The
assets acquired and liabilities assumed were as follows:

Fair value of assets
acquired $ 10,635,715 $ 5,905,452
Liabilities assumed (6,126,431) (4,129,177)
Promissory notes payable (1,490,625) (912,500)
Common stock issued (2,998,438) (454,438)
------------ -----------
Net cash paid (received) $ 20,221 $ 409,337
------------ -----------
------------ -----------

In 1993, $105,312 of machinery and equipment was acquired through capital lease
obligations.

In 1993, a convertible promissory note in the amount of $1,250,000 and accrued
interest of $57,928 was converted into 34,878 shares of common stock.

In 1994, $107,908 of machinery and equipment was acquired through capital lease
obligations.

In 1994, $1,039,223 of machinery and equipment was acquired by assuming debt in
the amount of $1,053,053, receiving miscellaneous net assets of $34,413 and
issuing 717 shares of common stock valued at $12,363.

In 1995, $1,050,000 of debentures and $34,961 of accrued interest were converted
into 404,273 shares of common stock.

In 1995, $384,997 of long-term debt was converted to 311,436 shares of common
stock.

In 1995, $800,000 of long-term debt to related parties was converted to 400,000
shares of common stock.

In 1995, the Company completed its exchange of $1,200,000 of investment in
partnership for 40,000 shares of common stock based on an agreement entered into
in August 1994.

In 1995, the Company transferred 100% of the stock in its Agkone, Inc.
Subsidiary in exchange for 20,000 shares of common stock, valued at $501,000.

In 1996, $190,000 of debentures were converted to 144,344 shares of common stock
(unaudited).

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

7
<PAGE>

Synagro Technologies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 1993, 1994 and 1995, and
six months ended June 30, 1995 and 1996
(Information with respect to the six months ended
June 30, 1995 and 1996 is unaudited)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION AND LINE OF BUSINESS
The Company was incorporated in Nevada on May 9, 1986. The Company is
engaged in the biosolids management business. The Company does this through
beneficial reuse of organic materials, transportation, and monitoring of
biosolids, and the marketing of end products from the treatment of such
materials. In addition, the Company is engaged in the production, sales and
transportation of poultry bedding products. The Company also owns the
agency rights to the "N-Viro Process" in the Southwestern United States
(Texas, Louisiana, Arkansas, Oklahoma, New Mexico and Arizona). The "N-Viro
Process" is a process to convert biological organic waste into marketable
products. The Company's concentration of customers are in the states of
Texas and Arkansas.

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

UNAUDITED INTERIM FINANCIAL STATEMENTS
The accompanying financial statements of the Company for the six-month
periods ended June 30, 1995 and 1996 are unaudited, but, in the opinion of
management, reflect the adjustments all of which are of a normal recurring
nature, necessary for a fair presentation of such financial statements in
accordance with generally accepted accounting principles. The results of
operations for an interim period are not necessarily indicative of results
for a full year.

ACQUISITIONS
In 1994, the Company purchased all of the common stock of Agkone, Inc.
(Agkone), and all of the assets and related liabilities of Border Farms,
Inc. (Border), Childers Brothers Trucking, Inc. (Childers) and Hodges Heavy
Duty Truck Parts and Services, Inc. (Hodges). Agkone and Border are engaged
in the biosolids management business. Childers is engaged in the
production, sales and transportation of poultry bedding products. Hodges is
engaged in the business of repairing trucks and selling truck parts. The
aggregate purchase price was $1,963,438, consisting of $338,500 in cash,
$109,000 in direct acquisition costs, $1,061,500 in notes payable and
23,283 shares of the Company's common stock, valued at $454,438. The excess
of the total acquisition cost over the fair value of the net assets acquired
in the amount of $2,062,985 is being amortized on the straight-line basis
over 20 years.

In 1993, the Company purchased five companies in Texas and Arkansas which
were engaged in the biosolids management business. The aggregate purchase
price was $4,846,072, consisting of $357,009 in cash, $1,490,625 in notes
payable and 127,083 shares of the Company's common stock valued at
$2,998,438. The excess of the total acquisition cost over the fair value of
the net assets acquired in the amount of $4,713,967 is being amortized on
the straight-line basis over 20 years.

<PAGE>

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

All of the acquisitions have been accounted for using the purchase method of
accounting. The operations of the acquired companies are included in the
accompanying financial statements from the date of acquisition.

Proforma consolidated sales for 1994 and 1993, assuming that the purchase of
the above companies had occurred on January 1, 1993 is $18,847,000 and
$17,937,000, respectively. Proforma consolidated net loss or net loss per
share for 1994 and 1993, assuming that the purchases of the above companies
occurred on January 1, 1993 has not been presented because the proforma
results are not materially different than the historical reported results
for the same periods.

PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned Subsidiaries. All material intercompany accounts and
transactions have been eliminated.

CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all
highly liquid investments purchased with original maturities of three months
or less to be cash equivalents.

INVENTORY
Inventory, which consists of composted materials, wood shavings and truck
parts is stated at the lower of cost or market, cost generally being
determined on a first-in, first-out basis.

PROPERTY, MACHINERY AND EQUIPMENT
Property, machinery and equipment is stated at cost. Depreciation is being
provided on straight-line and accelerated methods over the estimated useful
lives of 5 to 31 years.

Expenditures for maintenance and repairs are charged to operations as
incurred, while renewals and betterments are capitalized.

AGENCY RIGHTS
Agency rights are stated at cost and are amortized over 35 years as
determined by the length of the agency agreement.

EQUITY INVESTMENTS
The unconsolidated investment in which the Company has a 50% interest was
carried at cost, adjusted for the Company's proportionate share of the
undistributed earnings or losses.

EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED
The excess of cost over the fair value of net assets acquired (goodwill) is
being amortized by the straight-line method over 20 years.

9
<PAGE>

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

On an ongoing basis, management reviews the valuation and amortization of
goodwill. As part of this review, the Company estimates the value and
future benefits of the net income generated by the related subsidiaries to
determine that no impairment has occurred.

INCOME TAXES
The Company uses the liability method of accounting for income taxes
pursuant to Statement of Financial Accounting Standard, No. 109, "Accounting
for Income Taxes."

Deferred income tax assets result from temporary differences when certain
amounts are deducted for financial statements purposes and when they are
deducted for income tax purposes. The deferred income tax liability results
from the difference in recorded values for acquisitions between financial
statement purposes and income tax purposes.

NET LOSS PER SHARE
Net loss per share is based on the weighted average number of common and
common equivalent shares outstanding during each period. The shares to be
issued upon the exercise of outstanding stock options and warrants are not
included as common stock equivalents as they are anti-dilutive.

FUTURE EFFECT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF (SFAS 121).
SFAS 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. If the sum of the expected future cash flows
(undiscounted and without interest) is less than the carrying amount of the
asset, an impairment loss is recognized. Measurement of that loss would be
based on the fair value of the asset. SFAS 121 also generally requires
long-lived assets and certain identifiable intangibles to be disposed of to
be reported at the lower of carrying amount or of the fair value less cost
to sell. SFAS 121 is effective for the Company's 1996 fiscal year end. The
Company has made no assessment of the potential impact of adopting SFAS 121
at this time.

RECLASSIFICATIONS
Certain reclassifications have been made to the 1994 financial statements to
conform with the 1995 presentation.

NOTE 2 - CASH

The Company maintains cash balances at several financial institutions
located in Houston, Texas and Russellville, Arkansas. Accounts at each
institution are insured by the Federal Deposit Insurance Corporation up to
$100,000. Uninsured balances aggregated to $2,221,782 at December 31, 1995.
The Company has not experienced any losses in such accounts and believes it
is not exposed to any significant credit risk on cash and cash equivalents.

10
<PAGE>

NOTE 3 - INVENTORY

Inventory consists of the following:

December 31,
------------------------- June 30,
1994 1995 1996
------------ ------------ -----------
(Unaudited)
<S> <C> <C> <C>
Composted material $ 308,484
Wood shavings 148,007 $ 49,775 $ 90,666
Truck parts 452,109 399,202 360,063
------------ ------------ -----------
$ 908,600 $ 448,977 $ 450,729
------------ ------------ -----------
------------ ------------ -----------
</TABLE>

NOTE 4 - PROPERTY, MACHINERY AND EQUIPMENT
Property, machinery and equipment consists of the following:

December 31,
------------------------- June 30,
1994 1995 1996
------------ ------------ -----------
(Unaudited)
<S> <C> <C> <C>
Land $ 459,097 $ 367,356 $ 593,740
Buildings 2,048,595 1,900,698 1,903,433
Machinery and equipment 9,769,577 8,179,039 8,035,646
Office furniture and equipment 149,403 165,139 219,673
Land improvements 25,337 25,337 25,340
Leasehold improvements 72,085 34,945 34,946
Construction in process 138,769 61,401 112,531
------------ ------------ -----------
12,662,863 10,733,915 10,925,309

Less accumulated depreciation and amortization 2,239,982 3,385,834 4,035,983
------------ ------------ -----------
$ 10,422,881 $ 7,348,081 $ 6,889,326
------------ ------------ -----------
------------ ------------ -----------
</TABLE>

NOTE 5 - AGENCY RIGHTS

The Company owns the exclusive agency rights to market the "N-Viro Process"
in the Southwestern United States.

The Company acts as the agent to collect all of the fees from any licensees
and to pay N-Viro International any amounts not payable to the Company as
compensation pursuant to the agency and license agreements.

11
<PAGE>

NOTE 5 - AGENCY RIGHTS (continued)

In connection with the agency agreement with N-Viro International for the
rights in the Southwestern United States, the Company is entitled to
receive 50% of all license fees up to $10,000, 75% of all license fees in
excess of $10,000, and 50% of all royalties payable to N-Viro International
pursuant to such license agreement. In addition, the Company has a license
to use the "N-Viro Process". The Company will be required to pay N-Viro
International 10% of total sales less direct transportation costs. The
agreement requires a minimum quarterly payment of $5,000 from all fees
payable under this agreement increasing by 25% per year until 1998, when no
minimum payment is required. The agreement is through December 1997 and
will automatically renew for two-year periods for up to fifteen periods,
unless terminated by the Company.

NOTE 6 - INVESTMENT IN PARTNERSHIP

In 1992, the Company acquired a five-percent limited partnership interest
in N-Viro Energy Systems, Ltd. The partnership invests in N-Viro
International, the exclusive worldwide licensor for the "N-Viro Process".

In 1994, the Company determined that a permanent impairment had occurred in
the value of the limited partnership interest and, accordingly, an
allowance of $685,573 has been established and a corresponding amount has
been charged to operations. The amount of the write-down was determined
based on an August 1994 agreement to sell its investment in the limited
partnership interest in exchange for shares of the Company's common stock
valued at the average closing bid price for the 30-day periods before and
after the date of the agreement. In 1995, the agreement was consummated,
resulting in the exchange of the Company's investment in the Limited
Partnership for 40,000 shares of the Company's common stock, valued at
$1,200,000.

NOTE 7 - EQUITY INVESTMENT

In 1994, the Company entered into a 50%/50% partnership agreement with
N-Viro International pursuant to which the Company agreed to transfer the
Company's rights for the Central and South America "N-Viro Process" license
agreement to Pan-American N-Viro, Inc. ("Pan-American"). The corporation
was formed by the parties for the purpose of marketing the N-Viro
Technology in the South and Central American and Caribbean territories.
N-Viro International contributed $150,000 in cash and its marketing and
technical expertise to Pan-American.

At December 31, 1995, the Company determined that its partnership interest
in Pan-American had suffered permanent impairment due to the inability of
the partnership to successfully market the N-Viro process, continued losses
since the inception of the partnership, and the need for additional funding
which neither partner is expected to contribute. Accordingly, the
remaining investment of $662,254 was charged to operations.

12
<PAGE>

NOTE 8 - NOTES PAYABLE

Notes payable consist of the following:

December 31, June 30,
--------------------------
1994 1995 1996
------------ ------------ -----------
(Unaudited)
<S> <C> <C> <C>
Notes payable - bank (A) $ 195,510 $ 220,069 $ 60,771
Bank lines of credit (B) 321,242
Bank line of credit (C) 300,000
Other 72,000 19,395
------------ ------------ -----------
$ 589,252 $ 220,069 $ 380,166
------------ ------------ -----------
------------ ------------ -----------
</TABLE>

(A) The notes payable - bank are collateralized by certificates of
deposit, accounts receivable, inventory, and certain equipment.
The notes have interest of variable rates of prime plus 1% and
fixed rates of 9.75% per annum.

(B) Bank lines of credit and revolving notes with fixed interest
rates currently ranging from 9.0% to 10.0% per annum and variable
rates at prime. The notes were repaid in 1995.

At December 31, 1995 and June 30, 1996, $127,569 and $300,000,
respectively, of notes payable has been personally guaranteed by certain
officers/stockholders of the Company.

NOTE 9 - LONG-TERM DEBT

Long-term debt consists of the following:

December 31,
---------------------------- June 30,
1994 1995 1996
------------ ------------ -----------
(Unaudited)

<S> <C> <C> <C>
Notes payable - bank (A) $ 688,613 $ 151,670 $ 106,183
Equipment contracts payable (B) 1,651,162 1,414,979 1,087,031
Capitalized lease obligations (C) 272,186 114,574 18,942
Promissory note payable (D) 350,000 300,000 300,000
Economic development revenue bonds (E) 1,185,000 1,110,000 1,110,000
Promissory notes payable (F) 844,201 1,113,267 1,048,664
Convertible promissory notes payable (G) 1,800,000 1,415,001
Notes payable - bank (H) 279,000 216,129 201,087
Promissory note payable (I) 600,000 600,000
Promissory note payable (J) 200,000
Bank line of credit (K) 500,000
Other 90,395 18,079 12,885
------------ ------------ -----------
7,160,557 6,453,699 5,184,792
Current portion 1,022,611 2,024,408 1,880,902
------------ ------------ -----------
Long-term portion $ 6,137,946 $ 4,429,291 $ 3,303,890
------------ ------------ -----------
------------ ------------ -----------
</TABLE>

13
<PAGE>

NOTE 9 - LONG-TERM DEBT (continued)

(A) The notes payable - bank are collateralized by applicable
equipment. The notes are currently due in aggregate monthly
payments of $8,088, including interest at rates ranging from 8.0%
to 10.25% per annum.

(B) The equipment contracts payable are collateralized by applicable
equipment. The equipment contracts are currently payable in
aggregate monthly installments of $50,271, including interest at
rates ranging from 8% to 13.3% per annum.

(C) The capitalized lease obligations are collateralized by
applicable equipment (note 4). The capitalized lease obligations
are currently payable in aggregate monthly installments of
$8,457, including interest at rates ranging from 7.4% to 19.4%
per annum.

(D) The promissory note payable is due June 2002. Interest only is
payable annually at 4% per annum. The note is secured by
equipment, accounts receivable, inventory and equipment.

(E) The economic development revenue bonds have annual maturities of
$80,000 in 1996 increasing to $150,000 by 2005. Interest was
payable at 6.7% per annum in 1995, increasing to 7.3% by 2005.
Monthly payments are required to be deposited into restricted
cash accounts from which the annual principal and semi-annual
interest are paid. The bonds are secured by certain real estate
in Arkansas.

(F) The promissory notes payable are secured by real estate. The
notes are payable in aggregate monthly installments of $18,343,
including interest at 8% to 10.25% per annum.

(G) The convertible promissory notes are due in July 1997. Interest
is payable quarterly at 9.5% per annum. The note is convertible
at the option of the note holder into common stock. The
conversion rate is the average of 65% of the closing market
price, defined as the mean of the closing bid and asking price of
the Company's stock for the period prior to conversion. In
January 1996, $190,000 of these notes were converted to 144,344
shares of the Company's common stock and the remaining $1,225,001
of the notes were repaid in cash. Those portions paid off with
the proceeds of current debt have been classified as current
portion of long-term debt.

(H) The notes payable - bank is collateralized by accounts
receivable, inventory and certain tangible assets, furniture and
equipment. The note is payable in monthly payments of $4,530,
including interest at prime plus .25% per annum.

(I) The promissory note is due January 1997. Interest only is
payable at 9.5% per annum. In February 1996, the lender gave the
Company notice of default but has not taken any action to collect
the note. This note is classified as current in the accompanying
balance sheet.

14
<PAGE>

NOTE 9 - LONG-TERM DEBT (continued)

(J) The promissory note is due November 2008 and is collateralized by
real estate. The note is payable in semi annual payments of
$14,500, including interest at 10% per annum (unaudited).

(K) The bank line of credit accrues interest at 10% per annum, and is
payable in one lump sum in September 1997 (unaudited).

At December 31, 1995 and June 30, 1996, $3,159,409 and $2,980,990,
respectively, of long-term debt has been personally guaranteed by certain
officers/stockholders of the Company.

The following is a schedule, by years, of future maturities of long-term
debt:

Year Ending
December 31,
------------
1996 $2,024,408
1997 2,732,848
1998 394,979
1999 234,164
2000 112,300
Thereafter 955,000
-----------
Total payments $ 6,453,699
-----------
-----------

NOTE 10 - NOTES PAYABLE - RELATED PARTIES

Notes payable - related parties consist of the following:

December 31,
--------------------------- June 30,
1994 1995 1996
----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C>
Promissory note payable - officer/stockholder (A) $ 850,000 $ 443,750 $ 125,000
Promissory note payable - stockholder (B) 350,000
Note payable - officer/stockholder (C) 1,114,726 64,952
Note payable - officer/stockholder (D) 400,000
----------- -------- ---------
2,714,726 508,702 125,000
Less current portion 456,250 489,952 125,000
----------- -------- ---------
$ 2,258,476 $ 18,750 0
----------- -------- ---------
----------- -------- ---------
</TABLE>

(A) The promissory note is payable to a stockholder and officer of the
Company. The note is due July 1997, payable in eight equal quarterly
installments of $106,250. Interest is payable at 7.75% per annum. In
1995, $106,250 of the note was repaid with cash and $300,000 was
converted into 150,000 shares of the Company's common stock.

(B) The promissory note is payable to a greater-than-10%-stockholder of
the Company. The note accrues interest at the rate of 9.5% per annum
and was due August 1995, when it was repaid.

15
<PAGE>

NOTE 10 - NOTES PAYABLE - RELATED PARTIES (Continued)

(C) The note is payable to a stockholder and officer of the Company. The
note includes interest at 10.5% per annum. The note plus accrued
interest was due March 1996, and is secured by certain property,
machinery and equipment of the Company. In 1995, $583,307 of the note
was repaid with cash and $500,000 was converted into 250,000 shares of
the Company's common stock.

(D) The note which accrued interest at 10% per annum was repaid in 1995.

The following is a schedule, by years, of future maturities of notes
payable - related parties:

Year Ending
December 31,
------------
1996 $489,952
1997 18,750
--------
$508,702
----------
----------

NOTE 11 - COMMITMENTS AND CONTINGENCIES

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

Year Ending
December 31,
------------
1996 $52,000
1997 37,000
1998 37,000
1999 40,000
2000 40,000
Thereafter 3,000
----------
$ 209,000
-----------
-----------
Rent expense was $160,683, $192,340 and $145,181 for 1995, 1994 and 1993,
respectively.

EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with certain key
executive officers of the Company. These officers will receive aggregate
annual salaries of $250,000. These agreements may be terminated by the
Company; however, separation fees may be required.

16
<PAGE>
Synagro Technologies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 1993, 1994 and 1995, and
six months ended June 30, 1995 and 1996
(Information with respect to the six months ended
June 30, 1995 and 1996 is unaudited)

NOTE 12 - STOCK, STOCK OPTIONS AND WARRANTS

REORGANIZATION
In anticipation of the contemplated public offering of common stock, the
Company effected a recapitalization that included a 15-for-1 reverse stock
split of the common stock. The common stock outstanding and weighted
average shares outstanding for all periods presented have been adjusted for
this stock split. The financial statements give effect to these
transactions for all periods presented.

SALE OF COMMON STOCK
In 1993, the Company sold 53,333 shares of common stock at $8.25 per share
with gross proceeds of $440,000. In connection with the sales, 53,333
warrants to purchase common stock at $9.00 per share were issued.

In 1993, the Company sold 396,000 shares of common stock from the exercise
of warrants at a price of $9.00 per share with gross proceeds of
$3,564,000.

In 1994, the Company sold 96,573 shares of common stock at $52.50 per share
with gross proceeds of $5,070,100.

In 1994, the Company sold units consisting of 29,837 shares of common stock
at an aggregate purchase price of $600,000 and $1,800,000 of convertible
promissory notes (note 9).

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. The underwriters were
issued a warrant to purchase 50,000 units (includes 600,000 warrants) at
$16.20 per unit.

CONVERSION OF CONVERTIBLE PROMISSORY NOTE
In 1993, a convertible promissory note in the amount of $1,250,000 and
$57,928 of accrued interest was converted into 34,878 shares of common
stock.

STOCK OPTION PLANS
Effective February 19, 1993, the Company adopted two stock option plans, an
Incentive Stock Option Plan (ISOP) and a Nonqualified Stock Option Plan
(NSOP) for officers, directors, key employees and certain consultants of
the Company.

Under the ISOP, the Company has reserved 66,667 shares of common stock for
issuance. The exercise price of options granted shall be at least 100%
(110% for 10%-or-greater-stockholders) of the fair value of the Company's
common stock on the date of grant. Options must be granted within ten
years from the date of the plan, and become exercisable commencing one year
after the date of grant of the option. Options are exercisable for no
longer than five years for certain 10%-or-greater-stockholders and for no
longer than 10 years for others.

17
<PAGE>

NOTE 12 - STOCK, STOCK OPTIONS AND WARRANTS (Continued)

Under the NSOP, the Company has reserved 66,667 shares of common stock for
issuance. The option price for shares issued under this plan shall be
determined and fixed by the Board of Directors. The plan is effective for
a period of ten years or until terminated by the Board of Directors.
Options granted are exercisable at such times as determined by the Board of
Directors.

The following summarizes the stock option transactions under the NSOP and
ISOP:

Shares under Option price
Option per share
---------- -----------
<S> <C> <C>
Options outstanding December 31, 1994 0
Converted from "other" options 24,100 $ 10.80
Granted 99,894 5.25-10.80
Cancelled/Expired (13,067) 5.25-10.80
Exercised (19,000) 5.25-10.80
----------

Options outstanding December 31, 1995 91,927
Granted (unaudited) 125,399 2.00
---------- -----------

Options outstanding June 30, 1996 (unaudited) 217,326 $2.00-10.80
---------- -----------
---------- -----------
</TABLE>

OTHER OPTIONS
In addition to options issuable under the stock option plans, the Company
has outstanding options to employees and consultants of the Company. The
options were issued at prices which were the fair market value at the grant
date of the options. The options vest 20% each year.

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

Shares under Option price
Option per share
---------- --------------
<S> <C> <C>
Options outstanding January 1, 1993 0
Granted 77,633 $30.00-82.50
Exercised (667) 30.00
----------
Options outstanding December 31, 1993 76,966 30.00-82.50
Cancelled/expired (50,850) 30.00
Exercised (16) 30.00
----------
Options outstanding December 31, 1994 26,100 30.00-82.50
Cancelled/expired (2,000) 30.00-82.50
Converted to ISOP/NSOP (A) (24,100) 30.00-82.50
Granted 400,000 10.80
----------
Options outstanding December 31, 1995 400,000 10.80
Granted (unaudited) 100,000 2.00
----------
Options outstanding June 30, 1996 (unaudited) 500,000 $2.00-10.80
----------
----------
</TABLE>

18
<PAGE>

NOTE 12 - STOCK, STOCK OPTIONS AND WARRANTS (Continued)

(A) In May 1995, the "other" options were converted into options
under the stock option plans, and the exercise price was reduced
to $10.80, the market price on the repricing date.

WARRANTS
Pursuant to agreements for services in connection with the sale of the
Company's common stock, warrants to purchase 16,667 shares of common stock
have been granted. The warrants are exercisable to $90.00 per share and
expire in February 1998. An additional 36,000 warrants to purchase common
stock are outstanding with an exercise price of $7.50 per share and expire
in July 2000.

NOTE 13 - INCOME TAXES

No provision for income taxes has been provided due to the net losses. As
of December 31, 1995, the Company had federal net operating loss
carryforwards of approximately $5,500,000, which expire at various amounts
through 2010.

Under the provisions of the Tax Reform Act of 1986, when there has been a
change in an entity's ownership of 50% or greater, utilization of net
operating loss carryforwards may be limited. As a result of equity
transactions occurring through December 31, 1995, the Company will be
subject to such limitations. The annual limitations have not been
determined.

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

December 31,
----------------------------------
1994 1995
----------- ----------
<S> <C> <C>
Deferred tax assets
Net operating loss carryforwards $ 1,302,000 $ 1,870,000
Accrual for legal settlement 65,000
Allowance for bad debts 12,000 74,000
Other 25,000 68,000
----------- ----------
Total deferred tax assets 1,404,000 2,012,000

Valuation allowance for deferred tax assets (384,000) (1,665,000)

Deferred tax liabilities
Differences between book and tax basis of fixed assets (986,000) (322,000)
Differences between book and tax basis of agency rights (34,000) (25,000)
----------- ----------
Net deferred tax liabilities $ 0 $ 0
----------- ----------
----------- ----------
</TABLE>

The net change in the valuation allowance for the year ended December 31,
1995 was a decrease of $1,281,000.

<PAGE>

NOTE 14 - SETTLEMENTS

SETTLEMENT AGREEMENT
In January 1995, the Company entered into a settlement agreement with a
company who assisted in the sale of certain common stock of the Company.
Pursuant to the settlement agreement, the Company agreed to pay $100,000
and to issue 12,867 shares of common stock. The $100,000 was accrued in
1994 and has been recorded as offering costs. The 12,867 shares were
issued in 1995 and are recorded as offering costs.

SETTLEMENT WITH FORMER OFFICER
On May 26, 1994, the Company terminated an officer who also resigned as a
director of the Company. In February 1995, as a resolution of certain
disputes between the Company and the officer, the Company entered into
an agreement pursuant to which: (i) the Company agreed to transfer to
the officer the Company's Agkone, Inc. subsidiary, including the rights
to the patented Agkone technology,subject to retaining the licensing
rights to such technology in Europe without royalty payment obligations;
(ii) the officer agreed to return20,000 shares of Common Stock; (iii) the
Company assigned certain land registrations in Texas to the officer with
respect to the processing of biosolids; (iv) the Company terminated the
officer's covenant not to compete in his employment agreement; (v) the
Company agreed to cause the release of the officer's personal guarantees
on certain obligations of the Company; and (vi) the Company purchased 1,067
shares of common stock at $22.50 per share.

In connection with this settlement, a provision for loss in the amount of
$191,000 was recorded at December 31, 1994 for the difference in the
investment in the Agkone subsidiary and the fair value of the 20,000 shares
returned to the company. In 1995, an adjustment in the estimate was
recorded resulting in a recovery of $65,278.

NOTE 15 - OTHER INCOME AND EXPENSES

WRITE-OFF OF FIXED ASSETS
At December 31, 1995, the Company determined that certain equipment had
suffered impairment in value. This equipment, which was acquired in
October 1994, and for which additional refurbishing costs were incurred in
1995, had suffered impairment of $1,091,991 due to operating losses, and
the decision to not actively pursue the business which utilized that
equipment. In addition, the Company determined that certain other
equipment had suffered permanent impairment of $290,000 due to operating
losses, and the decision to not pursue the business which utilized that
equipment. Accordingly, a reserve in the amount of $1,381,991 for
impairment of fixed assets has been charged to operations. In addition,
the remaining net book value of these assets has been classified as
machinery and equipment held for sale at December 31, 1995.

<PAGE>

NOTE 15 - OTHER INCOME AND EXPENSES (Continued)

WRITE-OFF OF EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED
In June 1993, the Company acquired all of the capital stock of Organi-Gro,
Inc. At December 31, 1994, the Company determined that there had been a
permanent impairment in the value of the excess of cost over fair value of
net assets acquired from the acquisition of Organi-Gro, Inc. This decision
was a result of operating losses, and a decision to not actively pursue the
original business that Organi-Gro, Inc. was involved in. Accordingly, the
remaining unamortized balance, $2,424,294, of the excess of cost over the
fair value of net assets acquired recognized at the date of acquisition of
Organi-Gro, Inc. was charged to operations.

At December 31, 1995, the Company determined that there had been a
permanent impairment in the value of the excess of cost over fair value of
net assets acquired relating to certain equipment which were written off as
a result of the impairment. Accordingly, $286,000 of excess of cost over
fair value of net assets acquired has been charged to operations.

During the fourth quarter of 1995, the Company recorded the following
adjustments to operations: 1) write-off $662,254 of investment in
Pan-American N-Viro, Inc.; 2) write-down $1,381,991 of certain machinery
and equipment that have suffered permanent impairment in value; and
3) write-down $286,000 of cost in excess of fair value of net assets
acquired relating to the original acquisition of the aforementioned
machinery and equipment.

NOTE 17 - SUBSEQUENT EVENTS (UNAUDITED)

As of July 1, 1996, the Company purchased all of the common stock of Pima
Gro Systems, Inc. and Pima Gro Systems 2, Inc. (collectively "Pima Gro"),
which provides biosolids management services to the west coast area. The
purchase price was $3,095,561 (subject to certain adjustments) which was
paid for $1,277,265 in cash, $1,595,561 in a promissory note, and 155,000
shares of the Company's common stock valued at $1.437 per share. The
acquisition was accounted for using the purchase method of accounting.

As of July 25, 1996, the Company increased a revolving credit facility in
the amount of $1,200,000. The revolving credit facility is secured by
accounts receivable and is payable at 10% per annum.

21
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO PURCHASE
ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO, OR
A SOLICITATION OF ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 2
Prospectus Summary........................................................ 3
Summary Financial Information............................................. 7
Risk Factors.............................................................. 8
Use of Proceeds........................................................... 14
Dividend Policy........................................................... 14
Price Range of Common Stock............................................... 15
Dilution.................................................................. 17
Capitalization............................................................ 18
Management's Discussion and Analysis of Results of Operations and
Financial Condition..................................................... 19
Business.................................................................. 23
Management................................................................ 43
Compensation of Executive Officers and Directors.......................... 45
Certain Relationships and Related Transactions............................ 52
Compliance with Section 16 of the Securities Exchange Act of 1934......... 53
Principal Stockholders.................................................... 54
Description of Securities................................................. 56
Shares Eligible for Future Sale........................................... 59
Plan of Distribution...................................................... 60
Legal Matters............................................................. 61
Experts................................................................... 61
Index to Financial Statements............................................. F-1
</TABLE>

SYNAGRO TECHNOLOGIES, INC.

50,000 UNITS

EACH UNIT CONSISTING
OF
SIX SHARES OF COMMON STOCK
AND
SIX REDEEMABLE COMMON STOCK
PURCHASE WARRANTS

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

3,300,000 SHARES

OF COMMON STOCK UNDERLYING
REDEEMABLE COMMON STOCK PURCHASE WARRANTS

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

PROSPECTUS

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

OCTOBER 25, 1996

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The Registrant estimates that expenses in connection with the Offering
described in this Registration Statement, will be as follows:

Securities and Exchange Commission Registration Fee . . . . . . *
Registrant's Legal Fees and Expenses . . . . . . . . . . . . . . $25,000
Accounting Fees and Expenses . . . . . . . . . . . . . . . . . . 10,000
Printing Expenses . . . . . . . . . . . . . . . . . . . . . . . 2,000
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . 1,000
-----

Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $38,000
------
------

__________________________

* A registration fee of $6,873.35 was paid in connection with the initial
filing of the Pre-Effective Registration Statement. No additional
registration fee is required in connection with this Post-Effective
Amendment to the Registration Statement.

ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.

Section 145 of the General Corporation Law of Delaware empowers a
corporation to indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative by reason of the fact
that he or she is or was a director, officer, employee or agent of the
corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or enterprise.
Depending on the character of the proceeding, a corporation may indemnify
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred in connection with such action,
suit or proceeding if the person indemnified acted in good faith and in a manner
he or she reasonably believed to be in or not opposed to the best interests of
the corporation, and with respect to any criminal action or proceeding, had no
cause to believe his or her conduct was unlawful. In the case of an action by
or in the right of the corporation, no indemnification may be made in respect of
any claim, issue or matter as to which such person shall have been adjudged to
be liable for in the performance of his or her duty to the corporation unless
and only to the extent that the Court of Chancery or the court in which such
action or suit was brought shall determine that despite the adjudication of
liability such person is fairly and reasonably entitled to indemnity for such
expenses which the court shall deem proper. Section 145 further provides that
to the extent a director or officer of a corporation has been successful in the
defense of any action, suit or proceeding referred to above or in the defense of
any claim, issue or matter therein, he or she shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him or
her in connection therewith. However, if the director or officer is not
successful in the defense of any action, suit or proceeding as referred to above
or in the defense of any claim, issue or matter therein, he or she shall only be
indemnified by the corporation as authorized in the specific case upon a
determination that indemnification is proper because he or she met the
applicable standard set forth above as determined by a majority of the
disinterested Board of Directors.

II-1

<PAGE>

The Certificate of Incorporation and Bylaws of the Company authorize
indemnification of officers and directors to the full extent permitted under
Delaware law, unless a determination is reasonably and promptly made by a
majority of the disinterested members of the Board of Directors that the
indemnitee did not act in good faith and in a manner that the indemnitee did not
reasonably believe to be in or not opposed to the best interests of the Company,
or, with respect to any criminal proceeding, that the indemnitee believed or had
reasonable cause to believe that his or her conduct was unlawful.

The Company may apply for "officers and directors" insurance which covers
acts of officers and directors. Further, the Company may enter into agreements
of indemnification with its directors to provide for indemnification to the
fullest extent permitted under Delaware law.

The Company has obtained directors' and officers' liabilities insurance
with a $1,000,000 limit of liability. Further, the Company may enter into
agreements of indemnification with its directors to provide for indemnification
to the fullest extent permitted under Delaware law.

The Commission has expressed its opinion that indemnification of directors,
officers and controlling persons of the Company against liabilities arising
under the Securities Act, is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the Company
of expenses incurred or paid by an Indemnitee of the Company in the successful
defense of any such act or proceeding) is asserted by such Indemnitee in
connection with securities which have been registered by the Company, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

On October 1, 1994, the Company issued 16,667 shares of Common Stock
pursuant to an exemption from registration under Section 4(2) of the Securities
Act to certain affiliates of Tony D. Childers and Jerry Don Childers in
connection with the acquisition of assets of Childers Brothers Trucking, Inc.
and certain related entities. The 16,667 shares had an agreed upon value of
$38.40 per share.

The Company issued 12,867 shares of Common Stock, pursuant to an exemption
from registration under Section 4(2) of the Securities Act, to Hambro Resource
Development, Inc., in connection with an agreement dated as of January 24, 1995
relating to the resolution of certain disputes between such parties. The shares
had an agreed upon value of $21.00 per share, the approximate per share market
value for the Company's Common Stock as of such date. The shares were issued to
such person as of February 1, 1995.

In February, 1995, the Company issued $1,050,000 of 8% convertible
debentures, in connection with a private placement of such securities pursuant
to Regulation S. The convertible debentures were converted into 404,273 shares
of Common Stock between March, 1995 and October, 1995.

In July and August, 1994, the Company issued $1,800,000 of 9.5% convertible
promissory notes, in connection with a private placement of securities pursuant
to Regulation S. The convertible debentures were converted into 455,780 shares
of Common Stock between October, 1995 and January, 1996.

II-2

<PAGE>

In April, 1995, the Company issued 3,333 shares of Common Stock and options
to purchase up to an additional 13,600 shares of Common Stock to Pacific
Consulting Group, Inc. at an exercise price of $8.25 per share as compensation
for public relations consulting services. On May 26, 1995, the Company issued
options to purchase 33,333 shares of Common Stock to Matthias & Berg, the
Company's attorneys, at an exercise price of $10.80 per share. This exercise
price was reduced to $7.03125 per share on June 20, 1995. As of July 12, 1995,
Matthias & Berg had exercised 12,333 options at an aggregate exercise price of
approximately $86,720. On July 13, 1995, the exercise price was further reduced
to $5.25 per share, at which price an additional 6,667 options were exercised at
an aggregate exercise price of approximately $35,000. There presently remains
14,333 options to Matthias & Berg exercisable at $5.25 per share. All of these
options were issued pursuant to an exemption from registration under Section
4(2) of the Securities Act and the underlying shares of Common Stock were issued
pursuant to a registration statement on Form S-8.

On July 28, 1995, the Company issued warrants to an unaffiliated person,
pursuant to an exemption from registration under Section 4(2) of the Securities
Act, to purchase up to 36,000 shares of Common Stock at an exercise price of
$7.50 per share, expiring in July, 2000.

As of July 18, 1996, the Company issued 155,000 shares of Common Stock to
the former stockholders of Pima Gro Systems, Inc. in connection with the
acquisition of that entity by the Company pursuant to an exemption from
registration under Section 4(2) of the Securities Act.

As of August 19, 1996, the Company issued options to purchase 246,296 and
125,000 shares of Common Stock, respectively, to Don L. Thone and Daniel L.
Shook pursuant to an exemption from registration under Section 4(2) of the
Securities Act in connection with their respective employment agreements.

ITEM 16

EXHIBITS.

2.1 Agreement and Plan of Reorganization by and among CDR Environmental,
Inc., and the Company, and Amendments Nos. 1 and 2 thereto(1)
2.2 Agreement and Plan of Reorganization by and among the Company, CDR
Environmental, Inc. and K-3 Environmental, Inc.(2)
2.3 Agreement and Plan of Reorganization by and among the Company, CDR
Environmental, Inc. and Bio-Star, Inc.(2)
2.4 Agreement and Plan of Reorganization by and among the Company, CDR
Environmental, Inc. and Gro-Mor, Inc.(2)
2.5 Agreement and Plan of Reorganization by and among the Company, CDR
Environmental, Inc. and Thone Brothers Trucking, Inc.(3)
2.6 Stock Purchase Agreement by and between the Company and Organi-Gro,
Inc.(3)
2.7 Asset Exchange Agreement by and among the Company, Organi-Gro, Inc.,
Childers Brothers Trucking, Inc., and Thompson Shaving Service, Inc.,
dated as of October 1, 1994(4)
2.8 Asset Exchange Agreement by and among the Company, Organi-Gro, Inc.
and Hodges Heavy Duty Truck Parts and Services, Inc. dated as of
October 1, 1994(4)

II-3

<PAGE>

EXHIBITS.

2.9 Asset Exchange Agreement by and among the Company, Organi-Gro, Inc.
and Zeiler Timber Products, Inc., dated as of October 1, 1994(4)
2.10 Agreement for the Purchase of Stock by and among Synagro Technologies,
Inc., CDR Environmental, Inc., Pima Gro Systems, Inc., Pima Gro
Systems 2, Inc., Wilson Nolan, Herbert Kai and John Kai, Jr., dated
July 18, 1996(5)
3.1 Restated Certificate of Incorporation of the Company - August 16, 1996
3.2 Bylaws of the Company - August 5, 1996
4.1 Specimen Common Stock Certificate of the Company(1)
4.2 Convertible Promissory Notes dated July 19, 1994 and August 11, 1994(5)
4.3 8% Convertible Debenture due December 31, 1996(6)
4.4 Specimen Warrant Certificate of the Company(6)
4.5 Specimen Unit Certificate of the Company(7)
5.1 Opinion of Matthias & Berg LLP(6)
10.1 Purchase Agreement between N-Viro Recovery Systems, Inc. and the
Company - July 14, 1992(1)
10.2 Agency Distributor Agreement between N-Viro Energy Systems, Ltd. and
the Company - July 24, 1992(1)
10.3 Agreement between American N-Viro Resources, Inc. and the Company -
June, 1992(1)
10.4 Amendment No. 1 to Employment Agreement between the Company and Don
Thone dated June 10, 1996
10.5 Form of Indemnification Agreement(8)
10.6 Amended and Restated 1993 Stock Option Plan - August 5, 1996
10.7 Promissory Note of Organi-Gro, Inc. and Guarantee of the Company dated
as of October 1, 1994(4)
10.8 Employment Agreement between Organi-Gro, Inc. and Tony Childers dated
as of October 1, 1994(4)
10.9 Employment Agreement between Organi-Gro, Inc. and Jerry Don Childers
dated as of October 1, 1994(4)
10.10 Memorandum of Understanding re Joint Venture Agreement between the
Company and N-Viro International Corporation - December 21, 1994(9)
10.11 Lease Agreement between the Company and Green Coast Enterprises, Inc.
February 1, 19961(10)
10.12 Lease Agreement between Hurley Enterprises, Inc. and Childers Brothers
Trucking, Inc. - August, 1990(6)
10.13 Lease Agreement between Jack Young, Bill Young and Betty Dick, on the
one hand, and Childers Brothers Trucking, Inc., on the other hand -
March 31, 1987(6)
10.14 Lease with Option to Purchase between Simmons Industries, Inc. and
Thone Brothers Trucking, Inc. and Addendum thereto - February 15,
1990(6)
10.15 Settlement Agreement between Hambro Resource Development, Inc. and the
Company dated as of January 24, 1995(6)
10.16 Employment Agreement between Pima Gro Systems, Inc. and Wilson Nolan,
dated July 18, 1996(5)
10.17 Employment Agreement between the Company and Daniel Shook dated
January 29, 1996
22.1 List of subsidiaries of the Company
24.1 Consent of Singer Lewak Greenbaum & Goldstein LLP
24.2 Consent of Matthias & Berg LLP (included in Exhibit 5.1)(6)
25.1 Power of Attorney (included on signature page)#

II-4

<PAGE>

_____________________________

# Previously filed as part of this Registration Statement.

1. Filed as part of the Company's Registration Statement on Form 10, dated
December 29, 1992, and as amended.

2. Filed as part of the Company's Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1994.

3. Filed as part of the Company's Current Report on Form 8-K, dated July 28,
1993.

4. Filed as part of the Company's Current Report on Form 8-K, dated October 1,
1994.

5. Filed as part of the Company's Current Report on Form 8-K, dated July 31,
1996.

6. Filed as part of the Company's Registration Statement on Form S-1, dated
July 27, 1995, and as amended (No. 33-95028).

7. Filed as part of the Company's Registration Statement on Form S-1, dated
August 19, 1995, and as amended (No. 33-95848).

8. Filed as part of the Company's Proxy Statement on Schedule 14A for Annual
Meeting of Stockholders, dated May 9, 1996.

9. Filed as part of the Company's Annual Report on Form 10-K for the year
ended December 31, 1994.

10. Filed as part of the Company's Annual Report on Form 10-K for the year
ended December 31, 1995.

II-5

<PAGE>

ITEM 17. UNDERTAKINGS.

The undersigned Registrant hereby undertakes it will:

(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this Registration Statement to:

(i) Include any Prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the Prospectus any facts or events which,
individually or together, represent a fundamental change in the
Registration Statement; and
(iii) Include any additional or changed material information on the
plan of distribution.

(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new Registration Statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.

(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the Offering.

In addition, the undersigned Registrant hereby undertakes:

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.

For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be a part of this Registration
Statement as of the time it was declared effective.

For the purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.

II-6

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Houston, State of Texas
on the 24th day of October, 1996.

SYNAGRO TECHNOLOGIES, INC.

By: /s/Don L. Thone
------------------------
Don L. Thone, President

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.

Signature Capacity in Which Signed Date
--------- ------------------------ ----

<S> <C> <C>
/s/Don L. Thone President and Director October 24, 1996
- ------------------------------ (Principal Executive Officer)
Don L. Thone

/s/Daniel L. Shook Chief Financial Officer October 24, 1996
- ------------------------------ and Director (Principal
Daniel L. Shook Financial Officer and
Principal Accounting
Officer)

/s/Irwin I. Gelbart Director October 24, 1996
- ------------------------------
Irwin I. Gelbart

/s/Tony D. Childers Director October 24, 1996
- ------------------------------
Tony D. Childers

</TABLE>

<PAGE>

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON SCHEDULES

To the Board of Directors and Stockholders
Synagro Technologies, Inc.

In connection with our audits of the financial statements of Synagro
Technologies, Inc. and Subsidiaries, referred in our report dated February 28,
1996, we have also audited schedule II for the years ended December 31, 1995,
1994 and 1993. In our opinion, this schedule presents fairly, in all material
respects, the information required to be set forth therein.

Singer Lewak Greenbaum & Goldstein LLP
(SUCCESSORS TO THE PRACTICE OF SHILLAN ABRAMS AND COMPANY
WHO AUDITED THE FINANCIAL STATEMENTS FOR THE YEAR ENDED
DECEMBER 31, 1993)
Los Angeles, California
February 28, 1996

S-1

<PAGE>

Synagro Technologies, Inc. and Subsidiaries
VALUATION AND QUALIFYING ACCOUNTS

For the years ended December 31, 1993, 1994 and 1995
SCHEDULE II

Additions
-------------------------------
Balance Charged to Charged to Balance
Beginning Costs and Other End
Description of Year Expenses Accounts Deductions of Year
----------- ----------- ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Allowance for bad debts

Year ended December 31, 1993 $ 10,900 $ 298,168 $ 55,841(A) $ 26,409(B) $ 338,500

Year ended December 31, 1994 $ 338,500 $ 2,854 $ 304,732(B) $ 36,622

Year ended December 31, 1995 $ 36,622 $ 184,377 $ 3,275(B) $ 217,724

</TABLE>

(A) Acquired from subsidiaries upon acquisition
(B) Recoveries net of write-offs

S-2

<PAGE>

EXHIBIT 3.1

RESTATED

CERTIFICATE OF INCORPORATION

SYNAGRO TECHNOLOGIES, INC.

This Restated Certificate of Incorporation (the "Certificate") of Synagro
Technologies, Inc. (the "Corporation"), was duly adopted by the Board of
Directors of the Corporation on August 5, 1996 and the stockholders of the
Corporation on August 5, 1996, as set forth below, in accordance with Sections
228, 242 and 245 of the General Corporation Law of the State of Delaware. The
original Certificate of Incorporation was filed on May 28, 1996.

The following Restated Certificate of Incorporation was adopted on August
5, 1996 by the unanimous vote of the stockholders of the Corporation. The vote
of stockholders of the Corporation by which the foregoing Restated Certificate
of Incorporation was adopted was 100 shares in favor, and no shares opposed or
not voting, out of the Corporation's total of 100 shares issued and outstanding.
The number of shares voted for the Restated Certificate of Incorporation was
sufficient for approval.

The text of the Certificate of Incorporation as amended or supplemented
heretofore is hereby restated and further amended to read in its entirety as
follows:

FIRST: The name of the corporation is Synagro Technologies, Inc.

SECOND: The address of the registered office of the Corporation in the
State of Delaware shall be at Corporation Trust Center, 1209 Orange Street, City
of Wilmington, County of New Castle, Delaware 19801. The name and address of the
Corporation's registered agent in the State of Delaware is The Corporation Trust
Company, 1209 Orange Street, City of Wilmington, County of New Castle, Delaware
19801.

THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may now or hereafter be organized under the
General Corporation Law of the State of Delaware.

FOURTH: 1. The total number of shares of stock which the Corporation
shall have authority to issue is One Hundred Ten Million (110,000,000) shares,
consisting of One Hundred Million (100,000,000) shares of Common Stock, par
value $0.002 per share (the "Common Stock"), and Ten Million (10,000,000) shares
of Preferred Stock, par value $0.002 per share (the "Preferred Stock").

<PAGE>

2. Shares of Preferred Stock may be issued from time to time in one or
more series as may be established from time to time by resolution of the Board
of Directors of the Corporation (the "Board of Directors"), each of which series
shall consist of such number of shares and have such distinctive designation or
title as shall be fixed by resolution of the Board of Directors prior to the
issuance of any shares of such series. Each such class or series of Preferred
Stock shall have such voting powers, full or limited, or no voting powers, and
such preferences and relative, participating, optional or other special rights
and such qualifications, limitations or restrictions thereof, as shall be stated
in such resolution of the Board of Directors providing for the issuance of such
series of Preferred Stock. The Board of Directors is further authorized to
increase or decrease (but not below the number of shares of such class or series
then outstanding) the number of shares of any series subsequent to the issuance
of shares of that series.

FIFTH: In furtherance and not in limitation of the powers conferred by
statute and subject to Article Sixth hereof, the Board of Directors is expressly
authorized to adopt, repeal, rescind, alter or amend in any respect the Bylaws
of the Corporation (the "Bylaws").

SIXTH: Notwithstanding Article Fifth hereof, the Bylaws may be adopted,
rescinded, altered or amended in any respect by the stockholders of the
Corporation, but only by the affirmative vote of the holders of not less than
66 2/3% of the voting power of all outstanding shares of voting stock
regardless of class and voting together as a single voting class; PROVIDED,
HOWEVER, that where such action is approved by a majority of the continuing
directors the affirmative vote of a majority of the voting power of all
outstanding shares of voting stock, regardless of class and voting together
as a single voting class, shall be required for approval of such action.

SEVENTH: The business and affairs of the Corporation shall be managed by
and under the direction of the Board of Directors. Except as may otherwise be
provided pursuant to Section 2 of Article Fourth hereof in connection with
rights to elect additional directors under specified circumstances which may be
granted to the holders of any series of Preferred Stock, the exact number of
directors of the Corporation shall be determined from time to time by a Bylaw or
Amendment thereto provided that the number of directors shall not be reduced to
less than three (3), except that there need be only as many directors as there
are stockholders in the event that the outstanding shares are held of record by
fewer than three (3) stockholders.

Elections of directors need not be by written ballot unless the Bylaws
of the Corporation shall so provide.

<PAGE>

EIGHTH: Each director shall serve until his successor is elected and
qualified or until his death, resignation or removal; no decrease in the
authorized number of directors shall shorten the term of any incumbent director;
and additional directors, elected pursuant to Section 2 of Article Fourth hereof
in connection with rights to elect such additional directors under specified
circumstances which may be granted to the holders of any series of Preferred
Stock, shall not be included in any class, but shall serve for such term or
terms and pursuant to such other provisions as are specified in the resolution
of the Board of Directors establishing such series.

NINTH: Except as may otherwise be provided pursuant to Section 2 of
Article Fourth hereof in connection with rights to elect additional directors
under specified circumstances which may be granted to the holders of any series
of Preferred Stock, newly created directorships resulting from any increase in
the number of directors, or any vacancies on the Board of Directors resulting
from death, resignation, removal or other causes, shall be filled solely by the
affirmative vote of a majority of the remaining directors then in office, even
though less than a quorum of the Board of Directors. Any director elected in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the class of directors in which the new directorship was
created or the vacancy occurred and until such director's successor shall have
been elected and qualified or until such director's death, resignation or
removal, whichever first occurs.

TENTH: Except for such additional directors as may be elected by the
holders of any series of Preferred Stock pursuant to the terms thereof
established by a resolution of the Board of Directors pursuant to Article Fourth
hereof, any director may be removed from office with or without cause and only
by the affirmative vote of the holders of not less than 66 2/3% of the voting
power of all outstanding shares of voting stock entitled to vote in connection
with the election of such director regardless of class and voting together as a
single voting class; PROVIDED, HOWEVER, that where such removal is approved by a
majority of the continuing directors, the affirmative vote of a majority of the
voting power of all outstanding shares of voting stock entitled to vote in
connection with the election of such director, regardless of class and voting
together as a single voting class, shall be required for approval of such
removal.

ELEVENTH: Any action required or permitted to be taken by the stockholders
of the Corporation must be effected at a duly called Annual Meeting or at a
special meeting of stockholders of the Corporation, unless such action requiring
or permitting stockholder approval is approved by a majority of the continuing
directors, in which case such action may be authorized or taken by the written
consent of the holders of outstanding shares of voting stock having not less
than the minimum voting power that would be necessary to

<PAGE>

authorize or take such action at a meeting of stockholders at which all shares
entitled to vote thereon were present and voted, provided, all other
requirements of applicable law and this Certificate have been satisfied. Except
as specifically set forth in this Article Eleventh, no action may be taken by
stockholders by written consent.

TWELFTH: Meetings of stockholders of the Corporation may be held within or
without the State of Delaware, as the Bylaws may provide. The books of the
Corporation may be kept (subject to any provision of applicable law) outside the
State of Delaware at such place or places as may be designated from time to time
by the Board of Directors or in the Bylaws.

THIRTEENTH: For the purposes of this Restated Certificate of
Incorporation, the following definitions shall apply:

(a) "continuing director" means: (i) any member of the Board of Directors
who (A) is not an interested stockholder or an affiliate or associate
of an interested stockholder and (B) was a member of the Board of
Directors prior to the time that an interested stockholder became an
interested stockholder; and (ii) any person who is elected or
nominated to succeed a continuing director, or to join the Board of
Directors, by a majority of the continuing directors.

(b) The terms "affiliate," "associate," "control," "interested
stockholder," "owner," "person" and "voting stock" shall have the
meanings set forth in Section 203(c) of the Delaware General
Corporation Law.

FOURTEENTH: The provisions set forth in this Article Fourteenth and in
Articles Fourth, Fifth, Sixth, Seventh, Eighth, Ninth, Tenth and Eleventh hereof
may not be repealed, rescinded, altered or amended in any respect, and no other
provision or provisions may be adopted which impair(s) in any respect the
operation or effect of any such provision, except by the affirmative vote of the
holders of not less than 66 2/3% of the voting power of all outstanding shares
of voting stock regardless of class and voting together as a single voting
class, and, where such action is proposed by an interested stockholder or by any
associate or affiliate of an interested stockholder, the affirmative vote of the
holders of a majority of the voting power of all outstanding shares of voting
stock, regardless of class and voting together as a single class, other than
shares held by the interested stockholder which proposed (or the affiliate or
associate of which proposed) such action, or any affiliate or associate of such
interested stockholder; PROVIDED, HOWEVER, that where such action is approved by
a majority of the continuing directors, the affirmative vote of a majority of
the voting power of all outstanding shares of voting stock, regardless of class
and

<PAGE>

voting together as a single voting class, shall be required for approval of such
action.

FIFTEENTH: The Corporation reserves the right to adopt, repeal, rescind,
alter or amend in any respect any provision contained in this Certificate in the
manner now or hereafter prescribed by applicable law, and all rights conferred
on stockholders herein are granted subject to this reservation. Notwithstanding
the preceding sentence, the provisions set forth in Articles Fourth, Fifth,
Sixth, Seventh, Eighth, Ninth, Tenth, Eleventh and Fourteenth may not be
repealed, rescinded, altered or amended in any respect, and no other provision
or provisions may be adopted which impair(s) in any respect the operation or
effect of any such provision, unless such action is approved as specified in
Article Fourteenth hereof.

SIXTEENTH: No director of the Corporation shall be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (a) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (b) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (c) under Section 174 of the Delaware General Corporation Law,
or (d) for any transaction from which the director derived an improper personal
benefit. If the Delaware General Corporation Law hereafter is amended to
authorize the further elimination or limitation of the liability of directors,
then the liability of a director of the Corporation, in addition to the
limitation on personal liability provided herein, shall be limited to the
fullest extent permitted by the amended Delaware General Corporation Law. Any
repeal or modification of this Section by the stockholders of the Corporation
shall be prospective only and shall not adversely affect any limitation on the
personal liability of a director of the Corporation existing at the time of such
repeal or modification.

SEVENTEENTH: No contract or other transaction of the Corporation with any
other person, firm or corporation, or in which this corporation is interested,
shall be affected or invalidated by: (a) the fact that any one or more of the
directors or officers of the Corporation is interested in or is a director or
officer of such other firm or corporation; or, (b) the fact that any director or
officer of the Corporation, individually or jointly with others, may be a party
to or may be interested in any such contract or transaction, so long as the
contract or transaction is authorized, approved or ratified at a meeting of the
Board of Directors by sufficient vote thereon by directors not interested
therein, to which such fact of relationship or interest has been disclosed, or
the contract or transaction has been approved or ratified by vote or written
consent of the stockholders entitled to vote, to whom such fact of relationship
or interest has been disclosed, or so long as the contract or transaction is
fair and reasonable to the

<PAGE>

Corporation. Each person who may become a director or officer of the
Corporation is hereby relieved from any liability that might otherwise arise by
reason of his contracting with the Corporation for the benefit of himself or any
firm or corporation in which he may in any way be interested.

IN WITNESS WHEREOF SYNAGRO TECHNOLOGIES, INC. has caused this Restated
Certificate of Incorporation to be executed by its President and to be attested
to by its Secretary as of the 5th day of August, 1996.

SYNAGRO TECHNOLOGIES, INC.

By: /s/ Don L. Thone
----------------------------
Don L. Thone
Chief Executive Officer

By: /s/ Joan M. McKinney
----------------------------
Joan M. McKinney
Secretary

<PAGE>

EXHIBIT 3.2

BYLAWS
OF

SYNAGRO TECHNOLOGIES, INC.
(a Delaware corporation)

The foregoing are the Bylaws of SYNAGRO TECHNOLOGIES, INC., a Delaware
corporation (the "Corporation"), effective as of June 28, 1996, after approval
by the Corporation's Board of Directors and stockholders:

ARTICLE I

Offices

Section 1.01. PRINCIPAL EXECUTIVE OFFICE. The principal executive office
of the Corporation shall be located at 16000 Stuebner Airline, Suite 420 Spring,
Texas 77379. The Board of Directors of the Corporation (the "Board of
Directors") may change the location of said principal executive office.

Section 1.02. OTHER OFFICES. The Corporation may also have an office or
offices at such other place or places, either within or without the State of
Delaware, as the Board of Directors may from time to time determine or as the
business of the Corporation may require.

ARTICLE II

Meetings of Stockholders

Section 2.01. ANNUAL MEETINGS. The annual meeting of stockholders of the
Corporation shall be held at a date and at such time as the Board of Directors
shall determine. At each annual meeting of stockholders, directors shall be
elected in accordance with the provisions of Section 3.03 hereof and any other
proper business may be transacted.

Section 2.02. SPECIAL MEETINGS. Special meetings of stockholders for any
purpose or purposes may be called at any time by a majority of the Board of
Directors, by the Chairman of the Board or by holders of not less than ten
percent (10%) of the voting power of all outstanding shares of voting stock
regardless of class and voting together as a single voting class. The term
"voting stock" as used in these Bylaws shall have the meaning set forth in
Section 203(c) of the Delaware General Corporation Law. Special meetings may
not be called by any other person or persons. Each special meeting shall be
held at such date and time as is requested by the person or persons calling
the meeting, within the limits fixed by law.

<PAGE>

Section 2.03. PLACE OF MEETINGS. Each annual or special meeting of
stockholders shall be held at such location as may be determined by the Board of
Directors or, if no such determination is made, at such place as may be
determined by the Chairman of the Board. If no location is so determined, any
annual or special meeting shall be held at the principal executive office of the
Corporation.

Section 2.04. NOTICE OF MEETINGS. Written notice of each annual or
special meeting of stockholders stating the date and time when, and the place
where, it is to be held shall be delivered either personally or by mail to
stockholders entitled to vote at such meeting not less than ten (10) nor more
than sixty (60) days before the date of the meeting. The purpose or purposes
for which the meeting is called may, in the case of an annual meeting, and
shall, in the case of a special meeting, also be stated. If mailed, such notice
shall be directed to a stockholder at his address as it shall appear on the
stock books of the Corporation, unless he shall have filed with the Secretary of
the Corporation a written request that notices intended for him be mailed to
some other address, in which case such notice shall be mailed to the address
designated in such request.

Section 2.05. CONDUCT OF MEETINGS. All annual and special meetings of
stockholders shall be conducted in accordance with such rules and procedures as
the Board of Directors may determine subject to the requirements of applicable
law and, as to matters not governed by such rules and procedures, as the
chairman of such meeting shall determine. The chairman of any annual or special
meeting of stockholders shall be the Chairman of the Board. The Secretary, or
in the absence of the Secretary, a person designated by the Chairman of the
Board, shall act as secretary of the meeting.

Section 2.06. QUORUM. At any meeting of stockholders of the
Corporation, the presence, in person or by proxy, of the holders of record of a
majority of the shares then issued and outstanding and entitled to vote at the
meeting shall constitute a quorum for the transaction of business; PROVIDED,
HOWEVER, that this Section 2.06 shall not affect any different requirement which
may exist under statute, pursuant to the rights of any authorized class or
series of stock, or under the Certificate of Incorporation of the Corporation,
as amended or restated from time to time (the "Certificate"), for the vote
necessary for the adoption of any measure governed thereby.

In the absence of a quorum, the stockholders present in person or by
proxy, by majority vote and without further notice, may adjourn the meeting from
time to time until a quorum is attained. At any reconvened meeting following
such adjournment at which a quorum shall be present, any business may be
transacted

<PAGE>

which might have been transacted at the meeting as originally notified.

Section 2.07. VOTES REQUIRED. The affirmative vote of a majority of
the shares present in person or represented by proxy at a duly called meeting of
stockholders of the Corporation, at which a quorum is present and entitled to
vote on the subject matter, shall be sufficient to take or authorize action upon
any matter which may properly come before the meeting, except that the election
of directors shall be by plurality vote, unless the vote of a greater or
different number thereof is required by statute, by the rights of any authorized
class of stock or by the Certificate.

Unless the Certificate or a resolution of the Board of Directors
adopted in connection with the issuance of shares of any class or series of
stock provides for a greater or lesser number of votes per share, or limits or
denies voting rights, each outstanding share of stock, regardless of class or
series, shall be entitled to one (1) vote on each matter submitted to a vote at
a meeting of stockholders.

Section 2.08. PROXIES. A stockholder may vote the shares owned of
record by him either in person or by proxy executed in writing (which shall
include writings sent by telex, telegraph, cable or facsimile transmission) by
the stockholder himself or by his duly authorized attorney-in-fact. No proxy
shall be valid after three (3) years from its date, unless the proxy provides
for a longer period. Each proxy shall be in writing, subscribed by the
stockholder or his duly authorized attorney-in-fact, and dated, but it need not
be sealed, witnessed or acknowledged.

Section 2.09. STOCKHOLDER ACTION. Any action that may, or is
required to, be taken at any annual or special meeting of the stockholders of
the Corporation, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing.

Section 2.10. LIST OF STOCKHOLDERS. The Secretary of the Corporation
shall prepare and make (or cause to be prepared and made), at least ten (10)
days before every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order and showing the
address of, and the number of shares registered in the name of, each
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least ten (10) days

<PAGE>

prior to the meeting, either at a place within the
city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept at the time and place
of the meeting during the duration thereof, and may be inspected by any
stockholder who is present.

Section 2.11. INSPECTORS OF ELECTION. In advance of any meeting of
stockholders, the Board of Directors may appoint Inspectors of Election to act
at such meeting or at any adjournment or adjournments thereof. If such
Inspectors are not so appointed or fail or refuse to act, the chairman of any
such meeting may (and, upon the demand of any stockholder or stockholder's
proxy, shall) make such an appointment.

The number of Inspectors of Election shall be one (1) or three (3). If
there are three (3) Inspectors of Election, the decision, act or certificate of
a majority shall be effective and shall represent the decision, act or
certificate of all. No such Inspector need be a stockholder of the Corporation.

Subject to any provisions of the Certificate of Incorporation, the
Inspectors of Election shall determine the number of shares outstanding, the
voting power of each, the shares represented at the meeting, the existence of a
quorum and the authenticity, validity and effect of proxies; they shall receive
votes, ballots or consents, hear and determine all challenges and questions in
any way arising in connection with the right to vote, count and tabulate all
votes or consents, determine when the polls shall close and determine the
result; and finally, they shall do such acts as may be proper to conduct the
election or vote with fairness to all stockholders. On request, the Inspectors
shall make a report in writing to the secretary of the meeting concerning any
challenge, question or other matter as may have been determined by them and
shall execute and deliver to such secretary a certificate of any fact found by
them.

ARTICLE III

Directors

Section 3.01. POWERS. The business and affairs of the Corporation shall
be managed by and be under the direction of the Board of Directors. The Board
of Directors shall exercise all the powers of the Corporation, except those that
are conferred upon or reserved to the stockholders by statute, the Certificate
or these Bylaws.

Section 3.02. NUMBER. The number of directors shall be fixed from time to
time by resolution of the Board of Directors but shall not be less than three
(3) nor more than eleven (11).

<PAGE>

Section 3.03. ELECTION AND TERM OF OFFICE. Each director shall serve
until his successor is elected and qualified or until his death, resignation or
removal, no decrease in the authorized number of directors shall shorten the
term of any incumbent director, and additional directors elected in connection
with rights to elect such additional directors under specified circumstances
which may be granted to the holders of any series of Preferred Stock shall not
be included in any class, but shall serve for such term or terms and pursuant to
such other provisions as are specified in the resolution of the Board of
Directors establishing such series.

Section 3.04. ELECTION OF CHAIRMAN OF THE BOARD. At the organizational
meeting immediately following the annual meeting of stockholders, the directors
shall elect a Chairman of the Board from among the directors who shall hold
office until the corresponding meeting of the Board of Directors in the next
year and until his successor shall have been elected or until his earlier
resignation or removal. Any vacancy in such office may be filled for the
unexpired portion of the term in the same manner by the Board of Directors at
any regular or special meeting.

Section 3.05. REMOVAL. Any director may be removed from office only as
provided in the Certificate of Incorporation.

Section 3.06. VACANCIES AND ADDITIONAL DIRECTORSHIPS. Newly created
directorships resulting from death, resignation, disqualification, removal or
other cause shall be filled solely by the affirmative vote of a majority of the
remaining directors then in office, even though less than a quorum of the Board
of Directors. Any director elected in accordance with the preceding sentence
shall hold office for the remainder of the full term of the class of directors
in which the new directorship was created or the vacancy occurred and until such
director's successor shall have been elected and qualified. No decrease in the
number of directors constituting the Board of Directors shall shorten the term
of any incumbent director.

Section 3.07. REGULAR AND SPECIAL MEETINGS. Regular meetings of the Board
of Directors shall be held immediately following the annual meeting of the
stockholders; without call at such time as shall from time to time be fixed by
the Board of Directors; and as called by the Chairman of the Board in accordance
with applicable law.

Special meetings of the Board of Directors shall be held upon call by
or at the direction of the Chairman of the Board, the President or any two (2)
directors, except that when the Board of Directors consists of one (1) director,
then the one director may call a special meeting. Except as otherwise required
by law, notice of each special meeting shall be mailed to each director,
addressed to him at his residence or usual place of business, at

<PAGE>

least three days before the day on which the meeting is to be held, or shall be
sent to him at such place by telex, telegram, cable, facsimile transmission or
telephoned or delivered to him personally, not later than the day before the day
on which the meeting is to be held. Such notice shall state the time and place
of such meeting, but need not state the purpose or purposes thereof, unless
otherwise required by law, the Certificate of Incorporation or these Bylaws
("Bylaws").

Notice of any meeting need not be given to any director who shall attend
such meeting in person (except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened) or who shall
waive notice thereof, before or after such meeting, in a signed writing.

Section 3.08. QUORUM. At all meetings of the Board of Directors, a
majority of the fixed number of directors shall constitute a quorum for the
transaction of business, except that when the Board of Directors consists of one
(1) director, then the one director shall constitute a quorum.

In the absence of a quorum, the directors present, by majority vote
and without notice other than by announcement, may adjourn the meeting from time
to time until a quorum shall be present. At any reconvened meeting following
such an adjournment at which a quorum shall be present, any business may be
transacted which might have been transacted at the meeting as originally
notified.

Section 3.09. VOTES REQUIRED. Except as otherwise provided by applicable
law or by the Certificate of Incorporation, the vote of a majority of the
directors present at a meeting duly held at which a quorum is present shall be
sufficient to pass any measure.

Section 3.10. PLACE AND CONDUCT OF MEETINGS. Each regular meeting and
special meeting of the Board of Directors shall be held at a location determined
as follows: The Board of Directors may designate any place, within or without
the State of Delaware, for the holding of any meeting. If no such designation
is made: (a) any meeting called by a majority of the directors shall be held at
such location, within the county of the Corporation's principal executive
office, as the directors calling the meeting shall designate; and (b) any other
meeting shall be held at such location, within the county of the Corporation's
principal executive office, as the Chairman of the Board may designate or, in
the absence of such designation, at the Corporation's principal executive
office. Subject to the requirements of applicable law, all regular and special
meetings of the Board of Directors shall be conducted in accordance with such
rules and procedures as the Board of Directors may approve and, as to matters
not governed by such rules and procedures, as the chairman of such meeting shall

<PAGE>

determine. The chairman of any regular or special meeting shall be the Chairman
of the Board, or, in his absence, a person designated by the Board of Directors.
The Secretary, or, in the absence of the Secretary, a person designated by the
chairman of the meeting, shall act as secretary of the meeting.

Section 3.11. FEES AND COMPENSATION. Directors shall be paid such
compensation as may be fixed from time to time by resolution of the Board of
Directors: (a) for their usual and contemplated services as directors; (b) for
their services as members of committees appointed by the Board of Directors,
including attendance at committee meetings as well as services which may be
required when committee members must consult with management staff; and (c) for
extraordinary services as directors or as members of committees appointed by the
Board of Directors, over and above those services for which compensation is
fixed pursuant to items (a) and (b) in this Section 3.11. Compensation may be
in the form of an annual retainer fee or a fee for attendance at meetings, or
both, or in such other form or on such basis as the resolutions of the Board of
Directors shall fix. Directors shall be reimbursed for all reasonable expenses
incurred by them in attending meetings of the Board of Directors and committees
appointed by the Board of Directors and in performing compensable extraordinary
services. Nothing contained herein shall be construed to preclude any director
from serving the Corporation in any other capacity, such as an officer, agent,
employee, consultant or otherwise, and receiving compensation therefor.

Section 3.12. COMMITTEES OF THE BOARD OF DIRECTORS. To the full extent
permitted by applicable law, the Board of Directors may from time to time
establish committees, including, but not limited to, standing or special
committees and an executive committee with authority and responsibility for
bookkeeping, with authority to act as signatories on Corporation bank or similar
accounts and with authority to choose attorneys for the Corporation and direct
litigation strategy, which shall have such duties and powers as are authorized
by these Bylaws or by the Board of Directors. Committee members, and the
chairman of each committee, shall be appointed by the Board of Directors. The
Chairman of the Board, in conjunction with the several committee chairmen, shall
make recommendations to the Board of Directors for its final action concerning
members to be appointed to the several committees of the Board of Directors.
Any member of any committee may be removed at any time with or without cause by
the Board of Directors. Vacancies which occur on any committee shall be filled
by a resolution of the Board of Directors. If any vacancy shall occur in any
committee by reason of death, resignation, disqualification, removal or
otherwise, the remaining members of such committee, so long as a quorum is
present, may continue to act until such vacancy is filled by the Board of
Directors. The Board of Directors may, by resolution, at any time deemed
desirable, discontinue any standing or special committee. Members of standing
committees, and their chairmen,

<PAGE>

shall be elected yearly at the regular meeting of the Board of Directors which
is held immediately following the annual meeting of stockholders. The
provisions of Sections 3.07, 3.08, 3.09 and 3.10 of these Bylaws shall apply,
MUTATIS MUTANDIS, to any such Committee of the Board of Directors.

ARTICLE IV

Officers

Section 4.01. DESIGNATION, ELECTION AND TERM OF OFFICE. The Corporation
shall have a Chairman of the Board, a President, Treasurer, such senior vice
presidents and vice presidents as the Board of Directors deems appropriate, a
Secretary and such other officers as the Board of Directors may deem
appropriate. These officers shall be elected annually by the Board of Directors
at the organizational meeting immediately following the annual meeting of
stockholders, and each such officer shall hold office until the corresponding
meeting of the Board of Directors in the next year and until his successor shall
have been elected and qualified or until his earlier resignation, death or
removal. Any vacancy in any of the above offices may be filled for the
unexpired portion of the term by the Board of Directors at any regular or
special meeting.

Section 4.02. CHAIRMAN OF THE BOARD. The Chairman of the Board of
Directors shall preside at all meetings of the directors and shall have such
other powers and duties as may from time to time be assigned to him by the Board
of Directors.

Section 4.03. PRESIDENT. The President shall be the chief executive
officer of the Corporation and shall, subject to the power of the Board of
Directors, have general supervision, direction and control of the business and
affairs of the Corporation. He shall preside at all meetings of the
stockholders and, in the absence of the Chairman of the Board, at all meetings
of the directors. He shall have the general powers and duties of management
usually vested in the office of president of a corporation, and shall have such
other duties as may be assigned to him from time to time by the Board of
Directors.

Section 4.04. TREASURER. The Treasurer shall keep and maintain, or cause
to be kept and maintained, adequate and correct books and records of account of
the properties and business transactions of the Corporation, including accounts
of its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings and shares. The books of account shall at all reasonable
times be open to inspection by the directors.

<PAGE>

The Treasurer shall deposit all moneys and other valuables in the name and
to the credit of the Corporation with such depositaries as may be designated by
the Board of Directors. He shall disburse the funds of the Corporation as may
be ordered by the Board of Directors, shall render to the President and
directors, whenever they request it, an account of all of his transactions as
the Treasurer and of the financial condition of the Corporation, and shall have
such other powers and perform such other duties as may be prescribed by the
Board of Directors or the Bylaws.

Section 4.05. SECRETARY. The Secretary shall keep the minutes of the
meetings of the stockholders, the Board of Directors and all committees. He
shall be the custodian of the corporate seal and shall affix it to all documents
which he is authorized by law or the Board of Directors to sign and seal. He
also shall perform such other duties as may be assigned to him from time to time
by the Board of Directors or the Chairman of the Board or President.

Section 4.06. ASSISTANT OFFICERS. The President may appoint one or more
assistant secretaries and such other assistant officers as the business of the
Corporation may require, each of whom shall hold office for such period, have
such authority and perform such duties as may be specified from time to time by
the President.

Section 4.07. WHEN DUTIES OF AN OFFICER MAY BE DELEGATED. In the case of
absence or disability of an officer of the Corporation or for any other reason
that may seem sufficient to the Board of Directors, the Board of Directors or
any officer designated by it, or the President, may, for the time of the absence
or disability, delegate such officer's duties and powers to any other officer of
the Corporation.

Section 4.08. OFFICERS HOLDING TWO OR MORE OFFICES. The same person may
hold any two (2) or more of the above-mentioned offices.

Section 4.09. COMPENSATION. The Board of Directors shall have the power
to fix the compensation of all officers and employees of the Corporation.

Section 4.10. RESIGNATIONS. Any officer may resign at any time by giving
written notice to the Board of Directors, to the President, or to the Secretary
of the Corporation. Any such resignation shall take effect at the time
specified therein unless otherwise determined by the Board of Directors. The
acceptance of a resignation by the Corporation shall not be necessary to make it
effective.

<PAGE>

Section 4.11. REMOVAL. Any officer of the Corporation may be removed,
with or without cause, by the affirmative vote of a majority of the entire Board
of Directors. Any assistant officer of the Corporation may be removed, with or
without cause, by the President or by the Board of Directors.

ARTICLE V

Indemnification of Directors, Officers
Employees end other Corporate Agents

Section 5.01. ACTION, ETC. OTHER THAN BY OR IN THE RIGHT OF THE
CORPORATION. The Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee, trustee or agent of another corporation,
partnership, joint venture, trust or other enterprise (all such persons being
referred to hereinafter as an "Agent"), against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Corporation, and with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of NOLO CONTENDERE or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, that he had reasonable cause to believe that his conduct was
unlawful.

Section 5.02. ACTION, ETC., BY OR IN THE RIGHT OF THE CORPORATION. The
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the Corporation to procure a judgment in its favor by reason of the
fact that he is or was an Agent against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation by a court of competent jurisdiction, after exhaustion
of all appeals therefrom, unless and only to the

<PAGE>

extent that the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which such court shall deem proper.

Section 5.03. DETERMINATION OF RIGHT OF INDEMNIFICATION. Any
indemnification under Sections 5.01 or 5.02 (unless ordered by a court) shall be
made by the Corporation only as authorized in the specific case upon a
determination that indemnification of the Agent is proper in the circumstances
because the Agent has met the applicable standard of conduct set forth in
Sections 5.01 and 5.02 hereof, which determination is made (a) by the Board of
Directors, by a majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding, or (b) if such a quorum is not
obtainable, or, even if obtainable, if a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (c) by the
stockholders.

Section 5.04. INDEMNIFICATION AGAINST EXPENSES OF SUCCESSFUL PARTY.
Notwithstanding the other provisions of this Article V, to the extent that an
Agent has been successful on the merits or otherwise, including the dismissal of
an action without prejudice or the settlement of an action without admission of
liability, in defense of any action, suit or proceeding referred to in Sections
5.01 or 5.02 hereof, or in defense of any claim, issue or matter therein, such
Agent shall be indemnified against expenses, including attorneys' fees actually
and reasonably incurred by such Agent in connection therewith.

Section 5.05. ADVANCES OF EXPENSES. Except as limited by Section 5.06 of
this Article V, expenses incurred by an Agent in defending any civil or criminal
action, suit, or proceeding shall be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding, if the Agent shall
undertake to repay such amount if it shall ultimately be determined that such
person is not entitled to be indemnified as authorized in this Article V.
Notwithstanding the foregoing, no advance shall be made by the Corporation if a
determination is reasonably and promptly made by the Board of Directors by a
majority vote of a quorum of disinterested directors, or (if such a quorum is
not obtainable or, even if obtainable, a quorum of disinterested directors so
directs) by independent legal counsel in a written opinion, that, based upon the
facts known to the Board of Directors or counsel at the time such determination
is made, such person acted in bad faith and in a manner that such person did not
believe to be in or not opposed to the best interest of the Corporation, or,
with respect to any criminal proceeding, that such person believed or had
reasonable cause to believe his conduct was unlawful.

<PAGE>

Section 5.06. RIGHT OF AGENT TO INDEMNIFICATION UPON APPLICATION;
PROCEDURE UPON APPLICATION. Any indemnification or advance under this Article V
shall be made promptly, and in any event within ninety days, upon the written
request of the Agent, unless a determination shall be made in the manner set
forth in the second sentence of Subsection 5.05 hereof that such Agent acted in
a manner set forth therein so as to justify the Corporation's not indemnifying
or making an advance to the Agent. The right to indemnification or advances as
granted by this Article V shall be enforceable by the Agent in any court of
competent jurisdiction, if the Board of Directors or independent legal counsel
denies the claim, in whole or in part, or if no disposition of such claim is
made within ninety (90) days. The Agent's expenses incurred in connection with
successfully establishing his right to indemnification, in whole or in part, in
any such proceeding shall also be indemnified by the Corporation.

Section 5.07. OTHER RIGHTS AND REMEDIES. The indemnification and
advancement of expenses provided by, or granted pursuant to, this Article V
shall not be deemed exclusive of any other rights to which an Agent seeking
indemnification or advancement of expenses may be entitled under any Bylaw,
agreement, vote of stockholders or disinterested directors or otherwise, both as
to action in his official capacity and as to action in another capacity while
holding such office, and shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be an Agent and shall inure
to the benefit of the heirs, executors and administrators of such a person. All
rights to indemnification under this Article V shall be deemed to be provided by
a contract between the Corporation and the Agent who serves in such capacity at
any time while these Bylaws and other relevant provisions of the Delaware
General Corporation Law and other applicable law, if any, are in effect. Any
repeal or modification thereof shall not affect any rights or obligations then
existing.

Section 5.08. INSURANCE. Upon resolution passed by the Board of
Directors, the Corporation may purchase and maintain insurance on behalf of any
person who is or was an Agent against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of this Article V.

Section 5.09. CONSTITUENT CORPORATIONS. For the purposes of this Article
V, references to "the Corporation" shall include, in addition to the resulting
corporation, all constituent corporations (including all constituents of
constituents) absorbed in a consolidation or merger as well as the resulting or
surviving corporation, which, if the separate existence of such constituent
corporation had continued, would have had power and authority to indemnify its
Agents, so that any Agent of such constituent corporation shall stand in the
same position under the provisions

<PAGE>

of the Article V with respect to the resulting or surviving corporation as that
Agent would have with respect to such constituent corporation if its separate
existence had continued.

Section 5.10. OTHER ENTERPRISES, FINES, AND SERVING AT CORPORATION'S
REQUEST. For purposes of this Article V, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation which
imposes duties on, or involves services by, such director, officer, employee or
agent with respect to any employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation" as referred to in this Article
V.

Section 5.11. SAVINGS CLAUSE. If this Article V or any portion thereof
shall be invalidated on any ground by any court of competent jurisdiction, then
the Corporation shall nevertheless indemnify each Agent as to expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
with respect to any action, suit or proceeding, whether civil, criminal,
administrative or investigative, and whether internal or external, including a
grand jury proceeding and an action or suit brought by or in the right of the
Corporation, to the full extent permitted by any applicable portion of this
Article V that shall not have been invalidated, or by any other applicable law.

ARTICLE VI

Stock

Section 6.01. CERTIFICATES. Except as otherwise provided by law, each
stockholder shall be entitled to a certificate or certificates which shall
represent and certify the number and class (and series, if appropriate) of
shares of stock owned by him in the Corporation. Each certificate shall be
signed in the name of the Corporation by the Chairman of the Board or a
Vice-Chairman of the Board or the President or a Vice President, together with
the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant
Secretary. Any or all of the signatures on any certificate may be a facsimile.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the Corporation with the same effect as if such person were
such officer, transfer agent or registrar at the date of issue.

<PAGE>

Section 6.02. TRANSFER OF SHARES. Shares of stock shall be transferable
on the books of the Corporation only by the holder thereof, in person or by his
duly authorized attorney, upon the surrender of the certificate representing the
shares to be transferred, properly endorsed, to the Corporation's transfer
agent, if the Corporation has a transfer agent, or to the Corporation's
registrar, if the Corporation has a registrar, or to the Secretary, if the
Corporation has neither a transfer agent nor a registrar. The Board of
Directors shall have power and authority to make such other rules and
regulations concerning the issue, transfer and registration of certificates of
the Corporation's stock as it may deem expedient.

Section 6.03. TRANSFER AGENTS AND REGISTRARS. The Corporation may have
one or more transfer agents and one or more registrars of its stock whose
respective duties the Board of Directors or the Secretary may, from time to
time, define. No certificate of stock shall be valid until countersigned by a
transfer agent, if the Corporation has a transfer agent, or until registered by
a registrar, if the Corporation has a registrar. The duties of transfer agent
and registrar may be combined.

Section 6.04. STOCK LEDGERS. Original or duplicate stock ledgers,
containing the names and addresses of the stockholders of the Corporation and
the number of shares of each class of stock held by them, shall be kept at the
principal executive office of the Corporation or at the office of its transfer
agent or registrar.

Section 6.05. RECORD DATES. The Board of Directors may fix, in advance, a
date as the record date for the purpose of determining stockholders entitled to
notice of, or to vote at, any meeting of stockholders or any adjournment
thereof, or stockholders entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock, or in order to make a
determination of stockholders for any other proper purpose. Such date in any
case shall be not more than sixty (60) days, and in case of a meeting of
stockholders, not less than ten (10) days, prior to the date on which the
particular action requiring such determination of stockholders is to be taken.
Only those stockholders of record on the date so fixed shall be entitled to any
of the foregoing rights, notwithstanding the transfer of any such stock on the
books of the Corporation after any such record date fixed by the Board of
Directors.

RO\CL\10224\DOCS-2\156

<PAGE>

AMENDMENT NO. 1
TO
EMPLOYMENT AGREEMENT

This Amendment No. 1 to Employment Agreement ("Agreement") is entered
into and made effective as of June 10, 1996, by and among Synagro Technologies,
Inc., ("Employer") a Nevada corporation, and Don L. Thone ("Employee"), and
hereby restates in its entirety that certain Employment Agreement between
Employer and Employee dated as of May 26, 1995.

R E C I T A L S

WHEREAS, Employer and Employee have entered into a certain Employment
Agreement, dated as of May 26, 1995, and Employer and Employee desire to enter
into this Agreement in order to restate such Employment Agreement in its
entirety, as set forth below;

WHEREAS, Employer is desirous of hiring Employee as one of its key
employees;

WHEREAS, Employee is willing to accept employment as an employee of
Employer; and

WHEREAS, the parties hereto desire to delineate the responsibilities
of Employee and the expectations of Employer;

NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants and obligations herein contained, the parties hereto agree as
follows:

AGREEMENT

1. EMPLOYMENT. Employer hereby employs Employee, and Employee hereby
accepts employment with Employer, upon the terms and conditions set forth in
this Agreement.

2. TERM OF EMPLOYMENT. The employment of Employee pursuant to the
terms of this Agreement shall commence as of May 26, 1995, and shall continue
for a period of five (5) years, unless sooner terminated pursuant to the
provisions hereof; PROVIDED, HOWEVER, that this Agreement shall, unless earlier
terminated, at the end of each anniversary, be automatically extended for an
additional one year term.

<PAGE>

3. DUTIES.

3.1. BASIC DUTIES. Subject to the direction and control of the Board
of Directors of Employer, Employee shall serve as the Chief Executive Officer of
Employer and shall fulfill all duties and obligations of such office.

3.2. OTHER DUTIES OF EMPLOYEE. In addition to the foregoing,
Employee shall perform such other or different duties related to those set forth
in Paragraph 3.1 as may be assigned to him from time to time by Employer;
provided, however, that any such additional assignment shall be at a level of
responsibility commensurate with that set forth in Paragraph 3.1 and PROVIDED,
FURTHER, that Employee may serve, or continue to serve, on the boards of
directors of, and hold any other offices or positions in, companies or entities
that in the judgment of Employer will not present any conflict of interest with
Employer or any of its operations or adversely affect the performance of
Employee's duties pursuant to this Agreement.

3.3. TIME DEVOTED TO EMPLOYMENT. Employee shall devote his full time
to the business of Employer during the term of this Agreement to fulfill his
obligations hereunder.

3.4. PLACE OF PERFORMANCE OF DUTIES. The services of Employee shall
be performed at Employer's place of business and at such other locations as
shall be designated from time to time by Employer.

4. COMPENSATION AND METHOD OF PAYMENT.

4.1 TOTAL COMPENSATION. As compensation under this Agreement, Employer
shall pay and Employee shall accept the following:

(1) For each year of this Agreement, measured from the effective date
hereof, base compensation of one hundred and fifty thousand dollars
($150,000), with such upward adjustments as may be approved from time to
time by the Board of Directors of Employer. Such adjustments may be based
on the performance of Employer, the value of Employee to Employer or any
other factors considered relevant by Employer.

(2) For each year, such bonus, supplemental or incentive compensation
("Incentive Compensation") as may be approved by the Board of Directors.

(3) Reimbursement of such discretionary expenses as are reasonable and
necessary, in the judgment of the Board of Directors, for Employee's
performance of his responsibilities under this Agreement.

<PAGE>

(4) Nonqualified options to acquire up to 246,296 shares of Common Stock at
an exercise price of $2.00 per share, subject to the terms of such options
as set forth in the Stock Option Agreement attached hereto as Exhibit "A."

(5) Participation in Employer's employee fringe benefit programs in effect
from time to time for employees at comparable levels of responsibility.
Participation will be in accordance with any applicable policies adopted by
Employer. Employee shall be entitled to vacations, absences for illness,
and to similar benefits of employment, and shall be subject to such
policies and procedures as may be adopted by Employer. Without limiting
the generality of the foregoing, it is initially anticipated that such
benefits of employment shall include four (4) weeks' vacation during each
12-month period of employment with Employer (which shall accrue monthly on
a PRO RATA basis and which shall be carried forward for a period not to
exceed three (3) years and otherwise in accordance with Employer's
policies); major medical and health insurance; life and disability
insurance; and stock option plans for members of the Board of Directors.
Employer further agrees that in the event it offers disability insurance to
its employees, Employer shall arrange for Employee to be covered by similar
insurance.

(6) In addition, Employee shall be entitled to: (a) a car allowance of $500
per month, (b) a club membership expense allowance of $300 per month, and
(c) if for any reason Employee shall not be covered by a health insurance
policy of Employer, a medical insurance coverage expense allowance of $360
per month.

(7) In the event of a Change of Control of Employer (as such term is
defined in Section 4.3(2)(c) hereof), Employee shall be entitled to receive
the balance of the unpaid base compensation which would otherwise be
payable to Employee during the remainder of the term of this Agreement
pursuant to Section 4.1(1) hereof within thirty (30) days of the date of
such Change of Control and any and all options granted to Employee pursuant
to Section 4.1(4) hereof and otherwise shall vest immediately upon the date
of such Change of Control; PROVIDED, HOWEVER, in the event of such Change
of Control of Employer, the term of this Agreement shall automatically be
extended to a period of five (5) years from the date of such Change of
Control of Employer for purposes of this Section 4.1(7).

4.2 Payment of Compensation. Employer shall pay the compensation provided
for in Section 4.1 hereof as follows:

(1) Employer shall pay the base compensation in cash the base compensation
semi-monthly in twenty-four equal installments or

<PAGE>

in accordance with Employer's payroll practices for all its employees, but
in no event less frequently than monthly.

(2) Employer shall pay all Incentive Compensation in cash or in shares of
Common Stock ("Shares") of Employer, which shall be at the sole election of
Employee, to a Deferred Compensation Trust, to be established by Employer
in the form provided in Exhibit "B" hereto. With respect to each year,
Employee shall, on or before the beginning of such year, inform Employer in
writing of the percentage of Incentive Compensation which shall be paid in
cash and of the percentage thereof which shall be paid in Shares to the
Deferred Compensation Trust.

(3) Employer shall pay in cash the reimbursement of such discretionary
expenses provided in Section 4.1(3) hereof.

4.3 AMOUNTS PAID TO THE DEFERRED COMPENSATION TRUST

(1) The amount of Incentive Compensation paid by the Company to the
Deferred Compensation Trust may not be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge, encumbrance,
attachment or garnishment by creditors of Employee or his beneficiaries,
and Employee has only the status of a general unsecured creditor of the
Company as to the amounts of Incentive Compensation paid pursuant to this
Agreement.

(2) The total of Incentive Compensation paid to the Deferred Compensation
Trust pursuant to this Agreement will be distributed to Employee therefrom
in a lump sum on the occurrence of the earliest of the following:

(a) Employee's termination of service because of death, disability, or
termination of employment;

(b) Employee's attainment of the age of sixty-five (65) years; or

<PAGE>

who were stockholders of Employer immediately prior to such
reorganization, merger or consolidation do not, immediately
thereafter, own or control more than fifty percent (50%) of the
combined voting power entitled to vote generally in the election of
directors of the reorganized, merged or consolidated Employer's then
outstanding securities, or a liquidation or dissolution of Employer or
of the sale of all or substantially all of Employer's assets, or (iii)
in the event Employer terminates Employee pursuant to this Agreement
for any reason other than the occurrence of any of the events set
forth in Sections 5.2(2),(3),(4),(6), (7) or (9) hereof, or (iv) in
the event any person shall be elected by the stockholders of Employer
to the Board of Directors of Employer who shall not have been
nominated for election by a majority of the Board of Directors of
Employer or any duly appointed committee thereof.

5. TERMINATION OF AGREEMENT.

5.1. BY NOTICE. This Agreement, and the employment of Employee
hereunder, may be terminated by Employee or Employer upon ninety (90) days'
written notice of termination; PROVIDED, HOWEVER, in the event Employer
terminates this Agreement for any reason other than the occurrence of any of the
events set forth in Sections 5.2 (2), (3), (4), (6), (7) or (9), and subject to
Section 4.1(7) hereof, Employee shall be entitled to receive the balance of the
unpaid base salary which would otherwise be payable to Employer during the
remainder of the term of this Agreement pursuant to Sections 4.1(1) and 4.1(6)
hereof within thirty (30) days after such ninety (90) day notice period.

5.2. OTHER TERMINATION. This Agreement, and the employment of
Employee hereunder, shall terminate immediately upon the occurrence of any one
of the following events:

(1) The death or mental or physical incapacity of Employee.

(2) The loss by Employee of legal capacity (other than as described
in Section 5.2(1) hereof).

(3) The failure by Employee to devote substantially all of his
available professional time to the business of Employer or the
wilful and habitual neglect of duties.

<PAGE>

expense of Employer or to the detriment of Employer's business
and to which Employee is not legally entitled.

(5) The continued incapacity in excess of one hundred eighty (180)
days on the part of Employee to perform his duties, unless waived
by Employer.

(6) The mutual written agreement of Employee and Employer.

(7) The expiration of the term of this Agreement.

(8) The involuntary termination of Employee as a
director of Employer.

(9) Employee's breach of this Agreement.

5.3 EFFECT OF TERMINATION BY REASON OF DEATH OR INCAPACITY. In the
event of the termination of Employee's employment pursuant to Sections 5.2(1) or
(5) of this Agreement prior to the completion of the term of employment
specified herein, and subject to Section 4.1(7) hereof, Employee shall be
entitled to receive the balance of the unpaid compensation (including any
Incentive Compensation pursuant to Section 4.4 hereof) which is not covered by
disability or other insurance and which would otherwise be payable to Employee
during the term of this Agreement pursuant to Section 4.1(1) hereof within 60
days after such termination.

5.4. REMEDIES. No termination of the employment of Employee pursuant
to the terms of this Agreement shall prejudice any other remedy to which any
party to this Agreement may be entitled either at law, in equity, or under this
Agreement.

6. PROPERTY RIGHTS AND OBLIGATIONS OF EMPLOYEE.

6.1. TRADE SECRETS. For purposes of this Agreement, "trade secrets"
shall include without limitation any and all financial, cost and pricing
information and any and all information contained in any drawings, designs,
plans, proposals, customer lists, records of any kind, data, formulas,
specifications, concepts or ideas, where such information is reasonably related
to the business of Employer and has not previously been publicly released by
duly authorized representatives of Employer or Parent or otherwise lawfully
entered the public domain.

<PAGE>

either during the term of his employment hereunder or thereafter (except as
required in fulfilling the duties of his employment), any trade secret connected
with the business of Employer.

6.3. TRADE SECRETS OF OTHERS. Employee agrees that he will not
disclose to Employer or induce Employer to use any trade secrets belonging to
any third party.

6.4. PROPERTY OF EMPLOYER. Employee agrees that all documents,
reports, files, analyses, drawings, designs, tools, equipment, plans (including,
without limitation, marketing and sales plans), proposals, customer lists,
computer software or hardware, and similar materials that are made by him or
come into his possession by reason of his employment with Employer are the
property of Employer and shall not be used by him in any way adverse to
Employer's interests. Employee will not allow any such documents or things, or
any copies, reproductions or summaries thereof to be delivered to or used by any
third party without the specific consent of Employer. Employee agrees to
deliver to the Board of Directors of Employer or its designee, upon demand, and
in any event upon the termination of Employee's employment, all of such
documents and things which are in Employee's possession or under his control.

6.5 NONCOMPETITION BY EMPLOYEE. During the term of this Agreement,
and for a period of one (1) year following the termination of this Agreement,
Employee shall not, directly or indirectly, either as an employee, employer,
consultant, agent, principal, partner, principal stockholder, corporate officer,
director, or in any other individual or representative capacity: (i) engage or
participate in any business that is in competition in any manner with the
business of Employer; (ii) divert, take away or attempt to divert or take away
(and during the one year period, call on or solicit) any of Employer's clients
within the United States. For purposes of this Agreement, the term "Employer's
clients" shall mean clients who had a business relationship with Employer prior
to Employee's employment with Employer and those who develop a business
relationship with Employer, during Employee's employment with Employer; (iii)
undertake planning for or organization of any business within the United States
or in any other country in which Employer is engaged in business activity
competitive with Employer's business within the United States or in any other
country in which Employer is engaged in business or combine or conspire with
employees or other representative of Employer's business within the United
States or in any other country in which Employer is engaged in business for the
purpose of organizing any such competitive activity within the United States or
in any other country in which Employer is engaged in business; or (iv) induce or
influence (or seek to induce or influence) any person who is engaged, as an
employee, agent, independent contractor or otherwise by Employer within the
United States or in

<PAGE>

any other country in which Employer is engaged in business to terminate his or
her employment or engagement.

6.6 SURVIVAL PROVISIONS AND CERTAIN REMEDIES. Unless otherwise
agreed to in writing between the parties hereto, the provisions of this Section
6 shall survive the termination of this Agreement. The covenants in this
Section 6 shall be construed as separate covenants and to the extent any
covenant shall be judicially unenforceable, it shall not affect the enforcement
of any other covenant. In the event Employee breaches any of the provisions of
this Section 6, Employee agrees that Employer shall be entitled to injunctive
relief in addition to any other remedy to which Employer may be entitled.

7. GENERAL PROVISIONS.

7.1. NOTICES. Any notices or other communications required or
permitted to be given hereunder shall be given sufficiently only if in writing
and served personally or sent by certified mail, postage prepaid and return
receipt requested, addressed as follows:

If to Employer: Synagro Technologies, Inc.
16000 Stuebner Airline
Suite 420
Spring, Texas 77379

If to Employee: Don L. Thone
3811 South Arkansas Avenue
Russellville, Arkansas 72801

However, either party may change his/its address for purposes of this Agreement
by giving written notice of such change to the other party in accordance with
this Paragraph 7.1. Notices delivered personally shall be deemed effective as
of the day delivered and notices delivered by mail shall be deemed effective as
of three days after mailing (excluding weekends and federal holidays).

7.2. CHOICE OF LAW AND FORUM. Except as expressly provided otherwise
in this Agreement, this Agreement shall be governed by and construed in
accordance with the laws of the State of Texas. The parties agree that any
dispute arising under this Agreement, whether during the term of this Agreement
or at any subsequent time, shall be resolved exclusively in the courts of the
State of Texas and the parties hereby submit to the jurisdiction of such courts
for all purposes provided herein and appoint the Secretary of State of the State
of Texas as agent for service of process for all purposes provided herein.

7.3. ENTIRE AGREEMENT; MODIFICATION AND WAIVER. This Agreement
supersedes any and all other agreements, whether oral or in writing, between the
parties hereto with respect to the

<PAGE>

employment of Employee by Employer and contains all covenants and agreements
between the parties relating to such employment in any manner whatsoever. Each
party to this Agreement acknowledges that no representations, inducements,
promises, or agreements, oral or written, have been made by any party, or anyone
acting on behalf of any party, which are not embodied herein, and that no other
agreement, statement, or promise not contained in this Agreement shall be valid
or binding. Any modification of this Agreement shall be effective only if it is
in writing signed by the party to be charged. No waiver of any of the
provisions of this Agreement shall be deemed, or shall constitute, a waiver of
any other provision, whether or not similar, nor shall any waiver constitute a
continuing waiver. No waiver shall be binding unless executed in writing by the
party making the waiver.

7.4. ASSIGNMENT. Because of the personal nature of the services to
be rendered hereunder, this Agreement may not be assigned in whole or in part by
Employee without the prior written consent of Employer. However, subject to the
foregoing limitation, this Agreement shall be binding on, and shall inure to the
benefit of, the parties hereto and their respective heirs, legatees, executors,
administrators, legal representatives, successors and assigns.

7.5. SEVERABILITY. If for any reason whatsoever, any one or more of
the provisions of this Agreement shall be held or deemed to be inoperative,
unenforceable, or invalid as applied to any particular case or in all cases,
such circumstances shall not have the effect of rendering any such provision
inoperative, unenforceable, or invalid in any other case or of rendering any of
the other provisions of this Agreement inoperative, unenforceable or invalid.

7.6 CORPORATE AUTHORITY. Employer represents and warrants as of the
date hereof that Employer's execution and delivery of this Agreement to Employee
and the carrying out of the provisions hereof have been duly authorized by
Employer's Board of Directors and authorized by Employer's shareholders and
further represents and warrants that neither the execution and delivery of this
Agreement, nor the compliance with the terms and provisions thereof by Employer
will result in the breach of any state regulation, administrative or court
order, nor will such compliance conflict with, or result in the breach of, any
of the terms or conditions of Employer's Articles of Incorporation or Bylaws, as
amended, or any agreement or other instrument to which Employer is a party, or
by which Employer is or may be bound, or constitute an event of default
thereunder, or with the lapse of time or the giving of notice or both constitute
an event of default thereunder.

<PAGE>

7.7. ATTORNEYS' FEES. In any action at law or in equity to enforce
or construe any provisions or rights under this Agreement, the unsuccessful
party or parties to such litigation, as determined by the courts pursuant to a
final judgment or decree, shall pay the successful party or parties all costs,
expenses, and reasonable attorneys' fees incurred by such successful party or
parties (including, without limitation, such costs, expenses, and fees on any
appeals), and if such successful party or parties shall recover judgment in any
such action or proceedings, such costs, expenses, and attorneys' fees shall be
included as part of such judgment.

7.8. COUNTERPARTS. This Agreement may be executed simultaneously in
one or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.

7.9. HEADINGS AND CAPTIONS. Headings and captions are included for
purposes of convenience only and are not a part hereof.

7.10. CONSULTATION WITH COUNSEL. Employee acknowledges that he has
had the opportunity to consult with counsel independent of Employer or
Employer's counsel, Matthias & Berg LLP, regarding the entering into of this
Agreement and has done so to the extent he sees fit.

<PAGE>

IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the day and year first written above at Houston, Texas.

"Employer"

SYNAGRO TECHNOLOGIES, INC.
a Nevada corporation

By:/s/ Daniel L. Shook
-----------------------
Daniel L. Shook
Chief Financial Officer

"Employee"

By:/s/ Don L. Thone
-----------------------
Don L. Thone

<PAGE>

EXHIBIT 10.6

SYNAGRO TECHNOLOGIES, INC.
AMENDED AND RESTATED 1993 STOCK OPTION PLAN

1. PURPOSE. The purpose of the Synagro Technologies, Inc. Amended and
Restated 1993 Stock Option Plan (the "Plan"), is to provide an incentive to
officers, directors, employees, independent contractors, and consultants of
Synagro Technologies, Inc., a Delaware corporation (sometimes referred to herein
as the "Company"), and any parent companies and subsidiaries (together with the
Company herein collectively referred to as "Synagro") to remain in the employ of
Synagro or provide services to Synagro and contribute to its success.

As used in the Plan, the term "Code" shall mean the Internal Revenue Code
of 1986, as amended, and any successor statute, and the terms "Parent" and
"Subsidiary" shall have the meanings set forth in Sections 424(e) and (f) of the
Code.

This Plan amends and restates both the 1993 Incentive Stock Option Plan and
the 1993 Non-Qualified Stock Option Plan, each dated as of February 16, 1993,
and consolidates such plans into this Plan.

This Plan was adopted by the Board of Directors as of March 7, 1996, and
the stockholders of the Company as of June 28, 1996.

2. ADMINISTRATION. The Plan shall be administered by a Plan Committee
which shall be established by the Board of Directors of the Company (the
"Board"). The Plan Committee shall be comprised of at least two members who
shall be outside directors of the Company, as defined in Section 162(m) of the
Code or any successor provision. Members of the Plan Committee shall be
appointed, both initially and as vacancies occur, by the Board. The Board may
serve as the Plan Committee if by the terms of the Plan all members of the Board
are otherwise eligible to serve on the Plan Committee. The Board, at any time
it so desires, may increase or decrease, but not below two, the number of
members of the Plan Committee, may remove from membership on the Plan Committee
all or any portion of its members, and may appoint such person or persons as it
desires to fill any vacancy existing on the Plan Committee, whether by removal,
resignation or otherwise. The provisions of the Plan and all option and stock
appreciation right (SAR) agreements executed pursuant thereto, and its decisions
shall be conclusive and binding upon all interested persons. Subject to the
provisions of the Plan, the Plan Committee shall have the sole authority to
determine:

<PAGE>

(a) The persons (hereinafter, "optionees") to whom options to
purchase shares of Common Stock of the Company ("Stock") and SARs shall be
granted;

(b) The number of options and SARs to be granted to each optionee;

(d) The period within which each option and SAR shall be exercised
and, with the consent of the optionee, any extensions of such period (provided,
however, that the original period and all extensions shall not exceed the
maximum period permissible under the Plan); and

(e) The terms and conditions of each stock option and/or SAR
agreement entered into between the Company and persons to whom the Company has
granted an option or SAR and of any amendments thereto (provided that the
optionee consents to each such amendment).

The Plan Committee shall meet at such times and places as it determines,
including by means of a telephone conference call. A majority of the members
shall constitute a quorum, and a decision of a majority of those present at any
meeting at which a quorum is present shall constitute the decision of the Plan
Committee. A memorandum signed by all of the members of the Plan Committee
shall constitute the decision of the Plan Committee without the necessity, in
such event, for holding an actual meeting.

3. ELIGIBILITY. Officers, directors and employees of Synagro independent
contractors, consultants and other persons providing significant services to
Synagro shall be eligible to receive grants of options under the Plan.

4. STOCK SUBJECT TO PLAN. There shall be reserved for issue, upon the
exercise of options granted under the Plan, 540,000 shares of Stock or the
number of shares of Stock, which, in accordance with the provisions of Section 9
hereof, shall be substituted therefor. Such shares may be treasury shares. If
an option granted under the Plan shall expire or terminate for any reason
without having been exercised in full, unpurchased shares subject thereto shall
again be available for the purposes of the Plan. The maximum number of shares
with respect to which options which may be granted to an optionee who is an
employee of Synagro shall not exceed 125,000 shares in any fiscal year during
the term of the Plan.

<PAGE>

5. TERMS OF OPTIONS AND SARS.

(a) INCENTIVE STOCK OPTIONS. It is intended that options granted
pursuant to this Section 5(a) qualify as incentive stock options as defined in
Section 422 of the Code. Incentive stock options shall be granted only to
employees of Synagro. Each stock option agreement evidencing an incentive stock
option shall provide that the option is subject to the following terms and
conditions and to such other terms and conditions not inconsistent therewith as
the Plan Committee may deem appropriate in each case:

(1) OPTION PRICE. The price to be paid for each share of Stock
upon the exercise of each incentive stock option shall be determined by the Plan
Committee at the time the option is granted, but shall in no event be less than
100% of the Fair Market Value (as defined below) of the shares on the date the
option is granted, or not less than 110% of the Fair Market Value of such shares
on the date such option is granted in the case of an individual then owning
(within the meaning of Section 424(d) of the Code) 10% or more of the total
combined voting power of all classes of stock of the Company or of its Parent or
Subsidiaries. As used in this Plan, the term "date the option is granted" means
the date on which the Plan Committee authorizes the grant of an option hereunder
or any later date specified by the Plan Committee. For the purposes of the
Plan, Fair Market Value of the shares shall be (i) the closing sales price of
shares of Stock sold on the New York Stock Exchange, American Stock Exchange or
the NASDAQ National Market System on the date the option is granted (or if there
was no sale on such date, the highest asked price for the Stock on such date),
(ii) if the Stock is not listed on either of those exchanges or traded on the
NASDAQ National Market System on the date the option is granted, the mean
between the "bid" and "asked" price of the Stock in the National
Over-The-Counter Market (or other similar market quotation system) on the date
the option is granted, or (iii) if the Stock is not traded in any market, the
price determined by the Plan Committee to be the fair market value, based upon
such evidence as it may deem necessary or desirable.

(2) PERIOD OF OPTION AND EXERCISE. The period or periods within
which an option may be exercised shall be determined by the Plan Committee at
the time the option is granted, but in no event shall any option granted
hereunder be exercised more than ten years from the date the option was granted
nor more than five years from the date the option was granted in the case of an
individual then owning (within the meaning of Section 424(d) of the Code) more
than 10% of the total combined voting power of all classes of stock of the
Company or of its Parent or Subsidiaries.

<PAGE>

(3) PAYMENT FOR STOCK. The option exercise price for each share
of Stock purchased under an option shall be paid in full at the time of
purchase. The Plan Committee may provide that the option price be payable, at
the election of the holder of the option and with the consent of the Plan
Committee, in whole or in part either in cash or by delivery of Stock in
transferable form, such Stock to be valued for such purpose at its Fair Market
Value on the date on which the option is exercised. No share of Stock shall be
issued upon exercise until full payment therefor has been made, and no optionee
shall have any rights as an owner of Stock until the date of issuance to him of
the stock certificate evidencing such Stock.

(4) LIMITATION ON AMOUNT BECOMING EXERCISABLE IN ANY ONE
CALENDAR YEAR. Subject to the overall limitations of Section 4 hereof (relating
to the aggregate shares subject to the Plan), the aggregate Fair Market Value
(determined as of the time the option is granted) of Stock with respect to which
incentive stock options are exercisable for the first time by the optionee
during any calendar year (under the Plan and all other incentive stock option
plans of the Company, the Parent, and Subsidiaries) shall not exceed $100,000.

(b) NONQUALIFIED STOCK OPTIONS. Nonqualified stock options may be granted
not only to employees but also to directors who are not employees of Synagro and
to consultants, independent contractors and other persons who provide
substantial services to Synagro. Each nonqualified stock option granted under
the Plan shall be evidenced by a stock option agreement between the person to
whom such option is granted and the Company. Such stock option agreement shall
provide that the option is subject to the following terms and conditions and to
such other terms and conditions not inconsistent therewith as the Plan Committee
may deem appropriate in each case:

(1) OPTION PRICE. The price to be paid for each share of Stock
upon the exercise of an option shall be determined by the Plan Committee at the
time the option is granted, but in no event shall be less than 85% of the Fair
Market Value of the shares on the date the option is granted. As used in this
Plan, the term "date the option is granted" means the date on which the Plan
Committee authorized the grant of an option hereunder or any later date
specified by the Plan Committee. To the extent that the fair market value of
Stock is relevant to the pricing of the option by the Plan Committee, fair
market value of the Stock shall be determined as set forth in Section 5(a)(1)
hereof.

(2) PERIOD OF OPTION AND EXERCISE. The periods, installments or
intervals during which an option may be exercised shall be determined by the
Plan Committee at the time the option is granted, but in no event shall such
period exceed 10 years from the date the option is granted.

<PAGE>

(3) PAYMENT FOR STOCK. The option exercise price for each share
of Stock purchased under an option shall be paid in full at the time of
purchase. The Plan Committee may provide that the option exercise price be
payable at the election of the holder of the option, with the consent of the
Plan Committee, in whole or in part either in cash or by delivery of Stock in
transferable form, such Stock to be valued for such purpose at its Fair Market
Value on the date on which the option is exercised. No share of Stock shall be
issued until full payment therefor has been made, and no optionee shall have any
rights as an owner of shares of Stock until the date of issuance to him of the
stock certificate evidencing such Stock.

(c) STOCK APPRECIATION RIGHTS. SARs may be granted in writing under the
Plan by the Plan Committee subject to the following terms and conditions and
such other terms and conditions as the Plan Committee may prescribe.

(1) RIGHT OF OPTIONEE. Each SAR shall entitle the holder
thereof, upon the exercise of the SAR, to receive from the Company in exchange
therefor an amount equal in value to the excess of the Fair Market Value on the
date of exercise of one share of Stock over its Fair Market Value on the date of
grant (or, in the case of an SAR granted in connection with an option, the
excess of the Fair Market Value of one share of Stock at the time of exercise
over the option exercise price per share under the option to which the SAR
relates), multiplied by the number of shares covered by the SAR or the option,
or portion thereof, that is surrendered. No SAR shall be exercisable at a time
that the amount determined under this subparagraph is negative. Payment by the
Company upon exercise of an SAR shall be made in Stock valued at the Fair Market
Value of the Stock on the date of exercise.

(2) EXERCISE. An SAR shall be exercisable only at the time or
times established by the Plan Committee. If an SAR is granted in connection
with an option, the following rules shall apply: (i) the SAR shall be
exercisable only to the extent and on the same conditions that the related
option could be exercised; (ii) upon exercise of the SAR, the option or portion
thereof to which the SAR relates terminates; and (iii) upon exercise of the
option, the related SAR or portion thereof terminates.

(3) RULES. The Plan Committee may withdraw any SAR granted
under the Plan at any time and may impose any conditions upon the exercise of an
SAR or adopt rules and regulations from time to time affecting the rights of
holders of SARs granted prior to adoption or amendment of such rules and
regulations as well as SARs granted thereafter.

<PAGE>

(4) FRACTIONAL SHARES. No fractional shares shall be issued
upon exercise of an SAR. In lieu thereof, cash may be paid in an amount equal
to the value of the fraction or, if the Plan Committee shall determine, the
number of shares may be rounded downward to the next whole share.

(5) SHARES SUBJECT TO PLAN. Upon the exercise of an SAR for
shares, the number of shares of Stock reserved for issuance under the Plan shall
be reduced by the number of shares issued.

6. NONTRANSFERABILITY. The options and SARs granted pursuant to the Plan
shall be nontransferable except by will or the laws of descent and distribution
of the state or country of the optionee's domicile at the time of death or for
options other than incentive stock options, pursuant to a qualified domestic
relations order as defined in the Code or Title I of the Employee Retirement
Income Security Act and shall be exercisable during the optionee's lifetime only
by him (or, in the case of a transfer pursuant to a qualified domestic relations
order, by the transferee under such qualified domestic relations order) and
after his death, by his personal representative or by the person entitled
thereto under his will or the laws of intestate succession.

7. TERMINATION OF EMPLOYMENT OR OTHER RELATIONSHIP. Unless otherwise
specified in the applicable option and/or SAR agreement or SAR, upon termination
of the optionee's employment or other relationship with Synagro, his rights to
exercise options and SARs then held by him shall be only as follows (in no case
do the time periods referred to below extend the term specified in any option):

(a) DEATH OR DISABILITY. Upon the death or disability (within the
meaning of Section 22(e)(3) of the Code) of an optionee, any option or SAR which
he holds may be exercised (to the extent exercisable at his death or
disability), unless it otherwise expires, within such period after the date of
his death (not less than six months nor more than twelve months) as the Plan
Committee shall prescribe in his option agreement or SAR, by the optionee or, in
the event of death, by the optionee's representative or by the person entitled
thereto under his will or the laws of intestate succession.

(b) RETIREMENT. Upon the retirement (either pursuant to an Synagro
retirement plan, if any, or pursuant to the approval of the Board) of an
officer, director or employee, an outstanding option or SAR may be exercised (to
the extent exercisable at the date of such retirement) by him within such period
after the date of his retirement (provided that such period is no less than 30
days and no more than three months) as the Plan Committee shall prescribe in his
option agreement or SAR.

<PAGE>

(c) OTHER TERMINATION. In the event an officer, director or employee
ceases to serve as an officer or director or leaves the employ of Synagro for
any reasons other than as set forth in (a) and (b), above, or a nonemployee
ceases to provide services to Synagro, any option or SAR which he holds shall
remain exercisable (to the extent exercisable as of the date of such
termination) until 30 days after the date of such termination.

(d) PLAN COMMITTEE DISCRETION. The Plan Committee may in its sole
discretion accelerate the exercisability of any or all options or SARs.

8. TRANSFER TO RELATED CORPORATION. In the event an employee leaves the
employ of the Company to become an employee of a Parent or a Subsidiary or any
employee leaves the employ of a Parent or a Subsidiary to become an employee of
the Company or another Parent or Subsidiary, such employee shall be deemed to
continue as an employee for purposes of this Plan.

9. ADJUSTMENT OF SHARES; TERMINATION OF OPTIONS AND SARs.

(a) ADJUSTMENT OF SHARES. In the event of changes in the outstanding
Stock by reason of stock dividends, split-ups, consolidations,
recapitalizations, reorganizations or like events (as determined by the Plan
Committee), an appropriate adjustment shall be made by the Plan Committee in the
number of shares reserved under the Plan, in the number of shares set forth in
Section 4 hereof, in the number of shares and the option price per share
specified in any stock option agreement, and in the number of SARs with respect
to any unexercised shares. The determination of the Plan Committee as to what
adjustments shall be made shall be conclusive. Adjustments for any options to
purchase fractional shares shall also be determined by the Plan Committee. The
Plan Committee shall give prompt notice to all optionees of any adjustment
pursuant to this Section.

(b) TERMINATION OF OPTIONS AND SARS ON MERGER, REORGANIZATION OR
LIQUIDATION OF THE COMPANY. Notwithstanding anything to the contrary in this
Plan, in the event of any merger, consolidation or other reorganization of the
Company in which the Company is not the surviving or continuing corporation (as
determined by the Plan Committee) or in the event of the liquidation or
dissolution of the Company, all options and SARs granted hereunder shall
terminate on the effective date of the merger, consolidation, reorganization,
liquidation or dissolution unless there is an agreement with respect thereto
which expressly provides for the assumption of such options and SARs by the
continuing or surviving corporation.

<PAGE>

10. SECURITIES LAW REQUIREMENTS. The Company's obligation to issue shares
of its Stock upon exercise of an option or SAR is expressly conditioned upon the
completion by the Company of any registration or other qualification of such
shares under any state and/or federal law or rulings and regulations of any
government regulatory body or the making of such investment representations or
other representations and undertakings by the optionee (or his legal
representative, heir or legatee, as the case may be) in order to comply with the
requirements of any exemption from any such registration or other qualification
of such shares which the Company in its sole discretion shall deem necessary or
advisable. The Company may refuse to permit the sale or other disposition of
any shares acquired pursuant to any such representation until it is satisfied
that such sale or other disposition would not be in contravention of applicable
state or federal securities law.

11. TAX WITHHOLDING. As a condition to the exercise of an option or SAR
or otherwise, the Company may require an optionee to pay over to the Company all
applicable federal, state and local taxes which the Company is required to
withhold with respect to the exercise of an option or SAR granted hereunder. At
the discretion of the Plan Committee and upon the request of an optionee, the
minimum statutory withholding tax requirements may be satisfied by the
withholding of shares of Stock otherwise issuable to the optionee upon the
exercise of an option or SAR.

12. AMENDMENT. The Board may amend the Plan at any time, except that
without shareholder approval:

(a) The number of shares of Stock which may be reserved for issuance
under the Plan shall not be increased except as provided in Section 9(a) hereof;

(b) The option price per share of Stock subject to incentive stock
options may not be fixed at less than 100% of the Fair Market Value of a share
of Stock on the date the option is granted;

(d) The class of persons eligible to receive options or SARs under
the Plan as set forth in Section 3 shall not be changed; and

(e) This Section 12 may not be amended in a manner that limits or
reduces the amendments which require shareholder approval.

<PAGE>

13. EFFECTIVE DATE. The Plan shall be effective upon the date of its
adoption by both the Board, and subject to the approval of the stockholders of
the Company within the 12 month period following such adoption date.

14. TERMINATION. The Plan shall terminate automatically as of the close
of business on the day preceding the 10th anniversary date of its effectiveness
or earlier by resolution of the Board, or upon consummation of any merger,
consolidation or other reorganization in which the options granted hereunder
terminate, all as described in Section 9(b) hereof. Unless otherwise provided
herein, the termination of the Plan shall not affect the validity of any option
agreement outstanding at the date of such termination.

15. STOCK OPTION AND SAR AGREEMENT. Each option and SAR granted under the
Plan shall be evidenced by a written agreement executed by the Company and
accepted by the optionee, which (i) shall contain each of the provisions and
agreements herein specifically required to be contained therein, (ii) shall
indicate whether an option is to be an incentive stock option or a nonqualified
stock option, and if it is to be an incentive stock option, the stock option
agreement shall contain terms and conditions permitting such option to qualify
for treatment as an incentive stock option under Section 422 of the Code, (iii)
may contain the agreement of the optionee to remain in the employ of, and/or to
render services to, the Company or any Parent or Subsidiary for a period of time
to be determined by the Plan Committee, and (iv) may contain such other terms
and conditions as the Plan Committee deems desirable and which are not
inconsistent with the Plan.

16. NO RIGHT TO EMPLOYMENT. Nothing in this Plan or in any option or SAR
granted hereunder shall confer upon any optionee any right to continue in the
employ of ITV or to continue to perform services for Synagro, or shall interfere
with or restrict in any way the rights of Synagro to discharge or terminate any
officer, director, employee, independent contractor or consultant at any time
for any reason whatsoever, with or without good cause.

Executed and dated as of the date first written above at Houston, Texas.

SYNAGRO TECHNOLOGIES, INC.

By: /s/ Don L. Thone
----------------------------
Don L. Thone
Chief Executive Officer

<PAGE>

EXHIBIT 10.17

EMPLOYMENT AGREEMENT

This Employment Agreement ("Agreement") is entered into and made
effective as of January 29, 1996, by and among Synagro Technologies, Inc.
("Employer") a Nevada corporation, and Daniel L. Shook ("Employee").

R E C I T A L S

WHEREAS, Employer is desirous of hiring Employee as one of its key
employees;

WHEREAS, Employee is willing to accept employment as an employee of
Employer; and

WHEREAS, the parties hereto desire to delineate the responsibilities
of Employee and the expectations of Employer;

NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants and obligations herein contained, the parties hereto agree as
follows:

AGREEMENT

1. EMPLOYMENT. Employer hereby employs Employee, and Employee hereby
accepts employment with Employer, upon the terms and conditions set forth in
this Agreement.

2. TERM OF EMPLOYMENT. The employment of Employee pursuant to the
terms of this Agreement shall commence as of January 29, 1996, and shall
continue for a period of five (5) years, unless sooner terminated pursuant to
the provisions hereof; PROVIDED, HOWEVER, that this Agreement shall, unless
earlier terminated, at the end of each anniversary, be automatically extended
for an additional one year term.

3. DUTIES.

<PAGE>

companies or entities that in the judgment of Employer will not present any
conflict of interest with Employer or any of its operations or adversely affect
the performance of Employee's duties pursuant to this Agreement.

3.3. TIME DEVOTED TO EMPLOYMENT. Employee shall devote his full time
to the business of Employer during the term of this Agreement to fulfill his
obligations hereunder.

3.4. PLACE OF PERFORMANCE OF DUTIES. The services of Employee shall
be performed at Employer's place of business and at such other locations as
shall be designated from time to time by Employer.

4. COMPENSATION AND METHOD OF PAYMENT.

4.1 TOTAL COMPENSATION. As compensation under this Agreement, Employer
shall pay and Employee shall accept the following:

(1) For each year of this Agreement, measured from the effective date
hereof, base compensation of one hundred and twenty-five thousand dollars
($125,000), with such upward adjustments as may be approved from time to
time by the Board of Directors of Employer. Such adjustments may be based
on the performance of Employer, the value of Employee to Employer or any
other factors considered relevant by Employer.

(2) For each year, such bonus, supplemental or incentive compensation
("Incentive Compensation") as may be approved by the Board of Directors.

(3) Reimbursement of such discretionary expenses as are reasonable and
necessary, in the judgment of the Board of Directors, for Employee's
performance of his responsibilities under this Agreement.

(4) Nonqualified options to acquire up to 125,000 shares of Common Stock at
an exercise price of $2.00 per share, subject to the terms of such options
as set forth in the Stock Option Agreement attached hereto as Exhibit "A."

<PAGE>

PRO RATA basis and which shall be carried forward for a period not to
exceed three (3) years and otherwise in accordance with Employer's
policies); major medical and health insurance; life and disability
insurance coverage; and stock option plans for members of the Board of
Directors. Employer further agrees that in the event it offers disability
insurance to its employees, Employer shall arrange for Employee to be
covered by similar insurance.

4.2 PAYMENT OF COMPENSATION. Employer shall pay the compensation provided
for in Section 4.1 hereof as follows:

(1) Employer shall pay the base compensation in cash the base compensation
semi-monthly in twenty-four equal installments or in accordance with
Employer's payroll practices for all its employees, but in no event less
frequently than monthly.

(3) Employer shall pay in cash the reimbursement of such discretionary
expenses provided in Section 4.1(3) hereof.

<PAGE>

4.3 AMOUNTS PAID TO THE DEFERRED COMPENSATION TRUST

(a) Employee's termination of service because of death, disability, or
termination of employment;

(b) Employee's attainment of the age of sixty-five (65) years; or

(c) A Change of Control of Employer. For all purposes of this
Agreement, a "Change of Control" shall mean: (i) the acquisition by
any person, entity or group of persons, within the meaning of Section
13(d) or 14(d), or any comparable successor provisions, of the
Securities Exchange Act of 1934 (the "Act") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Act) of at
least twenty-five percent (25%) of either the outstanding shares of
common stock or the combined voting power of Employer's then
outstanding voting securities entitled to vote generally, or (ii) the
approval by the stockholders of Employer of a reorganization, merger,
or consolidation, in each case with respect to which persons who were
stockholders of Employer immediately prior to such reorganization,
merger or consolidation do not, immediately thereafter, own or control
more than fifty percent (50%) of the combined voting power entitled to
vote generally in the election of directors of the reorganized, merged
or consolidated Employer's then outstanding securities, or a
liquidation or dissolution of Employer or of the sale of all or
substantially all of Employer's assets, or (iii) in the event Employer
terminates Employee pursuant to this Agreement for any reason other
than the occurrence of any of the events set forth in Sections
5.2(2),(3),(4),(6), (7) or (9) hereof, or (iv) in the event any person
shall be elected by the stockholders of Employer to the Board of
Directors of Employer who shall not have been nominated for election
by a majority of the Board of Directors of Employer or any duly
appointed committee thereof.

<PAGE>

5. TERMINATION OF AGREEMENT.

5.1. BY NOTICE. This Agreement, and the employment of Employee
hereunder, may be terminated by Employee or Employer upon ninety (90) days'
written notice of termination; PROVIDED, HOWEVER, in the event Employer
terminates this Agreement for any reason other than the occurrence of any of the
events set forth in Sections 5.2 (2), (3), (4), (6), (7) or (9), and subject to
Section 4.1(7) hereof, Employee shall be entitled to receive the balance of the
unpaid base salary which would otherwise be payable to Employer during the
remainder of the term of this Agreement pursuant to Section 4.1(1) hereof within
thirty (30) days after such ninety (90) day notice period.

5.2. OTHER TERMINATION. This Agreement, and the employment of
Employee hereunder, shall terminate immediately upon the occurrence of any one
of the following events:

(1) The death or mental or physical incapacity of Employee.

(2) The loss by Employee of legal capacity (other than as described
in Section 5.2(1) hereof).

(3) The failure by Employee to devote substantially all of his
available professional time to the business of Employer or the
wilful and habitual neglect of duties.

(4) The willful engaging by Employee in an act of dishonesty
constituting a felony under the laws of the state in which
Employer's principal place of business is located, resulting or
intending to result in gain or personal enrichment at the expense
of Employer or to the detriment of Employer's business and to
which Employee is not legally entitled.

(5) The continued incapacity in excess of one hundred eighty (180)
days on the part of Employee to perform his duties, unless waived
by Employer.

(6) The mutual written agreement of Employee and Employer.

(7) The expiration of the term of this Agreement.

(8) The involuntary termination of Employee as a director of
Employer.

(9) Employee's breach of this Agreement.

<PAGE>

5.3 EFFECT OF TERMINATION BY REASON OF DEATH OR INCAPACITY. In the
event of the termination of Employee's employment pursuant to Sections 5.2(1) or
(5) of this Agreement prior to the completion of the term of employment
specified herein, and subject to Section 4.1(7) hereof, Employee shall be
entitled to receive the balance of the unpaid compensation (including any
Incentive Compensation pursuant to Section 4.4 hereof) which is not covered by
disability or other insurance and which would otherwise be payable to Employee
during the term of this Agreement pursuant to Sections 4.1(1) and 4.1(6) hereof
within 60 days after such termination.

6. PROPERTY RIGHTS AND OBLIGATIONS OF EMPLOYEE.

6.2. PRESERVATION OF TRADE SECRETS. Employee will preserve as
confidential all trade secrets pertaining to Employer's business that have been
or may be obtained or learned by him by reason of his employment or otherwise.
Employee will not, without the written consent of Employer, either use for his
own benefit or purposes or disclose or permit disclosure to any third parties,
either during the term of his employment hereunder or thereafter (except as
required in fulfilling the duties of his employment), any trade secret connected
with the business of Employer.

6.3. TRADE SECRETS OF OTHERS. Employee agrees that he will not
disclose to Employer or induce Employer to use any trade secrets belonging to
any third party.

<PAGE>

thereof to be delivered to or used by any third party without the specific
consent of Employer. Employee agrees to deliver to the Board of Directors of
Employer or its designee, upon demand, and in any event upon the termination of
Employee's employment, all of such documents and things which are in Employee's
possession or under his control.

<PAGE>

7. GENERAL PROVISIONS.

If to Employer: Synagro Technologies, Inc.
16000 Stuebner Airline
Suite 420
Spring, Texas 77379

If to Employee: Daniel L. Shook
79 Patti Lynn Lane
Houston, Texas 77024

7.3. ENTIRE AGREEMENT; MODIFICATION AND WAIVER. This Agreement
supersedes any and all other agreements, whether oral or in writing, between the
parties hereto with respect to the employment of Employee by Employer and
contains all covenants and agreements between the parties relating to such
employment in any manner whatsoever. Each party to this Agreement acknowledges
that no representations, inducements, promises, or agreements, oral or written,
have been made by any party, or anyone acting on behalf of any party, which are
not embodied herein, and that no other agreement, statement, or promise not
contained in this Agreement shall be valid or binding. Any modification of this
Agreement shall be effective only if it is in writing signed by the party to be
charged. No waiver of any of the provisions of this Agreement shall be deemed,
or shall constitute, a waiver of any other provision, whether or not similar,
nor shall any waiver constitute a continuing waiver. No waiver shall be binding
unless executed in writing by the party making the waiver.

<PAGE>

7.9. HEADINGS AND CAPTIONS. Headings and captions are included for
purposes of convenience only and are not a part hereof.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the day and year first written above at Houston, Texas.

"Employer"

SYNAGRO TECHNOLOGIES, INC.
a Nevada corporation

By: /s/ Don L. Thone
--------------------------
Don L. Thone
Chief Executive Officer

"Employee"

By: /s/ Daniel L. Shook
---------------------------
Daniel L. Shook

<PAGE>

EXHIBIT 22.1

LIST OF SUBSIDIARIES
OF
SYNAGRO TECHNOLOGIES, INC.

CDR Environmental, Inc.

Organi-Gro, Inc.

Pima Gro Systems, Inc.

Pima Gro Systems 2, Inc.

<PAGE>

EXHIBIT 24.1

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We consent to the inclusion in this Post-Effective Amendment No. 1 to Form S-1
of our report dated February 28, 1996, on our audit of the consolidated
financial statements of Synagro Technologies, Inc. and its subsidiaries. We
also consent to the reference to our firm under the caption "Experts."

SINGER LEWAK GREENBAUM & GOLDSTEIN LLP

Los Angeles, California
October 24, 1996