**UNITED
        STATES SECURITIES AND EXCHANGE COMMISSION**
 **WASHINGTON,
        D.C. 20549**
 
 **FORM
        10-KSB**
 
 **[X]**  **Annual
        Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange Act Of
        1934**
  For
        the
        Fiscal Year ended: **SEPTEMBER
        30, 2006**
 
 **[ 
         ]**  **Transition
        Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange Act Of
        1934**
 
 For the Transition Period From ____ to ____
 
 Commission
        File Number: 33-3378-D
 
 **SUB
        SURFACE WASTE MANAGEMENT OF DELAWARE, INC.**
 (Exact
        name of Registrant as specified in its charter)




**Delaware**
              
              **51-0401125**(State
                  or other jurisdiction of Identification
                  No.)
              
              (I.R.S.
                  Employer incorporation or
                  organization)


**6451-C
        El Camino Real, Carlsbad, CA 92009**
 (Address
        of principal executive offices) (Zip Code)
 
 **(760)
        918-1860**
 (Registrant's
        telephone number, including area code)
 
 Securities
        Company pursuant to Section 12(b) of the Act: None
 
 Securities
        registered pursuant to Section 12(g) of the Act: None
 
 Check
        whether the issuer: (1) filed all reports required to be filed by Section
        12 or
        15(d) of the Exchange Act during the past 12 months (or for such shorter
        period
        that the registrant was required to file such reports), and (2) has been
        subject
        to such filing requirements for the past 90 days. Yes [X] No [ 
]
 
 Check
        if
        there is no disclosure of delinquent filers in response to Item 405 of
        Regulation S-B is contained in this form, and no disclosure will be contained
        to
        the best of registrant's knowledge, in definitive proxy or information
        statements incorporated by reference in Part III of this Form 10-KSB or any
        amendment to this Form 10-KSB. [X]
 
 The
        issuer's revenues for the twelve months ended September 30, 2006 were
        $508,460.
 
 As
        of
        January 11, 2007 there are approximately 44,996,127 shares of common voting
        stock of the Company held by non-affiliates having an aggregate market value
        of
        $1,349,884.
 
 As
        of
        January 11, 2007, there were 99,060,794 shares of the Company's Common Stock
        outstanding.
 
 Transitional
        Small Business Disclosure Format (Check one): Yes [  ] No
        [X]







**SUB
        SURFACE WASTE MANAGEMENT OF DELAWARE, INC.**
 
 **FORM
        10-KSB**
 
 For
        Year
        Ended September 30, 2006


PagePART
                  IItem
                  1.
              Description
                  of Business
              3Item
                  2.
              Description
                  of Properties
              18Item
                  3.
              Legal
                  Proceedings
              18Item
                  4.
              Submission
                  of Matters to a Vote of Security Holders
              18PART
                IIItem
                  5.
              Market
                  for Common Equity and Related Stockholder Matters
              19Item
                  6.
              Management
                  Discussion and Analysis or Plan of Operation
              22Item
                  7.
              Financial
                  Statements
              F-1
                  to F-27Item
                  8.
              Changes
                  in and Disagreements With Accountants on Accounting and Financial
                  Disclosures
              28Item
                  8(a).
              Controls
                  and Procedures
              28PART
                  IIIItem
                  9.
              Directors,
                  Executive Officers, Promoters and Control Persons; Compliance with
Section
                  16(a) of the Exchange Act
              29Item
                  10.
              Executive
                  Compensation
              31Item
                  11.
              Security
                  Ownership of Certain Beneficial Owners and Management
              33Item
                  12.
              Certain
                  Relationships and Related Transactions
              35Item
                  13.
              Exhibits
              35Item
                  14.
              Principal
                  Accountant's Fees and Services
              36




2




**PART
        I**
 
 **ITEM
        1. DESCRIPTION OF BUSINESS**
 
 **Overview**
 
 References
        herein to the “Company”, “it” or “its” refer to Sub Surface Waste Management of
        Delaware, Inc. and its subsidiaries unless the context specifically states
        or
        implies otherwise.
 
 The
        Company engages in developing, manufacturing and selling engineered remediation
        solutions for clean up of toxic waste releases to soil and groundwater and
        the
        bio-recycling of spent activated carbon filtration media. The treatments
        may be
        made directly to the contaminated soil or groundwater in the location at
        which
        the contamination was found ("in situ"), using wells and subsurface
        injection/extraction points to administer the Company's proprietary microbial
        blends for bioremediation of various waste streams. Alternatively, the
        treatments may require excavation of contaminated soil or pumping of groundwater
        ("ex situ"), and washing activated carbon filtration media with microbes
        to
        Bio-recycle the filtration media. The Company provides technical engineering
        consultation and microbial blends as a subcontractor on projects or executes
        the
        work directly as a primary contractor in connection with both ex-situ and
        in
        situ processes. The Company also provides comprehensive civil and environmental
        engineering project management services including specialists to design,
        permit,
        build and operate environmental waste clean-up treatment systems using
        conventional, biological and filtration technologies.
 
 **History**
 
 The
        Company was incorporated under the laws of the state of Utah on January 30,
        1986
        and was re-domiciled in the State of Delaware in February 2001 under the
        name of
        Covingham Capital Corporation ("Covingham"). Covingham was an inactive publicly
        registered corporation with no significant assets or operations. On December
        20,
        2002, Covingham entered into a Capital Stock Exchange Agreement ("Agreement")
        with the stockholders of Sub Surface Waste Management, Inc. ("SSWM"), then
        a
        wholly-owned subsidiary of U.S. Microbics, Inc., organized under the laws
        of the
        State of Nevada. Effective with the Agreement, all previously outstanding
        common
        stock, preferred stock, options and warrants owned by SSWM stockholders were
        exchanged for an aggregate of 10,774,000 shares of the Covingham's common
        stock,
        5,360,000 shares of the Covingham's series A convertible preferred stock,
        and
        stock options for 400,000 shares of Covingham's series A convertible preferred
        stock.
 
 Following
        the consummation of the Capital Stock Exchange Agreement, in December 2002,
        Covingham's name was changed to Sub Surface Waste Management of Delaware,
        Inc.
 
 In
        early
        2006, the Company authorized the initiation of a new consolidating entity.
        Environmental Tec International, S.A. de C.V. (ETI) is a wholly owned subsidiary
        company of SSWM and is a registered legal company in the Estados Unidos
        Mexicanos (United Mexican States) or otherwise known as the Republic of Mexico
        chartered to pursue and execute environmental engineering, remediation and
        infrastructure projects. ETI itself has a subsidiary company in Mexico named
        Environmental Tec Constructores, S.A. de C.V. (Constructores) which has been
        established for the placement of direct hire labor whether professional,
        technical or manual as required to execute project contract commitments.
        Both
        ETI and Constructores are legally domiciled in Ciudad Juarez, Chihuahua,
        Mexico
        with project offices of convenience as required throughout the Republic of
        Mexico.
 
 **Industry
        Background**
 
 On
        December 11, 1980, Congress enacted the Comprehensive Environmental Response,
        Compensation, and Liability Act ("CERCLA"), commonly known as Superfund.
        This
        law provided broad Federal authority to respond directly to releases or
        threatened releases of hazardous substances that may endanger public health
        or
        the environment. CERCLA established prohibitions and requirements concerning
        closed and abandoned hazardous waste sites, provided for liability of persons
        responsible for releases of hazardous waste at these sites, and established
        a
        trust fund to provide for cleanup when no responsible party could be
        identified.
 
 After
        the
        enactment of CERCLA, some states also began to regulate in the area of
        environmental protection. Many states now have environmental protection
        departments.
 
 The
        purchase or management of contaminated industrial property can result in
        staggering liability to the property owner or manager. Under Federal law,
        an
        "owner" or "operator" of property is strictly liable for the release of any
        hazardous substance on or under the property. Further, the current owner
        or
        operator may be responsible for the cleanup of all previous contamination
        if it
        did not investigate the existence of hazardous substances prior to the
        purchase.
  3
  Today,
        the remediation or cleanup of hazardous materials from the environment
        represents a $50 billion service industry and is a part of the approximately
        $205 billion spent annually in the U.S. for all environmental related products
        and services (source Environmental Business Journal(R)). While the terms
        "remediate" and "clean-up" are often applied interchangeably, they are defined
        differently. "Remediation" is the removal or treatment of hazardous contaminants
        to levels or standards imposed by regulatory agencies, which may neither
        restore
        the site to "pristine" condition, nor to the condition existing prior to
        the
        activities causing the contamination. The remediation levels or standards
        established by regulatory agencies are primarily based upon health risk
        assessments. These risk assessments analyze the danger to public health and
        safety from various exposures to the contaminants discovered. The risks of
        exposure, plus the severity of the exposure itself, are the principal factors
        in
        determining the remediation standards. "Clean-up" of a site, however, achieves
        levels of contamination at or below the detectable level required by regulatory
        agencies. When this is possible, land use opportunities improve, thereby
        enhancing the economic benefits to be derived from the property.
 
 One
        of
        the methods used to remediate or clean-up toxic waste is bioremediation.
        Bioremediation is a treatment process that uses naturally occurring
        microorganisms, such as yeast, fungi or bacteria, to breakdown hazardous
        substances into less toxic, or even non-toxic, substances. Bioremediation
        technologies assist the growth of microorganisms and increase microbial
        populations by creating optimum environmental conditions for them to detoxify
        the maximum amount of contaminants. The specific type of bioremediation
        technology used is determined by several factors, including the type of
        microorganisms present, the site conditions, and the quantity and toxicity
        of
        contaminant chemicals. Different microorganisms degrade different types of
        compounds and survive under different conditions. Bioremediation treatments
        may
        be in situ or ex situ. In situ bioremediation treats the contaminated soil
        or
        groundwater in the location in which it was found. Ex situ bioremediation
        processes require excavation of contaminated soil or pumping of groundwater
        before treatment.
 
 Bioremediation
        encompasses opportunities not only for the remediation or cleanup of commercial
        and industrial sites, but of government sites as well.
 
 **Mission**
 
 As
        of the
        end of the year 2004 the Company refocused its attention to pursue new work
        in
        Mexico to take advantage of the promulgation and enforcement of new
        environmental regulations comparable to U.S. federal standards under a signed
        treaty protocol of the North American Free Trade Agreement (NAFTA). Under
        these
        regulations the Company's proven and U.S. patented application technologies
        were
        successfully registered with SEMARNAT (Secretary of the Environment) and
        its
        enforcement agency PROFEPA (Mexico EPA). Under Mexico environmental regulations
        contractors must employ SEMARNAT approved and registered technologies for
        the
        remediation of toxic impacts and releases to the environment. The Company
        seeks
        to exploit its early entry and recognition into this newly created regulatory
        driven cleanup market through its contract with a U.S. manufacturer in Torreon,
        Mexico since 2004 providing environmental site assessment, engineering design
        and subsequent remedial action plan for the above ground surface (ex-situ)
        and
        below ground surface (in-situ) cleanup of petroleum hydrocarbon machine oil
        releases whose work plan has been approved and followed by PROFEPA. In 2005
        the
        Company decided to hire a reputable and proven marketing firm with a successful
        track record in introducing U.S. based service technology companies into
        the
        market in Mexico. The goal is to establish a permanent source of project
        revenue
        in Mexico capitalizing on early entry and securing sustaining revenues with
        Federal and State clients through teaming arrangements and direct contracts.
        The
        Company is continuing its efforts to establish a significant stream of revenue
        in Mexico.
 
 **Remediation
        Services And Products**
 
 The
        Company provides engineered remediation solutions for cleanup of toxic waste
        releases to soil and groundwater. Prior to 2005, these services have been
        sold
        principally in the United States. Treatment may be in situ, using wells and
        subsurface injection/extraction points to administer the Company's proprietary
        microbial blends for bioremediation of various waste streams. The Company
        also
        provides ex situ treatment services using its Bio-Raptor Ô system
        in conjunction with its proprietary microbial blends, providing direct technical
        engineering consultation as needed. The Company also uses the process from
        a
        recently granted a U.S. patent for its Bio-GAC Ô system
        as a cost effective liquid and vapor phase waste stream treatment system
        for the
        removal of toxics such as petroleum hydrocarbons, perchlorates and other
        volatile organic compounds.
 
 The
        Company also uses on some projects a unique collection of microbial cultures
        developed over a thirty-year period and licensed to the Company by XyclonyX,
        a
        subsidiary of U.S. Microbics, Inc., its parent company. The Company uses
        these
        cultured specific microbial blends to address specific identified wastes.
        The
        Company's in-house technicians work with an assigned Project Engineer to
        develop
        a site-specific engineered-remedial solution that will meet or exceed regulatory
        agency requirements.
  4
  Some
        of
        the past uses of the Company's products and processes include, but are not
        limited to, the following:
 
 ·
              In
                  situ bioremediation of underground contaminants in soil and
                  groundwater;
 ·
              Ex
                  situ bioremediation of
                  contaminants;
 ·
              Bio-recycling
                  of spent activated carbon filtration media;
                  and
 ·
              Open-water
                  (both fresh and marine) containment/treatment
                  bioremediation.
 
 The
        Company's remediation technologies meet the requirements of the various
        industries as well as the EPA provision for application of naturally occurring
        and non-genetically modified microbes. The XyclonyX microbial products have
        received approval as "relatively safe" from the U.S. Department of Agriculture,
        its highest rating.
 
 Sales
        And Marketing Of Services
 
 The
        Company markets products and services directly to private and governmental
        clients, through sales agents and through joint venture partners utilizing
        revenue sharing agreements. The Company is also a technology service provider
        to
        third parties who have contracts with their own remediation
        clients.
 
 *Bio-Raptor* Ô
 
 Bio-Raptor Ô is the
        Company's patented ex-situ bioremediation treatment system for cleaning up
        hydrocarbon-contaminated soil. The Bio-Raptor Ô screens
        and treats soil contamination on-site, thereby reducing costs, maximizing
        material treatment surface area and aeration, reducing retention time,
        minimizing potential liability through on-site treatment and eliminating
        contaminant transportation-related risks and site downtime.
 
 Bio-Raptor Ô has
        high-throughputs of up to 500 tons per hour with larger and smaller customized
        models engineered to fit specific site remediation requirements. The Company
        has
        signed a Technology License Agreement with an affiliate, Xyclonyx, granting
        the
        Company a sub-license to use products, technical information and patent
        processes related to the Bio-Raptor Ô .
 
 *BAC* Ô *&
        Bio-GAC* Ô
 
 BAC Ô and
        BioGAC Ô are the
        bio-recycling technologies used to reactivate or extend the service life
        of
        on-line activated carbon filtration media used to control toxic pollutant
        emissions from both air and water waste streams. Examples include gasoline
        and
        diesel tank storage air filter systems and industrial waste water filters
        that
        feed the publicly owned treatment system.
 
 *Proprietary
        Microbial Blends*
 
 The
        Company purchases microbial blends from West Coast Fermentation Center, Inc.,
        its parent company's wholly owned subsidiary, which manufactures and uses
        its
        own microbial blends for bioremediation purposes. Because of the high quality
        of
        the microbial blends purchased from West Coast Fermentation Center, Inc.,
        and
        the Company’s desire to exercise a high degree of control and confidentiality
        over the manufacturing process, the Company has not considered alternative
        sources.
 
 MTBEctomy Ô -
        Formulated specifically to address the need for rapid remediation of MTBE
        and
        its daughter products such as Tri Butyl Alcohol. MTBEctomy Ô is
        injected directly into impacted soil & groundwater resources to bioremediate
        the gasoline fraction containing MTBE in situ for underground leakage and
        cleanup of gasoline/fuel containment vessels (e.g. gasoline station tanks,
        etc.). The Company is currently the only licensee of this process for in
        situ
        treatment of petroleum contamination.
 
 Remediline Ô -30xh -
        Formulated to deal effectively with the heavy, tarry types of oils, coal
        tars,
        and organic sludges. This product is particularly well suited for phenolic
        and
        other aromatic chemical structure wastes. Usually the product of choice for
        coking and wood preserving wastes.
 
 Remediline Ô -30xfa -
        Biological above ground site remediation process used on hydrocarbon
        contaminated soils.
 
 The
        foregoing blends can also be customized, depending upon the waste stream
        to be
        treated. Tougher waste streams require more expensive, customized blends
        and the
        Company can charge higher costs per ton for treatment.
  5
  **Technology
        Licensing**
 
 In
        special circumstances or where economic incentives exist for it to do so,
        the
        Company has licensed its technology and services. The Company is actively
        seeking licensees in the European Union and in Latin America and East Asia.
        As
        in the U.S., the Company's technology can be licensed to property developers,
        major oil companies, equipment manufacturers, toxic and hazardous waste
        generators, and remediation companies.
 
 In
        August
        2004 the Company's teaming partner Grupo Bartlett, S.A. de C.V. secured a
        registration license for the Company's licensed U.S. patented treatment systems
        with SEMARNAT, the environmental protection agency of the federal government
        of
        Mexico. This license allows the Company through its teaming partner to apply
        its
        technology solution for pollution cleanup contracts throughout Mexico. Only
        registered license technologies can be used by contractors in Mexico to address
        toxic cleanups approved by SEMARNAT. It is the belief of the Company that
        the
        license is one of the first five remediation technology systems
        approved.
 
 **Markets
        For Remediation Products**
 
 Management
        believes that both large corporations and small, independent entrepreneurs
        can
        benefit from the Company's engineering services, proprietary microbial products
        and patented treatment application processes for in situ and ex situ clean
        up of
        environmental impacts to soil and groundwater and for bio-recycling of spent
        activated carbon filtration media. Examples include:
 
 ·
              Major
                  Oil Companies with impacts to surrounding soil and groundwater
                  from sudden
                  and uncontrolled releases of petroleum products at retail stations,
                  terminals, pipelines, barges, ships and
                  refineries.
 ·
              Major
                  Toxic and Hazardous Waste Treatment and Disposal Companies with
                  a desire
                  to comply with existing permit conditions and extend the actual
                  or
                  potential life of present storage and treatment sites and facilities
                  through on-site remediation of stored waste-streams and control
                  of
                  nuisance odors.
 ·
              Manufacturers
                  with Fixed Point Source Facilities such as automotive, aerospace
                  and
                  electronic component manufacturers.
 ·
              Specialty
                  Environmental Remediation Companies, which have not been previously
                  exploited (for example, hydrocarbon waste stream treatment at the
                  municipal waste treatment facility, emergency cleanup response
                  companies,
                  open-water clean-up, habitat restoration in environmentally sensitive
                  locals, etc.).
 ·
              Companies
                  who want to Replace Existing, less Efficient Treatment Technologies
                  in
                  their Respective Niche Markets, for example, agricultural processors,
                  paper and cellulose waste-stream producers, golf courses, poultry,
                  pork,
                  beef, and fish processors, and medical and hospitality waste-streams,
                  to
                  reduce their environmental disposal
                  problems.
 
 The
        Company's representative clients include, UNOCAL, BARMAC (Brown & Root,
        McDermott), BP-ARCO, Chevron, Allied Waste Company, American Industrial
        Manufacturing Services (Denso North America), the law firm of Pepper Hamilton,
        LLP, Caratron Industries, Inc., Horsehead Industries, Signal Hill Petroleum,
        Global Solutions, Inc. & Fletcher Oil Co., LLC, Hopkins Real Estate Group,
        The Arthur Pearlman Group, One Hour Martinizing Ô ,
        O. F.
        Mossburg & Sons, Applied Technical Solutions, ATC Associates,
        Enviro-Sciences and S&ME Consulting Engineers, ISE (InSinkErator), City of
        Chula Vista, CA, Whittaker Corporation, MFG/Tetra Tech, Grupo Protexa de
        Mexico,
        Charles Taylor Consultants of Mexico (Agents for Lloyd's of London Insurance
        Underwriters) and the South Carolina Department of Health & Environmental
        Control. More recently the Company’s clients have included the State of Puebla,
        Mexico and the Federal Electricity Commission of Mexico (CFE).
 
 **Competition**
 
 There
        are
        various methods that can be used to remediate soil. A comparison of these
        methods and the advantages and disadvantages of each method is shown in the
        table below.
  6





Remediation
      Methods




**Method**
              **Costs**
              **Pro**
              **Con****Competitive
                  Methods:**Thermal
                  Desorbtion
              ·$80-120
                  per ton (mobile treatment)
              ·Soil
                  with gasoline and light hydrocarbons.
              ·Low
                  temperature heat only removes volatile constituents.Incineration
              ·$150-$400
                  per ton (mobile incineration)
                ·$300-$1,000
                  per ton (fixed incineration)
              ·At
                  high temperatures, can sufficiently burn most compounds.
                ·Works
                  for light and heavy hydrocarbons
              ·Expensive
                  excavation.
                ·Can
                  generate more hazardous compounds.
                ·Projects
                  can last many years.
                ·Doesn't
                  remediate heavy fuels.Vapor
                  Extraction
              ·Well
                  field treatment, depends on time in field, cost up to $150,000
                  plus per
                  acre
              ·Works
                  for light hydrocarbons.
                ·Can
                  be inexpensive if concentrations are dilute.
              ·Lengthy
                  time frames.
                ·Doesn't
                  work for heavy Bio-venting fuels such as diesel fuel.Air
                  Sparging
              ·Relies
                  on bio-stimulation to reach cleanup goals, cost up to $500,000
                  per
                  acre
              ·Works
                  best for light hydrocarbons.
              ·Lengthy
                  time frames.
                ·Doesn't
                  work for heavy fuels.
                ·Treatment
                  can take many years.
                ·Expensive.
                ·Carbon
                  Filters often become obstructed.Pump
                  and Treat with carbon
              ·5
                  Gallons Per Minute (GPM), $0.04-$0.06 per gallon
              ·Unobtrusive
                  method.
              ·Carbon
                  Filters must be recycled.
                ·Waste
                  disposed in traditional landfill.Landfill
                  Disposal
              ·$25-$100
                  per ton plus tax, transportation and licenses
              ·Contamination
                  no longer is on your property.
              ·You
                  are now legally responsible for the entire landfill.**Company's
                  Methods:**Bio-GACÔ
              ·5
                  GPM, $.025-.03 per gallon
              ·Can
                  be inexpensive.
              ·Depending
                  on local cleanup limit regulations, i.e. TBA from MTBE may require
                  more
                  treatment time.Bio-augmentation
              ·$15
                  to $100 per ton
              ·Inexpensive.
                ·Can
                  remediate all contaminants.
                ·Unobtrusive.
              ·Lasts
                  only up to several months, but may remediate at the
                  source.




The
          Company believes that it can establish a competitive edge in the bioremediation
          market for three primary reasons. First, because the Company is majority-owned
          by a microorganism manufacturer, management believes that it can favorably
          compete in pricing with any distributor or contractor. Most microorganisms
          used
          in bioremediation are purchased from manufacturers by distributors who
          sell to
          outside contractors. Each additional entity in the distribution chain increases
          the cost of microorganism blends.
 Second,
          because it has in-house engineering ability, the Company is able to execute
          remediation projects for its customers using these custom microbial blends
          not
          available to competitors. The Company licenses microbial cultures from
          U.S.
          Microbics, Inc. The Company has also licensed patented processes and other
          proprietary microbial products, unavailable to others, for a use on a wide
          range
          of toxins. Management believes that these unique blends, high microorganism
          counts, and extensive applications histories gives the Company a competitive
          edge over other providers of bioremediation services.\
 
 And
        thirdly, the Company has made an early entrance into the remediation market
        and
        believes that it has an additional competitive edge over other remediation
        service providers.


7


**Intellectual
        Property**
 
 The
        Company sub-licenses two patents from XyclonyX, an affiliate of the Company:
        (1)
        a patent for a method of treating hydrocarbon spills, which was issued on
        August
        13, 1991; (2) a patent for a method of treating hydrocarbon contaminated
        soil
        issued on August 2, 1994, and (3) a patent for treatment of contaminated
        activated charcoal issued June 14, 2005
 
 The
        Company's Chief Engineer Behzad Mirzayi, P.E., in conjunction with XyclonyX
        developed the BAC Ô and
        Bio-GAC Ô carbon
        recycling technology and carbon treatment of contaminated activated charcoal,
        for which a patent was filed on January 18, 2002 with the U.S. Patent and
        Trademark Office. In July 2004, the Company were notified that the patent
        was
        granted. The patent was published on June 14, 2005, Patent No.: US 6,905,603
        B2.
        SSWM has completed a renewal of its license agreement with
        XyclonyX.
 
 **Research
        And Development**
 
 During
        the past two years the Company has done a minimal amount of basic research
        and
        development amounting to less than $50,000 in each fiscal year. The Company
        plans to spend approximately $150,000 to $200,000 on research and development
        over the next fiscal year, integrating its engineering services to incorporate
        new waste treatments into its final engineering design for customer project
        work.
 
 **Parent
        Company**
 
 U.S.
        Microbics, Inc., the Company's parent company, and its subsidiaries own 84.19%
        of the Company’s issued and outstanding common stock.
 
 **Employees**
 
 As
        of
        September 30, 2006, the Company had 4 full-time employees. The Company utilizes
        certain administrative and executive personnel employed by its parent, U.S.
        Microbics, Inc., to assist with its reporting, accounting and administrative
        needs. In such cases, U.S. Microbics, Inc., charges the Company a proportional
        amount of the salary and overhead for any such employees. The Company also
        makes
        use of professionals on an as-needed basis. The Company's employees are not
        represented by a labor union and the Company believes its employee relations
        are
        good. The Company shares space with U.S. Microbics, Inc., its parent
        company.
 
 **Government
        Regulation**
 
 The
        Company is subject to Federal, state and local laws and regulations governing
        the use, manufacture, storage, handling and disposal of hazardous materials
        and
        waste products. It is subject to various Federal, state and local laws affecting
        advertising and representations made by businesses in the sale of products
        and
        services, which apply to it. It is also subject to government laws and
        regulations governing health, safety, working conditions, employee relations,
        wrongful termination, wages, taxes and other matters applicable to businesses
        in
        general. Similar laws apply to its operations in Mexico for its two subsidiary
        companies, Environmental Tec International, S.A. de C.V. and Environmental
        Tec
        Constructores, S.A. de C.V.
 
 To
        the
        Company to apply and use its bioremediation products and patented application
        processes in the United States, it is required to secure an approved site
        work
        plan from the lead regulatory agency based upon a thorough site assessment
        that
        accurately defines the complete vertical and horizontal extent of contamination
        using EPA approved test methods by independent analytical laboratories to
        verify
        the data. The lead regulatory agency will typically approve a site work plan
        within 30 days from the date of its submission. The approved site work plan
        incorporates site specific cleanup standards required to meet regulatory
        closure
        limits to secure a no further action comment letter from the lead regulatory
        agency. In Mexico the Company’s technolgies are registered with the Secretary of
        the Environment (SEMARNAT).
 
 **RISK
        FACTORS**
 
 *An
        investment in the Company’s common shares involves a high degree of risk and is
        subject to many uncertainties. These risks and uncertainties may adversely
        affect its business, operating results and financial condition. The Company’s
        most significant risks and uncertainties are described below; however, they
        are
        not the only risks it faces. If any of the following risks actually occur,
        the
        Company’s business, financial condition, or results of operations could be
        materially adversely affected, the trading of its common stock could decline,
        and you may lose all or part of your investment therein. You should acquire
        shares of its common stock only if you can afford to lose your entire
        investment. In order to attain an appreciation for these risks and
        uncertainties, you should read this annual report in its entirety and consider
        all of the information and advisements contained in this Annual Report,
        including the following Risk Factors and Uncertainties.*
  8
  **Risks
        Relating To The Company’s Business**
 
 **The
        Company has a limited operating history and has accumulated significant losses
        since its inception and expects losses to continue for the foreseeable future.
        None of its products or services on the market are currently generating
        significant revenues. The Company’s inability to generate revenues and profits
        from its products and services could cause it to go out of business and for
        you
        to lose your entire investment.**
 
 The
        Company is engaged in developing and selling microbial technology and
        engineering application expertise. It has yet to establish any history of
        profitable operations. It has incurred annual operating losses during the
        past
        five fiscal years of operation. As a result, at September 30, 2006, it had
        an
        accumulated deficit of $14,241,493. It has incurred net losses from continuing
        operations of $2,499,418 and $1,627,719 for the fiscal years ending September
        30, 2006 and September 30, 2005, respectively. Its revenues have not been
        sufficient to sustain its operations. While the Company is expanding its
        contract awards in Mexico, there is no guarantee that its revenues will be
        sufficient to sustain its operations for the foreseeable future. Its
        profitability will require the successful commercialization of its products
        and
        services. No assurances can be given when this will occur or that it will
        ever
        be profitable. Its parent company, U.S. Microbics, Inc., has invested, and
        it
        has relied on, approximately $7,000,000 in its operations to date, however
        the
        Company will need to raise additional capital to continue as a going
        concern.
 
 The
        Company’s independent auditors have added an explanatory paragraph to their
        audit opinion issued in connection with the financial statements for the
        year
        ended September 30, 2006, expressing substantial doubt about the Company’s
        ability to continue as a going concern. Note R to the financial statements
        addresses management's plans to address the working capital deficit. It cannot
        be assured that the Company’s business plans will be successful in addressing
        these issues. If the Company cannot successfully continue as a going concern,
        its shareholders may lose their entire investment in its common shares. Its
        ability to obtain additional funding will determine its ability to continue
        as a
        going concern. Its financial statements do not include any adjustments that
        might result from the outcome of this uncertainty.
 
 **The
        Company’s inability to raise additional working capital at all or to raise it in
        a timely manner would negatively impact its ability to fund its operations,
        to
        generate revenues, and to otherwise execute its business plan, leading to
        the
        reduction or suspension of its operations and ultimately its going out of
        business. Should this occur, the value of your investment in the common shares
        could be adversely affected, and you could even lose your entire
        investment.**
 
 The
        Company will most likely need to raise cash and additional working capital
        to
        cover the anticipated shortfall in its cash and working capital until such
        time
        as it becomes cash flow positive based solely on sales and service revenues
        less
        operating and other costs. At September 30, 2006, the Company had a negative
        working capital of $237,269. The independent auditor's report for the year
        ended
        September 30, 2006, includes an explanatory paragraph to their audit opinion
        stating that the Company’s recurring losses from operations and working capital
        deficiency raise substantial doubt about its ability to continue as a going
        concern. The Company has an operating cash flow deficit of $1,118,649 as
        of
        September 30, 2006, an operating cash flow deficit of $722,677 as of June
        30,
        2006 and an operating cash flow deficit of $974,460 for the year ended September
        30, 2005. It does not currently have sufficient financial resources to fund
        its
        operations or those of its subsidiaries. Therefore, the Company needs additional
        funds to continue these operations.
 
 On
        June
        10, 2004, the Company entered into a common stock purchase agreement with
        Fusion
        Capital Fund II, LLC, pursuant to which Fusion Capital has agreed to purchase
        up
        to an aggregate, under certain conditions, of $6.0 million of the Company’s
        common stock. The Company only has the right to receive $12,500 per trading
        day
        under the agreement with Fusion Capital unless its stock price equals or
        exceeds
        $0.70, in which case the daily amount may be increased under certain conditions
        as the price of its common stock increases. Fusion Capital shall not have
        the
        right nor the obligation to purchase any shares of the Company’s common stock on
        any trading days that the market price of the Company’s common stock is less
        than $0.10. Assuming the Company sold 12,000,000 shares to Fusion Capital
        pursuant to the common stock purchase agreement, the selling price of its
        common
        stock to Fusion Capital would have to have averaged at least $0.50 per share
        for
        it to receive the maximum proceeds of $6.0 million. However, the Company
        has
        sold shares to Fusion during the year ended September 30, 2006 at varying
        price
        levels, leaving the remaining shares on the agreement at 7,679,251. Assuming
        the
        Company sells 7,679,251 shares to Fusion Capital pursuant to the common stock
        purchase agreement at a purchase price of $0.10 per share (the closing sale
        price of the common stock on January 8, 2007 was $0.03), proceeds to the
        Company
        would only be $767,925, unless it chooses to sell more than 7,679,251 shares,
        which it has the right, but not the obligation, to do. Of the $767,925,
        approximately $183,455 would be used to repay a note payable to Fusion Capital,
        for both principal and interest accrued as of September 30,
        2006.
  9
  The
        extent the Company relies on Fusion Capital as a source of funding will depend
        on a number of factors including the prevailing market price of its common
        stock
        and the extent to which it is able to secure working capital from other sources,
        such as through the commercialization of its products and services. If obtaining
        sufficient financing from Fusion Capital were to prove prohibitively expensive
        and if the Company is unable to commercialize and sell its products and
        services, it will need to secure another source of funding in order to satisfy
        its working capital needs. Even if it is able to access the full $6.0 million
        under the common stock purchase agreement with Fusion Capital, it may still
        need
        additional capital to fully implement its business, operating and development
        plans. Should the financing it requires to sustain its working capital needs
        be
        unavailable or prohibitively expensive when it requires it, the consequences
        would be a material adverse effect on its business, operating results, financial
        condition and prospects.
 
 **The
        Company’s microbial technology has not gained full market acceptance, as a
        result it has not generated significant revenues. If its microbial technology
        does not gain market acceptance or generate revenues, the value of your
        investment in the common shares could be adversely affected, and you could
        even
        lose your entire investment.**
 
 The
        Company’s microbial technology has not been fully utilized in any particular
        market. Market acceptance of its products and services will depend in large
        part
        upon the Company’s ability to demonstrate the technical and operational
        advantages and cost effectiveness of its products and services as compared
        to
        alternative, competing products and services, and its ability to train customers
        concerning the proper use and application of its products. There can be no
        assurance that its products and services will achieve a level of market
        acceptance that will be profitable for the Company.
 
 There
        can
        be no assurance that the Company will successfully commercialize any products
        and services based on microbial technology or manage the related manufacturing,
        marketing, sales, licensing and customer support operations in a profitable
        manner. In particular, the Company’s prospects must be considered in light of
        the problems, delays, expenses and difficulties encountered by any company
        in
        the startup stage, many of which may be beyond its control. These problems,
        delays, expenses and difficulties include unanticipated problems relating
        to
        product development and formulation, testing, quality control, production,
        inventory management, sales and marketing and additional costs and competition,
        any of which could have a material adverse effect on the Company’s business,
        financial condition and results of operations. There can be no assurance
        that
        the Company’s products and services can be successfully marketed or that it will
        ever achieve significant revenues or profitable operations.
 
 The
        Company’s ability to become profitable will depend on a variety of factors,
        including the following:
 
 ·
              price,
                  volume and timing of product sales;
 ·
              variations
                  in gross margins on its products, which may be affected by the
                  sales mix
                  and competitive pricing pressures;
 ·
              regulatory
                  approvals for using its bioremediation products, including permits
                  for
                  treatment sites, water quality permits, air quality permits, and
                  other
                  permits as required by particular
                  jurisdictions;
 ·
              changes
                  in its levels of research and development, including the timing
                  of any
                  demonstration projects for regulatory
                  approval;
 ·
              acquisitions
                  of products, technology or companies;
                  and
 ·
              its
                  ability to obtain performance bonding when
                  required.
 
 The
        Company’s long-term success will also be affected by expenses, difficulties or
        delays encountered in developing and selling microbial technology, competition,
        and the often burdensome environmental regulations associated with permitting
        hydrocarbon remediation sites.
 
 **The
        Company will face intense competition from competitors that have greater
        financial, technical and marketing resources. These competitive forces may
        impact its projected growth and ability to generate revenues and profits,
        which
        would have a negative impact on its business and the value of your
        investment.**
 
 The
        Company will likely face intense competition from other environmental companies,
        virtually all of which can be expected to have longer operating histories,
        greater name recognition, larger installed customer bases and significantly
        more
        financial resources, research and development facilities and manufacturing
        and
        marketing experience than it. There can be no assurance that developments
        by its
        current or potential competitors will not render its proposed products or
        services obsolete.
 
 In
        addition, the Company expects to face additional competition from new entrants
        into its targeted industry segments. As the demand for products and services
        based on microbial technology grows and new markets are exploited, the Company
        expects that competition will become more intense, as current and future
        competitors begin to offer an increasing number of diversified products and
        services.
  10
  Although
        it believes that it has certain technical advantages over some of its
        competitors, including, without limitation, the development of technological
        innovations that will make the BIO-RAPTOR Ô and the
        use of the Company’s microbial blends more economical and efficient than other
        bioremediation methods. Maintaining such advantages will require a continued
        high level of investment in research and development, marketing, sales and
        customer support. The Company may not have sufficient resources to maintain
        its
        research and development, marketing, sales and customer support efforts on
        a
        competitive basis. Additionally, the Company may not be able to make the
        technological advances necessary to maintain a competitive advantage with
        respect to its products and services. Increased competition could result
        in
        price reductions, fewer product orders, obsolete technology, and reduced
        operating margins, any of which could materially and adversely affect its
        business, financial condition and results of operations.
 
 **The
        Company’s success is dependent upon on a few key executive officers. Its
        inability to retain those officers would impede its business plan and growth
        strategies, which would have a negative impact on its business and the value
        of
        your investment.**
 
 The
        Company’s success depends to a critical extent on the continued efforts and
        services of Bruce S. Beattie, its President and Chief Executive, and Behzad
        Mirzayi, Executive Vice-President. Were the Company to lose one or more of
        these
        key executive officers, it would be forced to expend significant time and
        money
        in the pursuit of a replacement, which would result in both a delay in the
        implementation of its business plan and the diversion of limited working
        capital. The Company can give you no assurance that it can find satisfactory
        replacements for these key executive officers at all, or on terms that are
        not
        unduly expensive or burdensome to the Company. Although Messrs. Beattie and
        Mirzayi have employment agreements providing for their continued service
        to the
        Company through December 2007, these agreements will not preclude either
        of
        these employees from leaving the Company. The Company currently carries a key
        man life insurance policy on Bruce S. Beattie which would assist it in recouping
        its costs in the event of the loss of this officer.
 
 **The
        inability to hire qualified personnel could impede the Company’s ability to
        generate revenues and profits and to otherwise implement its business plan
        and
        growth strategies, which would have a negative impact on its business and
        could
        adversely affect the value of your investment.**
 
 The
        Company currently has an extremely small staff comprised of 4 employees.
        Although it is the belief of the Company that its employees, together with
        the
        consultants currently engaged by the Company, will be able to handle most
        of its
        additional management, administrative, research and development, sales and
        marketing, and manufacturing requirements in the short term as it ramp up
        its
        sales and operations, the Company will nevertheless be required over the
        longer-term to hire highly skilled managerial, engineering, technical, sales
        and
        marketing and administrative personnel to fully implement its business plan
        and
        growth strategies. The Company may not be able to engage the services of
        such
        qualified personnel at competitive prices or at all, particularly given the
        risks of employment attributable to its limited financial resources and lack
        of
        an established track record.
 
 **The
        Company’s results of operations may highly fluctuate from quarter to quarter as
        it continues to grow, therefore you cannot use these results to predict how
        it
        may perform in the future.**
 
 As
        a
        result of its limited operating history, the Company does not have historical
        financial data for a significant number of periods in which to base its planned
        operating expenses. Additionally, its revenues have not met its expectations.
        The Company’s expense levels are based in part on its projections as to future
        revenues that are expected to increase. It is anticipated that as the Company
        matures, its sales and operating results may fluctuate from quarter to quarter
        and from year to year due to a combination of factors, including, among
        others:
 
 ·
              the
                  volume, timing of, and ability to fulfill customer
                  orders;
 ·
              the
                  demand for its products and
                  services;
 ·
              the
                  number, timing and significance of product enhancements and new
                  product
                  introductions by it and its
                  competitors;
 ·
              changes
                  in pricing policies by it or its
                  competitors;
 ·
              changes
                  in the level of operating expenses;
 ·
              expenses
                  incurred in connection with its plans to fund greater levels of
                  sales and
                  marketing activities and operations, develop new distribution channels,
                  broaden its customer support capabilities and continue its R&D
                  activities;
 ·
              personnel
                  changes;
 ·
              product
                  defects and other product or service quality problems;
                  and
 ·
              general
                  domestic and international legal, economic and political
                  conditions.
  11
  Any
        unfavorable changes in these or other factors could have a material adverse
        effect on the Company’s business, financial condition and results of
        operation.
 
 **The
        inability to keep up with technological developments could prevent the Company’s
        products from gaining and maintaining market acceptance, which could negatively
        impact its projected growth and ability to generate revenues and profits
        and
        have a negative impact on its business and the value of your
        investment.**
 
 The
        markets for the Company’s products and services based on microbial technology
        are generally characterized by rapid technological change and are highly
        competitive with respect to timely innovations. Accordingly, the Company
        believes that its ability to succeed in the sale of its products and services
        will depend significantly upon the technological quality of its products
        and
        services relative to those of its competitors, and its ability to continue
        to
        develop and introduce new and enhanced products and services at competitive
        prices and in a timely and cost-effective manner.
 
 In
        particular, the Company’s future success is dependent upon its
        BIO-RAPTOR Ô ,
        Remediline Ô ,
        MTBEctomy Ô ,
        BAC Ô ,
        and
        BioGAC Ô product
        lines, each of which is innovative and has not achieved market acceptance.
        In
        order to develop such new products and services, the Company will depend
        upon
        close relationships with existing customers that previously utilized microbial
        technology in the bioremediation, agricultural and waste treatment industries,
        and its ability to continue to develop and introduce new and enhanced products
        and services at competitive prices and in a timely and cost-effective manner.
        There can be no assurance that the Company’s customers will provide it with
        timely access to such information or that the Company will be able to develop
        and market its new products and services successfully or respond effectively
        to
        technological changes or new product and service offerings of its competitors.
        The Company may not be able to develop the required technologies, products
        and
        services on a cost-effective and timely basis, and any inability to do so
        could
        have a material adverse effect on its business, financial condition and results
        of operations.
 
 **The
        inability to protect its intellectual property rights could negatively impact
        the Company’s projected growth, its ability to generate revenues and profits and
        the value of your investment.**
 
 The
        Company relies on patent, trademark, trade secret and copyright protection
        to
        protect its technology. The Company believes that technological leadership
        in
        microbial technology will be achieved through additional factors such as
        the
        technological and creative skills of its personnel, new product developments,
        frequent product enhancements, name recognition and reliable product
        maintenance. Nevertheless, the ability to compete effectively depends in
        part on
        its ability to develop and maintain proprietary aspects of its technology,
        such
        as those patents currently licensed by its technology and research and
        development affiliate, XyclonyX. The Company may not secure future patents
        and
        patents may become invalid and may not provide meaningful protection for
        its
        product innovations. In addition, the laws of some foreign countries do not
        protect the Company’s intellectual property rights to the same extent as do the
        laws of the United States. Furthermore, there can be no assurance that
        competitors will not independently develop similar products, "reverse engineer"
        the Company’s products, or, if patents are issued to the Company, design around
        such patents.
 
 The
        Company also relies upon a combination of copyright, trademark, trade secret
        and
        other intellectual property laws to protect its proprietary rights by entering
        into confidentiality or license agreements with its employees, consultants
        and
        vendors, and by controlling access to and distribution of its technology,
        documentation and other proprietary information. There can be no assurance,
        however, that the steps taken by the Company will not be challenged, invalidated
        or circumvented, or that the rights granted there under will provide a
        competitive advantage to it. Any such circumstance could have a material
        adverse
        effect on its business, financial condition and results of
        operations.
 
 While
        the
        Company is not currently engaged in any intellectual property litigation
        or
        proceedings, there can be no assurance that it will not become so involved
        in
        the future or that its products do not infringe any intellectual property
        or
        other proprietary right of any third party. Such litigation could result
        in
        substantial costs, the diversion of resources and personnel, and subject
        the
        Company to significant liabilities to third parties, any of which could have
        a
        material adverse effect on its business.
 
 **If
        the Company’s licensees or strategic partners it relies upon to provide it with
        microbial technology integral to its products fail to protect their rights,
        or
        if the Company’s license agreements infringe on third-party intellectual
        property rights, its ability to generate revenues and profits and to otherwise
        implement its business plan and growth strategies will be adversely affected.
        This failure would have a negative impact on its business and the value of
        your
        investment.**
 
 The
        Company also relies on certain technology which it licenses from third parties,
        including microbial technology which is integrated with internally developed
        products and used in the XyclonyX product line to perform key functions.
        There
        can be no assurance that the patents underlying such third party technology
        licenses will continue to remain unchallenged or that the Company will not
        have
        to defend them, along with the licensors, to continue their commercial viability
        to us. The loss of or inability to maintain any of these technology licenses
        could result in delays or reductions in product shipments which could materially
        adversely affect the Company’s business, financial condition or results of
        operations.
  12
  **The
        Company may not be able to obtain sufficient contract bonding, which could
        limit
        the number and size of projects it obtains.**
 
 The
        deployment of engineering services for certain government and private
        remediation projects may require contract performance bonding. The collateral
        and bonding requirements could limit the number and size of projects requiring
        bonds undertaken by the Company. In the event that contract bonding cannot
        be
        obtained at an economical price or that collateral requirements are beyond
        the
        Company's financial capability, the failure to obtain contract bonding could
        have a material adverse effect on the Company's business, financial condition
        and results of operations.
 
 **Foreign
        distributors may exploit the Company’s products without compensation to it,
        which could negatively impact its ability to generate revenues and profits
        and
        the value of your investment.**
 
 When
        the
        Company ships to foreign distributors, those distributors may try to reverse
        engineer its remediation technology and exploit it without compensating the
        Company. Foreign distributors may also set up manufacturing and distribution
        operations that could compete unfairly with the Company, using lower prices
        or
        broader distribution. There is no assurance that the Company will be able
        to
        protect its business through the use of licensing agreements against such
        events.
 
 **The
        Company may not be successful in its international sales activities, which
        could
        adversely affect its growth.**
 
 Its
        international sales will be limited if the Company is unable to establish
        and
        maintain relationships with international distributors and customers. Even
        if it
        increases its international sales efforts, the Company cannot be certain
        that
        its increases efforts will increase demand for its products in these markets.
        The Company’s international operations are subject to a number of risks,
        including:
 
 ·
              Market
                  acceptance;
 ·
              Environmental
                  laws;
 ·
              Longer
                  sales cycles;
 ·
              Difficulty
                  in collecting accounts receivable;
 ·
              Political
                  and economic instability;
 ·
              Reduced
                  protection of intellectual property
                  rights;
 ·
              Protectionist
                  laws and business practices that favor local
                  competition;
 ·
              Dependence
                  on local vendors;
 ·
              and
                  Foreign language barriers.
 
 In
        addition, because the Company intends to market its products internationally,
        a
        portion of its expected international revenue may be denominated in foreign
        currencies in the future, which will subject it to risks associated with
        fluctuations in the foreign currencies. An increase in the value of the U.S.
        dollar relative to foreign currencies could make the Company’s products more
        expensive and therefore less competitive in foreign markets.
 
 **The
        Company may be subject to future environmental liabilities which are not
        covered
        by, or exceed the coverage amounts of, its insurance which could affect its
        results of operations or financial condition.**
 
 The
        Company is subject to Federal, state and local laws and regulations governing
        the use, manufacture, storage, handling and disposal of hazardous materials
        and
        waste products. It currently maintains a supply of several hazardous materials
        at its facilities. While the Company currently meets these environmental
        requirements, there is no assurance that future laws and regulations will
        not
        impose significant compliance costs. If there is an accident, the Company
        could
        be held liable for any resulting damages. The liabilities incurred by these
        damages could not only exceed its resources, they may not be adequately covered
        by insurance, if at all. In addition, the use of the Company’s
        BIO-RAPTOR Ô requires
        permits to treat contaminated soil. Permit issues may delay the implementation
        and installation of its products, including the BIO-RAPTOR Ô .
 
 **The
        Company may be subject to future product liability claims that may be costly
        to
        defend, require it to pay money to claimants and divert its managerial and
        financial resources, which could have a negative impact on its business and
        the
        value of your investment.**
 
 The
        development, marketing, sale and licensing of products based on microbial
        technology entail liability risks in the event of product failure or claim
        of
        harm caused by product operation. While the Company offers to contract with
        its
        potential customers on a pay for performance basis, and is are not aware
        of any
        claim against it based upon the use or failure of its products, end users
        of any
        of its proposed products and services could assert claims against it. Although
        the Company maintains product liability insurance against any such claims,
        there
        can be no assurance that such insurance will be sufficient to cover all
        potential liabilities, or that the Company will be able to continue to obtain
        insurance coverage in an amount that it believes to be adequate. If there
        is a
        successful suit against the Company, lack or insufficiency of insurance coverage
        would have a material adverse effect on its business, financial condition
        and
        results of operations. In addition, the assertion of these claims, even if
        unsuccessful or without merit, could damage the Company’s reputation or that of
        its licensees or their products. This damage could limit the marketing and
        sales
        efforts and harm its results of operations.
  13
  **The
        Company’s engineering services liability insurance may not be sufficient to
        cover all potential liabilities, which could cause it to make substantial
        payments to claimants and negatively impact its results of operations and
        the
        value of your investment.**
 
 The
        Company’s engineering services are covered under a $1 million professional
        errors and omissions policy for the execution of professional engineering
        services in support of its activities. The Company is not aware of any claims
        or
        disputes exceeding this insured limit. While it will continue to maintain
        professional engineering liability insurance against any such claims, there
        can
        be no assurance that such insurance will be sufficient to cover all potential
        liabilities, or that the Company will be able to continue to obtain insurance
        coverage in an amount that it believes to be adequate. In the event of a
        successful suit against the Company, lack or insufficiency of insurance coverage
        could have a material adverse effect on its business, financial condition
        and
        results of operations.
 
 **The
        Company relies exclusively on its sole supplier: West Coast Fermentation
        Center,
        Inc., a subsidiary of the Company’s parent company. West Coast Fermentation
        Center has limited service and manufacturing facilities. Their failure to
        meet
        the Company’s service requirements could adversely affect its ability to timely
        and efficiently service its clients' needs, which could negatively impact
        its
        ability to generate revenues and profits.**
 
 The
        Company’s future performance will depend to a substantial degree upon its
        ability to engineer, manufacture, market and deliver its products and services
        based on the remediation technology in an efficient and profitable manner.
        The
        Company purchases the microbial products from West Coast Fermentation Center,
        Inc. ("WCFC"), a wholly owned manufacturing subsidiary of U.S. Microbics,
        Inc.
        As of this date, WCFC has only partially implemented its final build-out
        of
        manufacturing operations. Prior to becoming the Company’s supplier, WCFC had no
        experience in maintaining the type of facility that will manufacture the
        Company’s products in the quantities required for profitable operations.
        Accordingly, WCFC may not be able to complete the facility in a timely manner,
        the cost of completing the facility may exceed its current estimates, the
        demand
        for the products may exceed the facility's capacity or the facility may not
        achieve satisfactory levels of manufacturing efficiency in a timely manner
        or at
        a level of quality control that meets competitive demands. In addition, the
        implementation of WCFC's manufacturing operations at the facility presents
        risks
        that, singly or in any combination, could have a material adverse effect
        on the
        Company’s business, financial condition and results of operations. These risks
        include, but are not limited to, production delays associated with products
        based on the remediation technology, unavailability of required capital
        equipment and qualified personnel, raw material shortages, higher-than-expected
        overhead or operational costs, lack of sufficient quality control over the
        products and order backlogs. In addition, WCFC's development of its internal
        manufacturing capacity will depend in large part on its ability to raise
        sufficient capital for this purpose. WCFC may not be able to develop adequate
        manufacturing capacity or raise sufficient capital, which could have a material
        adverse effect on the Company’s business, financial condition, results of
        operations and possibly on its relationships with its customers and vendors.
        WCFC may consider third-party outsourcing arrangements for the manufacture
        and
        supply of certain products during the period in which WCFC expands its internal
        manufacturing capacity. These outsourcing arrangements are subject to various
        risks, including, without limitation, production delays or interruptions,
        inferior product quality, misappropriation of trade secrets and lower profit
        margins.
 
 **Risks
        Relating To An Investment In The Company’s Securities**
 
 **The
        sale of the Company’s common stock to Fusion Capital may cause dilution and the
        sale of the shares of common stock acquired by Fusion Capital could cause
        the
        price of its common stock to decline.**
 
 The
        purchase price for the common stock to be issued to Fusion Capital pursuant
        to
        the common stock purchase agreement will fluctuate based on the price of
        the
        Company’s common stock. All shares included in the prospectus which is a part of
        the registration statement filed with the Commission on November 5, 2004,
        will
        be freely tradable once sold pursuant to the terms outlined in the Plan of
        Distribution in such prospectus. Fusion Capital may sell none, some or all
        of
        the common shares purchased from the Company at any time. The Company expects
        that the shares offered by this prospectus will be sold over a period of
        up to
        24 months from the date of the prospectus. However, the common stock purchase
        agreement remains in effect beyond the 24 month period unless terminated
        by the
        Company. Depending upon market liquidity at the time, a sale of shares under
        that offering at any given time could cause the trading price of its common
        stock to decline. The sale of a substantial number of shares of its common
        stock
        under that offering, or anticipation of such sales, could make it more difficult
        for the Company to sell equity or equity-related securities in the future
        at a
        time and at a price that it might otherwise wish to effect sales.
 
 Additionally,
        in connection with the convertible promissory note issued to Fusion Capital,
        the
        Company has registered up to 1,500,000 shares of its common stock in the
        registration statement which was declared effective on November 9, 2004.
        The
        maturity date of the Note was January 31, 2005. The conversion amount of
        the
        note including accrued interest as of September 30, 2006 is $183,455. This
        would
        require approximately 6,115,167 shares of the Company’s common stock at current
        prices. Sales of large amount of these shares in the public market could
        substantially depress the prevailing market prices for the Company’s shares. If
        that were to happen, the value of your investment could decline
        substantially.
  14
  **The
        trading price of the Company’s common stock may decrease due to factors beyond
        its control.**
 
 The
        trading price of the common stock is subject to significant fluctuations
        in
        response to numerous factors, including:
 
 ·
              Variations
                  in anticipated or actual results of
                  operations;
 ·
              Announcements
                  of new products or technological innovations by the Company or
                  its
                  competitors;
 ·
              Changes
                  in earnings estimates of operational results by
                  analysts;
 ·
              Results
                  of product demonstrations;
 ·
              Inability
                  of market makers to combat short positions on the
                  stock;
 ·
              Inability
                  of the market to absorb large blocks of stock sold into the
                  market;
 ·
              Developments
                  or disputes concerning the Company’s licensed patents, trademarks or
                  proprietary rights; and
 ·
              Comments
                  about the Company or its markets posted on the
                  Internet.
 
 Moreover,
        the stock market from time to time has experienced extreme price and volume
        fluctuations, which have particularly affected the market prices for emerging
        growth companies and which often have been unrelated to the operating
        performance of the companies. These broad market fluctuations may adversely
        affect the market price of the Company’s common stock. If its shareholders sell
        substantial amounts of their common stock in the public market, the price
        of its
        common stock could fall. These sales also might make it more difficult for
        the
        Company to sell equity or equity related securities in the future at a price
        it
        deems appropriate.
 
 **U.S.
        Microbics, Inc., the Company’s parent company, controls more than a majority of
        its outstanding common shares, which may limit the ability of yourself or
        other
        shareholders, whether acting singly or together, to propose or direct the
        management or overall direction of the Company. Additionally, this concentration
        of ownership could discourage or prevent a potential takeover of the Company
        that might otherwise result in you receiving a premium over the market price
        for
        your common shares.**
 
 U.S.
        Microbics, Inc., the Company’s majority shareholder, and its subsidiaries own
        approximately 84.19% of the outstanding shares of common stock. As a result,
        U.S. Microbics, Inc. is able to exercise significant influence over all matters
        requiring shareholder approval, including the election of directors and the
        approval of significant corporate transactions. Such a concentration of
        ownership may also have the effect of delaying or preventing a change in
        control
        of the Company.
 
 **To
        date, the Company has not paid any cash dividends and no cash dividends will
        be
        paid in the foreseeable future.**
 
 The
        Company does not anticipate paying cash dividends on its common shares in
        the
        foreseeable future. It may not have enough funds to legally pay dividends,
        or
        that even if the funds are legally available, it may nevertheless decide
        not to
        pay dividends.
 
 **The
        application of the "penny stock" rules could adversely affect the market
        price
        of the Company’s common shares and increase your transaction costs to sell those
        shares.**
 
 As
        long
        as the trading price of the Company’s common shares is below $5 per share, the
        open-market trading of its common shares will be subject to the "penny stock"
        rules. The "penny stock" rules impose additional sales practice requirements
        on
        broker-dealers who sell securities to persons other than established customers
        and accredited investors (generally those with assets in excess of $1,000,000
        or
        annual income exceeding $200,000 or $300,000 together with their spouse).
        For
        transactions covered by these rules, the broker-dealer must make a special
        suitability determination for the purchase of securities and have received
        the
        purchaser's written consent to the transaction before the purchase.
        Additionally, for any transaction involving a penny stock, unless exempt,
        the
        broker-dealer must deliver, before the transaction, a disclosure schedule
        prescribed by the SEC relating to the penny stock market. The broker-dealer
        also
        must disclose the commissions payable to both the broker-dealer and the
        registered representative and current quotations for the securities. Finally,
        monthly statements must be sent disclosing recent price information on the
        limited market in penny stocks. These additional burdens imposed on
        broker-dealers may restrict the ability or decrease the willingness of
        broker-dealers to sell the common shares, and may result in decreased liquidity
        for the Company’s common shares and increased transaction costs for sales and
        purchases of its common shares as compared to other securities.
  15
  **The
        Company’s common shares are thinly traded, so you may be unable to sell at or
        near ask prices or at all if you need to sell your shares to raise money
        or
        otherwise desire to liquidate your shares.**
 
 The
        Company’s common shares have historically been sporadically or "thinly-traded"
        on the OTCBB, meaning that the number of persons interested in purchasing
        its
        common shares at or near ask prices at any given time may be relatively small
        or
        non-existent. This situation is attributable to a number of factors, including
        the fact that the Company is small and is relatively unknown to stock analysts,
        stock brokers, institutional investors and others in the investment community
        that generate or influence sales volume. If the Company was to come to the
        attention of such persons, they tend to be risk-averse and would be reluctant
        to
        follow, purchase or recommend the purchase of its shares until such time
        as it
        has become more seasoned and viable. As a consequence, there may be periods
        of
        several days or more when trading activity in the Company’s shares is minimal or
        non-existent, as compared to a seasoned issuer which has a large and steady
        volume of trading activity that will generally support continuous sales without
        an adverse effect on share price. The Company cannot give you any assurance
        that
        a broader or more active public trading market for its common shares will
        develop or be sustained, or that current trading levels will be
        sustained.
 
 **The
        sale of additional shares of the Company’s common stock to Fusion Capital under
        the common stock purchase agreement could cause its common stock price to
        decline due to the additional shares available in the market, particularly
        in
        light of the relatively thin trading volume of its common
        stock.**
 
 The
        market price of the Companny’s common stock could decline and the voting power
        and value of your investment would be subject to continual dilution if Fusion
        Capital purchases the shares and resells those shares into the market. Under
        the
        common stock purchase agreement, the Company can sell up to $12,500 of shares
        of
        its common stock each trading day to Fusion Capital. Any adverse affect on
        the
        market price of the Company’s common stock would increase the number of shares
        issuable to Fusion Capital each trading day, which would increase the dilution
        of your investment. Although the Company has the right to reduce or suspend
        Fusion Capital purchases at any time, its financial condition at the time
        may
        require it to waive its right to suspend purchases even if there is a decline
        in
        the market price. Sales of large amount of these shares in the public market
        could substantially depress the prevailing market prices for the Company’s
        shares. If that were to happen, the value of your investment could decline
        substantially.
 
 In
        addition, Fusion Capital may not purchase shares of the Company’s common stock
        under the common stock purchase agreement if Fusion Capital, together with
        its
        affiliates, would beneficially own more than 9.9% of the Company’s common stock
        outstanding at the time of the purchase by Fusion Capital. However, this
        9.9%
        limitation does not prevent Fusion Capital from purchasing shares of the
        Company’s common stock and then reselling those shares at times when neither
        Fusion Capital nor its affiliates beneficially own shares in excess of the
        9.9%
        limitation. Therefore, by periodically selling the Company’s common shares into
        the market, Fusion Capital together with its affiliates could in the aggregate
        sell more than 9.9% of the Company’s outstanding shares. Consequently, the 9.9%
        limitation will not necessarily prevent substantial dilution of the voting
        power
        and value of your investment.
 
 **The
        market price for the Company’s common shares is particularly volatile given its
        status as a relatively unknown company with a small and thinly-traded public
        float, limited operating history and lack of revenues which could lead to
        wide
        fluctuations in its share price. The price at which you purchase its common
        shares may not be indicative of the price that will prevail in the trading
        market. You may be unable to sell your common shares at or above your purchase
        price, which may result in substantial losses to you.**
 
 The
        market for the Company’s common shares is characterized by significant price
        volatility when compared to seasoned issuers, and it is expected that its
        share
        price will continue to be more volatile than a seasoned issuer for the
        indefinite future. The volatility in the Company’s share price is attributable
        to a number of factors. First, as noted above, its common shares are
        sporadically and thinly traded. As a consequence of this lack of liquidity,
        the
        trading of relatively small quantities of shares by its shareholders may
        disproportionately influence the price of those shares in either direction.
        The
        price for its shares could, for example, decline precipitously in the event
        that
        a large number of its common shares are sold on the market without commensurate
        demand, as compared to a seasoned issuer which could better absorb those
        sales
        without adverse impact on its share price. Secondly, the Company is a
        speculative or "risky" investment due to its limited operating history and
        lack
        of revenues or profits to date, and uncertainty of future market acceptance
        for
        its potential products. As a consequence of this enhanced risk, more
        risk-adverse investors may, under the fear of losing all or most of their
        investment in the event of negative news or lack of progress, be more inclined
        to sell their shares on the market more quickly and at greater discounts
        than
        would be the case with the stock of a seasoned issuer. The following factors
        may
        add to the volatility in the price of the Company’s common shares: actual or
        anticipated variations in the Company’s quarterly or annual operating results;
        acceptance of its proprietary technology ; government regulations, announcements
        of significant acquisitions, strategic partnerships or joint ventures; its
        capital commitments; and additions or departures of its key personnel. Many
        of
        these factors are beyond the Company’s control and may decrease the market price
        of its common shares, regardless of its operating performance. The Company
        cannot make any predictions or projections as to what the prevailing market
        price for its common shares will be at any time, including as to whether
        its
        common shares will sustain their current market prices, or as to what effect
        that the sale of shares or the availability of common shares for sale at
        any
        time will have on the prevailing market price.
  16
  Shareholders
        should be aware that, according to SEC Release No. 34-29093, the market for
        penny stocks has suffered in recent years from patterns of fraud and abuse.
        Such
        patterns include (1) control of the market for the security by one or a few
        broker-dealers that are often related to the promoter or issuer; (2)
        manipulation of prices through prearranged matching of purchases and sales
        and
        false and misleading press releases; (3) boiler room practices involving
        high-pressure sales tactics and unrealistic price projections by inexperienced
        sales persons; (4) excessive and undisclosed bid-ask differential and markups
        by
        selling broker-dealers; and (5) the wholesale dumping of the same securities
        by
        promoters and broker-dealers after prices have been manipulated to a desired
        level, along with the resulting inevitable collapse of those prices and with
        consequent investor losses. The Company’s management is aware of the abuses that
        have occurred historically in the penny stock market. Although it does not
        expect to be in a position to dictate the behavior of the market or of
        broker-dealers who participate in the market, management will strive within
        the
        confines of practical limitations to prevent the described patterns from
        being
        established with respect to the Company’s securities. The occurrence of these
        patterns or practices could increase the volatility of the Company’s share
        price.
 
 **Volatility
        in the Company’s common share price may subject it to securities litigation,
        thereby diverting its resources which may have a material adverse effect
        on its
        results of operations.**
 
 As
        discussed in the preceding risk factor, the market for the Company’s common
        shares is characterized by significant price volatility when compared to
        seasoned issuers, and it is expected that its share price will continue to
        be
        more volatile than a seasoned issuer for the indefinite future. In the past,
        plaintiffs have often initiated securities class action litigation against
        a
        company following periods of volatility in the market price of its securities.
        The Company may in the future be the target of similar litigation. Securities
        litigation could result in substantial costs and liabilities and could divert
        management's attention and resources.
 
 **The
        Company’s issuance of additional preferred shares, or options or warrants to
        purchase those shares, could negatively impact the value of your investment
        in
        its common shares as the result of preferential voting rights or veto powers,
        dividend rights, disproportionate rights to appoint directors to its board,
        conversion rights, redemption rights and liquidation provisions granted to
        the
        preferred shareholders, including the grant of rights that could discourage
        or
        prevent the distribution of dividends to you, or prevent the sale of its
        assets
        or a potential takeover of the Company that might otherwise result in you
        receiving a distribution or a premium over the market price for your common
        shares. The conversion of the Company’s outstanding preferred shares could
        result in the substantial dilution of your investment in terms of your
        percentage ownership in the Company as well as the book value of your common
        shares. The sale of a large amount of common shares received upon the conversion
        of out outstanding preferred shares could substantially depress the prevailing
        market prices for the Company’s common stock.**
 
 The
        Company is entitled under its certificate of incorporation to issue up to
        300,000,000 common and 50,000,000 convertible preferred shares. As of December
        26, 2006, after taking into consideration its outstanding common and preferred
        shares, it will be entitled to issue up to 200,902,206 additional common
        shares
        and 39,163,335 additional preferred shares. The Company’s board may generally
        issue those common and preferred shares, or options or warrants to purchase
        those shares, without further approval by the shareholders based upon such
        factors as the board of directors deem relevant at that time. Any preferred
        shares the Company may issue shall have such rights, preferences, privileges
        and
        restrictions as may be designated from time-to-time by the board, including:
        preferential dividend rights, voting rights, conversion rights, redemption
        rights and liquidation provisions. It is likely that the Company will be
        required to issue a large amount of additional securities to raise capital
        to
        further its development and marketing plans. It is also likely that it will
        be
        required to issue a large amount of additional securities to directors,
        officers, employees and consultants as compensatory grants in connection
        with
        their services, both in the form of stand-alone grants or under the Company’s
        various stock plans. The Company cannot give you any assurance that it will
        not
        issue additional common or preferred shares, or options or warrants to purchase
        those shares, under circumstances it may deem appropriate at the time, which
        could negatively impact the value of your investment in its common
        shares.
 
 In
        the
        event of the conversion of the Company’s preferred shares, you could suffer
        substantial dilution of your investment in terms of your percentage ownership
        in
        the Company as well as the book value of your common shares. Potential dilutive
        effects of future sales of the Company’s common shares by its stockholders,
        including Fusion Capital, could have an adverse effect on the prices of its
        securities.
  17
  **The
        elimination of monetary liability against the Company’s directors, officers and
        employees under its certificate of incorporation and the existence of
        indemnification rights to its directors, officers and employees may result
        in
        substantial expenditures by the Company and may discourage lawsuits against
        its
        directors, officers and employees.**
 
 The
        Company’s certificate of incorporation contains provisions which eliminate the
        liability of and indemnify its directors for monetary damages to the Company
        and
        its shareholders to the maximum extent permitted under Delaware corporate
        law.
        The Company may also have contractual indemnification obligations under its
        agreements with its directors, officers and employees. The foregoing
        indemnification obligations could result in the Company incurring substantial
        expenditures to cover the cost of settlement or damage awards against directors,
        officers and employees, which the Company may be unable to recoup. These
        provisions and resultant costs may also discourage the Company from bringing
        a
        lawsuit against directors, officers and employees for breaches of their
        fiduciary duties, and may similarly discourage the filing of derivative
        litigation by its shareholders against its directors, officers and employees
        even though such actions, if successful, might otherwise benefit the Company
        and
        its shareholders.
 
 **The
        Company’s certificate of incorporation provides that it is subject to Section
        203 of the Delaware General Corporation Law which applies to business
        combinations with interested stockholders, which could discourage or prevent
        a
        potential takeover of the Company that might otherwise result in you receiving
        a
        premium over the market price for your common shares.**
 
 The
        Company’s Certificate of Incorporation provides that it is subject to Section
        203 of the Delaware General Corporation Law which precludes a shareholder
        who
        owns 15% or more of its shares from entering into a "business combination"
        involving the Company for a period of three years, unless (1) the Company’s
        board of directors approves the combination before the shareholder acquires
        the
        15% interest; (2) the interested shareholder acquires at least 85% of the
        Company’s shares as part of the transaction in which they acquired the initial
        15%, excluding shares owned by the Company’s officers who are also directors and
        voting stock held by employee benefit plans; or (3) the combination is approved
        by a majority vote of the Company’s board of directors and two-thirds vote of
        its other shareholders at a duly called shareholders' meeting. A "business
        combination" is defined as (1) a merger or consolidation requiring shareholder
        approval, (2) the sale, lease, pledge, or other disposition of the Company’s
        assets, including by dissolution, having at least 50% of the entire asset
        value
        of the Company, or (3) a proposed tender or exchange offer of 50% or more
        of the
        Company’s voting stock. The Company’s Certificate of Incorporation provides that
        the provisions of Section 203 of the Delaware General Corporation Law shall
        not
        apply to Robert C. Brehm, Chief Executive Officer of U.S. Microbics,
        Inc.
 
 **ITEM
        2. DESCRIPTION OF PROPERTIES**
 
 The
        Company shares an administrative facility with U.S. Microbics, Inc. in a
        12,083
        square foot building located at 6451-C El Camino Real, Carlsbad, California.
        The
        facility houses the fermentation plant, the research and development facility
        of
        XyclonyX, and the operations of the Company, Bio-Con Microbes, and Sol Tech.
        The
        facility should provide enough space for the Company for the next two years
        of
        operation, at which time additional space may be required. U.S. Microbics,
        Inc.,
        charges the Company its pro-rata share of the rent based on floor space.
        The
        Company's Engineering Resources Division is headquartered in Littleton, Colorado
        in an office facility that can accommodate up to 5 engineers. The Company
        also
        maintains a project office in Mexico City, Mexico.
 
 **ITEM
        3. LEGAL PROCEEDINGS**
 
 The
        Company is not a party to any pending material legal proceedings and is not
        aware of any threatened or contemplated proceeding by any governmental authority
        against the Company. No director, executive officer or affiliate of the Company
        or owner of record or beneficially of more than five percent of the Company's
        common stock is a party adverse to the Company or has a material interest
        adverse to the Company in any proceeding.
 
 **ITEM
        4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**
 
 None


18


**ITEM
          5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERS
          MATTERS**
 
 **Market
          Information**
 
 The
          Company’s common shares are currently quoted on the Nasdaq OTC Bulletin Board
          (OTCBB) under the symbol "SSWM." The following table sets forth the quarterly
          high and low bid prices for the Company’s common shares on the OTCBB for the
          last two fiscal years periods indicated. The prices set forth below represent
          inter-dealer quotations, without retail markup, markdown or commission
          and may
          not be reflective of actual transactions. The Company’s common shares have been
          quoted on the OTC Bulletin Board since August 19, 2003.
 **Bid
                  Price****Period**
              **High**
              **Low****Fiscal
                  Year 2007:**December
                  31, 2006
              $0.05
              $0.03**Fiscal
                  Year 2006:**September
                  30, 2006
              $0.05
              $0.04June
                  30, 2006
              $0.06
              $0.04March
                  31, 2006
              $0.08
              $0.06December
                  31, 2005
              $0.13
              $0.06**Fiscal
                  Year 2005:**September
                  30, 2005
              $0.28
              $0.10June
                  30, 2005
              $0.11
              $0.06March
                  31, 2005
              $0.26
              $0.06December
                  31, 2004
              $0.40
              $0.18
  **Holders**
 
 The
        Company has approximately 350 record holders of its common stock as of January
        11,2007, according to a shareholders' list provided by its transfer agent
        as of
        that date, as well as its records relating to issuable shares. The number
        of
        registered shareholders excludes any estimate by the Company of the number
        of
        beneficial owners of common shares held in street name.
 
 **Dividend
        Policy**
 
 The
        Company has never paid any cash dividends on its common shares, and it does
        not
        anticipate that it will pay any dividends with respect to those securities
        in
        the foreseeable future. The Company’s current business plan is to retain any
        future earnings to finance the expansion development of its business. Any
        future
        determination to pay cash dividends will be at the discretion of the board
        of
        directors, and will be dependent upon the Company’s financial condition, results
        of operations, capital requirements and other factors as the board may deem
        relevant at that time.
 
 **Securities
        Authorized For Issuance Under Equity Incentive Plan**
 
 Set
        forth
        in the table below is information regarding awards made through compensation
        plans or arrangements through September 30, 2006, the most recently completed
        fiscal year.




Number
                  of securitiesremaining
                  available forfuture
                  issuance underNumber
                  of securities to
              Weighted
                  average
              equity
                  compensationbe
                  issued upon exercise
              exercise
                  price of
              plans
                  (excludingof
                  outstanding options,
              outstanding
                  options,
              securities
                  reflected inPlan
                  Category
              warrants
                  and rights
              warrants
                  and rights
              column
                  2)Equity
                  Compensation PlansApproved
                  by Security Holders
              3,893,000
              N/A
              -0-Equity
                  Compensation Plans NotApproved
                  by Security Holders
              N/A
              N/A
              N/A




19


Recent
        Sales of Unregistered Securities
 
 The
        Company has sold or issued the following securities not registered under
        the
        Securities Act by reason of the exemption afforded under Section 4(2) of
        the
        Securities Act of 1933, during the year period covered by this report. Except
        as
        stated below, no underwriting discounts or commissions were payable with
        respect
        to any of the following transactions. The offer and sale of the following
        securities was exempt from the registration requirements of the Securities
        Act
        under Rule 506 insofar as (1) except as stated below, each of the investors
        was
        accredited within the meaning of Rule 501(a); (2) the transfer of the securities
        were restricted by the Company in accordance with Rule 502(d); (3) there
        were no
        more than 35 non-accredited investors in any transaction within the meaning
        of
        Rule 506(b), after taking into consideration all prior investors under Section
        4(2) of the Securities Act within the twelve months preceding the transaction;
        and (4) none of the offers and sales were effected through any general
        solicitation or general advertising within the meaning of Rule
        502(c).
 
 On
        September 27, 2006 the Company issued 625,000 shares of restricted common
        stock
        as a finder’s fee totaling $25,000. The shares were valued at $0.04 per
        share.
 
 On
        September 27, 2006 the Company issued 3,000,000 shares of restricted common
        stock for cash received totaling $30,000. The shares were valued at a discounted
        price of $0.01 per share.
 
 On
        July
        25, 2006 the Company issued 100,000 shares of restricted common stock for
        cash
        received totaling $3,500. The shares were valued at $0.035 per
        share.
 
 On
        June
        22, 2006 the Company issued 500,000 shares of restricted common stock for
        consulting services totaling $20,000. The shares were valued at $0.04 per
        share.
 
 On
        June
        22, 2006 the Company issued 200,000 shares of restricted common stock for
        cash
        received totaling $7,000. The shares were valued at $0.035 per
        share.
 
 On
        April
        28, 2006 the Company converted 84,000 shares of series A preferred stock
        to
        420,000 shares of restricted common stock .
 
 On
        April
        12, 2006 the Company issued 3,893,940 shares of restricted common stock for
        accrued payroll totaling $136,288. The shares were valued at $0.035 per
        share.
 
 On
        March
        28, 2006 the Company issued 1,000,000 shares of restricted common stock for
        cash
        received totaling $40,000. The shares were valued at $0.04 per
        share.
 
 On
        March
        27, 2006 the Company issued 3,600,000 shares of restricted series A preferred
        stock for a consulting contract totaling $360,000. The shares were valued
        at
        $0.10 per share.
 
 On
        March
        27, 2006 the Company issued 1,500,000 shares of restricted series A preferred
        stock for a license agreement totaling $150,000. The shares were valued at
        $0.10
        per share.
 
 On
        March
        23, 2006 the Company issued 75,000 shares of restricted common stock for
        consulting services totaling $3,750. The shares were valued at $0.05 per
        share.
 
 On
        March
        23, 2006 the Company issued 2,000,000 shares of restricted common stock for
        cash
        received totaling $50,000. The shares were valued at a discounted price of
        $0.025 per share.
 
 On
        March
        20, 2006 the Company issued 730,000 shares of restricted common stock for
        accounts payable totaling $33,653. The shares were valued at $0.046 per
        share.
 
 On
        January 11, 2006 the Company issued 208,300 shares of restricted common stock
        as
        compensation to a director totaling $10,000. The shares were valued at $0.048
        per share.
 
 On
        October 13, 2005 the Company issued 1,000,000 shares of restricted common
        stock
        for cash received totaling $50,000. The shares were valued at a discounted
        price
        of $0.05 per share.
 
 On
        October 4, 2005 the Company issued 45,000 shares of restricted common stock
        for
        consulting services totaling $5,850. The shares were valued at $0.13 per
        share.
 
 20
  On
        September 29, 2005, the Company issued 179,122 shares of restricted common
        stock
        to consulting services totaling $50,000. The shares were valued at $0.0977
        per
        share.
 
 On
        September 29, 2005, the Company issued 416,667 shares of restricted common
        stock
        for notes payable totaling $50,000. The shares were valued at $0.12 per
        share.
 
 On
        September 27, 2005, the Company issued 2,839,665 shares of restricted common
        stock to retire debt totaling $174,843. Of the shares issued, 1,944,965 were
        valued at $0.0669 per share and 894,700 were valued at $0.05 per
        share.
 
 On
        September 20, 2005, the Company issued 625,000 shares of restricted common
        stock
        to for interest expense totaling $31,250. The shares were valued at $0.05
        per
        share.
 
 On
        September 8, 2005, the Company issued 2,125,000 shares of restricted common
        stock to an investor in exchange for cash totaling $42,500. The shares were
        valued at $0.02 per share.
 
 On
        September 8, 2005, the Company issued 250,000 shares of restricted common
        stock
        to in settlement of a finder's fee totaling $5,000. The shares were valued
        at
        $0.02 per share.
 
 On
        August
        30, 2005, the Company issued 1,284,000 shares of restricted common stock
        to
        retire debt totaling $64,200. The shares were valued at $0.05 per
        share.
 
 On
        August
        17, 2005, the Company issued 664,455 shares of restricted common stock in
        settlement of accounts payable totaling $26,222. The shares were valued at
        $0.117 per share.
 
 On
        August
        9, 2005, the Company issued 2,500,000 shares of restricted common stock to
        an
        investor in exchange for cash totaling $50,000. The shares were valued at
        $0.02
        per share.
 
 On
        July
        26, 2005, the Company issued 20,000,000 shares of restricted series S preferred
        stock to U.S. Microbics totaling $20,000. The shares were valued at $0.001
        per
        share.
 
 On
        July
        26, 2005, the Company issued 1,500,000 shares of restricted common stock
        to an
        investor in exchange for cash totaling $30,000. The shares were valued at
        $0.02
        per share.
 
 On
        July
        26, 2005, the Company issued 950,000 shares of restricted common stock to
        an
        investor in exchange for cash totaling $32,500. Of the shares issued 625,000
        were valued at $0.04 per share and 325,000 were valued at $0.02 per
        share.
 
 On
        July
        26, 2005, the Company issued 625,000 shares of restricted common stock to
        an
        investor in exchange for cash totaling $25,000. The shares were valued at
        $0.04
        per share.
 
 On
        July
        26, 2005, the Company issued 125,000 shares of restricted common stock in
        settlement of a finder's fee totaling $5,000. The shares were valued at $0.04
        per share.
 
 On
        June
        28, 2005, the Company issued 781,700 shares of restricted common stock to
        West
        Coast Fermentation to satisfy an intercompany balance totaling $46,900. The
        shares were valued at $0.06 per share.
 
 On
        June
        9, 2005, the Company issued 154,833 shares of restricted common stock to
        satisfy
        debt totaling $9,290. The shares were valued at $0.06 per share.
 
 On
        June
        9, 2005, the Company issued 1,000,000 shares of restricted common stock to
        an
        investor in exchange for cash totaling $30,000. The shares were valued at
        $0.03
        per share.
 
 On
        May
        31, 2005, the Company issued 2,500,000 shares of restricted common stock
        to an
        investor in exchange for cash totaling $50,000. The shares were valued at
        $0.02
        per share.
 
 On
        May
        31, 2005, the Company issued 2,000,000 shares of restricted common stock
        to an
        investor in exchange for cash totaling $50,000. The shares were valued at
        $0.025
        per share.
 
 On
        May
        31, 2005, the Company issued 83,300 shares of restricted common stock in
        exchange for consulting services totaling $5,000. The shares were valued
        at
        $0.06 per share.
  21
  On
        April
        25, 2005, the Company issued 62,500 shares of restricted common stock to
        in
        exchange for consulting services totaling $5,000. The shares were valued
        at
        $0.08 per share.
 
 On
        April
        1, 2005, the Company issued 100,000 shares of restricted common stock to
        an
        officer for accrued expenses totaling $7,500. The shares were valued at $0.075
        per share.
 
 On
        March
        31, 2005, the Company issued 75,000 shares of restricted common stock in
        exchange for consulting services totaling $3,675. The shares were valued
        at
        $0.049 per share.
 
 On
        March
        16, 2005, the Company issued 88,265 shares of restricted common stock to
        in
        exchange for consulting services totaling $15,000. Of the shares issued 22,625
        were valued at $0.221 per share, 29,410 were valued at $0.17 per share, and
        36,230 were valued at $0.138 per share.
 
 On
        December 22, 2004, the Company issued 169,290 shares of restricted common
        stock
        to in exchange for cash received and partial deposit for Water Machines totaling
        $20,315. The shares were valued at $0.12 per share.
 
 On
        December 6, 2004, the Company issued 25,345 shares of restricted common stock
        in
        exchange for consulting services totaling $5,500. The shares were valued
        at
        $0.2170 per share.
 
 On
        November 30, 2004, the Company issued 25,000 shares of restricted common
        stock
        in exchange for consulting services totaling $7,500. The shares were valued
        at
        $0.30 per share.
 
 On
        November 23, 2004, the Company issued 855,000 shares of restricted common
        stock
        to in exchange for cash received and deposit for Water Machines totaling
        $200,000. Of the shares issued 163,000 were valued at $0.2454 per share and
        692,000 were valued at $0.2312 per share.
 
 On
        November 14, 2004, the Company issued 27,500 shares of restricted common
        stock
        in exchange for consulting services totaling $5,500. The shares were valued
        at
        $0.20 per share.
 
 On
        October 29, 2004, the Company issued 500,000 shares of restricted common
        stock
        to an investor in exchange for cash totaling $100,000. The shares were valued
        at
        $0.21 per share.
 
 On
        October 21, 2004, the Company issued 50,000 shares of restricted common stock
        to
        an investor in exchange for cash totaling $10,000. The shares were valued
        at
        $0.20 per share.
 
 On
        October 4, 2004, the Company issued 5,000 shares of restricted common stock
        in
        exchange for consulting services totaling $1,850. The shares were valued
        at
        $0.37 per share.
 
 **ITEM
        6. MANAGEMENT'S DISCUSSION AND ANALYSIS**
 
 Cautionary
        Forward - Looking Statement
 
 *Statements
        included in this Management's Discussion and Analysis of Financial Condition
        and
        Results of Operations, and in future filings by the Company with the Securities
        and Exchange Commission, in the Company's press releases and in oral statements
        made with the approval of an authorized executive officer which are not
        historical or current facts are "forward-looking statements" and are subject
        to
        certain risks and uncertainties that could cause actual results to differ
        materially from historical earnings and those presently anticipated or
        projected. You are cautioned not to place undue reliance on any such
        forward-looking statements, which speak only as of the date made. The following
        important factors, among others, in some cases have affected and in the future
        could affect the company's actual results and could cause the company's actual
        financial performance to differ materially from that expressed in any
        forward-looking statement: (i) the extremely competitive conditions that
        currently exist in the market for companies similar to the Company and (ii)
        lack
        or resources to maintain the Company's good standing status and requisite
        filings with the Securities and Exchange Commission. The foregoing list should
        not be construed as exhaustive and the company disclaims any obligation
        subsequently to revise any forward-looking statements to reflect events or
        circumstances after the date of such statements or to reflect the occurrence
        of
        anticipated or unanticipated events. The following discussion should be read
        in
        conjunction with the Company’s financial statements and their explanatory notes
        included as part of this prospectus.*
 
 The
        Company's wholly owned subsidiary, Sub Surface Waste Management, Inc., engages
        in developing, manufacturing and selling engineered remediation solutions
        for
        clean up of toxic waste releases to soil and/or groundwater and the
        bio-recycling of spent activated carbon filtration media. The treatments
        may be
        made directly to the contaminated soil or groundwater in the location at
        which
        the contamination was found ("in situ"), using wells and subsurface
        injection/extraction points to administer the Company's proprietary microbial
        blends for bioremediation of various waste streams, or the treatments may
        require excavation of contaminated soil or pumping of groundwater ("ex situ"),
        and washing activated carbon filtration media with microbes to Bio-recycle
        with
        the Company providing technical engineering consultation and microbial blends
        to
        its teaming partners and/or executing the work directly as a
        contractor.
  22
  The
        Company's plan of operation for the next 12 months is to continue the existing
        business in Mexico, develop new work in work and promote new projects in
        Mexico,
        and raise additional working capital which can augment the base business
        of the
        Company.
 
 In
        Mexico
        the Company has teamed with its technology licensee Grupo Bartlett, S.A.
        de C.V.
        to execute an existing contract backlog of work and is actively promoting
        new
        projects in Mexico using its registered technology with SEMARNAT (Mexico
        EPA).
 
 Additional
        capital must be raised to fund existing and new projects, support overhead
        expenses and execute project work identified. During the next 12 months,
        the
        Company's foreseeable cash requirements are approximately $5,000,000 to
        implement its business plan in the environmental cleanup business. The Company
        will most likely need to issue additional common or preferred stock, which
        will
        have a dilutive effect on current shareholders, in order to raise the necessary
        capital to continue and expand its operations and incur debt in the form
        of
        guaranteed lines of credit backed by issuance of common and preferred
        stock.
 
 Critical
        Accounting Policies
 
 The
        preparation of the Company’s consolidated financial statements in conformity
        with accounting principles generally accepted in the United States requires
        it
        to make estimates and judgments that affect its reported assets, liabilities,
        revenues, and expenses, and the disclosure of contingent assets and liabilities.
        The Company bases its estimates and judgments on historical experience and
        on
        various other assumptions it believes to be reasonable under the circumstances.
        Future events, however, may differ markedly from the current expectations
        and
        assumptions. While there are a number of significant accounting policies
        affecting the Company’s consolidated financial statements, it is believed that
        the following critical accounting policies involve the most complex, difficult
        and subjective estimates and judgments:
 
 ·
              stock-based
                  compensation.
 ·
              revenue
                  recognition
 
 Stock-Based
        Compensation
 
 Prior
          to
          January 1, 2006, the Company accounted for the Plans under the recognition
          and measurement provisions of APB Opinion No. 25, as permitted by SFAS
          No. 123. Consequently, no stock-based compensation cost relating to stock
          options was recognized in the consolidated statement of income for any
          period
          prior to 2006, as all options granted under the Plans had an exercise price
          equal to the market value of the underlying common stock on the date of
          grant.
          Effective January 1, 2006, the Company adopted the fair value provisions
          for share-based awards pursuant to SFAS No. 123(R), using the
          modified-prospective-transition method. Under that transition method,
          compensation cost recognized in 2006 includes (a) compensation cost for all
          share-based awards granted prior to, but not yet vested as of January 1,
          2006, based on the attribution method and grant date fair value estimated
          in
          accordance with the original provisions of SFAS No. 123, and
          (b) compensation cost for all share-based awards granted subsequent to
          January 1, 2006, based on the grant-date fair value estimated in accordance
          with the provisions of SFAS No. 123(R), all recognized on a straight line
          basis as the requisite service periods are rendered. Results for prior
          periods
          have not been restated.
  Revenue
        Recognition
 
 Revenue
        for product sales is recognized at the time the product is shipped to or
        picked
        up by the customer. Revenues from time and material contracts are recognized
        as
        the services are performed. Revenue for short-term engineering or remediation
        services is recognized at the completion of the contract, as well as in segments
        which are based on provisions in the contracts. Sales under long-term contracts
        are accounted for under the percentage of completion method. Revenues are
        recognized as the actual cost of work performed related to the estimate at
        completion. Profits expected to be realized on contracts are based on the
        Company's estimates of total contract sales value and costs at completion.
        Assumptions used for recording sales and earnings are adjusted in the period
        of
        change to reflect revisions in contract value and estimated costs. In the
        period
        in which it is determined that a loss will be incurred on a contract, the
        entire
        amount of the estimated loss is charged to income.
 
 Results
        of Operations For Year Ended September 30, 2006
 
 The
        Company incurred a net loss of $2,499,418 for the year ended September 30,
        2006,
        compared to $1,627,719 for the year ended September 30, 2005. The Company
        had
        negative cash flows from operations of $1,118,649 for the year ended September
        30, 2006, compared to negative cash flows from operations of $974,460 for
        the
        year ended September 30, 2005. Basic and diluted net loss per share was $0.03
        for the year ended September 30, 2006 and $0.04 for the year ended September
        30,
        2005. Weighted average common shares outstanding increased from 43,249,462
        for
        the year ended September 30, 2005 to 76,536,237 for the year ended September
        30,
        2006.
  23
  The
        Company's revenues for year ended September 30, 2006 were $508,460 compared
        to
        $1,094,775 for the year ended September 30, 2005; a decrease of 54%. Revenues
        decreased primarily due to the Company’s withdrawal from its projects in South
        Carolina and from the time delay resulting from the startup of its operations
        in
        Mexico. Revenues for the year ended September 30, 2006, consisted primarily
        of
        bio-remediation of hydro-carbons in contaminated soil for the projects in
        Mexico. The Company incurred a gross profit for the year ended September
        30,
        2006 of $26,759 compared to $287,092 for the year ended September 30,
        2005.
 
 During
        the year ending September 30, 2006, the Company made the decision to close
        all
        five active projects in South Carolina with its client the South Carolina
        Department of Health & Environmental Control (SCDHEC) based on a number of
        critical factors. The
        Company had
        achieved an average of ninety-five percent (95%) clean-up over the five project
        sites from original concentrations. Some project sites showed increased levels
        of newly released toxics from on-going property owner activities not related
        to
        the Company’s original scope of work. One site in particular saw damage done by
        an errant farming practice which plowed through a section of the active
        treatment system destroying injection/recovery wells, compressor system and
        piping infrastructure. The Company relied upon SCDHEC community notification
        and
        outreach to inform neighbors that this was an active State funded clean-up
        site.
        After lengthy dialogue and written requests, the Company was unable to prevail
        upon SCDHEC to amend any of its original contract values to cover the additional
        costs related to these unforeseeable impacts at its project sites. Therefore,
        upon engineering review of this situation management made the decision not
        to
        invest further labor, equipment and operational costs for unrecoverable
        additional charges which in aggregate would have exceeded the outstanding
        twenty-five percent balance due from SCDHEC of the original contact price.
        All
        five contract performance bonds have expired with no further comment by SCDHEC.
        Selling, general and administrative expenses included a bad debt charge of
        $201,641 related to uncollectible earnings upon closure of the
        projects..
 
 During
        the year ended September 30, 2006, the Company incurred $2,443,189 in selling,
        general and administrative expenses, compared to $1,762,396 for the year
        ended
        September 30, 2005. The increase in selling, general and administrative expenses
        of approximately $680,793 was primarily due to the bad debt discussed above
        and
        the increases in consulting fees incurred with affiliates, legal, accounting,
        payroll expenses and business development expenses in Mexico.
 
 Depreciation
        expense for the year ended September 30, 2006 was $24,714 compared to $13,233
        for the year ended September 30, 2005. The increase was due principally to
        the
        purchase of equipment related to the startup of operations in Mexico. Interest
        expense for the years September 30, 2006 and 2005 respectively were $59,032
        and
        $141,027. During this year notes payable decreased by $57,321 and therefore
        there was a decrease in interest expense.
 
 Liquidity
        and Capital Resources:
 
 As
        of
        September 30, 2006, the Company had a negative working capital of $237,269
        compared to working capital of $430,810 at September 30, 2005, or a decrease
        of
        $668,079 in the working capital. The change in working capital resulted
        primarily from the Company’s current year operating losses. During
        the year ended September 30, 2006 the Company focused much of its effort
        and
        capital towards expanding its operations in Mexico, which may lead to increased
        revenues in subsequent fiscal years but generated little revenue during the
        fiscal year ended in 2006.
 
 During
        the year ended September 30, 2006, the Company incurred a cash flow deficit
        of
        $1,118,649 from operating activities. Cash flows provided by investing
        activities was $385,834 during the year ended 2006. The Company met its cash
        requirements during this period through the issuance of common and preferred
        stock providing net proceeds of $641,503, securing a convertible note of
        $100,000 and cash proceeds of $345,000 drawn from a $500,000 line of credit.
        Cash totaled $310,808 as of September 30, 2006.
 
 The
        Company will need to continue to raise funds by various financing methods
        such
        as private placements and its equity line to maintain its operations until
        such
        time as cash generated by operations is sufficient to meet its operating
        and
        capital requirements. There can be no assurance that the Company will be
        able to
        raise such capital on terms acceptable to the Company, if at all.
 
 The
        Company has raised capital to meet its working capital and financing needs
        in
        the past, however, additional financing is required in order to meet its
        current
        and projected cash flow deficits from operations and development. The Company
        has obtained financing in the form of equity in order to provide the necessary
        working capital. On June 10, 2004, the Company entered into a Common Stock
        Purchase Agreement with Fusion Capital Fund II, LLC ("Fusion") a Chicago-based
        institutional investor. Under terms of the agreement, Fusion has agreed to
        purchase from the Company up to $6.0 million of its common stock over a 24-month
        period. Since the Securities & Exchange Commission declared effective a
        registration statement covering the securities issued or issue able to Fusion
        on
        November 9, 2004, each month the Company has the right to sell to Fusion
        up to
        $250,000 of its common stock at a purchase price based upon the market price
        of
        the Company's common stock on the date of each sale without any fixed discount
        to the market price. The Company may also require Fusion to purchase lesser
        or
        greater amounts of its common stock each month up to $6.0 million in the
        aggregate. The Company has the right to control the timing and the amount
        of
        stock sold to Fusion Capital. The Company has the right to terminate the
        agreement at any time without any additional cost. The Company also has the
        right, at its election, to enter into a new agreement with Fusion Capital
        under
        which Fusion would be required to purchase up to an additional $6.0 million
        of
        the Company's common stock on the same terms and conditions as the original
        agreement.
  24
  A
        limiting factor on the Company’s ability to sell shares of common stock to
        Fusion Capital is that there is a floor price of $0.10 per share. Until the
        market price of the Company’s common stock is at or above $0.10 it will not be
        able to sell its common stock to Fusion Capital.
 
 In
        addition, on August 4, 2004, the Company entered into a loan agreement and
        convertible promissory note with Fusion Capital to borrow $200,000 at annual
        interest rate of 10%. The Note matured on January 31, 2005, and may be redeemed
        by the Company, subject to Fusion Capital's right to convert any outstanding
        principal and accrued interest due into the Company’s common shares. The Note
        shall convert at a price equal to the lesser of (i) 50% of the average of
        the
        three (3) lowest closing sale prices of the common shares during the twelve
        (12)
        trading days prior to the submission of a conversion notice or (ii) $0.25
        per
        share. In connection with the Note, Fusion Capital was issued 250,000 warrants
        with an exercise price of $.275 per share. If the Note is converted, the
        Company
        may issue more than 840,000 shares of its common stock to Fusion Capital,
        including interest as of the conversion date. The Company has registered
        up to
        1,500,000 in connection with the conversion of the Note to preserve its option
        to utilize its cash resources for purposes other than paying down the Note.
        On
        September 11, 2006, the Company issued an aggregate of 3,256,094 shares of
        common stock to retire $50,000 of principal and $15,121 of accrued interest.
        These shares were valued at a weighted average of $0.02 per share.. The
        remaining balance of interest and principal on this note as of September
        30,
        2006 is $183,455 including $33,455 of accrued interest.
 
 From
        and
        after the maturity date or after the occurrence of an event of default under
        the
        Note, the interest rate shall be increased to fifteen percent (15%) and shall
        be
        calculated in accordance with the terms of the Note. At any time after the
        maturity date, the Company shall redeem Note for cash equal to 125% of the
        outstanding principal plus accrued interest.
 
 In
        the
        event Fusion Capital does not accept common stock as payment of their note,
        the
        Company will be obligated to raise additional capital of $183,455 possibly
        through the sale of restricted common stock or through additional borrowings..
        There is no assurance that the Company will be able to raise the required
        funds
        to repay the loan to Fusion Capital.
 
 On
        September 9, 2006, the Company entered into a $500,000 line of credit agreement
        with a Pilgrim Bank maturing on September 9, 2007. The line of credit agreement
        is collateralized by substantially all the assets of the Company and a pledged
        certificates of deposit held as collateral by one of the Company’s affiliates.
        The line of credit has a fixed rate of interest of 7% per annum. As of September
        30, 2006, the Company the balance outstanding was $345,000.
  To
        obtain
        this line of credit, a finance fee of 3,000,000 shares of restricted common
        stock was issued to an affiliate at discount of $0.032 per share. This resulted
        in a finance fee of $96,000 which is being amortized over the 12 month term
        of
        the debt. During the year ended September 30, 2006 the Company amortized
        $5,523
        of this amount to interest expense.
 
 The
        Company has relied mostly on cash infusions from its parent company, U.S.
        Microbics, Inc., and the sale of its common stock during the first six years
        of
        its existence. Its parent company has limited resources and may not be able
        to
        continue to provide sufficient funds for it to successfully continue its
        operations or repay its debt obligations.
 
 There
        can
        be no assurance that the Company will generate revenues from operations or
        obtain sufficient capital on acceptable terms, if at all. Failure to obtain
        such
        capital or generate such operating revenues would have an adverse impact
        on the
        Company's financial position and results of operations and ability to continue
        as a going concern.
 
 The
        Company's operating and capital requirements during the next fiscal year
        and
        thereafter will vary based on a number of factors, including: (i) the rate
        at
        which microbial products are shipped and generate profits; (ii) the necessary
        level of sales and marketing activities for environmental products; and (iii)
        the level of effort needed to develop additional distribution channels to
        the
        point of commercial viability.
 
 There
        can
        be no assurance that additional private or public financing, including debt
        or
        equity financing, will be available as needed, or, if available, on terms
        favorable to the Company. Any additional equity financing may be dilutive
        to
        shareholders and such additional equity securities may have rights, preferences
        or privileges that are senior to those of the Company's existing common or
        preferred stock. Furthermore, debt financing, if available, will require
        payment
        of interest and may involve restrictive covenants that could impose limitations
        on the operating flexibility of the Company. The failure of the Company to
        successfully obtain additional future funding may jeopardize its ability
        to
        continue its business and operations.
 
 During
        fiscal year ended September 30, 2007 the Company projects expenditures for
        plant
        and equipment of approximately from $500,000 to $750,000 and research and
        development costs of less than $150,000 to $200,000, assuming it raises
        projected capital of $5,000,000 and secures approximately $15,000,000 of
        additional contracts in Mexico.
 
 The
        independent auditor's report on the Company's September 30, 2006 financial
        statements included in this Annual Report states that the Company's recurring
        losses raise substantial doubts about the Company's ability to continue as
        a
        going concern.
  25
  Recent
        Accounting Pronouncements
 
 In
        November 2004, the Financial Accounting Standards Board (FASB) issued SFAS
        151, *Inventory
        Costs-- An Amendment Of ARB No. 43, Chapter 4.* This
        Statement amends the guidance in ARB No. 43, Chapter 4, "Inventory Pricing,"
        to
        clarify the accounting for abnormal amounts of idle facility expense, freight,
        handling costs, and wasted material (spoilage). Paragraph 5 of ARB 43, Chapter
        4, previously stated that ". . . under some circumstances, items such as
        idle
        facility expense, excessive spoilage, double freight, and rehandling costs
        may
        be so abnormal as to require treatment as current period charges. . . ."
        This
        Statement requires that those items be recognized as current-period charges
        regardless of whether they meet the criterion of "so abnormal." In addition,
        this Statement requires that allocation of fixed production overheads to
        the
        costs of conversion be based on the normal capacity of the production
        facilities. This Statement is effective for inventory costs incurred during
        fiscal years beginning after June 15, 2005. Management does not believe the
        adoption of this Statement will have any immediate material impact on the
        Company.
 
 In
        December 2004, the FASB issued SFAS No.152, "Accounting for Real Estate
        Time-Sharing Transactions--an amendment of FASB Statements No. 66 and 67"
        ("SFAS
        152) The amendments made by Statement 152 This Statement amends FASB Statement
        No. 66, Accounting for Sales of Real Estate, to reference the financial
        accounting and reporting guidance for real estate time-sharing transactions
        that
        is provided in AICPA Statement of Position (SOP) 04-2, Accounting for Real
        Estate Time-Sharing Transactions. This Statement also amends FASB Statement
        No.
        67, Accounting for Costs and Initial Rental Operations of Real Estate Projects,
        to state that the guidance for (a) incidental operations and (b) costs incurred
        to sell real estate projects does not apply to real estate time-sharing
        transactions. The accounting for those operations and costs is subject to
        the
        guidance in SOP 04-2. This Statement is effective for financial statements
        for
        fiscal years beginning after June 15, 2005, with earlier application encouraged.
        The Company does not anticipate that the implementation of this standard
        will
        have a material impact on its financial position, results of operations or
        cash
        flows.
 
 On
        December 16, 2004, the Financial Accounting Standards Board ("FASB") published
        Statement of Financial Accounting Standards No. 123 (Revised 2004), *Share-Based
        Payment* ("SFAS
        123R"). SFAS 123R requires that compensation cost related to share-based
        payment
        transactions be recognized in the financial statements. Share-based payment
        transactions within the scope of SFAS 123R include stock options, restricted
        stock plans, performance-based awards, stock appreciation rights, and employee
        share purchase plans. The provisions of SFAS 123R are effective as of the
        first
        interim period that begins after June 15, 2005. Accordingly, the Company
        will
        implement the revised standard in the third quarter of fiscal year 2005.
        Currently, the Company accounts for its share-based payment transactions
        under
        the provisions of APB 25, which does not necessarily require the recognition
        of
        compensation cost in the financial statements. Management is assessing the
        implications of this revised standard, which may materially impact the Company's
        results of operations in the third quarter of fiscal year 2005 and
        thereafter.
 
 On
        December 16, 2004, FASB issued Statement of Financial Accounting Standards
        No.
        153, *Exchanges
        Of Nonmonetary Assets, An Amendment Of APB Opinion No. 29, Accounting For
        Nonmonetary Transactions* ("SFAS
        153"). This statement amends APB Opinion 29 to eliminate the exception for
        nonmonetary exchanges of similar productive assets and replaces it with a
        general exception for exchanges of nonmonetary assets that do not have
        commercial substance. Under SFAS 153, if a nonmonetary exchange of similar
        productive assets meets a commercial-substance criterion and fair value is
        determinable, the transaction must be accounted for at fair value resulting
        in
        recognition of any gain or loss. SFAS 153 is effective for nonmonetary
        transactions in fiscal periods that begin after June 15, 2005. The Company
        does
        not anticipate that the implementation of this standard will have a material
        impact on its financial position, results of operations or cash
        flows.
 
 In
        May
        2005 the FASB issued Statement of Financial Accounting Standards (SFAS) No.
        154,
“Accounting Changes and Error Corrections, a replacement of APB Opinion No.
        20
        and FASB Statement No. 3.” SFAS 154 requires retrospective application to prior
        periods' financial statements for changes in accounting principle, unless
        it is
        impracticable to determine either the period-specific effects or the cumulative
        effect of the change. SFAS 154 also requires that retrospective application
        of a
        change in accounting principle be limited to the direct effects of the change.
        Indirect effects of a change in accounting principle, such as a change in
        non-discretionary profit-sharing payments resulting from an accounting change,
        should be recognized in the period of the accounting change. SFAS 154 also
        requires that a change in depreciation, amortization, or depletion method
        for
        long-lived, non-financial assets be accounted for as a change in accounting
        estimate effected by a change in accounting principle. SFAS 154 is effective
        for
        accounting changes and corrections of errors made in fiscal years beginning
        after December 15, 2005. Early adoption is permitted for accounting changes
        and
        corrections of errors made in fiscal years beginning after the date this
        Statement is issued. The Company does not expect the adoption of this SFAS
        to
        have a material impact on its financial position, results of operations or
        cash
        flows.
  26
  On
        February 16, 2006 the FASB issued SFAS 155, “Accounting for Certain Hybrid
        Instruments,” which amends SFAS 133, “Accounting for Derivative Instruments and
        Hedging Activities,” and SFAS 140, “Accounting for Transfers and Servicing of
        Financial Assets and Extinguishments of Liabilities.” SFAS 155 allows financial
        allows financial instruments that have embedded derivatives to be accounted for
        as a whole (eliminating the need to bifurcate the derivative from its host)
        if
        the holder elects to account for the whole instrument on a fair value basis.
        SFAS 155 also clarifies and amends certain other provisions of SFAS 133 and
        SFAS
        140. This statement is effective for all financial instruments acquired or
        issued in fiscal years beginning after September 15, 2006. The Company does
        not
        expect its adoption of this new standard to have a material impact on its
        financial position, results of operations or cash flows.
  In
        March
        2006, the FASB issued FASB Statement No. 156, Accounting for Servicing of
        Financial Assets - an amendment to FASB Statement No. 140. Statement 156
        requires that an entity recognize a servicing asset or servicing liability
        each
        time it undertakes an obligation to service a financial asset by entering
        into a
        service contract under certain situations. The new standard is effective
        for
        fiscal years beginning after September 15, 2006. The Company does not
        expect its adoption of this new standard to have a material impact on its
        financial position, results of operations or cash flows.
  In
        September 2006 the Financial Account Standards Board (the “FASB”) issued its
        Statement of Financial Accounting Standards 157, Fair Value Measurements.
        This
        Statement defines fair value, establishes a framework for measuring fair
        value
        in generally accepted accounting principles (GAAP), and expands disclosures
        about fair value measurements. This Statement applies under other accounting
        pronouncements that require or permit fair value measurements, the Board
        having
        previously concluded in those accounting pronouncements that fair value is
        the
        relevant measurement attribute. Accordingly, this Statement does not require
        any
        new fair value measurements. However, for some entities, the application
        of this
        Statement will change current practice. FAS 157 effective date is for fiscal
        years beginning after November 15, 2007. The Company does not expect adoption
        of
        this standard will have a material impact on its financial position, operations
        or cash flows.
 
 In
        September 2006 the FASB issued its Statement of Financial Accounting Standards
        158 “Employers’ Accounting for Defined Benefit Pension and Other Postretirement
        Plans”. This Statement improves financial reporting by requiring an employer to
        recognize the overfunded or underfunded status of a defined benefit
        postretirement plan (other than a multiemployer plan) as an asset or liability
        in its statement of financial position and to recognize changes in that funded
        status in the year in which the changes occur through comprehensive income
        of a
        business entity or changes in unrestricted net assets of a not-for-profit
        organization. This Statement also improves financial reporting by requiring
        an
        employer to measure the funded status of a plan as of the date of its year-end
        statement of financial position, with limited exceptions. The effective date
        for
        an employer with publicly traded equity securities is as of the end of the
        fiscal year ending after December 15, 2006. The Company does not expect adoption
        of this standard will have a material impact on its financial position,
        operations or cash flows.
 
 
 Off-Balance
        Sheet Arrangements
 
 The
        Company has not entered into any off-balance sheet arrangements that have
        or are
        reasonably likely to have a current or future effect on its financial condition,
        changes in financial condition, revenues or expenses, results of operations,
        liquidity, capital expenditures or capital resources and would be considered
        material to investors.
 
 Inflation
 
 It
        is the
        opinion of the Company that inflation has not had a material effect on its
        operations.
  27




**ITEM
        7. FINANCIAL STATEMENTS**
 
 **SECURITIES
        AND EXCHANGE COMMISSION**
 
 **WASHINGTON,
        D.C. 20549**
 
 **FINANCIAL
        STATEMENTS AND SCHEDULES**
 
 **SEPTEMBER
        30, 2006 AND 2005**
 
 **SUB
        SURFACE WASTE MANAGEMENT OF DELAWARE, INC.**
 
 
 
 
 F-1
 
 
 **SUB
        SURFACE WASTE MANAGEMENT OF DELAWARE, INC.**
 
 Index
        to
        Financial Statements
 
  Page
                    No.Report
                    of Independent Registered Public Accounting Firm
                F-3Consolidated
                    Balance Sheet at September 30, 2006
                F-4Consolidated
                    Statements of Losses for the years ended September 30, 2006 and
                    2005
                F-5Consolidated
                    Statements of Deficiency in Stockholders' Equity for the two
                    years
                  ended
                    September 30, 2006
                F-6
                    - F-7Consolidated
                    Statements of Cash Flows for the years ended September 30, 2006
                    and
                    2005
                F-8
                    - F-9Notes
                    to Consolidated Financial Statements
                F-10
                    - F-29
  F-2
 
 **RUSSELL
        BEDFORD STEFANOU MIRCHANDANI LLP**
 **Certified
        Public Accountants**
 
 **REPORT
        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
 
 Board
        of
        Directors
 Sub
        Surface Waste Management of Delaware, Inc.
 Carlsbad,
        CA
 
 We
        have
        audited the accompanying consolidated balance sheet of Sub Surface Waste
        Management of Delaware, Inc. and its wholly-owned subsidiary (the "Company")
        as
        of September 30, 2006 and the related consolidated statements of losses,
        deficiency in stockholders' equity, and cash flows for each of the two years
        in
        the period ended September 30, 2006. These financial statements are the
        responsibility of the Company's management. Our responsibility is to express
        an
        opinion on these financial statements based upon our audits.
 
 We
        conducted our audits in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audit to obtain reasonable assurance about whether the financial
        statements are free of material misstatements. An audit includes examining,
        on a
        test basis, evidence supporting the amounts and disclosures in the financial
        statements. An audit also includes assessing the accounting principles used
        and
        significant estimates made by management, as well as evaluating the overall
        financial statement presentation. We believe that our audits provide a
        reasonable basis for our opinion.
 
 In
        our
        opinion, the consolidated financial statements referred to above present
        fairly,
        in all material respects, the consolidated financial position of the Company
        as
        of September 30, 2006 , and the results of its operations and its cash flows
        for
        each of the two years in the period ended September 30, 2006, in conformity
        with
        accounting principles generally accepted in the United States of
        America.
 
 The
        accompanying consolidated financial statements have been prepared assuming
        that
        the Company will continue as a going concern. As discussed in Note N, the
        Company has sustained recurring losses from operations and is experiencing
        difficulty in generating sufficient cash flow to meet it obligations and
        sustain
        its operations, which raises substantial doubt about its ability to continue
        as
        a going concern. Management's plans in regard to this matter are described
        in
        Note R. The consolidated financial statements do not include any adjustments
        that might result from the outcome of this uncertainty.
 
 /s/ **Russell
        Bedford Stefanou Mirchandani LLP**
 Russell
        Bedford Stefanou Mirchandani LLP
 Certified
        Public Accountants
 
 New
        York,
        New York
 December
        22, 2006
  F-3
 
 **SUB
        SURFACE WASTE MANAGEMENT OF DELAWARE, INC.**
 **Consolidated
        Balance Sheet**
 **September
        30, 2006**
  **ASSETS****Current
                  Assets:**Cash
                  and cash equivalents
              
              $
              310,808Accounts
                  receivable
              
              
              47,583Due
                  from affiliates (Note C)
              
              
              358,572Prepaid
                  expenses and other assets (Note D)
              
              
              100,380**Total
                  Current Assets**
              
              
              817,343**Property
                  And Equipment**(Note E)Office
                  furniture and equipment
              
              
              28,560Manufacturing
                  equipment
              
              
              97,945Vehicle
              
              
              23,351149,856Less:
                  accumulated depreciation
              
              
              (49,452
              )100,404**Other
                  Assets**
              
              
              7,335**Total
                  Assets**
              
              $
              925,082**LIABILITIES
                  AND DEFICIENCY IN STOCKHOLDERS' EQUITY****Current
                  Liabilities:**Line
                  of Credit (Note F)
              
              $
              345,000Accounts
                  payable and accrued liabilities, net (Note G)
              
              
              416,562Notes
                  payable - current portion (Note H)
              
              
              150,000Notes
                  payable - affiliate (Note I)
              
              
              77,679Due
                  to affiliates (Note J)
              
              
              65,371**Total
                  Current Liabilities**
              
              
              1,054,612**Total
                  Liabilities**
              
              
              1,054,612**Commitments
                  and Contingencies (Note O)**
              
              
              -**Deficiency
                  in Stockholders' Equity**Convertible
                  preferred stock, $.001 par value; 50,000,000 shares
                  authorized:Series
                  A; 15,000,000 shares authorized; 10,836,665 issuedand
                  outstanding as of September 30, 2006Aggregate
                  liquidation preference $108,366,650
              
              
              10,836Series
                  B; 5,000,000 shares authorized; no shares issued andoutstanding
                  as of September 30, 2006Non-Convertible
                  preferred stock, $.001 par value;Series
                  S; 20,000,000 shares authorized; 20,000,000issued
                  and outstanding as of September 30, 2006Aggregate
                  liquidation preference $20,000,000
              
              
              20,000Common
                  stock; $.001 par value; 300,000,000 shares authorized;95,525,794
                  shares issued and outstanding at September 30, 2006
              
              
              95,526Additional
                  paid-in capital
              
              
              14,801,661Stock
                  Subscription Receivable
              
              
              (147,560
              )Deferred
                  equity issuance cost (Note K)
              
              
              (668,500
              )Deferred
                  financing costs (Note K)
              
              
              --Accumulated
                  deficit
              
              
              (14,241,493
              )**Total
                  Deficiency in Stockholders' Equity**
              
              
              (129,530
              )**Total
                  Liabilities And Deficiency in Stockholders'
                  Equity**
              
              $
              925,082
   The
        accompanying notes are an integral part of these consolidated financial
        statements
 F-4
 
 
 **SUB
        SURFACE WASTE MANAGEMENT OF DELAWARE, INC.**
 **Consolidated
        Statements Of Losses**
 **For
        The Years Ended September 30, 2006 And 2005**
 
 2006
              
              2005Revenues
              
              $
              508,460
              
              $
              1,094,775Cost
                  of revenues
              
              
              481,701
              
              
              807,683Gross
                  profit
              
              
              26,759
              
              
              287,092Operating
                  Expenses:Selling,
                  general and administrative expenses
              
              
              2,443,189
              
              
              1,762,396Depreciation
              
              
              24,714
              
              
              13,233Total
                  operating expenses
              
              
              2,467,903
              
              
              1,775,629Loss
                  from operations
              
              
              (2,441,144
              )
              
              (1,488,537
              )Other
                  income (expense):Interest
                  income
              
              
              758
              
              
              1,845Interest
                  expense
              
              
              (59,032
              )
              
              (141,027
              )Total
                  other expense
              
              
              (58,274
              )
              
              (139,182
              )Loss
                  before income taxes
              
              
              (2,499,418
              )
              
              (1,627,719
              )Income
                  tax expense
              
              
              --
              
              
              --Net
                  loss
              
              $
              (2,499,418
              )
              $
              (1,627,719
              )Net
                  loss per common share (basic and diluted)
              
              $
              (0.03
              )
              $
              (0.04
              )Weighted
                  average common shares outstanding
              
              
              76,536,237
              
              
              43,249,462
 
  The
        accompanying notes are an integral part of these consolidated financial
        statements
 F-5
  **SUB
        SURFACE WASTE MANAGEMENT OF DELAWARE, INC.**
 **Consolidated
        Statements Deficiency In Stockholders' Equity**
 **For
        The Two Years Ended September 30, 2006**
 
 Preferred
                  Stock
              
              Common
                  Stock
              
              Sub
              
              Additional
                Paid-in
              
              Deferred
                Financing
              
              Deferred
                Equity
                Issuance
              
              AccumulatedShares
              
              Amount
              
              Shares
              
              Amount
              
              Receiv
              
              Capital
              
              Costs
              
              Costs
              
              Deficit
              
              TotalBalance
                  at October 1, 2004
              
              
              5,884,665
              
              $
              5,885
              
              
              35,860,574
              
              $
              35,861
              
              $
              --
              
              $
              11,096,864
              
              $
              (184,270
              )
              $
              (783,500
              )
              $
              10,114,356
              )
              $
              56,484Shares
                  issued for cash
              
              
              --
              
              
              --
              
              
              12,615,957
              
              
              12,616
              
              
              --
              
              
              593,323
              
              
              --
              
              
              --
              
              
              --
              
              
              605,939Shares
                  issued in exchange for a finder's fee
              
              
              --
              
              
              --
              
              
              375,000
              
              
              375
              
              
              --
              
              
              (375
              )
              
              --
              
              
              --
              
              
              --
              
              
              --Shares
                  issued for employee stock option plan
              
              
              --
              
              
              --
              
              
              4,654,000
              
              
              4,654
              
              
              --
              
              
              522,274
              
              
              --
              
              
              --
              
              
              --
              
              
              526,928Shares
                  issued to employees for bonus at 0.35
              
              
              --
              
              
              --
              
              
              246,000
              
              
              246
              
              
              --
              
              
              85,854
              
              
              --
              
              
              --
              
              
              --
              
              
              86,100Shares
                  issued to employee for payroll
              
              
              --
              
              
              --
              
              
              509,615
              
              
              510
              
              
              --
              
              
              40,260
              
              
              --
              
              
              --
              
              
              --
              
              
              40,770Shares
                  issued for Settlement of accounts payable
              
              
              --
              
              
              --
              
              
              1,090,429
              
              
              1,090
              
              
              --
              
              
              160,391
              
              
              --
              
              
              --
              
              
              --
              
              
              161,481Shares
                  issued to consultants for services
              
              
              --
              
              
              --
              
              
              1,371,032
              
              
              1,371
              
              
              --
              
              
              173,654
              
              
              --
              
              
              --
              
              
              --
              
              
              175,025Shares
                  issued for note payable and interest expense
              
              
              --
              
              
              --
              
              
              4,903,498
              
              
              4,903
              
              
              --
              
              
              274,680
              
              
              --
              
              
              --
              
              
              --
              
              
              279,583Shares
                  issued for accrued expenses
              
              
              --
              
              
              --
              
              
              781,700
              
              
              782
              
              
              --
              
              
              46,118
              
              
              --
              
              
              --
              
              
              --
              
              
              46,900Common
                  stock issued for deposit to Water Machines
              
              
              --
              
              
              --
              
              
              83,334
              
              
              83
              
              
              --
              
              
              9,917
              
              
              --
              
              
              --
              
              
              --
              
              
              10,000Common
                  stock issued for stock subscription receivable
              
              
              --
              
              
              --
              
              
              41,666
              
              
              41
              
              
              (5,000
              )
              
              4,959
              
              
              --
              
              
              --
              
              
              --
              
              
              --Cash
                  received for stock subscription receivable
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              2,400
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              2,400Shares
                  issued for a partial payment on advance from Fusion at 0.232 per
                  share
              
              
              --
              
              
              --
              
              
              64,655
              
              
              65
              
              
              --
              
              
              14,935
              
              
              --
              
              
              --
              
              
              --
              
              
              15,000Value
                  of options for 1,400,000 commons shares issued for consulting
                  expenses
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              120,574
              
              
              --
              
              
              --
              
              
              --
              
              
              120,574Commons
                  shares issued upon conversion of preferred A stocks
              
              
              (56,000
              )
              
              (56
              )
              
              280,000
              
              
              280
              
              
              --
              
              
              (224
              )
              
              --
              
              
              --
              
              
              --
              
              
              --Cash
                  received and Restricted Series A options exercised
              
              
              5,000
              
              
              5
              
              
              --
              
              
              --
              
              
              --
              
              
              1,245
              
              
              --
              
              
              --
              
              
              --
              
              
              1,250Preferred
                  Series A issued to a related party for consulting services
              
              
              8,000
              
              
              8
              
              
              --
              
              
              --
              
              
              --
              
              
              1,992
              
              
              --
              
              
              --
              
              
              --
              
              
              2,000Preferred
                  Series A issued to employees upon exercise of options
              
              
              121,000
              
              
              121
              
              
              --
              
              
              --
              
              
              --
              
              
              30,129
              
              
              --
              
              
              --
              
              
              --
              
              
              30,250Preferred
                  Series S issued to U.S. Microbics 20,000,000 20,000
              
              
              20,000,000
              
              
              20,000
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              
              
              
              
              
              
              20,000Shares
                  issued for deferred issuance cost
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              (15,000
              )
              
              --
              
              
              15,000
              
              
              --
              
              
              --Net
                  loss
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              (1,627,719
              )
              
              (1,627,719
              )Balance
                  at September 30, 2005
              
              
              25,962,665
              
              $
              25,963
              
              
              62,877,460
              
              $
              62,877
              
              $
              (2,600
              )
              $
              13,161,570
              
              $
              (184,270
              )
              $
              (768,500
              )
              $
              (11,742,075
              )
              $
              552,965
  The
        accompanying notes are an integral part of these consolidated financial
        statements
 F-6
 
 **SUB
          SURFACE WASTE MANAGEMENT OF DELAWARE, INC.**
 **Consolidated
          Statements Deficiency In Stockholders' Equity (continued)**
 **For
          The Two Years Ended September 30, 2006**
 
 Preferred
                  Stock
              
              Common
                  Stock
              
              Sub
              
              Additional
                Paid-in
              
              Deferred
                Financing
              
              Deferred
                Equity
                Issuance
              
              AccumulatedShares
              
              Amount
              
              Shares
              
              Amount
              
              Receiv
              
              Capital
              
              Costs
              
              Costs
              
              Deficit
              
              TotalTotal
                  brought forward
              
              
              25,962,665
              
              $
              25,963
              
              
              62,877,460
              
              $
              62,877
              
              $
              (2,600
              )
              $
              13,161,570
              
              $
              (184,270
              )
              $
              (768,500
              )
              $
              (11,742,075
              )
              $
              552,965Shares
                  issued for cash
              
              
              --
              
              
              --
              
              
              7,450,000
              
              
              7,450
              
              
              --
              
              
              188,050
              
              
              --
              
              
              --
              
              
              --
              
              
              195,500Shares
                  issued to Fusion for advance
              
              
              
              
              
              
              
              
              850,000
              
              
              850
              
              
              
              
              
              84,150
              
              
              
              
              
              
              
              
              
              
              
              85,000Shares
                  issued as a finder's fee
              
              
              --
              
              
              --
              
              
              625,000
              
              
              625
              
              
              --
              
              
              24,375
              
              
              --
              
              
              --
              
              
              --
              
              
              25,000Shares
                  issued to consultants for services
              
              
              
              
              
              
              
              
              620,000
              
              
              620
              
              
              --
              
              
              28,980
              
              
              --
              
              
              --
              
              
              --
              
              
              29,600Shares
                  issued for employee stock option plan
              
              
              --
              
              
              --
              
              
              13,845,000
              
              
              13,845
              
              
              (147,560
              )
              
              684,527
              
              
              --
              
              
              --
              
              
              --
              
              
              550,812Common
                  issued for Settlement of accounts payable
              
              
              --
              
              
              --
              
              
              1,480,000
              
              
              1,480
              
              
              --
              
              
              76,272
              
              
              --
              
              
              --
              
              
              --
              
              
              77,752Shares
                  issued to employee for payroll
              
              
              --
              
              
              --
              
              
              3,893,940
              
              
              3,894
              
              
              --
              
              
              132,394
              
              
              --
              
              
              --
              
              
              --
              
              
              136,288Shares
                  issued for note payable and interest expense
              
              
              
              
              
              
              
              
              3,256,094
              
              
              3,256
              
              
              --
              
              
              61,865
              
              
              --
              
              
              --
              
              
              --
              
              
              65,121Common
                  stock issued as compensation to a director
              
              
              --
              
              
              --
              
              
              208,300
              
              
              208
              
              
              --
              
              
              9,792
              
              
              --
              
              
              --
              
              
              --
              
              
              10,000Commons
                  shares issued upon conversion of preferred A stocks
              
              
              (84,000
              )
              
              (84
              )
              
              420,000
              
              
              420
              
              
              --
              
              
              (336
              )
              
              --
              
              
              --
              
              
              --
              
              
              --Common
                  stock issue for finance fee for line of credit
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              96,000
              
              
              --
              
              
              --
              
              
              --
              
              
              31,250Preferred
                  Series A issued to employee for accrued payroll
              
              
              8,000
              
              
              8
              
              
              --
              
              
              --
              
              
              --
              
              
              1,992
              
              
              --
              
              
              --
              
              
              --
              
              
              2,000Preferred
                  Series A issued to affiliate for a license agreement
              
              
              1,500,000
              
              
              1,500
              
              
              --
              
              
              --
              
              
              --
              
              
              148,500
              
              
              --
              
              
              --
              
              
              --
              
              
              150,000Preferred
                  Series A issued to affiliate for a consulting contract
              
              
              3,600,000
              
              
              3,600
              
              
              --
              
              
              --
              
              
              --
              
              
              356,400
              
              
              --
              
              
              --
              
              
              --
              
              
              360,000Cancellation
                  of preferred series B shares
              
              
              (150,000
              )
              
              (150
              )
              
              --
              
              
              --
              
              
              --
              
              
              (184,120
              )
              
              184,270
              
              
              
              
              
              
              
              
              --Financing
                  expenses related to convertible note payable for $100,000
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              31,250
              
              
              --
              
              
              --
              
              
              --
              
              
              31,250Shares
                  issued for deferred issuance cost
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              (100,000
              )
              
              --
              
              
              100,000
              
              
              --
              
              
              --Write
                  off of stock subscription receivable
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              2,600
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              2,600Net
                  loss
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              (2,499,418
              )
              
              (2,499,418
              )Balance
                  at September 30, 2006
              
              
              30,836,665
              
              $
              30,836
              
              
              95,525,794
              
              $
              95,526
              
              $
              (147,560
              )
              $
              14,801,661
              
              $
              --
              
              $
              (668,500
              )
              $
              (14,241,493
              )
              $
              (129,530
              )


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


F-7
  **SUB
        SURFACE WASTE MANAGEMENT OF DELAWARE, INC.**
 **Consolidated
        Statements Of Cash Flows**
 **For
        The Years Ended September 30, 2006 And 2005**
   2006
              
              2005**Cash
                  Flows From Operating Activities:**Net
                  loss
              
              $
              (2,499,418
              )
              $
              (1,627,719
              )Adjustment
                  to reconcile net loss to cash used in operating
                  activities:Depreciation
                  and amortization
              
              
              30,237
              
              
              13,233Bad
                  debt expense
              
              
              201,641
              
              
              --Stock
                  subscription receivable write off
              
              
              2,600
              
              
              --Investment
                  write off
              
              
              --
              
              
              150,000Interest
                  expense credited to Notes Payable
              
              
              --
              
              
              96,573Preferred
                  stocks issued for license agreement with an affiliate
              
              
              150,000
              
              
              --Preferred
                  stocks issued for consulting expenses with an affiliate
              
              
              360,000
              
              
              2,000Beneficial
                  conversion on notes payable amortized
              
              
              --
              
              
              72,792Issuance
                  of stock for bonus or payroll
              
              
              138,288
              
              
              126,870Issuance
                  of stock for interest expense
              
              
              15,122
              
              
              --Common
                  stock issued in exchange for services
              
              
              54,600
              
              
              175,024Common
                  stock issued in exchange for director services
              
              
              10,000
              
              
              --Stock
                  options issued in exchange for services
              
              
              104,809
              
              
              120,574Decrease
                  (increase) in:Accounts
                  receivable
              
              
              130,773
              
              
              (166,322
              )Cost
                  and estimated profit in excess of billing
              
              
              --
              
              
              29,543Prepaid
                  expenses and other current assets
              
              
              (3,831
              )
              
              (191,150
              )Other
                  assets
              
              
              46,734
              
              
              (5,706
              )Increase
                  (decrease) in:Accounts
                  payable and accrued expenses
              
              
              139,796
              
              
              229,828**Net
                  Cash Used In Operating Activities**
              
              
              (1,118,649
              )
              
              (974,460
              )**Cash
                  Flows From Investing Activities:**Reduction
                  in restricted cash
              
              
              35,573
              
              
              86,869Purchase
                  of property and equipment
              
              
              (57,032
              )
              
              (52,646
              )Payments
                  (to) from affiliates
              
              
              407,293
              
              
              (338,296
              )**Net
                  Cash Provided By (Used In) Investing Activities**
              
              
              385,834
              
              
              (304,073
              )**Cash
                  Flows From Financing Activities:**Proceeds
                  from line of credit
              
              
              345,000
              
              
              -(Repayment
                  of) proceeds from parent and affiliates
              
              
              (49,978
              )
              
              78,503Proceeds
                  from notes payable
              
              
              100,000
              
              
              70,000Proceeds
                  from issuance of common stock, net
              
              
              195,500
              
              
              605,940Issuance
                  of common stock under employee stock option plan
              
              
              446,003
              
              
              526,926Proceeds
                  from issuance of preferred stock
              
              
              --
              
              
              1,250Proceeds
                  from stock subscription receivable
              
              
              --
              
              
              2,400**Net
                  Cash Provided By Financing Activities**
              
              
              1,036,525
              
              
              1,285,019**Net
                  Increase In Cash**
              
              
              303,710
              
              
              6,486**Cash
                  At Beginning Of Year**
              
              
              7,098
              
              
              612**Cash
                  At End Of Year**
              
              $
              310,808
              
              $
              7,098
   The
        accompanying notes are an integral part of these consolidated financial
        statements
 F-8
 **SUB
          SURFACE WASTE MANAGEMENT OF DELAWARE, INC.**
 **Consolidated
          Statements Of Cash Flows (continued)**
 **For
          The Years Ended September 30, 2006 And 2005**
   2006
                
                2005**Supplemental
                    Disclosure Of Non-Cash Investing And Financing
                    Activities:**Common
                    stocks issued in exchange for services
                
                
                54,600
                
                
                175,024Common
                    stocks issued to employees for services
                
                
                136,288
                
                
                126,870Common
                    stock issued for deposits
                
                
                --
                
                
                10,000Preferred
                    stocks issued in exchange for services
                
                
                2,000
                
                
                2,000Preferred
                    stocks issued in settlement of accrued expenses
                
                
                --
                
                
                30,250Common
                    stock issued for compensation to a director
                
                
                10,000
                
                
                --Common
                    stock issued in settlement of notes payable and accrued
                    interest
                
                
                65,122
                
                
                279,583Common
                    stock issued for a finance fee associated with a line of
                    credit
                
                
                96,000
                
                
                --Preferred
                    stock issued for consulting contract with an affiliate
                
                
                360,000
                
                
                --Preferred
                    stock issued for licensing agreement with an affiliate
                
                
                150,000
                
                
                --Preferred
                    stock issued as deferred financing costs
                
                
                (184,270
                )
                
                --Common
                    stock issued in settlement of accounts payable and accrued
                    expenses
                
                
                77,752
                
                
                208,381Common
                    stock issued as deferred equity issue costs
                
                
                (100,000
                )
                
                --Common
                    stock issued in settlement of advances
                
                
                85,000
                
                
                15,000Stock
                    options issued in exchange for services
                
                
                --
                
                
                120,574Stock
                    subscriptions receivable
                
                
                144,960
                
                
                5,000**Cash
                    Paid For:**Interest
                
                $
                --
                
                $
                --Income
                    taxes
                
                $
                --
                
                $
                --
   The
          accompanying notes are an integral part of these consolidated financial
          statements
 F-9
  **SUB
        SURFACE WASTE MANAGEMENT OF DELAWARE, INC.**
 **Notes
        To Consolidated Financial Statements**
 **September
        30, 2006**
 
 **NOTE
        A - SUMMARY OF ACCOUNTING POLICIES**
 
 A
        summary
        of the significant accounting policies applied in the preparation of the
        accompanying financial statements follows.
 
 Business
        and Basis of Presentation
 
 Sub
        Surface Waste Management of Delaware, Inc. ("the Company") was formed under
        the
        laws of the State of Utah in January, 1986 and re-domiciled to the State
        of
        Delaware in February, 2001. The Company designs, installs and operates
        proprietary soil and groundwater remediation systems.
 
 The
        consolidated financial statements include the companies which are effectively
        controlled directly by the Company, where control is defined as the power
        to
        govern the financial and operating policies. This control is generally evidenced
        when the Company directly or indirectly owns more than 50% or the voting
        rights
        of the company's share capital. Significant intercompany transactions have
        been
        eliminated in consolidation. Certain prior period amounts have been reclassified
        for comparative purposes.
 
 As
        of
        September 30, 2006 and 2005, U.S. Microbics, Inc., and subsidiaries ("Parent"
        or
        "Affiliates") control approximately 84.19% and 89.3%, respectively, of the
        outstanding stock of the Company.
 
 Cash
        and Cash Equivalents
 
 Cash
        and
        cash equivalents consist primarily of cash on deposit, certificates of deposit,
        and money market accounts readily convertible into cash and purchased with
        original maturities of three months or less.
 
 Accounts
        Receivable
 
 The
        Company has elected to record bad debts using the direct write-off method.
        Generally accepted accounting principles require that the allowance method
        be
        used to recognize bad debts; however, the effect of using the direct write-off
        method is not materially different from the results that would have been
        obtained under the allowance method.
 
 Property
        and Equipment
 
 Property
        and equipment are recorded at cost. Expenditures for major additions and
        improvements are capitalized, and minor replacements, maintenance, and repairs
        are charged to expenses as incurred. When property and equipment are retired
        or
        otherwise disposed of, the cost and accumulated depreciation are removed
        from
        the accounts and any resulting gain or loss is included in the results of
        operations for the respective period. Depreciation is provided over the
        estimated useful lives of the related assets using the straight-line method
        for
        financial statement purpose. The estimated useful lives for significant property
        and equipment categories are as follows:
 Computer
                    Equipment
                5
                    yearsMachinery
                    and equipment
                7
                    yearsVehicles
                5
                    years
 Long-Lived
        Assets
 
 The
        Company has adopted Statement of Financial Accounting Standards No. 144 (SFAS
        144). The Statement requires that long-lived assets and certain identifiable
        intangibles held and used by the Company be reviewed for impairment whenever
        events or changes in circumstances indicate that the carrying amount of an
        asset
        may not be recoverable. Events relating to recoverability may include
        significant unfavorable changes in business conditions, recurring losses,
        or a
        forecasted inability to achieve break-even operating results over an extended
        period. The Company evaluates the recoverability of long-lived assets based
        upon
        forecasted undercounted cash flows. Should impairment in value be indicated,
        the
        carrying value of intangible assets will be adjusted, based on estimates
        of
        future discounted cash flows resulting from the use and ultimate disposition
        of
        the asset. SFAS No. 144 also requires assets to be disposed of be reported
        at
        the lower of the carrying amount or the fair value less costs to
        sell.
 
 F-10
 
 **SUB
        SURFACE WASTE MANAGEMENT OF DELAWARE, INC.**
 **Notes
        To Consolidated Financial Statements**
 **September
        30, 2006**
 
 **NOTE
        A - SUMMARY OF ACCOUNTING POLICIES (continued)**
 
 Research
        and Development
 
 The
        Company accounts for research and development costs in accordance with the
        Financial Accounting Standards Board's Statement of Financial Accounting
        Standards No. 2 ("SFAS 2"), "Accounting for Research and Development Costs.
        Under SFAS 2, all research and development costs must be charged to expense
        as
        incurred. Accordingly, internal research and development costs are expensed
        as
        incurred. Third-party research and developments costs are expensed when the
        contracted work has been performed or as milestone results have been achieved.
        Company-sponsored research and development costs related to both present
        and
        future products are expensed in the period incurred. The Company did not
        incur
        any research and development expenses in the fiscal year ended 2006 and
        2005.
 
 Income
        Taxes
 
 Deferred
        tax assets and liabilities are recognized for the future tax consequences
        attributable to differences between the financial statement carrying amounts
        of
        existing assets and liabilities and their respective tax bases. Deferred
        tax
        assets, including tax loss and credit carryforwards, and liabilities are
        measured using enacted tax rates expected to apply to taxable income in the
        years in which those temporary differences are expected to be recovered or
        settled. The effect on deferred tax assets and liabilities of change in tax
        rates is recognized in income in the period that includes the enactment date.
        Deferred income tax expense represents the change during the period in the
        deferred tax assets and deferred liabilities. The components of the deferred
        tax
        assets and liabilities are individually classified as current and non-current
        based on their characteristics. Deferred tax assets are reduced by a valuation
        allowance when, in opinion of management, it is more likely than not some
        portion or all of the deferred tax assets will not be realized.
 
 The
        Company currently has substantial net operating loss carryforwards. The Company
        has recorded a 100% valuation allowance against net deferred tax assets due
        to
        uncertainty of their ultimate realization.
 
 Net
        Loss Per Common Share
 
 The
        Company computes earnings per share under Financial Accounting Standard No.
        128,
        "Earnings Per Share" (SFAS 128). Net loss per common share is computed by
        dividing net loss by the weighted average number of shares of common stock
        and
        dilutive common stock equivalents outstanding during the year. Dilutive common
        stock equivalents consist of shares issuable upon conversion of convertible
        preferred shares and the exercise of the Company's stock options and warrants
        (calculated using the treasury stock method). During 2006 and 2005, common
        stock
        equivalents are not considered in the calculation of the weighted average
        number
        of common shares outstanding because they would be anti-dilutive, thereby
        decreasing the net loss per common share.
 
 Use
        of
        Estimates
 
 The
        preparation of financial statements in conformity with generally accepted
        accounting principles requires management to make estimates and assumptions
        that
        affect certain reported amounts and disclosures. Accordingly actual results
        could differ from those estimates.
 
 Revenue
        Recognition
 
 Revenue
        for product sales is recognized at the time the product is shipped to or
        picked
        up by the customer. Revenues from time and materials contracts are recognized
        as
        the services are performed. Revenue for short-term engineering or remediation
        services is recognized at the completion of the contract. Sales under long-term
        contracts are accounted for under the percentage of completion method. Revenues
        are recognized as the actual cost of work performed related to the estimate
        at
        completion. Profits expected to be realized on contracts are based on the
        Company's estimates of total contract sales value and costs at completion.
        Assumptions used for recording sales and earnings are adjusted in the period
        of
        change to reflect revisions in contract value and estimated costs. In the
        period
        in which it is determined that a loss will be incurred on a contract, the
        entire
        amount of the estimated loss is charged to income.
 
 The
        asset, "Cost and estimated profit in excess of billings" represents revenue
        recognized in excess of amounts billed. At Septermber 30, 2006, the Company
        had
        no costs and estimated profit in excess of billings.
 
 F-11
 
 **SUB
        SURFACE WASTE MANAGEMENT OF DELAWARE, INC.**
 **Notes
        To Consolidated Financial Statements**
 **September
        30, 2006**
 
 **NOTE
        A - SUMMARY OFACCOUNTING POLICIES (continued)**
 
 Advertising
 
 Advertising
        and sales promotion costs are expensed as incurred. Advertising expense totaled
        $0 and $117 for the years ended September 30, 2006 and 2005,
        respectively.
 
 Reclassifications
 
 Certain
        reclassifications have been made in prior year's financial statements to
        conform
        to classifications used in the current year. These reclassifications had
        no
        affect on previously reported results of operations or retained
        earnings.
 
 Liquidity
 
 As
        shown
        in the accompanying financial statements, the Company has incurred a net
        loss of
        $2,499,418 and $1,627,719 during the years ended September 30, 2006 and 2005,
        respectively. The Company's current liabilities exceeded its current assets
        by
        $327,746 as of September 30, 2006. The Company's current assets exceeded
        its
        current liabilities by $ 430,810 as of September 30, 2005.
 
 Concentrations
        of Credit Risk
 
 Financial
        instruments and related items, which potentially subject the Company to
        concentrations of credit risk, consist primarily of cash, cash equivalents
        and
        related party receivables. The Company places its cash and temporary cash
        investments with credit quality institutions. At times, such investments
        may be
        in excess of the FDIC insurance limit.
 
 Stock-Based
        Compensation
  Prior
        to
        January 1, 2006, the Company accounted for the Plans under the recognition
        and measurement provisions of APB Opinion No. 25, as permitted by SFAS
        No. 123. Consequently, no stock-based compensation cost relating to stock
        options was recognized in the consolidated statement of income for any period
        prior to 2006, as all options granted under the Plans had an exercise price
        equal to the market value of the underlying common stock on the date of grant.
        Effective January 1, 2006, the Company adopted the fair value provisions
        for share-based awards pursuant to SFAS No. 123(R), using the
        modified-prospective-transition method. Under that transition method,
        compensation cost recognized in 2006 includes (a) compensation cost for all
        share-based awards granted prior to, but not yet vested as of January 1,
        2006, based on the attribution method and grant date fair value estimated
        in
        accordance with the original provisions of SFAS No. 123, and
        (b) compensation cost for all share-based awards granted subsequent to
        January 1, 2006, based on the grant-date fair value estimated in accordance
        with the provisions of SFAS No. 123(R), all recognized on a straight line
        basis as the requisite service periods are rendered. Results for prior periods
        have not been restated.
  F-12
  **SUB
        SURFACE WASTE MANAGEMENT OF DELAWARE, INC.**
 **Notes
        To Consolidated Financial Statements**
 **September
        30, 2006**
 
 
 **NOTE
        A - SUMMARY OFACCOUNTING POLICIES (continued)**
 
  The
        following table illustrates the effect on net income and earnings per share
        for
        the year ended 2005, if the Company had applied the fair value recognition
        provisions of SFAS No. 123(R) to all stock-based compensation granted under
        equity award plans for awards granted prior to September 30, 2005:
 **2005**Net
                    loss available to common stockholders as reported
                
                $
                (1,627,719
                )Total
                    stock option expense determined under fair value base
                    method
                
                
                --Pro
                    forma net loss
                
                $
                (1,627,719
                )Net
                    loss per common share as reported:Basic
                    and diluted
                
                $
                (.04
                )Net
                    loss per common share pro forma:Basic
                    and diluted
                
                $
                (.04
                )
 
 Comprehensive
        Income
 
 The
        Company had no items of other comprehensive income in any period presented.
        Therefore, net loss as presented in the Company's Statements of losses equal
        comprehensive loss.
 
 Segment
        Information
 
 Statement
        of Financial Accounting Standards No. 131, Disclosures about Segments of
        an
        Enterprise and Related Information (SFAS 131) establishes standards for
        reporting information regarding operating segments in annual financial
        statements and requires selected information for those segments to be presented
        in interim financial reports issued to stockholders. SFAS 131 also establishes
        standards for related disclosures about products and services and geographic
        areas. Operating segments are identified as components of an enterprise about
        which separate discrete financial information is available for evaluation
        by the
        chief operating decision maker, or decision-making group, in making decisions
        how to allocate resources and assess performance. The information disclosed
        herein, materially represents all of the financial information related to
        the
        Company's principal operating segment.
 
 Foreign
        Currency Translation
  The
        Company translates the foreign currency financial statements in accordance
        with
        the requirements of Statement of Financial Accounting Standards No. 52, "Foreign
        Currency Translation." Assets and liabilities are translated at the rates
        of
        exchange at the balance sheet date, and related revenue and expenses are
        translated at average monthly exchange rates in effect during the period.
        Resulting translation adjustments are recorded as a separate component in
        stockholders' equity. Foreign currency transaction gains and losses are included
        in the statement of income.
 
 F-13
  **SUB
        SURFACE WASTE MANAGEMENT OF DELAWARE, INC.**
 **Notes
        To Consolidated Financial Statements**
 **September
        30, 2006**
 
 **NOTE
        A - SUMMARY OF ACCOUNTING POLICIES (continued)**
 
 Contingencies
 
 Certain
        conditions may exist as of the date the financial statements are issued,
        which
        may result in a loss to the Company but which will only be resolved when
        one or
        more future events occur or fail to occur. The Company's management and its
        legal counsel assess such contingent liabilities, and such assessment inherently
        involves an exercise of judgment. In assessing loss contingencies related
        to
        legal proceedings that are pending against the Company or unasserted claims
        that
        may result in such proceedings, the Company's legal counsel evaluates the
        perceived merits of any legal proceedings or unasserted claims as well as
        the
        perceived merits of the amount of relief sought or expected to be sought
        therein.
 
 If
        the
        assessment of a contingency indicates that it is probable that a material
        loss
        has been incurred and the amount of the liability can be estimated, then
        the
        estimated liability would be accrued in the Company's financial statements.
        If
        the assessment indicates that a potentially material loss contingency is
        not
        probable but is reasonably possible, or is probable but cannot be estimated,
        then the nature of the contingent liability, together with an estimate of
        the
        range of possible loss if determinable and material, would be
        disclosed.
 
 Loss
        contingencies considered remote are generally not disclosed unless they involve
        guarantees, in which case the guarantees would be disclosed.
 
 Financial
        Instruments
 
 The
        Company's financial instruments are cash and cash equivalents, accounts
        receivable, accounts payable, notes payable, and long-term debt. The recorded
        values of cash and cash equivalents, accounts receivable, and accounts payable
        approximate their fair values based on their short-term nature. The recorded
        values of notes payable and long-term debt approximate their fair values,
        as
        interest approximates market rates.
 
 New
        Accounting Pronouncements
 
 In
        November 2004, the Financial Accounting Standards Board (FASB) issued SFAS
        151,
*Inventory Costs-- An Amendment Of ARB No. 43, Chapter 4*. This Statement
        amends the guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify
        the accounting for abnormal amounts of idle facility expense, freight, handling
        costs, and wasted material (spoilage). Paragraph 5 of ARB 43, Chapter 4,
        previously stated that ". . . under some circumstances, items such as idle
        facility expense, excessive spoilage, double freight, and re-handling costs
        may
        be so abnormal as to require treatment as current period charges. . . ."
        This
        Statement requires that those items be recognized as current-period charges
        regardless of whether they meet the criterion of "so abnormal." In addition,
        this Statement requires that allocation of fixed production overheads to
        the
        costs of conversion be based on the normal capacity of the production
        facilities. This Statement is effective for inventory costs incurred during
        fiscal years beginning after June 15, 2005. Management does not believe the
        adoption of this Statement will have any immediate material impact on the
        Company.
 
 New
        Accounting Pronouncements (continued)
 
 In
        December 2004, the FASB issued SFAS No.152, "Accounting for Real Estate
        Time-Sharing Transactions--an amendment of FASB Statements No. 66 and 67"
        ("SFAS
        152) The amendments made by Statement 152 This Statement amends FASB Statement
        No. 66, Accounting for Sales of Real Estate, to reference the financial
        accounting and reporting guidance for real estate time-sharing transactions
        that
        is provided in AICPA Statement of Position (SOP) 04-2, Accounting for Real
        Estate Time-Sharing Transactions. This Statement also amends FASB Statement
        No.
        67, Accounting for Costs and Initial Rental Operations of Real Estate Projects,
        to state that the guidance for (a) incidental operations and (b) costs incurred
        to sell real estate projects does not apply to real estate time-sharing
        transactions. The accounting for those operations and costs is subject to
        the
        guidance in SOP 04-2. This Statement is effective for financial statements
        for
        fiscal years beginning after June 15, 2005. with earlier application encouraged.
        The Company does not anticipate that the implementation of this standard
        will
        have a material impact on its financial position, results of operations or
        cash
        flows.
 
 On
        December 16, 2004, the Financial Accounting Standards Board ("FASB") published
        Statement of Financial Accounting Standards No. 123 (Revised 2004),
*Share-Based Payment* ("SFAS 123R"). SFAS 123R requires that compensation
        cost
 related
        to share-based payment transactions be recognized in the financial statements.
        Share-based payment transactions
 
 F-14
  **SUB
        SURFACE WASTE MANAGEMENT OF DELAWARE, INC.**
 **Notes
        To Consolidated Financial Statements**
 **September
        30, 2006**
 
 **NOTE
        A - SUMMARY OF ACCOUNTING POLICIES (continued)**
 
 within
        the scope of SFAS 123R include stock options, restricted stock plans,
        performance-based awards, stock appreciation rights, and employee share purchase
        plans. The provisions of SFAS 123R are effective as of the first interim
        period
        that begins after June 15, 2005. Accordingly, the Company will implement
        the
        revised standard in the third quarter of fiscal year 2005. Currently, the
        Company accounts for its share-based payment transactions under the provisions
        of APB 25, which does not necessarily require the recognition of compensation
        cost in the financial statements. Management is assessing the implications
        of
        this revised standard, which may materially impact the Company's results
        of
        operations in the future.
 
 On
        December 16, 2004, FASB issued Statement of Financial Accounting Standards
        No.
        153, *Exchanges Of Nonmonetary Assets, An Amendment Of APB Opinion No. 29,
        Accounting For Nonmonetary Transactions* (" SFAS 153"). This statement
        amends APB Opinion 29 to eliminate the exception for nonmonetary exchanges
        of
        similar productive assets and replaces it with a general exception for exchanges
        of nonmonetary assets that do not have commercial substance. Under SFAS 153,
        if
        a nonmonetary exchange of similar productive assets meets a commercial-substance
        criterion and fair value is determinable, the transaction must be accounted
        for
        at fair value resulting in recognition of any gain or loss. SFAS 153 is
        effective for nonmonetary transactions in fiscal periods that begin after
        June
        15, 2005. The Company does not anticipate that the implementation of this
        standard will have a material impact on its financial position, results of
        operations or cash flows.
 
 FASB
        Interpretation No. 47 ("FIN 47") "Accounting for Conditional Asset Retirement
        Obligations" was issued by the FASB in March 2005. FIN 47 provides guidance
        relating to the identification of and financial reporting for legal obligations
        to perform an asset retirement activity. The Interpretation requires recognition
        of a liability for the fair value of a conditional asset retirement obligation
        when incurred if the liability's fair value can be reasonably estimated.
        FIN 47
        is effective no later than the end of fiscal years ending after December
        15,
        2005. The Company does not expect adoption of FIN 47 to have a material effect
        on its. financial position, results of operations or cash flows.
 
 In
        May
        2005, SFAS No. 154, "Accounting Changes and Error Corrections," ("SFAS No.
        154"), was issued, which replaces APB Opinion No. 20, "Accounting Changes,"
        and
        SFAS No. 3, "Reporting Accounting Changes in Interim Financial Statements."
        Among other changes, SFAS No. 154 requires retrospective application of a
        voluntary change in accounting principle to prior period financial statements
        presented on the new accounting principle, unless it is impracticable to
        determine either the period-specific effects or the cumulative effect of
        the
        change. SFAS No. 154 also requires accounting for a change in method of
        depreciating or amortizing a long-lived non-financial asset as a change in
        accounting estimate (prospectively) affected by a change in accounting
        principle. Further, the Statement requires that corrections of errors in
        previously issued financial statements to be termed a "restatement." The
        new
        standard is effective for accounting changes and error corrections made in
        fiscal years beginning after December 15 , 2005. The Company does not expect
        the
        adoption of SFAS No. 154 to have a material impact on its financial position,
        results of operations or cash flows .
 
 On
        February 16, 2006 the FASB issued SFAS 155, “Accounting for Certain Hybrid
        Instruments,” which amends SFAS 133, “Accounting for Derivative Instruments and
        Hedging Activities,” and SFAS 140, “Accounting for Transfers and Servicing of
        Financial Assets and Extinguishments of Liabilities.” SFAS 155 allows financial
        allows financial instruments that have embedded derivatives to be accounted
        for
        as a whole (eliminating the need to bifurcate the derivative from its host)
        if
        the holder elects to account for the whole instrument on a fair value basis.
        SFAS 155 also clarifies and amends certain other provisions of SFAS 133 and
        SFAS
        140. This statement is effective for all financial instruments acquired or
        issued in fiscal years beginning after September 15, 2006. The Company does
        not
        expect its adoption of this new standard to have a material impact on its
        financial position, results of operations or cash flows.
  In
        March
        2006, the FASB issued FASB Statement No. 156, Accounting for Servicing of
        Financial Assets - an amendment to FASB Statement No. 140. Statement 156
        requires that an entity recognize a servicing asset or servicing liability
        each
        time it undertakes an obligation to service a financial asset by entering
        into a
        service contract under certain situations. The new standard is effective
        for
        fiscal years beginning after September 15, 2006. The Company does not
        expect its adoption of this new standard to have a material impact on its
        financial position, results of operations or cash flows.
 
 F-15
 
 **SUB
        SURFACE WASTE MANAGEMENT OF DELAWARE, INC.**
 **Notes
        To Consolidated Financial Statements**
 **September
        30, 2006**
 
 **NOTE
        B - RESTRICTED CASH**
 
 As
        of
        September 30, 2006, the Company did not have restricted cash balances. As
        of
        September 30, 2005, restricted cash consisted of one certificate of deposit
        $34,942 and accrued interest, which totaled $35,573. The certificate of deposit
        was pledged as collateral on letter of a credit (see Note K) issued to the
        State
        of South Carolina in lieu of performance bonds on a remediation project for
        McGill's Store. The letter of credit expired on September 18, 2006 and was
        not
        renewed.
 
 **NOTE
        C - DUE FROM AFFILIATE**
 
 As
        of
        September 30, 2006, the Company had a due from affiliates of $358,572 which
        principally comprises of $214,414 due from US Microbics, Inc. and $124,932
        due
        from USM Capital Group, Inc.  U.S. Microbics, Inc., our parent company owns 84.19% of
        our issued and outstanding common stock. U.S. Microbics, Inc. also owns 80%
        of
        USM Capital Group, Inc., which in turn owns 1 % of our issued and outstanding
        common stock.
 
 The
        captions "Due from affiliates" represent loans receivable that are unsecured
        non-interest bearingand that are due upon demand.
 
 **NOTE
        D - PREPAID EXPENSES AND OTHER ASSETS**
 
 Of
        the
        $100,380 shown for prepaid expenses and other assets, $90,477 is deferred
        finance charges that was issued in restricted common stock to an affiliate
        for
        collateralizing a line of credit for the Company.
 
 
 **NOTE
        E - PROPERTY AND EQUIPMENT**
 
 Property
        and equipment at September 30, 2006 consists of the following:
 
 2006Manufacturing
                  equipment
              
              $
              97,945Office
                  furniture and equipment
              
              
              28,560Vehicle
              
              
              23,351149,856Less:
                  accumulated depreciation
              
              
              (49,452
              )$
              100,404
 
 Depreciation
        expense for the years ended September 30, 2006 and 2005 was $24,714 and $13,233,
        respectively.
 
 **NOTE
        F - LINE OF CREDIT**
  On
        September 9, 2006, the Company entered into a $500,000 line of credit agreement
        with a Pilgrim Bank maturing on September 9, 2007. The line of credit agreement
        is collateralized by substantially all the assets of the Company and a pledged
        certificate of deposit held as collateral by one of the Company’s affiliates.
        The line of credit has a fixed rate of interest of 7% per annum. As of September
        30, 2006, the Company the balance outstanding was $345,000.
  **NOTE
        G - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES**
 
 Accounts
        payable and accrued liabilities at September 30, 2006 consists of the
        following:
 
 2006Accounts
                  payable
              
              $
              378,175Accrued
                  expenses Interest
              
              
              38,387$
              416,562
  F-16
 
 **SUB
        SURFACE WASTE MANAGEMENT OF DELAWARE, INC.**
 **Notes
        To Consolidated Financial Statements**
 **September
        30, 2006**
 
 **NOTE
        H - NOTES PAYABLE**
 
 Notes
        payable to related parties at September 30, 2006 consists of the
        following:
 
 2006Fusion
                  Capital Note Payable (terms described below)
              
              $
              150,000Fusion
                  Capital Advance (Note K)
              
              
              --Total
              
              
              150,000Less:
                  current portion
              
              
              150,000$
              --
 
 Fusion
        Capital Note Payable
 
 During
        August 2004, the Company received gross proceeds of $200,000 for a convertible
        note payable bearing 10% interest rate and maturing on January 31, 2005.
        The
        Noteholder has the option to convert unpaid note principal together with
        accrued
        and unpaid interest to the Company's common stock at the lower of $0.25 per
        share or 50% of the Company's common stock fair market value of the Company's
        common stock based upon a twelve day moving average closing price over a
        ten(12)
        day period.
 
 In
        accordance with Emerging Issues Task Force Issue 98-5, Accounting for
        Convertible Securities with a Beneficial Conversion Features or Contingently
        Adjustable Conversion Ratios ("EITF 98-5"), the Company recognized an imbedded
        beneficial conversion feature present in the note. The Company allocated
        a
        portion of the proceeds equal to the intrinsic value of that feature to
        additional paid in capital. The Company recognized and measured an aggregate
        of
        $40,000 of the proceeds, which is equal to the intrinsic value of the imbedded
        beneficial conversion feature, to additional paid in capital and a discount
        against the Note. The debt discount attributed to the beneficial conversion
        feature is amortized over the note's maturity period (180 days) as interest
        expense. The Company amortized $0 and $26,667 for the year ended 2006 and
        2005
        of the discount associated with the beneficial conversion feature to interest
        expense.
 
 In
        connection with this note, the Company issued detachable warrant granting
        the
        holders the right to acquire 250,000 shares of the Company's common stock
        at
        $.275 per share. In accordance with Emerging Issues Task Force Issue 00-27,
        Application of Issue No. 98-5 to Certain Convertible Instruments ("EITF-0027"),
        the Company recognized the value attributable to the warrants in the amount
        of
        $67,500 to additional paid in capital and a discount against the note. The
        Company valued the warrants in accordance with EITF 00-27 using the
        Black-Scholes pricing model and the following assumptions: contractual terms
        of
        5 years, an average risk free interest rate of 1.03%, a dividend yield of
        0%,
        and volatility of 141%. The debt discount attributed to the value of the
        warrant
        issued is amortized over the note's maturity period (180 days) as interest
        expense.
 
 For
        the
        period ending September 30, 2006 the Company issued 3,256,094 shares of common
        stock valued at .02 per shares for a total of $65,121.88. The note to Fusion
        was
        reduced $50,000, and $15,121.88 was applied to accrued interest.
 
 **NOTE
        I - NOTES PAYABLE - AFFILIATE**
 
 On
        May
        31, 2006, the Company entered into a $100,000 unsecured convertible note
        agreement with an affiliate. The convertible note is repayable in 50 weekly
        principal and interest payments of $2,500 beginning September 2006. The note
        holder has the option to convert unpaid note principal together with accrued
        and
        unpaid interest to the Company's common stock at $0.04 per share. The Company
        is
        currently in default of the note agreement. As of September 30, 2006, the
        principal balance outstanding was $100,000.
 
 In
        accordance with Emerging Issues Task Force Issue 98-5, Accounting for
        Convertible Securities with a Beneficial Conversion Features or Contingently
        Adjustable Conversion Ratios ("EITF 98-5"), the Company recognized an imbedded
        beneficial conversion feature present in the note. The Company allocated
        a
        portion of the proceeds equal to the intrinsic value of
        that
        feature to additional paid in capital. The Company recognized and measured
        an
        aggregate of $31,250 of the proceeds, which is equal to the intrinsic value
        of
        the imbedded beneficial conversion feature, to additional paid in capital
        and a
        discount against the Note. The debt discount attributed to the beneficial
        conversion feature is amortized over the note's maturity period (1
        year)
        as interest expense. The Company amortized $8,929 for the year ended 2006
        associated with the beneficial conversion feature charged to
        expenses.
  F-17
  **SUB
        SURFACE WASTE MANAGEMENT OF DELAWARE, INC.**
 **Notes
        To Consolidated Financial Statements**
 **September
        30, 2006**
 
 Notes
        payable to related parties at September 30, 2006 consists of the
        following:
 
 2006Convertible
                  note payable, interest at 25% per annum, short term loan paid in
                  weekly
                  installments. Note- holder has the option to convert unpaid note
                  principal
                  together with accrued and unpaid interest to the Company's common
                  stock at
                  $0.04 per share.
              
              
              100,000Debt
                  discount - beneficial conversion feature, net of accumulated Amortization
                  of $ 31,250 as of September 30, 2006.
              
              
              (22,321
              )Total
              
              
              77,679Less:
                  current portion
              
              
              77,679$
              --
 
 **NOTE
        J - DUE TO AFFILIATES**
 
 As
        of
        September 30, 2006, the Company had a due to affiliates of $ 65,371
        which principally comprises of $13,900 due to US Microbics Capital, $28,397
        due
        to West Coast Fermentation Center, Inc., and $12,039 due to Sol Tech, Inc
        .
 
 The
        captions "Due to affiliates "
        represent advances that are unsecured, non-interest bearing and
        have no fixed terms of repayment, therefore, deemed payable on demand.
 
 **NOTE
        K - STOCKHOLDER'S EQUITY**
 
 Equity
        Line
 
 On
        June
        10, 2004, the Company entered into a common stock purchase agreement to sell
        up
        to $6 million of the Company's common stock to Fusion Capital Fund, LLC
        ("Fusion"). Under the terms of the agreement the Company periodically may
        choose
        to sell shares of its common stock to Fusion. If the Company elects to sell
        shares to Fusion, then the purchase price for such shares will be the lesser
        of
        (i) the lowest sale price of the common stock on the purchase date; or (ii)
        the
        average of the three (3) lowest closing sale prices of the common stock during
        the twelve (12) consecutive trading days prior to the date of a purchase
        by
        Fusion Capital.
 
 The
        Company has the right to sell to Fusion $250,000 of its common stock, per
        month,
        at a purchase price based upon the market price of the Company's common stock
        on
        the date of each sale without any fixed discount to the market price. Under
        the
        terms of the common stock purchase agreement Fusion has received 1,000,000
        shares of common stock as a commitment fee and 50,000 to cover expenses in
        connection with Fusion's due diligence. Unless an event of default occurs,
        these
        shares must be held by Fusion until 24 months from the date of the common
        stock
        purchase agreement or the date the common stock **** purchase
        agreement is terminated. The common stock purchase agreement continues until
        terminated by either Fusion Capital or the Company. Fusion Capital has also
        received warrants to purchase: (i) 500,000 shares of common stock at $0.50
        per
        share, (ii) 500,000 shares of common stock at $1.00 per share, (iii) 500,000
        shares of common stock at $1.50 per share and (iv) 500,000 shares at $2.00
        per
        share. The warrants are exercisable for a period of five years from
        issuance.
 
 The
        Company valued these shares at aggregate of $288,500 based on the market
        price.
        This amount has been capitalized as deferred equity issuance cost, with an
        addition to additional paid-in capital, on the Company's financial statements
        for the year ending September 30, 2006.
 
 The
        warrants to purchase 2,000,000 shares of common stock at prices ranging from
        $0.50 to $2.00 per share to Fusion were valued based on the Black-Scholes
        calculation model. These warrants are deemed to have a combined value of
        $495,000. This amount has been capitalized as deferred equity issuance cost,
        with an addition to additional paid-in capital, on the Company's financial
        statements for the year ending September 30, 2006.
 
 F-18
 
 **SUB
        SURFACE WASTE MANAGEMENT OF DELAWARE, INC.**
 **Notes
        To Consolidated Financial Statements**
 **September
        30, 2006**
 
 **NOTE
        K - STOCKHOLDER'S EQUITY (continued)**
 
 Fusion
        Capital Advance
 
 During
        the year ended September 30, 2005, Fusion Capital Fund II, LLC ("Fusion")
        made
        an advance to the Company of $100,000 on the $6,000,000 equity line.
        Simultaneously, the Company issued Fusion 64,655 shares of common stock as
        a
        partial repayment of the advance. The shares were valued at approximately
        $0.232
        per share or a total value of $15,000. As of September 30, 2005 the Company
        owes
        Fusion $85,000 regarding the equity line advance. The advance is non-interest
        bearing and can be repaid by further issuances of stock to Fusion under the
        equity line.
 
 During
        the year ended September 30, 2006, the Company issued 1,000,000 shares of
        common
        stock to Fusion valued at .10 per share for a total value of $100,000. Of
        the
        1,000,000 shares issued, 850,000 were issued to repay the advance for a total
        value of $85,000. The additional 150,000 share were issued for cash received
        at
        a price of $15,000.
 
 Preferred
        Stock
 
 The
        Company is authorized to issue 50,000,000 shares of convertible preferred
        stock.
        The Company's preferred stock may be divided into such series as may be
        established by the Board of Directors. The preferred stock is convertible
        at the
        option of the holder into common stock at the rate of five shares of common
        for
        every one share of preferred at the option of the holder after one
        year.
 
 As
        of
        September 30, 2005 The Company has issued a new series of stock. The Company
        has
        authorized 20,000,000 shares of non-convertible Preferred Stock as Series
        S
        Preferred Stock, par value $0.001 per share. Each share of the Series S
        Preferred Stock shall be entitled to twenty votes on all matters submitted
        to
        the stockholders for a vote together with the holders of the Common Stock
        as a
        single class. In addition, the holders of the Series S Preferred Stock shall
        have the right to vote, separately as a single class, at a meeting of the
        holders of the Series S Preferred Stock or by such holders' written consent
        or
        at any annual or special meeting of the stockholders of the Corporation on
        any
        of the following matters: (i) the creation, authorization, or issuance of
        any
        class or series of shares ranking on a parity with or senior to the Series
        S
        Preferred Stock with respect to dividends or upon the liquidation, dissolution,
        or winding up of the Corporation, and (ii) any agreement or other corporate
        action which would adversely affect the powers, rights, or preferences of
        the
        holders of the Series S Preferred Stock.
 
 The
        holders of record of the Series S Preferred Stock shall be entitled to receive
        cumulative dividends at the rate of ten percent per annum on the face value
        ($.01 per share) when, if and as declared by the Board of Directors, if ever.
        All dividends, when paid, shall be payable in cash, unless any holder of
        the
        Series S Preferred Stock elects to have dividends paid in shares of the Series
        S
        Preferred Stock. Dividends on shares of the Series S Preferred Stock that
        have
        not been redeemed shall be payable quarterly in arrears, when, if and as
        declared by the Board of Directors, if ever, on each December 31, March 31,
        June
        30 and September 30. No dividend or distribution other than a dividend or
        distribution paid in Common Stock or in any other junior stock shall be declared
        or paid or set aside for payment on the Common Stock or on any other junior
        stock unless full cumulative dividends on all outstanding shares of the Series
        S
        Preferred Stock shall have been declared and paid.
 
 Upon
        any
        liquidation, dissolution or winding up of the Company, whether voluntary
        or
        involuntary, and after payment of any senior liquidation preferences of any
        series of Preferred Stock and before any distribution or payment is made
        with
        respect to any Common Stock, holders of each share of the Series S Preferred
        Stock shall be entitled to be paid an amount equal in the greater of (a)
        the
        face value denominated thereon subject to adjustment for stock splits, stock
        dividends, reorganizations, reclassification or other similar events (the
        "Adjusted Face Value") plus, in the case of each share, an amount equal to
        all
        dividends accrued or declared but unpaid thereon, computed to the date payment
        thereof is made available, or (b) such amount per share of the Series S
        Preferred Stock immediately prior to such liquidation, dissolution or winding
        up, or (c) the liquidation preference of $1.00 per share, and the holders
        of the
        Series S Preferred Stock shall not be entitled to any further payment, such
        amount pay able with respect to the Series S Preferred Stock being sometimes
        referred to as the "Liquidation Payments."
 
 Series
        S
        Preferred Stock shall not be convertible into any other class or series of
        the
        Company's securities.
 
 As
        of
        September 30, 2006, the Company has issued and outstanding 10,836,665, 0,
        and
        20,000,000 shares of convertible preferred Series A, Series B, and
        non-convertible Series S, respectively.
  F-19
  **SUB
        SURFACE WASTE MANAGEMENT OF DELAWARE, INC.**
 **Notes
        To Consolidated Financial Statements**
 **September
        30, 2006**
 
 **NOTE
        K - STOCKHOLDER'S EQUITY (continued)**
 
 Preferred
        stock transactions during the year ended September 30, 2005:
 
 During
        the year ended September 30, 2005 the Company issued an aggregate of 121,000
        shares of Preferred Series A to employees upon exercise of stock options.
        The
        proceeds for exercise of stock option was used to settle accrued expenses
        for a
        total of $30,250. These shares were valued at a weighted average of $0.25
        per
        share.
 
 During
        the year ended September 30, 2005 the Company converted 56,000 shares of
        Preferred Series A shares into 280,000 shares of common stock.
 
 During
        the year ended September 30, 2005 the Company issued 20,000,000 shares of
        Preferred Series S shares to the Parent company, U.S. Microbics in settlement
        of
        due to affiliate.
 
 During
        the year ended September 30, 2005 the Company issued 5,000 shares of Preferred
        Series A to an employee upon exercise of stock option and receipt of $1,250.
        These shares were valued at $0.25 per share.
 
 During
        the year ended September 30, 2005 the Company issued 8,000 shares of Preferred
        Series A to a consultant upon exercise of stock option. Proceed for exercise
        of
        stock option was settled for exchange for services for $2,000. These services
        were valued at $0.25 per share.
 
 Preferred
        stock transactions during the year ended September 30, 2006:
 
 During
        the year ended September 30, 2006 the Company converted 84,000 shares of
        Series
        A preferred stock into 420,000 shares of common stock. Each share of Series
        A
        preferred stock converts into 5 shares of common stock
 
 During
        the year ended September 30, 2006, the Company cancelled 150,000 shares of
        Preferred Series B stock that had been issued as collateral to investors
        for
        lines of credit. The jobs that the lines of credit were intended to support
        were
        cancelled.
 
 During
        the year ended September 30, 2006 the Company issued 8,000 shares of Preferred
        Series A to an employee upon exercise of stock option and decreased the value
        of
        accrued payroll by $2,000. These shares were valued at $0.25 per
        share.
 
 During
        the year ended September 30, 2006, the Company issued 1,500,000 shares of
        Preferred Series A stock to an affiliate for a total of $ 150,000 in payment
        of
        a $ 50,000 past due Technology License Agreement, and $100,000 for a new
        10 Year
        Technology License Agreement that expires in 2015. These shares were valued
        at a
        weighted average of $0.10 per share.
 
 During
        the year ended September 30, 2006, the Company issued 3,600,000 shares of
        Preferred Series A stock to an affiliate for a total of $ 360,000 in payment
        of
        a three year Consulting Contract that expires in July 2007. These shares
        were
        valued at a weighted average of $0.10 per share.
  To
        determine if an embedded beneficial conversion feature was present in the
        Series
        A preferred stock, the Company utilized the guidance provided in EITF
        98-5.  In determining a beneficial conversion feature under EITF 98-5
        paragraph 5 *,* the embedded beneficial conversion feature present in convertible securities
        should be valued separately at issuance.  The value should be calculated at
        the commitment date as the difference between the conversion price, in this
        case
        $0.02, and the fair value of the common stock or other securities into which
        the
        security is convertible, multiplied by the number of shares into which the
        security is convertible (intrinsic value).  The estimate of fair value
        should be used based on the best information available in the circumstances
        if a
        quoted market price is not available.
 
 For
        the two Preferred Series issued to affiliates during the year ended September
        30, 2005, the Company considered the following facts and circumstances in determining whether the
        transaction created a beneficial conversion feature:
  ·
              The
                  Preferred Series A holders are given the right to convert it shares
                  into
                  25,500,000 shares of the Company’s restricted common
                  stock
 ·
              The
                  Preferred Series A holder had no registration rights in connection
                  with
                  the underlying shares of common stock (demand or
                  otherwise).
 ·
              There
                  is no recognized market for the Series A Preferred or the Company’s
                  restricted common stock.
  F-20
  **SUB
        SURFACE WASTE MANAGEMENT OF DELAWARE, INC.**
 **Notes
        To Consolidated Financial Statements**
 **September
        30, 2006**
 
 **NOTE
        K- STOCKHOLDER'S EQUITY (continued)**
 
 ·
              The
                  Registrant sold 2,000,000 shares of its restricted common stock
                  in
                  exchange for cash to a third party in March 2006 at a price equal
                  to $.025
                  per share
 ·
              The
                  Company has not entered into any placements for cash of its Series
                  A
                  Preferred.
 ·
              The
                  Company’s book value at December 31, 2005 was less than $.00002 per share
 ·
              The
                  Preferred Series A holder could convert and sell the underlying
                  common
                  shares in a private transaction under SEC Rule 144, however the
                  number of
                  shares transacted would have been over 500 times the average daily
                  volume
                  at the time of the transaction.
 
 Given
        the
        lack of liquidity, lack of market, the large number of Series A Preferred
        shares
        potentially convertible into the Company’s restricted common stock , and the
        insignificant difference in the amount per share between the fair value of
        the
        Company’s restricted common stock ( $.025 per share) and the value of the
        restricted common underlying the Series A Preferred ($.02 per share) , the
        Company believes the Series A Preferred holders had no intrinsic value, and
        therefore did not record a beneficial conversion feature in connection with
        the
        issuance of the above issuance of 1,500,000 and 3,600,.000 shares of Series
        A
        Preferred during the year ended September 30, 2006.
  Common
        Stock
 
 The
        Company is authorized to issue 300,000,000 shares of common stock with a
        par
        value of $.001 per share. As of September 30, 2006 and 2005, the Company
        has
        issued and has outstanding 95,525,794 and 62,877,460 shares of common stock,
        respectively. All valuations of common stock issued for services were based
        the
        fair value of the services received which did not differ materially from
        the
        value of the stock issued.
 
 Common
        stock transactions during the year ended September 30, 2005:
 
 During
        the year ended September 30, 2005 the Company issued 12,657,623 shares of
        restricted common stock in exchange for $610,940, net of finance costs of
        $19,375.
 
 During
        the year ended September 30, 2005, the Company issued an aggregate of 375,000
        shares of common stock in settlement of a finders fee for a for a total of
        $10,000. These shares were valued at a weighted average of approximately
        $0.03
        per share.
 
 During
        the year ended September 30, 2005, the Company issued an aggregate of 4,654,000
        shares of common stock to employees under an employee stock option plan.
        Under
        this plan Employees were able to purchase stock at 85% of market price. Proceeds
        from the exercised options were used for general operating
        expenses.
 
 Net
        proceeds to the company were $ 447,888. The company incurred expenses of
        $79,039.
 
 During
        the year ended September 30, 2005, the Company issued an aggregate of 246,000
        shares of common stock to employees in exchange for a total of $86,100 of
        services rendered. These shares were valued at a weighted average of $0.35
        per
        share which represents the fair value of the services received which did
        not
        differ materially from the value of the stock issued.
 
 During
        the year ended September 30, 2005, the Company issued an aggregate of 509,615
        shares of common stock to employees in exchange for a total of $40,770 of
        services rendered. These shares were valued at a weighted average of $0.08
        per
        share which represents the fair value of the services received which did
        not
        differ materially from the value of the stock issued.
 
 During
        the year ended September 30, 2005, the Company issued an aggregate of 1,090,429
        shares of common stock to settle accounts payable outstanding balance for
        a
        total of $161,481. These shares were valued at a weighted average of
        approximately $0.15 per share.
 
 During
        the year ended September 30, 2005, the Company issued an aggregate of 1,371,032
        shares of common stock to consultants exchange for a total of $175,025 for
        services and expenses rendered. These shares were valued at a weighted average
        of approximately $0.13 per share which represents the fair value of the services
        received which did not differ materially from the value of the stock
        issued.
 
 F-21
  **SUB
        SURFACE WASTE MANAGEMENT OF DELAWARE, INC.**
 **Notes
        To Consolidated Financial Statements**
 **September
        30, 2006**
 
 **NOTE
        K- STOCKHOLDER'S EQUITY (continued)**
 
 During
        the year ended September 30, 2005, the Company issued an aggregate of 4,903,498
        shares of common stock to settle notes payable and accrued interest for a
        total
        of $279,583. These shares were valued at a weighted average of approximately
        $0.06 per share.
 
 During
        the year ended September 30, 2005, the Company issued an aggregate of 781,700
        shares of restricted common stock to an affiliate to satisfy a balance due
        to
        affiliate for a total of $46,900. These shares were valued at a weighted
        average
        of $0.06 per share.
 
 During
        the year ended September 30, 2005, the Company issued 83,334 shares of
        restricted common stock valued at $10,000. The Company reported an increase
        in
        deposits in regards to this transaction.
 
 During
        the year ended September 30, 2005 the Company received a $100,000 advance
        on
        future stock sales from Fusion Capital. The company issued 64,655 shares
        of
        common stock associated with this advance. The transactions were valued at
        .232
        per share. The remaining balance of the advance is $85,000 as of September
        30,
        2005.
 
 Common
        stock transactions during the year ended September 30, 2006:
 
 During
        the year ended September 30, 2006 the Company issued 4,450,000 shares of
        restricted common stock in exchange for $165,500.
 
 During
        the year ended September 30, 2006, the Company issued 3,000,000 shares of
        restricted common stock to an affiliate for collateralizing a $500,000 line
        of
        credit with Pilgrim Bank. The restricted shares were issued at a discount
        of
        $0.032 per share which generated a finance charge of $96,000 which is being
        amortized to interest expense over the 12 month term of the credit line.
        The
        shares were priced at $0.01 for which the Company received $30,000 from the
        affiliate.
 
 During
        the year ended September 30, 2006, the Company issued 625,000 shares of common
        stock in settlement of a finder’s fee for a total of $25,000. These shares were
        valued at $0.04 per share.
 
 During
        the year ended September 30, 2006, the Company issued 208,300 shares of
        restricted common stock as compensation to a director for a total of $10,000.
        These shares were valued at $0.048 per share.
 
 During
        the year ended September 30, 2006, the Company issued an aggregate of 13,845,000
        shares of common stock to employees under an employee stock option plan.
        Under
        this plan Employees were able to purchase stock at 85% of market price. Proceeds
        from the exercised options were used for general operating expenses. Net
        proceeds to the company were $446,003 with an Employee Stock Option Receivable
        of $147,560. The company incurred expenses of $104,809.
 
 During
        the year ended September 30, 2006, the Company issued an aggregate of 3,893,940
        shares of common stock to employees in exchange for a total of $136,288 in
        accrued payroll. These shares were valued at a weighted average of $0.035
        per
        share which represents the fair value of the services received which did
        not
        differ materially from the value of the stock issued.
 
 During
        the year ended September 30, 2006, the Company issued an aggregate of 620,000
        shares of common stock to consultants exchange for a total of $29,600 for
        services and expenses rendered. These shares were valued at a weighted average
        of approximately $0.048 per share which represents the fair value of the
        services received which did not differ materially from the value of the stock
        issued.
 
 During
        the year ended September 30, 2006, the Company issued 850,000 shares of common
        stock to Fusion valued at .10 per share for a total value of $85,000. The
        Company applied $85,000 for the full repayment of the advance.
 
 During
        the year ended September 30, 2006, the Company issued an aggregate of 3,256,094
        shares of common stock to settle notes payable and accrued interest for a
        total
        of $65,121. These shares were valued at a weighted average of $0.02 per
        share.
 
 F-22
  **SUB
        SURFACE WASTE MANAGEMENT OF DELAWARE, INC.**
 **Notes
        To Consolidated Financial Statements**
 **September
        30, 2006**
 
 **NOTE
        K- STOCKHOLDER'S EQUITY (continued)**
 
 During
        the year ended September 30, 2006, the Company issued an aggregate of 1,480,000
        shares of common stock to settle accounts payable outstanding balance for
        a
        total of $77,752. These shares were valued at a weighted average of
        approximately $0.05 per share.
 
 **NOTE
        L - STOCK OPTIONS AND WARRANTS**
 
 Employee
        Stock Options
 
 The
        following table summarizes the changes in options outstanding and the related
        prices for the shares of the Company's Preferred Stock Series A issued to
        employees of the Company under a non-qualified employee stock option
        plan.
  Options
                    Outstanding
                
                Options
                    ExercisableWeighted
                    Average Remaining
                Weighted
                    Average
                
                Weighted
                  AverageExercise
                Number
                Contractual
                Exercise
                Number
                ExercisePrices
                Outstanding
                Life
                    (Years)
                Price
                Exercisable
                Price$
                    0.25
                55,000
                1.58
                $
                    0.25
                55,000
                $
                    0.25$
                    0.30
                400,000
                4.25
                $
                    0.30
                400,000
                $
                    0.30$
                    1.38
                280,000
                3.75
                $
                    1.38
                280,000
                $
                    1.38Totals
                
                735,000
                3.86
                $
                    0.71
                735,000
                $
                    0.71
 
 Transactions
        involving stock options issued to employees are summarized as
        follows:
 
 Number
                  of
                Shares
              
              Weighted
                Average
                Price
                  Per
                ShareOutstanding
                  at October 1, 2003
              
              
              390,000
              
              $
              0.25Granted
              
              
              293,000
              
              
              1.33Exercised
              
              
              (168,000
              )
              
              (0.25
              )Canceled
                  or expired
              
              
              --
              
              
              --Outstanding
                  at September 30, 2004
              
              
              515,000
              
              
              .86Granted
              
              
              --
              
              
              --Exercised
              
              
              (134,000
              )
              
              (0.25
              )Canceled
                  or expired
              
              
              (20,000
              )
              
              --Outstanding
                  at September 30, 2005
              
              
              361,000
              
              
              .86Granted
              
              
              408,000
              
              
              .30Exercised
              
              
              (8,000
              )
              
              (.25
              )Canceled
                  or expired
              
              
              (26,000
              )
              
              --Outstanding
                  at September 30, 2006
              
              
              735,000
              
              $
              0.71
 
 
 F-23
 
 **SUB
        SURFACE WASTE MANAGEMENT OF DELAWARE, INC.**
 **Notes
        To Consolidated Financial Statements**
 **September
        30, 2006**
 
 
 **NOTE
        L - STOCK OPTIONS AND WARRANTS (continued)**
 
 The
        weighted-average fair value of stock options granted to employees during
        the
        year ended September 30, 2006 and 2005 and the weighted-average significant
        assumptions used to determine those fair values, using a Black-Scholes option
        pricing model are as follows:
 
 2006
              
              2005Significant
                  assumptions (weighted-average):Risk-free
                  interest rate at grant date
              4.3%
              
              --Expected
                  stock price volatility
              115.97%
              
              --Expected
                  dividend payout
              --
              
              --Expected
                  option life-years (a)
              3
              
              --
 
 (a)
        The
        expected option life is based on contractual expiration dates.
 
 The
        fair
        value of the 408,000 Preferred Stock Series non-qualified options issued
        during
        the year ended September 30, 2006 were deemed to be immaterial.
 
 If
        the
        Company recognized compensation cost for the non-qualified employee stock
        option
        plan in accordance with SFAS No. 123, the Company's pro forma net loss and
        net
        loss per share would have been $1,627,719 and $(0.04) for the year ended
        September 30, 2005, respectively.
 
 The
        intrinsic value of options outstanding and exercisable is the difference
        between
        the fair market value of the Company’s common stock on the applicable date
        (“Measurement Value”) and the exercise price of those options that had an
        exercise price that was less than the Measurement Value. The intrinsic value
        of
        options exercised is the difference between the fair market value of the
        Company’s common stock on the date of exercise and the exercise price. At
        September 30, 2006, the options outstanding and exercisable had no
        value. ****
 
 Employee
        Stock Options
 
 The
        following table summarizes the changes in options outstanding and the related
        prices for the shares of the Company's common stock issued to employees of
        the
        Company under a non-qualified employee stock option plan.
 Options
                      Outstanding
                  
                  Options
                      ExercisableWeighted
                      Average Remaining
                  Weighted
                      Average
                  
                  Weighted
                    AverageExercise
                  Number
                  Contractual
                  Exercise
                  Number
                  ExercisePrices
                  Outstanding
                  Life
                      (Years)
                  Price
                  Exercisable
                  Price--
                  --
                  --
                  --
                  --
                  --
 Transactions
        involving stock options issued to employees are summarized as
        follows:
 
 Number
                  of
                Shares
              
              Weighted
                Average
                Price
                  Per
                ShareOutstanding
                  at September 30, 2005
              
              
              --
              
              
              --Granted
              
              
              13,845,000
              
              
              .05Exercised
              
              
              (13,845,000
              )
              
              (.05
              )Canceled
                  or expired
              
              
              --
              
              
              --Outstanding
                  at September 30, 2006
              
              
              --
              
              $
              .--
 
 For
        the
        year ended September 30, 2006, the Company issued an aggregate of 13,845,000
        shares of common stock to employees under an non-qualified employee stock
        option
        plan. Under this plan Employees were able to purchase stock at 85% of market
        price. Proceeds from the exercised options were used for general operating
        expenses. Net proceeds to the company were $446,003 with an Employee Stock
        Option Receivable of $147,560. The company incurred expenses of
        $104,809.
 
 F-24
  **SUB
        SURFACE WASTE MANAGEMENT OF DELAWARE, INC.**
 **Notes
        To Consolidated Financial Statements**
 **September
        30, 2006**
 
 
 **NOTE
        L - STOCK OPTIONS AND WARRANTS (continued)**
 
 Non-Employee
        Options
 
 The
        following table summarizes the changes in options outstanding and the related
        prices for the shares of the Company's common stock issued to non-employees
        of
        the Company as of September 30, 2006:
 Options
                    Outstanding
                
                Options
                    ExercisableWeighted
                    Average
                Weighted
                
                WeightedExercise
                Number
                Remaining
                  Contractual
                Average
                    Exercise
                Number
                Average
                  ExercisePrices
                Outstanding
                Life
                    (Years)
                Price
                Exercisable
                Price$
                    0.08
                1,000,000
                1.81
                $
                    0.08
                1,000,000
                $
                    0.08$
                    0.10
                400,000
                1.82
                $
                    0.10
                200,000
                $
                    0.101,400,000
                1.81
                $
                    0.08
                1,200,000
                $
                    0.08
 Transactions
        involving options issued to non-employees are summarized as
        follows:
 
 Number
                  of
                Shares
              
              Weighted
                Average
                Price
                  Per
                ShareOutstanding
                  at October 1, 2003
              
              
              --
              
              $
              --Granted
              
              
              20,000
              
              
              .25Exercised
              
              
              --
              
              
              --Canceled
                  or expired
              
              
              --
              
              
              --Outstanding
                  at September 30, 2004
              
              
              20,000
              
              
              .25Granted
              
              
              1,400,000
              
              
              .08Exercised
              
              
              --
              
              
              --Canceled
                  or expired
              
              
              --
              
              
              --Outstanding
                  at September 30, 2005
              
              
              1,420,000
              
              $
              .08GrantedExercisedCanceled
                  or expired
              
              
              (20,000
              )
              
              .25Outstanding
                  at September 30, 2006
              
              
              1,400,000
              
              $
              .08
  F-25
 
 **SUB
        SURFACE WASTE MANAGEMENT OF DELAWARE, INC.**
 **Notes
        To Consolidated Financial Statements**
 **September
        30, 2006**
 
 
 **NOTE
        L - STOCK OPTIONS AND WARRANTS (continued)**
 
 The
        weighted-average fair value of stock options granted to non-employees during
        the
        year ended September 30, 2006 and 2005 and the weighted-average significant
        assumptions used to determine those fair values, using a Black-Scholes option
        pricing model are as follows:
 
 2006
              
              2005Significant
                  assumptions (weighted-average):Risk-free
                  interest rate at grant date
              --
              
              3.27%Expected
                  stock price volatility
              --
              
              122.70%Expected
                  dividend payout
              --
              
              --Expected
                  option life-years (a)
              --
              
              3.00
 
 (a)
        The
        expected option life is based on contractual expiration dates.
 
 The
        Company has recognized consulting expense of $0 and $120,574, for the
        non-employee stock option issued for the year ended September 30, 2006 and
        2005,
        respectively.
 
 Non
        -Employee Warrants
 
 The
        following table summarizes the changes in warrants outstanding and the related
        prices for the shares of the Company's common stock issued to non-employees
        of
        the Company as of September 30, 2006:
 Warrants
                    Outstanding
                
                Warrants
                    ExercisableWeighted
                    Average
                Weighted
                
                WeightedExercise
                Number
                RemainingContractual
                AverageExercise
                Number
                AverageExercisePrices
                Outstanding
                Life
                    (Years)
                Price
                Exercisable
                Price$
                    0.25 - $ 0.50
                250,000
                2.85
                $
                    0.28
                250,000
                $
                    0.28$
                    0.50 - $ 1.00
                1,000,000
                2.70
                0.75
                1,000,000
                0.75$
                    1.00 - $ 2.00
                1,000,000
                2.70
                1.75
                1,000,000
                1.752,250,000
                2.72
                $
                    1.14
                2,250,000
                $
                    1.14
  Transactions
        involving warrants issued to non-employees are summarized as
        follows:
 
 Number
                  of
                Shares
              
              Weighted
                Average
                Price
                  Per
                ShareOutstanding
                  at October 1, 2003
              
              
              --
              
              $
              --Granted
              
              
              2,250,000
              
              
              1.14Exercised
              
              
              --
              
              
              --Canceled
                  or expired
              
              
              --
              
              
              --Outstanding
                  at September 30, 2004
              
              
              2,250,000
              
              
              1.14Granted
              
              
              --
              
              
              --Exercised
              
              
              --
              
              
              --Canceled
                  or expired
              
              
              --
              
              
              --Outstanding
                  at September 30, 2005
              
              
              2,250,000
              
              
              1.14Granted
              
              
              --
              
              
              --Exercised
              
              
              --
              
              
              --Canceled
                  or expired
              
              
              --
              
              
              --Outstanding
                  at September 30, 2006
              
              
              2,250,000
              
              $
              1.14
 
 
 F-26
 
 **SUB
        SURFACE WASTE MANAGEMENT OF DELAWARE, INC.**
 **Notes
        To Consolidated Financial Statements**
 **September
        30, 2006**
 
 
 **NOTE
        L - STOCK OPTIONS AND WARRANTS (continued)**
 
 During
        the year ended September 30, 2004, warrants issued to non-employees resulted
        in
        a charge of $ 21,375 to interest expense and $495,000 to deferred equity
        issuance costs. These charges were computed using a Black-Scholes financial
        model using a volatility of 140.73% using the federal reverse funds guidelines
        that range from 1.03 to 1.43%.
 
 **NOTE
        M - LOSSES PER COMMON SHARE**
 
 The
        following table presents the computation of basic and diluted loss per
        share:
 
 2006
              
              2005Net
                  loss available for common shareholders
              
              $
              2,499,419
              
              $
              1,627,719Basic
                  and fully diluted loss per share
              
              $
              (0.03
              )
              $
              (0.04
              )Weighted
                  average common shares outstanding
              
              
              76,536,237
              
              
              43,249,462
 
 For
        the
        years ended September 30, 2006 and 2005, 58,568,325 and 33,094,325 potential
        shares , respectively were excluded from shares used to calculate diluted
        earnings per share as their inclusion would reduce net losses per
        share.
 
 
 **NOTE
        N - INCOME TAXES**
 
 The
        Company has adopted Financial Accounting Standard No. 109 which requires
        the
        recognition of deferred tax liabilities and assets for the expected future
        tax
        consequences of events that have been included in the financial statement
        or tax
        returns. Under this method, deferred tax liabilities and assets are determined
        based on the difference between financial statements and tax bases of assets
        and
        liabilities using enacted tax rates in effect for the year in which the
        differences are expected to reverse. Temporary differences between taxable
        income reported for financial reporting purposes and income tax purposes
        are
        insignificant.
 
 At
        September 30, 2006, the Company has available for federal income tax purposes
        a
        net operating loss carry forward of approximately $8,500,000 expiring in
        the
        year 2025, that may be used to offset future taxable income. The Company
        has
        provided a valuation reserve against the full amount of the net operating
        loss
        benefit, since in the opinion of management based upon the earnings history
        of
        the Company , it is more likely than not that the benefits will not be realized.
        Due to significant changes in the Company's ownership, the future use of
        its
        existing net operating losses may be limited.
 
 Components
        of deferred tax assets as of September 30, 2006 are as follows:
 
 Non
                  Current:Net
                  operating loss carry forward
              
              $
              3,230,000Valuation
                  allowance
              
              
              3,230,000Net
                  deferred tax asset
              
              $
              --
 
 **NOTE
        O - COMMITMENTS AND CONTINGENCIES**
 
 Employment
        agreements
 
 Effective
        December 23, 2002, the Company entered into an employment agreement with
        its
        President and Chief Executive Officer. This employment agreement provides
        for a
        term of five years, at an initial annual base salary of $150,000, salary
        increases of $10,000 per annum for each of the first four years and an increase
        of $20,000 for the fifth year, and discretionary incentive bonuses.
 
 F-27
  **SUB
        SURFACE WASTE MANAGEMENT OF DELAWARE, INC.**
 **Notes
        To Consolidated Financial Statements**
 **September
        30, 2006**
 
 
 **NOTE
        O - COMMITMENTS AND CONTINGENCIES (continued)**
 
 Effective
        December 23, 2002, the Company entered into an employment agreement with
        its
        Vice President and Chief Operating Officer. This employment agreement provides
        for a term of five years, at an initial annual base salary of $145,000, salary
        increases of $10,000 per annum for each of the first four years and an increase
        of $20,000 for the fifth year, and discretionary incentive bonuses.
 
 Litigation
 
 The
        Company is subject to legal claims and legal proceeding which arise in the
        ordinary course of its business. Although occasional adverse decisions or
        settlements may occur, the Company believes that the final disposition of
        such
        matters should not have a material adverse effect on its financial position,
        results of operations or liquidity.
 
 Lease
        Commitments
 
 The
        Company leases office space in Colorado on a month to month basis. A new
        one
        year lease agreement was entered into for the South Carolina office on September
        29, 2005. This lease was terminated on June 1, 2006. The Company also shares
        administrative offices with U.S. Microbics, Inc. in Carlsbad, California.
 
 Environmental
        Tec International, SA DE CV, the Company’s wholly-owned subsidiary operating in
        Mexico entered into a one year lease agreement for office space located in
        Puebla, Mexico. The lease expires on December 31, 2006. Monthly payments
        under
        the lease are approximately $3,200.
 
 Rental
        expense for the year ended September 30, 2006 and 2005 charged to operations
        was
        $35,889 and $31,384, respectively.
  **NOTE
        P - SEGMENT INFORMATION**
 
 The
        Company has one reportable business segment which is operated through geographic
        locations.
 
 Those
        geographic segments are:
 *
        United
        States
 *
        Mexico
 
 Segment
        operating income is total segment revenue reduced by operating expenses
        identifiable with the business segment. Corporate includes general corporate
        administrative costs.
 
 The
        Company evaluates performance and allocates resources based upon operating
        income. The accounting policies of the reportable segments are the same as
        those
        described in the summary of accounting policies. There are no inter-segment
        sales.
 
 Information
        concerning principal geographic areas is presented below according to the
        area
        where the activity is taking place.
 
 2006
              
              2005**Net
                  Sales To External Customers:**United
                  States
              
              $
              13,468
              
              $
              123,356Mexico
              
              
              494,992
              
              
              971,419**Total
                  Sales To External Customers**
              
              $
              508,460
              
              $
              1,094,775**Assets:**United
                  States
              
              $
              846,066
              
              $
              1,272,663Mexico
              
              
              79,016
              
              
              44,100**Total
                  Assets**
              
              $
              925,082
              
              $
              1,316,763
 
 F-28
  **SUB
        SURFACE WASTE MANAGEMENT OF DELAWARE, INC.**
 **Notes
        To Consolidated Financial Statements**
 **September
        30, 2006**
 
 **NOTE
        Q - ECONOMIC DEPENDENCY**
 
 Approximately
        97% or $494,992 of sales during the year ended September 30, 2006, were for
        services performed for two clients located in Mexico. This compares to
        approximately 89% or $971,419 of sales to one client in Mexico for the fiscal
        year ended September 30, 2005. The Company is continuing to pursue clients
        in
        Mexico and it is projected that sales for the year ended September 30, 2007
        will
        also be highly concentrated with clients located in Mexico. All new contracts
        presently being pursued in Mexico are with state or federal governmental
        entities.
 
 The
        company did not have a significant concentration of purchases from any vendor
        during the year ended September 30, 2006.
 
 **NOTE
        R - GOING CONCERN**
 
 The
        accompanying consolidated statements have been prepared on a going concern
        basis, which contemplates the realization of assets and the satisfaction
        of
        liabilities in the normal course of business. As shown in the financial
        statements during the years ended September 30, 2006 and 2005, the Company
        incurred losses from operations of $2,441,144 and $1,488,537, respectively.
        This
        factor among others may indicate that the Company will be unable to continue
        as
        a going concern for a reasonable period of time.
 
 The
        Company's existence is dependent upon management's ability to develop profitable
        operations and resolve its liquidity problems. Management anticipates the
        Company will attain profitable status and improve its liquidity through the
        continued developing, marketing and selling of its products and additional
        equity investment in the Company. The accompanying financial statements do
        not
        include any adjustments that might result should the Company be unable to
        continue as a going concern.
 
 In
        order
        to improve the Company's liquidity, the Company is actively pursing additional
        equity financing through discussions with investment bankers and private
        investors. There can be no assurance the Company will be successful in its
        effort to secure additional equity financing.
 
 If
        operations and cash flows continue to improve through these efforts, management
        believes that the Company can continue to operate. However, no assurance
        can be
        given that management's actions will result in profitable operations or the
        resolution of its liquidity problems.
 
 **NOTE
        S - SUBSEQUENT EVENTS**
 
 Subsequent
        to the balance sheet date, the Company has issued 3,572,000 shares of common
        stock for services, cash receipts, a stock subscription receivable, and for
        a
        conversion of preferred shares.
 
 On
        November 14, 2006 the Company issued 160,000 shares of restricted common
        stock
        in a conversion of 32,000 shares series A preferred stock.
 
 On
        November 17, 2006 the Company issued 500,000 shares of restricted common
        stock
        for shareholder relations services totaling $13,200. The shares were valued
        at
        $0.026 per share.
 
 On
        December 5, 2006 the Company issued 2,500,000 shares of restricted common
        stock
        for a stock subscription receivable totaling $50,000. The shares were valued
        at
        $0.02 per share. As of January 10, 2007 the Company had received $20,000
        in
        cash, leaving the stock subscription receivable balance at $30,000.
 
 On
        December 5, 2006 the Company issued 250,000 shares of restricted common stock
        for cash received totaling $5,000. The shares were valued at $0.02 per
        share.
 
 On
        December 5, 2006 the Company issued 125,000 shares of restricted common stock
        for cash received totaling $2,500. The shares were valued at $0.02 per
        share.
 
 F-29
 
 **III**
 
 **ITEM
        8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
        DISCLOSURES**
 
 None.
 
 **ITEM
        8A. CONTROLS AND PROCEDURES**
 
 (a) Evaluation
        Of Disclosure Controls And Procedures. Regulations under the Securities Exchange Act of 1934 require public companies
        to maintain "disclosure controls and procedures," which are defined to mean
        a
        company's controls and other procedures that are designed to ensure that
        information required to be disclosed in the reports that it files or submits
        under the Securities Exchange Act of 1934 is recorded, processed, summarized
        and
        reported, within the time periods specified in the Commission's rules and
        forms.
        The Company’s Chief Executive Officer ("CEO"), who is also its President, and
        the Company’s Chief Financial Officer ("CFO") carried out an evaluation of the
        effectiveness of its disclosure controls and procedures as of the end of
        the
        period covered by this report. Based on those evaluations, as of the Evaluation
        Date, the Company’s CEO/President and CFO believe:
 
 (i)
        that
        the disclosure controls and procedures are designed to ensure that information
        required to be disclosed by the Company in the reports it files under the
        Securities Exchange Act of 1934 is recorded, processed, summarized and reported
        within the time periods specified in the SEC's rules and forms and that such
        information is accumulated and communicated to the management, including
        the CEO
        and CFO, as appropriate to allow timely decisions regarding required disclosure;
        and
 
 (ii)
        that
        the Company’s disclosure controls and procedures are effective.
 
 (b) Changes
        In Internal Controls. There
        were no changes in the Company’s internal controls or, to its knowledge, in
        other factors that could significantly affect its internal controls subsequent
        to the evaluation date.
 
 **ITEM
        9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
        WITH
        SECTION 16(a) OF THE EXCHANGE ACT**
 
 **Identity**
 
 The
        following table identifies the Company’s current executive officers and
        directors and their respective offices held:
 
 **Name**
              **Age**
              **Position**Bruce
                  Beattie
              53
              President,
                  Chief Executive Officer and Chairman of the BoardBehzad
                  Mirzayi
              50
              Chief
                  Operating Officer, Vice President, and DirectorConrad
                  Nagel
              65
              Chief
                  Financial Officer and DirectorRobert
                  C. Brehm
              59
              Director
                  and President and CEO of parent U.S. Microbics, Inc.Bill
                  Hopkins
              73
              Director
 
 **Business
        Experience**
 
 The
        Company's Bylaws provide for a minimum of three directors and a maximum of
        11.
        Each director of the Company holds office until the next annual meeting of
        shareholders and until his or her successor has been elected and qualified.
        Each
        executive officer holds office at the pleasure of the Board of Directors
        and
        until his or her successor has been elected and qualified. A brief background
        of
        each Director and Executive Officer is provided below:
  28
 **Bruce
          Beattie** became
          President, CEO and Director of the Company on December 16, 2002. Mr. Beattie
          has
          over 25 years experience in the environmental service industry with expertise
          in
          business development, operations and project management. His career spans
          the
          introduction of breakthrough treatment technology for the sub surface
          remediation of chlorinated solvents, executive level profit center turn-around
          management and was a pioneer in the development of "Brownfield" redevelopment
          solutions for two nationally recognized environmental firms. Previously,
          Mr.
          Beattie was President of Sub Surface Waste Management, Inc. a subsidiary
          of U.S.
          Microbics, Inc since August 15, 2000. Prior to that date he was Group Vice
          President for Environmental Reclamation, Inc. since September 2,
          1998.
 
 **Behzad
          Mirzayi, P.E.** has
          served as COO, Executive Vice President, Chief Engineer and Director for
          the
          Company since December 16, 2002. Mr. Mirzayi has over 25 years experience
          in
          diversified areas of engineering, construction, and management. He has
          extensive
          experience managing office and field staffs and professionals involved
          in
          multi-discipline design and construction projects and management of profit
          and
          loss centers. He has a diverse background in all types of management, civil,
          environmental, geotechnical and structural engineering, construction management,
          technical supervision analysis and design, and construction oversight,
          cost and
          time management, risk evaluation, cost estimation and client and regulatory
          interface for mining, industrial, oil and gas facilities. Previously, Mr.
          Mirzayi was Vice President and COO of Sub Surface Waste Management, Inc.
          a
          subsidiary of U.S. Microbics, Inc since September 25, 2000. Prior to that
          date
          he was Chief Operating Officer for Environmental Reclamation, Inc. since
          September 2, 1998.
 
 **Conrad
          Nagel** has
          served as the Company's Chief Financial Officer and Director since December
          16,
          2002. Mr. Nagel is also the CFO of parent company U.S. Microbics, Inc.,
          and has
          held that position for the past five years. Mr. Nagel has an MS degree
          in
          Accounting, Kansas University (1964), a BS degree in Business, University
          of
          Kansas (1963) and a CPA since 1966. Mr. Nagel has been associated with
          SEC work,
          auditing, and finance operations for the past 30 years including Audit
          Manager
          for Touche Ross (now Deloitte - Touche), Vice President of Finance - Decision
          Incorporated, Internal Audit Manager for Kaiser Aetna, CFO for Calusa Financial
          Medical, Inc., Vice President of Finance for Medical Capital Corporation
          and
          over fifteen years CPA practice specializing in taxation and SEC
          work.
 
 **Robert
          C. Brehm** has
          served as Secretary of the Company since December 16, 2002 and a Director
          since
          October 24, 2002. Mr. Brehm is also the parent company's Chief Executive
          Officer, President and Chairman of the Board since July 1997. >From July 1994
          through the present, Mr. Brehm has served as the President of Robert C.
          Brehm
          Consulting, Inc. From 1991 to 1994, he was the President of Specialty Financing
          International, Inc., a finance procurement company. Mr. Brehm has owned
          computer
          hardware, software, finance and consulting companies. Mr. Brehm has a double
          engineering degree in electrical engineering and computer science and an
          MBA in
          Finance and Accounting from UC Berkeley.
 
 **Bill
          Hopkins** has
          served as a Director of the Company since May 2003. Mr. Hopkins is the
          owner and
          founder of Fastening Solutions, Inc., which manufactures specialty fasteners
          for
          the government, marine and recreational vehicles markets with worldwide
          distribution. Mr. Hopkins has served for 12 years as Regional Sales Manager
          for
          the Business Group Sales for Digital Equipment Corporation and for 10 years
          as
          Executive Sales Manager, Business Group sales, Burrows Corporation. He
          received
          his BA in Business administration from the Babson Institute in Boston
          MA.
 
 Audit
          Committee
 
 The
          Company does not currently have a separately designated Audit Committee.
          Its
          entire Board of Directors functions as the Company's Audit Committee. No
          individual on the Board of Directors possesses all of the attributes of
          an audit
          committee financial expert and no one on the Board of Directors is deemed
          to be
          an audit committee financial expert. In forming the Company’s Board of
          Directors, it sought out individuals who would be able to guide its operations
          based on their business experience, both past and present, or their education.
          The Company’s business model is not complex and its accounting issues are
          straightforward. Responsibility for its operations is centralized within
          management, which is comprised of four people. The Company relies on the
          assistance of others, such as its accountant, to help it with the preparation
          of
          its financial information. The Company recognizes that having a person
          who
          possesses all of the attributes of an audit committee financial expert
          would be
          a valuable addition to its Board of Directors, however, it is not, at this
          time,
          able to compensate such a person therefore, the Company may find it difficult
          to
          attract such a candidate.
 
 Directorships
 
 The
          following Directors of the Company are Directors in its parent company
          U.S.
          Microbics, Inc., Conrad Nagel and Robert C. Brehm. The following Directors
          of
          the Company are also shareholders in its parent Company: Bruce Beattie,
          Behzad
          Mirzayi, Conrad Nagel and Robert C. Brehm.
  29
  Significant
          Employees
 
 The
          Company has employees who are both engineers, technicians, consultants
          and
          executive officers, all employees and consultants are expected to make
          a
          significant contribution to the Company's business. It is expected that
          current
          employees, consultants, members of management and the Board of Directors
          will be
          the only persons whose activities will be material to the Company's operations.
          Members of management are the only persons who may be deemed to be promoters
          of
          the Company.
 
 Family
          Relationships
 
 There
          are
          no family relationships between any two or more of the Company’s directors or
          executive officers. There is no arrangement or understanding between any
          of its
          directors or executive officers and any other person pursuant to which
          any
          director or officer was or is to be selected as a director or officer,
          and there
          is no arrangement, plan or understanding as to whether non-management
          shareholders will exercise their voting rights to continue to elect the
          current
          board of directors. There are also no arrangements, agreements or understandings
          to the knowledge of the Company between non-management shareholders that
          may
          directly or indirectly participate in or influence the management of its
          affairs.
 
 Involvement
          in Certain Legal Proceedings
 
 To
          the
          best knowledge of the Company, during the past five years, none of the
          following
          occurred with respect to a present or former director or executive officer
          of
          the Company: (1) any bankruptcy petition filed by or against any business
          of
          which such person was a general partner or executive officer either at
          the time
          of the bankruptcy or within two years prior to that time; (2) any conviction
          in
          a criminal proceeding or being subject to a pending criminal proceeding
          (excluding traffic violations and other minor offenses); (3) being subject
          to
          any order, judgment or decree, not subsequently reversed, suspended or
          vacated,
          of any court of any competent jurisdiction, permanently or temporarily
          enjoining, barring, suspending or otherwise limiting his involvement in
          any type
          of business, securities or banking activities; and (4) being found by a
          court of
          competent jurisdiction (in a civil action), the SEC or the commodities
          futures
          trading commission to have violated a federal or state securities or commodities
          law, and the judgment has not been reversed, suspended or vacated. There
          are no
          family relationships between any directors or executive officers of the
          Company,
          either by blood or by marriage.
 
 Compliance
          with Section 16(a) of the Exchange Act
 
 Section
          16(a) of the Securities Exchange Act of 1934 requires the Company's executive
          officers, directors and persons who own more than ten percent of the Company's
          Common Stock, to file initial reports of beneficial ownership on Form 3,
          changes
          in beneficial ownership on Form 4 and an annual statement of beneficial
          ownership on Form 5, with the SEC. Such executive officers, directors and
          greater than ten percent shareholders are required by SEC rules to furnish
          the
          Company with copies of all such forms that they have filed. To the Company's
          knowledge, based solely on review of the copies of such reports furnished
          to the
          Company and written representation that no other reports were required,
          the
          Company's officers, directors and greater than 10% shareholders complied
          with
          all applicable Section 16(a) filing requirements.
 
 Code
          of Ethics
 
 The
          Company has adopted a code of business conduct and ethics (Exhibit 10.12)
          that
          applies to its principal executive officer, principal financial officer,
          principal accounting officer or controller, or persons performing similar
          functions.
  30
 
 **ITEM
          10. EXECUTIVE COMPENSATION**
 
 The
          following table sets forth the aggregate compensation paid by the Company
          for
          services rendered during the last three completed fiscal years:
 
 **Summary
          Compensation Table**
 **Long-Term
          Compensation**
 
 **Annual
                    Compensation**
                
                **Awards****Name
                    and Principal**
                  **Position**
                **Fiscal**
                  **Year**
                **Salary**
                  **($)**
                **Restricted**
                  **Stock**
                  **Awards**
                  **($)**
                **Securities**
                  **Underlying**
                  **Options/SARs**
                  **(#)**
                **Other
                    Annual**
                  **Compensation(1)**
                **All
                    Other**
                  **Compensation**Bruce
                    Beattie,
                2006
                216,981(1)
                ----
                ----
                ----
                ----President,
                    Director
                2005
                196,445
                ----
                ----
                ----
                ----2004
                178,843
                ----
                ----
                ----
                ----Behzad
                    Mirzayi,
                2006
                218,277(2)
                ----
                ----
                ----
                ----COO,
                    Director
                2005
                191,449
                ----
                ----
                ----
                ----2004
                178,793
                ----
                ----
                ----
                ----Conrad
                    Nagel
                2006
                ----
                ----
                ----
                ----
                ----CFO,
                    Director
                2005
                ----
                ----
                ----
                ----
                ----2004
                ----
                ----
                ----
                ----
                ----
 
 (1)
                Of
                    this amount, $128,515 was paid in cash, $16,288 was paid in restricted
                    common stock, $32,697 was deferred, $15,730 was auto allowance,
                    and
                    $23,751 was for expenses.
 (2)
                Of
                    this amount, $129,088 was paid in cash, $43,412 was deferred,
                    $15,730 was
                    auto allowance, and $30,047 was for
                    expenses.
 
 Stock
          Option Grants
 
 The
          grants of stock options to the Named Executive Officers during the fiscal
          year
          ended September 30, 2006 and 2005 are as follows:
 
 **Date**
                  **Granted**
                **Date
                    Vested**
                **Expiration**
                  **Date**
                **Options**
                  **Granted
                    (1)**
                **Grant**
                  **Price**
                **Estimated**
                  **Option**
                  **Value
                    at**
                  **Date**
                  **Granted
                    (2)**Bruce
                    S. Beattie
                12-30-05
                12-30-05
                12-30-10
                100,000
                $
                    0.30
                $
                    30,000Behzad
                    Mirzayi
                12-30-05
                12-30-05
                12-30-10
                100,000
                $
                    0.30
                $
                    30,000Conrad
                    Nagel
                12-30-05
                12-30-05
                12-30-10
                100,000
                $
                    0.30
                $
                    30,000
 
 (1)
          Options Granted were for Series A Preferred stock which one year after
          issue can
          be converted into 5 shares of common stock for each share of Preferred
          stock
          held.
 
 (2)
          Option value based on closing price of one share of common stock on December
          30,
          2005 multiplied by 5, the conversion ratio of one share of Series A Preferred
          Stock into common stock.
  31
  Option
          Exercises In Fiscal Year 2006
 
 Set
          forth
          below is information with respect to exercises of stock options by the
          Named
          Executive Officers during fiscal year 2006 and the fiscal year-end value
          of all
          unexercised stock options held by such persons.
 
 **Aggregated
          Option Exercises In Last Fiscal Year And Fiscal Year-End Option
          Values**
 
 **Number
                    of Unexercised Options**
                  **Held
                    At Fiscal Year End**
                  **September
                    30, 2006**
                **Value
                    of Unexercised**
                  **In-the-Money
                    Options**
                  **Held
                    At Fiscal Year End**
                  **September
                    30, 2006****Name**
                **Shares**
                  **Acquired**
                  **on
                    Exercise**
                  **(#)**
                **Value**
                  **Realized**
                  **($)(1)**
                **Exercisable**
                **Unexercisable**
                **(1)**
                  **Exercisable**
                **(1)**
                  **Unexercisable****Bruce
                    S. Beattie**,
                    Director,
                  President
                    and CEO:
                  Preferred
                    Series A Stock (1)
                none
                $
                    --
                150,000(2)
                --
                $
                    --
                $
                    --**Behzad
                    Mirzayi**Director,
                  Vice-Presidentand
                    COO:
                  Preferred
                    Series A Stock (1)
                none
                $
                    --
                150,000(2)
                --
                $
                    --
                $
                    --**Conrad
                    Nagel**,
                    CFO and Director:
                  Preferred
                    Series A Stock (1)
                none
                $
                    --
                180,000(3)
                --
                $
                    --
                $
                    --**Robert
                    C. Brehm**,
                    Director and CEO of parent, U.S. Microbics, Inc.:
                  Preferred
                    Series A Stock (1)
                none
                $
                    --
                200,000(4)
                --
                $
                    --
                $
                    --**Mery
                    C. Robinson**,
                    Director of Affiliate
                  U.S.
                    Microbics, Inc.:
                  Preferred
                    Series A Stock (1)
                none
                $
                    --
                24,000(5)
                --
                $
                    --
                $
                    --
 
 (1) Based
          on
          the closing price of $0.04 for the shares of Common Stock of the Company
          traded
          on the
 OTC Bulletin Board as of September
          30, 2006.
 (2) 
          Of these, 50,000 have an exercise price of $1.375 and 100,000 have an exercise
          price of $0.30
 (3)
           Of these, 80,000 have an exercise price of $1.375 and 100,000 have an
          exercise price of $0.30
 (4)
           Of these, 100,000 have an exercise price of $1.375 and 100,000 have an
          exercise price of $0.30
 (5)
           These have an exercise price of $0.25
 
 Compensation
          Of Directors
 
 There
          are
          no standard arrangements pursuant to which the Company's directors are
          compensated for any services provided as director. No additional amounts
          are
          payable to the Company's directors for committee participation or special
          assignments.
 
 There
          are
          no arrangements pursuant to which any of the Company's directors was compensated
          during the Company's last completed fiscal year for any service provided
          as
          director.
 
 Employment
          Contracts And Termination Of Employment And Change-In-Control
          Arrangements
 
 Effective
          December 23, 2002 the Company entered into an employment agreement with
          Bruce S.
          Beattie, its President and Chief Executive Officer. Mr. Beattie's employment
          agreement provides for a term of five years, at an initial annual base
          salary of
          $150,000, salary increases of $10,000 per annum for each of the first four
          years
          and an increase of $20,000 for the fifth year, and discretionary incentive
          bonuses. Mr. Beattie’s current salary is $200,000 per annum.
 
 Effective
          December 23, 2002 the Company entered into an employment agreement with
          Behzad
          Mirzayi its Vice President and Chief Operating Officer. Mr. Mirzayi's employment
          agreement provides for a term of five years, at an initial annual base
          salary of
          $145,000, salary increases of $10,000 per annum for each of the first four
          years
          and an increase of $20,000 for the fifth year, and discretionary incentive
          bonuses. Mr. Mirzayi’s current salary is $195,000.
  32
  Bonuses
          And Deferred Compensation
 
 None.
 
 Compensation
          Pursuant To Plans
 
 None.
 
 Pension
          Table
 
 None;
          not
          applicable.
 
 Other
          Compensation
 
 None.
 
 Termination
          Of Employment And Change Of Control Arrangements
 
 On
          October 21, 2002, Gregory J. Chachas, the sole officer and director of
          the
          Corporation entered into an agreement to sell 2,100,000 of the 2,573,800
          shares
          he owned to USM Capital Group, Inc. In continued efforts to locate an
          acquisition or merger candidate, the Company also entered into a consulting
          agreement with Sol Tech Corporation whereby the Company issued 800,000
          shares of
          restricted common stock at the price of $0.05 per share. The result was
          that Sub
          Surface Waste Management of Delaware, Inc., became a 56.3% owned subsidiary
          of
          U.S. Microbics, Inc., the parent Company of both USM Capital Group, Inc.
          and Sol
          Tech Corporation.
 
 We
          are
          not aware of any arrangements which may result in a change in control of
          the
          Company.
 
 **ITEM
          11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT**
 
 The
          following table sets forth certain information regarding beneficial ownership
          of
          the common stock as of January 11, 2007 by (i) each person who is known
          by the
          company to own beneficially more than 5% of the any classes of outstanding
          Stock, (ii) each director of the company, (iii) each of the Chief Executive
          Officers and the four (4) most highly compensated executive officers who
          earned
          in excess of $100,000 for all services in all capacities (collectively,
          the
          "Named Executive Officers") and (iv) all directors and executive officers
          of the
          company as a group.
 
 The
          number and percentage of shares beneficially owned is determined in accordance
          with Rule 13d-3 and 13d-5 of the Exchange Act, and the information is not
          necessarily indicative of beneficial ownership for any other purpose. We
          believe
          that each individual or entity named has sole investment and voting power
          with
          respect to the securities indicated as beneficially owned by them, subject
          to
          community property laws, where applicable, except where otherwise noted.
          Unless
          otherwise stated, the address of each person is 6451-C, El Camino Real,
          Carlsbad, CA 92009.
 
 **Class
                    of Stock****Common
                    Stock of**
                  **Company**
                **Common
                    Stock of**
                  **U.S.
                    Microbics, Inc. (Parent)****Amount**
                **%**
                **Amount**
                **%**Directors
                    and Officers:Bruce
                    S. Beattie President,*Chief
                    Executive Officer And Chairman Of The Board*
                1,215369
                    (1)
                1.22
                250,000
                0.06Behzad
                    Mirzayi,*Chief
                    Operating Officer, Vice-President And Director*
                1,325,000
                    (2)
                1.33
                1,064,237
                0.26Conrad
                    Nagel,*Chief
                    Financial Officer And Director*
                1,589,143
                    (3)
                1.59
                3,907,666
                0.94Robert
                    C. Brehm,*Director,
                    Secretary And CEO Of Affiliate U.S. Microbics, Inc.*
                5,864,482
                    (4)
                5.74
                27,300,098
                7.73Bill
                    Hopkins,*Director*
                243,300
                    (5)
                0.25
                -0-
                N/AAll
                    Officers and Directors as a group (5 persons)
                8,737.294
                8.512
                32,522,001
                7.74
  33
  
 Affiliates
                    And Other 5% Shareholders Of Any Class Of StockMery
                    C. Robinson,*Director
                    Of Affiliate U.S. Microbics, Inc.*
                200,000
                    (6)
                0.20
                4,763,641
                2.65U.S.
                    Microbics, Inc. (Parent) and subsidiaries
                463,784,250
                    (7)
                84.19
                N/A
                N/AMark
                    Holmstedt,*Director
                    Of U.S. Microbics, Inc.*
                1,095,615
                    (8)
                1.11
                2,275,950
                0.55Darwin
                    Ting and Kuei Mei Ting TRS FBO Ting Family Trust UA
                    03-04-02
                11,497,000
                    (9)
                11.60
                19,750,000
                4.72John
                    D. Garber
                14,145,000
                    (10)
                14.27
                1,250,003
                0.30Michael
                    Jordan
                10,140,833
                    (11)
                10.233
                7,141,667
                1.70
 (1)
                  Includes
                      stock options to purchase 750,000 shares of common stock exercisable
                      within 90 days of January 11, 2007.(2)
                  Includes
                      stock options to purchase 750,000 shares of common stock exercisable
                      within 90 days of January 11, 2007.(3)
                  Includes
                      8,000 shares of Series A Preferred stock convertible into 40,000
                      shares of
                      common stock and stock options to purchase 900,000 shares of
                      common stock
                      exercisable within 90 days of December 26, 2006..(4)
                  Includes
                      405,555 shares of Series A Preferred stock convertible into
                      2,027,775
                      shares of common stock and 154,833 shares of common stock owned
                      by ACSI
                      Profit Sharing Trust, owned By Mr. Brehm and options to purchase
                      1,000,000
                      shares of common stock exercisable within 90 days of December
                      26, 2006.(5)
                  Includes
                      5,000 shares of Series A Preferred stock convertible into 25,000
                      shares of
                      common stock.(6)
                  Includes
                      Series A Preferred stock options convertible into 200,000 shares
                      of common
                      stock exercisable within 90 days of January 11, 2007.(7)
                  Includes
                      800,000 shares of common stock owned by Sol Tech Corporation,
                      which is
                      controlled by U.S. Microbics, Inc.; 3,897,000 shares of common
                      stock owned
                      by USM Capital Group, Inc, which is controlled by U.S. Microbics,
                      Inc.;
                      781,700 shares of common stock owned by West coast Fermentation
                      Center;
                      Series A Preferred shares convertible into 26,305,550 shares
                      of common
                      stock; Series A Preferred shares convertible into 18,000,000
                      of common
                      stock. These shares are owned by USM Capital Group, Inc.; Series
                      A
                      Preferred shares convertible into 7,500,000 shares of common
                      stock owned
                      by Xyclonyx; Series S Preferred shares which have 400,000,000
                      voting
                      rights on a share -for-share basis with common stock. . U.S
                      Microbics,
                      Inc., the Company’s parent company, exercises voting and investment power
                      over the shares held by USM Capital Group, Inc, Xyclonyx, Sol
                      Tech
                      Corporation and West Coast Fermentation Center.(8)
                  Consists
                      of 1,095,615 shares of common stock.(9)
                  Address:
                      154 Via Copia, Alamo, CA 94507. Address: 2142 Liane Lane, Santa
                      Ana, CA
                      92705(10)
                  Includes
                      5,970,000 common shares owned by the Garber Family Trust UTD
                      July 30,
                      1992. The Trust is co-owned by John D. Garber and his spouse
                      Claire
                      Garber. Address: 78166 Bovee Circle, Palm Desert, CA 92211(11)
                  Address:
                      P.O. Box 612, Mt. Vernon TX 75457
 
 **ITEM
          12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**
 
 U.S.
          Microbics, Inc., is the Company’s parent company. U.S. Microbics, Inc. directly
          owns 32,805,550 shares of its common stock, as well as 20,000,000 shares
          of
          Series S Preferred stock which has voting rights to 400,000,000 shares
          on a
          parity with common stock, as well as 26,305,550 shares of common stock
          issuable
          upon conversion of Series A Preferred stock. U.S. Microbics, Inc. also
          owns 80%
          of USM Capital Group, Inc., which owns 6,127,775 shares of common stock,
          including 1,527,775 shares of common stock issuable upon conversion of
          Series A
          Preferred stock. U.S. Microbics, Inc. also owns 100% of SolTech, Inc.,
          which
          owns 800,000 shares of common stock. U.S. Microbics, Inc. also owns 100%
          of West
          Coast Fermentation Center, Inc., which owns 781,700 shares of common stock.
          Also
          Xyclonyx, which is also wholly owned by the Company’s parent company, owns
          1,500,000 shares of the Company’s convertible series A preferred stock which is
          convertible to 7,500,000 shares of the Company’s common stock.
 
 There
          have been no other material transactions, series of similar transactions,
          currently proposed transactions, or series of similar transactions, to
          which we
          or any of the Company’s subsidiaries was or is to be a party, in which the
          amount involved exceeded $60,000 and in which any director or executive
          officer,
          or any stockholder who is known to us to own of record or beneficially
          more than
          five percent of the Company’s common stock, or any member of the immediate
          family of any of the foregoing persons, had a material
          interest.
  34
  On
          May
          31, 2006, the Company borrowed $100,000 from an affiliate in an unsecured
          convertible note agreement. The convertible note is payable in 50 weekly
          principal and interest payments of $2,500 beginning September 2006. The
          note
          holder has the option to convert unpaid note principal together with accrued
          and
          unpaid interest to the Company's common stock at $0.04 per share. The Company
          is
          currently in default of the note agreement. As of September 30, 2006, the
          principal balance outstanding was $100,000. The interest rate on this note
          is
          25%.
 
 In
          September 2006, the Company issued 3,000,000 shares of its restricted common
          stock to an affiliate, who had collateralized a line of credit with Pilgrim
          Bank, for $30,000 in cash received. The stock was issued at a discount
          of $0.032
          per share resulting in a finance fee of $96,000 which is being amortized
          to
          interest expense over the 12 month term of the credit line.
 
 **ITEM
          13. EXHIBITS**
 3.1
                  Amended
                      and Restated Certificate of Incorporation. (1)3.2
                  Bylaws.
                      (2)10.1
                  Capital
                      Stock Exchange and Agreement between the Registrant and the
                      Series A
                      Preferred Stock stockholders and option holders of Sub surface
                      Waste
                      Management, Inc., a Nevada Corporation.(1)10.2
                  Consulting
                      Agreement with Sol Tech Inc., dated as of October 21, 2002.
                      (4)10.3
                  Common
                      Stock Purchase Agreement between Registrant and Fusion Capital
                      Fund II,
                      LLC, dated as of June 10, 2004.(3)10.4
                  Amendment
                      dated as August 4, 2004, to the Common Stock Purchase Agreement
                      between
                      Registrant and Fusion Capital Fund II, LLC. (4)10.5
                  Amended
                      Registration Rights Agreement between Registrant and Fusion
                      Capital Fund
                      II, LLC, dated as of August 4, 2004. (4)10.6
                  Form
                      of Common Stock Purchase Warrant issued to Fusion Capital Fund
                      II, LLC, in
                      connection with Common Stock Purchase Agreement with Fusion
                      Capital Fund
                      II, LLC. (3)10.7
                  Bridge
                      Loan Agreement between Registrant and Fusion Capital Fund II,
                      LLC, dated
                      as of August 4, 2004. (4)10.8
                  Promissory
                      Note dated as of August 4, 2004, issued to Fusion Capital Fund
                      II, LLC, in
                      connection with Loan Agreement. (4)10.9
                  Form
                      of Common Stock Purchase Warrant issued to Fusion Capital Fund
                      II, LLC, in
                      connection with Loan Agreement with Fusion Capital Fund II,
                      LLC.
                      (4)10.10
                  Employment
                      agreement with Bruce S. Beattie, dated as of December 23,
                      2002.(5)10.11
                  Employment
                      agreement with Behzad Mirzayi, dated as of December 23, 2002.
                      (5)14.1
                  Code
                      of Business Conduct and Ethics. (6)23.1
                  Consent
                      of Independent Auditor.31.1
                  Certification
                      of Chief Executive Officer/President Pursuant to Rule 13a-14(a)
                      and
                      15d-14(a).31.2
                  Certification
                      of Chief Financial Officer Pursuant to Rule 13a-14(a) and
                      15d-14(a).32.1
                  Certification
                      Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
                      Section 906 of
                      the Sarbanes-Oxley Act of 2002.32.2
                  Certification
                      Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
                      Section 906 of
                      the Sarbanes-Oxley Act of
                      2002.
  35
  ____________
 (1)
                  Previously
                      filed as an exhibit to the Company’s report on form 8-K filed with the SEC
                      on December 30, 2002, and incorporated herein by this reference.(2)
                  Previously
                      filed as an exhibit to the Company’s report on form 8-K filed with the SEC
                      on May 4, 2001, and incorporated herein by this reference.(3)
                  Previously
                      filed as an exhibit to the Company’s report on form 8-K filed with the SEC
                      on June 15, 2004, and incorporated herein by this reference.(4)
                  Previously
                      filed as an exhibit to the Company’s registration statement on form SB-2
                      filed with the SEC on August 6, 2004, and incorporated herein
                      by this
                      reference.(5)
                  Previously
                      filed as an exhibit to the Company’s amendment no.1 to the registration
                      statement on form SB-2 filed with the SEC on September 30,
                      2004, and
                      incorporated herein by this reference.(6)
                  Previously
                      filed as an exhibit to the Company’s Annual Report on form 10-KSB filed
                      with the SEC on January 18, 2005, and incorporated herein by
                      this
                      reference.
 
 **ITEM
          14. PRINCIPAL ACCOUNTANT FEES AND SERVICES**
 
 The
          following table sets forth fees billed to us by the Company’s auditors during
          the fiscal years ended September 30, 2006 and September 30, 2005 for: (i)
          services rendered for the audit of the Company’s annual financial statements and
          the review of the Company’s quarterly financial statements, (ii) services by the
          Company’s auditor that are reasonably related to the performance of the audit or
          review of the Company’s financial statements and that are not reported as Audit
          Fees, (iii) services rendered in connection with tax compliance, tax advice
          and
          tax planning, and (iv) all other fees for services rendered.
 September
                      30,
                    2006
                  
                  September
                      30,
                    2005(i)  
                      Audit Fees
                  
                  $
                  65,000
                  
                  $
                  60,000(ii) 
                      Audit Related Fees
                  
                  
                  22,500
                  
                  
                  23,000(iii)
                      Tax Fees
                  
                  
                  10,000
                  
                  
                  10,000(iv)
                      All Other Fees
                  
                  
                  --
                  
                  
                  --Total
                      fees
                  
                  $
                  97,500
                  
                  $
                  93,000
 Audit
          Fees. Consists
          of fees billed for professional services rendered for the audit of Sub
          Surface
          Waste Management of Delaware, Inc.'s consolidated financial statements
          and
          review of the interim consolidated financial statements included in quarterly
          reports and services that are normally provided by Russell Bedford Stefanou
          Mirchandani LLP in connection with statutory and regulatory filings or
          engagements.
 
 Audit-Related
          Fees. Consists
          of fees billed for assurance and related services that are reasonably related to
          the performance of the audit or review of Sub Surface Waste Management
          of
          Delaware, Inc.'s consolidated financial statements and are not reported
          under
          "Audit Fees." There were no Audit-Related services provided in fiscal 2006
          or
          2005.
 
 Tax
          Fees. Consists
          of fees billed for professional services for tax compliance, tax advice
          and tax
          planning.
 
 All
          Other Fees. Consists
          of fees for products and services other than the services reported above.
          There
          were no management consulting services provided in fiscal 2006 or
          2005.
 
 **Policy
          On Audit Committee Pre-Approval Of Audit And Permissible Non-Audit Services
          Of
          Independent Auditors**
 
 The
          Company currently does not have a designated Audit Committee, and accordingly,
          the Company's Board of Directors' policy is to pre-approve all audit and
          permissible non-audit services provided by the independent auditors. These
          services may include audit services, audit-related services, tax services
          and
          other services. Pre-approval is generally provided for up to one year and
          any
          pre-approval is detailed as to the particular service or category of services
          and is generally subject to a specific budget. The independent auditors
          and
          management are required to periodically report to the Company's Board of
          Directors regarding the extent of services provided by the independent
          auditors
          in accordance with this pre-approval, and the fees for the services performed
          to
          date. The Board of Directors may also pre-approve particular services on
          a
          case-by-case basis.
  36
  **SIGNATURES**
 
 Pursuant
          to the requirements of Section 13 or 15(d) of the Securities Exchange Act
          of
          1934, the Company has duly caused this report to be signed on its behalf
          by the
          Undersigned, thereunto duly authorized.
 
 Sub
                    Surface Waste Management of Delaware Inc.(a
                    Delaware Corporation)Dated:
                    January 16, 2007
                /s/
                    Bruce S.
                    BeattieBy:
                    Bruce S, BeattieIts:
                    President and Chief Executive Officer(principal
                    executive officer)Dated:
                    January 16, 2007
                /s/
                    Conrad
                    NagelBy:
                    Conrad NagelIts:
                    Chief Financial Officer(principal
                    financial and accounting officer)
 
 Pursuant
          to the requirements of the Securities Exchange Act of 1934, this report
          has been
          signed below by the following persons on behalf of the registrant and in
          the
          capacities and on the dates indicated.
 
 **Name**
                
                **Position**
                
                **Date**/S/
                    Bruce S. Beattie
                
                Chief
                    Executive Officer and Director
                
                January
                    16, 2007Bruce
                    S. Beattie/S/
                    Behzad Mirzayi
                
                Chief
                    Operating Officer and Director
                
                January
                    16, 2007Behzad
                    Mirzayi/S/
                    Conrad Nagel
                
                Chief
                    Financial Officer and Director
                
                January
                    16, 2007Conrad
                    Nagel/S/
                    Robert C. Brehm
                
                Director
                
                January
                    16, 2007Robert
                    C. Brehm/S/
                    Bill Hopkins
                
                Director
                
                January
                    16, 2007Bill
                    Hopkins