<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D. C. 20549

                                   FORM 10-QSB

(Mark One)

|X|    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
       ACT OF 1934

       For the quarter ended June 30, 2004

|_|    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
       ACT OF 1934

       For the transition period from ________ to _________
       Commission File No.: 0-14213

                              U.S. MICROBICS, INC.
                 (Name of small business issuer in its charter)

            COLORADO                                      84-0990371
 (State or other jurisdiction of               (IRS Employer Identification No.)
 incorporation or organization)

                              6451-C El Camino Real
                           Carlsbad, California 92009
                                 (760) 918-1860

       Securities registered under Section 12(b) of the Exchange Act: None

   Title of each class            Name of each exchange on which registered
          None                                      None

         Securities registered under Section 12(g) of the Exchange Act:
                    Common Stock, $0.0001 par value per share

Check whether the issuer (1) filed all reports required to be filed by Section
13 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 | |

Common Stock, $0.0001 par value per share - 143,282,831 shares outstanding as of
August 11, 2004

Documents Incorporated by Reference: None.

Transitional Small Business Disclosure Format (check one): Yes | |; No |X|



<PAGE>
<TABLE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

<CAPTION>
                          U.S. MICROBICS, INC., AND SUBSIDIARIES
                           CONSOLIDATED CONDENSED BALANCE SHEET

                                                                            AS OF           AS OF
                                                                          JUNE 30,      SEPTEMBER 30,
                                                                            2004            2003
                                                                         (UNAUDITED)      (AUDITED)
                                                                        -------------   -------------
<S>                                                                     <C>             <C>
CURRENT ASSETS:
             Cash                                                       $     16,834    $     25,421
             Restricted cash                                                 122,187         258,468
             Accounts receivable                                              15,775          62,789
             Costs and estimated profit in excess of billings                223,011         161,917
             Prepaid expenses and other assets                               166,716          21,272
                                                                        -------------   -------------
                Total current assets                                         544,523         529,867

PROPERTY AND EQUIPMENT, NET                                                  190,338          84,112

DEPOSITS                                                                      23,844          28,402
                                                                        -------------   -------------
                Total assets                                            $    758,705    $    642,381
                                                                        =============   =============

LIABILITIES AND DEFICIT IN STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
             Accounts payable and accrued expenses                      $  1,884,129    $  1,536,676
             Notes payable, related parties                                  429,160         317,075
                                                                        -------------   -------------
                Total current liabilities                                  2,313,289       1,853,751

             Notes payable - related party                                         0          20,290
                                                                        -------------   -------------

                Total liabilities                                          2,313,289       1,874,041

MINORITY INTEREST                                                          1,400,164         484,995

DEFICIT IN STOCKHOLDERS' DEFICIT:
Convertible preferred stock, $.10 par value; 20,000,000 shares
authorized:
       Series II; 500,000 shares authorized; 3,868, and
             6,244 issued and outstanding as of June 30,
             2004 and September 30, 2003, respectively
             aggregate liquidation preference of $3,868 and $6,244
             respectively                                                        387             625
       Series B; 500,000 shares authorized; 522 and 5,522 issued
             and outstanding as of June 30, 2004 and September
             30, 2003; aggregate liquidation preference of $552
             and $5,522                                                           52             552
       Series C; 50,000 shares authorized; 15,871 and 15,921 issued
             and outstanding as of June 30, 2004 and September 30,
             2003; aggregate liquidation preference of $1,587,100
             and $1,592,100                                                    1,587           1,592
       Series D; 50,000 shares authorized; 43,300 and 10,300 issued
             and outstanding as of June 30, 2004 and September 30,
             2003; no liquidation preference                                   4,330           1,030
       Common stock; $.0001 par value; 500,000,000 shares authorized;
             141,594,931 and 113,722,021 issued and outstanding as of
              June 30, 2004 and September 30, 2003, respectively              14,065          11,372
       Additional paid-in capital                                         21,169,291      23,272,297
       Dividend payable                                                      (35,588)        (35,588)
       Discount on Preferred Stock                                                00          (3,958)
       Treasury Stock                                                       (117,400)       (117,400)
       Stock Subscriptions                                                   (65,000)     (3,815,000)
       Deferred employee stock option plan                                        --         (68,000)
       Deferred Financing Costs                                             (572,540)       (166,540)
       Accumulated deficit                                               (23,353,932)    (20,797,637)
                                                                        -------------   -------------
             Total deficit in stockholders' equity                        (2,954,748)     (1,716,655)
             Total liabilities and stockholders' deficit                $    758,705    $    642,381
                                                                        =============   =============

      SEE ACCOMPANYING FOOTNOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.

                                           2
</TABLE>



<PAGE>

<TABLE>
                                    U.S. MICROBICS, INC., AND SUBSIDIARIES
                                     CONSOLIDATED CONDENSED STATEMENTS OF
                                                  OPERATIONS

<CAPTION>
                                                          For the Nine                    For the Three
                                                      Months Ended June 30,            Months Ended June 30,
                                                -------------------------------   -------------------------------
                                                     2004             2003             2004             2003
                                                --------------   --------------   --------------   --------------
<S>                                             <C>              <C>              <C>              <C>
Revenues                                        $     251,231    $     418,772    $      70,738    $     139,117

Cost of revenues                                      234,987          262,206           59,933           87,300
                                                --------------   --------------   --------------   --------------

Gross profit                                           16,244          156,566           10,805           51,817

Selling, general and administrative expenses        2,736,126        3,397,394          858,210        1,022,450
                                                --------------   --------------   --------------   --------------

Loss from operations                               (2,719,882)      (3,240,828)        (847,405)        (970,633)

Other income (expense):
Interest expense                                     (104,277)         (62,713)          (7,907)         (21,694)
Realized Gain (loss) on Sale of Securities              7,063           98,203            7,063
Minority interest                                     260,801          155,621           80,886           35,226
                                                --------------   --------------   --------------   --------------
                                                      163,587          191,111           80,042           13,532

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

Net Loss Before Income Taxes                       (2,556,295)      (3,049,717)        (767,363)        (957,101)

Income tax (benefit) expenses                              --               --               --               --
                                                --------------   --------------   --------------   --------------

Net loss                                        $  (2,556,295)   $  (3,049,717)   $    (767,363)   $    (957,101)
                                                ==============   ==============   ==============   ==============

Net loss per common share (basic and diluted)   $       (0.02)   $       (0.04)   $       (0.01)   $       (0.01)

Weighted average common shares outstanding        123,985,064       72,401,731      136,080,753       72,401,731

                SEE ACCOMPANYING FOOTNOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.

                                                      3
</TABLE>



<PAGE>
<TABLE>
                               U.S. MICROBICS, INC., AND SUBSIDIARIES
                           CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

<CAPTION>
                                                                                         For the Nine
                                                                                     Months Ended June 30,
                                                                                  ---------------------------
                                                                                      2004           2003
                                                                                  ------------   ------------

<S>                                                                               <C>            <C>
Cash Flows from Operating Activities:

                             Net Cash Used in Operating Activities                $  (619,946)   $(1,607,946)
                                                                                  ------------   ------------

                  Net Cash (Used in) Provided by Investing Activities                (137,990)       111,406
                                                                                  ------------   ------------

                         Net Cash Provided by Financing Activities                    749,349      1,457,408
                                                                                  ------------   ------------

   Net Decrease in Cash                                                               (8,587)        (39,132)

   Cash at Beginning of Period                                                         25,421         44,520
                                                                                  ------------   ------------

         Cash at End of Period                                                    $    16,834    $     5,388
                                                                                  ============   ============

                      Supplemental disclosures of non-cash investing and financing activities:
Common stock issued in exchange
    for services                                                                     $ 618,028  $2,022,340
Common stock issued in exchange
    for compensation                                                                 $ 104,800  $       --
Common stock issued in exchange
    for accrued compensation                                                         $  28,500  $       --
Common stock issued for employee
    stock option plans                                                               $ 586,196  $       --
Convertible preferred stock issued for
    cost and letter of credit                                                        $ 314,720  $       --
Stock, stock options, and warrants in
    exchange for services by subsidiaries                                            $ 518,416  $       --
Employee stock option plan - unearned
    charged to operations                                                            $  68,000  $       --
Deferred financing cost on issuance
    of convertible preferred stock                                                   $(406,000)  $       --
Discount of preferred stock charged
    to operations                                                                    $   3,958  $       --

   Cash paid for:
       Interest                                                                   $        --    $     1,080
       Income                                                                     $        --    $        --
       taxes
       Dividends                                                                  $        --    $     2,170

           See accompanying footnotes to the unaudited consolidated condensed financial statements.

                                                            4
</TABLE>



<PAGE>

                      U.S. MICROBICS INC., AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                    NINE MONTHS ENDED JUNE 30, 2004 AND 2003
                                   (UNAUDITED)

NOTE A - SUMMARY OF ACCOUNTING POLICIES

The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information and with the
instructions to Form 10-QSB. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.

In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Accordingly, the results from operations for the nine months, and three-month
periods ended June 30, 2004, are not necessarily indicative of the results that
may be expected for the year ended September 30, 2004. The unaudited condensed
consolidated financial statements should be read in conjunction with the
consolidated September 30, 2003 financial statements and footnotes thereto
included in the Company's SEC Form 10-KSB.

Business and Basis of Presentation

U.S. Microbics, Inc. was organized on December 7, 1984 under the laws of the
State of Colorado as Venture Funding Corporation. The Company amended its
Articles of Incorporation in June 1993 changing its name to Global Venture
Funding, Inc. The Company amended its Articles of Incorporation in May 1998
changing its name to U.S. Microbics, Inc. The Company has been engaged in a
variety of operations since inception.

The Company has seven subsidiaries: West Coast Fermentation Center, Sub Surface
Waste Management of Delaware, Inc. ("SSWM"), Sol Tech Corporation (d.b.a. -
Wasteline Performance Corporation), Bio-Con Microbes, USM Capital Group, Inc.,
USM Technologies, Inc., USM Resources Development and USM Financial Solutions,
Inc. West Coast Fermentation Center's primary business is to manufacture
microbial cultures that are to be sold to other subsidiaries of the Company. Sub
Surface Waste Management's business is to use the microbial technology to
provide engineered solutions for soil and groundwater cleanup. Sol Tech
Corporation and Bio-Con Microbes are companies formed to service the wastewater
treatment and agriculture markets, respectively.

Reclassification

Certain reclassifications have been made in prior periods' data to conform to
classifications used in the current presentation. These reclassifications had no
effect on reported losses.

Concentrations of Credit Risk

Financial instruments and related items, which potentially subject the Company
to concentrations of credit risk, consist primarily of cash and cash
equivalents. 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.

                                       5



<PAGE>

                      U.S. MICROBICS, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                    NINE MONTHS ENDED JUNE 30, 2004 AND 2003
                                   (UNAUDITED)

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Stock-based Compensation

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure-an amendment of SFAS 123." This statement
amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide
alternative methods of transition for a voluntary charge to the fair value based
method of accounting for stock-based employee compensation. In addition, this
statement amends the disclosure requirements of SFAS No. 123 to require
prominent disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the
method used on reported results. The Company has chosen to continue to account
for stock-based compensation using the intrinsic value method prescribed in APB
Opinion No. 25 and related interpretations. Accordingly, compensation expense
for stock options is measured as the excess, if any, of the fair market value of
the Company's stock at the date of the grant over the exercise price of the
related option. The Company has adopted the annual disclosure provisions of SFAS
No. 148 in its financial reports for the quarter ended December 31, 2003. The
Company has no awards of stock-based employee compensation outstanding at
June 30, 2004 and December 31, 2003.

New Accounting Pronouncements

In April 2003, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 149, AMENDMENT OF STATEMENT 133 ON DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES. SFAS 149 amends SFAS No. 133 to provide clarification on the
financial accounting and reporting of derivative instruments and hedging
activities and requires that contracts with similar characteristics be accounted
for on a comparable basis. The provisions of SFAS 149 are effective for
contracts entered into or modified after June 30, 2003, and for hedging
relationships designated after June 30, 2003. The adoption of SFAS 149 will not
have a material impact on the Company's results of operations or financial
position.

In May 2003, the FASB issued SFAS No. 150, ACCOUNTING FOR CERTAIN FINANCIAL
INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY. SFAS 150
establishes standards on the classification and measurement of certain financial
instruments with characteristics of both liabilities and equity. The provisions
of SFAS 150 are effective for financial instruments entered into or modified
after May 31, 2003 and to all other instruments that exist as of the beginning
of the first interim financial reporting period beginning after June 15, 2003.
The adoption of SFAS 150 will not have a material impact on the Company's
results of operations or financial position.

NOTE B - CAPITAL STOCK

Preferred Stock

The Company is authorized to issue 20,000,000 shares of convertible preferred
stock with a par value of $.10 per share. The Company has reserved 100,000
shares of its $.0001 par value common stock for conversion of preferred stock
issuances. As of June 30, 2004, there were 3,868 shares of Series II preferred
stock, 522 shares of Series B preferred stock, 15,871 shares of Series C
preferred stock, 43,300 shares of Series D preferred stock issued and
outstanding. Conversion of all issued and outstanding convertible preferred
stock to common stock would result in an additional 5,958,389 shares of common
stock.

                                       6



<PAGE>

                      U.S. MICROBICS, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                    NINE MONTHS ENDED JUNE 30, 2004 AND 2003
                                   (UNAUDITED)

NOTE B - CAPITAL STOCK (CONTINUED)

Preferred Stock (continued)

Preferred stock transactions during the nine months ended June 30, 2004

During November 2003, the Company issued 3,000 shares of Series D Convertible
Preferred Stock to a stockholder of the Company as compensation for providing
letter of credit. The transaction was valued at approximately $3.24 per share
which represents the fair value of the services received which did not differ
materially from the value of the stock issued.

During December 2003, the Company issues 30,000 shares of Series D Convertible
Preferred Stock to a stockholder of the Company in exchange for the shareholder
providing a $305,000 letter of credit collateralizing the performance of a
contractual obligation of the Company. The Company has recognized a $305,000
deferred financing cost in connection with the placement of the letter of credit
and shall amortize the cost over the term of the contract.

During March 2004, a Series C Convertible Preferred stockholder elected to
convert 50 shares into 5,000 common shares of the Company.

During April 2004, a Series B Convertible Preferred stockholder elected to
convert 5,000 shares into 1,250 common shares of the Company.

During June 2004, a Series II Convertible Preferred Stockholder elected to
convert 2,375 shares into 1,188 common shares of the Company.

Common Stock

The Company is authorized to issue 500,000,000 shares of common stock with a par
value of $.0001 per share. As of June 30, 2004, the Company has issued and
outstanding 141,594,931 shares of common stock. All valuations of common stock
issued for services were based upon the value of the services rendered, which
did not differ materially from the fair value of the Company's common stock
during the period the services were rendered and charged to the statement of
losses.

During the nine months ended June 30, 2004, the Company issued an aggregate of
14,710,472 shares of common stock to consultants in exchange for a total of
$618,028 of services and expenses incurred. These shares were valued at a
weighted average of $0.04 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 nine months ended June 30, 2004, the Company issued an aggregate of
2,480,000 shares of common stock to employees in exchange for a total of
$104,800 of services rendered. These shares were valued at a weighted average of
$0.04 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 nine months ended June 30, 2004, the Company issued an aggregate of
1,000,000 shares of common stock to employees in settlement of accrued
compensation of $28,500. These shares were valued at a weighted average of $0.03
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 nine months ended June 30, 2004, the Company issued an aggregate of
12,900,000 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.

During the nine months ended June 30, 2004, the Company cancelled an aggregate
of 3,335,000 shares, as adjusted, of common stock to officers' and employees in
settlement of subscription receivable of $3,815,000.

During the nine months ended June 30, 2004, the Company reinstated an aggregate
of 110,000 shares of common stock to officers' and employees and recorded a
subscription receivable of $65,000.

                                       7



<PAGE>

                      U.S. MICROBICS, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                    SIX MONTHS ENDED MARCH 31, 2004 AND 2003
                                   (UNAUDITED)

NOTE C - MINORITY INTEREST

The Company's majority-owned subsidiary, Sub Surface Waste Management of
Delaware, Inc, issued 7,974,266 shares of common stock and 218,000 shares of
convertible preferred stock for total proceeds of $ 1,466,970. These
transactions have resulted in increase of minority interest from approximately
18% to 28%.

For the nine months ended June 30, 2004, the minority shareholders' share of the
losses (income) of majority-owned subsidiaries was:

                                                                        Amount
                                                                      ----------
USM Capital Group, Inc.                                               $(102,966)
Sub Surface Waste Management of Delaware, Inc.                          362,232
Sol-Tech Corporation                                                         61
Bio-Con Microbes                                                          1,474
                                                                      ----------
         Totals                                                       $ 260,801
                                                                      ==========

NOTE D - DEFERRED FINANCING COST

During nine months ended June 30, 2004, the Company issues 30,000 shares of
Series D Convertible Preferred Stock to a stockholder of the Company in exchange
for the shareholder providing a $305,000 letter of credit collateralizing the
performance of a contractual obligation of the Company. The Company recognized a
$305,000 deferred financing cost in connection with the placement of the letter
of credit. The shareholder will return the shares to the Company upon maturity
of the outstanding letter of credit. During the three months ended December 31,
2003, the Company's majority-owned subsidiary, Sub Surface Waste Management of
Delaware, Inc. issued 50,000 shares of Series B Convertible Preferred Stock to a
stockholder of the subsidiary in exchange for the shareholder providing a
$101,000 letter of credit collateralizing the performance of a contractual
obligation of the subsidiary. The subsidiary recognized a $101,000 deferred
financing cost in connection with the placement of the letter of credit. The
shareholder will return the shares to the Company upon maturity of the
outstanding letter of credit.

The amount of the deferred financing costs at June 30, 2004, is $572,540.

NOTE E - COMMITMENTS AND CONTINGENCIES

Litigation

The Company is subject to legal proceedings and claims 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 will not have a material adverse effect on it financial position,
results of operations or liquidity.

NOTE F- SEGMENT INFORMATION

The Company's two reportable segments are managed separately based on
fundamental differences in their operations. During 2004 and 2003, the Company
operated in the following two reportable segments:

USM Capital is the financial services division of U.S. Microbics and provides an
array of financial services for private and publicly traded companies.

                                       8



<PAGE>

                      U.S. MICROBICS, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                    SIX MONTHS ENDED MARCH 31, 2004 AND 2003
                                   (UNAUDITED)

NOTE F- SEGMENT INFORMATION (CONTINUED)

The services includes:

         o    Management services and planning
         o    Becoming a publicly reporting company
         o    Becoming a publicly trading company
         o    Capital financing
         o    Aftermarket support
         o    Investor Relations
         o    Corporate governance
         o    Administrative services
         o    CEO Training

USM Solutions, including Sub-Surface Waste Management of Delaware, 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.

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.

                                       9



<PAGE>

                      U.S. MICROBICS, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                      NINE MONTHS ENDED JUNE, 2004 AND 2003
                                   (UNAUDITED)

The following table summarizes segment asset and operating balances by
reportable segment.

                                                             FOR THE NINE
                                                         MONTHS ENDED JUNE 30,
                                                     ------------   ------------
                                                         2004           2003
                                                     ------------   ------------
     Net Sales to External Customers:
     Consulting and Financial Services               $    45,000    $    51,150
     Engineering Services                                206,231        367,622
     Corporate
                                                     ------------   ------------
     Total Sales to External Customers               $   251,231    $   418,772
                                                     ============   ============

     Depreciation and Amortization:
     Consulting and Financial Services               $        --    $        --
     Engineering Services                                  3,169          1,675
     Corporate                                            28,595         36,521
                                                     ------------   ------------
     Total Depreciation and Amortization             $    31,764    $    38,196
                                                     ============   ============

     General and Administrative Expense:
     Consulting and Financial Services               $   (11,889)   $    74,611
     Engineering Services                              1,319,703        787,467
     Corporate                                         1,404,534      2,535,316
                                                     ------------   ------------
     Total General and Administrative Expense        $ 2,736,126    $ 3,397,394
                                                     ============   ============

     Capital Expenditures:
     Consulting and Financial Services               $        --    $     3,446
     Engineering Services                                 16,901          8,851
     Corporate                                           121,088             --
                                                     ------------   ------------
     Total Capital Expenditures                      $   137,989    $    12,297
                                                     ============   ============

     Operating Income (Losses):
     Consulting and Financial Services               $    63,952    $  (23,461)
     Engineering Services                             (1,341,036)      (709,417)
     Corporate                                        (1,442,798)    (2,507,950)
                                                     ------------   ------------
     Total Segment Operating Losses                  $(2,719,882)   $(3,240,828)
                                                     ============   ============

     Segment Assets:
     Consulting and Financial Services               $    17,244    $    13,912
     Engineering Services                                520,093        522,545
     Corporate                                           221,368        110,544
                                                     ------------   ------------
     Total Segment Assets                            $   758,705    $   647,001
                                                     ============   ============

                                       10



<PAGE>

                                     PART I

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION
27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED. ALL FORWARD-LOOKING STATEMENTS ARE INHERENTLY
UNCERTAIN AS THEY ARE BASED ON CURRENT EXPECTATIONS AND ASSUMPTIONS CONCERNING
FUTURE EVENTS OR FUTURE PERFORMANCE OF THE COMPANY. READERS ARE CAUTIONED NOT TO
PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH ARE ONLY
PREDICTIONS AND SPEAK ONLY AS OF THE DATE HEREOF. FORWARD-LOOKING STATEMENTS
USUALLY CONTAIN THE WORDS "ESTIMATE," "ANTICIPATE," "BELIEVE," "EXPECT," OR
SIMILAR EXPRESSIONS, AND ARE SUBJECT TO NUMEROUS KNOWN AND UNKNOWN RISKS AND
UNCERTAINTIES. IN EVALUATING SUCH STATEMENTS, PROSPECTIVE INVESTORS SHOULD
CAREFULLY REVIEW VARIOUS RISKS AND UNCERTAINTIES IDENTIFIED BELOW, AS WELL AS
THE MATTERS SET FORTH IN THE COMPANY'S ANNUAL REPORT ON 10-KSB FOR THE YEAR
ENDED SEPTEMBER 30, 2003 AND ITS OTHER SEC FILINGS. THESE RISKS AND
UNCERTAINTIES COULD CAUSE THE COMPANY'S ACTUAL RESULTS TO DIFFER MATERIALLY FROM
THOSE INDICATED IN THE FORWARD-LOOKING STATEMENTS. THE COMPANY UNDERTAKES NO
OBLIGATION TO UPDATE OR PUBLICLY ANNOUNCE REVISIONS TO ANY FORWARD-LOOKING
STATEMENTS TO REFLECT FUTURE EVENTS OR DEVELOPMENTS.

                                   THE COMPANY

U.S. Microbics, Inc. (the "Company" or "USMX") is building an environmental
biotech company utilizing the proprietary microbial technology, bioremediation
patents, knowledge, processes and unique microbial culture collection
(collectively, the "Microbial Technology") developed over 30 years by the late
George M. Robinson and his daughter Mery C. Robinson. The Company creates and
markets proprietary microbial technologies that provide natural solutions to
many of today's environmental problems. The Company's microbes or "bugs" can be
used to breakdown various substances, including hydrocarbons, chlorinated
solvents and certain water and soil contaminants when combined with engineered
application solutions. The Company believes that it can build the foundation for
the international commercialization of proprietary products and services based
on the Microbial Technology for applications in the global bioremediation, water
cleanup and agricultural markets. The Company is in the process of determining
and obtaining the capital, personnel and manufacturing and distribution capacity
necessary to commercialize the Microbial Technology.

The Company's primary objective is to establish itself as a provider of
environmental technology and products to companies worldwide by utilizing a
"Pay-for-Performance" philosophy, specifying solutions that treat the source of
the problem, and concentrating on niche markets which offer above normal profit
potential. To achieve this objective, the Company intends to focus its strategy
on the following three elements: (i) developing core engineering and project
management services, microbe manufacturing and research and development services
that support all subsidiaries; (ii) validating the technology using actual
customer demonstration sites, approved governmental work plans, and third party
certified results showing solutions to be "better-faster-cheaper"; and (iii)
providing the technology and engineering services to direct customers or
licensing the use of the technology to third parties for use in specific niche
markets and territories.

The Company's ability to achieve its objectives is highly dependent, among other
factors, raising the necessary capital to continue implementing its
biotechnology solutions and obtaining performance bonds or letters of credits
where required. The Company intends to raise additional working capital through
the sale of common stock through its equity line, through private placements in
its subsidiaries, through issuance of preferred stock or debt, through third

party technology licensing arrangements for niche market or specific territory
use, and through the sale of assets consisting of stock in merger/spin-off
companies. There can be no assurance that the Company will raise such capital on
terms acceptable to the Company, if at all. The Company's failure to obtain
adequate financing may jeopardize its existence. See "Liquidity and Capital
Resources."

RESULTS OF OPERATIONS

FOR THE NINE MONTHS ENDED JUNE 30, 2004 AND THREE MONTHS ENDED JUNE 30, 2004
COMPARED TO THE NINE MONTHS ENDED JUNE 30, 2003 AND THREE MONTHS ENDED JUNE 30,
2003.

The Company had revenues of $ 251,231 during the nine months ended June 30,
2004, a 40% decrease as compared to $418,772 of revenues for the same period in
fiscal 2003. The Company had revenue of $ 70,738 during the three months ended
June 30, 2004, a 49% decrease as compared to $139,117 of revenue for the same
period in fiscal 2003. The decrease is a result of completion of remediation
contracts in the State of South Carolina.

Revenues for the nine months, and three months ended June 30, 2004 and 2003
consisted primarily of contracts for bio-remediation of hydrocarbons in
contaminated soil and ground water. The cost of revenues was $234,987 as of June
30, 2004, compared to $262,206 as of June 30, 2003.

                                       11



<PAGE>

For the nine months ended June 30, 2004, the Company has a gross income of
$16,244 (6% of revenue) compared to a gross income of $156,566 (37% of revenue)
for the nine months ended June 30, 2003.

Selling, general and administrative ("SG&A") expenses for the first three
quarters of fiscal year 2004 totaled $2,736,126 compared to $3,397,394 for the
same period in fiscal year 2003. SG&A expenses for the quarter ended June 30,
2004, were $858,210 compared to $1,022,450 for the quarter ended June 30, 2003.
The decrease in SG&A expenses were $661,268 (19%) and $164,240 (16%)
respectively for the nine months and three months ended June 30, 2004, compared
to the same periods in the prior fiscal year. The changes is primarily due
decreases in occupancy, legal and consulting. SG&A expenses for the first three
quarters of fiscal year 2004 consisted of occupancy, payroll, accounting, and
legal, consulting, and public relations expenses.

The Company incurred a net loss of $2,556,295 and had negative cash flows from
operations of $619,946 for the nine months ended June 30, 2004, compared to a
net loss of $3,049,717 and negative cash flows from operations of $1,607,946 for
the nine months ended June 30, 2003. The decrease in net loss of $493,422 from
the nine months ended June 30, 2004, compared to June 30, 2003, was primarily
due to common stock issued to consultants for services and decreased payroll
costs. Basic and diluted net loss per share was $(.02) for the nine months ended
June 30, 2004.compared to $(.04) for the nine months ended June 30, 2003. The
decrease was due to lower net loss and increase in average shares outstanding to
123,985,064 for the nine months ended June 30, 2004, compared to 72,401,731 for
the corresponding nine months ended June 30, 2003.

The Company is expecting the revenues for the year ended September 30, 2004, to
be less that the prior fiscal year. In order to continue implementing the
Company's strategic plan, the Company is planning on raising up to $500,000 from
a private placement through its subsidiary Sub Surface Waste Management of
Delaware, Inc. during the fourth quarter of fiscal 2004. The funds are targeted
primarily for funding contract costs, expansion of the marketing effort and for
the acquisition of companies that will increase revenues, cash flow and profits.
There can be no assurance that the Company or SSWM will be able to raise such
capital on acceptable terms. Failure to obtain such capital or generate such
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 and services 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.

SEGMENT REPORTING
-----------------

         The Company's two reportable segments are managed separately based on
fundamental differences in their operations. During the nine months ended 2004
and 2003 respectively , the Company operated in the following two reportable
segments:

                                       12



<PAGE>

         USM Capital is the financial services division of U.S. Microbics and
provides an array of financial services for private and publicly traded
companies.

         The services includes:
         o        Management services and planning
         o        Becoming a publicly reporting company
         o        Becoming a publicly trading company
         o        Capital financing
         o        Aftermarket support
         o        Investor Relations
         o        Corporate governance
         o        Administrative services
         o        CEO Training

         USM Solutions, including Sub-Surface Waste Management of Delaware,
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.

         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.

         The following table summarizes segment operations:

The following table summarizes segment operations:

                                                      FOR THE NINE
                                                  MONTHS ENDED JUNE 30,
                                                 2004                2003
                                              ------------      ------------
Net Sales to External Customers:
Consulting and Financial Services             $    45,000       $    51,150
Engineering Services                              206,231           367,622
Corporate
                                              ------------      ------------
Total Sales to External Customers             $   251,231       $   418,772
                                              ============      ============

Depreciation and Amortization:
Consulting and Financial Services             $        --       $        --
Engineering Services                                3,169             1,675
Corporate                                          28,595            36,521
                                              ------------      ------------
Total Depreciation and Amortization           $    31,764       $    38,196
                                              ============      ============

General and Administrative Expense:
Consulting and Financial Services             $   (11,889)      $    74,611
Engineering Services                            1,319,703            787,467
Corporate                                       1,404,534         2,535,316
                                              ------------      ------------
Total General and Administrative Expense      $ 2,736,126       $ 3,397,394
                                              ============      ============

Capital Expenditures:
Consulting and Financial Services             $        --       $     3,446
Engineering Services                               16,901             8,851
Corporate                                         121,088                --
                                              ------------      ------------
Total Capital Expenditures                    $   137,989       $    12,297
                                              ============      ============

Operating  Income (Losses):
Consulting and Financial Services             $    63,952       $   (23,461)
Engineering Services                           (1,341,036)         (709,417)
Corporate                                      (1,442,798)       (2,507,950)
                                              ------------      ------------
Total Segment Operating Losses                $(2,719,882)      $(3,240,828)
                                              ============      ============

Segment Assets:
Consulting and Financial Services             $    17,244       $    13,912
Engineering Services                              520,093           522,545
Corporate                                         221,368           110,544
                                              ------------      ------------
Total Segment Assets                          $   758,705       $   647,001
                                              ============      ============

                                       13



<PAGE>

In the nine months ended June 30, 2004, these two segments accounted for all of
 the revenue of the Company. The Company is striving to increase revenue in both
segments without a proportionate increase in general
and administrative expenses in either segment.

Consulting and Financial Services net sales were 45,000 for the nine months
ended June 30, 2004 compared to 51,150 for the nine months ended June 30, 2003.
The 6,150 decrease was primarily due to a decrease in consulting income.

Engineering Services revenue for the nine months ended June 30, 2004 was 206,231
compared to 367,622 for the nine months ended June 30, 2003. This decrease of
161,391 was primarily a result of completion of remediation contracts in the
State of South Carolina.

For the nine months ended June 30, 2004 the Consulting and Financial Services
segment showed an operating income of $ 63,952 compared to a loss of 23,461 for
the nine months ended June 30, 2003. The increase in operating income was as a
result of an adjustment to reduce accrued general and administrative expenses.

Consulting and Financial Services general and administrative expenses decreased
by 86,500 and was a result of an adjustment to general and administrative
expenses.

Engineering Services general and administrative expense increases were
attributed to increases in accounting, professional and consulting fees as a
result of compliance with Sarbanes-Oxley Act of 2002.

Corporate general and administrative expenses decreased by approximately
1,130,000 due to reductions in occupancy, legal and consulting fees.

During the nine month ended June 30, 2004 the increase in capital expenditures
of approximately 138,000 was primarily due to the purchase of a new computer
system.

For nine months ended June 30, 2004 the Engineering Services Segment has a loss
of 1,341,036 compared to a loss of 709,417 for the nine months ended June 30,
2003.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents totaled $16,834 and $25,421 at June 30, 2004, and
September 30, 2003, respectively. Net cash used in operations was $ (619,946)
for the nine months ended June 30, 2004, compared to $(1,607,946) for the
comparable period in the prior fiscal year.

During the nine months ended June 30, 2004, the Company raised $574,279 net of
placement fees of approximately $11,500, from issuance of common stock through
private placements and $91,795 from related parties. As of June 30, 2004, the
Company has negative working capital of $1,768,766 as compared to negative
working capital of $1,323,884 as of September 30, 2003. The Company will need to
continue to raise funds by various financing methods such as private placements
to maintain its operations until such time as cash generated by operations is
sufficient to meet its operating and capital requirements.

Of the $1,884,128 in accounts payable and accrued expenses, approximately
$680,000 is over 6 months past due as of June 30, 2004. There is a possibility
that trade vendors may file lawsuits for non-payment. If such lawsuits are
filed, management resources and funds would be diverted from operating
activities.

On March 14, 2000, the Company entered into an investment agreement to sell up
to $35 million of the Company's common stock to Swartz Private Equity, LLC
("Swartz"). In conjunction with the agreement, the Company registered 20,000,000
shares of its common stock on the Securities and Exchange Commission Form SB-2
Registration Statement. The equity line expired in August of 2003.

Since September 1998, the Company has raised approximately $20,050,000
principally through private placements of equity securities and debt. There can
be no assurance that the Company will be able to raise sufficient capital to
continue as a going concern.

                                       14



<PAGE>

The Company believes that it may generate sufficient cash to continue its
operations through September 30, 2004, and anticipates that cash generated from
planned private placements and projected revenues for consulting and during the
next two quarters of fiscal 2004 will enable it to fulfill cash needs through
fiscal 2005 operations.

Although financing efforts are continuing, 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, may 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 the Company's ability to continue its business and
operations.

Inflation

The effect of inflation on the Company's revenue and operating results was not
significant. The Company's operations are located in North America and there are
no seasonal aspects that would have a material effect on the Company's financial
condition or results of operations.

The Company's independent certified public accountant has stated in their report
included in the Company's September 30, 2003 Form 10-KSB, that the Company is
having difficulties generating sufficient cash flows to meet its obligations and
that the Company is dependent upon management's ability to develop profitable
operations. These factors among others may raise substantial doubt about the
Company's ability to continue as a going concern.

Application of Critical Accounting Policies

On June 30, 2004, the Financial Accounting Standards Board (FASB) issued a
proposed Statement, Share-Based Payment, an amendment of FASB Statements No. 123
and 95, that would require companies to account for stock-based compensation to
employees using a fair value method as of the grant date. The proposed statement
addresses the accounting for transactions in which a Company receives employee
services in exchange for equity instruments such as stock options, or
liabilities that are based on the fair value of the Company's equity instruments
or that may be settled through the issuance of such equity instruments, which
includes the accounting for employee stock purchase plans. This proposed
statement would eliminate a Company's ability to account for share-based awards
to employees using APB Opinion 25, Accounting for Stock Issued to Employees but
would not change the accounting for transactions in which a company issues
equity instruments for services to non-employees or the accounting for employee
stock ownership plans. The proposed statement, if adopted, would be effective
for awards that are granted, modified, or settled in fiscal years beginning
after December 15, 2004. The Company is in the process of assessing the
potential impact of this proposed statement to the financial statements.

Non-GAAP Financial Measures

The financial statements appearing in this quarterly report on Form 10-QSB do
not contain any financial measures which are not in accordance with generally
accepted accounting procedures.

New Accounting Pronouncements

In January 2003, the FASB issued interpretation No. 46, Consolidation of
Variable Interest Entities (FIN 46), as revised December 2003. This
interpretation of Accounting Research Bulletin No. 51, Condensed Consolidated
Financial Statements, addresses consolidation by business enterprises of
variable interest entities (VIEs) that either: (1) do not have sufficient equity
investment at risk to permit the entity to finance its activities without
additional subordinated financial support, or (2) the equity investors lack an
essential characteristic of a controlling financial interest. This
interpretation applies immediately to VIEs created after January 31, 2003. It
applies in the first fiscal year or interim period beginning after June 15,
2003, to VIEs in which an enterprise holds a variable interest that it acquired
before February 1, 2003. The application of FIN 46 did not have a material
effect on our consolidated financial statements.

Off-Balance Sheet Arrangements

The Company does not maintain off-balance sheet arrangements nor does it
participate in non-exchange traded contracts requiring fair value accounting
treatment.

Trends, Risks and Uncertainties

We have sought to identify what we believe to be the most significant risks to
our business, but we cannot predict whether, or to what extent, any of such
risks may be realized nor can we guarantee that we have identified all possible
risks that might arise. Investors should carefully consider all of such risk
factors before making an investment decision with respect to our Common Stock.

For the nine months ended June 30, 2004, the Company has generated revenues of
$251,231. During this same period, the Company incurred a net loss of $2,556,295
and had negative cash flows from operations of $619,946. As of June 30, 2004,
the Company has an accumulated deficit of $23,353,932.

The Company is currently developing business opportunities and operations
through its wholly-owned subsidiary, Sub-Surface Waste Management (SSWM). This
company concentrates on worldwide soil and groundwater cleanup opportunities.
SSWM is currently field-testing applications in several key markets. There can
be no guarantee that such markets will provide profitable results in the future.

To date, the Company has relied on private placements of equity and debt to fund
its operating and capital requirements. The Company is planning on raising
additional capital through the issuance of stock in private placements or a
public offering. There can be no assurance that such additional equity financing
will be available on terms acceptable to the Company, if at all or that such
business opportunities will occur as planned, if at all. Based upon the current
financial condition of the Company, additional capital will be required in order
for the Company to continue its ongoing operations. These matters raise
substantial doubt about the Company's ability to continue as a going concern.

Cautionary Factors That May Affect Future Results

We provide the following cautionary discussion of risks, uncertainties and
possible inaccurate assumptions relevant to our business and our products. These
are factors that we think could cause our actual results to differ materially
from expected results. Other factors besides those listed here could adversely
affect us.

Potential fluctuations in quarterly operating results

Our quarterly operating results may fluctuate significantly in the future as a
result of a variety of factors, most of which are outside our control,
including: the demand for our products; the amount and timing of capital
expenditures and other costs relating to the development of our products; price
competition or pricing changes in the industry; technical difficulties or system
downtime; general economic conditions, and economic conditions specific to the
bioremediation industry. Our quarterly results may also be significantly
impacted by the impact of the accounting treatment of acquisitions, financing
transactions or other matters. Particularly at our early stage of development,
such accounting treatment can have a material impact on the results for any
quarter. Due to the foregoing factors, among others, it is likely that our
operating results will fall below our expectations or those of investors in some
future quarter.

Lack of Independent Directors

We cannot guarantee that our Board of Directors will have a majority of
independent directors in the future. In the absence of a majority of independent
directors, our executive officers, who are also principal stockholders and
directors, could establish policies and enter into transactions without
independent review and approval thereof. This could present the potential for a
conflict of interest between the Company and its stockholders generally and the
controlling officers, stockholders or directors.

Limitation of Liability and Indemnification of Officers and Directors

Our officers and directors are required to exercise good faith and high
integrity in our Management affairs. Our Articles of Incorporation provide,
however, that our officers and directors shall have no liability to our
shareholders for losses sustained or liabilities incurred which arise from any
transaction in their respective managerial capacities unless they violated their
duty of loyalty, did not act in good faith, engaged in intentional misconduct or
knowingly violated the law, approved an improper dividend or stock repurchase,
or derived an improper benefit from the transaction. Our Articles and By-Laws
also provide for the indemnification by us of the officers and directors against
any losses or liabilities they may incur as a result of the manner in which they
operate our business or conduct the internal affairs, provided that in
connection with these activities they act in good faith and in a manner that
they reasonably believe to be in, or not opposed to, the best interests of the
Company, and their conduct does not constitute gross negligence, misconduct or
breach of fiduciary obligations. To further implement the permitted
indemnification, we have entered into Indemnity Agreements with our officers and
directors.

Management of Potential Growth

We anticipate rapid growth, which will place a significant strain on our
managerial, operational, and financial systems resources. To accommodate our
current size and manage growth, we must continue to implement and improve our
financial strength and our operational systems, and expand, train and manage our
sales and distribution base. There is no guarantee that we will be able to
effectively manage the expansion of our operations, or that our facilities,
systems, procedures or controls will be adequate to support our expanded
operations. Our inability to effectively manage our future growth would have a
material adverse effect on us.

Limited Market Due To Penny Stock

The Company's stock differs from many stocks, in that it is a "penny stock." The
Securities and Exchange Commission has adopted a number of rules to regulate
"penny stocks." These rules include, but are not limited to, Rules 3a5l-l,
15g-1, 15g-2, 15g-3, 15g-4, 15g-5, 15g-6 and 15g-7 under the Securities and
Exchange Act of 1934, as amended. Because our securities probably constitute
"penny stock" within the meaning of the rules, the rules would apply to us and
our securities. The rules may further affect the ability of owners of our stock
to sell their securities in any market that may develop for them. There may be a
limited market for penny stocks, due to the regulatory burdens on
broker-dealers. The market among dealers may not be active. Investors in penny
stock often are unable to sell stock back to the dealer that sold them the
stock. The mark-ups or commissions charged by the broker-dealers may be greater
than any profit a seller may make. Because of large dealer spreads, investors
may be unable to sell the stock immediately back to the dealer at the same price
the dealer sold the stock to the investor. In some cases, the stock may fall
quickly in value. Investors may be unable to reap any profit from any sale of
the stock, if they can sell it at all. Stockholders should be aware that,
according to the Securities and Exchange Commission Release No. 34- 29093, the
market for penny stocks has suffered in recent years from patterns of fraud and
abuse. These patterns include: - Control of the market for the security by one
or a few broker-dealers that are often related to the promoter or issuer; -
Manipulation of prices through prearranged matching of purchases and sales and
false and misleading press releases; - "Boiler room" practices involving high
pressure sales tactics and unrealistic price projections by inexperienced sales
persons; - Excessive and undisclosed bid-ask differentials and markups by
selling broker-dealers; and - The wholesale dumping of the same securities by
promoters and broker- dealers after prices have been manipulated to a desired
level, along with the inevitable collapse of those prices with consequent
investor losses. Furthermore, the "penny stock" designation may adversely affect
the development of any public market for the Company's shares of common stock
or, if such a market develops, its continuation. Broker-dealers are required to
personally determine whether an investment in "penny stock" is suitable for
customers. Penny stocks are securities (i) with a price of less than five
dollars per share; (ii) that are not traded on a "recognized" national exchange;
(iii) whose prices are not quoted on the NASDAQ automated quotation system
(NASDAQ-listed stocks must still meet requirement (i) above); or (iv) of an
issuer with net tangible assets less than $2,000,000 (if the issuer has been in
continuous operation for at least three years) or $5,000,000 (if in continuous
operation for less than three years), or with average annual revenues of less
than $6,000,000 for the last three years. Section 15(g) of the Exchange Act, and
Rule 15g-2 of the Commission require broker-dealers dealing in penny stocks to
provide potential investors with a document disclosing the risks of penny stocks
and to obtain a manually signed and dated written receipt of the document before
effecting any transaction in a penny stock for the investor's account. Potential
investors in the Company's common stock are urged to obtain and read such
disclosure carefully before purchasing any shares that are deemed to be "penny
stock." Rule 15g-9 of the Commission requires broker-dealers in penny stocks to
approve the account of any investor for transactions in such stocks before
selling any penny stock to that investor. This procedure requires the
broker-dealer to (i) obtain from the investor information concerning his or her
financial situation, investment experience and investment objectives; (ii)
reasonably determine, based on that information, that transactions in penny
stocks are suitable for the investor and that the investor has sufficient
knowledge and experience as to be reasonably capable of evaluating the risks of
penny stock transactions; (iii) provide the investor with a written statement
setting forth the basis on which the broker-dealer made the determination in
(ii) above; and (iv) receive a signed and dated copy of such statement from the
investor, confirming that it accurately reflects the investor's financial
situation, investment experience and investment objectives. Compliance with
these requirements may make it more difficult for the Company's stockholders to
resell their shares to third parties or to otherwise dispose of them.

ITEM 3. CONTROLS AND PROCEDURES

         Evaluation of Disclosure Controls and Procedures. Based on an
evaluation under the supervision and with the participation of the our
management as of a date within 90 days of the filing date of this Quarterly
Report on Form 10-QSB, our principal executive officer and principal financial
officer have concluded that our disclosure controls and procedures (as defined
in Rules 13a-14(c) and 15d-14(c)) under the Securities Exchange Act of 1934, are
effective to ensure that information required to be disclosed in reports that we
file or submit under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in SEC rules and forms.

         Changes in Internal Controls. There were no significant changes in our
internal controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation. There were no significant
deficiencies or material weaknesses, and therefore there were no corrective
actions taken. However, the design of any system of controls is based in part
upon certain assumptions about the likelihood of future events and there is no
certainty that any design will succeed in achieving its stated goal under all
potential future considerations, regardless of how remote.

                                       15



<PAGE>

                           PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

        None

ITEM 2. CHANGES IN UNREGISTERED SECURITIES AND USE OF PROCEEDS.

We have 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 fiscal quarter ending on June 30, 2004.
Except as stated below, no underwriting discounts or commissions were payable
with respect to any of the following transactions

In April 2004, the Company issued 120,039 shares of restricted common stock to a
consultant in exchange for services. The transaction was valued at approximately
$0.042 per share. The total value of the transaction was $5,042.

In May 2004, the Company issued 196,400 shares of restricted common stock to a
consultants in exchange for services. This transactions were valued at
approximately $0.028 per share. The total value of the transactions was $5,499.

In June 2004, the Company issued 272,961 shares of restricted common stock to a
consultants in exchange for services. This transactions were valued at
approximately $0.021 per share. The total value of the transactions was $5,732.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

        None

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

        None

ITEM 5. OTHER INFORMATION.

        Subsequent events:

Equity Financing
----------------

Sub Surface Waste Management of Delaware, Inc., ("SSWM") a subsidiary, has
entered into an agreement with Fusion Capital Fund II, LLC a Chicago based
institutional investor, whereby Fusion Capital shall buy up to $6.0 million of
the Company's common stock. The proceeds of the financing will be used to retire
debt, complete acquisitions and provide working capital.

Under terms of the agreement, Fusion Capital has agreed to purchase from the
Company up to $6.0 million of SSWM's common stock over a 24-month period.
Specifically, after the Securities & Exchange Commission has declared effective
a registration statement, each month SSWM has the right to sell to Fusion
Capital $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. At SSWM's sole option, Fusion Capital can be
required to purchase lesser or greater amounts of 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. SSWM has the right to terminate
the agreement at any time without any additional cost. SSWM also has the right,
at its election to enter into a new agreement with Fusion Capital under which
Fusion Capital would be required to purchase up to $6.0 million of SSWM common
stock on the same terms and conditions as the original agreement.

Promissory Note
---------------

On August 4, 2004, SSWM borrowed $200,000 capital under a convertible promissory
note with Fusion Capital. The interest rate is 10% per annum with a maturity
date of January 31, 2005. The holder of this note has the right, at its option,
to convert the principal plus accrued interest into common stock of the Company
at a conversion price equal to $0.25 per share for any conversion occurring on
or prior to the maturity date, or at a price equal to the lesser of (i) 50% of
the average of the three lowest closing sale prices of the common shares during
the twelve trading days prior to the submission of a conversion notice or (ii)
$0.25 per share, for any conversion occurring after the maturity date. In an
event of default, the interest rate shall be increased to 15 per annum.

                                       16



<PAGE>

The holder of the note also received a warrant to purchase 250,000 shares of the
Company's common stock for a period of 5 years at a price of $0.275 per share.
The warrant has a provision for cashless exercise.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a)      Exhibits.

         3.1     Articles of Incorporation, as amended.

         3.2     Bylaws, as amended.

         10.1    Lease Agreement, dated as of July 14, 1998, by and among the
                 Company and each of Ridgecrest Properties, R and B Properties
                 and Hindry West Development.(1)

         10.2    Employment Agreement, effective as of October 1, 1998, between
                 Robert C. Brehm and the Registrant.(1)

         10.3    Employment Agreement, effective as of October 1, 1998, between
                 Mery C. Robinson and the Registrant.(1)

         10.4    Stock for Stock Acquisition Agreement, effective as of August
                 31, 1997, among XyclonyX, Mery C. Robinson and the
                 Registrant.(1)

         10.5    Technology License Agreement, effective as of March 1, 1998,
                 between XyclonyX and West Coast Fermentation Center.(1)

         10.6    Technology License Agreement, effective as of March 1, 1998,
                 between XyclonyX and Sub-Surface Waste Management, Inc. (1)

         10.7    Technology License Agreement, effective as of August 21, 1997,
                 among XyclonyX and Mery C. Robinson, Dominic J. Colasito and
                 Alvin J. Smith. (1)

         10.8    Technology License Agreement, effective as of March 1, 1998,
                 between XyclonyX and Bio-Con Microbes, Inc.(1)

         10.9    Technology License Agreement, effective as of March 1, 1998,
                 between XyclonyX and Sol-Tech Corporation.(1)

         10.10   Product Line License Agreement effective May 24, 1999, between
                 Sub-Surface Waste Management, Inc. and Builders Referral,
                 Inc.(2)

         21      Subsidiaries of the Registrant.(1)

         31.1    Certification of Robert C. Brehm pursuant to 18 U.S.C. Section
                 1350, as adopted to section 302 of the Sarbanes-Oxley Act of
                 2002.

         31.2    Certification of Conrad Nagel pursuant to 18 U.S.C. Section
                 1350, as adopted to section 302 of the Sarbanes-Oxley Act of
                 2002.

         32.1    Certification of Robert C. Brehm pursuant to 18 U.S.C. Section
                 1350, as adopted to section 906 of the Sarbanes-Oxley Act of
                 2002.

         32.2    Certification of Conrad Nagel pursuant to 18 U.S.C. Section
                 1350, as adopted to section 906 of the Sarbanes-Oxley Act of
                 2002.

_______________________
(1)      Previously filed as an exhibit to our report on Form 10-KSB filed with
         the SEC on February 8, 1999, and incorporated herein by this reference.
(2)      Previously filed as an exhibit to our report on Form 10-QSB filed with
         the SEC on August 16, 1999, and incorporated herein by this reference.
_______________________

(b) Reports on From 8-K.

         None

                                       17



<PAGE>

                                   SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed in its behalf by the undersigned, thereunto duly
authorized.

                                           U.S. MICROBICS, INC.

Date: August 20, 2004                      By: /s/ Robert C. Brehm
                                               ---------------------------------
                                           Robert C. Brehm, President and Chief
                                           Executive Officer

Date: August 20, 2004                      By: /s/ Conrad Nagel
                                               ---------------------------------
                                           Conrad Nagel, Chief Financial Officer

                                       16