<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 December 31, 2003

| |   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 120,235,521 shares
                       outstanding as of January 31, 2004
                   Documents Incorporated by Reference: None.
Transitional Small Business Disclosure Format (check one):  Yes | | ; No |X|

================================================================================

<PAGE>

PART I - FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS

<TABLE>
                                U.S. MICROBICS INC., AND SUBSIDIARIES
                                CONSOLIDATED CONDENSED BALANCE SHEETS

<CAPTION>
                                                                                         AS OF           AS OF
                                                                                      DECEMBER 31,   SEPTEMBER 30,
                                                                                          2003            2003
ASSETS                                                                                (Unaudited)      (Audited)
                                                                                     -------------   -------------
<S>                                                                                  <C>             <C>
CURRENT ASSETS:
     Cash and cash equivalents                                                       $     18,427    $     25,421
     Restricted cash                                                                      310,057         258,468
     Accounts receivable                                                                   50,314          62,789
     Cost and Estimated Profit in Excess of Billing                                       192,452         161,917
     Prepaid expenses and other assets                                                     21,364          21,272
                                                                                     -------------   -------------
          Total current assets                                                            592,614         529,867
PLANT, PROPERTY AND EQUIPMENT:
     Office Furniture and Equipment                                                       120,007         120,007
     Leasehold Improvement                                                                 14,376          14,376
     Production Equipment                                                                 158,434         158,434
                                                                                     -------------   -------------
                                                                                          292,817         292,817
     Less:  Accumulated Depreciation                                                     (218,099)       (208,705)
                                                                                     -------------   -------------
                                                                                           74,718          84,112
OTHER ASSETS:                                                                              23,594          28,402
                                                                                     -------------   -------------
TOTAL ASSETS                                                                         $    690,926    $    642,381
                                                                                     =============   =============

LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
     Accounts payable and accrued expenses                                           $  1,721,012    $  1,536,676
     Notes payable, related parties, current portion                                      482,680         317,075
                                                                                     -------------   -------------
          Total current liabilities                                                     2,203,692       1,853,751
NOTES PAYABLE TO RELATED PARTIES, LONG-TERM PORTION                                        20,290          20,290

COMMITMENTS AND CONTINGENCIES                                                                  --              --

MINORITY INTEREST                                                                         765,077         484,995

DEFICIENCY IN STOCKHOLDERS' EQUITY:
     Convertible preferred stock, $.10 par value; 20,000,000 shares authorized:
          Series II; 500,000 shares authorized; 6,244 shares issued and
            outstanding as of December 31, 2003 and September 30, 2003;
            aggregate liquidation preference of $6,244                                        625             625
          Series B; 500,000 shares authorized; 5,522 shares issued and outstanding
            As of December 31, 2003 and September 30, 2003; aggregate liquidation
            preference of $5,522                                                              552             552
          Series C; 50,000 shares authorized; 15,921 shares issued and
            outstanding As of December 31, 2003 and September 30,
            2003; aggregate liquidation preference of $1,592,000                            1,592           1,592
          Series D; 50,000 shares authorized; 43,300 and 10,300 shares issued and
             Outstanding as of December 31, 2003 and September 30, 2003,
             respectively; no liquidation preference                                        4,330           1,030
                                                                                     -------------   -------------
                                                                                            7,099           3,799
     Common stock; $.0001 par value; 500,000,000 shares authorized;
          120,235,521 and 113,722,021 shares issued and outstanding as of
          December 31, 2003 and September 30, 2003                                         12,024          11,372
     Additional paid-in capital                                                        23,988,943      23,272,297
     Dividend Payable                                                                     (35,588)        (35,588)
     Discount on Preferred Stock                                                              (--)         (3,958)
     Treasury Stock                                                                      (117,400)       (117,400)
     Stock Subscriptions                                                               (3,815,000)     (3,815,000)
     Deferred Employee Stock Option Plan                                                      (--)        (68,000)
     Deferred Financing Costs                                                            (572,540)       (166,540)
     Accumulated Deficit                                                              (21,765,671)    (20,797,637)
                                                                                     -------------   -------------
          Total stockholders' Deficit                                                  (2,298,133)     (1,716,655)
                                                                                     -------------   -------------
          Total Liabilities and Deficiency in Stockholders' Equity                   $    690,926    $    642,381
                                                                                     =============   =============

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


                                                 2
</TABLE>
<PAGE>

                      U.S. MICROBICS INC. AND SUBSIDIARIES
                   CONSOLIDATED CONDENSED STATEMENTS OF LOSSES
                                   (UNAUDITED)

                                                          FOR THE THREE
                                                    MONTHS ENDED DECEMBER 31,
                                                 -------------------------------
                                                      2003             2002
                                                 --------------   --------------
Revenues                                         $      90,092    $     183,098
Cost of revenues                                        74,464           95,282
                                                 --------------   --------------
Gross income (loss)                                     15,628           87,816
Selling, general and administrative expenses         1,028,837        1,389,086
                                                 --------------   --------------
Loss from operations                                (1,013,209)      (1,301,270)
Other income (expense):
Interest expense (net)                                 (34,795)          (7,749)
Realized Gain (loss) on Sale of Securities                  --          100,000
                                                 --------------   --------------
                                                       (34,795)          92,251
Net Loss Before Income Taxes                        (1,048,004)      (1,209,019)
Provision for income taxes                                  --               --
Minority Interest                                       79,968           21,518

Net loss                                         $    (968,034)   $  (1,187,501)
                                                 ==============   ==============
Net loss per common share (basic and diluted)    $       (0.01)   $       (0.02)

Weighted average common shares outstanding         114,934,254       52,287,910



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

                                       3
<PAGE>

<TABLE>
                           U.S. MICROBICS INC. AND SUBSIDIARIES
                      CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                                        (UNAUDITED)

<CAPTION>
                                                                               FOR THE THREE
                                                                         MONTHS ENDED DECEMBER 31,
                                                                        ---------------------------
                                                                            2003           2002
                                                                        ------------   ------------
<S>                                                                     <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                                             $  (968,034)    (1,187,501)
   Adjustment to reconcile net loss to cash used in
        operating activities:
   Depreciation                                                               9,394         12,667
   Gain on sales of investment                                                   --       (100,000)
   Minority interest                                                        (79,968)       (21,518)
   Beneficial conversion feature                                                 --         20,375
   Miscellaneous adjustment                                                      --        (40,000)
   Common stock issued in exchange for services                             217,077      1,099,835
   Common stock issued in exchange for compensation                          28,800             --
   Common stock issued for employee stock option plans                      160,000             --
   Convertible preferred stock issued for cost and letter of credit         314,720             --
   Stock, stock options, and warrants in exchange for services by
     subsidiaries                                                           162,550             --
   Employee stock option plan - unearned charged                             68,000             --
   Deferred financing cost on issuance of convertible preferred stock      (406,000)            --
   Discount of preferred stock charged to operations                          3,958             --
   Decrease (increase) in:
          Accounts receivable                                                12,475        (56,470)
          Cost and estimated profit in excess of billing                    (30,535)            --
          Prepaid expense, deposits and other                                   (92)        22,423
          Other assets                                                        4,808             --
   Increase (decrease) in:
          Accounts payable and accrued expenses                             184,337       (153,518)
          Dividend payable                                                       --         (3,945)
                                                                        ------------   ------------
NET CASH USED IN OPERATING ACTIVITIES                                      (318,510)      (407,652)
                                                                        ------------   ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchase of property and equipment                                            --         (3,446)
   Proceeds from sales of investments                                            --        100,000
                                                                        ------------   ------------
NET CASH PROVIDED BY INVESTING ACTIVITIES                                        --         96,554
                                                                        ------------   ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Issuance of common stock in private placements                                --         73,000
   Issuance of subsidiaries' common stock in private placements             197,500        229,500
   Payments for restricted cash                                             (51,589)            --
   Proceeds from issuance of notes payable  to related parties              165,605         15,000
   Repayment of capital lease obligation                                         --             --
                                                                        ------------   ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES                                   311,516        317,500
                                                                        ------------   ------------

(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                             (6,994)         6,402
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                             25,421         44,520
                                                                        ------------   ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                              $    18,427    $    50,922
                                                                        ============   ============

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

                                             4
</TABLE>

<PAGE>

<TABLE>
                           U.S. MICROBICS INC. AND SUBSIDIARIES
                      CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                                        (UNAUDITED)
                                        (CONTINUED)

<CAPTION>
                                                                     FOR THE THREE
                                                               MONTHS ENDED DECEMBER 31,
                                                                  2002          2001
      <S>                                                      <C>          <C>
      Supplemental disclosures of non-cash
         Investing and financing activities:

         Common stock issued in exchange for services          $ 217,077    $1,099,835
         Common stock issued in exchange for compensation      $  28,800    $       --
         Common stock issued for employee stock option plans   $ 160,000    $       --
         Convertible preferred stock issued for
           cost and letter of credit                           $ 314,720    $       --
         Stock, stock options, and warrants in exchange for
           services by subsidiaries                            $ 162,550    $       --
         Employee stock option plan - unearned charged to      $  68,000    $       --
           operations
         Deferred financing cost on issuance of convertible    $(406,000)   $       --
           preferred stock
         Discount of preferred stock charged to operations     $   3,958    $       --

      Cash paid for:
          Interest                                             $      --    $       --
          Income taxes                                         $      --    $       --


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

                                             5
</TABLE>
<PAGE>

U.S. MICROBICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

THREE MONTHS ENDED DECEMBER 31, 2003 AND 2002 (UNAUDITED)


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


GENERAL

 The accompanying unaudited condensed consolidated financial statements of U.S.
Microbics, Inc. and Subsidiaries (the "Company") have been prepared in
accordance with the instructions to Form 10-QSB, and therefore, do not include
all the information necessary for a fair presentation of financial position,
results of operations and cash flows in conformity with accounting principles
generally accepted in the United States of America for a complete set of
financial statements.

In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included. The
results for the three-month period ended December 31 2003 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 September 30, 2003 audited consolidated financial
statements and footnotes thereto included in the Company's Securities and
Exchange Commission 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 and is engaged in the development, application and licensing
of patented toxic and hazardous waste treatment and recovery processes as well
as the licensing and application of microbially enhanced oil recovery
technologies and products.

The Company has seven subsidiaries: West Coast Fermentation Center, Sub Surface
Waste Management of Delaware, Inc. ("SSWM"), Sol Tech Corporation (also known as
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.

                                       6
<PAGE>

U.S. MICROBICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

THREE MONTHS ENDED DECEMBER 31, 2003 AND 2002 (UNAUDITED)


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


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.


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
December 31, 2003 and 2002.

                                       7
<PAGE>

U.S. MICROBICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

THREE MONTHS ENDED DECEMBER 31, 2003 AND 2002 (UNAUDITED)


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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 December 31, 2003, there were 6,244 shares of Series II
preferred stock, 5,522 shares of Series B preferred stock, 15,921 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 6,926,602 shares of common
stock.

Preferred stock transactions during the three months ended December 31, 2003:

                                       8
<PAGE>

U.S. MICROBICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

THREE MONTHS ENDED DECEMBER 31, 2003 AND 2002 (UNAUDITED)


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.


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 December 31, 2003 the Company has issued and
outstanding 120,235,521 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 three months ended December 31, 2003, the Company issued an aggregate
of 4,033,500 shares of common stock to consultants in exchange for a total of
$217,077 of services and expenses incurred. These shares were valued at a
weighted average of $0.05 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 three months ended December 31, 2003, the Company issued an aggregate
of 480,000 shares of common stock to employees in exchange for a total of
$28,800 of services rendered. These shares were valued at a weighted average of
$0.06 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 three months ended December 31, 2003, the Company issued an aggregate
of 2,000,000 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. The employees rendered services totaling $24,000.The Company incurred
expenses of $136,000. The total cost of the Employee Stock Option Plan is
$160,000.

                                       9
<PAGE>

U.S. MICROBICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

THREE MONTHS ENDED DECEMBER 31, 2003 AND 2002 (UNAUDITED)


NOTE C - MINORITY INTEREST

The Company's majority-owned subsidiary, Sub Surface Waste Management of
Delaware, Inc, issued 1,585,667 shares of common stock and 50,000 shares of
convertible preferred stock for total proceeds of $360,050. These transactions
have resulted in increase of minority interest from approximately 18% to 21%.


For the three months ended December 31, 2003, the minority shareholders' share
of the losses of majority-owned subsidiaries was:

                                                                         Amount
                                                                        --------
USM Capital Group, Inc.                                                 $   751
Sub Surface Waste Management of Delaware, Inc.                           78,607
Sol-Tech Corporation                                                         52
Bio-Con Microbes                                                            558
                                                                        --------
Totals                                                                  $79,968
                                                                        ========


NOTE D -  DEFERRED FINANCING COST

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 has recognized a $101,000 deferred financing cost in connection
with the placement of the letter of credit and shall amortize the cost over the
term of the contract.


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 2003 and 2002, the Company
operated in the following two reportable segments:

                                       10
<PAGE>

U.S. MICROBICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

THREE MONTHS ENDED DECEMBER 31, 2003 AND 2002 (UNAUDITED)


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 asset and operating balances by
reportable segment.

                                                             FOR THE THREE
                                                       MONTHS ENDED DECEMBER 31,
                                                          2003          2002
                                                      ------------  ------------
         Net Sales to External Customers:
         Consulting and Financial Services            $        --        40,400
         Engineering Services                              90,092       142,698
         Corporate                                             --            --
                                                      ------------  ------------
         Total Sales to External Customers            $    90,092       183,098
                                                      ============  ============

         Depreciation and Amortization:
         Consulting and Financial Services            $        --
         Engineering Services                               1,056           509


                                       11
<PAGE>

U.S. MICROBICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

THREE MONTHS ENDED DECEMBER 31, 2003 AND 2002 (UNAUDITED)


         Corporate                                          8,338        12,158
                                                      ------------  ------------
         Total Depreciation and Amortization          $     9,394        12,667
                                                      ============  ============

         General and Administrative Expense:
         Consulting and Financial Services            $     2,041        28,738
         Engineering Services                             340,816       256,564
         Corporate                                        676,586     1,091,117
                                                      ------------  ------------
         Total General and Administrative Expense     $ 1,019,443     1,376,419
                                                      ============  ============

         Capital Expenditures:
         Consulting and Financial Services            $        --         3,446
         Engineering Services                                  --            --
         Corporate                                             --            --
                                                      ------------  ------------
         Total Capital Expenditures                   $        --         3,446
                                                     ============  ============

         Operating (Losses):
         Consulting and Financial Services            $    (2,041)       11,662
         Engineering Services                            (339,332)     (209,657)
         Corporate                                       (671,836)   (1,103,275)
                                                      ------------  ------------
         Total Segment Operating Losses               $(1,013,209)   (1,301,720)
                                                      ============  ============

         Segment Assets:
         Consulting and Financial Services            $    50,312        50,654
         Engineering Services                             585,611       427,895
         Corporate                                         55,003       154,164
                                                      ------------  ------------
         Total Segment Assets                         $   690,926       632,712
                                                      ============  ============

                                       12
<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 developed
over 30 years by the late George M. Robinson and his daughter Mery C. Robinson
(collectively, the "Microbial Technology"). 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 leading 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.

Since September 1998, the Company has been in a development stage, building its
manufacturing facility, acquiring technical and engineering staff, researching
market opportunities and validating its technology in field demonstrations.
During that time frame, the Company has raised over $13MM to finance its
operations in preparation for implementing a major paradigm shift in the soil
and groundwater cleanup market from the old 1980's philosophy of "best efforts,
time and materials billing, treat the symptoms of the problem and measure
progress over years," to the new millennium philosophy of "pay-for-performance,
eliminate the problem better-faster-cheaper -now". Customer interest in this new
philosophy runs high. Even the U.S. government is starting to adopt this new
philosophy in their contracting efforts. Field tests have shown that the
microbial technology and engineering solutions have significantly reduced the
time and cost to treat contaminated water, chlorinated solvents and MTBE from
years of little progress using 1980's technology, down to only weeks or months
using biotechnology based solutions. These results mean that parents and their


                                       13
<PAGE>

children may enjoy cleaner water, air and soil sooner rather than later and
corporations, governmental entities and taxpayers may be able to reduce the
expense of environmental cleanup in the future.

The efforts to implement the new philosophy revolve around alternate technology
validation, the politics of local jurisdictional and industry acceptance of
alternative technology for soil and groundwater cleanup and money for financing
the changeover logistics. By targeting key niche markets with high profit
potential, low changeover costs and minimal political resistance, U.S. Microbics
is becoming a revenue generating stage company in 2004 as measured by the
$815,540 of contracts awarded in fiscal year 2003. Work has commenced on two
contracts for $714,107 and a performance bond for a contract award totaling has
been obtained. Implementation has now progressed from successful laboratory
feasibility studies and customer field demonstration and completed projects to
more complex contracts with state governments and private companies.

While these results are promising the Company's achievement of its objectives is
highly dependent, among other factors, on its ability to raise 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."


                             DESCRIPTION OF BUSINESS

Overview
--------

U.S. Microbics was incorporated in the State of Colorado on December 7, 1984
under the name "Venture Funding Corporation" and has been engaged in a variety
of operations since inception. U.S. Microbics amended its Articles of
Incorporation in June 1993 to change its name to Global Venture Funding, Inc.
Global Venture Funding, Inc., amended its Articles of Incorporation in May 1998,
changing its name to U.S. Microbics, Inc. and its stock trading symbol on the
Over-The-Counter Bulletin Board to "BUGS." U.S. Microbics' fiscal year ends on
September 30.

U.S. Microbics is a business development and holding company that facilitates
and develops the deployment of environmental technologies through its two
divisions, USM SOLUTIONS and USM CAPITAL.

USM SOLUTIONS consists of five majority owned subsidiaries using biological
technology to revolutionize environmental cleanup and agricultural growth. The
five companies include Sub-Surface Waste Management of Delaware, Inc. ("SSWM"),
XyclonyX, West Coast Fermentation Center, Inc. ("WCFC"), Sol Tech, Inc. (d.b.a.
"Wasteline Performance Corporation"), and Bio-Con Microbes, Inc.

USM CAPITAL GROUP, INC. ("UCGI") is the financial services division that assists
in the financing and development of the five USM Solutions companies and
additional equity holdings primarily in environmental industry companies
desiring to go public. USM Capital provides management consulting,
administrative services and investor relations services to its clients.

The Company's mission, through its majority owned subsidiaries and portfolio
companies and financial support services, is to build shareholder value through
the successful development of environmental companies and deployment of
environmental technologies.

The USM Solutions division is developing environmental business units utilizing
the proprietary microbial technology, bioremediation patents, knowledge,
processes and unique microbial culture collection developed over 30 years by the
late George M. Robinson and his daughter Mary C. Robinson (collectively, the
"Microbial Technology"). U.S. Microbics intends to leverage the products and
applications developed by the Robinsons, and field proven over the past five
years in environmental cleanup and agricultural growth enhancement projects, to
apply, develop, license and commercialize the Microbial Technology. U.S.


                                       14
<PAGE>

Microbics believes that it can build the foundation for the international
commercialization of its proprietary products based on the Microbial Technology
for applications in the global environmental, manufacturing, agricultural and
natural resource markets.

USM Solutions companies manufacture, develop and market proprietary microbial
technologies that provide natural solutions to many of today's environmental
problems. U.S. Microbics' microbes or "bugs" can be used to break down various
hydrocarbon substances, including oil, diesel fuel, MTBE, PCE, certain toxic
waste, and certain water and soil contamination.

The Company is establishing itself as a leading provider of environmental
technology, services and products in clearly identified niche markets to
companies in the United States and abroad through the deployment and licensing
of technology that meets governmental standards, is environmentally friendly,
treats the source of the problem, and may replace conventional technology with
definitive, Pay-for-Performance services rather than time and materials
services. The technology is easy to apply, yields profit for its licensees and
may allow them to penetrate new markets using biological products and solutions.

U.S. Microbics' achievement of its objectives is highly dependent, on two major
factors: (1) completed projects utilizing the technology that demonstrate
better-faster-cheaper-safer technology characteristics and (2) financial
capability to sustain project cash flow requirements. During the past fiscal
year, SSWM has successfully demonstrated the environmental biotechnology in
various field applications, but has been unable to establish needed financial
capability because of a lack of working capital and the prohibitive cost of
contract performance bonding available to smaller companies after the September
11, 2001 World Trade Center incident.

To help solve the financial problem, U.S. Microbics established the USM Capital
Group, Inc. ("UCGI") subsidiary to help with project financing, creating bonding
collateral and generating additional cash flow to support USM Solutions
companies. In addition, SSWM turned to licensing the microbial technology to
companies with sufficient financial capability to enter the markets developed by
SSWM. In this manner SSWM provides added value for its licensees by supplying
engineering services, and patented technology and microbial products.

USM Capital Group, Inc. is raising additional working capital to support USM
Solutions companies by (1) generating management consulting services revenue,
(2) selling stock in client companies obtained for services in taking them
public and (3) providing administrative services and investor relations services
to client companies. UCGI also facilitates the exchange of technologies and
customers with SSWM and its client companies thus providing new technology
licensees and new products for sale by SSWM. While UCGI ramps up its capital
raising, U.S. Microbics continues to raise working capital through the sale of
shares of its common stock ("Common Stock") and preferred stock or debt and
private placement offerings of its subsidiaries as well as licensing
arrangements. There can be no assurance that U.S. Microbics, or its
subsidiaries, will raise such capital on terms acceptable to it, if at all. U.S.
Microbics' failure to obtain adequate financing may jeopardize its existence.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operation - Liquidity and Capital Resources."

Organizational Structure
------------------------

U.S. Microbics has developed an organizational structure utilizing two divisions
called USM Solutions and USM Capital. USM Solutions consists of multiple
corporations for the purpose of segmenting its operations into distinct units
for proprietary microbe or "bug" production (WCFC West Coast Fermentation
Center), research and development, licensing and patent protection (XyclonyX)
and the sale and licensing of microbial products for environmental cleanup
(SSWM) and agricultural growth enhancement (Bio-Con Microbes, Inc.). As the
public holding company, U.S. Microbics coordinates the deployment of the
Microbial Technology to its subsidiaries that in turn license the technology and
sell products and services to end users and/or licensees.

                                       15
<PAGE>

U.S. Microbics and its subsidiaries are described more fully below:

U.S. MICROBICS, INC.

U.S. Microbics orchestrates the operations of its subsidiaries and provides
administrative functions to its subsidiaries at beneficial economies of scale.
U.S. Microbics has provided the majority of capital needed to fund the
subsidiaries to date. As the sales subsidiaries increase their revenues, they
should begin to provide sufficient cash flow to support their individual
operations either through business operations net cash flow or through their own
capital raising transactions. U.S. Microbics intends to remain the majority
shareholder in all USM Solutions member companies, whether they are public or
not, so as to consolidate financial statements under the holding company, thus
providing increased shareholder value.

USM SOLUTIONS COMPANIES XYCLONYX (pronounced Zy-clone-X)

XyclonyX personnel research, develop, formulate, protect, apply, acquire,
license and transfer its technologies, consisting of patents, proprietary
knowledge, products, processes and personnel, in the environmental,
petrochemical, agriculture and waste treatment marketplaces. XyclonyX has
developed a formulation for mass producing proprietary microbial blends in
liquid form that U.S. Microbics believes is highly concentrated, cost effective
and difficult to replicate.

The principal technology assets of XyclonyX include the following:

                  PATENTS. The process patents to be licensed by XyclonyX
                  include the following: decontamination of hydrocarbon
                  contaminated soil--U.S. patent #5,039,415; and oil
                  contamination clean up by use of microbes and air--U.S. patent
                  5,334,533. XyclonyX also owns the Australian patent #652103
                  entitled "Decomposition of Hydrocarbon Contaminated Soil" and
                  has a patent pending, "The bio-reactivation of spent granular
                  activated carbons."

                  CULTURE COLLECTION. U.S. Microbics subsidiaries, through
                  XyclonyX, have the rights to use a microbe culture collection
                  developed by George M. Robinson and Mary C. Robinson during
                  the past 30 years. The proprietary culture collection consists
                  of 30 microbes that are combined into unique consortiums to
                  solve particular environmental problems, increase agricultural
                  production, reduce water consumption or increase oil
                  production. The unique collection of microbes and the specific
                  combinations of bacteria comprise the products manufactured by
                  WCFC.

                  RESEARCH AND TECHNICAL NOTES. The research and technical notes
                  of George M. Robinson consist of 30 years of theoretical and
                  empirical research leading to the successful formulae for
                  microbe separation, ultra-high yield fermentation, consortium
                  formulations for specific problem solving tasks, long- term
                  storage of microorganism and completion of field-successful
                  applications.

                  ENDORSEMENTS. XyclonyX is engaged in educational and
                  advocacy-building activities that it believes will lead to
                  professional, educational, business, environmental and
                  utility-provider endorsements. XyclonyX believes that these
                  entities will endorse its products and services as they are
                  further introduced to the merits of the Microbial Technology
                  under development, its wide application potential and related
                  environmental and energy production enhancement and cost
                  savings.

XyclonyX has assembled the following team of technical advisors to assist with
its operations:

                  Dominic Colasito, Ph.D. microbiologist and co-patent holder of
                  BIO-RAPTOR(TM)with extensive fermentation and field
                  application experience; and

                  Jack Smith, co-patent holder of BIO-RAPTOR(TM) with extensive
                  field experience in microbial bioremediation for various
                  applications including agricultural use.

                                       16
<PAGE>

West Coast Fermentation Center

WCFC manufactures microbial blends by using fermentation technology, powder
blending techniques and combinatorial liquefaction including microbial blends
for the Remediline(TM), Wasteline(TM) and Bi-Agra(TM) product lines. WCFC
operates a microbe laboratory, pilot plant and quality control center. WCFC's
primary business is to cultivate microbial cultures that are sold to other
subsidiaries of U.S. Microbics and subsequently to end users.

WCFC manufactures four product lines defined in the following table:

         Product Line

         BIO-RAPTOR(TM) Microbial Application System(TM)
         Wasteline(TM) - Anaerobic and Aerobic Waste Treatment Products
         Remediline(TM) - Hydrocarbon Treatment Products
         Bi-Agra(TM) - Agricultural Products, Biological Pesticides, Bio-Dynamic
                       Products

SUB-SURFACE WASTE MANAGEMENT OF DELAWARE, INC.

         Sub-Surface Waste Management of Delaware, Inc. ("SSWM-D"), formerly
Covingham Capital Corp. ("CCC"), through is wholly-owned subsidiary, Surface
Waste Management, Inc., ("SSWM") (a Nevada corporation) 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.
SSWM is capitalizing on its licensed patent and patent-pending technology by
forming strategic alliances and joint ventures with well-established engineering
firms. The Company is also pursuing private acquisition candidates with existing
revenue, profits and positive cash flow to enhance shareholder value.

         The Company 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.

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, 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.

                                       17
<PAGE>

         Today, the remediation or cleanup of hazardous materials from the
environment represents a $50 billion service industry, a subset of the $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 2000, less than 30 percent of sites
identified as contaminated during the last 20 years have had treatment completed
and received regulatory agency closure. The Company's goal is to take advantage
of changes in the environmental remediation market from traditional remediation
technologies, which are costly and time-consuming, to bioremediation technology,
which the Company believes is state of the art. Clients in the oil and gas,
transportation, land development, and petro-chemical industries are interested
in passive technologies, such as bioremediation, to treat contaminated property
in a timely and cost- effective way to closure.

         Specifically, the Company's mission is to become the leading
bioremediation expert in the on-site treatment and elimination of petroleum
hydrocarbon constituents, including methyl-tertiary-butyl-ether ("MTBE"), and to
apply its licensed proprietary microbial blends, using patented treatment
processes, for both traditional toxic materials and newly emerging urgent
issues.

         According to the U.S. Environmental Protection Agency ("EPA") and the
American Petroleum Institute, 73% of the 180,567 active retail gasoline service
sites in the U.S. have reported and documented releases with MTBE impacts to
soil and groundwater. The Company estimates that the market for MTBE remediation
may be worth as much as $6 billion. MTBE is the reformulated "clean fuel"
oxygenate additive in the process of being banned, nationwide, for the adverse
impact its release with gasoline has caused to soil, water and groundwater in
the United States. If the Company is able to capture approximately 1% of this
market, it anticipates that its revenues could reach $60 million by the year
2004, and that it could achieve 30% net profit before tax. If it is successful
in capturing approximately 1% of this market, and assuming that other, more
effective or inexpensive methods for remediating the effects of MTBE are not
discovered, the Company anticipates that its revenues could grow to $100 million
by the end of 2006.

                                       18
<PAGE>

REMEDIATION SERVICES AND PRODUCTS

         The Company provides engineered remediation solutions for cleanup of
toxic waste releases to soil and/or groundwater. To date, 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 system in
conjunction with its proprietary microbial blends, providing direct technical
engineering consultation as needed.

         The Company's products consist of unique collections of microbial
cultures developed over a thirty-year period and licensed to the Company by
XyclonyX, a subsidiary of U.S. Microbics, Inc. 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.

         Some of the past uses of the Company's products and processes include,
but are not limited to, the following:

         o    In situ bioremediation of underground contaminants in soil and/or
              groundwater;

         o    Ex situ bioremediation of contaminants;

         o    Biorecycling of spent activated carbon filtration media; and

         o    Open-water (both fresh and marine) containment/treatment
              bioremediation.

         The Company's remediation technologies, including those currently being
developed, meet the requirements of the various industries as well as the EPA
provisions for application of naturally occurring and non-genetically modified
microbes. Management believes that the Company's products are superior to
existing technologies in terms of energy efficiency, ease of manufacturing,
breadth of usefulness and cost. The XyclonyX microbial products have received
approval as "relatively safe" from the U.S. Department of Agriculture, its
highest rating.

SUB SURFACE WASTE MANAGEMENT, INC. (SSWM)

Sub Surface Waste Management, Inc., prior December of 2002, was wholly owned by
U.S. Micorbics, Inc. However, on December 13, 2002, the SSWM entered into a
Capital Stock Exchange Agreement with the stockholders of Covingham Capital Corp
("CCC"). The SSWM stockholders include the owners of all shares of the issued
and outstanding common stock of SSWM and holders of options to purchase the
Series A preferred stock of SSWM. The SSWM stockholders agree to transfer
10,744,000 shares of SSWM common stock and 5,360,000 shares of SSWM preferred
stock in exchange for 10,744,000 shares of the Company's common stock and
5,360,000 shares of the Company's preferred stock. Additionally, the SSWM
holders of options to purchase Series A preferred stock of SSWM will exchange
their options for options to purchase the Series A preferred stock of the
Company. As a result of this exchange agreement, SSWM became a wholly-owned
subsidiary of CCC. There has been no change in the operations or management of
SSWM.

In prior transactions, U.S. Microbics, Inc. and subsidiaries had gained a
controlling interest in CCC. Covingham Capital Corporation has changed its name
to Sub Surface Waste Management of Delaware, Inc.

On December 16, 2002, Robert C. Brehm resigned as President of CCC. On that same
date, Bruce S. Beattie was elected as President and Chief Executive Officer of
the Sub Surface Waste Management of Delaware, Inc.


Results of Operations

FOR THE THREE MONTHS ENDED DECEMBER 31, 2003 COMPARED TO THE THREE MONTHS ENDED
DECEMBER 31, 2002.

                                       19
<PAGE>

The Company had revenues of $90,092 during the three months ended December 31,
2003, as compared to $183,098 of revenues for the same quarter in fiscal 2002.
Revenues for the three months ended December 31, 2003 and 2002 consisted
primarily of contracts for bio-remediation of hydrocarbons in contaminated soil
and ground water. The cost of revenues was $74,464 for quarter ended on 12/31/03
compared to $95,282 for the quarter ended 12/31/02.

For the quarter ended December 31, 2003, the Company has gross income of $15,628
(17.3% of revenue) compared to gross income of $87,816 (48.0% of revenue) for
the quarter ended December 31, 2002. Revenue is recognized under the percentage
completion method, based on cost. The decrease in sales was due primarily to
lower revenues from the State of South Carolina, as contracts there are nearing
completion as most of the work necessary to complete the jobs has been
previously recognized as revenue. The lower gross margin in amount and
percentage is due to lower volume of completed jobs and fixed overhead spread
over fewer projects during the quarter ended December 31, 2003 compared to the
quarter ended December 31, 2002.

Selling, general and administrative ("SG&A") expenses for first quarter of
fiscal year 2003 totaled $1,028,837 compared to $1,389,086 for the same period
in fiscal year 2002. SG&A expenses for the first quarter of fiscal year 2003
consisted of occupancy, payroll, accounting, and legal, consulting, and public
relations expenses. The decrease of $360,249 in SG&A was due primarily to lower
consulting and legal fees for the quarters ended in 2003 compared to 2002.

The Company incurred a net loss of $968,034 for the quarter ended December 31,
2003, compared to a net loss of $1,187,501 for the same quarter in fiscal 2003.
The lower net loss was primarily due, as noted above, to a reduction in SG&A
expenses of 360,249. The Company had negative cash flows from operations of
$318,510 for the three months ended December 31, 2003 compared to negative cash
flows from operations of $407,652 for the three months ended December 31, 2002.
Basic and diluted net loss per share was $.01 for the three months ended
December 31, 2003 compared to a loss of $.02 per share for the three months
ended December 31, 2002. The decrease was due primarily to the increase in
average shares outstanding of 114,934,254 for the three months ended December
31, 2003 compared to 52,287,910 for the corresponding three months ended
December 31, 2002.

Although the Company is expecting to increase revenues during the next three
quarters of fiscal year ended September 30, 2004, primarily through mergers and
acquisitions, based on the current financial condition of the Company,
additional capital will be required in order for the Company to maintain its
ongoing operations. In order to continue implementing the Company's strategic
plan, the Company is planning on raising up-to an additional $ 5,000,000 net of
placement fees from a private placements beginning in February 2004. The funds
are targeted as follows $ 250,000 for purchase of capital equipment and license
fees; $ 400,000 for the purchase of microbial blend inventory; $ 3,850,000 for
business development, acquisitions and general working capital, and $ 500,000
for capital to increase the Company's technical services capability. The Company
has engaged an investment banker to assist in the impletion of capital raising
and mergers and acquisitions. There can be no assurance that the Company will be
able to raise such capital on terms acceptable to the Company, if at all or that
the Company can successfully complete is contemplated mergers and acquisitions.

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 first quarter ended 2003
and 2002 respectively , the Company operated in the following two reportable
segments:

                                       20
<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:

                                                            FOR THE THREE
                                                       MONTHS ENDED DECEMBER 31,
                                                          2003          2002
                                                      ------------  ------------
         Net Sales to External Customers:
         Consulting and Financial Services            $        --        40,400
         Engineering Services                              90,092       142,698
         Corporate                                             --            --
                                                      ------------  ------------
         Total Sales to External Customers            $    90,092       183,098
                                                      ============  ============

         Depreciation and Amortization:
         Consulting and Financial Services            $        --
         Engineering Services                               1,056           509
         Corporate                                          8,338        12,158
                                                      ------------  ------------
         Total Depreciation and Amortization          $     9,394        12,667
                                                      ============  ============

         General and Administrative Expense:
         Consulting and Financial Services            $     2,041        28,738
         Engineering Services                             340,816       256,564
         Corporate                                        676,586     1,091,117
                                                      ------------  ------------
         Total General and Administrative Expense     $ 1,019,443     1,376,419
                                                      ============  ============

         Capital Expenditures:
         Consulting and Financial Services            $        --         3,446
         Engineering Services                                  --            --
         Corporate                                             --
                                                      ------------  ------------
         Total Capital Expenditures                   $        --         3,446
                                                     ============  ============

         Operating (Losses):
         Consulting and Financial Services            $    (2,041)      11,662
         Engineering Services                            (339,332)     (209,657)
         Corporate                                       (671,836)   (1,103,275)
                                                      ------------  ------------
         Total Segment Operating Losses               $(1,013,209)   (1,301,720)
                                                      ============  ============

         Segment Assets:
         Consulting and Financial Services            $    50,312        50,654
         Engineering Services                             585,611       427,895
         Corporate                                         55,003       154,164
                                                      ------------  ------------
         Total Segment Assets                         $   690,926       632,712
                                                      ============  ============

                                       21
<PAGE>

In fiscal year ended September 30, 2003, these two segments accounted for all of
the revenue of the Company. The Company is striving to increase revenue in both
segments during fiscal year 2004, without a proportionate increase in general
and administrative expenses in either segment.


LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

Cash and cash equivalents totaled $18,427 and $25,421 at December 31, 2003 and
September 30, 2003, respectively. Net cash used in operations was -$318,510 for
the three months ended December 31, 2003, compared to -$407,652 for the
comparable period in the prior fiscal year.

During the three months ended December 31, 2003, the Company raised $197,500. As
of December 31, 2003, the Company has negative working capital of $ 1,611,078 as
compared to negative working capital of $ 1,267,827 as of December 31, 2002.

Of the $1,721,012 in accounts payable and accrued expenses, approximately
$700,000 is over 6 months past due. There is a possibility that trade vendors
may file lawsuits for non-payment. If such lawsuits were 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 Securities and Exchange Commission Form SB-2
Registration Statement. The equity line with Swartz terminated in August of
2002.

Since September 1998, the Company has raised approximately $20,000,000
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 operating as a going concern.

The Company believes that it can generate sufficient cash through sources listed
above 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 three quarters of fiscal 2004 will enable it to
fulfill cash needs through fiscal 2004 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.


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 the end
of the period covered by this Quarterly Report on Form 10-QSB, our principal
executive officer and principal financial officer have concluded that, as of the
end of such period our disclosure controls and procedures (as defined in Rules
13a-14(c) and 15d-14(c)) under the Securities Exchange Act of 1934, as amended,
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.

                                       22
<PAGE>

                           PART II - OTHER INFORMATION

ITEM 1.           LEGAL PROCEEDINGS.

On December 3, 2003, a vendor filed a law suit in the Superior Court of the
State of California, County of San Diego, case number IN034387, for an unpaid
balance of $3,251 against a subsidiary of the Company. The law suit was served
on February 9, 2004. The Company will attempt to negotiate a settlement
regarding the suit as soon as possible.

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

In November 2003, the Company issued 3,000 shares of restricted Series D
Preferred stock to an investor as compensation for providing a letter of credit
securing the Company's lease for its office, warehouse and laboratory facilities
at 6451-C El Camino Real, Carlsbad, CA 92009. Series D Preferred stock is
convertible into common stock after one year after the date of issue, at a ratio
of one share of Series D Preferred stock for 100 shares of common stock. This
transaction was valued at $3.24 per share of Series D Preferred stock.

In December 2003, the Company issued 405,500 shares of restricted common stock
to consultants for services received. Of this total, 233,000 shares of
restricted common stock were valued at $0.05 per share and 172,500 shares were
valued at $0.06 per share.

In December 2003, the Company issued 30,000 shares of restricted Series D
Preferred stock to an investor as collateral for providing a letter of credit in
lieu of a performance bond in favor of the State of South Carolina as a
requirement of a contract awarded to a subsidiary of the Company, Sub Surface
Waste Management, Inc. The contract award was for the remediation of
contaminated soil and ground water. Upon release of the letter of credit by the
State of South Caroling, the 30,000 shares of Series D are required to be
returned to the Company by agreement with the investor. Series D Preferred stock
is convertible into common stock after one year after the date of issue, at a
ratio of one share of Series D Preferred stock for 100 shares of common stock.
This transaction was valued at $10.16 per share of Series D Preferred stock.

ITEM 3.           DEFAULTS UPON SENIOR SECURITIES.

                           None

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

                           None

ITEM 5.           OTHER INFORMATION.

                           None

SUBSEQUENT EVENTS:

         None

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

         Reports on From 8-K:

                  None

         Exhibits:

                  Exhibit 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

                  Exhibit 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

                  Exhibit 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

                  Exhibit 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

                                       23
<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: February 23, 2004               By:  /s/ Robert C. Brehm
                                           -------------------------------------
                                           Robert C. Brehm, President and
                                           Chief Executive Officer

                                      By:  /s/ Conrad Nagel
                                           -------------------------------------
                                           Conrad Nagel, Chief Financial Officer

                                       24