<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, 2005

|_|  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 - 294,948,538 shares outstanding as of
March 9, 2006.

Documents Incorporated by Reference: None.

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



<PAGE>

PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

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

                                                                                                AS OF             AS OF
                                                                                             DECEMBER 31,      SEPTEMBER 30,
                                                                                                2005              2005
                                                                                             (UNAUDITED)        (AUDITED)
                                                                                            ------------       ------------
<S>                                                                                         <C>                <C>
CURRENT ASSETS:
             Cash                                                                           $    176,813       $    108,498
             Restricted cash                                                                      35,746             35,573
             Accounts receivable                                                                   2,710            194,532
             Costs and estimated profit in excess of billings                                    198,515            188,174
             Prepaid expenses and other assets                                                    23,505             22,864
                                                                                            ------------       ------------
                Total current assets                                                             437,289            549,641

PROPERTY AND EQUIPMENT, NET
             Office equipment                                                                    253,664            252,945
             Manufacturing equipment                                                              58,476             58,476
             Production and transportation equipment                                             147,788            147,788
                                                                                            ------------       ------------
                                                                                                 459,928            459,209
             Less: accumulated depreciation                                                     (328,029)          (314,056)
                                                                                            ------------       ------------
                                                                                                 131,899            145,153

OTHER ASSETS                                                                                      75,639             72,373
                                                                                            ------------       ------------
                Total assets                                                                $    644,827       $    767,167
                                                                                            ============       ============

LIABILITIES AND DEFICIENCY IN STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
             Accounts payable and accrued expenses                                          $  1,587,711       $  1,529,968
             Notes payable, related parties                                                      254,150            400,850
             Deferred Revenue                                                                    180,540
                                                                                            ------------       ------------
                Total current liabilities                                                      2,022,401          1,930,818

                Total liabilities                                                              2,022,401          1,930,818


MINORITY INTEREST                                                                              5,608,294          5,286,868

DEFICIENCY IN STOCKHOLDERS' DEFICIT:
Convertible preferred stock, $.10 par value; 20,000,000 shares authorized:
       Series II; authorized 500,000 shares; 5,875, and 5,875 issued
          and outstanding as of December 31, 2005 and September 30, 2005, respectively
          aggregate liquidation preference of $5,875                                                 588                588
       Series B; authorized 500,000 shares; 5,272 and 5,272 shares issued and
          outstanding as of December 31, 2005 and September 30, 2005 ; aggregate
          liquidation preference of $5,272                                                           527                527
       Series C; authorized 50,000 shares; 13,838 and 13,838 issued and outstanding
          as of  December 31, 2005 and September 30, 2005 ; aggregate
          liquidation preference of $1,383,800                                                     1,383              1,383
       Series D; authorized 50,000 shares; 43,330 and 43,330 shares issued and
          outstanding as of December 31, 2005 and September 30, 2005; no
          liquidation preference                                                                   4,330              4,330
       Series E; authorized 50,000 shares; -0- shares issued and outstanding as
          of December 31, 2005 and September 30, 2005,
          (aggregate liquidation preference of $-0-)
       Common stock; $.0001 par value; authorized 500,000,000 shares;
          284,593,472 and 253,627,108 shares issued and outstanding as of
           December 31, 2005 and September 30, 2005, respectively                                 28,459             25,362
       Additional paid-in capital                                                             23,568,094         22,998,533
       Dividend payable                                                                          (35,588)           (35,588)
       Treasury Stock, at cost                                                                  (117,400)          (117,400)
       Stock Subscriptions Receivables                                                          (388,208)           (67,600)
       Deferred Equity Issuance Costs                                                           (668,500)          (768,500)
       Deferred Financing Costs                                                                 (655,810)          (655,810)
       Accumulated deficit                                                                   (28,723,743)       (27,836,344)
                                                                                            ------------       ------------
             Total deficiency in stockholders' equity                                         (6,985,868)        (6,450,519)
             Total liabilities and deficiency in stockholders' equity                       $    644,827       $    767,167
                                                                                            ============       ============

                 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
                                        (Unaudited)

                                                             For the Three
                                                       Months Ended December 31,
                                                   ---------------------------------
                                                        2005            2004
                                                   -------------       -------------
<S>                                                <C>                 <C>
Revenues                                           $      64,716       $     164,081

Cost of revenues                                          83,760              51,280
                                                   -------------       -------------

Gross profit                                             (19,044)            112,801

Selling, general and administrative expenses             916,024             817,897
Depreciation and amortization                             13,972              13,902
                                                   -------------       -------------

Loss from operations                                    (949,040)           (718,998)

Other income (expense):
Interest income                                              238
Interest expense                                         (18,623)            (38,720)
Realized gain (loss) on sale of securities                30,525
Minority interest                                         49,501             143,183
                                                   -------------       -------------
                                                          61,641             104,463
                                                   -------------       -------------

Net Loss Before Income Taxes                            (887,399)           (614,535)

Income tax expenses                                           --                  --
                                                   -------------       -------------

Net loss                                           $    (887,399)      $    (614,535)
                                                   =============       =============

Net loss per common share (basic and diluted)      $       (0.00)      $       (0.00)


Weighted average common shares outstanding           261,053,017         147,263,251



SEE ACCOMPANYING FOOTNOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.

</TABLE>
                                            3


<PAGE>
<TABLE>
                                 U.S. MICROBICS, INC., AND SUBSIDIARIES
                            CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                                               (Unaudited)
                                                                                   For the Three
                                                                              Months Ended December 31,
                                                                              -------------------------
                                                                                2005             2004
                                                                              ---------       ---------
<S>                                                                           <C>             <C>

 Net Cash Used in Operating Activities                                        $(216,127)      $(500,714)
                                                                              ---------       ---------


 Net Cash Used in Investing Activities                                             (719)         (3,547)
                                                                              ---------       ---------


 Net Cash Provided by Financing Activities                                      285,161         589,223
                                                                              ---------       ---------

   Net Increase in Cash                                                          68,315          84,962

   Cash at Beginning of Period                                                  108,498          38,699
                                                                              ---------       ---------

         Cash at End of Period                                                $ 176,813       $ 123,661
                                                                              =========       =========

Supplemental disclosures of non-cash investing and financing activities:

Common stock issued in exchange for services                                  $  75,000       $ 163,500
Common stock issued by subsidiary in exchange for services                    $   5,850       $  20,350
Common stock issued in exchange for compensation                              $      --       $   7,500
Convertible preferred stock issued for accrued compensation                   $      --       $  49,149
Common stock issued for accrued vacation pay                                  $   3,342       $      --
Common stock issued for accrued note payable interest                         $  15,000       $      --
Common stock issued in exchange for services by subsidiaries                  $      --       $  20,350
Common stock issued in exchange for compensation by subsidiaries              $      --       $  86,100
Employee stock options charged to operations                                  $ 108,877       $      --
Common stock issued by subsidiary in settlement of note payable               $  85,000       $      --
Common stock issued by subsidiary for security deposit                        $      --       $  10,000
Common stock issued by subsidiary for subscription receivable                 $      --       $   5,000
Common stock issued by subsidiary for accounts payable                        $      --       $  54,063
Common stock issued by for accounts payable                                   $  83,048       $  25,000

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


        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

                      THREE MONTHS ENDED DECEMBER 31, 2005
                                   (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 three-month period ended December
31, 2005 are not necessarily indicative of the results that may be expected for
the year ended September 30, 2006. The unaudited condensed consolidated
financial statements should be read in conjunction with the consolidated
September 30, 2005 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.

The Company has five wholly-owned (directly and indirectly) subsidiaries and
those companies are Xyclonyx, West Coast Fermentation Center, USM Information
Services, Inc., USM Products Inc and USM Resources Development. Additionally,
the Company has three majority-owned subsidiaries: Sol Tech Corporation (also
known as Wasteline Performance Corporation), USM Capital Group, Inc., Bio-Con
Microbes Inc., and Sub-Surface Waste Management of Delaware, Inc. ("SSWM").

World Wide Water Systems, Inc. (Formerly USM Information Services, Inc.) was
incorporated in the state of Nevada July 2003. The Corporation has been inactive
since formation. It is presently owned 50% by US Microbics, Inc. and the other
50% by C. Trade, Inc.

                                        5


<PAGE>


                      U.S. MICROBICS, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                    THREE MONTHS ENDED DECEMBER 2005 AND 2004
                                   (UNAUDITED)


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 change 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.

Had compensation costs for the Company's stock options been determined based on
the fair value at the grant dates for the awards, the Company's net loss and
losses per share would have been as follows:

<TABLE>
                                                                      FOR THE THREE MONTHS ENDED
                                                                             DECEMBER 31,
                                                                         2005            2004
<S>                                                                   <C>             <C>
Net loss - as reported                                                $(887,399)      $(614,535)
Add: Total stock based employee compensation expense as
        reported under intrinsic value method (APB. No. 25)                  --              --
Deduct: Total stock based employee compensation expense
        as reported under fair value based method (SFAS No. 123)             --              --
Net loss - Pro Forma                                                  $(887,399)       (614,535)
Net loss attributable to common stockholders - Pro forma              $(887,399)       (614,535)
Basic (and assuming dilution) loss per share - as reported                (0.00)          (0.00)
Basic (and assuming dilution) loss per share - Pro forma                  (0.00)          (0.00)
</TABLE>

                                       6


<PAGE>

                      U.S. MICROBICS, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                    THREE MONTHS ENDED DECEMBER 2005 AND 2004
                                   (UNAUDITED)

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


New Accounting Pronouncements
-----------------------------

In March 2005, the FASB issued FASB Interpretation (FIN) No. 47, "Accounting for
Conditional Asset Retirement Obligations, an interpretation of FASB Statement
No. 143," which requires an entity to recognize a liability for the fair value
of a conditional asset retirement obligation when incurred if the liability's
fair value can be reasonably estimated. The Company is required to adopt the
provisions of FIN 47 no later than the first quarter of fiscal 2006. The Company
does not expect the adoption of this Interpretation to have a material impact on
its consolidated financial position, results of operations or cash flows.

In May 2005 the FASB issued Statement of Financial Accounting Standards (SFAS)
No. 154, "Accounting Changes and Error Corrections, a replacement of APB Opinion
No. 20 and FASB Statement No. 3." SFAS 154 requires retrospective application to
prior periods' financial statements for changes in accounting principle, unless
it is impracticable to determine either the period-specific effects or the
cumulative effect of the change. SFAS 154 also requires that retrospective
application of a change in accounting principle be limited to the direct effects
of the change. Indirect effects of a change in accounting principle, such as a
change in non-discretionary profit-sharing payments resulting from an accounting
change, should be recognized in the period of the accounting change. SFAS 154
also requires that a change in depreciation, amortization, or depletion method
for long-lived, non-financial assets be accounted for as a change in accounting
estimate affected by a change in accounting principle. SFAS 154 is effective for
accounting changes and corrections of errors made in fiscal years beginning
after December 15, 2005. Early adoption is permitted for accounting changes and
corrections of errors made in fiscal years beginning after the date this
Statement is issued. The Company does not expect the adoption of this SFAS to
have a material impact on its consolidated financial position, results of
operations or cash flows.

On December 16, 2004, the FASB issued Statement No. 123 (revised 2004),
Share-Based Payment, which is a revision of FASB Statement No. 123, Accounting
for Stock-Based Compensation. Statement 123(R) supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees, and amends FASB Statement No. 95,
Statement of Cash Flows. Generally, the approach in Statement 123(R) is similar
to the approach described in Statement 123. However, Statement 123(R) requires
all share-based payments to employees, including grants of employee stock
options, to be recognized in the income statement based on their fair values.
Pro forma disclosure is no longer an alternative. The Company will adopt
Statement 123(R) on October 1, 2005. Statement 123(R) permits public companies
to adopt its requirements using one of two methods:

1) A "modified prospective" method in which compensation cost is recognized
beginning with the effective date (a) based on the requirements of Statement
123(R) for all share-based payments granted after the effective date and (b)
based on the requirements of Statement 123 for all awards granted to employees
prior to the effective date of Statement 123(R) that remain unvested on the
effective date.


2) A "modified retrospective" method which includes the requirements of the
modified prospective method described above, but also permits entities to
restate based on the amounts previously recognized under Statement 123 for
purposes of pro forma disclosures either (a) all prior periods presented or (b)
prior interim periods of the year of adoption.

                                       7


<PAGE>

                      U.S. MICROBICS, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                  THREE MONTHS ENDED December 31, 2005 AND 2004
                                   (UNAUDITED)


As permitted by Statement 123, the company currently accounts for share-based
payments to employees using Opinion 25's intrinsic value method and, as such,
generally recognizes no compensation cost for employee stock options.
Accordingly, the adoption of Statement 123(R)'s fair value method will have a
significant impact on our result of operations, although it will have no impact
on overall financial position. The impact of adoption of Statement 123(R) cannot
be predicted at this time because it will depend on levels of share-based
payments granted in the future. However, had the Company adopted Statement
123(R) in prior periods, the impact of that standard would have approximated the
impact of Statement 123 as described in the disclosure of pro forma net income
and earnings per share in Note A to our condensed consolidated financial
statements. Statement 123(R) also requires the benefits of tax deductions in
excess of recognized compensation cost to be reported as a financing cash flow,
rather than as an operating cash flow as required under current literature. This
requirement will reduce net operating cash flows and increase net financing cash
flows in periods after adoption. The Company cannot estimate what those amounts
will be in the future because they depend on, among other things, when employees
exercise stock options.

In November 2004, the FASB issued FAS 151, "Inventory Costs * an amendment of
ARB No. 43, Chapter 4" ("FAS 151"). FAS 151 amend the guidance in Accounting
Research Bulletin (ARB) No. 43, Chapter 4, to clarify the accounting for
abnormal amounts of idle facility expense, freight, handling costs, and wasted
material (spoilage). FAS 151 requires that these costs be recognized as current
period charges regardless of whether they are abnormal. In addition, FAS 151
requires that allocation of fixed production overheads to the costs of
manufacturing be based on the normal capacity of the production facilities. The
provisions of FAS 151 are effective for inventory costs incurred during fiscal
years beginning after June 15, 2005. The Company does not expect this new
standard to have a material effect on its consolidated financial position or
results of operations.


NOTE B - NOTES PAYABLE

In December, 2004, Fusion Capital Fund II, LLC ("Fusion") made an advance to the
Company of $100,000 on the $6,000,000 equity line. Simultaneously, the Company
issued Fusion 64,655 shares of common stock as a partial repayment of the
advance. The shares were valued at approximately $0.232 per share or a total
value of $15,000. As of December, 31, 2004 the Company owes Fusion $85,000
regarding the equity line advance. The advance is non-interest bearing and can
be repaid by further issuances of stock to Fusion under the equity line. During
the three months ended December 31, 2005 the Company's subsidiary issued 850,000
shares of common stock to satisfy the balance due on the advance. In addition,
the company issues 150,000 shares of common stock in exchange for $15,000
cash.


NOTE C - 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 42,500,000
shares of its $.0001 par value common stock for conversion of preferred stock
issuances. As of December 31, 2005, there were 5,875 shares of Series II
preferred stock, 5,272 shares of Series B preferred stock, 13,838 shares of
Series C preferred stock, 43,330 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 5,801,917 shares of common
stock.

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, 2005, the Company has issued and
outstanding 284,593,472 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.

                                       8


<PAGE>

                      U.S. MICROBICS, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                  THREE MONTHS ENDED DECEMBER 31, 2005 AND 2004
                                   (UNAUDITED)


During the three months ended December 31, 2005, the Company issued 371,364
shares of restricted common stock in payment for accrued vacation valued at
$3,342. These shares were valued at .009 per share.

During the three months ended December 31, 2005, the Company issued 500,000
shares of restricted common stock in payment interest expense valued at $15,000.
These shares were valued at .03 per share.

During the three months ended December 31, 2005, the Company canceled 60,000
shares of common Stock for subscription receivable valued at $15,000. These
shares were valued at .25 per share.

During the three months ended December 31, 2005, the Company issued 3,655,000
shares of common stock for a total of $83,048 to settle accounts payable.

During the three months ended December 31, 2005, the Company issued 2,500,000
shares of common stock for $75,000 for consulting services. These shares were
valued at .03 per share.

During the three months ended December 31, 2005, the Company issued 24,000,000
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. The
exercise price related to the 24,000,000 totaled 350,002. The total cost of the
Employee Stock Option Plan was $61,765 As of December 31, 2005, the Company had
recorded a subscription receivable of $133,534 relating to the issuance.

NOTE E - MINORITY INTEREST

During the three months ended December 31, 2005, the Company issued 45,000
shares of restricted common stock in exchange for $5,850 in services. These
shares were valued at .13 per share.

During the three months ended December 31, 2005, the Company issued 1,000,000
shares of restricted common stock in exchange for $50,000.

During the three months ended December 31, 2005, the Company issued 150,0000
shares of common stock in exchange for $15,000.

During the three months ended December 31, 2005, the Company issued 850,000
shares of common stock for repayment of the $85,000 advance from Fusion.

During the three months ended December 31, 2005, the Company issued an aggregate
of 5,000,000 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. The exercise price related to the 5,000,000 shares of common stock
totaled $266,966. The total cost of the Employee Stock Option Plan was $47,112.
As of December 31, 2005, the Company had recorded a subscription receivable
outstanding of $202,074 relating to the issuance.

                                       9


<PAGE>

                      U.S. MICROBICS, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                  THREE MONTHS ENDED December 31, 2005 AND 2004
                                   (UNAUDITED)

For the three months ended December 31, 2005 the minority shareholders' share of
the losses (income) of majority-owned subsidiaries was:

                                                             Amount
                                                         -------------
USM Capital Group, Inc.                                  $    (10,913)
Sub Surface Waste Management of Delaware, Inc.                 60,414
Sol-Tech Corporation
Bio-Con Microbes
                                                         -------------
         Totals                                          $     49,501
                                                         =============

NOTE F - 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 G - SEGMENT INFORMATION

The Company's two reportable segments are managed separately based on
fundamental differences in their operations. During 2005 and 2004, 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.

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

                                       10



<PAGE>

                      U.S. MICROBICS, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                   THREE MONTHS ENDED December, 2005 AND 2004
                                   (UNAUDITED)


NOTE G - SEGMENT INFORMATION (CONTINUED)

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,
                                               --------------------------
                                                   2005           2004
                                               -----------    -----------
Net Sales to External Customers:
Consulting and Financial Services              $       --      $  100,000
Engineering Services Corporate                      62,306         64,801
Corporate                                            2,410             --
                                               -----------    -----------
Total Sales to External Customers              $    64,716    $   164,801
                                               ===========    ===========

Depreciation and Amortization:
Consulting and Financial Services              $        --    $        --
Engineering Services                                 4,372          1,983
Corporate                                            9,600         11,919
                                               -----------    -----------
Total Depreciation and Amortization            $    13,972    $    13,902
                                               ===========    ===========

General and Administrative Expense:
Consulting and Financial Services              $        50    $     1,329
Engineering Services                               454,862        385,568
Corporate                                          461,112        431,000
                                               -----------    -----------
Total General and Administrative Expense       $   916,024    $   817,897
                                               ===========    ===========

Capital Expenditures:
Consulting and Financial Services              $        --    $        --
Engineering Services                                   719             --
Corporate                                               --          3,547
                                               -----------    -----------
Total Capital Expenditures                     $       719    $     3,547
                                               ===========    ===========

Operating (Losses):
Consulting and Financial Services              $       (50)   $    98,671
Engineering Services                              (476,316)      (383,017)
Corporate                                         (472,674)      (434,652)
                                               -----------    -----------
Total Segment Operating Losses                 $  (949,040)   $  (718,998)
                                               ===========    ===========

Segment Assets:
Consulting and Financial Services              $       277    $       335
Engineering Services - Net                     $   606,668    $   468,025
Corporate                                      $    37,882    $   464,968
                                               -----------    -----------
Total Segment Assets                           $   644,827    $   933,328
                                               ===========    ===========

                                       11


<PAGE>

                      U.S. MICROBICS, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                   THREE MONTHS ENDED December, 2005 AND 2004
                                   (UNAUDITED)


One of the Company's business segments operated in two geographic locations.

Those geographic segments are:

* United States
* Mexico

Information concerning principal geographic areas is presented below according
to the area where the activity is taking place.

                                                  December 31,    December 31,
                                                      2005            2004
                                                   ----------      ----------
         NET SALES TO EXTERNAL CUSTOMERS:
         United States                             $   12,752      $ 164,081
         Mexico                                        51,964
           TOTAL SALES TO EXTERNAL CUSTOMERS       $   64,716      $ 164,081
                                                   ==========      ==========

         ASSETS:
         United States                             $  600,727      $ 933,328
         Mexico                                        44,100
            TOTAL ASSETS                           $  644,827      $ 933,328
                                                   ==========      =========




                                     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.

                                       12


<PAGE>

                      U.S. MICROBICS, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                   THREE MONTHS ENDED December, 2005 AND 2004
                                   (UNAUDITED)


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."

                                       13


<PAGE>

                      U.S. MICROBICS, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                      THREE MONTHS ENDED December, 2005 AND 2004
                                   (UNAUDITED)

RESULTS OF OPERATIONS

FOR THE THREE MONTHS ENDED DECEMBER 31, 2005 AND THREE MONTHS ENDED DECEMBER 31,
2004

The Company had revenues of $64,716, during the three months ended December 31,
2005, a 60% decrease as compared to $164,081 of revenues for the three months
ended December 31, 2004. Revenues for the three months ended December 31, 2005
consisted of bio-remediation of hydrocarbons in contaminated soil and ground
water. Revenues for the three months ended December 31, 2004 consisted primarily
of contracts for bio- remediation of hydrocarbons in contaminated soil and
ground water.

The cost of revenues for the three months ended December 31, 2005 were $83,760,
compared to $51,280 for the same period in 2004.

Gross profit (loss) for the three months ended December 31, 2005 was $(19,044)
or 30% of sales compared to a profit of $112,801 or 69% of sales for the
corresponding period in fiscal 2004. The higher revenue in 2004 was due to
consolidation of revenue from a $100,000 contract from USM Capital Group.

Selling, general and administrative ("SG&A") expenses for the three months ended
December 31, 2005 totaled $916,024 compared to $817,897, for the same period in
fiscal 2004. SG&A expenses for the three months ended December 31, 2005
consisted of occupancy, payroll, accounting, and consulting services. The 11%
increase in SG&A expenses were attributed to increases in consulting expenses.

The Company incurred a loss from operations of $949,040 for the three months
ended December 30, 2005, had negative cash flows from operations of $216,127 for
the three months ended December 31, 2005 compared to a net loss of $718,998 for
the three months Three months ended December 31, 2004, had negative cash flows
from operations of $500,714 for the three months ended December 31, 2004. Basic
and diluted net loss per share was $(0.00) for three months ended December 31,
2005, compared to a loss of $(0.00) for the three months ended December 31,
2004.

The Company is expecting the revenues for the year ended September 30, 2006, to
be more than the prior fiscal year due primarily to a new remediation contracts
in Mexico. In order to continue implementing the Company's strategic plan, the
Company is planning on raising up to $5,000,000 in equity financing and an
additional $5,000,000 from a private placement through its subsidiary Sub
Surface Waste Management of Delaware, Inc., during the remainder of fiscal 2006.
The funds are targeted primarily for funding contract costs, and expansion of
the marketing effort. 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.

                                       14


<PAGE>

                      U.S. MICROBICS, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                      THREE MONTHS ENDED December, 2005 AND 2004
                                   (UNAUDITED)

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.

LIQUIDITY AND CAPITAL RESOURCES.

Cash and cash equivalents totaled $176,813 and $108,498 at December 31, 2005 and
December 31, 2004. Net cash used in operations was $216,127, compared to cash
used of $500,714 for the comparable period in the prior fiscal year.

During the three months ended December 31, 2005, the Company, with its
subsidiaries, raised net proceeds of $285,161 through the issuance of common
stock. As of December 31, 2005, the Company has negative working capital of
$1,585,112 as compared to negative working capital of $ 1,381,177 as of
September 30, 2005. 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
capital requirements.

Of the $1,587,711 in accounts payable and accrued expenses, approximately
$200,000 is over 6 months past due. There is the 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.

During the period ending December 31, 2005, The Company has raised $346,861
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.

The Company believes that it may generate sufficient cash to continue its
operations through September 30, 2006, and anticipates that cash generated from
planned private placements and projected revenues for consulting and during the
next three quarters of fiscal 2006 will enable it to fulfill cash needs through
fiscal 2006 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.

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.


                                       15


<PAGE>

                      U.S. MICROBICS, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                      THREE MONTHS ENDED December, 2005 AND 2004
                                   (UNAUDITED)

The Company's independent certified public accountant has stated in their report
included in the Company's September 30, 2005 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.

RISKS AND UNCERTAINTIES

For the three months ended December 31, 2005, the Company has generated revenues
of $64,716. During this same period, the Company incurred a net loss of $887,399
and had negative cash flows from operations of $216,127. As of December 31,
2005, the Company has an accumulated deficit of $28,723,743.

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.

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.

                                       16


<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 December 31, 2005.
Except as stated below, no underwriting discounts or commissions were payable
with respect to any of the following transactions

In October 2005, the Company issued 371,364 shares of restricted common stock in
payment for accrued vacation. These shares were valued at .009 per share in a
transaction deemed exempt from registration pursuant to section 4(2) of the
Securities Act,

In October 2005, the Company issued 500,000 shares of restricted common stock in
payment for interest expense. These shares were valued at .03 per share in a
transaction deemed exempt from registration pursuant to section 4(2) of the
Securities Act,

(c) The following table provides information about purchases by us and our
affiliated purchasers during the quarter ended December 31, 2005 of equity
securities that are registered by us pursuant to Section 12 of the Securities
Exchange Act of 1934:


                                       17


<PAGE>

<TABLE>
                               ISSUER PURCHASES OF EQUITY SECURITIES

Period              (a)                (b)               (c)                     (d)
              Total Number of     Average Price    Total Number of       Maximum Number (or
                 Shares (or      Paid per Share       Shares (or      Approximate Dollar Value)
                   Units)           (or Unit)           Units)        of Shares (or Units) that
                 Purchased)                            Purchased as    May Yet Be Purchased Under
                                                         Part of       the Plans or Programs (1)
                                                      Publicly
                                                   Announced Plans
                                                   or Programs (1)
<S>                 <C>               <C>                 <C>                    <C>
10/01/05-
10/31/05            0                 $0                  0                      0

11/01/05-
11/30/05            0                 $0                  0                      0

12/01/05-
12/31/05            0                 $0                  0                      0


</TABLE>

(1) We have not entered into any plans or programs under which we may repurchase
its common stock.

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:

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

In addition, on August 4, 2004, the company entered into a loan agreement and
convertible promissory note with Fusion Capital to borrow $200,000 at annual
interest rate of 10%. The maturity date of the Note is January 31, 2005, and may
be redeemed by us at any time, but subject to Fusion Capital's right to convert
any outstanding principal and accrued interest due into our common shares. Prior
to the maturity date, the Note shall convert at $0.25 per share. After the
maturity date, the Note shall convert at a price equal to the lesser of (i) 50%
of the average of the three (3) lowest closing sale prices of the common shares
during the twelve (12) trading days prior to the submission of a conversion
notice or (ii) $0.25 per share. In connection with the Note, Fusion Capital was
issued 250,000 warrants with an exercise price of $.275 per share. If the Note
is converted immediately prior to the maturity date, the company would issue
approximately 840,000 shares of our common stock to Fusion Capital, including
interest as of the maturity date, in addition to 250,000 shares of our common
stock upon exercise of the Warrants issued to Fusion Capital pursuant to the
Note. If the Note is converted after the maturity date, the company may issue
more than 840,000 shares of our common stock to Fusion Capital, including
interest as of the conversion date. The company has registered up to 1,500,000
in connection with the conversion of the Note to preserve its option to utilize
its cash resources for purposes other than paying down the Note.

>From and after the maturity date or after the occurrence of an event of default
under the Note, the interest rate shall be increased to fifteen percent (15%)
and shall be calculated in accordance with the terms of the Note. At any time
after the maturity date, the company shall redeem Note for cash equal to 125% of
the outstanding principal plus accrued interest. As of December 31, 2005 the
note is in default.

The Company will continue to need additional capital to continue its operations
and will endeavor to raise funds through the sale of equity shares and revenues
from operations. There can be no assurance that the Company will obtain
sufficient capital or generate revenues on acceptable terms, if at all. 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.

Any additional equity financing may be dilutive to shareholders and such
additional equity securities may have rights, preferences or privileges that are
senior to those of the Company's existing common or preferred stock.
Furthermore, debt financing, if available, will require payment of interest and
may involve restrictive covenants that could impose limitations on the operating
flexibility of the Company. The failure of the Company to successfully obtain
additional future funding may jeopardize the Company's ability to continue its
business and operations.

The Company's operating and capital requirements during the next fiscal year and
thereafter will vary based on a number of factors, including: (i) the rate at
which microbial products are shipped and generate profits; (ii) the necessary
level of sales and marketing activities for environmental projects; and (iii)
the level of effort needed to develop additional distribution channels to the
point of commercial viability.


                                       18


<PAGE>

ITEM 6. EXHIBITS
(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.
-----------------------


                                       19


<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: March 13, 2006                  By: /s/ Robert C. Brehm
                                          --------------------------------------
                                          Robert C. Brehm, President and Chief
                                          Executive Officer

Date:  March 13, 2006                 By: /s/ Conrad Nagel
                                          --------------------------------------
                                          Conrad Nagel, Chief Financial Officer


                                       20