<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

|_|   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
                         For the quarter ended June 30, 2003


                              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)

                             5922-B Farnsworth Court
                           Carlsbad, California 92008
                                 (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 - 106,125,043 shares
outstanding as of July 31, 2003

                   Documents Incorporated by Reference: None.

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

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

<PAGE>

<TABLE>

PART I - FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS

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

                                                                                         AS OF              AS OF
                                                                                        JUNE 30,        SEPTEMBER 30,
                                                                                         2003               2002
ASSETS                                                                                (Unaudited)         (Audited)
                                                                                     -------------      -------------
<S>                                                                                  <C>                <C>
CURRENT ASSETS:
     Cash and cash equivalents                                                       $      5,388       $     44,520
     Accounts receivable                                                                   20,812              4,989
     Cost and Estimated Profit in Excess of Billing                                       194,836              3,818
     Contract Receivable                                                                       --             80,612
     Prepaid expenses and other assets                                                     38,403             58,951
                                                                                     -------------      -------------
          Total current assets                                                            259,439            192,890
PLANT, PROPERTY AND EQUIPMENT:
     Office Furniture and Equipment                                                       137,836            134,390
     Leasehold Improvement                                                                 14,376             14,376
     Production Equipment                                                                 159,091            159,630
     Vehicles                                                                               8,851                 --
                                                                                     -------------      -------------
                                                                                          320,154            308,396
     Less:  Accumulated Depreciation                                                     (214,461)          (176,497)
                                                                                     -------------      -------------
                                                                                          105,693            131,899
OTHER ASSETS:
     Restricted Cash                                                                      257,690            251,796
     Deposit                                                                               24,179             28,779
                                                                                     -------------      -------------
                                                                                          281,869            280,575
                                                                                     -------------      -------------
TOTAL ASSETS                                                                         $    647,001       $    605,364
                                                                                     =============      =============

LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
     Accounts payable and accrued expenses                                           $  1,301,423       $  1,602,034
     Current portion of capital lease obligation                                               --                 --
     Notes payable, related parties                                                       300,990             38,010
                                                                                     -------------      -------------
          Total current liabilities                                                     1,602,413          1,640,044

NOTES PAYABLE TO RELATED PARTIES, LONG-TERM PORTION                                        63,930             63,930

COMMITMENTS AND CONTINGENCIES                                                                  --                 --

MINORITY INTEREST                                                                         158,313             60,345

DEFICIENCY IN STOCKHOLDERS' EQUITY:
     Convertible preferred stock, $.10 par value; 20,000,000 shares authorized:
          Series II; 500,000 shares authorized; 6,244 and 6,458 shares issued
               and outstanding at June 30, 2003 and September 30, 2002,
respectively; aggregate liquidation preference of $6,244 and $6,458                           625                646
          Series B; 500,000 shares authorized; 5,522 shares issued
               and outstanding at June 30, 2003 and September 30, 2002,
respectively; aggregate liquidation preference of $5,522 and $5,522                           552                552
          Series C; 50,000 shares authorized; 16,071 and 23,521 shares issued
               and outstanding at June 30, 2003 and September 30, 2002,
respectively; aggregate liquidation preference of $1,707,100 and $2,352,100                 1,607              2,352
          Series D; 50,000 shares authorized; 10,300 shares issued and
               outstanding at June 30, 2003 and September 30, 2002,
respectively; no liquidation preference                                                     1,030              1,030
          Series E; 50,000 shares authorized; 0 and 696 shares issued and
               outstanding at June 30, 2003 and September 30, 2002, respectively
               aggregate liquidation preference of $69,600                                     --                 70
                                                                                     -------------      -------------
                                                                                            3,814              4,650

                                       1

<PAGE>

                                     U.S. MICROBICS INC. AND SUBSIDIARIES
                                     CONDENSED CONSOLIDATED BALANCE SHEETS
                                                  (Continued)

     Common stock; $.0001 par value; 150,000,000 shares
       authorized; 106,125,043 and 47,579,111 shares issued and outstanding
at June 30, 2003 and September 30, 2002, respectively                                      10,613              4,758
     Additional paid-in capital                                                        22,830,637         19,703,702
     Dividend Paid                                                                        (35,588)            (3,777)
     Discount on Preferred Stock                                                           (8,458)           (47,542)
     Treasury Stock                                                                      (117,400)          (117,400)
     Stock Subscriptions                                                               (3,885,018)        (3,818,750)
     Deferred Financing Costs                                                            (166,540)          (166,540)
     Accumulated Deficit                                                              (19,809,715)       (16,718,056)
                                                                                     -------------      -------------
          Total stockholders' Deficit                                                  (1,177,655)        (1,158,955)
                                                                                     -------------      -------------
          Total Liabilities and Deficiency in Stockholders' Equity                   $    647,001       $    605,364
                                                                                     =============      =============

                   See accompanying footnotes to the unaudited
                  condensed consolidated financial statements.
</TABLE>

                                                      2
<PAGE>
<TABLE>

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

                                                              FOR THE NINE                        FOR THE THREE
                                                          MONTHS ENDED JUNE 30,                MONTHS ENDED JUNE 30,
                                                        2003               2002               2003              2002
                                                   -------------      -------------      -------------      -------------
<S>                                                <C>                <C>                <C>                <C>
Revenues                                           $    418,772       $    152,883       $    139,117       $     79,496
Cost of revenues                                        262,206            137,970             87,300             77,505
                                                   -------------      -------------      -------------      -------------
Gross income (loss)                                     156,566             14,913             51,817              1,991

Selling, general and administrative expenses          3,397,394          2,436,515          1,022,450            970,000
                                                   -------------      -------------      -------------      -------------
Loss from operations                                 (3,240,828)        (2,421,602)          (970,633)          (968,009)

Other income (expense):
Interest (expense), net                                 (62,713)          (137,848)           (21,694)           (46,510)
Conversion benefit expense                                   --            (81,500)                --            (81,500)
Realized Gain (loss) on Sale of Securities               98,203                 --                 --                 --
                                                   -------------      -------------      -------------      -------------
                                                         35,490           (219,348)           (21,694)          (128,010)

Net Loss Before Income Taxes                         (3,205,338)        (2,640,950)          (992,327)        (1,096,019)

Minority Interest                                       155,621                 --             35,226                 --

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

Net loss                                           $ (3,049,717)      $ (2,640,950)      $   (957,101)      $ (1,096,019)
                                                   =============      =============      =============      =============

Net loss per common share (basic and diluted)      $      (0.04)      $      (0.10)      $       (.01)      $       (.04)

Weighted average common shares outstanding           72,401,731         26,694,164         72,401,731         26,694,164

                                  See accompanying footnotes to the unaudited condensed
                                           consolidated financial statements.
</TABLE>

                                                            3
<PAGE>

<TABLE>

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

                                                                              FOR THE NINE
                                                                          MONTHS ENDED JUNE 30,
                                                                         2003              2002
                                                                      ------------      ------------
<S>                                                                   <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                                           $(3,049,717)      $(2,640,950)
   Adjustment to reconcile net loss to cash used in
        operating activities:
   Depreciation                                                            38,196            39,768
   Gain on sale of asset                                                     (192)            4,833

   Gain on sales of investment                                            (98,203)               --
   Minority interest                                                     (155,621)               --
   Beneficial conversion feature                                           57,084                --
   Miscellaneous adjustment                                               (40,000)               --
   Stock, stock options, and warrants in exchange for services          2,022,340           579,334
   Employee stock options expense                                          28,604                --
   Decrease (increase) in:
         Accounts receivable                                              (15,823)           16,704
         Prepaid expenses deposits, and other assets                      (91,833)         (333,532)
   Increase (decrease) in:
         Accounts payable and accrued expenses                           (300,611)          757,695
         Dividends payable                                                 (2,170)               --
                                                                      ------------      ------------
NET CASH USED IN OPERATING ACTIVITIES                                  (1,607,946)       (1,576,148)
                                                                      ------------      ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchase of property and equipment                                     (12,297)           (3,285)
   Proceeds from sale of asset                                                500            45,000
   Proceeds from sales of investments                                     123,203                --
                                                                      ------------      ------------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES                       111,406            41,715
                                                                      ------------      ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Issuance of common, and preferred stock in private placements          888,000            50,000
   Issuance of subsidiaries' common stock in private placements           279,500                --
   Issuance of stock and warrants through equity line                          --           940,089
   Issuance of stock under employee stock options plan                     55,128                --
   Loans from related parties                                             234,780           661,490
   Repayment of notes payables                                                 --          (124,500)
   Repayment of capital lease obligation                                       --              (900)
                                                                      ------------      ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES                               1,457,408         1,526,179
                                                                      ------------      ------------

DECREASE IN CASH AND CASH EQUIVALENTS                                     (39,132)           (8,254)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                           44,520            50,600
                                                                      ------------      ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                            $     5,388       $    42,346
                                                                      ============      ============
</TABLE>

                                  See accompanying footnotes to the unaudited
                                 condensed consolidated financial statements.

                                                      4
<PAGE>
<TABLE>

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

                                                                    FOR THE NINE
                                                               MONTHS ENDED JUNE 30,
                                                                2003             2002
                                                             ------------    ------------
<S>                                                          <C>             <C>
Supplemental disclosures of non-cash
     Investing and financing activities:

Common stock issued in exchange for services                 $2,022,340      $  970,229
Discount on notes payable, related parties                       28,200              --

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

</TABLE>

                   See accompanying footnotes to the unaudited condensed
                            consolidated financial statements.

                                            5

<PAGE>

                      U.S. MICROBICS, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                  NINE MONTHS ENDED JUNE 30, 2003 AND 2002
                                   (UNAUDITED)

NOTE A - SUMMARY OF ACCOUNTING POLICIES

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 nine-month period ended June 30, 2003 are not necessarily
indicative of the results that may be expected for the year ended September 30,
2003. The unaudited condensed consolidated financial statements should be read
in conjunction with the September 30, 2002 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.

On August 2, 2000 Bio-Con Microbes formed a 98% owned Mexican corporation Natura
Agricultura, de C.V. to serve as its international marketing arm for
agricultural products and services based upon naturally occurring microorganisms
and additives. The other 2% is owned by U.S. Microbics, Inc., Bio-Con Microbes's
parent company.

In June of 2002, the Company formed USM Capital Group, Inc. (a Nevada
Corporation) as a wholly-owned subsidiary. USM Capital Group, Inc., was formed
to be the financial services division of U.S. Microbics, Inc. USM Capital Group,
Inc. provides an array of financial services for private and publicly traded
companies. USM Capital Group, Inc. helps clients go public through its Partner
Program. The Company's mission is to build shareholder value through the
successful deployment of financial services in taking companies public, and
providing administrative services thereafter.

                                       6

<PAGE>

                      U.S. MICROBICS, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                  NINE MONTHS ENDED JUNE 30, 2003 AND 2002
                                   (UNAUDITED)

Also in June of 2002, the Company formed USM Technologies, Inc., ("USMTI") as a
possible merger candidate for clients of USM Capital Group, Inc. USMTI is 60%
owned by USM Capital Group, Inc. and 40% owned by U.S. Microbics, Inc.

On June 14, 2002, the Board of Directors of the Company approved the merger of
its wholly-owned subsidiary, Applied Microbic Technology, Inc., with Capitol
Group Holdings Corporation ("CGHC"), a Nevada Corporation. Pursuant to the stock
exchange agreement, U.S. Microbics Inc. and USM Capital Group, Inc. received
2,400,000 and 2,350,000 shares of CGHC common stock, respectively. U.S.
Microbics, Inc. has announced a "spin-off" of approximately 2,175,000 shares of
common stock in CGHC to shareholders of record on July 3, 2002. The distribution
of the spin-off shares will commence after a registration is filed by CGHC with
the Securities and Exchange Commission and an effective date is declared.

On August 8, 2002 the shareholders of USMTI approved a plan of merger with
Majestic Safe-T-Products, LTD ("Majestic"), a Maryland corporation. On September
19, 2002, USM Capital Group, Inc., and U.S. Microbics, Inc. (collectively, the
"Sellers") entered into a Capital Stock Exchange Agreement with Majestic,
whereby the sellers agreed to exchange 100% of their stock holdings in USMTI for
15,000,000 common shares of Majestic. Pursuant to the Agreement, on September
19, 2002, U.S. Microbics, Inc. and USM Capital Group, Inc. received 6,000,000
and 9,000,000 shares of Majestic common stock, respectively. The 15,000,000
common shares represent a 30.15 % ownership in Majestic. U.S. Microbics, Inc.
has announced a "spin-off" of approximately 5,884,000 shares of common stock in
Majestic to shareholders of record on August 30, 2002. The distribution of the
spin-off shares will commence after a registration is filed by Majestic with the
Securities Exchange Commission and an effective date is declared.

On September 17, 2002, the Company formed USM Financial Solutions, Inc.
("USMFSI") as another possible merger candidate for clients of USM Capital
Group, Inc. USMFSI is 60% owned by USM Capital Group, Inc. and 40% owned by U.S.
Microbics, Inc.

On September 24, 2002, the shareholders of USMFSI approved a plan of merger with
Commerce Development Corporation, LTD, ("CDC"), a Maryland corporation. Also on
September 24, 2002, USM Capital Group, Inc. and U.S. Microbics, Inc.,
(collectively, the "Sellers") entered into a Capital Stock Exchange Agreement
with CDC, whereby the sellers agreed to exchange 100% of their stock holdings in
USMFI for 800,000 common shares of CDC. Pursuant to the Agreement on September
30, 2002, U.S. Microbics, Inc. and USM Capital Group, Inc. received 320,000 and
480,000 shares of CDC common stock, respectively. The 800,000 common shares
represent a 3.89 % ownership in CDC. U.S. Microbics, Inc. has announced a
"spin-off" of approximately 400,000 of its CDC common shares to shareholders of
record on October 28, 2002. To accomplish the "spin-off" USM Capital Group, Inc.
transferred 100,000 shares of CDC stock to U.S. Microbics, Inc. The distribution
of the spin-off shares will commence after a registration is filed by CDC with
the Securities Exchange Commission and an effective date is declared.

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 June 30, 2003. The
Company has no awards of stock-based employee compensation outstanding at June
30, 2003 and 2002.

RECLASSIFICATION

Certain reclassifications have been made in prior years' financial statements to
conform to classifications used in the current year. These reclassifications had
no effect on reported losses.


                                       7

<PAGE>

                      U.S. MICROBICS, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                  NINE MONTHS ENDED JUNE 30, 2003 AND 2002
                                   (UNAUDITED)


RECENT ACCOUNTING PRONOUNCEMENTS

In April 2003, the FASB issued statement No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities" ("SFAS No. 149"). SFAS No. 149
amends and clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities under FASB Statement No. 133, ACCOUNTING
FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 149 is effective for
contracts entered into or modified after June 30, 2003, and for hedging
relationships designated after June 30, 2003. The Company does not currently
have any derivative instruments, nor does the Company currently participate in
hedging activities. Therefore, the Company's adoption of SFAS No. 149, as
required, is not expected to have a material impact on the Company's
consolidated financial statements.

In May 2003, the FASB issued statement No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity"
("SFAS No. 150"). SFAS No. 150 establishes standards for classification and
measurement of certain financial instruments with characteristics of both
liabilities and equity. SFAS No. 150 is effective for financial instruments
entered into or modified after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003. The Company
will adopt SFAS No. 150 in its interim reporting as of the fourth quarter of
2003, and adoption of this statement is not expected to have a material impact
on the Company's consolidated financial statements.


NOTE B - CAPITAL STOCK EXCHANGE

On October 21, 2002, the sole officer and director of Covingham Capital
Corporation ("CCC") entered into an agreement to sell 2,100,000 of the 2,573,800
shares he owned in CCC to USM Capital Group, Inc. In continued efforts to locate
an acquisition or merger candidate, CCC also entered into a consulting agreement
with Sol Tech Corporation whereby the Company issued 800,000 shares of
restricted common stock at the price of $0.05 per share. The result was that CCC
became a 56.3% owned subsidiary of U.S. Microbics, Inc., the parent Company of
both USM Capital Group, Inc. and Sol Tech Corporation.


NOTE C - CAPITAL STOCK

Preferred Stock
---------------

The Company is authorized to issue 20,000,000 shares of preferred stock with a
par value of $.10 per share. The Company has reserved 2,727,138 shares of its
$.0001 par value common stock for conversion of preferred stock issuances. As of
June 30, 2003, there were 6,244 shares of Series A (II) preferred stock, 5,522
shares of Series B preferred stock, 16,071 shares of Series C preferred stock,
10,300 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 2,727,138 shares of common stock. As of June 30, 2003,
the Company paid $4,912 in dividends for the Series E preferred stock.

                                       8


<PAGE>

                      U.S. MICROBICS, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                  NINE MONTHS ENDED JUNE 30, 2003 AND 2002
                                   (UNAUDITED)

Common Stock
------------

The Company is authorized to issue 150,000,000 shares of common stock with a par
value of $.0001 per share. As of June 30, 2003 the Company has issued and
outstanding 106,125,043 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.

For the nine months ended June 30, 2003, the Company issued a total of
20,995,000 shares of common stock in exchange for $888,000, net of costs and
fees.

For the nine months ended June 30, 2003, the Company issued an aggregate of
24,088,530 shares of common stock to consultants in exchange for a total of
$1,625,165 of services and expenses rendered. These shares were valued at a
weighted average of $.06 per share.

For the nine months ended June 30, 2003, the Company issued an aggregate of
10,518,197 shares of common stock to employees in exchange for a total of
$397,175 of services rendered. These shares were valued at a weighted average of
$.03 per share.

For the nine months ended June 30, 2003, the Company issued an aggregate of
1,000,000 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.

For the nine months ended June 30, 2003, the Company issued an aggregate of
866,200 shares of common stock to retire 696 shares of Series E preferred stock.

For the nine months ended June 30, 2003, the Company issued an aggregate of
330,868 shares of common stock for the exercise of cashless warrants to Swartz
Private Equity, LLC.

For the nine months ended June 30, 2003, certain Series A (II) preferred
stockholders exercised their preferred stock conversion rights and the Company
issued 2,137 shares of common stock in exchange for cancellation of 214 shares
of Series II preferred stock. In addition, certain Series C preferred
stockholders exercised their preferred stock conversion rights and the Company
issued 745,000 shares of common stock in exchange for cancellation of 7,450
shares of Series C preferred stock.

NOTE D - MINORITY INTEREST

The Company's majority-owned subsidiary, USM Capital Group, Inc., issued 240,000
shares of common stock to private investors at $0.50 per share for total
proceeds of $120,000. This transaction resulted in a minority interest of
$120,000, increasing the minority interest from 22% to 37%, which reflects the
original investment by the minority shareholders of USM Capital Group, Inc. As
of June 30, 2003, the minority shareholders' share of the earnings of USM
Capital Group, Inc. is $27,645.

From October 2002 to December 2002, prior to the Capital Stock Exchange
Agreement with Sub Surface Waste Management of Nevada, Sub Surface Waste
Management of Delaware, Inc., the Company's majority-owned subsidiary, issued
98,000 shares of common stock to the Company's employees for bonus compensation,
and 402,000 shares of common stock to consultants for services rendered. These
shares were valued at $0.10 per share, which represents the fair value of the
stock issued, which did not differ materially from the value of the services
rendered. In the same period, Sub Surface Waste Management of Nevada issued
274,000 shares of common stock to private investors at $0.50 per share for total
proceeds of $129,500, net of offering costs, and 360,000 shares of Series A
preferred stock to consultants for services rendered at $.05 per share, which
represents the fair value of the stock issued, which did not differ materially
from the value of the services rendered. These transactions resulted in a
minority interest of 21.46% or $48,736 at the time of the capital stocks were
exchanged.

                                       9
<PAGE>

                      U.S. MICROBICS, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                  NINE MONTHS ENDED JUNE 30, 2003 AND 2002
                                   (UNAUDITED)

Subsequent to the Capital Stock Exchange Agreement with Sub Surface Waste
Management of Nevada, Sub Surface Waste Management of Delaware, Inc. issued an
additional 60,000 shares of common stock to a private investor at $0.50 per
share for total proceeds of $30,000. This transaction resulted in an increase of
8.24% in minority interest from 21.46% to 29.70% or an increase of $135,755 from
$48,736 to $184,491 as of June 30, 2003.

As of June 30, 2003, the minority shareholder's share of the earnings of Sol
Tech Corporation is $1,225.

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 - SUBSEQUENT EVENTS

The Company's 2003 Annual Stockholders Meeting was held on July 31, 2003 for the
stockholders to vote on the election of a board of directors, the approval of
the 2002 and 2003 Employee Stock Incentive Plans, the approval to amend the
articles of incorporation to increase the number of authorized shares of common
stock from 150,000,000 to 500,000,000 shares, and the approval to select Russell
Bedford Stefanou Mirchandani LLP as its independent public accountants for the
fiscal year ending September 30, 2003. According to the unofficial voting
results as of July 31, 2003, all proposals were approved.

                                       10

<PAGE>


                                     PART I

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

THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION
27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED. ALL FORWARD-LOOKING STATEMENTS ARE INHERENTLY
UNCERTAIN AS THEY ARE BASED ON CURRENT EXPECTATIONS AND ASSUMPTIONS CONCERNING
FUTURE EVENTS OR FUTURE PERFORMANCE OF THE COMPANY. READERS ARE CAUTIONED NOT TO
PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH ARE ONLY
PREDICTIONS AND SPEAK ONLY AS OF THE DATE HEREOF. FORWARD-LOOKING STATEMENTS
USUALLY CONTAIN THE WORDS "ESTIMATE," "ANTICIPATE," "BELIEVE," "EXPECT," OR
SIMILAR EXPRESSIONS, AND ARE SUBJECT TO NUMEROUS KNOWN AND UNKNOWN RISKS AND
UNCERTAINTIES. IN EVALUATING SUCH STATEMENTS, PROSPECTIVE INVESTORS SHOULD
CAREFULLY REVIEW VARIOUS RISKS AND UNCERTAINTIES IDENTIFIED BELOW, AS WELL AS
THE MATTERS SET FORTH IN THE COMPANY'S ANNUAL REPORT ON 10-KSB FOR THE YEAR
ENDED SEPTEMBER 30, 2002 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.

                                       11
<PAGE>

During that time frame, the Company has raised over $13,000,000 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. The State of South Carolina and Florida both have adopted
the "pay for performance" philosophy in certain environmental projects. 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 consumers 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 capital 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 2003 as measured by
the
$815,540 of contracts awarded in fiscal year 2002. Work has commenced on all
contracts. 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
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."

OVERVIEW

The Company has developed an organizational structure of multiple corporations
for the purpose of segmenting its operations into distinct units for proprietary
microbe or "bug" production, research and development ("R&D"), licensing and
patent protection and the intended sale and licensing of microbial products and
related services to specific market segments. As the public holding company, the
Company coordinates the deployment of the Microbial Technology to its
subsidiaries that in turn deliver engineered solutions to specific niche
markets.

The Company and its subsidiaries are described more fully below:


                                       12
<PAGE>

                              U.S. MICROBICS, INC.

The Company orchestrates the operations of its subsidiaries and provides
administrative functions at beneficial economies of scale. The Company continues
to raise the capital needed for successful implementation of the Microbial
technology by its subsidiaries. The Company allocates its resources among the
subsidiaries within the organizational structure. The Company provides to its
subsidiaries public relations, accounting, legal, human resources, capital
acquisition and merger and acquisition services.

In December 2001 U.S. Microbics was named one of the "Best companies to work for
in San Diego" for 2001. The San Diego Business Journal and the Ken Blanchard
Companies (One Minute Manager) made the announcement, which honors San Diego
businesses with a proven track record of providing an empowering environment to
their employees.

U.S. Microbics (BUGS) and its subsidiaries distinguished themselves as one of
the best employers in San Diego based on their ability to share power and
information throughout the organization; their employee empowerment and
involvement strategies; their altruistic vision; and their focus on customer
service and results.

BUGS' vision is to be the customer's choice for best value products and
services. The company's Pay-for-Performance strategy is an industry trendsetter
compared to the conventional time and materials, best-efforts practices of its
competitors. Another key part of its vision is to solve the customer's problem
rather than the symptoms of the problem using biotechnology solutions based upon
sound engineering practices; another first for its industry. The employees of
BUGS appreciate the opportunity in bringing a clean environment to people all
over the world .

In June of 2002, BUGS initiated an aggressive strategy of mergers/spin-offs with
environmentally oriented companies, whereby BUGS is using its dormant and newly
formed subsidiaries as a vehicle to provide new, high growth potential companies
access to public capital markets. BUGS, through its subsidiary, USM Capital
Group, Inc., will retain an equity interest in the new public companies. This
strategy could provide the following benefits: 1) significant income from the
sale of stock in newly formed public companies; 2): potential for cash liquidity
from the sale of stock in these public companies and 3): new spheres of business
for BUGS resulting from relationships with these new companies.

                      WEST COAST FERMENTATION CENTER (WCFC)

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.

                                    XYCLONYX

The XyclonyX mission is to research, develop, formulate, protect, apply,
acquire, license and transfer its technologies, consisting of patents,
proprietary knowledge, products, and processes for hydrocarbon impacted soil and
groundwater treatment and agricultural growth enhancement.

In May 2000 XyclonyX, at the request of Sub-Surface Waste Management, completed
a successful pilot program that demonstrated the efficiency of using its
proprietary microbes, (in a formulation called MTBEctomy(TM)), to treat
Methyl-Tertiary-Butyl-Ether (MTBE), a chemical compound used as a fuel additive
in gasoline, which has caused widespread and serious contamination of the
nation's drinking water supplies. Sub-Surface Waste Management's successful
engineering implementation of the treatment protocol developed by XyclonyX could
help reduce the danger that MTBE poses to human health.


                                       13
<PAGE>

While the use of MTBE as a fuel additive has helped to achieve significant
reductions in air emissions, unlike other components of gasoline, MTBE dissolves
and spreads readily in groundwater, does not degrade easily and is difficult and
costly to remove from groundwater. The U.S. Environmental Protection Agency
(EPA) is considering a limit or ban on the use of MTBE as a fuel additive. The
EPA has also endorsed the use of bioremediation for the cleanup of MTBE.

In response to the growing concerns regarding MTBE and customer requests for a
cost effective, environmentally friendly alternative for MTBE cleanup, the
XyclonyX research team under direction and supervision of Sub-Surface Waste
Management who secured groundwater samples from a confidential major west coast
retailing petroleum company's Los Angeles area Terminal operations performed a
pilot project on the client's MTBE contaminated water, fine tuning the recipe of
microbes required to treat the MTBE. The sample consisted of MTBE, Benzene,
Toluene, Ethylbenzene, and Xylene (BTEX), and gasoline with concentrations over
10,000 parts per billion. Within five days after initial microbial treatment,
non-detect (ND) levels were validated by an independent, state-certified lab.

The excellent results achieved by the research team are directly applicable
Sub-Surface Waste Management below ground cleanup of MTBE contaminated soil and
groundwater through injection of microbes and above-ground applications where
contaminated soil is processed through U.S. Microbics' patented Bio-Raptor(TM)
treatment system as well as in the patent pending bioreactivation of granular
activated carbon filtration media precluding the need for off-site thermal
reactivation treatment.

XyclonyX has filed a patent application for the "Treatment of Contaminated
Activated Charcoal" with the United States Patent Office authored by this
breakthrough technology lead developer Behzad Mirzayi, MS, P.E. Chief Engineer
of Sub-Surface Waste Management. The new invention relates to the treatment of
carbon filtration systems and the use of micro-organisms for removal of
contaminating hydrocarbons from such systems. The patent application follows
from development sponsored and directed by Sub-Surface Waste Management in
successful field trials using the BAC(TM) and Bio-GAC(TM) bioreactivation
treatment systems to on-site "bio-recycle" spent granular activated carbon at
Petroleum Refineries, Petro-chemical Facilities, Manufacturing Facilities and
large Superfund Project cleanups.

 The BAC(TM) and Bio-GAC(TM) system was developed in response to industry demand
for an economical alternative to offsite regeneration of spent carbon. Not only
is offsite regeneration expensive, it is time consuming, ties up additional
carbon inventory, and only 50 to 75% of the original carbon is returned from the
regeneration process. With the BAC(TM) system, costs for regeneration are
typically 50% less than offsite regeneration and nearly 100% of the carbon can
be regenerated to near virgin carbon standards. Bio-GAC(TM) is a new
breakthrough technology that can extend the life of "on-line" pump and treat
systems to eliminate such compounds as MTBE and other hydrocarbons from soil and
groundwater cleanups at retail service station sites nationwide. The typical
industries with direct potential beneficial use include:

         o        Local Potable water treatment companies, boards and districts
         o        Oil and Gas production, transportation, pipeline, bulking,
                  refining, distribution, retail and gas stations
         o        Commercial and industrial facilities with waste water
                  production and/or permit requirements to treat facility
                  discharges
         o        Chemical and petrochemical facilities
         o        Groundwater remediation sites


                                       14
<PAGE>

XyclonyX sole licensee of this technology, Sub-Surface Waste Management plans to
capitalize on its patent and patent-pending technology by forming strategic
alliances and joint ventures with well-established leaders in the environmental
industry. Continued revenue streams are expected through licensing of the
technology with upfront fees, ongoing royalties, professional services billings
and microbial blend sales.

In October 2001 XyclonyX's bioaugmented granular activated carbon or Bio-GAC(TM)
was nominated for the UCSD Connect "2001 Most Innovative New Product Award".
Bio-GAC(TM) is a new breakthrough technology used to extend the life of
in-service carbon filtration systems to eliminate such compounds as MTBE and
other hydrocarbons in groundwater cleanup at retail service station sites
nationwide.

                    SUB SURFACE WASTE MANAGEMENT, INC. (SSWM)

Sub Surface Waste Management, Inc., prior to July 1, 2002, was wholly owned by
U.S. Microbics, Inc. However, on December 13, 2002, the shareholder of SSWM
entered into a Capital Stock Exchange Agreement with the stockholders of
Covingham Capital Corporation's ("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 exchanged 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 56.29%
controlling interest in CCC. Covingham Capital Corporation has changed its name
to Sub Surface Waste Management of Delaware of Inc. As of December 31, 2002,
U.S. Microbics, Inc., affiliates and subsidiaries owned approximately 79% of 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.

SSWM is an environmental engineering solutions company using biotechnology to
clean up toxic waste better-faster-cheaper, and more profitably, than
conventional technology. The company competes by doing what the competition
doesn't! It eliminates the source of the contamination problem, works on a
Pay-for-Performance basis, and typically saves its customers 30 to 50% of the
cost and time to cleanup their mess.

As of June 30, 2003 SSWM has received $6,000,000 from its parent company, U.S.
Microbics. These funds have been used for contract completion as well as
identifying specific niche markets, new business development, developing new
application techniques for bioremediation and procuring engineering resources.
During the fiscal year ended September 30, 2002, SSWM was awarded cleanup
contracts of $815,540. Typical contracts range from 12 to 18 months duration and
the company receives payments as performance milestones are met.


                                       15
<PAGE>

Results of Operations

FOR THE NINE MONTHS ENDED JUNE 30, 2003 AND THREE MONTHS ENDED JUNE 30, 2003
COMPARED TO THE NINE MONTHS ENDED JUNE 30, 2002 AND THREE MONTHS ENDED JUNE 30,
2002.

The Company had revenues of $418,772 during the nine months ended June 30,
2003, a 174% increase as compared to $152,883 of revenues for the same period in
fiscal 2002. The Company had revenue of $139,117 during the three months ended
June 30, 2003, a 75% increase as compared to $79,496 of revenue for the same
period in fiscal 2002. Revenues for the nine months and three months ended June
30, 2003 and 2002 consisted primarily of contracts for bio-remediation of
hydrocarbons in contaminated soil and ground water. The cost of revenues was
$262,206 on June 30, 2003 compared to $137,970 on June 30, 2002.

For the quarter ended June 30, 2003, the Company has gross profit of $51,817
(37% of revenue) compared to a gross income of $1,991 (3% of revenue) for the
quarter ended June 30, 2002. The marked improvement is due to higher levels of
revenue being spread over fixed stand-by costs related to field work. Revenue is
recognized under the percentage of completion method, based on estimated costs
to complete.

Selling, general and administrative ("SG&A") expenses for the first three
quarters of fiscal year 2003 totaled $3,397,394 compared to $2,436,515 for the
same period in fiscal year 2002. SG&A expenses for the first three quarters of
fiscal year 2003 consisted of occupancy, payroll, accounting, and legal, and
consulting expenses.

The Company incurred a net loss of $3,049,717 and had negative cash flows from
operations of $1,607,946 for the nine months ended June 30, 2003 compared to a
net loss of $2,640,950 and negative cash flows from operations of $1,576,148 for
the nine months ended June 30, 2002. The increase in net loss of $408,767 from
the quarter ended June 30, 2003 compared to June 30, 2002, was primarily due to
common stock issued to consultants for services and increased payroll costs.
Basic and diluted net loss per share was $(.04) for the nine months ended June
30, 2003 compared to $(.10) for the nine months ended June 30, 2002. The
decrease was due to the increase in average shares outstanding of 72,401,731 for
the nine months ended June 30, 2003 compared to 26,694,164 for the corresponding
nine months ended June 30, 2002.

Although the Company is expecting to increase revenues during the next quarter
of fiscal year ended September 30, 2003, and for the fiscal year ended 2004,
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 $5,000,000 from a private placement through its
subsidiary SSWM when SSWM commences public trading of its common stock. The
private placement funds are targeted primarily for funding contract costs,
expansion of the marketing effort and for the acquisition of companies that will
increase revenues, cash flow and profits. Until SSWM is publicly trading the
Company must provide funding for the SSWM operation thru equity and debt
placement in U.S. Microbics and in its subsidiaries. There can be no assurance
that the Company or SSWM will be able to raise such capital on acceptable terms
or when SSWM will commence trading of its public stock. Failure to obtain such
capital or generate such revenues would have an adverse impact on the Company's
financial position and results of operations and ability to continue as a going
concern.

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


                                       16
<PAGE>

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

Cash and cash equivalents totaled $5,388 and $44,520 at June 30, 2003 and
September 30, 2002, respectively. Net cash used in operations was $1,607,946 for
the nine months ended June 30, 2003 compared to $1,576,148 for the comparable
period in the prior fiscal year.

During the nine months ended June 30, 2003, the Company raised $1,222,628 net of
placement fees of approximately $19,500, from issuance of common stock, an
employee stock options plan, and $234,780 from loans from related parties. As of
June 30, 2003, the Company has negative working capital of $1,342,974 as
compared to negative working capital of $1,447,154 as of September 30, 2002. The
Company is delinquent on the payment of payroll taxes in the amount of
approximately $140,000. The Company has received notification from the Internal
Revenue Service that they have put a lien on assets of the Company. The Company
will need to continue to raise funds by various financing methods such as equity
and debt instruments to maintain its operations until such time as cash
generated by operations is sufficient to meet its operating and capital
requirements.

Of the $1,301,423 in accounts payable and accrued expenses, approximately
$800,000 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 could be diverted from operating activities.

Since September 1998, the Company has raised approximately $13,000,000
principally through sales of equity securities and debt.

With the establishment of USM Capital Group, Inc. and its efforts toward
consulting and acquisitions and mergers, it has received cash proceeds of
$20,750, and $30,400 in stock from consulting contracts and $123,100 from the
sale of stock received under consulting contracts. To date the Company has also
received cash proceeds of $120,000 from the sale of its common stock valued at
$.50 a share.

The Company believes that it can generate sufficient cash through sources listed
above to continue its operations through September 30, 2003, and anticipates
that cash generated from Sub Surface Waste Management of Delaware, and projected
revenues for consulting during the next quarter of fiscal 2003 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.

                                       17
<PAGE>

While we have raised capital to meet our working capital and financing needs in
the past, additional financing is required in order to meet our current and
projected cash flow deficits from operations and development. We are seeking
financing in the form of equity in order to provide the necessary working
capital. We currently have no commitments for financing. There is no guarantee
that we will be successful in raising the funds required.

By adjusting its operations and development to the level of capitalization ,
management belives it has suffucient capital resources to meet projected cash
flow deficits through the next twelve months . However, if thereafter, we are
not successful in generating sufficient liquidity from operations or in raising
sufficient capital resources, on terms acceptable to us, this could have a
material adverse effect on our business, results of operations , liquidity and
financial condition.

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

The Company's independent certified public accountant has stated in their report
included in the Company's September 30, 2002 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.

                                       18
<PAGE>

TRENDS, RISKS AND UNCERTAINTIES

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

CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS

Our annual report on September 30, 2002 Form 10-KSB, as amended, includes a
detailed list of cautionary factors that may affect future results. Management
believes that there have been no material changes to those factors listed,
however other factors besides those listed could adversely affect us. That
annual report can be accessed on EDGAR.


                                       19
<PAGE>

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.

                                       20
<PAGE>

                           PART II - OTHER INFORMATION

ITEM 1.           LEGAL PROCEEDINGS.


In the ordinary course of business, the Company has become subject to litigation
and claims on various matters. There exists the possibility that the Company
will not prevail in all cases. However, barring unanticipated adverse final
determination in this litigation and claims, the Company does not believe that
such litigation and claims will have a material adverse effect on its financial
condition, its results of operations or its liquidity.

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

                           None


                  (a)      None

                  (b)      None

                  (c)      The Company also issued 504,900 shares of restricted
                           common stock to consultants in exchange for services.
                           These transactions were valued at approximately $0.07
                           to $0.10 per share. The issuance is considered exempt
                           from registration under Section 4(2) of the
                           Securities Act of 1933.

ITEM 3.           DEFAULTS UPON SENIOR SECURITIES.

                           None

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


                           None


                                       21
<PAGE>

ITEM 5.           OTHER INFORMATION.

                  None



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

Reports on From 8-K:

                  None

         Exhibits:

                  Exhibit 99.1 - 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 99.2 - Certification of Conrad Nagel pursuant to 18
                  U.S.C. Section 1350, as adopted to section 906 of the
                  Sarbanes-Oxley Act of 2002

                  Exhibit 99.3 - 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 99.4 - Certification of Conrad Nagel pursuant to 18
                  U.S.C. Section 1350, as adopted to section 302 of the
                  Sarbanes-Oxley Act of 2002

                                   SIGNATURES

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

                                       U.S. MICROBICS, INC.

Date: August 13, 2003   By:         /s/ Robert C. Brehm
                             ---------------------------------------------------
                                      Robert C. Brehm, President and
                                      Chief Executive Officer

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


                                       22