U.S. Securities and Exchange Commission

                             Washington, D.C. 20549

                                  Form 10-KSB/A

(Mark One)

            [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 2000

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

   For the transition period from _______________________ to ________________


                           Commission file no. 0-30997
                                              ---------


                        Hercules Development Group, Inc.
                  --------------------------------------------
                 (Name of small business issuer in its charter)

           Colorado                                           84-1508866
-------------------------------                          -------------------
(State or other jurisdiction of                          (I.R.S. Employer
incorporation or organization)                           Identification No.)


        One Belmont Avenue, Suite #417
          Bala Cynwyd, Pennsylvania                               10004
     -----------------------------------------                ------------
     (Address of principal executive offices)                  (Zip Code)

Issuer's telephone number (516) 295-3817

Securities registered under Section 12(b) of the Exchange Act:

                                                        Name of each exchange on
    Title of each class                                 which registered

           None
    -------------------                                 ------------------------

Securities registered under Section 12(g) of the Exchange Act:

                         Common Stock, $.0001 par value
                        --------------------------------
                                (Title of class)

<PAGE>

     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
                                                                     ---     ---

     Check if there is no disclosure  of  delinquent  filers in response to Item
405 of  Regulation  S-B  contained  in  this  form,  and no  disclosure  will be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]

          State issuer's revenues for its most recent fiscal year. $10,385
                                                                   -------

     Of the  31,300,000  shares of voting  stock of the  registrant  issued  and
outstanding as of March 30, 2001,  7,500,000 shares are held by  non-affiliates.
The  aggregate  market  value of the voting stock held by  non-affiliates  as of
March 30, 2001, was $28,125,000.

         Transitional Small Business Disclosure Format:  Yes         No  X
                                                               ----      -----

                                        2
<PAGE>

                                     PART I

Item 1. Description of Business.

     (a) Business Development.

     Hercules   Development  Group,  Inc.,  a  development-stage   company,  was
organized  under  the laws of the State of  Colorado  on June 30,  1999.  We are
engaged in the business of managing real estate.  As of the date of this report,
we manage only ten residential  properties located in Denver, Boulder and Niwot,
Colorado. While we intend to manage commercial, as well as residential, property
in the future, we have no commercial real estate under management as of the date
of this report. Our offices are located at One Belmont Avenue,  Suite #417, Bala
Cynwyd,  Pennsylvania  10004.  Our  telephone  and  facsimile  number  is  (516)
295-3817.

     During the period from March 15 through  April 26, 2000, we issued and sold
an aggregate of 750,000 shares  (7,500,000 shares post stock dividend) of common
stock, representing  approximately 24% of our outstanding shares of common stock
as of the date of this  report,  to a total of  fifty  persons,  all of whom are
residents of the State of Colorado,  for cash consideration totaling $75,000. We
made the  sales  in  reliance  upon the  exemption  from  registration  with the
Securities and Exchange Commission provided under Rule 504 of Regulation D under
Section 3(b) of the Securities Act of 1933 and via registration by qualification
with the Colorado Division of Securities under Section 11-51-304 of the Colorado
Uniform Securities Act.

     On March 7, 2001, we amended our Articles of  Incorporation to increase the
authorized  shares  of  common  stock  that  we have  authority  to  issue  from
30,000,000  shares,  to 50,000,000  shares,  of common stock. As a result of the
amendment, the authorized shares of common stock that we have authority to issue
increased  from  33,000,000  shares,  to 53,000,000  shares,  of capital  stock,
including  50,000,000  shares of common stock and 3,000,000  shares of preferred
stock.

     On March 14, 2001, we declared a stock dividend to  shareholders  of record
as of 8:00 a.m.,  eastern  standard time, on March 14, 2001, on the basis of ten
shares of  common  stock for each one share of  common  stock  then  issued  and
outstanding.  The payment  date and time for the stock  dividend  were March 15,
2001, at 8:00 a.m.,  eastern  standard time. As a result of the stock  dividend,
each of our  shareholders  received nine  additional  shares of common stock for
each one share of common  stock  owned of record as of the record date and time.
As of March 30, 2001, there were 31,300,000  shares of common stock  outstanding
after giving  effect to the stock  dividend.  We have never paid or declared any
cash  dividends  on  our  common  stock  and we do not  anticipate  paying  cash
dividends in the foreseeable future.

     See (b) "Business of Issuer"  immediately  below for a  description  of our
current operations and future proposed activities.

                                        3
<PAGE>

     (b) Business of the Issuer.

General
-------

     We are engaged in the business of managing real estate, with a total of ten
residential  properties located in Denver,  Boulder and Niwot,  Colorado,  under
management  as of the  date of  this  report.  While  we have  plans  to  manage
commercial,  as  well  as  residential,  property  in the  future,  we  have  no
commercial real estate under  management as of the date of this report.  We have
plans to expand the market for our residential  property  management services to
areas of Colorado in addition to the Denver,  Boulder,  and Longmont,  Colorado,
metropolitan areas presently being serviced. Additionally, we intend in the near
future to explore  opportunities  for Hercules  Development  in commercial  real
estate management throughout Colorado. While we view the ultimate market for our
real  estate  management  services as  inclusive  of the entire  United  States,
marketing efforts are necessarily  confined to Colorado presently because of our
extremely limited cash and other resources.  The implementation of our plans for
expansion is dependent upon our ability to raise significant  additional capital
from operating revenues,  which is not expected in the foreseeable future at the
current  less  than  break-even  number  of  ten  residential  properties  under
management,  or equity and/or debt financing.  Although we intend to explore all
available  alternatives  for debt and/or equity  financing,  including,  but not
limited to, private and public securities  offerings,  we cannot be certain that
we will be able to  generate  additional  capital  for  expansion  and/or  other
purposes.  In the event that only limited additional  financing is received,  we
expect  our   opportunities  in  the  residential  and  commercial  real  estate
management business to be limited.  Further, even if we succeed in obtaining the
level of funding  necessary  to  increase  revenue  through the  expenditure  of
additional funds for marketing,  advertising and/or promotion in order to obtain
a  significantly  greater  number  of  residential  and/or  commercial  property
management  contracts,  this will not ensure  our  realization  of profits  from
operations.

     We believe  that the demand for  services  provided by  residential  and/or
commercial  property  management  companies  such  as  Hercules  Development  is
increasing. This belief is based, in part, upon our observation that residential
real estate  development in certain areas of Colorado,  such as Denver,  Boulder
and  Longmont,  has recently  enjoyed  success not  experienced  since the early
1980's and the prediction of real estate industry forecasts of a continued trend
of  population  migration  into  Colorado  and,  in  particular,  the Denver and
Boulder,  Colorado,  areas during the next several  years.  We  anticipate,  but
cannot assure,  that the business contacts of Mr. Shai Stern, our sole executive
officer and director,  will yield  opportunities in the future for us to perform
property management services;  partnering, joint venture or similar arrangements
whereby we join with others having  greater  financial and other  resources than
those of Hercules Development in the management of residential and/or commercial
real estate;  and/or sources of financing for us.  Management will evaluate each
of these prospective  projects or proposals,  which may become available for our
participation,  on a case-by-case  basis. We anticipate,  but cannot be certain,
that,  even with the very limited  level of funding that may be available to us,
we will be able to obtain a limited number of property management contracts from
business contacts of Mr. Stern.

                                        4
<PAGE>

     We  provide  a wide  range of  property  management  and  customer  support
services to residential property owners on a competitive basis. While we have no
commercial  real estate under  management at the present time, the services that
management  proposes  to  offer  to  commercial  customers  are  expected  to be
substantially  similar to the residential property management services presently
offered.  We currently  offer the following four general areas of service to our
existing and prospective  customers:  (i) new tenant  placement  services;  (ii)
month-to-month   management  services  for  existing  tenants;   (iii)  re-lease
arrangements  for existing  tenants;  and (iv) tenant fee  collection and tenant
eviction services. New tenant placement services that the Company offers include
the following  services:  (a)  evaluating the property and rent  potential;  (b)
advertising  the property;  (c) showing the property to potential  tenants;  (d)
obtaining and processing applications; (e) running credit reports; (f) verifying
employment  and past rental  information;  (g)  initiating  tenant  leases;  (h)
collecting  security  deposits  and prepaid  rent;  (i) moving  tenants into the
property;  and (j) processing  utility changes.  The  month-to-month  management
services  for  residential  and  commercial  space that we furnish  include  the
following:  (i) collecting  rent; (ii) pursuing late or delinquent  rent;  (iii)
pursuing evictions;  (iv) providing notice to tenants of changes;  (v) providing
maintenance  calls;  (vi)  arranging for services from vendors and  contractors;
(vii) responding to tenants' calls and problems; (viii) keeping accounts for all
income and  expenditures;  and (xix)  disbursing owner funds  periodically.  The
re-lease  arrangements  that we furnish  include  the  following  services:  (a)
evaluating  the  property  and  market for the rate of rent to be  charged;  (b)
advising the owner  regarding  the re-lease  arrangements;  (c)  evaluating  the
existing tenant for care of the property; (d) evaluating the existing tenant for
payment history;  (e) initiating the new lease; and (f) demanding  compliance or
possession of the rented  property.  Services  related to the collection of fees
and/or the eviction of tenants,  which we furnish,  include the  following:  (i)
providing a notice to vacate to the tenant;  (ii) providing a demand for payment
or possession;  (iii) working with an attorney to obtain eviction;  (iv) placing
the  account  with  a  collection  agency;  and  (v)  demanding   compliance  or
possession.

     Three  of the ten  residential  properties  under  management  by  Hercules
Development  are owned by Mr. J. Peter  Garthwaite,  the former Chief  Executive
Officer,  director and controlling shareholder of Hercules Development,  and his
spouse.  Two of the three properties owned by Mr. and Ms. Garthwaite are located
in Boulder, Colorado. The other property they own is located in Niwot, Colorado.
Despite  the fact  that  the  Property  Management  Agreements  relating  to Mr.
Garthwaite's  properties were not negotiated on an arm's-length basis, we charge
the  identical  management  fee,  i.e.,  $50.00  per month,  for the  management
services  performed  for these  properties  as we charge for the  management  of
properties  owned by persons  unaffiliated  with us.  Additionally,  the form of
Property  Management  Agreement is virtually identical in the case of all of the
residential   properties  that  we  manage,   whether  owned  by  affiliated  or
unaffiliated persons. A number of Paragon Companies and/or Mr. Thornock, founder
of the Paragon  Companies,  are the owners of the other seven properties that we
manage. All of these residential properties are located in Denver, Colorado.

                                        5
<PAGE>

     The  term  of  the  Property  Management  Agreements   (collectively,   the
"Agreements" and, individually,  an "Agreement") relating to seven properties is
one year and the term of the Property  Management  Agreements  relating to three
properties is a period of six months. The term of the Agreements relating to the
following residential properties owned by Paragon Development XXXI, LLC, and Mr.
J. Peter and Ms. Heidi Garthwaite,  respectively,  both commence on May 1, 2000,
and terminate on April 30, 2001:  (i) 15 South Monroe Street,  Denver,  Colorado
80209,  and (ii) 2640 Juniper,  #1, Boulder,  Colorado  80304.  The terms of the
Agreements relating to the following three Denver, Colorado, properties owned by
Paragon  Development  XXV,  LLC,  Paragon  Development  XXVI,  LLC,  and Paragon
Develoment  XXXI,  LLC, and the Niwot,  Colorado,  property owned by Mr. and Ms.
Garthwaite,  respectively,  all commence on July 1, 2000:  (i) 27 South Harrison
Street, Denver,  Colorado 80207; (ii) 35 South Harrison Street, Denver, Colorado
80207; (iii) 15 South Monroe Street, Denver, Colorado 80209; and (iv) 8050 Niwot
Road, #55, Niwot,  Colorado 80501. The terms of the Agreements relating to three
Denver,  Colorado  properties,  located at 25 South Harrison  Street,  Suite #A,
Denver,  Colorado 80209,  556 and 560 St. Paul Street,  Denver,  Colorado 80207,
owned by Paragon  Development  XXVIII, LLC, Paragon Development XXXIII, LLC, and
Paragon Development XXXIV, LLC, respectively,  commence on November 1, 2000, and
terminate on April 30, 2001. The term of the Agreement  providing for management
of the  residential  property  located at 830 29th  Street,  Boulder,  Colorado,
80301,  owned by Mr. and Ms.  Garthwaite,  commences  on November  1, 2000,  and
terminates on October 31, 2001.

     The  Agreements  are  automatically  renewable  for  six-month  or one-year
periods  identical  to the initial term unless  terminated  by either party upon
thirty days' written notice. Under the Agreements, we have the responsibility to
rent,  lease,  operate  and  manage  the  properties  at  the  owners'  expense,
including,  but not limited to, advertising the premises for rent, investigating
references of prospective tenants, preparing and signing new leases, renewing or
canceling existing leases,  terminating and reinstating  tenancies,  instituting
legal  proceedings  to recover  possession of the premises or monies owed to the
owner,  compromising,  settling and/or releasing legal  proceedings and disputes
and  rendering  monthly  statements  of  receipts.  We are entitled to receive a
tenant  procurement  fee in the amount of 50% of the first  month's rent for the
acquisition  of each new tenant and a management  fee in the amount of 5% of the
monthly rent after the first month. The tenant procurement fee cannot be charged
when the  premises  are  re-leased to existing  tenants and the  management  fee
cannot be charged when the premises are vacant.  The minimum monthly  management
fee is $50 per property when the premises are occupied.

     The table  below  sets  forth the  address  of each of the ten  residential
properties  we  presently  manage,  the term of the  Agreement  relating  to the
managed  property,  the monthly  management fee that we presently  received from
each property and the monthly rent being paid for the rental of each property by
the tenant. No tenant procurement fees have been paid or are payable to Hercules
Development  in  connection  with any of the ten  residential  properties  under
management  because all of these  properties  were  occupied on the date that we
entered into the Property Management Agreement.

                                        6
<PAGE>

                                Expiration      Management         Monthly
    Address of Property           Date             Fee               Rent
----------------------------   -----------    ---------------    ------------


15 South Monroe Street
Denver, Colorado  80209        4/30/2001          $50.00         $  750.00

2460 Juniper, #1
Boulder, Colorado  80304       4/30/2001          $50.00         $  650.00

27 South Harrison Street
Denver, Colorado  80207        6/30/2001          $50.00         $1,250.00

35 South Harrison Street
Denver, Colorado  80207        6/30/2001          $50.00         $1,625.00

15 South Monroe Street
Denver, Colorado  80209        6/30/2001          $50.00         $  750.00

8050 Niwot Road, #55
Niwot, Colorado  80304         6/30/2001          $50.00         $  650.00

25 South Harrison Street, #A
Denver, Colorado  80207        10/31/2001         $50.00         $1,000.00

556 St. Paul Street
Denver, Colorado  80207        10/31/2001         $50.00         $1,000.00

560 St. Paul Street
Denver, Colorado  80207        10/31/2001         $50.00         $1,000.00

830 29th Street
Boulder, Colorado  80301       10/31/2001         $50.00         $  750.00


Competition
-----------

     The business of the management of residential and commercial real estate is
intensely competitive.  We are in competition with property management companies
of all sizes  located  both inside and outside  the United  States.  Although we
expect to compete on the basis of our  reputation  among  customers as a quality
provider of management and customer support services and, to a lesser extent, on
the basis of  price,  opportunities  to  obtain  customers  are  limited  by our
financial  resources and other assets. In this regard, many of the companies and
other  organizations  with which we are in competition  are established and have
far greater financial  resources,  substantially  greater  experience and larger
staffs  than  we do.  Additionally,  many of  these  organizations  have  proven
operating histories, which we lack. We have experienced,  and expect to continue
to face, strong competition from both these well-established companies and small
independent  companies  like  us.  There  can be no  assurance  that  we will be
successful  in  raising   additional   capital  and/or  realizing  profits  from
operations.  In  addition,  our  business  may be subject to decline  because of
generally  increasing  costs  and  expenses  of  doing  business,  thus  further
increasing anticipated competition.  Additionally,  we anticipate that there may
be significant technological advances in the future and we may not have adequate
creative  management  and  resources  to  enable  it to take  advantage  of such
advances.  The  effects of any such  technological  advances  on us,  therefore,
cannot  be  presently  determined.  As of the  date  of this  report,  we are an
inconsequential factor in the real estate management industry.

                                        7
<PAGE>

Marketing and Sales
-------------------

     Our  success  depends  in large  part  upon our  ability  to  identify  and
adequately  penetrate  the  markets  for  our  services.  Virtually  all  of our
competitors  have much larger budgets for marketing,  advertising and promotion,
as compared to Hercules  Development,  which lacks the financial,  personnel and
other   resources   required  to  compete   with  our  larger,   better-financed
competitors.  We anticipate  that our very limited  finances and other resources
may be a determinative  factor in the decision of any prospective employee as to
whether  to become  associated  with us.  Until such  time,  if ever,  as we are
successful in attracting and employing  capable  marketing and customer  support
personnel,  we intend to rely upon the  judgment  and  conclusions  of Mr.  Shai
Stern,  our  President  and  Chief  Executive  Officer,  based  solely  upon his
knowledge  and  experience  in  business,  relative  to our needs for  marketing
expertise.

Employees and Consultants
-------------------------

     We have had no full-time employees since our organization.  Mr. Shai Stern,
our sole  executive  officer and  director,  has served as a part-time  employee
since he was elected to serve as the President and Chief Executive Officer and a
director of Hercules  Development  on February  28,  2001.  From the date of our
inception on June 30, 1999,  through  February 28, 2001, Mr. J. Peter Garthwaite
served  as  our  President/Chief  Executive   Officer/Treasurer,   director  and
part-time  employee and Mr. Bradley A. Scott served as our  Secretary,  director
and part-time  employee.  Mr. Shai Stern succeeded Mr. Garthwaite in the offices
of President,  Chief  Executive  Officer and director on February 28, 2001.  The
size of the board of directors  was reduced to one member and no officers  other
than Mr. Stern were elected on February 28, 2001.

     For the foreseeable  future,  Mr. Stern will receive no compensation in any
form  for his  services  to  Hercules  Development  in all  capacities.  No cash
compensation  was awarded to, earned by or paid to either Mr.  Garthwaite or Mr.
Scott for all services  rendered in all capacities to Hercules  Development from
the date of our  organization on June 30, 1999,  through  February 28, 2001. See
Part II, Item 5. "Market for Common Equity and Related Stockholder Matters," (b)
"Recent Sales of  Unregistered  Securities,"  and Part III, Item 10.  "Executive
Compensation," and Item 12. "Certain Relationships and Related Transactions" for
information on the 1,190,000 shares  (11,900,000  shares post stock dividend) of
common  stock  (a  total of  2,380,000  shares;  23,800,000  shares  post  stock
dividend)  that we  issued  and  sold  on  June  30,  1999,  to each of  Messrs.
Garthwaite  and  Scott  for  services  they  performed  in  connection  with the
organization of Hercules Development.

     It is  anticipated  that at such time, if ever,  as our financial  position
permits,  assuming that we are  successful in raising  additional  funds through
equity and/or debt  financing  and/or  generating a sufficient  level of revenue
from operations,  Mr. Stern and any other executive officers and/or directors of
Hercules  Development  will receive  reasonable  salaries and other  appropriate
compensation,  such as bonuses,  coverage  under medical  and/or life  insurance
benefits plans and  participation in stock option and/or other profit sharing or
pension plans, for services as our executive officers. Additionally,  directors,
including  Mr. Stern and/or  others,  may receive fees for their  attendance  at
meetings  of the board of  directors.  Further,  we may pay  consulting  fees to
unaffiliated  parties who refer  properties for management,  although we have no
plans to do so and no fees of this  nature have been paid as of the date of this
report.

                                        8
<PAGE>

Item 2. Description of Property.

     We  maintain  our  offices,  pursuant  to  a  verbal  arrangement  with  an
unaffiliated  third party,  rent-free at One Belmont  Avenue,  Suite #417,  Bala
Cynwyd,  Pennsylvania  10004.  We anticipate the continued  utilization of these
facilities  on a  rent-free  basis  until  such  time,  if  ever,  as we  obtain
sufficient  funding from debt and/or equity financing and/or generate a level of
earnings  sufficient to enable us to pay rent for our present  offices or obtain
other  office  space.  The office  space we  currently  occupy is expected to be
adequate to meet our  foreseeable  future  needs.  Our  telephone  and facsimile
number is (516) 295-3817.


Item 3. Legal Proceedings.

     From time to time,  we may be  involved  in  litigation  relating to claims
arising out of our ordinary  course of business.  As of the date of this report,
we know of no legal  proceedings to which Hercules  Development is a party or to
which any of our  property is the  subject,  which are  pending,  threatened  or
contemplated or any unsatisfied judgments against us.


Item 4. Submission of Matters to a Vote of Security Holders.

     No matter was submitted  during the fourth quarter of the fiscal year ended
December  31,  2000,  covered  by this  report,  to a vote of our  shareholders,
through our solicitation of proxies or otherwise.


                                     PART II

Item 5. Market for Common Equity and Related Stockholder Matters.

     (a) Market Information, Holders and Dividends.

     Our common stock commenced  trading on the electronic  Bulletin Board under
the symbol "HDVG" on March 14, 2001.  The high and low closing bid quotations in
the  over-the-counter  market for the common stock,  as reported by the relevant
market makers during the period from March 14 through March 28, 2001,  were $.25
and $4.25. Quotations represent inter-dealer quotations,  without adjustment for
retail mark-ups,  mark-downs or commissions,  and may not necessarily  represent
actual transaction.

     As of March 30, 2001, we had approximately 25 shareholders of record of our
31,300,000 outstanding shares of common stock.

                                        9
<PAGE>

     On March 14, 2001, we declared a stock dividend to  shareholders  of record
as of 8:00 a.m.,  eastern  standard time, on March 14, 2001, on the basis of ten
shares of  common  stock for each one share of  common  stock  then  issued  and
outstanding.  The payment  date and time for the stock  dividend  were March 15,
2001, at 8:00 a.m.,  eastern  standard time. As a result of the stock  dividend,
each of our  shareholders  received nine  additional  shares of common stock for
each one share of common  stock  owned of record as of the record date and time.
As of March 30, 2001, there were 31,300,000  shares of common stock  outstanding
after giving  effect to the stock  dividend.  We have never paid or declared any
cash  dividends  on  our  common  stock  and we do not  anticipate  paying  cash
dividends in the foreseeable future.

     (b) Recent Sales of Unregistered Securities.

     On June 30, 1999,  we issued and sold  1,190,000  shares of common stock (a
total of 2,380,000  shares;  23,800,000  shares post stock  dividend) to each of
Messrs.  J. Peter Garthwaite and Bradley A. Scott in consideration  for services
performed by each individual in connection with our organization  valued at $119
in each  case (a  total  of $238 at the  rate  of  $.0001  per  share).  Messrs.
Garthwaite and Scott served as the President/Chief  Executive  Officer/Treasurer
and Secretary, respectively, and directors of Hercules Development from the date
of the company's inception on June 30, 1999, until their voluntary  resignations
on February 28, 2001. Messrs. Garthwaite and Bradley sold their 2,380,000 shares
(23,800,000   shares  post  stock   dividend)  of  common  stock,   representing
approximately 76% of our 3,130,000  (31,300,000 post stock dividend) outstanding
shares of common  stock,  to Mr.  Shai Stern,  our  President,  Chief  Executive
Officer and sole director,  on February 28, 2001. We relied,  in connection with
the sales of the  shares,  upon the  exemption  from  registration  afforded  by
Section 4(2) of the  Securities Act of 1933 and Section  11-51-308(1)(p)  of the
Colorado  Uniform  Securities Act. We relied upon the fact that our issuance and
sale of the shares did not constitute a public securities offering together with
the fact that  Messrs.  Garthwaite  and  Bradley  were our  executive  officers,
directors and  controlling  shareholders  at the time of the sales,  to make the
exemptions available.

     During the period from March 15 through  April 26, 2000, we issued and sold
an aggregate of 750,000 shares  (7,500,000 shares post stock dividend) of common
stock to a total of fifty  persons,  all of whom are  residents  of the State of
Colorado, for cash consideration totaling $75,000. We made the sales in reliance
upon the  exemption  from  registration  with the U.S.  Securities  and Exchange
Commission  provided  under Section 3(b) of the  Securities Act of 1933 and Rule
504 of Regulation D under the Securities Act of 1933,  and via  registration  by
qualification  with the Colorado  Division of Securities under Section 11-51-304
of the Colorado  Uniform  Securities Act. Our  Application  for  Registration by
Qualification became effective with the Colorado Division of Securities on March
15, 2000. No underwriter  was employed in connection  with the offering and sale
of the  shares.  The facts  that we relied  upon to make the  federal  exemption
available include, among others, the following:

     (i) The aggregate  offering  price for the offering of the shares of common
stock did not  exceed  $1,000,000,  less the  aggregate  offering  price for all
securities  sold  within  the twelve  months  before the start of and during the
offering in reliance on any exemption  under Section 3(b) of, or in violation of
Section 5(a) of, the Securities Act of 1933;

                                       10
<PAGE>

     (ii) The required number of manually executed  originals and true copies of
Form D were duly and timely filed with the Securities and Exchange Commission;

     (iii) We conducted no general  solicitation  or  advertising  in connection
with the offering of any of the shares; and

     (iv) The fact that we have not been since our inception:

          (a) Subject to the  reporting  requirements  of Section 13 or 15(d) of
     the Securities Exchange Act of 1934;

          (b) An  "investment  company"  within the  meaning  of the  Investment
     Company Act of 1940; or

          (c) A development  stage company that either has no specific  business
     plan or purpose or has  indicated  that its business plan is to engage in a
     merger or acquisition with an unidentified  company or companies,  or other
     entity or person.


Item 6. Management's Discussion and Analysis or Plan of Operation.

General
-------

     As of the date of this report, we manage ten residential properties located
in Denver, Boulder and Niwot, Colorado. Of these residential  properties,  three
properties are owned by Mr. J. Peter  Garthwaite,  a former  executive  officer,
director and controlling shareholder of Posteralley.com, and his spouse. We have
realized  only minimal  revenue and a net loss from  managing  residential  real
estate  through the date of this report.  For the year ended  December 31, 2000,
the period from  inception  (June 30, 1999) through  December 31, 1999,  and the
period from  inception  through  December 31, 2000, we realized total revenue of
$10,385, $1,900 and $12,285,  respectively,  and a net loss of $(44,354) ($(.02)
per share), $(3,820) (less than $.01 per share) and $(48,174),  respectively. Of
this  revenue,  $4,950  of  $10,385,  $1,100  of $1,900  and  $6,050 of  $12,285
represented revenue received from Mr. Garthwaite's properties. Since the date of
our  organization  on June 30,  1999,  we have  managed a total of  twenty-seven
residential properties located in Denver, Boulder, Longmont and Niwot, Colorado,
including the ten properties that we currently  manage and seventeen  properties
relating to which the Property  Management  Agreements expired during the period
from  September  1,  2000,   through  February  28,  2001.  Of  these  seventeen
residential  properties,  eight properties were owned by Mr.  Garthwaite and his
spouse (six properties) or an individual unaffiliated with us (two properties).

                                       11
<PAGE>

Plan of Operation
-----------------

     Management  has plans to expand  the market  for our  residential  property
management  services to areas of  Colorado  in addition to the Denver,  Boulder,
Longmont and Niwot,  Colorado,  metropolitan  areas  presently  being  serviced.
Additionally, management intends in the near future to explore opportunities for
Hercules  Development in commercial real estate management  throughout Colorado.
While we view the  ultimate  market for our real estate  management  services as
inclusive  of the  entire  United  States,  marketing  efforts  are  necessarily
confined to Colorado  presently  because of our extremely limited cash and other
resources.  The  implementation of our plans for expansion is dependent upon our
ability to raise  additional  capital from equity and/or debt  financing  and/or
achieve profitable operations, which is not anticipated at the current less than
break-even  level  of  approximately   fifteen   residential   properties  under
management.  Although we intend to explore all available  alternatives  for debt
and/or  equity  financing,  including,  but not limited  to,  private and public
securities  offerings,  we may not be able to  generate  additional  capital for
expansion  and/or  other  purposes.  In the event that only  limited  additional
financing  is  received,  we expect our  opportunities  in the  residential  and
commercial real estate management  business to be limited.  Further,  even if we
succeed in obtaining the level of funding  necessary to increase revenue through
the expenditure of additional funds for marketing,  advertising and/or promotion
in  order  to  obtain a  significantly  greater  number  of  residential  and/or
commercial  property  management  contracts,  this will not ensure  that we will
realize any profits from  operations.  We do not intend to hire any employees or
purchase  any  equipment  unless we are  successful  in our  efforts  to raise a
significant amount of additional capital.

Results of Operations
---------------------

Year Ended  December 31, 2000,  as Compared to Period from  Inception  (June 30,
1999) through December 31, 1999
--------------------------------------------------------------------------------

     Total revenue was $10,385,  including  $4,950 in revenue  realized from the
management  of  properties  owned by our  former  Chief  Executive  Officer  and
controlling  shareholder,  for the year ended  December 31, 2000, as compared to
total  revenue  of  $1,900,   including  $1,100  in  revenue  generated  by  Mr.
Garthwaite's  properties,  for the period from inception (June 30, 1999) through
December 31, 1999.  The limited  revenue  realized  during these  periods is the
result of our management of not more than nineteen residential properties at one
time since the date of our  organization on June 30, 1999,  through December 31,
2000.

     We incurred a net loss of $(44,354)  for the year ended  December 31, 2001,
as compared to a net loss of $(3,820)  for the period from  inception  (June 30,
1999)  through  December  31,  1999,  because of the  factors  described  below.
Operating expenses increased from $5,620 for the period from inception (June 30,
1999)  through  December  31, 1999,  to $54,775 for the year ended  December 31,
2000.  We  experienced  a sizeable  increase in all  operating  expenses  except
stock-based  compensation  for the year ended  December 31, 2000, as compared to
the period from inception  through December 31, 1999. The largest increases were
in consulting  fees,  which  increased  from $-0- for the period from  inception
through  December 31, 1999, to $30,000 for the year ended December 31, 2000, and
professional  fees,  which  increased  from $3,594 for the period from inception
through December 31, 1999, to $19,587 for the year ended December 31, 2000.

                                       12
<PAGE>


Financial Condition, Capital Resources and Liquidity
----------------------------------------------------

     As of  December  31,  2000,  we had total  current  assets in the amount of
$27,783,  total current liabilities of $2,126 and working capital of $25,657. As
a result of our  having  minimal  assets  and a deficit  accumulated  during the
development stage of $(48,174) as of December 31, 2000, our total  shareholders'
equity as of December 31, 2000, was $25,657.  There can be no assurance that our
financial condition will improve.

     Until the  successful  completion  of our offering of common stock on April
26, 2000, for net proceeds of $70,500,  we were funded exclusively by loans from
Messrs.  J. Peter Garthwaite  and  Bradley A. Scott,  our two  former  executive
officers,  directors  and principal  shareholders.  Each  individual  loaned the
Company  $5,000 in cash (a total of $10,000)  evidenced by unsecured  promissory
notes dated  November  14, 1999,  in the  principal  amounts of $5,000.00  each,
bearing interest at the rate of 8% per annum,  maturing on November 13, 2000. We
paid the  principal  balance of the  promissory  notes,  together  with  accrued
interest of $635, out of the proceeds of our common stock  offering.  Should our
efforts to raise  additional  capital through equity and/or debt financing fail,
management is expected to provide the necessary  working capital so as to permit
us to continue as a going concern.

     Net cash used in  operating  activities  was  $(40,917)  for the year ended
December 31, 2000,  because of the net loss of $(44,354)  incurred offset by the
value of office space contributed by our former Chief Executive Officer ($3,000)
and the increase in accrued liabilities of $437. For the year ended December 31,
2000, net cash provided by financing  activities was $63,593.  Cash increased by
$22,676,  from 5,107 at the  beginning  of the year to $27,783 at the end of the
year, because of the above-described factors.

Inflation
---------

     We believe that inflation has not had a material impact on our business.

Seasonality
-----------

     We do not believe that our business is seasonal.


Item 7. Financial Statements.

     The  financial  statements  of  Hercules  Development,  Inc.,  the notes to
financial  statements  and the  independent  auditors'  report of Cordovano  and
Harvey, P.C., independent certified public accountants, required by this Item 7.
commence on page F-1 and are incorporated in this report by this reference.  The
financial  statements  filed as part of this  report  are listed in the Index to
Financial Statements.


                                       13
<PAGE>


Item 8. Changes In and Disagreements with Accountants on Accounting and
        Financial Disclosure.

     We had no  independent  accountant  prior to the retention of Cordovano and
Harvey,  P.C.,  201 Steele  Street,  Suite  #300,  Denver,  Colorado  80206,  in
September 1999.  There has been no change in our independent  accountant  during
the period commencing with the retention of Cordovano and Harvey,  P.C., through
the date of this report.


                                    PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
        With Section 16(a) of the Exchange Act.

Directors and Executive Officers

     Set forth below is the name, age,  positions with Hercules  Development and
business experience of Mr. Shai Stern, our sole director and executive officer.

    Name          Age                             Title
------------      ---          ------------------------------------------------

Shai Stern        26           President, Chief Executive Officer and Director

                                       14
<PAGE>

General

     Directors hold office until the next annual meeting of our shareholders and
until their respective successors have been elected and qualify.  Officers serve
at the pleasure of the Board of  Directors.  Mr. Stern is expected to devote the
time and effort to our  business  and affairs as may be necessary to perform his
responsibilities  as an executive  officer and  director.  Set forth below under
"Business  Experience"  is a description  of Mr.  Stern's  business  experience.
Except as otherwise  indicated below, all organizations  with which he is or has
been previously employed, affiliated or otherwise associated, are not affiliated
with us.

Business Experience

     Shai Stern has served as the President,  the Chief Executive  Officer and a
     ----------
director of Hercules  Development  since  February 28, 2001. Mr. Stern serves as
the  Executive  Director of  Yazam.com,  a private  company that funds  start-up
companies with its capital together with a network of private investors, venture
capitalists  and strategic  partners.  Mr. Stern served as the Vice President of
American  Stock  Transfer & Trust Co.,  New York City,  New York,  and as a Vice
President  of AST Stock Plan Inc.,  a company  affiliated  with  American  Stock
Transfer & Trust Co. that provides  administrative  services for employee  stock
option plans.

Compliance with Section 16(a) of the Securities Exchange Act of 1934

     Section  16(a) of the  Securities  and  Exchange  Act of 1934  requires our
executive  officers  and  directors  and  persons  who own  more  than  10% of a
registered  class of our  equity  securities,  to file with the  Securities  and
Exchange  Commission  initial  statements  of  beneficial  ownership  on Form 3,
reports of changes in ownership on Form 4 and annual  reports  concerning  their
ownership  on Form  5.  Executive  officers,  directors  and  greater  than  10%
shareholders are required by the Securities and Exchange Commission  regulations
to  furnish us with  copies of all  Section  16(a)  reports  they  file.  To our
knowledge, Mr. Shai Stern, our sole executive officer, director and greater than
10%  beneficial  owner of our common stock,  has complied with the Section 16(a)
filing requirements  applicable to him during our fiscal year ended December 31,
2000.


Item 10. Executive Compensation

     No cash  compensation  has been awarded to, earned by or paid to either Mr.
Peter   J.   Garthwaite,   who   served   as   our   President/Chief   Executive
Officer/Treasurer,  director and part-time  employee,  and Mr. Bradley A. Scott,
who served as our Secretary,  director and part-time employee,  from the date of
our  inception on June 30,  1999,  through  February  28,  2001.  Mr. Shai Stern
succeeded Mr.  Garthwaite as the President,  the Chief  Executive  Officer and a
director of Hercules  Development on February 28, 2001. The size of the board of
directors  was reduced to one member and no officers  other than Mr.  Stern were
elected on February 28, 2001. For the foreseeable future, Mr. Stern will receive
no  compensation  in any form for his  services to Hercules  Development  in all
capacities.  See  Part  II,  Item 5.  "Market  for  Common  Equity  and  Related
Stockholder  Matters," (b) "Recent Sales of Unregistered  Securities,"  and Part
III, Item 12. "Certain  Relationships and Related  Transactions" for information
on the  1,190,000  (11,900,000  post stock  dividend)  shares of common stock (a
total of 2,380,000 shares; 23,800,000 shares post stock dividend) that we issued
and sold on June 30, 1999, to each of Messrs.  Garthwaite and Scott for services
they  performed in connection  with the  organization  of Hercules  Development.
Neither Messrs. Garthwaite,  Scott nor Stern holds any option to purchase any of
our securities.

                                       15
<PAGE>

     We  do  not  provide  our  officers  or  employees   with  pension,   stock
appreciation rights, long-term incentive or other plans and have no intention of
implementing any of these plans for the foreseeable  future.  In the future,  we
may offer  stock  options  to  employees,  non-employee  members of the Board of
Directors and/or  consultants;  however,  no options have been granted as of the
date of this report.  It is possible that in the future we may establish various
executive  incentive  programs and other benefits,  including  reimbursement for
expenses  incurred in connection  with our operations,  company  automobiles and
life and health insurance,  for our executive  officers and directors,  but none
has yet been granted.  The provisions of these plans and benefits will be at the
discretion of our board of directors.

Compensation of Directors

     Our directors receive no compensation  pursuant to any standard arrangement
for their services as directors.

Employment Agreements

     We have no employment  agreement with Mr. Shai Stern, our President,  Chief
Executive  Officer  and sole  director.  In the  future,  we may  enter  into an
employment agreement with Mr. Stern and/or future executive officers of Hercules
Development.

Indemnification

     Our Articles of Incorporation  include provisions to indemnify our officers
and directors and other persons against expenses,  judgments,  fines and amounts
paid in settlement in connection with threatened,  pending or completed suits or
proceedings  against  those  persons by reason of  serving  or having  served as
officers,  directors or in other capacities,  except in relation to matters with
respect to which they shall be determined not to have acted in good faith and in
our best interests. With respect to matters as to which our officers,  directors
and others are determined to be liable for  misconduct or negligence,  including
gross  negligence,  in the  performance  of their  duties to us, our Articles of
Incorporation  provide for indemnification  only to the extent that the court in
which the  action or suit is  brought  determines  that the person is fairly and
reasonably  entitled to indemnification  for those expenses that the court deems
proper.

     Our  Bylaws  provide  that we have the  power to  indemnify  any  director,
officer,  employee or agent of Hercules Development or any person serving at the
request of Hercules  Development  as a director,  officer,  employee or agent of
another corporation,  partnership,  joint venture,  trust or other enterprise to
the fullest extent permitted by the laws of the State of Colorado.

     Under  Colorado,  we may  indemnify  our officers and directors for various
expenses and damages resulting from their acting in those capacities. Insofar as
indemnification  for liabilities arising under the Securities Act of 1933 may be
permitted to our officers, directors or persons controlling us pursuant to those
provisions,  our counsel has informed us that, in the opinion of the  Securities
and Exchange  Commission,  indemnification is against public policy as expressed
in the Securities Act of 1933 and is therefore unenforceable.

                                       16
<PAGE>

Item 11. Security Ownership of Certain Beneficial Owners and Management.

     The following table sets forth certain information  regarding the ownership
of our common stock as of March 30, 2001, by each shareholder  known by us to be
the  beneficial  owner of more than five per cent of our  outstanding  shares of
common  stock,  each  director  and  executive  officer  and all  directors  and
executive  officers as a group.  Under the General Rules and  Regulations of the
Securities  and  Exchange  Commission,  a person is deemed to be the  beneficial
owner of a security  if the person has or shares the power to vote or direct the
voting, or dispose or direct the disposition,  of the security.  Mr. Shai Stern,
the only  shareholder  named in the table,  has sole voting and investment power
with respect to the shares he beneficially owns.

                                               Shares              Percentage
     Name and Address of                    Beneficially               of
       Beneficial Owner                       Owned (1)              Class (1)
--------------------------------           ----------------      ---------------

Shai Stern (2)                                23,800,000             76.04%
43 Maple Avenue
Cedarhurst, New York  11516

All Directors and Executive                   23,800,000             76.04%
Officers as a Group (One Person)

-------------------
     (1)  Represents  the number of shares of common  stock  owned of record and
beneficially  by each  named  person  or group,  expressed  as a  percentage  of
31,300,000  shares of our common  stock issued and  outstanding  as of March 30,
2001.

     (2) Sole executive officer and member of our board of directors.


Item 12. Certain Relationships and Related Transactions.

     On June 30, 1999, we issued and sold 1,190,000  shares  (11,900,000  shares
post stock  dividend) of common stock (a total of 2,380,000  shares  (23,800,000
shares  post  stock  dividend)  of common  stock) to each of  Messrs.  J.  Peter
Garthwaite and Bradley A. Scott in consideration for services  performed by each
individual in connection  with our  organization  valued at $119 in each case (a
total of $238 at the rate of $.0001 per share).  The $238 sum is included in the
accompanying financial statements of Posteralley.com as stock-based compensation
expense.  Messrs.  Garthwaite and Scott served as the President/Chief  Executive
Officer/Treasurer  and  Secretary,   respectively,  and  directors  of  Hercules
Development  from the date of the  company's  inception on June 30, 1999,  until
their voluntary resignations on February 28, 2001. Messrs.  Garthwaite and Scott
sold their  2,380,000  (23,800,000  post stock  dividend) total shares of common
stock,  representing  approximately 76% of our 3,130,000  (31,300,000 post stock
dividend)  outstanding shares of common stock, to Mr. Shai Stern, our President,
Chief Executive Officer and sole director, on February 28, 2001.

                                       17
<PAGE>

     On July 13, 1999, each of Messrs. Garthwaite and Scott loaned us the sum of
$5,000 (a total of $10,000);  which loans were evidenced by unsecured promissory
notes dated  November  14, 1999,  in the  principal  amount of  $5,133.33  each,
bearing interest at the rate of 8% per annum, due November 13, 2000. We paid the
principal  balance of the promissory  notes and accrued  interest of $635 out of
the proceeds of our offering of common stock completed April 26, 2000.

     Three of the ten residential  properties presently under our management are
owned by Mr. Garthwaite,  a former executive  officer,  director and controlling
shareholder  of  Posteralley,  and  his  spouse.  Of  the  nineteen  residential
properties  that we managed during our last fiscal year ended December 31, 2000,
the Property  Management  Agreements  on seventeen of which  properties  expired
during the period from  September  1, 2000,  through  February  28,  2001,  nine
properties were owned by Mr. Garthwaite and his spouse (seven  properties) or an
individual unaffiliated with us (two properties). Of these nine properties owned
by our former Chief  Executive  Officer and  controlling  shareholder,  only the
Property  Management  Agreement on one Boulder,  Colorado,  property  remains in
force.  Despite the fact that the  Property  Management  Agreements  relating to
these  properties  were not  negotiated at  arm's-length,  the basic form of the
agreements is identical to that of the Property  Management  Agreements relating
to the properties that we manage for unaffiliated  persons.  Further, we receive
the  identical  management  fee,  i.e.,  $50.00  per month,  for the  management
services performed for the properties owned by Mr. Garthwaite as we receive from
unaffiliated  owners of properties  under our management.  Through  December 31,
2000, we had received a total of $6,050 in management  fees from the  management
of Mr. Garthwaite's properties. See Part I, Item. 1(b) "Business of Issuer," for
a more  detailed  description  of  the  properties  that  we  currently  manage,
including three properties for Mr. Garthwaite.

     Goodacre  &  Company,  LLC,  a  company  with  which  Mr.  Garthwaite  is a
broker-associate,  provided office space, located at 2121 30th Street,  Boulder,
Colorado  80301-1118,  to us rent-free from the date of our organization on June
30, 1999,  through  February 28, 2001. The $250.00 per month value of the office
space is included in our Financial  Statements  that commence on page F-1 hereof
as rent expense with a corresponding  credit to additional paid-in capital.  See
Part  I,  Item  3.  "Property,"  for  a  more  detailed   description  of  these
arrangements.

     In April 2000, we repaid a total of $321 in administrative expenses paid by
Mr. Garthwaite on our behalf.


Item 13. Exhibits and Reports on Form 8-K.

     (a) The exhibits  required by Item 601 of  Regulation  S-B, as described in
the  following  index of exhibits,  are  incorporated  by reference in, or filed
with, this report, as follows:

                                       18
<PAGE>

Item
Number                              Description
------  ------------------------------------------------------------------------
3.1     Articles of Incorporation of Hercules Development Group, Inc., filed
        June 30, 1999. (Incorporated herein by reference to Exhibit 3.1 to the
        Registration Statement on Form 10-SB, File No. 000-30997, filed July 12,
        2000.)

3.2     Bylaws of Hercules Development Group, Inc. (Incorporated herein by
        reference to Exhibit 3.2 to the Registration Statement on Form 10-SB,
        File No. 000-30997, filed July 12, 2000.)

4.0*    Form of stock certificate.

10.1*   Fund Escrow Agreement dated December 2, 1999, between Hercules
        Development, Inc., and FirstBank of Boulder, N.A.

10.3    Promissory Note dated November 14, 1999, from Hercules Development
        Group, Inc., as the maker, to Peter J. Garthwaite, as the holder, in
        the principal amount of $5,000 due November 13, 2000, bearing interest
        at the rate of eight per cent per annum. (Incorporated herein by
        reference to Exhibit 10.1 to the Registration Statement on Form 10-SB,
        File No. 000-30997, filed July 12, 2000.)

10.4    Promissory Note dated November 14, 1999, from Hercules Development
        Group, Inc., as the maker, to Bradley A. Scott, as the holder, in the
        principal amount of $5,000 due November 13, 2000, bearing interest at
        the rate of eight per cent per annum. (Incorporated herein by reference
        to Exhibit 10.2 to the Registration Statement on Form 10-SB,
        File No. 000-30997, filed July 12, 2000.)

10.5    Property Management Agreement dated September 2, 1999, relating to
        1606 Cottonwood, Unit #8, Louisville, Colorado 80027, between Mr.
        Peter Garthwaite and Ms. Heidi Garthwaite, as the owners, and Hercules
        Development Group, Inc., as the agent. (Incorporated herein by reference
        to Exhibit 10.3 to the Registration Statement on Form 10-SB,
        File No. 000-30997, filed July 12, 2000.)

10.6    Property Management Agreement dated September 2, 1999, relating to 1608
        Cottonwood, Unit #10, Louisville, Colorado 80027, between Mr. Peter and
        Ms. Heidi Garthwaite, as the owners, and Hercules Development Group,
        Inc., as the agent. (Incorporated herein by reference to Exhibit 10.4
        to the Registration Statement on Form 10-SB, File No. 000-30997, filed
        July 12, 2000.)

10.7    Property Management Agreement dated September 2, 1999, relating to
        1611 Garfield Drive, Unit #11, Louisville, Colorado 80027, between
        Mr. Peter and Ms. Heidi Garthwaite, as the owners, and Hercules
        Development Group, Inc., as the agent. (Incorporated herein by
        reference to Exhibit 10.5 to the Registration Statement on Form
        10-SB, File No. 000-30997, filed July 12, 2000.)

                                       19
<PAGE>

10.8    Property Management Agreement dated September 2, 1999, relating to 2707
        Valmont, Unit #116A, Boulder, Colorado 80304, between Mr. Peter and Ms.
        Heidi Garthwaite, as the owners, and Hercules Development Group, Inc.,
        as the agent. (Incorporated herein by reference to Exhibit 10.6 to the
        Registration Statement on Form 10-SB, File No. 000-30997, filed
        July 12, 2000.)

10.9    Property Management Agreement dated August 31, 1999, relating to 544
        Cook Street, Denver, Colorado 80207, between Paragon Development XX,
        LLC, as the owner, and Hercules Development Group, Inc., as the agent.
        (Incorporated herein by reference to Exhibit 10.7 to the Registration
        Statement on Form 10-SB, File No. 000-30997, filed July 12, 2000.)

10.10   Property Management Agreement dated December 1, 1999, relating to 1611
        Garfield Drive, Unit #23, Louisville, Colorado 80027, between Mr. Peter
        Garthwaite and Ms. Marcia Cotlar, as the owners, and Hercules
        Development Group, Inc., as the agent. (Incorporated herein by
        reference to Exhibit 10.8 to the Registration Statement on Form
        10-SB, File No. 000-30997, filed July 12, 2000.)

10.11   Property Management Agreement dated December 1, 1999, relating to 614
        Grant Street, Louisville, Colorado 80027, between Mr. Peter Garthwaite
        and Ms. Marcia Cotlar, as the owners, and Hercules Development Group,
        Inc., as the agent. (Incorporated herein by reference to Exhibit
        10.9 to the Registration Statement on Form 10-SB, File No. 000-30997,
        filed July 12, 2000.)

10.12   Property Management Agreement dated December 3, 1999, relating to 5
        South Jackson Street, Denver, Colorado 80209, between Paragon
        Development XVIII, LLC, as the owner, and Hercules Development Group,
        Inc., as the agent. (Incorporated herein by reference to Exhibit 10.10
        to the Registration Statement on Form 10-SB, File No. 000-30997,
        filed July 12, 2000.)

10.13   Property Management Agreement dated December 3, 1999, relating to 11
        South Jackson Street, Denver, Colorado 80209, between Paragon
        Development XIX, LLC, as the owner, and Hercules Development Group,
        Inc., as the agent. (Incorporated herein by reference to Exhibit 10.11
        to the Registration Statement on Form 10-SB, File No. 000-30997, filed
        July 12, 2000.)

10.14   Property Management Agreement dated December 2, 1999, relating to 1625
        Larimer Street, Unit #3108, Denver, Colorado 80209, between Mr. Jeffrey
        Lee, as the owner, and Hercules Development Group, Inc., as the agent.
        (Incorporated herein by reference to Exhibit 10.12 to the Registration
        Statement on File No. 000-30997, filed July 12, 2000.)

10.15   Property Management Agreement dated February 1, 2000, relating to 2
        South Madison Street, Denver, Colorado 80209, between Paragon
        Development XXI, LLC, as the owner, and Hercules Development Group,
        Inc., as the agent. (Incorporated herein by reference to Exhibit 10.13
        to the Registration Statement on Form 10-SB, File No. 000-30997, filed
        July 12, 2000.)
                                       20
<PAGE>

10.16   Property Management Agreement dated February 1, 2000, relating to 14
        South Madison Street, Denver, Colorado 80209, between Paragon
        Development XXII, LLC, as the owner, and Hercules Development Group,
        Inc., as the agent. (Incorporated herein by reference to Exhibit 10.14
        to the Registration Statement on Form 10-SB, File No. 000-30997, filed
        July 12, 2000.)

10.17   Property Management Agreement dated March 1, 2000, relating to 2707
        Valmont, Unit #308A, Boulder, Colorado 80304, between Mr. Peter and Ms.
        Heidi Garthwaite, as the owners, and Hercules Development Group, Inc.,
        as the agent. (Incorporated herein by reference to Exhibit 10.15 to the
        Registration Statement on Form 10-SB, File No. 000-30997, filed
        July 12, 2000.)

10.18   Property Management Agreement dated May 1, 2000, relating to 15
        South Monroe Street, Denver, Colorado 80209, between Paragon Development
        XXXI, LLC, as the owner, and Hercules Development Group, Inc., as the
        agent. (Incorporated herein by reference to Exhibit 10.16 to the
        Registration Statement on Form 10-SB, File No. 333-53002, filed
        December 29, 2000.)

10.19   Property Management Agreement dated May 1, 2000, relating to 2640
        Juniper, #1, Boulder, Colorado 80304, between Mr. Peter and Ms. Heidi
        Garthwaite, as the owners, and Hercules Development Group, Inc., as the
        agent.  (Incorporated herein by reference to Exhibit 10.17 to the
        Registration Statement on Form 10-SB, File No. 000-30997, filed
        July 12, 2000.)

10.20*  Property Management Agreement dated September 1, 1999, relating to 1953
        Centennial Drive, Louisville, Colorado 80027, between Mr. Peter and Ms.
        Heidi Garthwaite, as the owners, and Hercules Development Group, Inc.,
        as the agent.

10.21*  Property Management Agreement dated September 1, 1999, relating to 251
        South Jackson Street, Denver, Colorado 80209, between Paragon
        Development XI, LLC, and Mr. Scott Thornock, as the owners, and Hercules
        Development Group, Inc., as the agent.

10.22*  Property Management Agreement dated September 1, 1999, relating to 167
        South Jackson Street, Denver, Colorado 80209, between Paragon
        Development XVI, LLC, and Mr. Scott Thornock, as the owners, and
        Hercules Development Group, Inc., as the agent.

10.23*  Property Management Agreement dated September 1, 1999, relating to 35
        South Monroe Street, Denver, Colorado 80209, between Paragon Development
        XVII, LLC, and Mr. Scott Thornock, as the owners, and Hercules
        Development Group, Inc., as the agent.

                                       21
<PAGE>

10.24*  Property Management Agreement dated July 1, 2000, relating to 27 South
        Harrison Street, Denver, Colorado 80207, between Paragon Development
        XXV, LLC, as the owner, and Hercules Development Group, Inc., as the
        agent.

10.25*  Property Management Agreement dated July 1, 2000, relating to 35 South
        Harrison Street, Denver, Colorado 80207, between Paragon Development
        XXVI, LLC, as the owner, and Hercules Development Group, Inc., as the
        agent.

10.26*  Property Management Agreement dated July 1, 2000, relating to 15 South
        Monroe Street, Denver, Colorado 80209, between Paragon Development XXXI,
        LLC, as the owner, and Hercules Development Group, Inc., as the agent.

10.27*  Property Management Agreement dated July 1, 2000, relating to 8050 Niwot
        Road, #55, Niwot, Colorado 80501, between Mr. Peter and Ms. Heidi
        Garthwaite, as the owners, and Hercules Development Group, Inc., as the
        agent.

10.28*  Property Management Agreement dated November 1, 2000, relating to 25
        South Harrison Street, Suite #A, Denver, Colorado 80209, between Paragon
        Development XXVIII, LLC, as the owner, and Hercules Development Group,
        Inc., as the agent.

10.29*  Property Management Agreement dated November 1, 2000, relating to
        556 St. Paul Street, Denver, Colorado 80207, between Paragon Development
        XXXIII, LLC, as the owner, and Hercules Development Group, Inc., as the
        agent.

10.30*  Property Management Agreement dated November 1, 2000, relating to 560
        St. Paul Street, Denver, Colorado 80207, between Paragon Development
        XXXIV, LLC, as the owner, and Hercules Development Group, Inc., as the
        agent.

10.31*  Property Management Agreement dated November 1, 2000, relating to 830
        29th Street, Boulder, Colorado 80301, between Mr. Peter and Ms. Heidi
        Garthwaite, as the owners, and Hercules Development Group, Inc., as the
        agent.

------------------
*Filed herewith.

     (b) No reports on Form 8-K were filed during the last quarter of the fiscal
year ended December 31, 2000, covered by this report.

                                       22
<PAGE>

                                   SIGNATURES

     In accordance  with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                           HERCULES DEVELOPMENT, INC.



Date:  April 25, 2001       By: /s/ Shai Stern
                                ----------------------------------------
                                Shai Stern, President, Chief Executive Officer
                                and Director

     In  accordance  with the Exchange Act, this report has been signed below by
the following  person on behalf of the  registrant  and in the capacities and on
the date indicated.



Date:  April 25, 2001       By: /s/ Shai Stern
                                ----------------------------------------
                                Shai Stern, President, Chief Executive Officer
                                and Director


                                       23
<PAGE>

                        HERCULES DEVELOPMENT GROUP, INC.
                          (A Development Stage Company)

                          Index to Financial Statements

                                                                           Page
                                                                           -----

Independent auditors' report .............................................   F-2

Balance sheet, December 31, 2000 .........................................   F-3

Statements of operations, for the year ended December 31, 2000, from
     June 30, 1999 (inception) through December 31, 1999, and from
     June 30, 1999 (inception) through December 31, 2000 .................   F-4

Statement of shareholders' equity (deficit), June 30, 1999 (inception)
     through December 31, 2000 ...........................................   F-5

Statements of cash flows, for the year ended December 31, 2000, from
     June 30, 1999 (inception) through December 31, 1999, and from
     June 30, 1999 (inception) through December 31, 2000 .................   F-6

Summary of significant accounting policies ...............................   F-7

Notes to financial statements ............................................   F-9

<PAGE>

                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders
Hercules Development Group, Inc.


We have  audited  the  balance  sheet of  Hercules  Development  Group,  Inc. (a
development  stage company) as of December 31, 2000, and the related  statements
of operations,  shareholders'  equity  (deficit),  and cash flows,  for the year
ended  December  31,  2000,  the period from June 30, 1999  (inception)  through
December 31, 1999 and the period from June 30, 1999 (inception) through December
31, 2000.  These financial  statements are the  responsibility  of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United  States.  Those  standards  require  that we plan and  perform the
audits to obtain reasonable assurance about whether the financial statements are
free of material  misstatement.  An audit includes  examining,  on a test basis,
evidence supporting the amounts and disclosures in the financial statements.  An
audit also includes  assessing the accounting  principles  used and  significant
estimates  made by  management,  as well as  evaluating  the  overall  financial
statement  presentation.  We believe that our audits provide a reasonable  basis
for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the financial  position of Hercules  Development Group,
Inc. as of December 31,  2000,  and the results of its  operations  and its cash
flows for the year  ended  December  31,  2000,  the period  from June 30,  1999
(inception)  through  December  31,  1999 and the  period  from  June  30,  1999
(inception) through December 31, 2000, in conformity with accounting  principles
generally accepted in the United States.


/s/ Cordovano and Harvey, P.C.
---------------------------------
Cordovano and Harvey, P.C.
Denver, Colorado
March 16, 2001

                                       F-2
<PAGE>

                        HERCULES DEVELOPMENT GROUP, INC.
                          (A Development Stage Company)

                                  Balance Sheet

                                December 31, 2000

ASSETS

Current assets:
     Cash ...........................................................  $ 27,783
                                                                       --------
                                                 Total current assets  $ 27,783
                                                                       ========


LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

Current liabilities:
     Accounts payable and accrued liabilities .......................  $  2,126
                                                                       --------
                                            Total current liabilities     2,126
                                                                       --------

Shareholders' equity (deficit) (Note D):
     Preferred stock, $.001 par value, 3,000,000 shares authorized;
        -0- and -0- shares issued and outstanding, respectively .....         -
     Common stock, $.0001 par value; 30,000,000 shares
        authorized; 3,130,000 shares issued and outstanding .........       313
     Additional paid-in capital (Note B) ............................    73,518
     Deficit accumulated during development stage ...................   (48,174)
                                                                       --------
                                 Total shareholders' equity (deficit)    25,657
                                                                       --------
                                                                       $ 27,783
                                                                       ========

               See accompanying summary of significant accounting
                 policies and notes to the financial statements.

                                       F-3
<PAGE>


<TABLE>

                 HERCULES DEVELOPMENT GROUP, INC.
                   (A Development Stage Company)

                     Statements of Operations
<CAPTION>

                                                                                           June 30,            June 30,
                                                                                             1999                1999
                                                                        For the          (Inception)         (Inception)
                                                                      Year Ended           Through             Through
                                                                     December 31,        December 31,        December 31,
                                                                         2000                1999                2000
                                                                     ------------        ------------        ------------

<S>                                                                  <C>                 <C>                <C>
Revenue:
     Property management fees, related party (Note B) .............  $     4,950         $     1,100         $     6,050
     Property management fees, other ..............................        5,435                 800               6,235
                                                                     ------------        ------------        ------------
                                                      Total revenue       10,385               1,900              12,285
                                                                     ------------        ------------        ------------

Operating expenses:
     Professional fees ............................................       19,587               3,594              23,181
     Rent (Note B) ................................................        3,000               1,500               4,500
     Stock-based compensation (Notes B and E):
         Organization services ....................................            -                 238                 238
         Legal ....................................................            -                 120                 120
     Consulting fees ..............................................       30,000                   -              30,000
     Other ........................................................        2,188                 168               2,356
                                                                     ------------        ------------        ------------
                                           Total operating expenses      (54,774)             (5,620)            (60,395)
                                                                     ------------        ------------        ------------
                                                     Operating loss      (44,390)             (3,720)            (48,110)

Other income (expense):
     Interest income ..............................................          571                   -                 571
     Interest expense, related parties (Notes B and C) ............         (535)               (100)               (635)
                                                                     ------------        ------------        ------------
                                           Loss before income taxes      (44,354)             (3,820)            (48,174)

Provision for income taxes (Note D) ...............................            -                   -                   -
                                                                     ------------        ------------        ------------

                                                           Net loss  $   (44,354)        $    (3,820)        $   (48,174)
                                                                     ============        ============        ============

Basic and diluted loss per common share ...........................  $     (0.02)        $        *
                                                                     ============        ============
Basic and diluted weighted average common
     shares outstanding ...........................................    2,926,250           2,495,000
                                                                     ============        ============
</TABLE>

        * Less than $.01 per share

               See accompanying summary of significant accounting
                 policies and notes to the financial statements.

                                       F-4
<PAGE>

<TABLE>

                        HERCULES DEVELOPMENT GROUP, INC.
                          (A Development Stage Company)

                   Statement of Shareholders' Equity (Deficit)

               June 30, 1999 (Inception) through December 31, 2000
<CAPTION>

                                                                                                                Deficit
                                                                                                                Accumulated
                                              Preferred Stock       Common Stock         Additional   Deferred  During
                                             -----------------  ----------------------   Paid-in      Offering  Development
                                             Shares  Par Value    Shares     Par Value   Capital      Costs     Stage         Total
                                             ------  ---------  -----------  ---------   -----------  --------  ----------- --------

<S>                                          <C>     <C>        <C>          <C>         <C>          <C>       <C>          <C>
Balance, June 30, 1999 (inception) ..........    -   $    -            -          -      $     -      $   -           -     $   -
June 30, 1999, shares issued to officers in
   in exchange for services related to the
   organization of the Company
   ($.0001/share) (Notes B and D) ...........    -        -      2,380,000        238          -          -           -         238
July 7, 1999, shares issued in exchange for
   legal services ($.001/share) (Note D) ....    -        -        120,000         12          108        -           -         120
July 13, 1999, offering costs incurred ......    -        -            -          -            -       (4,500)        -      (4,500)
Office space contributed by Company's
   president (Note B) .......................    -        -            -          -          1,500        -           -       1,500
Net loss for the period from June 30, 1999
   (inception) through December 31, 1999 ....    -        -            -          -            -          -        (3,820)   (3,820)
                                             ------  ---------  -----------  ---------   -----------  --------  ----------- --------
                 Balance, December 31, 1999      -        -      2,500,000        250        1,608     (4,500)     (3,820)   (6,462)

February 14, 2000, cancellation of shares
   previously issued in exchange for legal
   services ($.001/share) (Note D) ..........    -        -       (120,000)       (12)        (108)       -          -         (120)
April 24, 2000, common stock sold pursuant
   to a private placement, less offering
   costs of $5,907 ($.10/share) (Note D) ....    -        -        750,000         75       69,018      4,500        -       73,593
Office space contributed by Company's
   president (Note B) .......................    -        -            -          -          3,000        -          -        3,000
Net loss for the year ended
   December 31, 2000 ........................    -        -            -          -            -          -       (44,354)  (44,354)
                                             ------  ---------  -----------  ---------   -----------  --------  ----------- --------
                 Balance, December 31, 2000  $   -        -      3,130,000   $    313    $  73,518    $   -     $ (48,174)  $25,657
                                             ======  =========  ===========  =========   ===========  ========  =========== ========
</TABLE>



               See accompanying summary of significant accounting
                 policies and notes to the financial statements.

                                       F-5
<PAGE>


<TABLE>

                 HERCULES DEVELOPMENT GROUP, INC.
                  (A Development Stage Company)

                     Statements of Cash Flows
<CAPTION>

                                                                                           June 30,            June 30,
                                                                                             1999                1999
                                                                        For the          (Inception)         (Inception)
                                                                      Year Ended           Through             Through
                                                                     December 31,        December 31,        December 31,
                                                                         2000                1999                2000
                                                                     ------------        ------------        ------------
Cash flows from operating activities:
<S>                                                                  <C>                 <C>                <C>
     Net loss ................................................       $   (44,354)        $   (3,820)         $ (48,174)
     Transactions not requiring cash:
        Common stock issued to officers in exchange
           for services (Notes B and D) ......................                 -                238                238
        Common stock issued to attorney in exchange
           for legal services, subsequently cancelled (Note D)              (120)               120                  -
        Office space contributed by the Company's
           president (Note B) ................................             3,000              1,500              4,500
        Changes in operating liabilities:
           Increase in accrued liabilities ...................               557              1,569              2,126
                                                                     ------------        ------------        ------------
                         Net cash used in operating activities           (40,917)              (393)           (41,310)
                                                                     ------------        ------------        ------------

Cash flows from financing activities:
     Proceeds from notes payable (Note B) ....................                 -             10,000             10,000
     Repayment of notes payable (Note B) .....................           (10,000)                 -            (10,000)
     Proceeds from sale of stock (Note D) ....................            75,000                  -             75,000
     Payments for offering costs .............................            (1,407)            (4,500)            (5,907)
                                                                     ------------        ------------        ------------
                     Net cash provided by financing activities            63,593              5,500             69,093
                                                                     ------------        ------------        ------------

Net change in cash ...........................................            22,676              5,107             27,783
Cash and cash equivalents, beginning of period ...............             5,107                  -                  -
                                                                     ------------        ------------        ------------
                                           Cash, end of period       $    27,783         $    5,107          $  27,783
                                                                     ============        ============        ============

Supplemental disclosure of cash flow information: Cash paid
  during the period
     for:
        Interest .............................................       $       635         $        -          $     635
                                                                     ============        ============        ============
        Income taxes .........................................       $         -         $        -          $       -
                                                                     ============        ============        ============
     Non-cash financing transactions:
        Cancellation of shares previously issued for
           legal services ....................................       $       120         $        -          $     120
                                                                     ============        ============        ============
</TABLE>
               See accompanying summary of significant accounting
                 policies and notes to the financial statements.

                                       F-6
<PAGE>

                        HERCULES DEVELOPMENT GROUP, INC.
                          (A Development Stage Company)

                   Summary of Significant Accounting Policies


Development stage company

Hercules  Development Group, Inc. (the "Company") is in the development stage in
accordance with Financial  Accounting  Standards  Board  Statements of Financial
Accounting Standards (SFAS) No. 7 "Accounting and Reporting by Development Stage
Enterprises".

Use of estimates

The  preparation  of the  financial  statements  in  conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  affect  the  reported  amounts of  assets,  liabilities,  and
contingent  assets and  liabilities at the date of the financial  statements and
the  reported  amounts of revenues  and expenses  during the  reporting  period.
Actual results could differ from those estimates.

Cash

For the  purposes of the  statement  of cash flows,  the Company  considers  all
highly  liquid debt  instruments  purchased  with an original  maturity of three
months or less to be cash  equivalents.  The Company had no cash  equivalents at
December 31, 2000.

Revenue and cost recognition

In accordance with Securities and Exchange  Commission Staff Accounting Bulletin
No. 101, "Revenue  Recognition," the Company  recognizes revenue once all of the
following are met:

        a)  Persuasive evidence of an arrangement exists;
        b)  Service has been provided;
        c)  The customer's purchase price is fixed; and
        d)  Collectibility is reasonably assured.

Income taxes

Income taxes are provided  for the tax effects of  transactions  reported in the
financial  statements  and consist of taxes  currently due plus  deferred  taxes
related  primarily to  differences  between the recorded  book basis and the tax
basis of assets and  liabilities  for  financial and income tax  reporting.  The
deferred tax assets and liabilities represent the future tax return consequences
of those differences, which will either be taxable or deductible when the assets
and liabilities are recovered or settled. Deferred taxes are also recognized for
operating  losses that are  available to offset  future  taxable  income and tax
credits that are available to offset future federal income taxes.

Deferred offering costs

The  Company  incurred  legal,  accounting,  and  printing  fees  related to the
preparation of an offering  memorandum  during the periods presented (see Note F
for details of the offering).  Costs associated with the proposed  offering were
deducted from the gross proceeds at the offering's conclusion.

                                       F-7
<PAGE>

                        HERCULES DEVELOPMENT GROUP, INC.
                          (A Development Stage Company)

                   Summary of Significant Accounting Policies

Stock-based compensation

The Company  follows  Accounting  Principles  Board Opinion 25,  "Accounting for
Stock Issued to Employees"  (APB 25) and related  Interpretations  in accounting
for its employee stock options and follows the disclosure provisions of SFAS No.
123, "Accounting for Stock-Based Compensation" (SFAS 123).

The  Company  has  elected  to  continue  to  determine  the  value of  employee
stock-based  compensation  arrangements  under the  provisions of APB 25. No pro
forma disclosures have been included with the accompanying  financial statements
as there was no pro forma effect to the Company's net loss or loss per share.

Earnings/(loss) per share

The  Company  reports  loss per  share  using a dual  presentation  of basic and
diluted loss per share. Basic loss per share excludes the impact of common stock
equivalents.  Diluted loss per share utilizes the average market price per share
when applying the treasury stock method in determining common stock equivalents.
However,  the Company has a simple  capital  structure for the period  presented
and,  therefore,  there is no variance  between  the basic and diluted  loss per
share.

Fair value of financial instruments

SFAS 107,  "Disclosure  About Fair  Value of  Financial  Instruments,"  requires
certain  disclosures  regarding  the fair value of  financial  instruments.  The
carrying amounts of cash and current  liabilities  approximate fair value due to
the short-term maturity of the instruments. The Company has determined, based on
available  market  information  and  appropriate  valuation  methodologies,  the
carrying value of its notes payable approximate fair value.

                                       F-8
<PAGE>

                        HERCULES DEVELOPMENT GROUP, INC.
                          (A Development Stage Company)

                        Notes to the Financial Statements

NOTE A: BACKGROUND

The Company was  incorporated  under the laws of Colorado on June 30, 1999.  The
Company is engaged in the property management business. The principal activities
since  inception  have included  organizational  matters,  the issuance of notes
payable to two officers (see Note B), and the procurement of property management
agreements.

During  period from June 30, 1999  (inception)  through  December 31, 2000,  the
Company  entered  into a total of 27  property  management  agreements  with two
property  owners.  Eleven of the  agreements  were for  properties  owned by the
Company's former  president.  At December 31, 2000, the Company was operating 19
property  management  agreements of which ten were for  properties  owned by the
Company's former  president.  Each agreement  contains a one-year contract term.
Under the agreements,  the Company can earn procurement fees of fifty percent of
the first month's rent for each new tenant,  and management fees of five percent
of the monthly rent each month  thereafter.  Authorized  rent charges  under the
agreements  range from $400 to $1,100 per month.  The  Company  has only  earned
management fees under the agreements for the periods presented.

Effective February 28, 2001, the Company underwent a change in control.


NOTE B: RELATED PARTY TRANSACTIONS

The former  president  provided office space to the Company at no charge for all
periods presented. The office space was valued at $250 per month and is included
in the  accompanying  financial  statements as rent expense with a corresponding
credit to additional paid-in capital.

During the year ended  December  31,  2000,  the Company had entered into eleven
property  management  agreements  for properties  owned by the Company's  former
president  (see Note A).  The  Company  earned  $4,950,  $1,100,  and  $6,050 in
management fees through those eleven  agreements for the year ended December 31,
2000, the period from June 30, 1999  (inception)  through December 31, 1999, and
the  period  from  June  30,  1999   (inception)   through  December  31,  2000,
respectively.

During the year ended December 31, 2000, an officer paid administrative expenses
on behalf of the Company  totaling $321. The Company repaid the officer prior to
December 31, 2000.

On June 30,  1999,  the Board of  Directors  approved  the issuance of 1,190,000
shares of the Company's $.0001 par value restricted common stock to two officers
in exchange for services related to the  organization of the Company.  The Board
of Directors valued the transaction at nominal value, which totaled $238. On the
transaction  date, the Company's  stock had no reliable fair value.  The $238 is
included in the accompanying  financial  statements as stock-based  compensation
expense.  These  shares  are  "restricted  securities"  and may be sold  only in
compliance with Rule 144 of the Securities Act of 1933, as amended.

On July 13, 1999,  two officers  each loaned the Company  $5,000 in exchange for
promissory notes. The notes carried an interest rate of eight percent.  On April
25, 2000, the Company  repaid the notes and related  accrued  interest  totaling
$635.  Interest expense totaled $535, $100, and $635 for the year ended December
31, 2000,  from June 30, 1999  (inception)  through  December 31, 1999, and from
June 30, 1999 (inception) through December 31, 2000.


                                       F-9
<PAGE>

                        HERCULES DEVELOPMENT GROUP, INC.
                          (A Development Stage Company)

                        Notes to the Financial Statements

NOTE C: INCOME TAXES

A reconciliation of the U.S.  statutory federal income tax rate to the effective
rate is as follows:

                                                                December 31,
                                                           ---------------------
                                                             2000        1999
                                                           -------      --------
U.S. federal statutory graduated rate..................     15.00%       15.00%
State income tax rate, net of federal benefit..........      4.04%        4.04%
Net operating loss for which no tax benefit
   is currently available..............................    -19.04%      -19.04%
                                                           -------      --------
                                                             0.00%        0.00%
                                                           =======      ========

At December 31, 2000, deferred taxes consisted of a net tax asset of $9,171, due
to operating loss  carryforwards of $48,174,  which was fully allowed for in the
valuation  allowance of $9,171. The valuation allowance offsets the net deferred
tax asset for which  there is no  assurance  of  recovery.  The  changes  in the
valuation  allowance for the year ended December 31, 2000 and from June 30, 1999
(inception)  through December 31, 1999 were $8,444 and $727,  respectively.  Net
operating loss carryforwards will expire through 2020.

The valuation  allowance will be evaluated at the end of each year,  considering
positive and negative evidence about whether the asset will be realized. At that
time, the allowance will either be increased or reduced;  reduction could result
in the complete elimination of the allowance if positive evidence indicates that
the value of the deferred tax asset is no longer  impaired and the  allowance is
no longer required.

Should the Company undergo an ownership  change as defined in Section 382 of the
Internal  Revenue  Code,  the Company's  tax net  operating  loss  carryforwards
generated prior to the ownership change will be subject to an annual limitation,
which could reduce or defer the utilization of these losses.


NOTE D: SHAREHOLDERS' EQUITY (DEFICIT)

In April 2000, the Company  conducted a private  placement  offering  whereby it
sold  750,000  shares of its  $.0001 par value  common  stock for $.10 per share
pursuant to an exemption from registration provided under Rule 504 of Regulation
D of the Securities Act of 1933, as amended.  The Company  received net proceeds
of $69,093 after deducting offering costs totaling $5,907.

On June 30,  1999,  the Board of  Directors  approved  the issuance of 1,190,000
shares of the Company's $.0001 par value restricted common stock to two officers
in exchange for services  related to the  organization  of the Company (see Note
B).

On July 7, 1999, the Company  issued  120,000  shares of its  restricted  common
stock in exchange for legal  services.  The  transaction was recorded at nominal
value,  which totaled $120. On the transaction  date, the Company's stock had no
reliable  fair  value.  The  $120  is  included  in the  accompanying  financial
statements as stock-based  compensation  expense.  These shares are  "restricted
securities"  and may be sold only in compliance  with Rule 144 of the Securities
Act of 1933, as amended.

                                      F-10
<PAGE>

                        HERCULES DEVELOPMENT GROUP, INC.
                          (A Development Stage Company)

                        Notes to the Financial Statements

During February 2000, the Company's management and the attorney agreed to cancel
the 120,000 common shares in exchange for a cash payment.

Preferred stock

The Company may divide and issue the shares of preferred stock in series. Shares
of  preferred  stock  of each  series,  when  issued,  shall  be  designated  to
distinguish them from the shares of all other series. The Board of Directors has
vested with the authority to divide the class of shares of preferred  stock into
series and to fix and  determine  the  relative  rights and  preferences  of the
shares of any such series so  established  to the full extent  permitted  by the
Articles of  Incorporation  and the  Colorado  Corporation  Code.  There were no
shares of preferred stock issued and outstanding at December 31, 2000.


NOTE E: SUBSEQUENT EVENTS

On March 7, 2001, the Company amended its Articles of  Incorporation to increase
the  authorized  shares of $.0001  par value  common  stock from  30,000,000  to
50,000,000 shares. As a result of the amendment,  the number shares of stock the
Company has authority to issue  increased from  33,000,000  shares to 53,000,000
shares of  capital  stock,  including  50,000,000  shares  of  common  stock and
3,000,000 shares of $.001 par value preferred stock.

On March 14, 2001, the Company  declared a stock split effected in the form of a
dividend for  shareholders of record as of 8:00 a.m.,  Eastern Standard Time, on
March 14, 2001. Ten shares of common stock were issued for each one share issued
and  outstanding.  The payment  date and time for the stock split were March 15,
2001 at 8:00 a.m.,  Eastern Standard Time. As a result of the stock split,  each
shareholder of the Company  received nine additional  shares on common stock for
each share of common stock owned as of the record date and time.  Following  the
stock split, the Company had 31,300,000  shares of $.0001 par value common stock
issued and  outstanding.  The stock split effected in the form of a dividend was
not a mandatory exchange.  No certificates for fractional shares of common stock
were issued. In lieu thereof,  certificates for said shares of common stock were
rounded up to the next whole share.

Following  is a pro forma  schedule  of loss per share as if the stock split had
occurred at the beginning of the periods presented.

<TABLE>
<CAPTION>

Pro forma schedule of loss per share                                             June 30, 1999
                                                               For the            (Inception)
                                                              Year Ended            Through
                                                             December 31,         December 31,
                                                                 2000                 1999
                                                           --------------        ------------
<S>                                                        <C>                   <C>
Basic and diluted loss per common share, as reported...    $      (0.02)         $       *
                                                           ==============        ============
Pro forma basic and diluted loss per common share......    $         *           $       *
                                                           ==============        ============
Basic and diluted weighted averge common shares
   outstanding, as reported............................       2,926,250            2,495,000
                                                           ==============        ============
Pro forma basic and diluted weighted averge common
   shares outstanding..................................      29,262,500           24,950,000
                                                           ==============        ============
</TABLE>
*  Less than $.01 per share

                                      F-11
<PAGE>

                        HERCULES DEVELOPMENT GROUP, INC.
                          (A Development Stage Company)

                        Notes to the Financial Statements

NOTE F: CONCENTRATIONS

During the year ended  December  31, 2000,  the Company paid an unrelated  third
party $30,000 for consulting fees. The consulting consisted of public relations,
shareholder  relations,  and market development.  The $30,000 is included in the
accompanying  financial  statements as consulting fees and makes up 54.8 percent
of the Company's operating expenses for the year ended December 31, 2000.

                                      F-12