SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   Form 10-KSB

[X]  ANNUAL REPORT UNDER 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 Act of 1934:
     for the transition period from ________ to ________.

                         Commission File Number 1-13012


                         H.E.R.C. PRODUCTS INCORPORATED
                 (Name of small business issuer in its charter)

               Delaware                                   86-0570800
State of Incorporation or Organization        IRS Employer Identification Number

                         2215 West Melinda Lane, Suite A
                             Phoenix, Arizona 85027
              (Address of principal executive offices and Zip Code)

                                 (623) 492-0336
                (Issuer's telephone number, including area code)

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

                                               Name of each exchange
     Title of each class                        on which registered
     -------------------                        -------------------

 Common Stock, $.01 par value                  Boston Stock Exchange


    Securities registered pursuant to Section 12(g) of the Exchange Act: None

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. [ ]

State issuer's revenues for its most recent fiscal year. $4,266,735

At March 15,  2001,  the  aggregate  market  value of the  voting  stock held by
non-affiliates of the registrant  (7,522,087 shares) was $1,997,866 based on the
closing  market  price of the Common  Stock on such date as reported by the NASD
over-the-counter  bulletin  board or OTCBB Market of $0.2656.  This  calculation
assumes  that the  affiliates  of the  Company are its board of  directors,  its
officers and 10% or greater stockholders.

At March 15,  2001,  there were  11,737,633  shares of Common  Stock  issued and
outstanding.

Transitional Small Business Disclosure Format: Yes [  ]  No[X]

Documents Incorporated by Reference: None
<PAGE>
FORWARD-LOOKING STATEMENTS

     Parts of this report describe historical information,  such as the 1999 and
2000  operating  results,  and  H.E.R.C.   Products  Incorporated  believes  the
descriptions to be accurate.  In contrast to describing the past, some sentences
in this report indicate that HERC believes that events or financial  results are
likely to occur in 2001 or thereafter.  These  sentences  typically use words or
phrases like "believe," "expects,"  "anticipates,"  "estimates," "will continue"
and similar expressions. Statements using those words or similar expressions are
intended  to  identify  "forward-looking  statements"  as  that  term is used in
Section 27A of the  Securities  Act of 1933, as amended,  and Section 21E of the
Securities Exchange Act of 1934, as amended.  Forward-looking statements include
projections  of  operating  results for 2001 and  beyond,  either  concerning  a
specific segment of HERC's business, or concerning HERC as a whole.

     Actual  results,  however,  may be  materially  different  from the results
projected  in the  forward-looking  statements,  due to a  variety  of risks and
uncertainties.  These risks and uncertainties  include those set forth in Item 1
of Part I hereof,  entitled  "Description  of Business" and in Item 6 of Part II
hereof,  entitled  "Management's  Discussion and Analysis of Financial Condition
and Results of Operations" and elsewhere in this report.

     The  forward-looking  statements  in this report are current only as of the
date this report is filed with the Securities and Exchange Commission. After the
filing of this report,  HERC's  expectations  of likely results may change,  and
HERC may come to believe that certain forward-looking  statements in this report
are no longer accurate. HERC does not have an obligation to release publicly any
corrections or revisions to any forward looking statements in this report,  even
if HERC believes the forward looking statements are no longer true.

                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS

OVERVIEW

OUR COMPANY

     H.E.R.C.  Products  Incorporated has developed a line of specialty chemical
products  and  chemical  cleaning  processes  for use in pipe  systems and other
water-based  systems.  Our company uses its patented  and  proprietary  chemical
products and chemical  cleaning  processes  to remove scale and  corrosion  from
pipeline systems,  water systems and surfaces.  Our company's  chemical cleaning
services are our main source of revenue.  We market our  products to  municipal,
industrial,  governmental,  commercial and other customers  directly and through
strategic marketing alliances.  Our largest customer is currently the U.S. Navy.
We provide  chemical  cleaning  services for pipe systems on U.S. Navy and Coast
Guard vessels.

     Over  time,  most water and  water-based  systems,  such as  potable  water
delivery systems, fire sprinkler systems,  waste systems,  process water systems
and  water  wells,  become  internally   corroded  with  scale,   corrosion  and
tuberculation.  The effect is a smaller  diameter  through which water and waste
can  travel  and a less  efficient  or  non-functioning  system.  Our  company's
cleaning methodologies remove the scale and corrosion and restore the efficiency
and flow characteristics of the system.

     We use patented and other  proprietary  chemical  products and processes in
our cleaning services. Our chemistry is circulated through a pipe system that is
no longer  functioning  properly.  Our  chemicals  dissolve and remove scale and
corrosion and retain the  components  of scale and  corrosion in solution  until
they are  flushed  from the  system.  The system may then be treated  with other
chemical  products  that retard  corrosion  or  suppress  the  environment  that
supports  biological  growth.  Most of the chemicals that we use are non-fuming,
non-abrasive  and  non-flammable.  Most of our chemical  products are  certified
biodegradable by Scientific Certification Systems.

     Our chemical  products and chemical  cleaning  processes  were developed to
provide a more cost  effective and  efficient  means of cleaning pipe systems in
contrast to replacement,  mechanical scraping,  pigging, hydro blasting or other
pipe cleaning methods. Additionally, our chemical products and chemical cleaning
processes  are safer than many other  chemical  cleaning  methods.  Our chemical
products include Pipe-Klean(R) and Well-Klean(R), which remove encrustation from
water pumping and distribution systems; Compound 360, Compound 400, Corr-Hib and
Slug(R) which clean and maintain cooling and other water treatment systems;  and
Line-Out(R)  which  cleans drip  irrigation  systems and removes  salt from soil

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<PAGE>
surfaces.  We also sell private label chemical  products  utilizing our patented
and proprietary  formulations or products  complementary to our formulations for
key customers.

     HERC was  incorporated in Arizona in December 1986 and  re-incorporated  in
Delaware  in May  1994.  Our  executive  offices,  warehouse  and  manufacturing
facility  for some of our  chemical  products  are located at 2215 West  Melinda
Lane, Suite A, in Phoenix, Arizona and our telephone number is (623) 492-0336.

RECENT DEVELOPMENTS

     On February 9, 2001, our company  acquired certain tank and boiler cleaning
assets of Industrial Chemical Cleaning  Incorporated.  In exchange,  our company
assumed the existing debt that was secured by the particular  assets. The actual
amount  of debt to be  assumed  is still  being  negotiated  with  the  original
creditors, but we estimate that it will be between $85,000 and $110,000.

     On February 9, 2001, our company acquired a barge with a capacity of 19,500
barrels from Hampton Roads Barge Rental,  LLC. In exchange,  our company assumed
approximately $90,000 of debt that was secured by the barge.

     We plan on using these assets to expand the range of services that we offer
to the U.S. Navy, Coast Guard and other existing customers.

PRODUCTS AND SERVICES

     Water has many uses and is  therefore  transported  through and an integral
component  of many  systems in use  today.  These  systems  range from wells and
potable  waterlines to fire  protection  systems,  heating and  air-conditioning
units and many industrial  production  processes.  Water is a chemically  active
substance  and any  surface  that is  regularly  exposed  to water is subject to
corrosion.  Since water is rarely pure,  water exposed surfaces are also subject
to scaling  from  dissolved  minerals or  biological  corrosion  from water born
microbes.  Scaling or corrosion will  eventually lead to the plugging or fouling
of the surface, pipe, pump, air condition system or other water exposed surface.

     The generally  accepted  cleaning methods for various water systems include
replacement, mechanical scraping, hydro blasting, pigging and chemical cleaning.
We  offer a method  of  chemical  cleaning  which we  believe  is a  significant
improvement  over most other cleaning  methods  because it is faster,  safer and
more complete and has a lower environmental impact.

     Pipe-Klean  and  Well-Klean  are used to remove  scale and  corrosion  from
drinking  water  systems and water wells.  These  products  have been tested and
certified by the National  Sanitation  Foundation (NSF) for use as well cleaning
and pipe  cleaning aids in drinking  water  systems.  These NSF  Standards  were
developed to establish minimum requirements for the control of potential adverse
human health effects from products used in drinking water systems.

PIPE CLEANING DIVISION

     Our company provides pipe cleaning and other corrosion  removal and control
services for industries such as marine, fire protection,  industrial, municipal,
and others.  During fiscal 2000, total chemical pipe cleaning revenue  increased
19% to $3,863,000 from $3,248,000 during fiscal 1999.

MARINE

     Our marine  applications focus on the cleaning of water and wastewater pipe
systems on ships.  For  example,  the vacuum  waste  systems  aboard most marine
vessels   develop  a  scale  in  the  pipe  interiors  that  requires   cleaning
approximately  once every 12-18  months.  The  principal  customers  of the pipe
cleaning  division are the United States Coast Guard and the United States Navy.
In September  1997,  our company  received a five-year  contract from the United
States Navy-Supervisor of Shipbuilding (SupShip) office in Portsmouth, Virginia.
This contract is renewable on an annual basis at the option of the U.S. Navy and
calls for us to clean pipe systems on board ships based in the Norfolk area. The
Portsmouth  contract  permits us to charge set amounts for our  services.  Other
SupShip offices of the Atlantic Fleet and the  maintenance  office of the United
States  Coast  Guard also use the  Portsmouth  contract  to have  their  vessels
cleaned.  During  1999 we cleaned  piping  systems on board  eighty-four  United
States  vessels.  During  2000 we  cleaned  piping  systems  on board a total of
seventy-six United States vessels.

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<PAGE>
     In order to meet the requirements of the Portsmouth contract,  and to serve
the East Coast market,  we have located an office in  Portsmouth,  Virginia.  We
also opened an office in San Diego to expand our ability to offer  pipe-cleaning
services to the Pacific Fleet,  Western United States Coast Guard and other west
coast customers.

FIRE PROTECTION

     We developed our patented  process for chemically  cleaning fire protection
systems in 1993. Since then, we have chemically cleaned multiple fire protection
systems for several industries and customers.  We believe that our company has a
significant  advantage in securing fire protection system chemical cleaning work
because we have a patent that covers the process of  chemically  cleaning a fire
protection system.

     The fire  protection  industry  in  general is in the  beginning  stages of
learning how to diagnose and treat the problem of  microbiologically  influenced
corrosion  (MIC) in fire  sprinkler  systems.  It has been found  that  numerous
sprinkler  systems  across the United  States and abroad  have  become  severely
internally corroded as a result of microbiologically  influenced corrosion (MIC)
and are not achieving  required  operational  levels.  Because of the increasing
awareness of MIC in the fire protection industry, the American and National Fire
Sprinkler  Associations  have recognized our company as having a  rehabilitative
method for fire  protection  systems.  We  continue to pursue  certification  by
Factory  Mutual  and  IRI-Hartford  Steam  Boiler,  two of the  major  insurance
companies  of  fire  protection  systems  so  that  we  will  be  able  to  more
aggressively  market our  services  to this area of the pipe system  market.  We
believe that these endorsements  would be beneficial in our marketing,  since we
feel that insurance premiums should be based on system performance. At this time
we have no indication  that our company will achieve  certification  or what the
timing might be if it did. Recently,  our company achieved  certification of its
Pipe Klean product for use in cleaning fire  protection  systems by Underwriters
Laboratories,  Inc.  ("UL").  Sales from  chemical  cleaning of fire  protection
systems and related  services  decreased  to  $132,000  during  fiscal 2000 from
$300,000 during fiscal 1999.

     The fire protection market for pipe cleaning has not grown at the rate that
we had  anticipated  but we believe that this could change  rapidly if insurance
companies or governmental regulation were to require building owners to maintain
properly  functioning  fire protection  systems inside their  buildings.  We are
working with members of the industry  towards this end. Our company has recently
begun offering  assessment services to businesses and property owners whereby we
provide a complete  analysis of the existing fire  protection  system  including
internal  pipe  inspection  and  video,  water  analysis,   scale  analysis  and
recommended remediation method.

POTABLE WATER

     Underground  potable waterlines  represent another market where our company
may offer its pipe  system  cleaning  services.  Our  company  has many  patents
covering the process of chemically cleaning potable water distribution  systems.
In  addition,  our  chemical  products  have been  tested and  certified  by the
National Sanitation  Foundation (NSF) for use as well cleaning and pipe cleaning
aids in drinking water systems.  These NSF Standards were developed to establish
minimum  requirements for the control of potential  adverse human health effects
from products used in drinking water systems and have been adopted legislatively
in many states.

     The most common problem found in potable water lines is tuberculation. This
is the development of chemical and biological  corrosion inside the pipes to the
point where the useful  diameter of the pipe is severely  restricted.  It is not
unusual  to have a  four-inch  main line  with only one inch of useful  diameter
remaining.  Tuberculation  may also cause colored water,  bad odors,  unpleasant
taste and increased chemical treatment and pumping costs.

     Recently we have  focused our  attention  primarily  on marine  system pipe
cleaning  and  secondarily  on fire  protection  system pipe  cleaning  where we
experience  higher margins and a shorter sales cycle.  One reason for this focus
away  from  potable  water  system  cleaning  has  been the  long  lead-time  to
consummate potable water system sales contracts and the expense of obtaining and
servicing  these  contracts.  Often  payment is  dependent  on the work of other
contractors  and lengthy  approval  processes.  Although our company focused its
attention in this segment from 1994 to early 1997,  it currently  represents  an
insignificant  portion of our business. We anticipate that it will become a more
significant part of our business over time.

SPECIALTY CLEANING

     In industrial plants, scale and tuberculation greatly reduce heat exchange,
condensing and flow capacities.  In water treatment plants,  chemical feed lines
become internally clogged to the point where they do not function properly.  Our

                                        4
<PAGE>
company is currently  providing chemical cleaning services to several industrial
companies and  municipalities  in areas such as systems in fiber  plants,  waste
water systems and other types of systems.

INDUSTRIAL CHEMICALS DIVISION

     The industrial chemicals division manufactures and sells specialty chemical
products using HERC's  proprietary and patented formulas for applications in the
removal of salt,  scale and  corrosion and in the  maintenance  of water process
systems.  These  products are currently  Well-Klean(R),  Line Out(R) and several
Process Water products  including certain products  currently being manufactured
under a private label for DuPont and Eco Soil Systems,  Inc. Industrial chemical
sales increased 67% to $404,000 during fiscal 2000 compared with $242,000 during
fiscal 1999.

     Well-Klean is used to remove scale and corrosion in water wells.  Over time
the well screen and many other well  components  become  clogged.  When added to
wells following our instructions,  Well-Klean  removes the harmful corrosion and
corrosion  by-products  from the well components and the surrounding  aquifer to
restore well  pumping  characteristics  that  ultimately  lead to improved  well
performance.

     Line Out is used in the  cleaning of drip  irrigation  systems and for salt
removal  from  soils in the root  zone of turf  grasses  on golf  courses.  Drip
systems will clog with scale over time and require regular  maintenance in order
to  continue  to perform.  Our Line Out  product  provides a superior  method of
cleaning while also improving water distribution.  In addition,  the use of high
salt  content  water by golf  courses for  irrigation  has caused the need for a
product to remove  salt from the turf root zone.  We  manufacture  Line Out as a
private labeled product called Deliminate(R) for Eco Soil Systems, Inc. (NASDAQ:
ESSI) for golf courses in the United States.

     Chlor*Rid is a product that  utilizes one of our core formulas for removing
salt  from  surfaces  prior to the  application  of high  performance  paints or
coatings.  During 1998 our company sold its half ownership of a patent  covering
this application to Chlor*Rid  International.  Under the sales agreement we will
maintain  manufacturing  rights of the product or  royalties on future sales for
the life of the patent, which is approximately thirteen years.

     Process  water  products are sold  primarily  under the trade name Compound
360. These  products are used in the de-scaling and  maintenance of all types of
process water  systems.  These  include  cooling  towers,  heat  exchangers  and
condensers.  During 1999,  we entered into  agreements  with DuPont  whereby our
company manufactures private labeled products for DuPont using our formulas.  In
addition to realizing the gross profit from the manufacturing of the product, we
receive  royalties on the sales of the defined  product.  We may also market our
products  to the same  customers  and can use the  Dupont  trade name in certain
marketing pieces.

MARKETING AND DISTRIBUTION

     Our company  markets its products and services  through our  marketing  and
sales staff and through  independent  distributors and sales  representatives as
well as through  strategic  partnerships and marketing  agreements.  In 1999 and
2000,  sales to the U.S.  Navy under the  Portsmouth  contract  were 70% and 73%
respectively of  consolidated  sales from  continuing  operations.  We currently
contract with a few customers  responsible  for a majority of our revenue and we
expect  the high  concentration  levels to  continue  through  2001.  Thus,  any
material  delay,  cancellation or reduction of orders from these customers could
have a  material  adverse  effect on our  company's  results of  operations  and
financial position.

COMPETITION

     Several small regional  companies and certain larger customers compete with
us   for   our   marine   business.   Our   company   competes   directly   with
Layne-Christensen, Inc. in the market for water well cleaning. Chemicals used in
cleaning water systems have generally been  non-proprietary,  readily  available
acids produced by such major chemical companies as DuPont, Dow Chemical Company,
Hill Brothers Chemical Company and Vista Chemical  Company.  These companies are
substantially  larger and have far more extensive resources than our company. To
the  extent  that we  seek to sell  our  water  system  pipeline  rehabilitation
products  directly  to end users,  we may be  perceived  as  competing  with the
regional   contractors   to  which  we  might  also  seek  to  market  our  pipe
rehabilitation  products  and  technology.  While  they  are not as large as the
chemical  producers,  the contracting  companies are still generally  larger and
more established in the industry than HERC.

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     We anticipate  that the companies  with which we compete have the resources
to develop, have developed,  are developing,  or may develop and market products
and  services  that  directly  compete  with  those  of  our  company.   Current
competitors  or new market  entrants  could produce new or enhanced  products or
services with features that render our company's  products and services obsolete
or less marketable. Our company's competitive success will depend on our ability
to promote  and to adapt to  technological  changes  and  advances  in the water
systems treatment industry.

     Our company competes principally on the basis of our superior  methodology,
ease of use, price and environmental  impact. We also strive to secure strategic
relationships with established companies.  Our company has patent protection for
certain of our  chemicals  and processes and we are seeking to expand our patent
protection by making new applications  with respect to our proprietary  products
and technologies in order to provide a diverse product and service offering.

MANUFACTURING AND SUPPLIES

     The  majority of our  company's  industrial  products  are  formulated  and
packaged  at our plant in Phoenix,  Arizona.  The  balance of our  products  are
manufactured  and  packaged  for us by a third  party  manufacturer  located  in
Chandler,  Arizona  using our formulas.  We generally do not maintain  long-term
supply  agreements with our suppliers and we purchase raw materials  pursuant to
purchase orders or short-term  contracts in the ordinary course of business.  We
believe that the raw materials and other  supplies are available  from a variety
of sources and that there are numerous  companies  available  to  formulate  and
package our products.

PATENT AND TRADEMARK PROTECTION

     Our  company  has a series  of  United  States  patents  for the use of its
Pipe-Klean  technology  in the cleaning of potable water  distribution  and fire
protection  systems, a United States patent on the mobile  re-circulation  units
employed in the pipe cleaning  process and a series of United States  patents on
the core  chemical  technology  used  for pipe  cleaning  and  industrial  water
applications.  Our company has also received a Notice of Allowance for its basic
pipe-cleaning  patents for the association of European countries and applied for
these patents throughout Europe during 1999 and 2000. Additionally,  U.S. Patent
applications  for Methods of Pipe Cleaning and  improvements on the basic method
were issued and received by HERC during 1999. Other patent applications for pipe
cleaning  markets and methods are pending from prior years and new  applications
filed during 2000. h.e.r.c. (R), Well-Klean(R),  Pipe-Klean(R),  and Line-out(R)
are registered trademarks of HERC.

     There can be no  assurance  that any patents  applied for will be obtained.
Moreover,  there can be no  assurance  that any patents  will afford our company
commercially  significant  protection  of its  technology  or that we will  have
adequate  resources  to enforce  our  patents.  We believe  that our company has
independently  developed its proprietary  technologies  and they do not infringe
the  proprietary  rights  of  others.  Although  we have  received  no claims of
infringement,  it is possible that infringement of existing or future patents or
proprietary rights may occur.

     In the event that our company's  products or processes  infringe  patent or
proprietary  rights of others,  we may be  required to modify our  processes  or
obtain a license.  There can be no assurance that we would be able to do so in a
timely manner,  or upon acceptable  terms and  conditions.  The failure to do so
could have a material adverse effect on our company.  In addition,  there can be
no  assurance  that our  company  will  have the  financial  or other  resources
necessary to defend a patent or proprietary rights action.  Moreover,  if any of
our products or processes  infringe on patents or proprietary  rights of others,
our company  under  certain  circumstances  could become liable for damages that
could have a material  adverse effect on our results of operations and financial
position.

     Our company relies on proprietary know-how and confidential information and
employs  various  methods  to  protect  the  processes,   concepts,   ideas  and
documentation  associated  with our  technology.  However,  such methods may not
afford complete  protection,  and there can be no assurance that others will not
independently  develop  such  processes,   concepts,  ideas  and  documentation.
Although we require all of our  employees  to sign  confidentiality  agreements,
there can be no assurance  that we will be able to protect our trade  secrets or
that  other  companies  will not  acquire  information  that we  consider  to be
proprietary.  Moreover,  there can be no assurance that other companies will not
independently develop know-how comparable to or superior to that of our company.

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<PAGE>
GOVERNMENT REGULATION

     Water pollution is a major focus of federal,  state and local environmental
protection laws and regulations.  The discharge from water systems  treatment is
subject to these laws and regulations.  The water system treatment  industry and
our company's operations are subject to extensive and significant  regulation by
federal,  state and local governmental  authorities.  Some of such regulation is
extensive and may from time to time have a significant impact on our operations.
NSF has indicated that  Pipe-Klean and Well-Klean  comply with the standards for
chemicals that can be used in cleaning drinking water systems. In addition, many
of our  products are  certified as  biodegradable  by  Scientific  Certification
Systems.  Products  are  biodegradable  if they can be broken  down into  carbon
dioxide, water and minerals without harmful effects to the environment.

     Some of our products require the use of a chemical that is classified under
applicable  laws as a corrosive  chemical  and  substance,  and our use of these
chemicals and substances may subject us to environmental  liability. Our company
does not maintain insurance to compensate it for any liabilities it may incur if
it  were  to  violate  environmental  laws or  regulations.  The use of  certain
chemicals  contained in our products is subject to frequently  changing federal,
state and local laws and substantial regulation under these laws by governmental
agencies,  including the EPA, the Occupational Health and Safety Administration,
various state  agencies and county and local  authorities  acting in conjunction
with federal and state authorities. Among other matters, these regulatory bodies
impose requirements to control air, soil and water pollution, to protect against
occupational exposure to such chemicals,  including health and safety risks, and
to require  notification  of the storage,  use and release of certain  corrosive
chemicals and substances.

     Our company  has  obtained  certification  for its  Pipe-Klean,  Pipe-Klean
Preblend, Acid Klean and Pipe-Klean Neutralizer products as "pipe cleaning aids"
under  ANSI/NSF  Standard  60 from  NSF for use in  potable  water  distribution
systems.   Additionally,   our  company  has  obtained   ANSI/NSF   Standard  60
certification  for our  Well-Klean  II  Concentrate,  Acid Klean and  Well-Klean
Preblend products as "well cleaning aids" for potable water wells.

     We believe that our company is in substantial  compliance with all material
federal,  state and local laws and regulations governing our business operations
and that we have  obtained all  material  licenses,  authorizations,  approvals,
orders,  certificates  and permits  required for the  operation of our business.
There can be no assurance  that our company in the future will be able to comply
with current or future government  regulations in every jurisdiction in which we
will conduct our business  operations without substantial  sanctions,  including
restrictions  on  our  business  operations,  monetary  liability  and  criminal
sanctions, any of which could have a material adverse effect upon our business.

     Advertising  relating to our company's products is subject to the review of
the Federal  Trade  Commission  and state  agencies,  pursuant to their  general
authority  to monitor  and  prevent  unfair or  deceptive  trade  practices.  In
addition,  the Consumer Products Safety Commission regulates the labeling of our
products.

RESEARCH AND DEVELOPMENT

     We estimate that our company directly spent $24,000 and $13,000 on research
and  development  activities  related to improving  our  cleaning  methodologies
during fiscal 2000 and fiscal 1999, respectively.

DISCONTINUED OPERATIONS

     On December 9, 1998, HERC sold the business of its wholly owned subsidiary,
HERC Consumer  Products,  Inc. HERC Consumer  Products,  Inc.  marketed and sold
consumer  products to wholesale and retail  customers.  HERC received an initial
payment of $200,000 at the closing and will  receive a royalty  payment of 3% of
the adjusted  revenue  above  $1,000,000  for some of the consumer  products for
three years after the closing date.

     The operating  results  relating to these  businesses  have been segregated
from  continuing  operations  and  reported  as a  separate  line  item  on  the
consolidated statements of operations.

EMPLOYEES

     As of February 21, 2000,  HERC had 79  employees.  3 of our  employees  are
officers,  60  are  engaged  in  field  operations  and  production,  12  are in
administration  and 4 are in  marketing  and  sales.  None of our  employees  is
represented by labor unions or covered by a collective bargaining agreement.  We
believe that our relationship with our employees is satisfactory.

                                        7
<PAGE>
SEASONALITY

     Sales of specialty chemical products and certain chemical cleaning services
are  seasonal  in those  parts of the United  States in the Snow Belt.  Seasonal
sales can result in uneven  cash flow for our  company,  which may require us to
obtain  and  maintain  short-term  financing  arrangements.  In the  event  such
financing  arrangements  are  not  available  or,  once  acquired,  cease  to be
available,  our company's operations and financial condition could be materially
adversely affected.

SPECIAL CONSIDERATIONS

     THE FOLLOWING  FACTORS,  IN ADDITION TO THOSE  DISCUSSED  ELSEWHERE IN THIS
REPORT, SHOULD BE CAREFULLY CONSIDERED IN EVALUATING OUR BUSINESS

     OUR  COMPANY  MAY  NEED  FINANCING  IN THE  FUTURE  AND  DOES  NOT HAVE ANY
COMMITTED  SOURCES OF FINANCING.  If our company is not profitable in the future
for an extended  period of time, it will require  additional  financing to cover
operating expenses.  Also, any major capital  expenditures might require capital
from independent  financing  sources.  Our company does not have any accumulated
retained   earnings  to  fund  cash  flow  deficits  and   significant   capital
requirements.  Other  than  its  factoring  arrangement,  we  do  not  have  any
specifically identified sources for future financing requirements.

     THE CURRENT  DEPENDENCE ON ONE  SIGNIFICANT  CUSTOMER HAS THE POTENTIAL FOR
ADVERSE FINANCIAL RESULTS. During the most recent fiscal year, the United States
Navy accounted for 73% of our revenues. The loss of a substantial portion or all
of the business from this customer will result in a material  adverse  effect on
our company's revenues and results of operations. If the United States Navy cuts
back or stops  using our  services,  the sales  staff may not be able to replace
this customer in a timely enough fashion for our company to continue operations.

     POTENTIAL  COMPETITION  EXISTS FOR CUSTOMERS IN THE MARINE BUSINESS.  We do
not believe that there are any  substantial  capital  requirements  for or other
barriers  to entry into the  chemical  cleaning  of pipe  systems for the marine
industry.  Therefore, there is potential competition from entities that elect to
enter  into this  industry.  As with any  competition,  there may be an  adverse
effect on market share and current margins of our company.

     THE LACK OF PATENTS  MAY LIMIT THE  ABILITY OF OUR  COMPANY TO PROTECT  ITS
CURRENT COMPETITIVE POSITION IN THE MARINE BUSINESS. Our company competes on the
basis of our knowledge  and  experience of marine and other closed loop systems.
The  chemical  products  used  in  the  marine  business  are  based  mainly  on
proprietary  chemistry,  but this  chemistry  is not  patented  or, we  believe,
patentable.  Therefore, others may develop the same or similar chemistry through
reverse technology or by experimentation.  If that happens, another entity could
offer some of the same benefits as our company and increase the  competition  in
the marine pipe systems  chemical  cleaning  market.  Also,  the lack of patents
limits our  ability to market an  absolutely  unique  product  or  service.  Our
company relies on trade secret and  confidentiality  protection  with respect to
the chemicals and  methodologies we use in our marine  business.  It is possible
that these means will not be adequate to protect us from competitors.

     THE EFFECT OF  LIABILITY  CLAIMS IN EXCESS OF THE  INSURANCE  LIMITS  COULD
AFFECT THE FINANCIAL CONDITION OF OUR COMPANY. We are engaged in a business that
might  expose our company to claims for personal or property  injury.  Suits may
result from  personnel or bystanders  who are injured on site,  from damage to a
pipe system being cleaned or from other issues  arising from the  performance of
our services.  Our company maintains liability insurance in the aggregate amount
of $2,000,000 and $1,000,000 per occurrence.  We also have an umbrella liability
policy in the amount of $5,000,000.  If there is a successful  claim against our
company in excess of the insurance limits or that is not covered, it will have a
material adverse effect on our company's financial condition.

     THE EFFECT OF  OUTSTANDING  RESTRICTED  COMMON STOCK ON FUTURE SALES BY THE
COMPANY AND  STOCKHOLDERS.  HERC sold an aggregate of 3,240,000 shares of common
stock in the fiscal  quarter ended June 30, 1998 at $.31 per share.  This amount
represented about 30% of the current  outstanding common stock immediately after
the  transaction.  These shares were sold to finance the  business in 1998.  One
year after the date of sale,  these  shares  became  eligible  for  public  sale
without any registration  statement.  As a result there may be an adverse impact
on the price and liquidity of the common stock in the public  market  because of
the volume of their possible sale.

     THE  EFFECT  OF  OUTSTANDING  OPTIONS  AND  WARRANTS  ON  MARKET  PRICE AND
LIQUIDITY.  HERC has issued options and warrants to purchase 2,352,980 shares of
common  stock of which  some  have a  purchase  price per share at less than the
current market price of the common stock and are currently  exercisable  and may
be sold in the public market. The existence of the options and warrants may have

                                        8
<PAGE>
an adverse  impact on the price and  liquidity of the common stock in the public
market  because of the overhang they create.  Also, the issuance of these shares
at  prices   below  the  market   price  will  result  in  dilution  to  current
shareholders.

ITEM 2. DESCRIPTION OF PROPERTY

     We lease our corporate  headquarters in an approximately  8,000 square foot
facility in Phoenix, Arizona. The lease expires in April 2002.

     We lease  approximately  5,500 square feet of office and warehouse space in
Portsmouth,  Virginia  and  approximately  3,000  square feet in National  City,
California.

ITEM 3. LEGAL PROCEEDINGS

     On or about January 14, 1999 in the Supreme Court of the State of New York,
County of Suffolk,  the Suffolk County Water  Authority and R & L Well Drilling,
LLC filed as a  third-party  plaintiff a civil  claim  against our company in an
action filed on April 8, 1998 by five  individual  residents of Ronkonkoma,  New
York,  alleging  negligence  resulting in personal  injury and seeking  monetary
damages of $11  million.  On October 9, 2000 the  company,  acting  through  our
insurance  carrier  pursuant  to the  submitted  claim  under our  comprehensive
general  liability  policy,  obtained a judicial  stipulation  discontinuing the
action with prejudice as a result of a settlement by  contribution of $15,000 on
behalf of the company  tendered to  plaintiffs  by our  insurance  carrier.  The
company's  out of pocket cost was $5,000 for the insurance  contract  deductible
paid to the insurance carrier under the comprehensive general liability policy.

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

     Not applicable.

                                        9
<PAGE>
                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     The common  stock of HERC is listed on the OTCBB  under the symbol  "HERC",
and on the Boston Stock Exchange under the symbol "HER".

     The  following  table  sets  forth the high and low  closing  prices of the
common  stock as quoted  by OTCBB for the  periods  indicated.  Such  quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commission and
may not necessarily represent actual transactions.

         2000                                     High           Low
         ----                                     -----          ---
         First Quarter                            $0.50         $0.27
         Second Quarter                            0.50          0.30
         Third Quarter                             0.50          0.34
         Fourth Quarter                            0.42          0.16

         1999                                     High           Low
         ----                                     -----          ---
         First Quarter                            $0.41         $0.22
         Second Quarter                            0.42          0.28
         Third Quarter                             0.39          0.27
         Fourth Quarter                            0.55          0.30

     As of March 15, 2001, there were 129 record holders of our common stock. On
March 15,  2001 the closing  price for our common  stock as quoted by OTC BB was
$0.27.

DIVIDENDS

     For the  foreseeable  future,  our company  intends to retain any remaining
future  earnings to finance our operations  and we do not anticipate  paying any
cash dividends with respect to our common stock. Subject to the preferences that
may be applicable to any then-outstanding preferred stock, the holders of common
stock will be entitled to receive such dividends,  if any, as may be declared by
the  board of  directors  from  time to time  out of  legally  available  funds.
Payments  of any cash  dividends  in the  future  will  depend on our  company's
financial condition,  results of operations, and capital requirements as well as
other factors deemed relevant by its board of directors.

RECENT SALES OR GRANTS OF UNREGISTERED SECURITIES

     During  various dates from January 2000 through  October 2000, we issued to
our  directors an aggregate of 49,875  shares of common stock at market value as
compensation  for  serving on our board of  directors.  We issued  these  shares
without  registration  under the  Securities  Act in reliance  on the  exemption
provided by Section 4(2) of the Securities Act as a transaction by an issuer not
involving a public offering.

                                       10
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

RESULTS OF OPERATIONS

FISCAL YEAR ENDED DECEMBER 31, 2000 COMPARED WITH FISCAL YEAR ENDED DECEMBER 31,
1999

     Sales for the fiscal year ended December 31, 2000 were $4,267,000  compared
with  $3,490,000  during fiscal 1999. The pipe cleaning  division  accounted for
$3,863,000 in 2000, of which $3,121,000 was billed under the Portsmouth contract
with the United States Navy. In 1999, the pipe cleaning  division  accounted for
$3,248,000  of which  $2,447,000  was  billed  under  the  Portsmouth  contract.
Industrial  chemical  sales were  $404,000  during  fiscal  2000  compared  with
$242,000 during fiscal 1999.

     Our  sales  in 2000  have  continued  to be  generated  primarily  from the
cleaning  of pipe  systems  on  ships.  Our  company  cleaned  pipe  systems  on
seventy-six  ships in 2000 compared with eighty-four  ships in 1999. Our revenue
increased  even though we cleaned  systems on fewer  ships  because we cleaned a
higher  percentage of large  platform ships during fiscal 2000. We are currently
attempting to diversify  our revenue base to different  customers and markets in
order to reduce our  dependence  on one large  customer.  We  continue  to focus
specific  sales and  marketing  efforts in the marine  pipe  cleaning  industry,
however,  because of our success in  penetrating  and  expanding  our  company's
presence in this market.  Sales of  industrial  chemicals  increased  67% during
fiscal 2000. Sales of pipe cleaning services increased 19% during fiscal 2000.

     Consolidated  gross  margins were 47% during  fiscal 2000 compared with 54%
during  fiscal 1999.  The decrease in gross margin was  primarily  the result of
cleaning ships outside of the Norfolk area whereby certain  reimbursable  travel
costs are  included in both  revenue and cost of sales  resulting in lower gross
margins.

     Gross profit  increased to $1,995,000  during  fiscal 2000 from  $1,876,000
during  fiscal  1999.  The  increase in gross profit was the result of increased
revenue offset by lower consolidated  gross margins.  Selling expenses decreased
to $394,000  during fiscal 2000 from  $404,000  during fiscal 1999 while general
and  administrative  expenses  increased to  $1,865,000  during fiscal 2000 from
$1,551,000  during  fiscal  1999.  The  increase in general  and  administrative
expenses is  attributable  primarily to increases in  divisional  marketing  and
management personnel.

     For the year ended  December 31, 2000,  our  company's  operating  loss was
$263,000  compared to an operating  loss of $79,000 for the same period in 1999.
Net loss for fiscal 2000 was $257,000  compared to net income for fiscal 1999 of
$97,000, which included income from discontinued operations of $73,000.

LIQUIDITY AND CAPITAL RESOURCES

     Cash and cash equivalents were $302,000 at December 31, 2000 and $66,000 at
December  31, 1999 while  working  capital was  $497,000  and  $593,000 at those
respective  dates.  The increase in cash is the result of collection of accounts
receivable.  The decrease in working capital during 2000 is a function of HERC's
loss, cash used for capital  expenditures,  patent expenditures and the pay down
of debt.

     We have entered into a factoring agreement under which the factor purchases
eligible accounts receivable and advances to us 80% of the purchased amount, not
to exceed $600,000. Either party may cancel the agreement within 30 days' notice
to the other party. Interest payable by us is calculated as a fixed discount fee
equal to 1.0% of the amount of the receivable  factored plus a variable discount
fee computed on the amount advanced. Interest on the outstanding balance accrues
on the basis of actual days elapsed from the date of the advance until five days
after  collection of such account.  The amounts factored under the agreement are
secured  by our  inventory,  accounts  receivable,  contract  rights,  and other
general intangibles.  We are required to maintain tangible net worth of not less
than $750,000 during the term of the agreement.  As of December 31, 2000, we did
not have any factored receivables. Additionally, as of December 31, 2000, we had
no long-term debt.

     We currently  contract with a few customers  responsible  for a majority of
our revenue  and we expect the high  concentration  levels to  continue  through
2001.  Thus, any material delay,  cancellation or reduction of orders from these
customers  could  have a  material  adverse  effect on our  operations.

                                       11
<PAGE>
ITEM 7. FINANCIAL STATEMENTS

     Reference is made to the financial  statements,  the notes thereto, and the
reports  thereon,  commencing  on  page  F-1 of  this  report,  which  financial
statements, notes, and report are incorporated herein by reference.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

     Not Applicable.

                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
        WITH SECTION 16(a) OF THE EXCHANGE ACT

Name                   Age                      Position
----                   ---                      --------

S. Steven Carl          43    Chairman of the Board of Directors, Chief
                              Executive Officer and President

Michael H. Harader      33    Vice President of Finance, Chief Financial Officer

John A. Gulick III      45    Vice President, Corporate General Counsel

Salvatore DiMascio      61    Director

R. John Armstrong       57    Director

Robert Affholder        65    Director

     S. STEVEN CARL has served as our Chairman of the Board of  Directors  since
February 1996, and has served as our Chief  Executive  Officer and as a director
of our company since August 1995. Mr. Carl has served as our President since May
1997 until the present,  and also from August 1995 until February 1996. Mr. Carl
served as the President and Chief Executive Officer of CCT Corporation, a wholly
owned subsidiary of HERC acquired in May 1995.

     MICHAEL H. HARADER has served as our Vice  President of Finance  since July
1998 and as our Chief Financial  Officer since October 1998.  Prior to that, Mr.
Harader  served in various  accounting  capacities  since joining our company in
January  1996.  During April 1994 until January 1996,  Mr.  Harader  served as a
Credit  Manager at Isley's RV Service  Center,  Inc. Mr.  Harader is a certified
public accountant.

     JOHN A.  GULICK III has  served as our Vice  President,  Corporate  General
Counsel  since  January  2000.  Prior to joining our company,  Mr.  Gulick was a
self-employed  attorney  from January 1990 until  December  1999,  and served as
outside  counsel to our  company.  Mr.  Gulick is licensed  to  practice  law in
Arizona and Texas, and is a certified public accountant.

     SALVATORE  DIMASCIO has been a Director of our company  since  September 3,
1996.   Since  1986,  Mr.  DiMascio  has  been  President  of  DiMascio  Venture
Management, a management and investment-consulting  firm. From June 1994 to June
1997, Mr. DiMascio was Executive Vice President and Chief  Financial  Officer of
Anchor Gaming,  a public  company.  Among other  executive  level positions held
during his 30-year  career,  Mr.  DiMascio was Senior Vice  President  and Chief
Financial  Officer of Conair  Corporation.  In addition,  he has  experience  in
industrial  products  manufacturing,  distribution and other service industries.
Mr.  DiMascio is  currently a Director of Fotoball  USA, a public  company.  Mr.
DiMascio is a certified public accountant.

     R. JOHN ARMSTRONG has been a Director of our company since January 1, 1999.
Mr.  Armstrong  served eleven years in the U.S.  Navy,  with  experience in ship
design,  construction  and  maintenance,  with a  four-year  tour  at a  SupShip
(supervisor of shipbuilding office), serving in quality assurance, contracts and
planning departments in addition to serving two years on the engineering faculty
at the Naval Academy.  Following his  resignation  from the Navy, Mr.  Armstrong
served as a Project  Manager  and,  ultimately,  Executive  Vice  President of a
professional  services  company in  Washington  DC,  providing  engineering  and
computer  services  to a broad  spectrum  of  clients.  In 1986  he  became  the
President of Seaward Marine  Services,  Inc.,  engaged in  international  diving
services.

                                       12
<PAGE>
     ROBERT W.  AFFHOLDER  has been a Director of our company  since  October 1,
2000. Robert W. Affholder has been Senior Executive Vice President of Insituform
Technologies,  Inc., a public company, since 1996. Mr. Affholder was previously,
since 1995,  Senior Vice  President-Chief  Operating  Officer of North  American
Contracting  Operations  of  Insituform  Technologies,  Inc. Mr.  Affholder  was
President  of  Insituform   Mid-America,   Inc.  ("IMA")  from  1994  until  its
acquisition by Insituform  Technologies,  Inc. in 1995, and was Vice Chairman of
IMA from 1993 to 1995.

BOARD OF DIRECTORS

     Directors  are  elected  to serve  until  the next  annual  meeting  of our
stockholders or until their successors are qualified and elected. Officers serve
at the  discretion  of the  Board  of  Directors  subject  to any  contracts  of
employment.

     Outside Directors elected at duly convened annual shareholder's meetings or
other  properly  convened Board  elections are  compensated by an annual Outside
Director's Retainer in the amount of $15,000 per annum,  payable as follows, (a)
$1,500  semi-annually  on the  first  day  of the  second  and  fourth  quarters
following  such  election,  (b) $1,000 for personal  attendance at duly convened
quarterly  meetings of the Board, and (c) the issuance of HERC restricted common
stock payable quarterly on the first day of each quarter in an amount equivalent
to $2,000 of market  value  measured on the close of trading of the last trading
day of the prior quarter, plus out-of-pocket expenses.

     Our  company is  obligated  through  April  2001,  if so  requested  by GKN
Securities  Corporation  ("GKN"),  the placement agent of its April 1996 private
placement,  to nominate  and use its best  efforts to elect GKN's  designee as a
director of our  company or, at GKN's  option,  as a  non-voting  adviser to the
Board of Directors. GKN has not exercised its right to designate such a person.

COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

     Section  16(a) of the Exchange Act  requires  our  directors,  officers and
persons who beneficially own more than ten percent of our company's common stock
to file reports of ownership  and changes in ownership  with the SEC.  Officers,
directors  and  greater-than-ten   percent  stockholders  are  required  by  SEC
regulations to furnish us with copies of all Section 16(a) reports they file. To
our knowledge, based solely on review of the copies of such reports furnished to
us and written  representation  that no other reports were required,  during the
year ended  December 31,  2000,  such persons  complied  with all Section  16(a)
filing requirements.

                                       13
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION

     The following table sets forth information concerning the compensation paid
or accrued to our Chief Executive Officer for the three years ended December 31,
2000.  None of our  other  executive  officers  earned  cash  salary  and  bonus
exceeding $100,000 during fiscal 2000.

<TABLE>
<CAPTION>
                                                                Long-Term Compensation
                                                                        Awards
                                                               -------------------------
                                                               Restricted    Securities
                                                                  Stock      Underlying         Other
Name and Principal Position     Year    Salary (1)    Bonus    Awards (3)    Options (2)   Compensation (4)
---------------------------     ----    ----------    -----    ----------    -----------   ----------------
<S>                             <C>      <C>         <C>        <C>            <C>             <C>
S. Steven Carl                  2000     $129,706    $13,600         --             --         $8,155
  Chairman of the Board,        1999     $122,469    $11,444    $16,500             --         $6,356
  Chief Executive Officer       1998     $ 82,100         --         --        100,000         $6,120
  and President
</TABLE>

(1)  Mr.  Carl also  received  certain  perquisites,  the value of which did not
     exceed 10% of his salary and bonus during fiscal 2000.
(2)  The  exercise  prices of all stock  options  granted were equal to the fair
     market value of our common stock on the date of grant.
(3)  The awards of restricted  stock are calculated by  multiplying  the closing
     market  price of our  common  stock on the date of grant by the  number  of
     shares awarded. In connection with his employment  agreement,  Mr. Carl was
     granted 50,000 shares of restricted common stock at market value.
(4)  Other  compensation  consists of 401K Plan  matching  contributions  and an
     automobile allowance.

EMPLOYMENT AGREEMENTS

     Effective  June 15, 1999, we entered into an employment  agreement  with S.
Steven Carl. The employment agreement has an initial term through June 15, 2001,
and is subject to automatic renewal for successive  one-year terms unless either
party  requests to  renegotiate  or terminates the agreement by giving the other
party at least six months' written notice.

     Mr. Carl's employment  agreement provides for him to serve as our President
and Chief Executive Officer.  The employment  agreement provides for Mr. Carl to
receive a base salary of $115,500  with annual  increases of 15% per year during
the term of the agreement, which salary is currently $132,825 per year. However,
in the event the agreement is automatically  renewed,  the base salary shall not
increase without  approval by the Board of Directors.  Mr. Carl is also entitled
to receive annual  bonuses,  payable in cash or with shares of our common stock,
equal to 7.5% our  annual  EBITDA  before  giving  effect  to any  extraordinary
accounting events or accounting impacts from discontinued  operations.  Mr. Carl
received a bonus of $13,600  during  fiscal  2000.  The value of bonuses paid in
common  stock shall be based on the closing bid price of our common stock on the
last trading day of the relevant year to which the bonus  relates.  Our Board of
Directors  may also award Mr.  Carl such other  bonuses  and  increases  in base
salary as warranted from time to time. During any fiscal year during the term of
the agreement,  if we achieve our projected  EBITDA,  as projected by our annual
budget  approved by our Board of Directors at the  beginning of the fiscal year,
Mr. Carl shall be entitled to receive an  additional  incentive  bonus of 25,000
shares of common stock.

     In addition, the employment agreement generally requires us to

          -    Provide  Mr.  Carl with a  monthly  car  allowance  of $500 or an
               automobile suitable for business use;

          -    Reimburse  Mr.  Carl for all  travel,  entertainment,  and  other
               ordinary and necessary  expenses  incurred in connection with our
               business and his duties under the employment agreements; and

          -    Provide  such  other  fringe  benefits  that  we  make  generally
               available to our other senior executives.

                                       14
<PAGE>
     Upon  execution  of the  employment  agreement,  we granted Mr. Carl 50,000
shares of restricted common stock.

     The employment agreement may be terminated by reason of resignation, death,
disability,  or as a result of termination of employment "for cause," as defined
in the  agreement.  In the event of a  termination  of the  agreement  or if the
agreement  expires without being renewed or extended,  Mr. Carl will resign as a
director of our company effective on the date of termination or expiration.

     The employment agreement also prohibits Mr. Carl from

          *    Competing  with  us  for a  period  of 18  months  following  the
               termination of his employment with our company,

          *    Taking  certain  actions  intended  to solicit  other  persons to
               terminate their business relationship with us or to terminate his
               or her employment relationship with us, and

          *    Making  unauthorized  use or  disclosure  of our trade secrets or
               other confidential information.

PERFORMANCE EQUITY PLAN

     During 1996, we adopted the  Performance  Equity Plan to enable our company
to  offer  to  our  key  employees,  officers,  directors,  and  consultants  an
opportunity  to acquire a proprietary  interest in our company and to link their
interests  and  efforts to the  long-term  interests  of our  stockholders.  Our
stockholders  approved the plan in July 1996. The plan provides for the granting
of awards to employees, officers, directors, and consultants eligible to receive
awards under the plan. These awards may include stock options, restricted stock,
stock appreciation rights, deferred stock, stock reload options, and other stock
based  awards.  A total of 1,000,000  shares of common stock may be issued under
the plan.  As of March 15,  2000,  no shares of our common stock had been issued
upon  exercise of options  granted  under the plan,  and there were  outstanding
options to acquire  626,500 shares of our common stock.  The plan will remain in
effect  until no further  grants can be made and no awards  remain  outstanding,
however, incentive stock options may only be made through May 2006.

     Awards may be made or granted  only to persons who at the time of grant are
key  employees,  officers,  directors,  and  consultants  who are deemed to have
rendered or to be able to render  significant  services to our company,  and who
are deemed to have  contributed  or to have the  potential to  contribute to the
success of our company.  Options that are  incentive  stock  options may only be
granted to  employees of our  company.  To the extent that  granted  options are
incentive  stock  options,  the terms and  conditions  of those  options must be
consistent with the qualification requirements set forth in the Internal Revenue
Code.

     The plan is administered  by the Board of Directors,  except that the Board
of  Directors  may  delegate  its power to  administer  the plan to a  committee
appointed by the Board of  Directors.  The Board of  Directors or the  committee
will have the authority to administer all matters governing the plan,  including
the persons  eligible to receive  awards,  the terms and conditions of grants of
awards,  the  specified  performance  goals or other  criteria  that  need to be
attained for the vesting of awards, and the substitution of any awards.

     The  exercise   prices,   expiration   dates,   maximum  number  of  shares
purchasable,  and the other provisions of the options will be established at the
time of grant. The exercise prices of options may not be less than 100% (110% if
the option is granted to a  stockholder  who, at the time of grant,  owns common
stock  possessing  more than 10% of the  combined  voting  power of all class of
stock of our  company) of the fair market  value of our common stock on the date
of grant.  Options  may be granted for terms  determined  by the  committee  and
become  exercisable in whole or in one or more  installments at such time as may
be  determined  upon grant of the options,  and may be waived at any time by the
committee.

     Under the plan,  the Board of  Directors  or the  committee  also may award
shares  of  restricted  stock or other  stock-based  awards  either  alone or in
addition to other awards  granted under the plan.  The committee  will determine
the eligible persons,  the number of shares to be awarded, the price (if any) to
be paid by the holder, and all other terms and conditions of such awards.

     Upon a merger or other  recapitalization of our company,  such substitution
or  adjustment  will be made in the  aggregate  number  of shares  reserved  for
issuance  under the plan, in the number,  terms of, and exercise price of shares

                                       15
<PAGE>
subject to  outstanding  awards,  as may be determined to be  appropriate by the
committee in order to prevent  dilution or enlargement of rights.  Upon a change
of control of our company that is not authorized by our Board of Directors,  the
vesting  periods  of all  awards  granted  and  outstanding  under the plan will
accelerate and become fully vested and immediately exercisable.

1993 INCENTIVE STOCK OPTION PLAN

     During October 1993, we adopted,  and our stockholders  approved,  the 1993
Incentive  Stock  Option  Plan  to  advance  the  interests  of our  company  by
encouraging  and enabling key  employees to acquire a financial  interest in our
company and to link their  interests and efforts to the  long-term  interests of
our  stockholders.  The plan  provides for the granting of stock  options to key
employees  of our  company.  A total of  350,000  shares of common  stock may be
issued under the plan.  As of March 15, 2001,  10,000 shares of our common stock
had been issued upon exercise of options  granted under the plan, and there were
outstanding options to acquire 88,000 shares of our common stock under the plan.

     Options  may be granted  only to  persons  who at the time of grant are key
employees  of our  company.  The plan is  administered  and  interpreted  by the
compensation  committee of the Board of Directors.  The committee determines the
individuals  to whom, and the time or times at which,  options are granted,  the
number of shares subject to each option, the duration,  exercise price, vesting,
and other terms and conditions of options granted.

     In no event  will the  exercise  price of an  option  be less than the fair
market  value of our common  stock on the date of grant.  Options may be granted
for terms of up to but not exceeding ten years from the date of grant.

     In the event of any  recapitalization  of our company,  the committee  will
adjust  the  number of shares of stock  available  for  options,  as well as the
shares and exercise  prices  subject to any options.  The plan will terminate on
the  earliest  of (a) the date  when all  shares of common  stock  reserved  for
issuance under the plan have been acquired  through  exercise of options granted
under the plan,  (b)  October  2003,  or (c) such  earlier  date as the Board of
Directors may determine.

OPTIONS AND WARRANTS

     In addition to the options  under the 1993 Plan and the 1996 Plan,  we have
outstanding  the  following  options and warrants as of December  31, 2000:  (i)
warrants to purchase  85,000 shares of Common Stock at $3.00 per share issued to
Perrin,  Holden & Davenport  Capital  Corporation in connection with its private
placement in December 1996, (ii) an option to purchase 171,490 units,  each unit
consisting of one share of Common Stock and one warrant to purchase one share of
Common Stock at $2.00 per share,  issued to GKN and its  designees in connection
with the private  placement in April 1996,  (iii) warrants issued to consultants
to purchase  395,500  shares of Common Stock at prices  ranging from $0.21875 to
$2.75 per share,  (iv) other  options  issued to employees  to purchase  390,000
shares of Common Stock at prices  ranging  from $0.3125 to $1.75 per share,  (v)
warrants to purchase 300,000 shares of Common Stock at prices ranging from $1.31
to $2.00 per  share,  issued to GKN and its  designees  in  connection  with the
exercise of 150,000  units in June 1997 and (vi)  warrants  to purchase  125,000
shares  of  Common  Stock at  prices  ranging  from  $1.18 to  $1.47  issued  to
InterEquity  in  connection  with the term loan in  September  1997.  All of the
foregoing  securities are exercisable  into an aggregate of 2,352,980  shares of
Common Stock.

OPTION GRANTS

     We did not grant any stock options to Mr. Carl during the fiscal year ended
December 31, 2000.

                                       16
<PAGE>
YEAR-END OPTION HOLDINGS

     The following  table provides  information  with respect to options held by
Mr. Carl as of December  31,  2000.  Mr. Carl did not  exercise  options  during
fiscal 2000.

                               Options Held as of December 31, 2000
                               ------------------------------------
Name                           Exercisable            Unexercisable
----                           -----------            -------------
     S. Steven Carl              230,000                  20,000

(1)  None of the  unexercised  options listed had any value at fiscal  year-end,
     because the exercise  price of all the options  held by the listed  officer
     was  greater  than $0.17 per share,  which was the  closing  sales price of
     HERC's common stock as quoted on the OTCBB on December 29, 2000.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth certain information  regarding the shares of
our  common  stock  beneficially  owned as of  January  31,  2001 by each of our
directors, each person known by us to be the beneficial owner of more than 5% of
our common stock and all of our directors and executive officers as a group.

                                                       Shares
                                                    Beneficially
     Name of Beneficial Owner (1)                     Owned (1)      Percent (2)
     ----------------------------                     ---------      -----------
     DIRECTORS AND EXECUTIVE OFFICERS:
     S. Steven Carl (3)                                747,709          6.25%
     R. John Armstrong                                  99,905             *
     Salvatore D. DiMascio (5)                          87,016             *
     Robert Affholder                                   17,200             *

     Directors and executive officers
       as a group (6 persons)                        1,360,530         11.29%

     5% STOCKHOLDERS:
     Laifer Capital Management (6)                   3,165,516         26.97%
     Norman H. Pessin (7)                              985,000          8.39%
     Shelby A. Carl (4)                                638,470          5.42%

----------
*    Less than 1%

(1)  Except  as  indicated,   and  subject  to  community   property  laws  when
     applicable,  each  officer and  director  named in the table above has sole
     voting  and  investment  power with  respect to all shares of common  stock
     shown as beneficially  owned by them. Except as otherwise  indicated,  each
     director,  officer or 5% stockholder  may be reached through our offices at
     2215 West Melinda Lane, Suite A, Phoenix, Arizona 85027.
(2)  The percentages shown are calculated based upon 11,737,633 shares of common
     stock  outstanding on January 31, 2001. The numbers and  percentages  shown
     include the shares of common  stock  actually  owned as of January 31, 2001
     and the  shares of common  stock  that the person or group had the right to
     acquire within 60 days of January 31, 2001. In  calculating  the percentage
     of  ownership,  all shares of common  stock that the  identified  person or
     group had the right to acquire  within 60 days of January 31, 2001 upon the
     exercise  of options  and  warrants  are deemed to be  outstanding  for the
     purpose of computing the  percentage of the shares of common stock owned by
     such person or group,  but are not deemed to be outstanding for the purpose
     of  computing  the  percentage  of the shares of common  stock owned by any
     other person.
(3)  Includes  230,000  shares of common stock  issuable  upon exercise of stock
     options.
(4)  Includes  50,000  shares of common stock  issuable  upon  exercise of stock
     options and warrants.
(5)  Includes  20,000  shares of common stock  issuable  upon  exercise of stock
     options.

                                       17
<PAGE>
(6)  The  information  is based  solely  upon a  Schedule  13D/A  filed with the
     Securities and Exchange  Commission as of March 15, 2001. Hilltop Partners,
     L.P., Laifer Capital Management, Inc., and Lance Laifer are affiliates with
     respect to each other.  Hilltop  beneficially  owns 1,574,616 shares of our
     common stock,  and Laifer Capital  Management  beneficially  owns 3,165,516
     shares of our common stock in its capacity as investment advisor to various
     investment  entities including Hilltop.  Mr. Laifer is the president,  sole
     director, and principal stockholder of Laifer Capital Management, Inc., and
     is  deemed  to  have  the  same  beneficial  ownership  as  Laifer  Capital
     Management,   Inc.  The  address  for  Hilltop  Partners,   Laifer  Capital
     Management,  and Lance Laifer are c/o Laifer  Capital  Management,  Inc. 45
     West 43rd Street, 9th Floor, New York, New York 10036.
(7)  Norman H. Pessin is a principal  of  Neuberger & Berman,  LLC, a registered
     broker/dealer and registered investment advisor. Mr. Pessin has sole voting
     and  dispositive  power with respect to all shares of our common stock held
     by him.  The address for Mr.  Pessin is c/o  Neuberger & Berman,  LLC,  605
     Third Avenue, New York, NY 10158.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     We have entered into transactions with a subcontractor whose President is a
member  of our  Board of  Directors.  Under  the  terms of this  agreement,  the
subcontractor has the right of first refusal for  subcontractor  work in certain
territories.  In  exchange,  the  subcontractor  will notify us of any  business
opportunities in these territories.  Amounts paid to the subcontractor  pursuant
to this contract were $1,656 during fiscal 2000 and $24,695 during fiscal 1999.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

     (a) Exhibits

Exhibit No.                         Exhibit
-----------                         -------

3.1     Certificate of Incorporation of the Registrant (1).

3.2     By.Laws of the Registrant (1).

4.1     Specimen of Common Stock certificate (1).

4.2     Form of Warrant  Agreement issued to Perrin,  Holden & Davenport Capital
        Corporation dated December 17, 1996 (2).

4.3     Form of Agency  Agreement  between the Registrant  and Perrin,  Holden &
        Davenport Capital  Corporation dated as of November 15, 1996, as amended
        (2).

4.4     Form of Warrant  Agreement  between the  Registrant  and GKN  Securities
        Corp. dated November 19, 1996 (3).

4.5     Form of Warrant and Registration Rights Agreement between the registrant
        and the Equity Group dated September 27, 1996 (3).

10.1    1993 Incentive Stock Option Plan, as amended (1).

10.2    Agency Agreement  between the Registrant and GKN Securities  Corporation
        dated March 4, 1996 (4).

10.3    Form of Purchase  Option issued to GKN  Securities  Corporation  and its
        designees (4).

10.4    Form of Warrant Agreement issued to investors on April 3, 1996 (4).

10.5    Form of  Subscription  Agreement  between the  Registrant  and investors
        dated April 3, 1996 (4).

10.6    1996 Performance Equity Plan (5).

10.7    Form of Purchase  Option issued to GKN  Securities  Corporation  and its
        designees dated June 18, 1997 (6).

                                       18
<PAGE>
10.8    Account  Transfer and Purchase  Agreement by and between the Registrant,
        H.E.R.C.  Consumer Products,  Inc., and KBK Financial Incorporated dated
        September 22, 1997 (6).

10.9    Agreement by and between the Registrant and the U.S. Navy dated August 8
        (6).

10.10   Lease by and between the Registrant and Roger Buttrum dated May 14, 1996
        (6).

10.11   Form of Warrant  Agreement  between the  Registrant and Jerry Ludwig and
        Associates dated September 3, 1997 (6).

10.12   Form of Warrant  Agreement  between the Registrant and Shelby Carl dated
        September 3, 1997 (6).

10.13   Amendment to Stock  Option  Agreement by and between Gary S. Glatter and
        the Registrant dated March 23, 1995 (6).

10.14   Amendment No. 2 to Stock Option Agreement by and between Gary S. Glatter
        and the Registrant dated February 1, 1997 (6).

10.15   Employment  Agreement  by and between S. Steven Carl and the  Registrant
        dated June 15, 1999 (7).

21      Subsidiaries of the Registrant

23      Consent of Independent Public Accountants (Arthur Andersen LLP)

----------
(1)  Incorporated  by reference to the  Registrant's  Registration  Statement on
     Form SB-2,  (Registration  No.  33-75166),  as filed with the Commission on
     February 11, 1994.
(2)  Incorporated  by reference to the  Registrant's  Current Report on Form 8-K
     dated December 17, 1996, as filed with the Commission on December 20, 1996.
(3)  Incorporated  by reference to the  Registrant's  Registration  Statement on
     Form S-3  (Registration  No.  333-19361),  as filed with the  Commission on
     January 7, 1997.
(4)  Incorporated by reference to the Registrant's  Annual Report on Form 10-KSB
     for the fiscal year ended  December 31, 1995, as filed with the  Commission
     on April 15, 1996.
(5)  Incorporated by reference to the  Registrant's  Schedule 14A, as filed with
     the Commission on May 16, 1996.
(6)  Incorporated by reference to the Registrant's  Annual Report on Form 10-KSB
     for the fiscal year ended  December 31, 1997, as filed with the  Commission
     on March 31, 1998.
(7)  Incorporated  by reference  to the  Registrant's  Quarterly  Report on Form
     10-QSB  for the  quarter  ended  September  30,  1999,  as  filed  with the
     Commission on November 15, 1999.

     (b) Reports on Form 8-K

     Not applicable.

                                       19
<PAGE>
                 H.E.R.C. PRODUCTS INCORPORATED AND SUBSIDIARIES

                   Index to Consolidated Financial Statements

                                                                        Page No.
                                                                        --------

Report of Independent Public Accountants                                  F-2

Financial Statements:
   Consolidated Balance Sheet
      December 31, 2000                                                   F-3
   Consolidated Statements of Operations
      Years Ended December 31, 2000 and 1999                              F-4
   Consolidated Statements of Stockholders' Equity
      Years Ended December 31, 2000 and 1999                              F-5
   Consolidated Statements of Cash Flows
      Years Ended December 31, 2000 and 1999                              F-6

Notes to Consolidated Financial Statements                                F-7


                                       F-1
<PAGE>
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To H.E.R.C. Products Incorporated:

We have audited the accompanying consolidated balance sheet of H.E.R.C. PRODUCTS
INCORPORATED (a Delaware  corporation) AND SUBSIDIARIES as of December 31, 2000,
and the related consolidated statements of operations,  stockholders' equity and
cash flows for the years  ended  December  31,  2000 and 1999.  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 audit
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 H.E.R.C.  PRODUCTS INCORPORATED
AND  SUBSIDIARIES  as of December 31, 2000, and the results of their  operations
and  their  cash  flows for the  years  ended  December  31,  2000 and 1999,  in
conformity with accounting principles generally accepted in the United States.


                                           /s/ Arthur Andersen LLP

Phoenix, Arizona
March 15, 2001

                                       F-2
<PAGE>
                 H.E.R.C. PRODUCTS INCORPORATED AND SUBSIDIARIES

                           Consolidated Balance Sheet

                                December 31, 2000

                                     ASSETS
CURRENT ASSETS
  Cash and cash equivalents                                        $    302,392
  Trade accounts receivable, net of allowance for
    doubtful accounts of $41,179                                        327,777
  Inventories                                                            38,131
  Deferred expenses                                                      72,897
  Other receivables                                                      10,351
  Prepaid expenses                                                       84,236
                                                                   ------------
      Total Current Assets                                              835,784
                                                                   ------------

PROPERTY AND EQUIPMENT
  Property and equipment                                              1,193,421
  Less: accumulated depreciation                                       (707,507)
                                                                   ------------
      Net Property and Equipment                                        485,914
                                                                   ------------

OTHER ASSETS
  Patents, net of accumulated amortization of $79,621                   128,142
  Patents pending                                                        72,424
  Refundable deposits and other assets                                   22,853
                                                                   ------------
      Total Other Assets                                                223,419
                                                                   ------------
                                                                   $  1,545,117
                                                                   ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
  Accounts payable                                                 $    105,227
  Accrued wages                                                          69,866
  Current portion of notes payable                                       13,166
  Customer deposits                                                      42,617
  Other accrued expenses                                                108,300
                                                                   ------------
      Total Current Liabilities                                         339,176
                                                                   ------------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
  Preferred stock, $10.00 stated value; authorized
    1,000,000 shares; issued and outstanding zero shares                     --
  Common Stock, $0.01 par value; authorized 40,000,000 shares;
    issued and outstanding 11,702,728 shares                            117,027
  Additional paid-in capital                                         13,990,085
  Accumulated deficit                                               (12,901,171)
                                                                   ------------
      Total Stockholders' Equity                                      1,205,941
                                                                   ------------
                                                                   $  1,545,117
                                                                   ============

The accompanying notes are an integral part of this consolidated balance sheet.

                                       F-3
<PAGE>
                 H.E.R.C. PRODUCTS INCORPORATED AND SUBSIDIARIES

                      Consolidated Statements of Operations

<TABLE>
<CAPTION>
                                                                    Years Ended December 31,
                                                                     2000              1999
                                                                 ------------      ------------
<S>                                                              <C>               <C>
SALES                                                            $  4,266,735      $  3,489,743
COST OF SALES                                                       2,271,346         1,613,620
                                                                 ------------      ------------
GROSS PROFIT                                                        1,995,389         1,876,123
SELLING EXPENSES                                                      393,556           403,955
GENERAL AND ADMINISTRATIVE EXPENSES                                 1,864,771         1,550,992
                                                                 ------------      ------------
OPERATING LOSS                                                       (262,938)          (78,824)
                                                                 ------------      ------------
OTHER INCOME (EXPENSE)
  Interest expense                                                    (15,014)          (18,105)
  Miscellaneous                                                        19,964            24,698
  Gain on sale or disposal of equipment                                 1,104            96,028
                                                                 ------------      ------------
      Total Other Income                                                6,054           102,621
                                                                 ------------      ------------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES         (256,884)           23,797
  Income tax provision                                                     --                --
                                                                 ------------      ------------
INCOME (LOSS) FROM CONTINUING OPERATIONS                             (256,884)           23,797
DISCONTINUED OPERATIONS:
  Income from Disposition of Discontinued Segments                         --            73,063
                                                                 ------------      ------------
NET INCOME (LOSS)                                                $   (256,884)     $     96,860
                                                                 ============      ============
INCOME (LOSS) PER COMMON SHARE - BASIC AND DILUTED

INCOME (LOSS) FROM CONTINUING OPERATIONS                         $      (0.02)     $         --
INCOME FROM DISCONTINUED OPERATIONS                                        --              0.01
                                                                 ------------      ------------
NET INCOME (LOSS) PER COMMON SHARE                               $      (0.02)     $       0.01
                                                                 ============      ============

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
  BASIC                                                            11,682,847        11,596,318
                                                                 ============      ============
  DILUTED                                                          11,682,847        11,658,081
                                                                 ============      ============
</TABLE>

The accompanying notes are an integral part of this consolidated balance sheet.

                                       F-4
<PAGE>
                 H.E.R.C. PRODUCTS INCORPORATED AND SUBSIDIARIES

                 Consolidated Statements of Stockholders' Equity

<TABLE>
<CAPTION>
                                             Common Stock           Additional
                                       -----------------------       Paid-in       Accumulated
                                         Shares        Amount        Capital         Deficit           Total
                                       ----------     --------     -----------     ------------     -----------
<S>                                    <C>            <C>          <C>             <C>              <C>
BALANCE, DECEMBER 31, 1998             11,491,921     $114,919     $13,923,793     $(12,741,147)    $ 1,297,565

Net Income                                     --           --              --           96,860          96,860

Issuance of shares of Common Stock        160,932        1,610          48,791               --          50,401
                                       ----------     --------     -----------     ------------     -----------

BALANCE, DECEMBER 31, 1999             11,652,853      116,529      13,972,584      (12,644,287)      1,444,826

Net Loss                                       --           --              --         (256,884)       (256,884)

Issuance of shares of Common Stock         49,875          498          17,501               --          17,999
                                       ----------     --------     -----------     ------------     -----------

BALANCE, DECEMBER 31, 2000             11,702,728     $117,027     $13,990,085     $(12,901,171)    $ 1,205,941
                                       ==========     ========     ===========     ============     ===========
</TABLE>

The accompanying notes are an integral part of this consolidated balance sheet.

                                       F-5
<PAGE>
                 H.E.R.C. PRODUCTS INCORPORATED AND SUBSIDIARIES

                      Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                      Years Ended December 31,
                                                                     ---------------------------
                                                                        2000              1999
                                                                     ---------         ---------
<S>                                                                  <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES
 Net Income (Loss)                                                   $(256,884)        $  96,860
 Adjustments to reconcile net income (loss) to net cash
   provided by (used in) operating activities
   Depreciation and amortization                                       244,637           219,969
   (Gain) loss on sale or disposal of equipment                         (1,104)          (96,028)
   Common stock issued for services                                     17,999            50,401
   (Increase) decrease in assets
     Trade accounts receivable                                         545,268          (256,689)
     Inventories                                                         7,859           (26,560)
     Deferred expenses                                                  45,546          (104,450)
     Other receivables                                                  (1,740)           (4,356)
     Prepaid expenses                                                   29,544           (70,349)
     Refundable deposits and other assets                               39,726            14,414
    Increase (decrease) in liabilities
     Accounts payable                                                 (158,235)          107,812
     Accrued wages and other accrued expenses                         (166,937)          139,032
     Customer Deposits                                                  42,617           (42,447)
     Change in net liabilities of discontinued operations                   --           (40,314)
                                                                     ---------         ---------
         Net cash provided by (used in) operating activities           388,296           (12,705)
                                                                     ---------         ---------
CASH FLOWS FROM INVESTING ACTIVITIES
 Capital expenditures                                                 (112,962)         (164,885)
 Cash received from the sale of equipment                                7,170           106,000
 Expenditures related to patents and patents pending                   (22,274)          (51,025)
                                                                     ---------         ---------
         Net cash used in investing activities                        (128,066)         (109,910)
                                                                     ---------         ---------
CASH FLOWS FROM FINANCING ACTIVITIES
 Proceeds from issuance of notes payable and long-term debt            151,870           155,996
 Principal payments under notes payable                               (175,430)         (210,526)
                                                                     ---------         ---------
         Net cash used in financing activities                         (23,560)          (54,530)
                                                                     ---------         ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                   236,670          (177,145)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                        65,722           242,867
                                                                     ---------         ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                           $ 302,392         $  65,722
                                                                     =========         =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
  Cash paid during the period for interest                           $  15,014         $  18,105
  Cash paid during the period for income taxes                              --                --
</TABLE>

The accompanying notes are an integral part of this consolidated balance sheet.

                                       F-6
<PAGE>
                 H.E.R.C. PRODUCTS INCORPORATED AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2000 AND 1999

1.  NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

H.E.R.C.   Products  Incorporated  and  subsidiaries  (the  "Company")  provides
pipeline  rehabilitation  services for marine,  fire protection,  potable water,
wastewater and industrial  systems and  manufactures  and sells water  treatment
chemicals.  Recently the Company began  offering  tank-cleaning  services to the
marine and other  industries.  The  Company's  wholly  owned  subsidiaries,  CCT
Corporation ("CCT") which manufactured and distributed proprietary  agricultural
products and HERC  Consumer  Products,  Inc.  ("HCP")  which  marketed  consumer
products  toward   wholesale  and  retail   customers,   are  accounted  for  as
discontinued operations (Note 2).

The  Company's  strategy  has  involved  concentrating  its efforts on providing
pipeline  rehabilitation  and other  cleaning  services  to a  diverse  group of
customers.  The Company has  undertaken  and continues to undertake  substantial
efforts to diversify its customer base and expand its markets. In 2000 and 1999,
sales  to the  U.S.  Navy  under  the  Portsmouth  contract  were  73% and  70%,
respectively,  of consolidated sales. The 5-year U.S. Navy contract is renewable
each year at the option of the U.S.  Navy.  If the U.S. Navy renews the contract
for any such year,  the minimum annual amount that the U.S. Navy must spend with
HERC to meet the  obligations  of the  contract is  approximately  $75,000.  The
5-year  U.S.  Navy  contract  expires in  September  2002.  Included in accounts
receivable at December 31, 2000 is $166,142 for the U.S. Navy.

PRINCIPLES OF CONSOLIDATION AND PREPARATION OF FINANCIAL STATEMENTS

The accompanying  consolidated  financial statements include the accounts of the
Company and its wholly owned subsidiaries. All significant intercompany accounts
and transactions  have been eliminated in  consolidation.  All references to the
Company  herein  refer  to the  Company  and its  subsidiaries.  CCT and HCP are
accounted for as discontinued operations (Note 2).

The preparation of financial statements in conformity with accounting principles
generally  accepted in the United States  requires  management to make estimates
and assumptions  that affect the reported  amounts of assets and liabilities and
disclosure of  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.

                                       F-7
<PAGE>
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CASH AND CASH EQUIVALENTS

Cash and cash  equivalents  include cash on hand, bank checking and money market
accounts and other highly liquid investments with original maturities of 90 days
or less.

INCOME TAXES

The Company  accounts for income taxes in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 109, ACCOUNTING FOR INCOME TAXES. SFAS No. 109
requires  the use of an asset or  liability  approach in  accounting  for income
taxes. Deferred tax assets and liabilities are recorded based on the differences
between the financial  statement and tax bases of assets and liabilities and the
tax rates in effect when these differences are expected to reverse.

STOCK-BASED COMPENSATION

The Company  accounts for its stock-based  compensation  plans under  Accounting
Principles  Board Opinion No. 25 (APB No. 25), under which no compensation  cost
is  recognized  if the  exercise  price on the  options  granted  is equal to or
greater than the market value.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated  fair value of financial  instruments  has been  determined by the
Company  using  available  market   information  and  valuation   methodologies.
Considerable  judgment is required in estimating fair values.  Accordingly,  the
estimates  may not be  indicative  of the  amounts  that would be  realized in a
current market exchange. The carrying values of cash equivalents, trade accounts
receivable,  accounts  payable,  other  accrued  liabilities  and notes  payable
approximate fair value due to the short maturities of these instruments.

INVENTORIES

Inventories  are stated at the lower of cost or market (net  realizable  value).
Cost  is  determined  by  a  method  that  approximates   first-in,   first-out.
Inventories consist primarily of finished goods.

                                       F-8
<PAGE>
PROPERTY, EQUIPMENT AND DEPRECIATION

Property and  equipment  are stated at cost.  Depreciation  is computed over the
estimated useful lives of the assets by the  straight-line  method for financial
reporting.

Property and equipment at December 31, 2000 are:

     Equipment                             $ 1,017,818
     Office furniture and computers            175,603
                                           -----------
                                             1,193,421
     Less accumulated depreciation            (707,507)
                                           -----------
     Net property and equipment            $   485,914
                                           ===========

The Company  periodically  evaluates the carrying value of long-lived  assets in
accordance with SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
AND FOR LONG LIVED  ASSETS TO BE DISPOSED  OF.  Under SFAS No.  121,  long-lived
assets  and  certain  identifiable  intangible  assets  to be held  and  used in
operations are reviewed for impairment whenever events or circumstances indicate
that the carrying amount of an asset may not be fully recoverable. An impairment
loss is recognized if the sum of the expected long-term  undiscounted cash flows
is less than the carrying amount of the long-lived assets being evaluated.

The useful lives of property and equipment for computing depreciation range from
three to ten years. Depreciation expense was $219,208 and $193,111 for the years
ended December 31, 2000 and 1999, respectively.

PATENTS AND PATENTS PENDING

Patents issued are stated at cost and amortized on the straight-line  basis over
10 years.  Costs for patents pending are amortized when the patents are awarded.
Unamortized costs for patents that are denied or have no continuing  application
to the Company's  ongoing  businesses as well as maintenance costs are expensed.
Such expenses were approximately  $8,000 and $9,000 for the years ended 2000 and
1999, respectively.

REVENUE RECOGNITION

The Company  recognizes  revenue  when  persuasive  evidence  of an  arrangement
exists,   delivery  has  occurred,   the  fee  is  fixed  or  determinable   and
collectability  is probable.  Generally,  all of these conditions are met at the
time products are shipped to customers or services are completed.  Costs related
to  uncompleted  projects of $72,897 at December 31, 2000 are deferred until the
projects are completed.

                                       F-9
<PAGE>
RESEARCH AND DEVELOPMENT

Research and development  costs are expensed as incurred.  The Company estimates
that it spent $24,000 and $13,000 on research and development  activities during
fiscal 2000 and 1999, respectively.

EARNINGS PER SHARE

The Company has adopted SFAS No. 128,  EARNINGS PER SHARE.  Pursuant to SFAS No.
128,  basic earnings per common share are computed by dividing net income (loss)
by the weighted average number of shares of common stock outstanding  during the
year.

A reconciliation  of the basic and diluted earnings per share (EPS)  computation
for the years ended December 31, 1999 and 2000 is as follows:

                                               Year Ended December 31, 1999
                                         ---------------------------------------
                                         Net Income         Shares     Per Share
                                         (Numerator)    (Denominator)    Amount
                                         -----------    -------------    ------
Basic EPS                                $  96,860        11,596,318     $ 0.01
                                                                         ======
Effect of stock options and warrants            --            61,763
                                         ----------       ----------
Diluted EPS                              $  96,860        11,658,081     $ 0.01
                                         =========        ==========     ======

                                               Year Ended December 31, 2000
                                         ---------------------------------------
                                         Net Income         Shares     Per Share
                                         (Numerator)    (Denominator)    Amount
                                         -----------    -------------    ------
Basic EPS                                $(256,884)       11,682,847     $(0.02)
                                                                         ======
Effect of stock options and warrants            --                --
                                         ----------       ----------
Diluted EPS                              $(256,884)       11,682,847     $(0.02)
                                         =========        ==========     ======

RECENTLY ISSUED ACCOUNTING STANDARDS

In June 1998, the Financial  Accounting  Standards  Board (FASB) issued SFAS No.
133 (as amended by SFAS No. 138),  ACCOUNTING  FOR  DERIVATIVE  INSTRUMENTS  AND
HEDGING  ACTIVITIES,  which requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial  position and measure
those  instruments at fair value.  The issuance of SFAS No. 137,  ACCOUNTING FOR
DERIVATIVE  INSTRUMENTS AND HEDGING  ACTIVITIES - DEFERRAL OF THE EFFECTIVE DATE
OF FASB STATEMENT NO. 133,  delayed the required  effective date of SFAS No. 133
to all fiscal years  beginning after June 15, 2000. The Company will be required
to adopt SFAS No.  133,  as  amended,  on January 1, 2001.  Management  does not
believe  that the  adoption of SFAS No.  133,  as amended,  will have a material
impact on its results of operations or financial position.

On December 3, 1999, the Securities  and Exchange  Commission  staff (the Staff)
issued Staff  Accounting  Bulletin (SAB) 101,  REVENUE  RECOGNITION IN FINANCIAL
STATEMENTS.  Subsequent to its issuance, the Staff elected to defer the required
implementation  date.  The Company  adopted SAB 101 during the fourth quarter of

                                      F-10
<PAGE>
2000, effective January 1, 2000. The adoption of SAB 101 did not have a material
impact on the Company's financial position or results of operations.

2.  DISCONTINUED OPERATIONS
During  the  fourth  quarter  of 1998,  the  Company  concluded  the sale of the
business  of its  wholly  owned  subsidiary  HCP,  which is  accounted  for as a
discontinued operation in the accompanying  financial statements.  In connection
with this sale, the Company received cash  consideration of $200,000,  plus a 3%
royalty of future adjusted annual revenues above $1 million on certain  consumer
products for a period of three years from the closing date. These royalties will
be  recognized  as revenue when and if they are earned.  During 1999, a disputed
marketing  agreement and certain other issues were resolved  resulting in income
from disposal of this discontinued segment of $73,063.

3. INCOME TAXES
The provision (benefit) for income taxes consists of the following:

                                       Year Ended December 31,
                                         2000          2000
                                       --------      --------
     Current                           $     --      $     --
     Deferred                                --            --
                                       --------      --------
                                       $     --      $     --
                                       ========      ========

The components of deferred taxes as of December 31, 2000, are as follows:

     Current deferred tax assets:
       Accruals not currently deductible for tax                    $    49,194
       Current portion of valuation allowance                           (49,194)
                                                                    -----------
                                                                    $       --
                                                                    ===========

     Non-current deferred tax assets:
       Book amortization/depreciation in excess of tax and other    $    65,241
       Net operating loss carry forwards for federal and
         state purposes                                               2,838,000
       Non-current portion of valuation allowance                    (2,903,241)
                                                                    -----------
                                                                    $        --
                                                                    ===========

The Company was in a consolidated tax loss position for the years ended December
31, 2000 and December 31, 1999, and therefore had no current  federal income tax
expense. Deferred tax assets of approximately $2,838,000 as of December 31, 2000
from  loss  carry  forward  benefits  have  not  been  recorded  because  of the
uncertainty of realizing such benefits.

                                      F-11
<PAGE>
A reconciliation of the U.S. Federal  statutory rate to the Company's  effective
tax rate is as follows:

                                                                      2000
                                                                      ----
     Statutory federal rate                                             34%
     Effect of state taxes                                               6%
     Change in valuation allowance                                     (40)%
                                                                      ----
                                                                        --
                                                                      ====

Net operating loss carry forwards for federal tax purposes totaled approximately
$7,219,000  at December 31, 2000.  These losses are  available for carry forward
against future years' taxable income, subject to certain limitations, and expire
in various years through 2020.

4. LONG TERM DEBT AND OTHER FINANCING ARRANGEMENTS

Long term debt and other  financing  arrangements  consist of the  following  at
December 31, 2000:

     Equipment financing                                          $  6,135
     Insurance financing                                             7,031
                                                                  --------
     Total financing                                                13,166
     Less current portion                                          (13,166)
                                                                  --------
     Total long term debt                                         $     --
                                                                  ========

The  Company has an  arrangement  for a  factoring  facility  whereby the factor
purchases  eligible  receivables and advances 80% of the purchased amount to the
Company.  Purchased  receivables may not exceed $600,000 at any one time. Either
party may cancel the  arrangement  with 30 days  notice.  At December  31, 2000,
there were no factored receivables.  This arrangement is accounted for as a sale
of receivables on which the factor has recourse to the 20% residual of aggregate
receivables  purchased and  outstanding.  Interest payable by the Company to the
factor is  calculated  as a fixed  discount fee equal to 1% of the amount of the
receivable factored plus a variable discount fee computed on the amount advanced
to the Company and accruing on the basis of actual days elapsed from the date of
the 80% advance until 5 days after collection of such account  receivable by the
factor at a per annum rate equal to an internal rate set by the factor.

5. STOCKHOLDERS' EQUITY

COMMON STOCK

In April 1996, the Company completed the private placement of 3,214,902 units at
a price of $.85 per unit and received net proceeds of approximately  $2,277,000.
Each unit consisted of one share of Common Stock and one warrant, which entitled
the  holder to  purchase  one share of Common  Stock at a price of $2 per share,
subject to adjustment,  until April 3, 1999. All 3,214,902  warrants  expired on

                                      F-12
<PAGE>
April 3, 1999. In addition, the placement agent was granted a warrant to acquire
321,490 units at $.935 per unit which  consists of one share of Common Stock and
one  warrant to acquire  one share of Common  Stock at $2.00 per share.  In June
1997, the placement  agent  partially  exercised the units and acquired  150,000
shares of common stock and 150,000  warrants.  The  remaining  171,490 units are
currently  exercisable  and expire April 3, 2001. In connection with the partial
exercise,  the Company  granted  warrants to  purchase an  aggregate  of 150,000
shares  of  Common  Stock at  $1.3125  per share to the  placement  agent.  Such
warrants are currently exercisable and expire on June 18, 2002.

During 1999 and 2000,  the  Company  issued  80,932 and 49,875  shares of Common
Stock,  respectively,  to its  outside  directors  as a  part  of  their  annual
compensation.

During 1999,  the Company  issued 80,000 shares of Common Stock to its executive
officers as compensation.

WARRANTS

As of December 31, 2000,  outstanding warrants issued for the purchase of shares
of Common Stock to various  consultants at exercise prices ranging from $0.21875
to $2.75 per share totaled 395,500.  The Company valued the warrants at the date
of grant  using a  Black-Scholes  model and is  amortizing  the  costs  over the
service  period.  All such warrants are currently  exercisable  within the above
price range and expire at various dates through September 2005.

In 1996, the placement  agent for the 1996 private  offering of Preferred  Stock
was  granted a warrant to  acquire  85,000  shares of Common  Stock at $3.00 per
share. The warrants are currently exercisable and expire in December 2001.

Warrants  for the  purchase of 125,000  shares of common  stock were issued to a
lender in September  1997.  Such  warrants are currently  exercisable  at prices
ranging from $1.18 to $1.475 through August 2003.

6. STOCK BASED COMPENSATION

In October 1993, the Company  adopted an incentive stock option plan for 350,000
shares of Common Stock that may be granted to employees.  The Company adopted an
additional  plan in 1996 for  1,000,000  shares  of  Common  Stock  for grant to
employees,  officers,  directors and  consultants  of the Company.  The exercise
price per share  may not be less than the fair  market  value on the date of the
grant. Generally, options granted vest over a period up to five years and expire
over varying periods through 2010.

                                      F-13
<PAGE>
In  addition  to the above  plans,  the Company  granted:  (1) a former  officer
options to purchase 250,000 shares of Common Stock at an exercise price of $1.75
per share.  The  options  are  currently  exercisable  and expire not later than
December 31, 2005; (2) a former Director  options to purchase  100,000 shares of
Common  Stock at  exercise  prices  ranging  from $2.50 to $4.00 per share.  The
options expired in December 1999; (3) various key employees  options to purchase
140,000  shares of Common Stock at an exercise  price of $0.3125 per share.  The
options,  granted  through 1995, are currently  exercisable  and expire no later
than 2002.

Overall activity in the Company's stock options:

<TABLE>
<CAPTION>
                                                     Years ended December 31,
                                       --------------------------------------------------
                                                2000                        1999
                                       -----------------------    -----------------------
                                                     Weighted-                  Weighted-
                                                      Average                    Average
                                                     Exercise                   Exercise
                                        Options        Price        Options       Price
                                        -------        -----        -------       -----
<S>                                    <C>            <C>          <C>            <C>
Outstanding, at beginning of year      1,064,500      $0.69        1,307,500      $0.95
Granted                                   80,000       0.36           50,000       0.33
Exercised                                     --         --               --         --
Canceled/Expired                         (40,000)      0.37         (293,000)      1.80
                                       ---------                  ----------
Outstanding at end of year             1,104,500       0.67        1,064,500       0.69
                                       =========                  ==========
Exercisable at end of year               956,000       0.72          879,100       0.75
                                       =========                  ==========
</TABLE>

Details regarding the options outstanding at December 31, 2000:

                     Outstanding                                 Exercisable
-------------------------------------------------------     --------------------
                                Weighted       Weighted                 Weighted
  Exercise                       Average        Average                  Average
    Price                       Remaining      Exercise                 Exercise
    Range            Number        Life          Price       Number       Price
    -----            ------        ----          -----       ------       -----
$0.30 - $0.33       774,500        2.54          $0.31      667,000       $0.31
$0.37 - $0.41        50,000        8.19          $0.39       13,000       $0.38
$1.00 - $1.75       280,000        3.28          $1.72      276,000       $1.72
                  ---------                                 -------
                  1,104,500                                 956,000
                  =========                                 =======

The weighted-average grant-date fair value of stock options granted to employees
during  the  year  and the  weighted  average  significant  assumptions  used to
determine those fair values using a Black-Scholes  option pricing model, and the
pro forma  effect on earnings  of the fair value  accounting  for stock  options
under SFAS No. 123 are:

                                      F-14
<PAGE>
                                                      Years ended December 31,
                                                    ----------------------------
                                                        2000            1999
                                                    ----------      ------------
Weighted average grant-date fair value              $     0.27      $      0.24

Significant assumptions (weighted average)
     Risk-free interest rate at grant date                6.49%             5.1%
     Expected stock price volatility                      89.4%            87.8%
     Expected dividend payout                               --               --
     Expected option life                              5 years        5.5 years
Net income (loss)
     As reported                                    $ (256,884)     $    96,860
     Pro forma                                        (264,386)            (771)
Net income (loss) per share of Common Stock
     As reported                                         (0.02)     $      0.01
     Pro forma                                           (0.02)              --

The expected  option life  considers  historical  option  exercise  patterns and
future changes to those exercise patterns anticipated at the date of grant.

7. SEGMENT INFORMATION

For the years ended  December 31, 2000 and 1999,  the Company's  major  business
segments are pipe cleaning services and industrial chemical sales.

Information by segment for the year ended December 31, 2000:

<TABLE>
<CAPTION>
                                                 Pipe         Industrial
                                               Cleaning        Chemical
                                               Services         Sales        Corporate       Consolidated
                                               --------         -----        ---------       ------------
<S>                                           <C>             <C>           <C>               <C>
Sales                                         $3,862,563      $404,172      $        --       $ 4,266,735
Income (loss) from continuing operations         747,085       142,086       (1,146,055)         (256,884)
Total assets                                     856,639        28,042          660,436         1,545,117
Depreciation and amortization                    179,889         7,511           57,237           244,637
Capital expenditures                              90,809        13,757            8,396           112,962
</TABLE>

Information by segment for the year ended December 31, 1999:

<TABLE>
<CAPTION>
                                                 Pipe         Industrial
                                               Cleaning        Chemical
                                               Services         Sales        Corporate       Consolidated
                                               --------         -----        ---------       ------------
<S>                                           <C>             <C>           <C>               <C>
Sales                                         $3,247,613      $242,130      $        --       $3,489,743
Income (loss) from continuing operations       1,036,347        44,092       (1,056,642)          23,797
Total assets                                   1,728,201        35,106          326,811        2,090,118
Depreciation and amortization                    156,093         5,999           57,877          219,969
Capital expenditures                             129,769            --           35,116          164,885
</TABLE>

                                      F-15
<PAGE>
8. COMMITMENTS AND CONTINGENCIES

LITIGATION

On or about  January  14,  1999 in the  Supreme  Court of the State of New York,
County of Suffolk,  the Suffolk County Water  Authority and R & L Well Drilling,
LLC filed as a  third-party  plaintiff a civil  claim  against the Company in an
action filed on April 8, 1998 by five  individual  residents of Ronkonkoma,  New
York,  alleging  negligence  resulting in personal  injury and seeking  monetary
damages of $11  million.  On October 9, 2000 the  Company,  acting  through  its
insurance  carrier  pursuant  to the  submitted  claim  under its  comprehensive
general  liability  policy,  obtained a judicial  stipulation  discontinuing the
action with prejudice as a result of a settlement by  contribution of $15,000 on
behalf of the Company tendered to plaintiffs by the Company's insurance carrier.
The  Company's  out of  pocket  cost  was  $5,000  for  the  insurance  contract
deductible  paid  to the  insurance  carrier  under  the  comprehensive  general
liability policy.

ENVIRONMENTAL MATTERS

Management  believes  the  Company  is in  compliance  with  federal  and  state
environmental regulations that pertain to the sale and use of its products.

LEASE COMMITMENTS

The  Company  has  operating  leases,  expiring  through  2003,  for  office and
warehouse  facilities  in Phoenix,  Arizona,  Portsmouth,  Virginia and National
City,  California and for office and other equipment.  Rental expense associated
with all operating leases was $247,368 and $220,929 for the years ended December
31, 2000 and 1999, respectively.

Future minimum payments under operating leases,  exclusive of any subleases,  as
of December 31, 2000 are:

     Years Ending
     December 31,                           Amount
     ------------                           ------

     2001                                 $ 247,622
     2002                                    67,494
     2003                                     4,998
                                          ---------
                                          $ 320,114
                                          =========

                                      F-16
<PAGE>
The Company has entered  into a sublease  for one of its two Phoenix  locations.
Under the terms of this sublease,  the Company will receive payments of $102,100
for the year ending December 31, 2001.

9. RELATED PARTY TRANSACTIONS

The Company has entered into transactions  with a subcontractor  whose President
is a  member  of the  Company's  Board of  Directors.  Under  the  terms of this
agreement,  the  subcontractor  has the right of first refusal for subcontractor
work in certain  territories.  In exchange,  the  subcontractor  will notify the
Company of any business opportunities in these territories.  Amounts paid to the
subcontractor  pursuant to this  contract  were $1,656 and $24,695 in 2000,  and
1999, respectively.

10. SUBSEQUENT EVENTS

On  February 9, 2001,  the Company  acquired  certain  tank and boiler  cleaning
assets of Industrial Chemical Cleaning  Incorporated.  In exchange,  the Company
assumed the existing debt that was secured by the particular  assets. The actual
amount  of debt to be  assumed  is still  being  negotiated  with  the  original
creditors,  but the  Company  estimates  that it will  be  between  $85,000  and
$110,000.

On  February  9, 2001,  the  Company  acquired a barge with a capacity of 19,500
barrels from Hampton Roads Barge Rental,  LLC. In exchange,  the Company assumed
approximately $90,000 of debt that was secured by the barge.

                                      F-17
<PAGE>
                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.


                                     H.E.R.C. PRODUCTS INCORPORATED


                                     By: /s/ S. Steven Carl
                                         ---------------------------------------
Dated:  March 20, 2001                   S. Steven Carl, President and Chief
                                         Executive Officer
                                         (Principal Executive Officer)

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
Registrant and in the capacities and on the dates indicated.

Name                                    Title                         Date


/s/ S. Steven Carl            Chairman of the Board, Chief        March 20, 2001
------------------------      Executive Officer and President
S. Steven Carl


/s/ Michael H. Harader        Chief Financial Officer             March 20, 2001
------------------------      (Principal Financial and
Michael H. Harader            Accounting Officer)


/s/ Salvatore DiMascio        Director                            March 20, 2001
------------------------
Salvatore DiMascio


/s/ R. John Armstrong         Director                            March 20, 2001
------------------------
R. John Armstrong


/s/ Robert Affholder          Director                            March 20, 2001
------------------------
Robert Affholder

                                       20