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, 2003
                         Commission File Number 1-13012

                        H.E.R.C.  PRODUCTS  INCORPORATED
                        --------------------------------
                 (Name of small business issuer in its charter)
                            DELAWARE               86-0570800
                            --------               ----------
     (State  or  other  jurisdiction of     (IRS Employer Identification Number)
     incorporation  or  organization)

          1420  COLUMBUS  AVENUE,  PORTSMOUTH,  VA  23704   (757)  393-0002
          -----------------------------------------------------------------
    (Address, including zip code, and telephone number, including area code, of
                           issuer's executive offices)

<TABLE>
<CAPTION>
           Securities registered pursuant to Section 12(b) of the Exchange Act:
<S>                                                                   <C>
                                                                      Name of each exchange
Title of each class. . . . . . . . . . . . . . . . . . . . . . . . .  on which registered
--------------------------------------------------------------------  ---------------------
COMMON STOCK, $.01 PAR VALUE . . . . . . . . . . . . . . . . . . . .  BOSTON STOCK EXCHANGE
--------------------------------------------------------------------  ---------------------
</TABLE>

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  revenue  for  its  most  recent  fiscal  year.  $5,838,088
As  of  March  5,  2004,  the aggregate market value of the voting stock held by
non-affiliates  of  the  registrant (6,592,129 shares) was $527,370 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, of $0.08.  For the purposes of this
calculation,  all  officers,  directors,  and  10%  beneficial  owners  of  the
registrant are deemed to be affiliates.  Such determination should not be deemed
to  be an admission that such officers, directors, or 10% beneficial owners are,
in  fact,  affiliates  of  the  registrant.

As  of  March  5,  2004, there were 12,365,586 shares of Common Stock issued and
outstanding.

Documents  Incorporated  by  Reference:  None


<PAGE>
                         H.E.R.C. PRODUCTS INCORPORATED
                          ANNUAL REPORT ON FORM 10-KSB
                       FISCAL YEAR ENDED DECEMBER 31, 2003

                                TABLE OF CONTENTS

                                                                            PAGE
                                                                            ----
PART  I
ITEM  1.     DESCRIPTION  OF  BUSINESS                                        2
ITEM  2.     DESCRIPTION  OF  PROPERTY                                       10
ITEM  3.     LEGAL  PROCEEDINGS                                              11
ITEM  4.     SUBMISSION  OF  MATTERS  TO  A  VOTE  OF  SECURITY  HOLDERS
                                                                             11

PART  II
ITEM  5.     MARKET  FOR  COMMON  EQUITY  AND  RELATED  STOCKHOLDER  MATTERS
                                                                             12
ITEM  6.     MANAGEMENT'S  DISCUSSION  AND  ANALYSIS                         13
ITEM  7.     FINANCIAL  STATEMENTS                                           18
ITEM  8.     CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON
             ACCOUNTING  AND  FINANCIAL  DISCLOSURE                          18
ITEM  8A.    CONTROLS  AND  PROCEDURES                                       18

PART  III
ITEM  9.     DIRECTORS  AND  EXECUTIVE  OFFICERS  OF  THE  REGISTRANT        19
ITEM  10.    EXECUTIVE  COMPENSATION                                         20
ITEM  11.    SECURITY  OWNERSHIP  OF  CERTAIN  BENEFICIAL  OWNERS  AND
             MANAGEMENT  AND  RELATED  STOCKHOLDER  MATTERS                  24
ITEM  12.    CERTAIN  RELATIONSHIPS AND RELATED TRANSACTIONS                 24
ITEM  13.    EXHIBITS,  LIST  AND  REPORTS  ON  FORM  8-K                    25
ITEM  14.    PRINCIPAL  ACCOUNTANT  FEES  AND  SERVICES
SIGNATURES                                                                   28
INDEX  TO  CONSOLIDATED  FINANCIAL  STATEMENTS                              F-1

            ________________________________________________________

                 STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

     The  statements contained in this report on Form 10-KSB that are not purely
historical  are  forward-looking statements within the meaning of the securities
laws.  These  statements  typically  use  words  or  phrases  like  "believe,"
"expects,"  "anticipates," "estimates," "will continue" and similar expressions.

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, "Description of
Business-Risk  Factors,"  in Item 6, "Management's Discussion and Analysis," 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, our expectations and beliefs may change, and we may come
to  believe that certain forward-looking statements in this report are no longer
accurate.  We do not have an obligation to correct or revise any forward looking
statements in this report, even if we believe the forward looking statements are
no  longer  true.


<PAGE>

                                     PART I

ITEM  1.     DESCRIPTION  OF  BUSINESS

OUR  COMPANY

     We  provide  chemical cleaning services for water pipe systems, waste water
systems,  cooling  towers  and  HVAC  systems,  tanks  and  boilers,  and  other
water-based  and  industrial chemical process systems using our proprietary line
of  specialty  chemical  products  and  chemical cleaning processes.  We use our
patented  and  proprietary  chemical products and chemical cleaning processes to
remove  scale  and corrosion from pipeline systems, water systems, and surfaces.
Chemical  cleaning  service  markets  are  the main source of our revenue, which
include  municipal,  industrial,  governmental,  commercial, and other customers
serviced  directly  and  through  strategic  marketing  alliances.  Our  largest
customer  is currently the U.S. Navy.  We provide chemical cleaning services for
pipe  systems  and  tanks  on  U.S.  Navy  and  U.S.  Coast  Guard  vessels.

We  derive the majority of our revenue from two sources, cleaning  sewer, "CHT",
systems  on  U.S. Navy and U.S. Coast Guard vessels (pipe cleaning) and cleaning
bilge, fuel, oil, catapult and CHT tanks on ships (tank cleaning).  We have been
particularly  subject to the deployment and servicing schedules of the U.S. Navy
as  well  as  the available maintenance funds in the Navy budget.  The impact of
the  Navy  deployment  to the Middle East in support of the Afghanistan and Iraq
military  engagements  in the first three quarters of 2003 significantly reduced
the  availability  of ships in port for maintenance and consequently our service
opportunities  with our primary customer.  We have experienced increased service
opportunities  with our largest customer beginning in the fourth quarter of 2003
and  the  first  quarter of 2004 after the return of much of the Navy fleet from
these  extended  deployments.

Over  time  most  water  and water-based systems, such as potable water delivery
systems,  fire  sprinkler systems, waste systems, process water systems, holding
tanks,  and  water  wells  develop  internal  surface  scale,  corrosion,  and
tuberculation.  These  corrosive  substances  reduce  the diameter through which
water  and  waste  can  travel  through  the  pipes, causing a less efficient or
non-functioning  system.  Our  cleaning  methodologies  remove the 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  chemical  formulation,  when  circulated  through  an
obstructed  pipe  system,  dissolves and removes scale and corrosion build-up in
solution  until  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  the  following:

-     Pipe-Klean  and  Well-Klean,  which remove encrustation from water pumping
and  distribution  systems;

-     Compound  360  and Compound 400 which clean and maintain cooling and other
water  treatment  systems;  and

-     Line-Out  which  cleans drip irrigation systems and removes salt from soil
surfaces.

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

Our  company  was  incorporated  in  Arizona  in  December  1986  and
re-incorporated  in  Delaware  in  May  1994.  Our  executive  offices,  service
operations,  warehouse  and  manufacturing  facility  for  our chemical products
relocated  in  2003  to  1420  Columbus  Avenue,  Portsmouth,  Virginia  and our
telephone  number  there is (757) 393-0002.  Our new west coast offices, service
operations,  and warehouse facility for our chemical products was established in
January 2004 at 155 West 55th Street, Suite C, National City, California and our
telephone  number  in  that  office  is  (619)  427-0776.


<PAGE>

Our  website  is located at www.hercprod.com.  Through our website, we make
available free of charge our annual report on Form 10-KSB, our quarterly reports
on  Form  10-QSB, our current reports on From 8-K, our proxy statements, and any
amendments  to  those  reports  filed  or furnished pursuant to Section 13(a) or
15(d)  of  the  Securities Exchange Act of 1934.  These reports are available as
soon  as  reasonably practicable after we electronically file those reports with
the  Securities  and Exchange Commission.  We will provide to any person without
charge,  upon  request, charters of our Audit Committee and Nominating/Corporate
Governance  Committee;  our  Code  of  Business  Conduct and Ethics, and Code of
Ethics  for the CEO and Senior Financial Officers, and any amendments or waivers
thereto;  and  any  other  corporate governance materials contemplated by SEC or
applicable  regulations.  To  request a copy of these documents, you may contact
our  corporate  secretary  at  our  principal  executive  offices.


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, cooling towers, water tanks, industrial production processes, waste water
systems,  collection-holding-transfer  (CHT)  systems, waste tanks, and landfill
drainage  systems.  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  due to increased
efficiency,  safety,  and  effectiveness  with  less  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
NSF International and Underwriters Laboratories, or UL, for use as well cleaning
and  pipe cleaning aids in drinking water systems.  NSF Standards were developed
under  authority  of  the  federal  Environmental Protection Agency to establish
minimum  requirements  for the control of potential adverse human health effects
from  products  used  in  drinking  water  systems.


TANK  CLEANING

     In February 2001, we acquired the operating assets of a Norfolk area marine
tank  cleaning company to add to our marine and land based water and waste water
system cleaning services.  We provide marine tank cleaning services to U.S. Navy
and  Coast  Guard vessels through our agreements with private shipyards and ship
repair  companies,  and  through  a  subcontract  under a SupShip tank and bilge
cleaning  agreement  renewable  annually  to  2005.  We  clean fuel, oil, bilge,
catapult,  and  CHT  tanks.


PIPE  CLEANING

Overview

     In the pipe cleaning segment of our business, we derive the majority of our
revenue from chemical cleaning of marine CHT systems on U.S. Navy and U.S. Coast
Guard  vessels.  Since  we  commenced  CHT cleaning in 1997 and tank cleaning in
2000,  our  most profitable operations have been in these marine related markets
despite  reduced  availability  of  ships in port available for maintenance as a
result  of  U.S.  Navy  deployment  to  the  Middle  East for most of 2003.  Our
increased  service  opportunities  with our largest customer increased after the
return  of much of the Navy fleet from these extended Middle East deployments in
the  fourth  quarter  of  2003  demonstrate  the  long-term  demand and customer
satisfaction  for  these  services.  Our  non-marine pipe cleaning services have
relied  to  a significant degree on the cash generated from these marine related
service markets and have yet to demonstrate positive cash flow apart from marine
services.  In  view  of  this  experience, we intend to reduce our marketing and
sales  support  efforts  in  non-marine  related services operations in favor of
expanding  these  non-marine services through patent licensing to third parties.


<PAGE>

While  we  will  continue  to  support  non-marine service operations to satisfy
licensee  requirements  and  customer  demands  for these services, we intend to
expand our marketing and sales efforts in the marine services aspect of our pipe
cleaning  business.

Marine  Services

     Our marine applications focus on the cleaning of water and waste water pipe
systems  on  ships  including  CHT, tank, fire main, and countermeasure washdown
systems.  For  example,  the  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
U.S.  Coast  Guard  and  the U.S. Navy.  Following on our five year CHT contract
awarded  solely  to  us by the U.S. Navy-Supervisor of Shipbuilding, or SupShip,
office  in  Portsmouth,  Virginia,  on  September 20, 2002 we were awarded a new
worldwide  five-year agreement with SupShip which expires during September 2007.
Of  all  the  firms  responding  to the Navy solicitation, two awards were made.
Under  this  agreement,  we  clean  pipe  systems  on board ships for indefinite
quantities  of  chemical  cleaning services at fixed prices.  SupShip offices of
the  Atlantic and Pacific Fleets and the maintenance office of the United States
Coast  Guard  use  this  worldwide  CHT  contract.

To  supplement  our  worldwide 2002 CHT contract, we utilize a five-year General
Service  Administration  service  supply contract issued in December of 2000 for
delivery  of  marine  services  on  a  worldwide basis.  This GSA service supply
contract  allows  the  U.  S.  Navy  and  U.S.  Coast Guard to access our marine
services  as  an alternative contract source of procurement to our CHT contract,
giving  marine  services procurement officers another contract option to use our
Company's  services.

In  order  to  meet  the  requirements of the worldwide CHT contract and the GSA
service contract, we have located an office in Portsmouth, Virginia and in a new
National  City,  California  office,  near  the port in San Diego, to expand our
ability  to  offer  pipe-cleaning services to the Atlantic Fleet, Pacific Fleet,
Western  United  States Coast Guard, and other east and west coast customers and
have  deployed  cleaning  units for service in Puget Sound, Hawaii, Japan, Guam,
and  Egypt.

Fire  Protection

     We  patented  our  proprietary  process method for chemically cleaning fire
protection  systems  in  2000.  Since  then, we have chemically cleaned multiple
fire protection systems for several customers in several industries.  We believe
that  our company has a significant advantage in securing fire protection system
chemical  cleaning  work  because  we  have  patents  that  cover the process of
chemically  cleaning  and  passivating  a  fire  protection  system.

The  fire  protection  industry  is  in  the beginning stages of learning how to
diagnose  and  treat  the  problem of microbiologically influenced corrosion, or
MIC,  in fire sprinkler systems.  Sprinkler systems across the United States and
abroad  have been found to have severe internal corrosion resulting from MIC and
are  not  achieving  required  operational  levels.  As  a  result  of increased
awareness of MIC by the fire protection industry, the American and National Fire
Sprinkler  Associations  have recognized our method for cleaning and passivating
fire  protection systems.  We continue to pursue certification by Factory Mutual
and  IRI-Hartford  Steam  Boiler,  two  of the major insurers of fire protection
systems,  in  order  to more aggressively market our services to this segment of
the  water  pipe  system  market.

The  market  for  fire  protection  system  pipe  cleaning could grow rapidly if
insurance  companies  or governmental regulation were to require building owners
to maintain properly functioning fire protection systems inside their buildings.
We  continue  to consult with members of the industry on the development of fire
protection  system  operational  maintenance  standards.  In  addition  to  fire
protection  system performance problems, MIC causes minute leaks in water pipes,
which  results  in  damage  to  the  building structure, equipment, and business
inventory  contents.  To  avoid  operational problems and water damage, we offer
fire  protection  system  assessment  services  which  include  the  following:

-     internal  fire  system  pipe  inspection  and  video;
-     water  content  analysis;
-     scale  content  analysis;  and
-     recommended  remediation  method.


<PAGE>

Potable  Water

     Underground  potable  waterlines represent another market in which we offer
our  patented water pipe system cleaning services.  We have numerous product and
method  patents  covering  the  process  of  chemically  cleaning  potable water
distribution  systems.  In  addition, our chemical products have been tested and
certified  by  the  NSF for use as water well cleaning and pipe cleaning aids in
drinking water systems.  NSF standards were developed under the authority of the
EPA to establish minimum requirements for the control of potential adverse human
health  effects  from products used in drinking water systems.  Many states have
enacted  these  and  similar  standards.

Over  time,  potable  water  lines  develop chemical and biological corrosion, a
process  known as tuberculation.  Tuberculation is the most common problem found
in  potable water lines, and without proper cleaning, the useful diameter of the
pipe  will  become  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.

Public  and  private  water  infrastructure  capital and maintenance funding may
serve  to  create  large  markets  for system rehabilitation in the future.  The
practical  need  for  underground  water  distribution  system  cleaning  and
passivation  is  growing worldwide, and the U.S. Congress is beginning to budget
and  fund  water  distribution  rehabilitation programs administered through the
EPA.  We  believe  our core process patents directly address this practical need
with a more efficient, more economical, and less intrusive method of remediation
than  traditional  methods.

Specialty  Cleaning

     In  industrial  process plants, scale and tuberculation greatly reduce heat
exchange,  condensing,  and  liquid flow capacities in a variety of systems.  In
water  treatment  plants,  chemical  feed lines become internally clogged to the
point  where  they  do  not  function properly.  In fabric manufacturing plants,
process  pipe  systems  develop  chemical  scale deposits.  We currently provide
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

     Our industrial chemicals division manufactures and sells specialty chemical
products  using  our  proprietary  and patented formulas for applications in the
removal  of  salt,  scale, and corrosion and in the maintenance of process water
systems.  These products are currently Well-Klean, Line Out, and several process
water  products  currently  manufactured  under  private  label  for  DuPont.
Well-Klean  removes  scale  and  corrosion  in water wells.  Over time, the well
screen  and  many  other well components become clogged.  When added to wells as
directed,  Well-Klean  removes  the  harmful corrosion and corrosion by-products
from  the  well  components  and the surrounding aquifer to restore well pumping
characteristics,  ultimately  leading  to  improved  well  performance.

Line  Out cleans drip irrigation systems and removes salt from soils in the root
zone  of  turf  grasses on golf courses.  Drip systems become clogged with scale
over  time and require regular maintenance in order to continue to perform.  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 believe our Line
Out  product  provides  a  superior  method  of  cleaning  while improving water
distribution.  We  manufacture  Line  Out  as  a  private labeled product called
Deliminate  for  golf  courses  in  the  United  States.

Chlor*Rid  is  a  product developed from one of our core formulas to remove salt
from  surfaces  prior to the application of high performance paints or coatings.
During  1998,  we sold a 50% interest in our patent covering this application to
Chlor*Rid  International.  We  sold  our  remaining  50%  interest  in 2002, and
Chlor*Rid  became  the  sole  owner of Chlor*Rid.  Under the sales agreement, we
retain  royalties  on  future  sales  for  the  life  of  the  patent,  which is
approximately  12  years.


<PAGE>

We  sell  process  water  products  primarily under the trade name Compound 360.
These  products  de-scale  and  maintain  many  types  of process water systems,
including  cooling  towers,  heat  exchangers,  and condensers.  During 1999, we
entered  into  agreements with DuPont under which we manufacture 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  Dupont's  name  in  certain  marketing  representations.


MARKETING  AND  DISTRIBUTION

     We  market our products and services through our marketing and sales staff,
independent  distributors,  sales  representatives,  strategic partnerships, and
licensing  and  marketing  agreements.    While  we generate most of our revenue
from relatively few customers, we expect the high concentration levels to lessen
in  the  future  as  we  expand  the  menu  of marine services we provide to our
existing  customers  through multiple governmental procurement contract vehicles
and  private  contracting,  and by licensing both our marine and land-based pipe
cleaning  technologies  to  third-parties.  Nonetheless,  any  material  delay,
cancellation,  or  reduction  of  orders  from  these  customers  due to lack of
opportunity  to  perform  routine  maintenance  on marine vessels out of port on
extended  military  deployments  in  the  future  or  other factors could have a
material  adverse  effect  on  our results of operations and financial position.

Licensing our technologies to third parties allows us to expand our service
opportunities  in  both domestic and foreign marine and land-based pipe cleaning
markets  while  minimizing our operating business risks for associated marketing
and  labor costs otherwise required to service these markets.   In October 2003,
we  granted a five-year exclusive license to a Canadian company for the cleaning
of  municipal  potable  distribution  systems,  municipal  waste water treatment
process  and  pipe  systems,  commercial,  institutional  and  industrial piping
infrastructure  and  facilities,  and  water well rehabilitation in the Canadian
provinces  of  Ontario,  Quebec,  New Brunswick, Newfoundland, Nova Scotia, and
Prince  Edward  Island.  During  January  2004, we granted a five-year exclusive
license  to  Seiwa  Pro,  Ltd.  of  Osaka, Japan to use substantially all of our
chemical  cleaning  patents  and technology to clean marine ship piping systems,
municipal potable distribution systems, commercial, institutional and industrial
infrastructure  and  facilities  piping,  water  well  rehabilitation,  and fire
protection  sprinkler  systems  in  Japan,  China,  Taiwan, Korea, Singapore and
Malaysia.  The  license  agreement  provides that Seiwa will pay us royalties at
rates  designated  in  the  agreement  ranging from 3 to 10% of sales, with such
royalty  percentage  rates  decreasing  as  sales  volume increases.  Seiwa will
prepay  royalties of $500,000 net of treaty withholding taxes of $50,000, in two
equal  installments  of $225,000.  The first installment was due and paid during
January  2004,  and  accrues  interest  credited  for  the  benefit  of Seiwa as
additional  prepaid  royalty  at  the  rate  of  2.25%  per  annum.  The  second
installment  is  due  and  payable  during  July  2004, and once paid, the total
prepaid  royalty will accrue interest as additional prepaid royalty at a rate of
4.5%  per  annum.  Any interest accrued on the prepaid royalty will increase the
amount  of  the  prepaid  royalty as additional consideration for the use of the
prepaid  royalty  advanced.  The  agreement  requires  Seiwa  to  meet  minimum
royalties  of $50,000 in 2005 and $100,000 in each of 2006, 2007, and 2008.  If,
at  the  end of the primary term, there is any remaining prepaid royalty balance
after  application  of  credit for minimum royalties, we will repay to Seiwa the
balance  plus  accrued  interest.  In  the event the parties agree on applicable
terms,  we  may  permit Seiwa to convert any unearned prepaid royalty balance we
owe  them  into  shares  of our common stock.  In addition to these licenses, we
continue  negotiations  with  other  potential  foreign  and  domestic  licensee
prospects  for  use  of  patented  and  proprietary  technologies.


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 we do.  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  our  company.


<PAGE>

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.

We  compete principally on the basis of our methodology, ease of use, price, and
environmental  impact.  We  also  strive  to secure strategic relationships with
established  companies.  We  have 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

     We  formulate  and  package  our  industrial  products  at  our  plant  in
Portsmouth,  Virginia.  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

     We  rely  on  patent  protection,  including  the  following:

-     a  series  of U.S. patents for the use of our Pipe-Klean technology in the
cleaning  of  potable  water  distribution  and  fire  protection  systems;
-     a  U.S.  patent  on  the  mobile re-circulation units employed in the pipe
cleaning  process;  and
-     a  series  of  U.S.  patents on the core chemical technology used for pipe
cleaning  and  industrial  water  applications.

We  received a Notice of Allowance for our basic pipe-cleaning patents from
the  association  of European countries and applied for these patents throughout
Europe, the Far East, Australia, and Brazil during 1999 and 2000.  Additionally,
U.S.  Patent  applications  for Methods of Pipe Cleaning and improvements on the
basic  method  were  issued to by us during 1999 and 2000.  In 2002, we filed an
application  for  chemical  pipe  cleaning of certain systems on military marine
vessels.  The  marks  h.e.r.c.,  Well-Klean,  Pipe-Klean,  and  Line-out  are
registered  trademarks  of  our  company.

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

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 others may independently develop such processes,
concepts, ideas, and documentation.  Although we require all of our employees to
sign confidentiality agreements and covenants not to compete, we may not be able
to  protect  our trade secrets, and other companies may acquire information that
we  consider  to  be  proprietary.


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


<PAGE>

our  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.  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.

We  have  obtained  certification  for our 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,  we  have  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  we  are  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.  We cannot
provide  assurance  that in the future we 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  on  our  business.

Advertising  relating  to  our  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 we incurred approximately $20,000 during fiscal 2003 and
$10,000  during  fiscal  2002  on research and development activities related to
improving  our  cleaning  methodologies.  A  focus  of  our  recent research and
development  has been to support the expansion of our patent protected processes
and  methods  into  the  marine  services market, thereby increasing our service
opportunities  with our primary customers.  In 2002, a new application was filed
for  chemical  cleaning  of  certain  military  marine  vessel  systems.

In  January  2004,  we  entered  into a joint development agreement for the
further  development  of  our  HERC-KOAT technology for post-cleaning water pipe
surface  coating.  Our  development  associate paid us $25,000 for the right and
obligation to fund further develop the existing technology to a stage capable of
filing a patent application with the United States Patent and Trade Office.  Any
potential  patent  granted  would  be  jointly  owned.  Prior to the filing of a
patent application, either party may terminate the agreement with the consent of
the  other  party.  In  the  event of agreed termination, the party desiring the
technology  shall obtain from the other assignment of all right and title to the
technology  in  exchange  for repayment of all development costs incurred by the
assigning  party.


EMPLOYEES

     As  of  March  5,  2004,  we  had  70  employees.  Two of our employees are
executive  officers, 60 are engaged in field operations and production, four are
in  administration,  and four are in marketing and sales.  None of our employees
are  covered  by a collective bargaining agreement with us.  We believe that our
relationship  with  our  employees  is  good.


<PAGE>

SEASONALITY

     Sales of specialty chemical products and certain chemical cleaning services
are  seasonal  in  the  Snow  Belt  regions  of the United States.  Sales to our
primary  customers,  the  U.S.  Navy  and  the U.S. Coast Guard, and the private
shipyard  customers  who  prime  contract with them, are not subject to seasonal
variations.


RISK FACTORS

     The  following  factors,  in  addition to those discussed elsewhere in this
report,  should  be  carefully  considered  in  evaluating  our  business.
OUR  COMPANY HAS NOT RECENTLY BEEN PROFITABLE, MAY NEED FINANCING IN THE FUTURE,
DOES  NOT  HAVE  COMMITTED  SOURCES  OF  FINANCING  APART  FROM  OUR  FACTORING
ARRANGEMENT,  AND  CONTINUES  TO  FACE  SIGNIFICANT CONSTRAINTS ON CASH FLOW AND
LIQUIDITY  THAT  MAY  AFFECT  OUR  OPERATIONS.

Our  company has not been profitable in recent years. 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  or the need for capital to finance growth may 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  our  factoring  arrangement  and debt financing from
affiliates,  we  do  not  have  any  specifically  identified sources for future
financing  requirements.

We  may  need  additional  sources  of  financing  in order to carry on our
operations as presently conducted.  Any financing will likely include short-term
debt  borrowings  from  affiliates.  We  cannot  assure you that such additional
sources  of  financing  will  be  available  on  acceptable terms, if at all. If
additional  financing  is  not  available  to  us,  we  will  have  to implement
additional  measures to conserve cash and reduce costs, which may include, among
other  things,  making  additional  cost  reductions,  and reducing the scale of
marketing  and  sales  expenses in certain unprofitable operations.  However, we
cannot  assure  you that such measures will be successful.  Our failure to raise
required  additional  funds  would  adversely  affect  our  ability  to:

-     maintain,  develop,  or  enhance  our  service  offerings;
-     take  advantage  of  future  opportunities;
-     respond  to  competitive  pressures;
-     continue  operations;
-     acquire  and  retain  a  chief  financial  officer;  or
-     maintain  our  status  as  a  publicly  traded  company

DURING  FISCAL  2003,  THE  U.S.  NAVY  ACCOUNTED  FOR 15% OF OUR REVENUE; METRO
MACHINE  ACCOUNTED FOR 12% OF OUR REVENUE; MHI ACCOUNTED FOR 10% OF OUR REVENUE;
AND  EARL  INDUSTRIES  ACCOUNTED  FOR  21%  OF  OUR  REVENUE.

The  loss of all or a substantial portion of the business from any of these
customers  could  result in a material adverse effect on our revenue and results
of operations. Our GSA services contract extends through November, 2005, and our
CHT  chemical  pipe  cleaning  agreement  with  the  U.S. Navy currently extends
through  September  2007.  If  the U.S. Navy cuts back on the procurement of our
services  for  an  extended  length  of time, we may not be able to replace this
customer  in  a timely enough fashion. While we do not have a long-term contract
with  Earl  Industries,  a  prime  contractor  for  ship  repair and maintenance
services  with  the U.S. Navy in the Norfolk, Virginia port area, we continue to
obtain  competitively bid subcontract purchase orders from Earl Industries under
their  prime  contracts  with  the  Navy.


<PAGE>

Long-term  deployments  of  the  fleet  in  2003  significantly  reduced  the
availability  of  Navy  ships  for  routine  maintenance,  including  our marine
services  during  that  period.  The  impact  of  significant long-term military
naval deployments have had and could have a significant impact upon our business
since  many  of the U.S. Navy ships would be at sea or on call rather than being
in  maintenance  in  port.

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 or tanks
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 OUR ABILITY TO PROTECT OUR 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 we do 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.  While  we recently made application for patent protection
for  chemical cleaning in certain military marine vessel systems to address this
market,  Our  company  to  a  significant  degree  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 protections will not be
adequate  to  protect  us  from  competitors.

THE  LOSS  OF  ANY  OF OUR KEY EXECUTIVES AND OUR FAILURE TO ATTRACT, INTEGRATE,
MOTIVATE,  AND  RETAIN  ADDITIONAL  KEY  EMPLOYEES,  INCLUDING A CHIEF FINANCIAL
OFFICER,  COULD  HAVE  A  MATERIAL  ADVERSE  EFFECT  ON  OUR  BUSINESS.

     Our  success  depends  to  a  large  degree  upon  the skills of our senior
management  team  and  current  key  employees and upon our ability to identify,
hire,  and  retain  additional  sales,  marketing,  technical,  and  financial
personnel.  The  loss  of  any  of our key executives or the failure to attract,
integrate,  motivate,  and retain additional key employees could have a material
adverse  effect  on  our  business.  We may be unable to retain our existing key
personnel  or  attract  and  retain  additional  key  personnel.

We depend particularly upon our Chief Executive Officer and President, S. Steven
Carl,  who  also  serves  as  the  acting  Chief  Financial Officer.  We have an
employment  agreement  with  Mr.  Carl  in  the  capacity of President and Chief
Executive  Officer  originally  due to expire in June 2003.  The agreement terms
provide  that  employment  will  automatically  renew  six  months  prior to its
expiration  date unless the Board of Directors notifies him of its intent not to
renew  his  contract.  His  employment agreement was automatically renewed under
its  terms  in December 2002 until June of 2004.  In December of 2003, the Board
of  Directors  resolved to allow his employment agreement to automatically renew
under  its  terms  for  another  year  until  June  2005.

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.  A  successful  claim against our company that exceeds the insurance
limits  or  that  is  not  covered  will  have  a material adverse effect on our
financial  condition.


<PAGE>

A  SUBSTANTIAL  NUMBER  OF  SHARES  ARE  ELIGIBLE  FOR  FUTURE  SALE.

     As of March 5, 2004, there were outstanding 12,365,586 shares of our common
stock.  Approximately  12,198,347  of  these  shares are freely tradable without
restriction or further registration under the securities laws, unless held by an
"affiliate"  of  our  company,  as  that  term  is defined in Rule 144 under the
securities  laws.  Shares  held  by affiliates of our company are subject to the
resale  limitations of Rule 144.  The eligibility of these shares for resale may
have  a  depressive  effect  on  the price of our common stock or may reduce the
liquidity  of  our  common  stock.

THE  EFFECT  OF  OUTSTANDING OPTIONS AND WARRANTS ON MARKET PRICE AND LIQUIDITY.

     As  of  March  5, 2004, we had outstanding options and warrants to purchase
797,500  shares  of  our  common  stock.  The exercise price of these options or
warrants  exceeds  the  current  market  price  of  our  common  stock.  In  the
circumstance  where  the exercise of some of these options or warrants are equal
or  less  than  the  current market price of our common stock, these options and
warrants  may  have  an  adverse impact on the price and liquidity of our common
stock  in  the public market.  Also, the issuance of these shares will result in
dilution  to  current  stockholders.

DIRECTORS, OFFICERS, AND CERTAIN OTHER STOCKHOLDERS OWN A SIGNIFICANT PORTION OF
OUR  STOCK.

     Our  directors  and  executive  officers  beneficially  own  a  total  of
approximately  30.4%  of  the issued and outstanding shares of our common stock,
and  one  non-management  stockholder beneficially owns approximately 27% of the
issued  and  outstanding  shares  of  our  common  stock.  As  a  result of this
ownership,  these  persons  have  the  power effectively to control our company,
including  the  election  of  directors,  the determination of matters requiring
stockholder  approval,  and  other  matters  pertaining to corporate governance.
This  concentration  of  ownership  also  may  have  the  effect  of delaying or
preventing  a  change  in  control  of  our  company.

ENVIRONMENTAL  AND  OTHER  REGULATORY  ISSUES  MAY  IMPACT  OUR  OPERATIONS.

     Our  business  operations at our facility in Portsmouth, Virginia
include  some  storing, mixing, and shipping of chemical cleaning agents that we
use  at  customer  sites  to  clean  water  pipe  systems  or sell to customers.
Sometimes,  we  may  remove liquid product consisting of approximately 90% water
and  10%  petroleum  (diesel) product from a customer's job site during our tank
cleaning  operations  and  take  this waste to our facility prior to processing.
While  this  residual  is not classified as hazardous waste, we are monitored by
the  Division of Environmental Quality and Hampton Roads Sanitation Division and
subject  to  various  federal,  state and local laws and regulations. If a spill
were  to  occur,  we  could  be  subject to civil liability to third parties for
remediation  costs  or  other  damages  if leakage migrates onto the property of
others.


ITEM  2.     DESCRIPTION  OF  PROPERTY

     We  lease approximately 10,000 square feet of office and warehouse space in
Portsmouth,  Virginia,  and  approximately  4,404  square  feet  of  office  and
warehouse  space in National City, California.  We believe that these facilities
will  be  adequate  for our needs on the east and west coasts of the continental
U.S.  and  world-wide  operations  for the foreseeable future. The lease for our
corporate  headquarters  located  in  Portsmouth,  Virginia was due to expire in
January  2004.   We  renewed  the lease for another year at a rate of $3,900 per
month.  The lease for our new National City office is for a three-year term with
monthly rental rates of $3,083 for year one, $3,175 for year two, and $3,270 for
year  three.

Our  facility  in  Virginia  has  a  significant amount of open space behind the
office/shop.  Several  large  above-ground  tank  containers are located in this
area.  Some  of  the  containers  may  contain  a combination of water, muck, or
residual from old tank cleaning jobs. Before we vacate this facility, we will be
required  to  dispose  of  all  waste  properly.  We  have estimated the cost of
clean-up  and  disposal to be $114,500. This amount has been accrued at December
31,  2003.

Our  facility in California supports marine operations in the port of San Diego,
California, Pearl Harbor, Hawaii, and Puget Sound, Washington, and municipal and
industrial  operations  in  the  western  United  States.


ITEM  3.             LEGAL  PROCEEDINGS

     We  are  involved  in one legal proceeding arising out of our operations in
the  ordinary  course  of  business  in which we are the complainant party.  The
suit,  which  seeks  injunctive  relief  and damages, was brought to preclude or
otherwise  limit  the  benefits  we  believe  were  wrongfully  obtained  by the
defendants  as  a  result  of  the  misappropriation and use of our confidential
information  and  trade  secrets  by  a  former  employee.


<PAGE>

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

     Not  applicable.


<PAGE>

                                    PART II


ITEM  5.     MARKET  FOR  COMMON  EQUITY  AND  RELATED  STOCKHOLDER  MATTERS

     Our  common  stock  is  quoted on the OTCBB under the symbol "HERC", and is
listed on the Boston Stock Exchange under the symbol "HER."  The following table
sets  forth  the  high  and  low closing prices of our 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.

<TABLE>
<CAPTION>

                                              High    Low
                                              -----  -----
<S>                                           <C>    <C>
2004:
First Quarter (through March 19, 2004)        $0.07  $0.07

2003:
First Quarter. . . . . . . . . . . . . . . .  $0.10  $0.05
Second Quarter . . . . . . . . . . . . . . .   0.12   0.04
Third Quarter. . . . . . . . . . . . . . . .   0.12   0.07
Fourth Quarter . . . . . . . . . . . . . . .   0.11   0.05

2002:
First Quarter. . . . . . . . . . . . . . . .  $0.16  $0.09
Second Quarter . . . . . . . . . . . . . . .   0.19   0.09
Third Quarter. . . . . . . . . . . . . . . .   0.19   0.09
Fourth Quarter . . . . . . . . . . . . . . .   0.16   0.06

</TABLE>

As  of  March  5,  2004,  there were 144 record holders of our common stock.  On
March 5, 2004 the closing sales price of our common stock as quoted by OTCBB was
$0.08.


DIVIDEND  POLICY

     For the foreseeable future, we intend to retain future earnings, if any, 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 our common stock will be
entitled  to  receive such dividends, if any, as may be declared by our Board of
Directors  from  time  to  time out of legally available funds.  Payments of any
cash  dividends in the future will depend on our financial condition, results of
operations, and capital requirements as well as other factors deemed relevant by
our  board  of  directors.


<PAGE>

EQUITY  COMPENSATION  PLAN  INFORMATION

     The following table sets forth information with respect to our
common  stock  that  may  be issued upon the exercise of stock options under our
1993  Incentive  Stock  Option  Plan,  our  Performance  Equity  Plan, and other
outstanding  options  and  warrants  as  of  December  31,  2003.

<TABLE>
<CAPTION>
                            Number of Securities to be      Weighted Average            Number of Securities
                              Issued Upon Exercise of       Exercise Price of          Remaining Available for
                                Outstanding Options,       Outstanding Options          Future Issuance under
                               Warrants, and Rights        Warrants, and Rights          Equity Compensation
                                                                                          Plans (Excluding
                                                                                       Securities Reflected in
                                                                                              Column (a))
-------------------------------------------------------------------------------------------------------------
                                        (a)                          (b)                          (c)
                          --------------------------      ---------------------       ------------------------
<S>                                 <C>                            <C>                          <C>

Equity Compensation
Plans Approved by
Stockholders. . . . . . . . . . .   667,500                        $ 0.19                       3,332,500

Equity Compensation
Plans Not Approved by
Stockholders                        130,000                        $ 1.54                             ---

Total . . .. . . . . . . . . . .    797,500                        $ 0.41                       3,332,500
</TABLE>


RECENT  SALES  OF  UNREGISTERED  SECURITIES

     During  the  fourth quarter of 2003 we issued 75,000 shares of common stock
as  compensation  to  our  outside  Directors. These shares were issued under an
exemption  from  registration  pursuant to Section 4(2) of the Securities Act of
1933.


ITEM  6.     MANAGEMENT'S  DISCUSSION  AND  ANALYSIS

OVERVIEW

     The  year  ended  December 2003 was a very difficult one for our company.
The  lengthy,  albeit  temporary, U.S. military commitment in the Middle East in
fourth  quarter  of  2002 and the first three quarters of 2003, and particularly
the  extended  deployment of the fleet of our primary customer, the Navy, placed
substantial  financial  stress on the marine ship repair industry in general and
on  our  company.  While  our  company  was profitable for the nine months ended
September  30,  2002  and was cash flow positive for the year ended December 31,
2002,  the  lack  of  availability  of the Navy fleet on which to perform marine
services from the fourth quarter of 2002 until late in the third quarter of 2003
caused  a  dramatic  slowdown  in  revenue  opportunities  for  pipe and tanking
cleaning. During the operational aspect of the conduct of the U.S. Navy military
effort  in the Middle East in 2003, we believe as much as 75% of the total Naval
ships  worldwide  were  on  station  and  out  of  port  on  deployment.  This
circumstance  stands  in  stark  contrast  to  the  Navy's  routine  peacetime
maintenance and deployment schedules. The Navy fleet began returning in July and
August  of  2003  and  resulting  maintenance  purchase orders were not actively
solicited  by  the  Navy  until  the  fourth  quarter  of  2003.


<PAGE>

As  a  result  of  this  extended  Navy deployment and the financial stress that
resulted,  we  engaged  in large scale cost reductions in our administration and
operations  in  order  to  preserve  cash  on a going forward basis.  Operations
related  layoffs of two supervisors and one administrative employee in the first
quarter  of  2003  resulted  in  over  $140,000  of  annual  cash  savings.  The
responsibilities of these employees were reallocated to other personnel.  During
the  third  quarter  of 2003, we terminated a supervisor, a division manager, an
assistant sales manager, and the Chief Financial Officer, and we re-assigned the
Controller  from a full-time position to part-time for a total annual savings of
$440,000.  The  responsibilities of all terminated positions were reallocated to
current  personnel  with the Chief Executive Officer serving as the Acting Chief
Financial  Officer,  and  all  payroll  functions were assumed by administrative
personnel. In the fourth quarter of 2003, we initiated a review of our company's
property,  casualty,  and  liability  insurance  coverage for 2004, resulting in
premium  savings  of over $100,000 annually.  These Navy deployment-related cost
reductions in operations and administration resulted in almost $700,000 of total
annual  cash  preservation.

In the pipe cleaning segment of our business, we derive the majority of our
revenue from chemical cleaning of marine CHT systems on U.S. Navy and U.S. Coast
Guard vessels.  Since we commenced marine CHT cleaning in 1997 and tank cleaning
in  2000,  our  most  profitable  operations  have  been in these marine related
markets,  despite  the  Navy  deployment  to  the  Middle  East  in  2003  that
significantly  reduced the availability of ships in port for maintenance and, as
a  direct consequence, for our service opportunities with our primary customers.

Our  non-marine  pipe  cleaning  service  division,  which  has  relied  to  an
extraordinary  degree  on  the  cash  generated  from the marine related service
markets,  has  yet to demonstrate positive cash flow apart from marine services.
We  intend to reduce costs in non-marine related services operations in favor of
expanding  these  services  through  patent  licensing.  In the first quarter of
2004,  we  decided to reduce direct sales and marketing expense in the Specialty
and  Potable  division  for  the  U.S. market. While we will continue to support
non-marine service operations to satisfy customer demands for these services, we
will  redirect  our  efforts  to  promote  these  patented  technologies through
licensing  agreements in domestic and foreign markets with relationships we have
developed  in the business over the last three years.  Such efforts have yielded
an  eastern  Canadian license in the fourth quarter of 2003 and a license of Far
East  markets  to  Seiwa Pro, Ltd. in Japan in 2004.  The reduction in sales and
marketing  expense  in  this  business  segment  will  approximate  a savings of
$180,000  annually.  See  Notes to Consolidated Financial Statements, Footnote 6
regarding  Segment  Information.

When  cost  savings  from  reductions in marketing and sales costs in the
Specialty  and  Potable  division are combined with the cost reductions of 2003,
this  2004  strategy  will  total  annual  cash  saving  of almost $900,000 when
compared  to cash commitments existing in the first quarter of 2003.  After this
necessary  down-sizing,  we believe our current supervisory personnel and marine
service equipment can handle work loads up to $1 million of revenue business per
month  without  requiring  any  addition of selling, general, and administrative
staffing  expense  beyond  that  already  in  place  and  budgeted.

We  now  are  focusing  our  efforts  on  increasing revenue.  We have increased
service  opportunities  with  our  largest  customer  after  the return from the
extended Middle East deployments in late 2003. We believe there is the long-term
demand and customer satisfaction with our services, and we, therefore, intend to
expand our marketing and sales efforts in the marine services aspect of our pipe
cleaning  business.  As  work  schedules  have increased since the return of the
ships,  the  ship repair and maintenance business is busy in all ports with much
less  competitive  pricing due to the demand for marine services.  We anticipate
higher gross margins in comparison to marine market cleaning services offered to
the  Navy  in  full deployment. The return of our primary customer increased our
marine  service  opportunities  that returned an operating profit for the fourth
quarter  of  2003.

In  addition,  we  anticipate  increased  work  on ships as we execute the basic
purchase  order  specifications.  We  believe  the Navy is behind in maintenance
work  due to the extended deployments and must catch up. We believe Navy budgets
have  increased  and  should  increase  significantly  for  the 2005 fiscal year
beginning  in  October  2004.  We  expect more demand for ship maintenance needs
with  expanding  military  budgets  that  may cover two or three fiscal years of
defense  budgeting.

Our  annualized  cost  reductions  of  almost  $900,000  greatly exceed the
amounts of affiliate borrowing of $580,000 in 2003.  We do not expect to require
external financing over the next year.  The holder of the $400,000 one year term
note  dated  February  23, 2003, as extended to February 23, 2005, has agreed to
restructure  $200,000 of the debt to a due date of February 23, 2007. Other debt
restructuring  will  necessarily  depend  on  the  favorable  circumstances  we
anticipate  as  a  result  of the return of the Navy to port for the maintenance
services  we  provide.  Significantly,  we  have  demonstrated  a  history  of
operations  since  1997  without  requiring external debt financing prior to the
2003  extended  deployment  of  the  U.S.  Navy.


<PAGE>

APPLICATION  OF  CRITICAL  ACCOUNTING  POLICIES

     We  consider  the  following  accounting  policies  to  be  critical  to an
understanding  of  our financial statements because their application places the
most  significant  demands  on  our  judgment  with  financial reporting results
relying  on estimates about the effect of matters that are inherently uncertain.
We  base our estimates on historical experience and on various other assumptions
that  we  believe  are  reasonable under the circumstances. The results form the
basis  for  making judgments about the carrying values of assets and liabilities
that  are  not  readily apparent from other sources. Actual results could differ
significantly  from  those estimates under different assumptions and conditions.
Specific  risks  for  these  critical  accounting  policies are described in the
following  paragraphs.  For all of these policies, we caution that future events
rarely  develop  exactly  as  forecast, and the best estimates routinely require
adjustment.

Revenue  Recognition

     For  chemical  product sales, we recognize revenue at the time products are
shipped  to  customers.  The  terms of products sales are F.O.B. shipping point,
and we believe that revenue recognition is fully justified after the product has
left  our  blending  plant  with  attendant  financial  risks  assumed  by  our
purchasers.

For  most  marine,  industrial and municipal service projects conducted at fixed
prices within a short period of time, we recognize revenue when the services are
completed.  Most  of  these service engagements have a scope of performance time
less  than  three  months  and  are  not otherwise readily capable of reasonably
estimating  percentages  of completion based on costs incurred.  For fixed price
contracts  that  are  in  excess  of  three  months, we recognize revenue on the
percentage  of completion method, measured as the percentage of cost incurred to
date  of the estimated total cost for each contract.  Due to the time length and
revenue  size  of  these  contracts,  as an exception to our usual experience of
contract lengths of less duration and smaller revenue, we believe the percentage
of  completion  method  more  accurately  matches  revenue with costs that would
otherwise  distort  our  financial  reporting  awaiting  contract completion for
revenue  recognition.  We  use this method because we consider the percentage of
the  total cost to be the best available measure of progress on these contracts.
Our  experience  indicates that the percentage of completion method is therefore
required  to  be used on marine service engagements involving large Navy surface
fleet  vessels  such  as  aircraft  carriers.

Contract  costs  include  all direct material, subcontract labor, and other
costs  related to contract performance, such as indirect labor, supplies, tools,
and  repairs  under  the job order method of cost accounting.  Selling, general,
and  administrative costs are charged to overall corporate expenses as incurred,
and are not considered job order related costs.  Provisions for estimated losses
on  uncompleted  contracts  are  made  in  the  period  in which such losses are
determined.  Circumstances  requiring  provisions  for  estimated  losses  on
percentage of completion marine service jobs could arise when we are required by
our  2002 Portsmouth CHT contract to perform fixed price work on certain classes
of  ships  with inherently low gross profit margins resulting from the amount of
labor  required  to  service the ship due largely to the age of the ship and its
systems.  Changes  in  job  performance,  job  conditions,  and  estimated
profitability,  including  those  arising  from  contract penalty provisions and
final  contract  settlements,  may  result in revisions to estimates of contract
costs  and  profits, and are recognized in the period in which the revisions are
determined.

Allowance  for  Doubtful  Accounts

     We  estimate  the possible losses resulting from non-payment of outstanding
accounts  receivable.  We analyze accounts receivable customers to determine the
ultimate  collectibility  of  those  accounts.  While  most  of  our  accounts
receivable  stem from federal and local government contracts where collection is
reasonably  assured,  we perform ongoing evaluations of our customers for credit
worthiness,  economic  trends,  changes  in  our  customer  payment  terms,  and
historical  collection  experience when evaluating the adequacy of our allowance
for  doubtful  accounts  Experience  indicates  that  federal  military contract
receivables  are almost always paid within the expected time for collection when
we  are  the  contracting  party  with  the  agency.  Subcontracting  on federal
military contracts within private shipyards subjects our company to the risks of
the  shipyard,  and  while  most  of our private shipyard payments are virtually
never  in  doubt, we have had occasion to experience uncollectible accounts from
certain federal contractors in this market.  Municipal job experiences have been
less predictable for our company as a subcontractor, yielding more provision for
doubtful  accounts.


<PAGE>

If  information  is available to us to make a determination that there exists a
reasonable  probability  that  an  account  will not be collectible, we create a
reserve  for  that  account  at  the  time  of the determination and recognize a
related expense.  If the account is later collected, the reserve and expense are
reversed  in the current accounting period.  Since we must use our best judgment
as to which accounts will be collected, there exists the risk that some accounts
might  not  be  collected and thus could have a negative impact on our liquidity
and  results  of  operations.

Impairment  of  Long-Lived  Assets

     We periodically evaluate the carrying value of tangible assets dedicated to
chemical  pipe  and  tank  cleaning,  and intangible patents and trademarks.  We
review  long-lived  assets and certain identifiable intangible assets to be held
and used in operations for potential 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.  Future  losses may be recorded if cash flows are less than expected.
While  we  may  determine  that  employing certain long-lived assets that remain
unprofitable  requires the realization of the impairment of these assets, or the
consideration  of strategic transactions involving these assets in an attempt to
recover  these  capitalized  costs,  we  have  determined to license some of our
patent  assets  and  to continue to support our licensees while reducing certain
marketing and sales for non-marine operations involving these intangible assets.

We have not had, and do not have at this time, any plans to sell assets in order
to  recoup  capital  costs.  We do plan on continuing to license patents that we
have  for  rehabilitating water pipe systems in several countries and the United
States. The recent license agreement with Seiwa Pro, Ltd. for the Far East is an
example.  The success of our cleaning process on water mains and fire protection
systems  in  2003  has  resulted in our representing the technology to potential
licensees.  The  Seiwa  Pro  license  paid  $225,000  of  prepaid royalty and is
anticipated to produce the $225,000 balance of prepaid royalties this year.  The
potential  issuance  of  other  license  agreements would depend upon our patent
position  in  the  country of location of the intended licensor, the profile and
competence  of  the  licensor,  and  the  economic  terms  of  the  license.

Accruals

     Loss  contingencies  are recorded as liabilities when it is probable that a
liability  has been incurred and the amount of the loss is reasonably estimated.
Disclosure  is required when there is a reasonable possibility that the ultimate
loss  will  exceed  the  recorded  provision.  Contingent  liabilities are often
resolved  over  long time periods.  Estimating probable losses requires analysis
of  multiple forecasts that often depend on judgments about potential actions by
third  parties  such  as  regulators.


RESULTS  OF  OPERATIONS

Fiscal Year Ended December 31, 2003 Compared with Fiscal Year Ended December 31,
2002

     Sales  for the fiscal year ended December 31, 2003 were $5,838,088 compared
with  $6,491,113  for  fiscal  2002,  a  10% overall decrease.   Overall revenue
opportunities  with our primary customer, the U.S. Navy, were greatly diminished
in  2003  due  to  the  extended  deployment of a large percentage of the Navy's
serviceable  assets.

Tank  cleaning  service  revenue totaled $3,433,128 in fiscal 2003 compared with
$3,142,805  in  fiscal  2002. This represents a 9% increase despite the extended
Navy  deployment,  and  accounted  for  59%  of  our total revenue in 2003. Pipe
cleaning  service  revenue  was  $2,132,434  in 2003 compared with $3,176,334 in
2002.  A  total  of  $865,441 pipe cleaning service revenue was billed under the
Portsmouth  CHT contract with the Navy in 2003 compared with $2,167,234 in 2002.
Industrial  chemical  sales  were  $272,526  during  fiscal  2003  compared with
$171,974  during  fiscal  2002.

Our sales mix during 2003 changed significantly from 2002. Tank cleaning service
revenue  surpassed pipe cleaning service revenue in 2003 after our third year in
the  tank  cleaning business. We are continuing efforts to diversify our revenue
base by offering different services to our customers in multiple service markets
in order to reduce our dependence on one marine service provided to one customer
location.


<PAGE>

We  currently are focusing specific sales and marketing efforts in the areas of
marine,  industrial,  and  municipal  pipe  cleaning  as well as in the areas of
marine and land based tank cleaning.  Due to liquidity and cash flow constraints
and  the  continuing  absence  of  profitability  in the areas of industrial and
municipal markets of our pipe cleaning business segment, we intend to reduce the
related  sales  and  marketing  expenses in favor of licensing these services to
third  parties.   While  we  will  scale  back  our  non-marine  pipe  cleaning
operations,  we will continue to support existing licensees and customer demands
for these services.  In the future, we plan to continue our efforts to diversify
our  revenue  sources  and  thereby  our  reliance  on  one  large  customer.

Fewer  U.S. Navy ships being in port and available for maintenance resulted in a
significant  increase  in  the  competitiveness  for both pipe and tank cleaning
services  in  2003.  This  situation  had a significant effect on both sales and
margins  during  fiscal 2003.  Consolidated gross margins were 33% during fiscal
2003  and  43%  during fiscal 2002. Gross margins for our tank cleaning services
decreased  from  44% in 2002 to 32% in 2003. Gross margins for our pipe cleaning
services  were 35% in 2003 compared with 41% in 2002. This decrease reflects the
competitiveness  of  the  pipe cleaning business resulting from decreased demand
from  the  U.S.  Navy  due  to  extended  deployments  involving the Middle East
military  effort of 2003. We anticipate that, while future margins may fluctuate
with  changes  in  revenue  mix and other operational factors, the return of the
Navy  from the long deployment will provide increased demand for marine services
resulting  in  increased  gross  margins  in  2004

Gross  profit  decreased to $1,943,304 during fiscal 2003 from $2,761,077 during
fiscal  2002.  The  drop  in  sales and the margin pressures that we experienced
during  the  third  quarter  of  2003  with  few ships to be serviced among many
service  providers  contributed significantly to this decline.  Decreased profit
margins  in pipe cleaning services have resulted from competition on task orders
issued  under the multiple award of the 2002 Portsmouth CHT contract in contrast
to  our  sole  source  award of the 1997 Portsmouth CHT contract that expired on
September  4, 2002.  Decreased profit margins in the tank cleaning services were
due  to  price-cutting  among tank cleaning competitors for shipyard subcontract
awards  as  a  result  of  lack  of business volume preceding the return of Navy
vessels from overseas deployments associated with operations in the Middle East.

Performing pipe-cleaning services on different classes of ships in various ports
of  service  can  cause our gross margins to vary widely from one quarter to the
next  because  we  generate higher gross margins on certain classes of ships and
certain  ports of service than we do on others.  Margins are impacted due to the
fact  we  receive  service  awards  under  various  government  contracts either
directly  with the Navy or through subcontracts with shipyards, all of which are
subject  to differing contract pricing limitations and factors of competition in
the award markets.  Additionally, when we perform work under the 2002 Portsmouth
CHT  contract  outside  of  the state of Virginia, we incur certain reimbursable
travel  costs  that  are included in both revenue and cost of goods sold.  These
reimbursable  travel costs cause gross margins to be lower than the margins that
would  have  otherwise  been recognized had the work been performed in Virginia.

Selling  expenses  decreased to $403,079 in fiscal 2003 from $462,532 in fiscal
2002.  In  2003,  pipe  cleaning,  selling  expenses was $295,996 as compared to
$220,557  in  2002.  The overall increase reflects a continued investment in two
key  sales  people  and  related sales efforts and support to continue our sales
diversification  in  the  municipal and manufacturing segments of specialty pipe
cleaning segment. For tank cleaning, selling expenses was $67,766 as compared to
$68,394  in 2002. The decrease in selling expenses was primarily a result of one
less  sales  person  and  related  marketing  expenses.  Selling expenses in our
industrial  chemical  segment  was  $39,318  in  2003  and  $173,583  in  2002.

General  and  administrative expenses decreased to $2,141,070 during fiscal 2003
from  $2,644,771  during  fiscal 2002. The decrease was attributable to specific
factors. The first was a decrease of $87,000 that occurred in December 2002 from
the  relocation  of  our  corporate  office from Phoenix, Arizona to Portsmouth,
Virginia.  The  second  was  a  decrease of $114,000 related to the reduction of
salaried executive and management personnel in an effort to tighten controls and
reduce  spending,  including  the  severance  of  the Chief Financial Officer in
September  2003  and  the  assumption of the duties and responsibilities of that
office  by  the  Chief  Executive Officer.  Legal expenses for 2003 decreased by
$133,500  due  to the impact of a settlement of a legal dispute reported in that
amount  for  2002.  Another decrease of $25,000 was attributable to the scraping
and  disposal of fixed assets that could no longer be used or had outlived their
useful  life.


<PAGE>

Other  income and expense in 2003 reflected expense of $122,217 versus income of
$142,446  in  2002.  On  June  14,  2002,  we  executed a release and assignment
agreement  that  assigned  all  of our right, title and interest in any patents,
royalties,  manufacturing  rights  or  any other rights in the product Chlor*Rid
(R).  In  return,  we  received  a  cash  payment of $225,000 from Chlor*Rid (R)
International. The 2002 net profit includes a one-time gain of $225,000 from the
sale  of retained royalty rights associated with the Chlor*Rid patent previously
sold  and  assigned  to  Chlor*Rid  International,  Inc.  in 1998.  The retained
royalty rights sold in 2002 had no associated cost basis as the Chlor*Rid patent
asset  was  removed from our balance sheet pursuant to the sale of the patent in
1998.  This  payment  was  accounted  for  as  other  income.

For  the  year  ended  December  31,  2003, our operating loss was $621,535
compared  with an operating loss of $346,226 for 2002.  Net loss for fiscal 2003
was  $743,752  compared  with  a  net  loss  for  fiscal  2002  of  $203,780.


LIQUIDITY  AND  CAPITAL  RESOURCES

     Cash  was  $49,534  at  December 31, 2003 and $254,859 at December 31, 2002
while  working  capital  was $58,550 and $258,408 at those respective dates. Our
increased  spending  to  expand  our  west  coast  division  and enhance revenue
opportunities with our primary customer, the U.S. Navy, through subcontracts and
teaming  agreements  with  private  shipyards  was  a  major  contributor to our
decreased  cash  position at December 31, 2003.    We believe our cash flow from
operating  activities  will  be sufficient to meet our operating needs and other
payment obligations based on the end of the long-term deployment of the ships to
the  Middle  East  on  which  we  provide  tank  and  CHT  pipe  cleaning.

During  2002, we modified our factoring agreement. The initial payment when
the  factor  purchases  eligible  accounts receivable remained at 85%; the total
amount  of  the  facility was increased from $1,000,000 to $1,500,000; the fixed
discount  remained  the  same  at  0.75%  of  the gross face amount payable; and
interest  payable was reduced from the lender's Base Rate plus 2.0% to Base Rate
plus  1.5%.  Interest  on the outstanding balance accrues on the basis of actual
days  elapsed  from the date of the advance until three days after collection of
such  account.  Our  inventory,  accounts receivable, contract rights, and other
general  intangibles  secure  the  amounts factored under the agreement.  We are
required  to  maintain  tangible  net worth of not less than $750,000 during the
term  of  the  agreement.  As  of December 31, 2003, we had factored $730,071 of
accounts  receivable.  Additionally,  as  of  December  31, 2003, we were not in
compliance with the financial covenant of our factoring agreement respecting our
tangible  net  worth  On  April  5,  2004,  we executed a third amendment to our
factoring  agreement wherein the fixed discount rate was increased from 0.75% to
1.0%  in  exchange  for the complete removal of the tangible net worth financial
covenant.  As  a  result  of the long standing relationship we have had with our
accounts  receivable  factor  and  the  factor's  expressed desire to remain our
primary  operating  lender, the factor has agreed to consider reducing the fixed
discount  rate  back  to  0.75%  at  its next regularly scheduled loan committee
meeting.

We  rely  primarily  on  our  internally  generated  operating cash flow and our
factoring  arrangement  to  fund our operations. In 2003, we borrowed a total of
$580,000  from  shareholders  in  an effort to expand our west coast operations.

On  February  23,  2003,  we  entered  into  a  one-year renewable Interest Only
Non-Recourse Promissory Note and Security Agreement for $400,000 with one of our
Directors. The note is secured by a second position security interest behind the
secured  interest of our accounts receivable factor and was renewable at the end
of  the  original  term  by  the  mutual agreement of both parties. The note was
renewed  by  extension  until  February  23, 2005 and the parties have agreed to
extend  the  term  of  $200,000 of principal to be due on February 23, 2007. The
proceeds  will  be used to expand our CHT and tank cleaning business on the west
coast  and  support  working  capital  needs  in  our  current  operations.

     On September 12, 2003, we entered into a Promissory Demand Note for $30,000
with  our  Chief Executive Officer and Board Chairman. The proceeds will be used
to  expand  our  CHT  and  tank  cleaning business on the west coast and support
working  capital  needs  in  our  current  operations.

     On  December  2, 2003, we entered into a Promissory Demand Note for $50,000
with  our Chief Executive Officer and Board Chairman.  The proceeds will be used
to  expand  our  CHT  and  tank  cleaning business on the west coast and support
working  capital  needs  in  our  current  operations.


<PAGE>

     On  December 8, 2003, we entered into a six-month renewable Promissory Term
Note  for  $50,000 with one of our directors. The note can be renewed at the end
of  the original term by the mutual agreement of both parties. The proceeds will
be  used  to  expand  our  CHT  and tank cleaning business on the west coast and
support  working  capital  needs  in  our  current  operations.

     On December 17, 2003, we entered into a six-month renewable promissory term
note  for  $50,000  with  the  spouse  of  one of our directors. The note can be
renewed at the end of the original term by the mutual agreement of both parties.
The  proceeds  will  be used to expand our CHT and tank cleaning business on the
West  Coast  and  support  working  capital  needs  in  our  current operations.

Although  we  expect that our annual rate of cash utilization will continue
to decrease during fiscal 2004  compared with fiscal 2003, we may be required to
reduce  our  operations  or  to obtain additional financing if our cash forecast
proves  inaccurate  for  any  reason,  including  the  following:

-     our  revenue  fails  to  meet  our  forecast  and  continues  to  decline;
-     our  gross  profit  fails  to  meet  our  forecast and continues to erode;
-     our  operating  expenses  exceed  our  forecast;
-     our inability to acquire, compensate and retain a chief financial officer;
-     our  inability  to  maintain  our  status as a publicly traded company; or
-     unanticipated  events  adversely  effect  our  operations  or  cash flows.

We  may,  however,  sell additional debt or equity securities or take other
steps  to  raise  capital.  Any  such  sale  of  equity,  if  necessary,  could
substantially  dilute  the  interest  of  our  existing stockholders.  We cannot
provide  any  assurance  that  we  will be able to sell additional securities at
terms  acceptable  to us.  We may, in the future, make acquisitions by utilizing
debt  financing.  Any  such  acquisition  or  other  debt financing could have a
material  adverse  impact  on  our  liquidity  and  results  of  operations.


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.

ITEM  8A.     CONTROLS  AND  PROCEDURES

     As a result of a decrease in our operating cost structure, during the third
quarter  of  fiscal 2003 we terminated our relationship with our Chief Financial
Officer  and reduced our Controller from full-time to part-time employment.  The
responsibilities  of  the  Chief  Financial  Officer  were  assumed by our Chief
Executive Officer, who has been acting as our Chief Financial Officer since that
time.  As  a  result,  our  lack of employing a Chief Financial Officer separate
from  our  Chief  Executive  Officer  and our reduction of our Controller's time
could,  in  the  future,  materially  effect our internal control over financial
reporting.

     As  of  the end of the period covered by this report, we reviewed under the
supervision of our Chief Executive Officer as acting Chief Financial Officer and
our Controller, the Company's disclosure controls and procedures.  Based on this
evaluation,  our  Chief  Executive Officer as acting Chief Financial Officer and



<PAGE>
Controller concluded that our disclosure controls and procedures were effective,
and  except  as  discussed  below,  were adequate and timely in alerting them to
material  information  relating  to  the  Company required to be included in our
periodic  filings with the Securities and Exchange Commission.  In reviewing the
disclosure  controls and procedures, our management recognized that any controls
and  procedures,  no  matter  how  well  designed and operated, can provide only
reasonable  assurance  of  achieving  the  desired  control  objectives, and our
management  necessarily  was  required  to  apply its judgment in evaluating the
cost-benefit  relationship of possible controls and procedures.  We reviewed our
disclosure  controls  and procedures to reach a level of reasonable assurance of
achieving  desired  control  objectives and, based on the referenced review, our
Chief Executive Officer as acting Chief Financial Officer and Controller believe
that  our  disclosure  controls  and  procedures were effective at reaching that
level  of  reasonable  assurance,  except  as  discussed  below.

In  conjunction  with  our  annual audit, we have identified four potential
deficiencies  within  our  internal  control framework.  The first two relate to
segregation  of  duties  deficiencies.  As  previously  discussed,  we  have had
limited  financial resources and have limited personnel resources within certain
areas.  As  a  result,  we  are  aware  there are instances where certain duties
performed  by the Controller that should be split between the Controller and the
acting  Chief  Financial  Officer  to  strengthen  the  overall internal control
framework.  We  have  implemented  routine testing by the acting Chief Financial
Officer  of  financial  transactions  originally  performed by the Controller to
verify  accuracy  and  timeliness of recording. Additionally, we are aware there
are instances where certain duties performed by the payroll clerk that should be
split  between the clerk for ordinary payroll preparation and another individual
for  manual  payroll  check  preparation.   We have implemented a split of these
functions  between  different  payroll  personnel.

The  third  potential deficiency related to inadequate preparation of supporting
documentation to assure the proper timing of accounting for certain transactions
involving  payroll  transfers  between  multi-state bank accounts.  As a result,
management  has  reorganized  specific  areas  to  assure  proper  and  timely
documentation  of  these  transfers  to  address  these deficiencies in order to
confirm  accountability  and  will  continue  to  adequately  monitor  internal
controls.

The  fourth potential deficiency related to inadequate documentation of approval
of certain expenses.  In response management has implemented use of approval for
payment  forms  for  routine  application  to  expense  payment  documentation.


<PAGE>

                                    PART III


ITEM  9.     DIRECTORS  AND  EXECUTIVE  OFFICERS  OF  THE  REGISTRANT

     The  following  table  sets forth certain information regarding each of our
directors  and  executive  officers.

<TABLE>
<CAPTION>

NAME                AGE               POSITION
------------------  ---  ----------------------------------------
<S>                 <C>  <C>

S. Steven Carl       46  Chairman of the Board of Directors,
                         Chief Executive Officer and President

John A. Gulick III   48  Vice President, Corporate General Counsel

R. John Armstrong    60  Director

Robert Affholder     69  Director

John B. Furman       59  Director

</TABLE>

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 also been our Acting Chief
Financial Officer since October 2003. 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  our  company  acquired  in  May  1995.

JOHN  A.  GULICK  III  has  served  as  our  Vice President, General Counsel and
Corporate  Secretary  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  general  counsel to our company.  Mr. Gulick is licensed to
practice  law  in  Arizona  and  Texas,  and  is a certified public accountant.

R. JOHN ARMSTRONG has served as 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, Mr. Armstrong became
the  President of Seaward Marine Services, Inc., engaged in international diving
services.

ROBERT  W.  AFFHOLDER  has  served as a director of our company since October 1,
2000.  Mr.  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. from 1987 until its acquisition by
Insituform  Technologies,  Inc.  in  1995,  and  was Vice Chairman of Insituform
Mid-America,  Inc.  from  1993  to  1995.

JOHN  B. FURMAN has served as a director of our company since May 2002. Mr.
Furman  has  been,  since  February  2000,  a  consultant  to public and private
companies,  where  he  has primarily been involved in product commercialization,
business  transactions,  and  financial  restructurings.  Mr.  Furman  served as
President  and  Chief  Executive  Officer  and  a  director  of  Rural/  Metro
Corporation, a publicly held provider of emergency and fire protection services,
from  August  1998  until  January  2000.  Mr. Furman was a senior member of the
Phoenix-based  law  firm  of  O'Connor,  Cavanagh,  Anderson,  Killingsworth  &
Beshears,  a professional association, from January 1983 until August 1998 where
he  chaired  the  Business  Law  and  Financial  Services practice group; he was
Associate  General  Counsel  of  Waste  Management,  Inc.,  a  New  York  Stock
Exchange-listed  provider  of  waste  management  services,  from May 1977 until
December  1983; and Vice President, Secretary, and General Counsel of the Warner
Company, a New York Stock Exchange-listed company involved in industrial mineral
extractions  and  processing,  real  estate  development, and solid and chemical



<PAGE>

waste management, from November 1973 until April 1977. Mr. Furman is a director,
Chairman  of  the  Compensation  Committee  and member of the Audit Committee of
MarineMax,  Inc., a New York Stock Exchange company that is the nation's largest
boat  dealer;  a director of the Smith & Wesson Holding Corporation, an American
Stock  Exchange  listed company that manufactures and sells firearms; a director
of  GameTech  International,  Incorporated,  a Nasdaq traded company involved in
interactive  electronic  bingo  systems; and a director of Plan Express, Inc., a
privately held provider of Web enabled reprographic and distribution services to
the  design  and  construction  industry.


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  our  board  of  directors.

Outside  directors  receive an annual retainer in the amount of $15,000, 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
quarterly meetings of our board of directors, and (c) the issuance of our 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.  We  reimburse  expenses  of our outside directors
incurred  in  connection  with  service  to  our  company.


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 common stock to file
reports  of  ownership and changes in ownership with the Securities and Exchange
Commission.  Officers,  directors,  and 10% stockholders are required 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,  2003,  such  persons  complied  with  all  Section  16(a)  filing
requirements.


INFORMATION  RELATING  TO  OUR  AUDIT  COMMITTEE  OF  THE  BOARD  OF  DIRECTORS

     The  purpose  of the Audit Committee is to assist our Board of Directors in
the  oversight  of the integrity of the consolidated financial statements of our
company,  our  company's  compliance  with  legal  and  regulatory  matters, the
independent  auditor's  qualifications  and independence, and the performance of
our  company's  independent  auditors. The primary responsibilities of the Audit
Committee are set forth in its charter, and include various matters with respect
to the oversight of our company's accounting and financial reporting process and
audits  of the consolidated financial statements of our company on behalf of our
Board  of  Directors. The Audit Committee also selects the independent certified
public  accountants  to  conduct  the annual audit of the consolidated financial
statements  of  our  company;  reviews the proposed scope of such audit; reviews
accounting  and  financial  controls  of our company with the independent public
accountants  and  our  financial  accounting  staff;  and  reviews  and approves
transactions  between  us  and  our directors, officers, and their affiliates.


CODE  OF  ETHICS

     Our Board of Directors has adopted a Code of Conduct, a Code of Ethics for
the CEO and Senior Financial Officers, an Audit Committee Charter, a Nominating/
Corporate  Governance  Charter,  and  any  other  corporate governance materials
contemplated by SEC or applicable regulations.  These documents are available in
print  to  any  person who requests by contacting our corporate secretary at our
principal  executive  offices.


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,
2003.  None  of  our  other  executive  officers  earned  cash  salary and bonus
exceeding  $100,000  during  fiscal  2002.


<PAGE>

<TABLE>
<CAPTION>

                                                                                LONG TERM COMPENSATION
                                                                                          AWARDS
                                                                                ----------------------
                                                                                        SECURITIES
NAME AND                                                    ANNUAL COMPENSATION         UNDERLYING         OTHER
PRINCIPAL POSITION                                    YEAR       SALARY (1)    BONUS   OPTIONS (2)  COMPENSATION(3)
---------------------------------------  ----------------------  ------------  -------  -----------  ----------------
<S>                                                  <C>         <C>           <C>      <C>          <C>
S. Steven Carl                                        2003  $    150,000       --           --       $          8,933
 Chairman of the Board, Chief . . . . .               2002  $    146,939       --           --       $          8,750
 Executive Officer, and  President                    2001  $    140,233       $25,000  125,000      $          9,285

</TABLE>

_______________________
(1)     Mr.  Carl  also received certain perquisites, the value of which did not
exceed  10%  of  his  salary  and  bonus  during  fiscal  2003.
(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)     Other compensation consists of 401(k) Plan matching contributions and an
automobile  allowance.


EMPLOYMENT  AGREEMENT

     During  June  2002,  we entered into an employment agreement with S. Steven
Carl.  The  employment  agreement had an initial term through June 14, 2003, 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.  In  December  2003, Mr. Carl's
employment agreement was renewed under its terms for another year until June 15,
2005.

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  $150,000.  However,  in the event the agreement is
automatically renewed, the base salary will 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
earnings  before  interest,  taxes,  depreciation and amortization before giving
effect  to  any  extraordinary  accounting  events  or  accounting  impacts from
discontinued operations.  No bonus has been accrued for 2003 results.  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.

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.

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;


<PAGE>

-     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 during July 1996 and on August 1, 2002 approved
an  amendment  to  the  plan to increase the available shares that may be issued
under this plan from 1,000,000 to 4,000,000.  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.  As  of March 5, 2004 we have issued zero shares of
stock  under  the  plan,  and  there were outstanding options to acquire 505,000
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  granted  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 our Board of Directors, and 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 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


<PAGE>

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 5, 2004, there were no shares of our common
stock  issued  upon  exercise  of options granted under the plan, and there were
outstanding  options  to  acquire  162,500  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 Performance Equity
Plan, as of March 5, 2004, we had outstanding the following options and warrants
to  purchase  an  aggregate  of  130,000  shares  of  our  common  stock:

-     warrants  to  purchase  30,000  shares of common stock at exercises prices
ranging from $0.35 to $1.06 per share issued to consultants.  These warrants are
currently  exercisable  and  expire on various dates through September 2005; and
-     other  options  to  purchase 100,000 shares of common stock at an exercise
price  of $1.75 per share issued to an ex-employee.  These options are currently
exercisable  and  expire  on  December  1,  2005.
-     other options to purchase 150,000 shares of common stock, that were issued
to  an  ex-employee,  expired  in  the  year  2003.


OPTION  GRANTS

     We  did  not  grant  any  options to our Chief Executive Officer during the
fiscal  year  ended  December  31,  2003.


YEAR  END  OPTION  HOLDINGS

     The  following  table  provides information with respect to options held by
our  Chief  Executive  Officer  as  of  December  31, 2003.  Our Chief Executive
Officer  did  not  exercise  any  options  during  fiscal  2003.

<TABLE>
<CAPTION>

OPTIONS HELD AS OF DECEMBER 31, 2003
NUMBER OF SECURITIES UNDERLYING
UNEXERCISED OPTIONS
                                                          AT DECEMBER 31, 2003
------------------------------------------------------------------------------------
<S>                                                    <C>                <C>
NAMe. . . . . . . . . . .   . . . . . . . . . . . . .  EXERCISABLE(1)  UNEXERCISABLE
------------------------------------------------------------------------------------
S. Steven Carl                                         237,500            ---

</TABLE>

___________
(1)     None of the exercisable options listed had any value at fiscal year-end,
because  the  exercise  prices of all options were greater than $0.06 per share,
which  was the closing sales price of our common stock as quoted on the OTCBB on
December  31,  2003.


<PAGE>

ITEM  11.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED  STOCKHOLDER  MATTERS

     The  following table sets forth certain information regarding the shares of
our  common  stock beneficially owned as of March 5, 2004 by our Chief Executive
Officer,  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 officers
as  a  group.

<TABLE>
<CAPTION>
                                                                    SHARES
                                                                 BENEFICIALLY
NAME OF BENEFICIAL OWNER                                           OWNED (1)    PERCENT (2)
---------------------------------------------------------------  -------------  -----------
<S>                                                              <C>            <C>

DIRECTORS AND EXECUTIVE OFFICERS:
---------------------------------------------------------------  -------------  -----------
S. Steven Carl (3). . . . . . . . . . . . . . . . . . . . . . .      1,506,009       13.80%
---------------------------------------------------------------  -------------  -----------
R. John Armstrong . . . . . . . . . . . . . . . . . . . . . . .        395,889        3.20%
---------------------------------------------------------------  -------------  -----------
Robert Affholder. . . . . . . . . . . . . . . . . . . . . . . .        434,464        3.50%
---------------------------------------------------------------  -------------  -----------
John B. Furman. . . . . . . . . . . . . . . . . . . . . . . . .        173,571        1.40%
---------------------------------------------------------------  -------------  -----------

All directors and executive officers as a group (5 persons) (4)      2,837,433       24.90%
---------------------------------------------------------------  -------------  -----------

5% STOCKHOLDERS:
---------------------------------------------------------------  -------------  -----------
Lance Laifer (5). . . . . . . . . . . . . . . . . . . . . . . .      3,326,316       26.90%
---------------------------------------------------------------  -------------  -----------
Shelby A. Carl (6). . . . . . . . . . . . . . . . . . . . . . .        617,202        5.50%
---------------------------------------------------------------  -------------  -----------
</TABLE>

*     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 1420 Columbus
Avenue,  Portsmouth,  VA  23704.
(2)     The  percentages  shown  are  calculated based upon 12,365,586 shares of
common  stock  outstanding  on  March 5, 2004. The numbers and percentages shown
include  the  shares  of common stock actually owned as of March 5, 2004 and the
shares  of common stock that the person or group had the right to acquire within
60  days  of  March  5,  2004.  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  March  5,  2004  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  237,500 shares of common stock issuable upon exercise of stock
options.
(4)     All  directors  and  our  executive  officers  as  a  group includes one
additional  executive  officer  who  was  not  listed individually in the table.
(5)      Hilltop  Partners,  L.P.,  Laifer  Capital  Management, Inc., and Lance
Laifer  are  affiliates  with  respect to each other.  Hilltop beneficially owns
1,600,000 shares of our common stock, and Laifer Capital Management beneficially
owns  3,240,000 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., 450 Seventh Avenue, Suite 1604,
New  York,  New  York  10123.
(6)     Includes 50,000 shares of common stock issuable upon exercise of vested
stock options and 20,000 shares of common stock issuable upon exercise of vested
warrants.


<PAGE>

ITEM  12.     CERTAIN  RELATIONSHIPS  AND  RELATED  TRANSACTIONS

     On  February  23,  2003, we entered into a one-year renewable Interest Only
Non-Recourse  Promissory  Note  and  Security Agreement for $400,000 with Mr. R.
John Armstrong. The note was renewed for another year at the end of the original
term  by  the  mutual  agreement  of  both parties. The proceeds will be used to
expand  our CHT and tank cleaning business on the West Coast and support working
capital  needs  in  our  current  operations.

     On September 12, 2003, we entered into a Promissory Demand Note for $30,000
with  Mr.  S.  Steven Carl. The proceeds will be used to expand our CHT and tank
cleaning  business  on  the  west coast and support working capital needs in our
current  operations.

     On  December  2, 2003, we entered into a Promissory Demand Note for $50,000
with  Mr.  S. Steven Carl.  The proceeds will be used to expand our CHT and tank
cleaning  business  on  the  west coast and support working capital needs in our
current  operations.

     On  December 8, 2003, we entered into a six-month renewable Promissory Term
Note for $50,000 with Mr. R. John Armstrong, a director of our company. The note
can  be  renewed at the end of the original term by the mutual agreement of both
parties.  The proceeds will be used to expand our CHT and tank cleaning business
on  the  west coast and support working capital needs in our current operations.

     On December 17, 2003, we entered into a six-month renewable Promissory Term
Note  for  $50,000  with  Ms. Pamela L. Affholder, the wife of a director of our
company.  The  note can be renewed at the end of the original term by the mutual
agreement  of both parties. The proceeds will be used to expand our CHT and tank
cleaning  business  on  the  west coast and support working capital needs in our
current  operations.


ITEM  13.     EXHIBITS,  LIST  AND  REPORTS  ON  FORM  8-K

<TABLE>
<CAPTION>

  (A)     EXHIBITS
EXHIBIT
 NUMBER                                                     EXHIBIT
--------  ----------------------------------------------------------------------------------------------------
<C>       <S>

     3.1     Certificate of Incorporation of the Registrant (1)
     3.2     Bylaws of the Registrant (1)
     4.1     Specimen of Common Stock certificate (1)
    10.1     1993 Incentive Stock Option Plan, as amended (1)
    10.6     1996 Performance Equity Plan , as amended (2)
    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 (3)
    10.14    Amendment No. 2 to Stock Option Agreement by and between Gary S.
             Glatter and the Registrant dated February 1, 1997 (4)
    10.17    First Amendment to Account Transfer and Purchase Agreement by and
             between the Registrant, H.E.R.C. Consumer Products, Inc., and KBK Financial,
             Incorporated dated June 6, 2002 (5)
    10.18    Employment Agreement dated June 15, 2002 between S. Steven Carl
             and the Registrant (6)
    10.19    Solicitation, Offer and Award Contract dated September 30, 2002
             between the Supervisor of Shipbuilding, C&R, USN and the Registrant (6)*
    10.20    Interest Only Nonrecourse Promissory Note and Security Agreement dated
             February 27, 2003 between R. John Armstrong and the Registrant
    10.21    Promissory Demand Note dated September 12, 2003 between S. Steven Carl and the Registrant
    10.22    Promissory Demand Note dated December 2, 2003 between S. Steven Carl and the Registrant
    10.23    Promissory Term Note dated December 8, 2003 between R. John Armstrong and the Registrant



<PAGE>

    10.24    Promissory Term Note dated December 17, 2003 between Pamela L. Affholder and the Registrant
    10.25    First Renewal and Extension of Interest Only Nonrecourse Promissory
             Note and Security Agreement dated February 23, 2004
    10.26    Note Modification Agreement of First Renewal and Extension of Interest
             Only Nonrecourse Promissory Note and Security Agreement dated April 9, 2004
    10.27    Second Amendment to Account Transfer and Purchase Agreement by and
             between the Registrant, H.E.R.C. Consumer Products, Inc., and KBK Financial,
             Incorporated dated May 19, 2003
    10.28    Third Amendment to Account Transfer and Purchase Agreement by and
             between the Registrant, H.E.R.C. Consumer Products, Inc., and KBK Financial,
             Incorporated dated April 5, 2004
    21       Subsidiaries of the Registrant
    23.1     Consent of McGladrey & Pullen, LLP
    31       Certification of the Chief Executive Officer and Chief Financial Officer
             pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities
             Exchange Act of 1934, as amended
    32       Certification of the Chief Executive Officer and Chief Financial Officer of the
             Registrant, pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906
             of the Sarbanes-Oxley Act of 2002
</TABLE>

__________________
(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 Schedule 14A, as filed
with the Commission on May 16, 1996, and subsequently amended by shareholders in
August,  2002.
(3)     Incorporated  by  reference to the Registrant's Quarterly Report on Form
10-QSB for the quarter ended September 30, 1997, as filed with the Commission on
November  15,  1997.
(4)     Incorporated  by  reference to 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.
(5)     Incorporated  by  reference to the Registrant's Quarterly Report on Form
10-QSB  for  the  quarterly  period  ended  June  30,  2002,  as  filed with the
Commission  on  August  14,  2002.
(6)     Incorporated  by  reference to the Registrant's Quarterly Report on Form
10-QSB  for  the  quarterly  period  ended September 30, 2002, as filed with the
Commission  on  November  14,  2002.


*Certain  information in this exhibit has been omitted and filed separately with
the  Securities  and  Exchange  Commission.  Confidential  treatment  has  been
requested  from  and  granted  by  the SEC with respect to the omitted portions.

(B)     REPORTS  ON  FORM  8-K

     Not  applicable.


ITEM  14.     PRINCIPAL  ACCOUNTANT  FEES  AND  SERVICES

AUDIT  FEES

     We  engaged  McGladrey  &  Pullen,  LLP  (M&P)  as  our  independent public
accountants,  and  RSM  McGladrey,  Inc. (RSM) as our tax accountants during the
fiscal  year  ended  December  31,  2002 and 2003.  Aggregate fees billed to our
company  for  the fiscal years ended December 31, 2002 and 2003 by our principal
accounting  firm  are  as  follows:


<PAGE>

<TABLE>
<CAPTION>

                           2002     2003
                          -------  -------
<S>                       <C>      <C>
Audit Fees - M&P . . . .  $73,911  $77,171
Audit-Related Fees - M&P  $   -0-  $   -0-
Tax Fees - RSM . . . . .  $ 7,150  $11,430
All Other Fees - RSM . .  $ 3,750  $   -0-

</TABLE>


AUDIT  COMMITTEE  PRE-APPROVAL  POLICIES

     The  charter  of  our  Audit  Committee  provides  that  the  duties  and
responsibilities  of  our Audit Committee include the pre-approval of all audit,
audit  related,  tax,  and  other  services  permitted  by law or applicable SEC
regulations  (including  fee and cost ranges) to be performed by our independent
auditor.  Any  pre-approved  services  that will involve fees or costs exceeding
pre-approved  levels  will  also  require  specific  pre-approval  by  the Audit
Committee.  Unless otherwise specified by the Audit Committee in pre-approving a
service,  the  pre-approval  will be effective for the 12-month period following
pre-approval.  The  Audit  Committee  will  not  approve  any non-audit services
prohibited  by  applicable  SEC regulations or any services in connection with a
transaction  initially  recommended  by  the independent auditor, the purpose of
which  may  be tax avoidance and the tax treatment of which may not be supported
by  the  Internal  Revenue  Code  and  related  regulations.

To  the extent deemed appropriate, the Audit Committee may delegate pre-approval
authority  to  the Chairman of the Board or any one or more other members of the
Audit  Committee  provided  that  any  member  of  the  Audit  Committee who has
exercised  any such delegation must report any such pre-approval decision to the
Audit  Committee  at  its  next scheduled meeting.  The Audit Committee will not
delegate  the  pre-approval of services to be performed by the independent audit
to  management.

Our  Audit  Committee requires that our independent auditor, in conjunction with
our  Chief  Financial  Officer,  be  responsible  for  seeking  pre-approval for
providing  services  to us and that any request for pre-approval must inform the
Audit  Committee about each service to be provided and must provide detail as to
the  particular  service  to  be  provided.

All  of  the  services  provided by our principal accounting firm described
above  under  the  captions "Audit-Related Fees" and "Tax Fees" were approved by
our  Audit  Committee.


<PAGE>

                                   SIGNATURES

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

                                                H.E.R.C.  PRODUCTS  INCORPORATED

                                                  By:     /s/   S.  Steven  Carl
                                                     ---------------------------

Dated:  March  28,  2004                           S.  Steven  Carl,
                                                   Chairman  of  the  Board,
                                                   Chief  Executive  Officer,
                                                   Acting  Chief  Financial
                                                   Officer  and  President
                                                   (Principal Executive Officer)

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

     SIGNATURE                     POSITION                          DATE
     ---------                     --------                          ----


  /s/  S.  Steven  Carl           Chairman of the Board, Chief    March 28, 2004
--------------------------
S.  Steven  Carl                  Executive  Officer,
                                  Acting  Chief  Financial
                                  Officer  and  President
                                  (Principal  Executive
                                  Officer  and  Principal
                                  Financial  Officer)


   /s/  John  A.  Gulick  III     Vice-President-Office  of       March 28, 2004
----------------------------      General Counsel
John  A.  Gulick  III


  /s/  R.  John  Armstrong        Director                        March 28, 2004
--------------------------
R.  John  Armstrong


   /s/  Robert  Affholder         Director                        March 28, 2004
--------------------------
Robert  Affholder


  /s/  John  B.  Furman           Director                        March 28, 2004
--------------------------
John  B.  Furman


<PAGE>
<TABLE>
<CAPTION>

                          H.E.R.C. PRODUCTS INCORPORATED AND SUBSIDIARIES
                             INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                                              PAGE
---------------------------------------------------------------------------------------------------
<S>                                                                                             <C>

Report of Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . .  F-2

Financial Statements:

Consolidated Balance Sheet as of December 31, 2003 . . . . . . . . . . . . . . . . . . . . . .  F-3

Consolidated Statements of Operations for the years ended December 31, 2003 and 2002 . . . . .  F-4

Consolidated Statements of Stockholders' Equity for the years ended December 31, 2003 and 2002  F-5

Consolidated Statements of Cash Flows for the years ended December 31, 2003 and 2002 . . . . .  F-6

Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . .  F-7

</TABLE>


<PAGE>

INDEPENDENT  AUDITOR'S  REPORT

TO  THE  BOARD  OF  DIRECTORS
H.E.R.C.  PRODUCTS  INCORPORATED
AND  SUBSIDIARIES
PORTSMOUTH,  VIRGINIA

WE HAVE AUDITED THE ACCOMPANYING CONSOLIDATED BALANCE SHEET OF H.E.R.C. PRODUCTS
INCORPORATED  AND  SUBSIDIARIES  AS  OF  DECEMBER  31,  2003,  AND  THE  RELATED
CONSOLIDATED  STATEMENTS  OF OPERATIONS, STOCKHOLDERS' EQUITY AND CASH FLOWS FOR
THE  YEARS ENDED DECEMBER 31, 2003 AND 2002.  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  OF  AMERICA.  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 CONSOLIDATED 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, 2003, AND THE RESULTS OF THEIR
OPERATIONS  AND  THEIR CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
IN CONFORMITY WITH ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES
OF  AMERICA.



\S\MCGLADREY  &  PULLEN,  LLP

PHOENIX,  ARIZONA
MARCH  1,  2004


<PAGE>

<TABLE>
<CAPTION>

                            H.E.R.C. PRODUCTS INCORPORATED AND SUBSIDIARIES
                                       Consolidated Balance Sheet

                                                                                          December 31,
                                                                                              2003
<S>                                                                                      <C>
ASSETS
CURRENT ASSETS
     Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $      49,534
     Trade accounts receivable, net of allowance for
           doubtful accounts of $169,000. . . . . . . . . . . . . . . . . . . . . . . .        614,660
     Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         79,175
     Costs of uncompleted contracts . . . . . . . . . . . . . . . . . . . . . . . . . .        102,204
     Unbilled and other receivables . . . . . . . . . . . . . . . . . . . . . . . . . .        291,897
     Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         43,160
           Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .      1,180,630
                                                                                         --------------

EQUIPMENT AND LEASEHOLDS
     Equipment and leaseholds . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      1,576,336
     Less: accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . .     (1,316,322)
           Net equipment and leaseholds . . . . . . . . . . . . . . . . . . . . . . . .        260,014
                                                                                         --------------

OTHER ASSETS
     Patents, net of accumulated amortization of $140,100 . . . . . . . . . . . . . . .         84,029
     Patents pending. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        146,488
     Refundable deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         13,722
            Total other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . .        244,239
                                                                                         --------------
                                                                                         $   1,684,883
                                                                                         --------------

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
     Notes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $     180,000
     Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        650,020
     Accrued wages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        100,184
     Accrued waste disposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        114,500
     Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         77,376
            Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . .      1,122,080
                                                                                         --------------

NOTE PAYABLE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        400,000
COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
     Preferred stock, $0.01 par value; authorized 1,000,000 shares;
            Issued and outstanding zero shares. . . . . . . . . . . . . . . . . . . . .              -
     Common stock, $0.01 par value; authorized 40,000,000 shares and 12,365,586 issued
            and outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        123,656
     Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . .     14,051,457
     Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    (14,012,310)
            Total Stockholders' Equity. . . . . . . . . . . . . . . . . . . . . . . . .        162,803
                                                                                         --------------
                                                                                         $   1,684,883
                                                                                         ==============

The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>


<PAGE>

<TABLE>
<CAPTION>

                                   H.E.R.C. PRODUCTS INCORPORATED AND SUBSIDIARIES

                                        Consolidated Statements of Operations

                                                                                            Years Ended December 31,

                                                                                              2003          2002
                                                                                           ------------ ------------
<S>                                                                                       <C>           <C>

SALES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $ 5,838,088   $ 6,491,113
COST OF SALES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    3,894,784     3,730,036
GROSS PROFIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    1,943,304     2,761,077
                                                                                          ------------  ------------
SELLING EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      403,079       462,532
GENERAL AND ADMINISTRATIVE EXPENSES. . . . . . . . . . . . . . . . . . . . . . . . . . .    2,161,760     2,644,771
OPERATING LOSS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     (621,535)     (346,226)
                                                                                          ------------  ------------
OTHER INCOME (EXPENSE)
 Interest expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     (120,168)      (83,549)
 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       (2,049)      225,995
         Total Other Income (Expense). . . . . . . . . . . . . . . . . . . . . . . . . .     (122,217)      142,446
                                                                                          ------------  ------------
NET LOSS BEFORE INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     (743,752)     (203,780)
                                                                                          ------------  ------------
     Income tax provision. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .            -             -
NET LOSS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $  (743,752)  $  (203,780)
                                                                                          ------------  ------------

NET LOSS PER COMMON SHARE -BASIC AND DILUTED . . . . . . . . . . . . . . . . . . . . . .  $     (0.06)  $     (0.02)

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
BASIC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   12,245,792    11,977,859
DILUTED. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   12,245,792    11,977,859
                                                                                          ============  ============

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

</TABLE>


<PAGE>

<TABLE>
<CAPTION>

                                         H.E.R.C. PRODUCTS INCORPORATED AND SUBSIDIARIES

                                         Consolidated Statements of Stockholders' Equity
                                          For the years ended December 31, 2003 and 2002

                                                      Common Stock     Additional
                                                                         Paid-in     Accumulated
                                                    Shares     Amount     Capital       Deficit          Total
                                                 --------------------------------------------------------------
<S>                                              <C>         <C>       <C>          <C>          <C>

BALANCE,
DECEMBER 31, 2001 . . . . . . . . . . . . . . . .11,864,872  $118,649  $14,012,464  $(13,064,778)   $1,066,335

Net loss. . . . . . . . . . . . . . . . . . . . .         -         -            -      (203,780)     (203,780)

Issuance of shares of common stock. . . . . . .     190,001     1,900       18,100             -        20,000
                                                 --------------------------------------------------------------

BALANCE,
DECEMBER 31, 2002 . . . . . . . . . . . . . . .  12,054,873   120,549   14,030,564   (13,268,558)      882,555

Net loss. . . . . . . . . . . . . . . . . . . .           -         -            -      (743,752)     (743,752)

Issuance of shares of common stock. . . . . . .     310,713     3,107       20,893             -        24,000
                                                 --------------------------------------------------------------

BALANCE,
DECEMBER 31, 2003 . . . . . . . . . . . . . . .  12,365,586  $123,656  $14,051,457  $(14,012,310)   $  163,803
                                                 ==============================================================

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

</TABLE>


<PAGE>

<TABLE>
<CAPTION>

                            H.E.R.C. PRODUCTS INCORPORATED AND SUBSIDIARIES
                                 Consolidated Statements of Cash Flows

                                                                               Years Ended December 31,
                                                                                    2003        2002
                                                                               ------------------------
<S>                                                                              <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES
         Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $(743,752)  $(203,780)
         Adjustments to reconcile net loss to net cash
                    provided by (used in) operating activities
            Depreciation and amortization . . . . . . . . . . . . . . . . . . .    219,231     250,257
            Loss on sale of disposal of equipment . . . . . . . . . . . . . . .      5,316       2,518
            Provision for doubtful accounts . . . . . . . . . . . . . . . . . .     77,829      80,010
            Gain on sale of Chlor-Rid(R) rights . . . . . . . . . . . . . . . .          -    (225,000)
            Common stock issued for services. . . . . . . . . . . . . . . . . .     24,000      20,000
            Changes in working capital components
                Trade accounts receivable . . . . . . . . . . . . . . . . . . .   (350,986)    180,955
                Inventories . . . . . . . . . . . . . . . . . . . . . . . . . .    (32,871)    (19,243)
                Costs of uncompleted contracts. . . . . . . . . . . . . . . . .      8,039      40,287
                Other receivables . . . . . . . . . . . . . . . . . . . . . . .   (121,694)    (29,802)
                Prepaid expenses. . . . . . . . . . . . . . . . . . . . . . . .      4,031       3,817
                Refundable deposits and other assets. . . . . . . . . . . . . .     (3,830)         48
                Accounts payable. . . . . . . . . . . . . . . . . . . . . . . .    337,060      25,701
                Accrued wages and other accrued expenses. . . . . . . . . . . .    (93,685)     43,129
                         Net cash provided by (used in) operating activities. .   (671,312)    168,897
                                                                                 ----------  ---------
CASH FLOWS FROM INVESTING ACTIVITIES
        Capital expenditures. . . . . . . . . . . . . . . . . . . . . . . . . .    (81,207)   (178,015)
        Cash received from sale of Chlor-Rid(R) rights. . . . . . . . . . . . .          -     225,000
        Expenditures related to patents and patents pending . . . . . . . . . .    (19,617)    (27,457)
                         Net cash provided by (used) in investing activities. .   (100,824)     19,528
                                                                                 ----------  ----------
CASH FLOWS FROM FINANCING ACTIVITIES
        Proceeds from issuance of notes payable . . . . . . . . . . . . . . . .    949,600     369,114
        Principal payments on notes payable . . . . . . . . . . . . . . . . . .   (382,789)   (378,439)
                         Net cash provided by (used) in financing activities. .    566,811      (9,325)
                                                                                 ----------  ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS. . . . . . . . . . . . . .   (205,325)    179,100
                                                                                 ----------  ----------
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR. . . . . . . . . . . . . . . . .    254,859      75,759
CASH AND CASH EQUIVALENTS AT END OF YEAR. . . . . . . . . . . . . . . . . . . .  $  49,534   $ 254,859
                                                                                 ----------  ----------

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Cash paid during the year for interest. . . . . . . . . . . . . . . . . . . . .  $ 120,168   $  83,549
Cash paid during the year for income taxes. . . . . . . . . . . . . . . . . . .  $       -   $       -
                                                                                 ==========  ==========

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES

Prepaid insurance financed with note payable. . . . . . . . . . . . . . . . . .  $ 369,600   $ 369,114

The accompanying notes are an integral part of this consolidated balance sheet.
</TABLE>


<PAGE>

                 H.E.R.C. PRODUCTS INCORPORATED AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002

1.  NATURE  OF  BUSINESS  AND  SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES
H.E.R.C.  Products  Incorporated  and  subsidiaries  (the  "Company")  provides
pipeline  rehabilitation,  tank  cleaning,  and  other services for marine, fire
protection,  potable  water,  wastewater,  industrial  and  other  systems  and
manufactures  and  sells  specialty  chemicals.  The  Company  provides services
primarily  to  the U.S. Government and to U.S. corporations in the United States
of  America  and  in  various  locations  throughout  the  world.

The  Company's  strategy  has  involved  concentrating  its efforts on providing
pipeline rehabilitation and other system 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 2003 and 2002,
sales  to  the  U.S.  Navy  under  the Portsmouth CIS contract were 15% and 33%,
respectively, of consolidated sales.  The 5-year U.S. Navy contract is renewable
each  year  at  the option of the U.S. Navy.  On September 20, 2002, the Company
was  co-awarded  a  new five-year contract with the U.S. Navy.  Of all the firms
responding to the Navy solicitation, two awards were made for the contract after
careful  evaluation in accordance with the solicitation based on a determination
of  "best value" to the Navy.  The aggregate contract minimum for the two awards
is  $107,097,  while  the  contract  maximum  for  the  two awards is a total of
$5,948,312.  The  5-year  U.S.  Navy contract expires in September 2007.  We are
unable  to  determine  how much of this contract will be awarded to the Company.
Included  in  accounts  receivable at December 31, 2003 is $195,495 for the U.S.
Navy.

The  Company  has  a  five-year  General  Service  Administration service supply
contract  issued  in  December  of  2000  for  delivery  of marine services on a
worldwide  basis.  This  GSA  service  supply contract allows the U. S. Navy and
U.S.  Coast  Guard  to  access  the  Company's marine services as an alternative
contract  source of procurement to the previously described CHT contract, giving
marine  services  procurement  officers  another  contract  option  to  use  the
Company's  services.


SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES

PRINCIPLES  OF  CONSOLIDATION

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.


USE  OF  ESTIMATES

The  preparation  of  financial statements in conformity with generally accepted
accounting principles 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.  Significant estimates include
gross  profit  and  deferred  tax  asset  valuation.


<PAGE>

INCOME  TAXES

Deferred  taxes  are  provided on a liability method whereby deferred tax assets
are recognized for deductible temporary differences and deferred tax liabilities
are recognized for taxable temporary differences.  Temporary differences are the
differences between the reported amounts of assets and liabilities and their tax
bases.  Deferred  tax  assets  are reduced by a valuation allowance when, in the
opinion  of  management,  it is more likely than not that some portion or all of
the  deferred  tax  assets  will  not  be  realized.  Deferred  tax  assets  and
liabilities are adjusted for the effects of changes in tax laws and rates on the
date  of  enactment.


CASH  AND  CASH  EQUIVALENTS

The  Company  considers  all  highly liquid short-term investments with original
maturities  of  three  months  or  less  to  be  cash  equivalents.


STOCK-BASED  COMPENSATION

The  Company applies the provisions of Accounting Principals Board (APB) Opinion
25,  "Accounting  for Stock Issued to Employees," and provides the pro forma net
loss  disclosures  for  employee  stock option grants as if the fair-value-based
method,  defined  in Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting  for  Stock-Based  Compensation,"  had  been  applied.

In accordance with APB Opinion No. 25, compensation expense is recorded over the
vesting  period  only  if  the  current estimated market price of the underlying
stock  on  the  date  an option is granted exceeds the exercise price. Under the
requirements  of  SFAS  No.  123,  non-employee stock-based transactions require
compensation  to be recorded based on the fair value of the securities issued or
the  services  received,  whichever  is  more  reliably  measurable.

No  stock-based  employee  compensation cost has been recognized, as all options
granted  under stock-based compensation plans had an exercise price equal to the
market value of the underlying common stock on the date of grant, and there were
no options or warrants granted to non-employees during 2002 or 2003. At December
31,  2003,  the  Company  has  two  stock-based  compensation  plans,  which are
described  more  fully  in Note 5. The following table illustrates the effect on
net  loss  and  loss  per share had compensation cost for all of the stock-based
compensation plans been determined based on the grant date fair values of awards
(the  method  described  in  FASB Statement No. 123, "Accounting for Stock-Based
Compensation"):

<TABLE>
<CAPTION>

                                                   Years Ended December 31,
                                                   ------------------------
<S>                                                  <C>         <C>
                                                          2003        2002
                                                     ----------  ----------
Net loss:
As reported . . . . . . . . . . . . . . . . . . . .  $(743,752)  $(203,780)

Deduct total stock-based employee compensation
   expense determined under fair value based method
   for all awards, net of related tax effects . . .     (6,526)    (12,302)

Pro forma . . . . . . . . . . . . . . . . . . . . .  $(750,278)  $(216,082)

Basic loss per share:
     As reported. . . . . . . . . . . . . . . . . .  $   (0.06)  $   (0.02)
     Pro forma. . . . . . . . . . . . . . . . . . .  $   (0.06)  $   (0.02)
                                                     ==========  ==========

Diluted loss per share:
     As reported. . . . . . . . . . . . . . . . . .  $   (0.06)  $   (0.02)
     Pro forma. . . . . . . . . . . . . . . . . . .  $   (0.06)  $   (0.02)
                                                     ==========  ==========

</TABLE>


<PAGE>

The  weighted  average fair value per option granted in the years ended December
31,  2003  and 2002, using the Black-Scholes valuation model was $-0- and $0.10,
which  was  computed  from  the  following  assumptions:

<TABLE>
<CAPTION>


                              Years ended December 31,
                             -------------------------
<S>                                         <C>
                                            2003-2002
                                            ----------
     Risk-free interest rate at grant date  4.03-5.08%
     Expected stock price volatility . . .     100.00%
     Expected dividend yield . . . . . . .         --
     Expected life of option . . . . . . .   10 years
     Forfeiture rate . . . . . . . . . . .          5%
</TABLE>


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, other receivables, other
accrued  liabilities  and  notes payable approximate fair value due to the short
maturities  of  these  instruments.


INVENTORIES

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


CONCENTRATIONS  OF  CREDIT  RISK

The Company's financial instruments that are exposed to concentrations of credit
risk  consist primarily of cash and trade accounts receivable.  The Company from
time to time may have bank deposits in excess of the FDIC insurance limits.  The
Company  has  not experienced any losses in such accounts and believes it is not
exposed  to  any significant credit risk on cash. The Company routinely assesses
the financial strength of its customers, and as a consequence, believes that its
trade  receivable  credit  risk  exposure  is  limited.


ACCOUNTS  RECEIVABLE

Trade  receivables  are  generated  primarily  from  prime  and  subcontracting
arrangements  with  U.S. governmental agencies. Trade receivables are carried at
original  invoice amount less an estimate made for doubtful receivables based on
a  review  of all outstanding amounts on a monthly basis.  A valuation allowance
is  provided  for  known  and  anticipated  credited  losses,  as  determined by
management  in  the  course  of  regularly  evaluating  individual  customer
receivables.  Trade  receivables  are  written  off  when  deemed uncollectible.
Recoveries  of  trade  receivables  previously  written  off  are  recorded when
received.  No  interest  is  charged  on customer accounts. Unbilled receivables
represent  costs  and  fees  earned  in  excess of billings. The Company factors
certain  receivables  without recourse which meet the criteria for sales and are
treated  accordingly.


<PAGE>

EQUIPMENT  AND  LEASEHOLDS

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

Equipment  and  leaseholds  at  December  31,  2003  are:

Equipment                                                             $1,396,945
Office  furniture,  computers  and  leasehold improvements               179,391
                                                                    ------------
                                                                       1,576,336
     Less  accumulated  depreciation and amortization                (1,316,322)
                                                                     -----------
     Net  equipment  and  leaseholds                                 $   260,014
                                                                     ===========

The  useful  lives  of  equipment  and leaseholds for computing depreciation and
amortization range from three to ten years. The useful lives for leaseholds were
estimated  using  the  lower  of  the life of the improvement or the lease term.
Depreciation  and  amortization expense on equipment and leaseholds was $201,088
and  $226,523 for the years ended December 31, 2003 and 2002, respectively.  The
depreciation  expense  on  assets  acquired under capital lease is included with
depreciation  expense  on  owned  assets.  Assets  acquired under capital leases
totaled  $101,768,  and  the  accumulated  depreciation  on these assets totaled
$97,480  at  December  31,  2003. Maintenance and repairs that do not improve or
extend  the  life  of  the  assets  are  expensed  as  incurred.


IMPAIRMENT  OF  LONG-LIVED  ASSETS

The Company continually evaluates whether events and circumstances have occurred
that  indicate  potential  impairment  of  long-lived  assets,  indicating  the
remaining  balance of these assets may not be recoverable. When factors indicate
these  assets  should  be  evaluated  for  possible  impairment,  the  Company's
management  uses  several factors to measure impairment, including the Company's
projection  of  future  operating  cash  flows  relating  to  these  assets.  No
impairment  losses  have  been  recorded  by  the Company during the years ended
December  31,  2003  and  2002.


PATENTS  AND  PATENTS  PENDING

Patents  issued are stated at cost and amortized on the straight-line basis over
10 years.  Amortization of patents totaled approximately $18,100 and $22,000 for
the  years  ended  December  31, 2003 and 2002, respectively.  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  $300  and  $2,000  for  the  years  ended  2003  and  2002,
respectively.


REVENUE  RECOGNITION

For  chemical product sales, the Company recognizes revenue at the time products
are  shipped  to  customers.  For  most service projects, the Company recognizes
revenue and costs when the services are completed.  For fixed price contracts in
excess  of  a  3-month  duration,  revenue  is  recognized  on the percentage of
completion  method,  measured  by  the  percentage  of  cost incurred to date to
estimated  total cost for each contract.  This method is used because management
considers  total  cost  to  be  the  best available measure of progress on these
contracts.  During 2003, the Company was awarded a contract that was expected to
have  a  duration  that  was  longer  than  3  months  in  duration.


<PAGE>

Contract  costs  include  all direct material, subcontract labor and other costs
related  to  contract  performance,  such as indirect labor, supplies, tools and
repairs.  Selling,  general  and  administrative costs are charged to expense as
incurred.  Provisions  for estimated losses on uncompleted contracts are made in
the period in which such losses are determined.  Changes in job performance, job
conditions,  and  estimated profitability, including those arising from contract
penalty  provisions  and  final  contract settlements may result in revisions to
estimates  of  contract  costs  and  profits and are recognized in the period in
which  the  revisions  are  determined.


RESEARCH  AND  DEVELOPMENT

Research  and development costs are expensed as incurred.  The Company estimates
that  it  spent  approximately  $20,000  and $10,000 on research and development
activities  during  fiscal  2003  and  2002,  respectively.


OFF-BALANCE  SHEET  FINANCINGS  AND  LIABILITIES

Other  than lease commitments, legal contingencies incurred in the normal course
of  business,  and  employment contracts for key employees, the Company does not
have  any  off-balance sheet financing arrangements or liabilities.  The Company
does  not  have  any  majority-owned  subsidiaries  or  any  interests  in,  or
relationships  with,  any  material  variable  interest  entities  that  are not
included  in  the  consolidated  financial  statements.


LOSS  PER  SHARE

Basic  loss  per  common  share is computed by dividing net loss by the weighted
average  number  of  shares  of  common  stock  outstanding  during  the  year.

A  reconciliation  of the basic and diluted loss per share (EPS) computation for
the  years  ended  December  31,  2003  and  2002  is  as  follows:

<TABLE>
<CAPTION>

                                                Year Ended December 31, 2003
                                           -------------------------------------
<S>                                    <C>             <C>            <C>
                                         Net Loss        Shares         Per Share
                                        (Numerator)   (Denominator)       Amount
                                       --------------  -------------  -----------
Basic EPS . . . . . . . . . . . . . .  $    (743,752)   12,245,792    $    (0.06)
                                                                      ===========
Effect of stock options and warrants.              -               -
                                       --------------  -------------
Diluted EPS . . . . . . . . . . . . .  $    (743,752)   12,245,792    $    (0.06)
                                       ==============  =============  ===========

                                                Year Ended December 31, 2002
                                           -------------------------------------
                                         Net Loss. . . . Shares         Per Share
                                        (Numerator) . .Denominator)       Amount
-------------------------------------  --------------  -------------  -----------
Basic EPS . . . . . . . . . . . . . .  $    (203,780)   11,977,859    $    (0.02)
                                                                      ===========
Effect of stock options and warrants.              -               -
                                       --------------  -------------
Diluted EPS . . . . . . . . . . . . .  $    (203,780)   11,977,859    $    (0.02)
                                       ==============  =============  ===========
</TABLE>

The  warrants  and options outstanding have not been included in the calculation
since  they  would  be  anti-dilutive.


<PAGE>

RECENTLY  ISSUED  ACCOUNTING  STANDARDS

Effective  July  1,  2003,  the  Company  adopted  SFAS No. 150, "Accounting for
Certain  Financial  Instruments  with  Characteristics  of  both Liabilities and
Equity."  SFAS  No. 150 addresses the standards for how an issuer classifies and
measures  certain financial instruments with characteristics of both liabilities
and  equity  that  have  been presented either entirely as equity or between the
liabilities  section  and equity section of the statement of financial position.
Adoption  of  SFAS  No.  150  had no effect on the Company's financial statement
presentation  for  the  year  ended  December  31,  2003.

In  January  2003,  the  Financial Accounting Standards Board (FASB) issued FASB
Interpretation  No.  46, "Consolidation of Variable Interest Entities" (FIN 46).
This  interpretation  clarifies  existing  accounting  principles related to the
preparation of consolidated financial statements when the equity investors in an
entity  do  not  have the characteristics of a controlling financial interest or
when  the  equity  at  risk  is  not  sufficient  for  the entity to finance its
activities without additional subordinated financial support from other parties.
FIN  46  requires  a  company  to evaluate all existing arrangements to identify
situations  where  a  company  has  a  "variable  interest"  (commonly, a thinly
capitalized entity) and further determine when such variable interests require a
company to consolidate the variable interest entities' financial statements with
its  own.  The  Company  is  required to perform this assessment by December 31,
2004  and  consolidate any variable interest entities for which it will absorb a
majority  of the entities' expected losses or receive a majority of the expected
residual  gains.  Management  has performed this assessment, and it is not aware
of any material variable interest entity that it may be required to consolidate.

Effective January 1, 2002, the Company adopted SFAS No. 144, "Accounting for the
Impairment  or  Disposal  of  Long-Lived  Assets" ("SFAS No. 144"). SFAS No. 144
addresses  financial  accounting and reporting for the impairment or disposal of
long-loved  assets.  SFAS  No.  144 requires an impairment loss to be recognized
only  if  the  carrying amounts of long-lived assets to be held and used are not
recoverable from their expected undiscounted future cash flows. Adoption of SFAS
No.  144  had  no  effect  on  the  Company's  consolidated  financial position,
consolidated  results  of  operations,  or  liquidity.


2.  NOTES  PAYABLE

Notes  Payable consists of related party notes of $580,000 (as described further
in  Note  9)  at  December  31,  2003.


3.  INCOME  TAXES

The  Company has experienced recurring losses and as such, there is no provision
(benefit)  for  income  taxes.


The  components  of  deferred  taxes  as  of  December 31, 2003, are as follows:

<TABLE>
<CAPTION>

CURRENT DEFERRED TAX ASSETS:
<S>                                                               <C>
Accruals not currently deductible for tax. . . . . . . . . . . .  $   166,500
Current portion of valuation allowance . . . . . . . . . . . . .     (166,500)
                                                                  ------------
                                                                  $         -
                                                                  ------------
NON-CURRENT DEFERRED TAX ASSETS:
Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . .  $    61,300
Net operating loss carry forwards for federal and state purposes    3,785,400
Non-current portion of valuation allowance . . . . . . . . . . .   (3,846,700)
                                                                  ------------
                                                                  $         -
                                                                  ------------

</TABLE>


<PAGE>

The  Company's  effective  income tax rate differs from federal statutory income
tax  rate  for  the years ended December 31, 2003 and 2002 due to the following:

<TABLE>
<CAPTION>

                                   Years Ended December 31,
                                 --------------------------
<S>                                  <C>         <C>
                                        2003        2002
                                 -------------  -----------
Computed "expected" expense
(benefit) . . . . . . . . . . . . .  $(260,000)  $(71,000)

Nondeductible expenses. . . . . . .    .20,000     14,000
Effect of states taxes. . . . . . .    (45,000)   (12,000)

     Change in valuation allowance.    265,000     62,000
     Other. . . . . . . . . . . . .     20,000      7,000

                                     $      --   $     --

</TABLE>

Because  the  Company  has no prior year carry-back taxable income, the expected
tax  benefit  from  the  2003  and 2002 operating losses results in deferred tax
assets  which  have  been  fully  reserved

Net operating loss carry forwards for federal tax purposes totaled approximately
$10,626,000  at  December 31, 2003.  Net operating loss carry forwards for state
income tax purposes totaled approximately $2,875,000 at December 31, 2003. These
losses  are  available  for  carry forward against future years' taxable income,
subject  to  certain  limitations, and expire in various years from 2008 through
2022.


4.  STOCKHOLDERS'  EQUITY

COMMON  STOCK

During  2003  and  2002, the Company issued 310,713 and 190,001 shares of Common
Stock,  respectively,  to  its  outside  directors  as  a  part  of their annual
compensation  in  the  amount  of  $24,000  and  $20,000  for  2003  and  2002,
respectively.  These  amounts were valued at the closing stock price on the last
day  of  the  quarter.

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
April  3,  1999.  In  addition,  the  placement  agent  was granted a warrant to
acquire  321,490  units at $.9375 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.  Such warrants expired June
18,  2002.  The  remaining  171,490  units expired 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  expired  June  18,  2002.


<PAGE>

WARRANTS

As  of December 31, 2003, outstanding warrants issued for the purchase of shares
of  Common Stock to various consultants at exercise prices ranging from $0.35 to
$1.06  per share totaled 30,000.  The Company valued the warrants at the date of
grant  using  the Black-Scholes valuation model and has amortized these costs in
prior  years. All such warrants are currently exercisable within the above price
range  and  expire  at  various  dates  through  September  2005.


5.  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 available for grant
to  employees, officers, directors and consultants of the Company.  In 2002, the
stockholders  approved  an increase to 4,000,000 shares of eligible Common Stock
available  for grants under the 1996 plan.  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  2012.

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 of which 150,000 of these options were cancelled in 2003.  The options
currently  exercisable total 100,000 and expire no later than December 31, 2005;
(2) various key employees' options to purchase 140,000 shares of Common Stock at
an  exercise price of $0.3125 per share.  Of the 140,000 options granted through
1995, 40,000 expired in December 2001 and the remaining 100,000 expired December
2002.

Overall  activity  in  the  Company's  stock  options:

<TABLE>
<CAPTION>

                                               Years ended December 31,
<S>                                <C>         <C>        <C>         <C>

                                                       2003       2002
                                                   ----------  ---------
                                                Weighted. . . . . .  Weighted
                                                 Average . . . . . .  Average
                                                Exercise. . . . . .  Exercise
                                     Options . . Price     Options      Price
---------------------------------  ----------  ---------  ----------  -------

Outstanding, at beginning of year  1,305,000   $   0.51   1,498,700   $ 0.52
---------------------------------  ----------  ---------  ----------  -------
Granted . . . . . . . . . . . . .          -   $      -     125,000   $ 0.11
---------------------------------  ----------  ---------  ----------  -------
Exercised . . . . . . . . . . . .          -   $      -           -   $    -
---------------------------------  ----------  ---------  ----------  -------
Canceled/Expired. . . . . . . . .   (537,500)  $  (0.69)   (318,700)  $(0.39)
---------------------------------  ----------  ---------  ----------  -------
Outstanding at end of year. . . .    767,500   $   0.39   1,305,000   $ 0.51
---------------------------------  ----------  ---------  ----------  -------
Exercisable at end of year. . . .    674,300   $   0.43   1,055,800   $ 0.60
---------------------------------  ----------  ---------  ----------  -------
</TABLE>


<PAGE>

<TABLE>
<CAPTION>

Details regarding the options outstanding at December 31, 2003:
<S>              <C>          <C>       <C>          <C>      <C>
Outstanding. . . . . . . . . . . . . . . . . . . . .  Exercisable
----------------------------------------------------  -----------

                  Weighted     Weighted  Weighted
Exercise . . . .   Average      Average   Average
Price. . . . . .  Remaining    Exercise  Exercise
Range. . . . . . .  Number       Life      Price       Number   Price
---------------  -----------  ---------  ---------    -------  ------
0.09 - $0.10. .    285,000      7.91  $    0.10       234,000  $ 0.10
0.16 - $0.25. .    187,000      6.60  $    0.19       144,800  $ 0.19
0.30 - $0.32. .    195,500      2.93  $    0.31       195,500  $ 0.31
1.00 - $1.75. .    100,000      1.92  $    1.75       100,000  $ 1.75
                  --------                           --------
                   767,500. . . . . . . . . . . . .   674,300
                  ========                           ========
</TABLE>


6.  SEGMENT  INFORMATION

For  the  years  ended  December 31, 2003 and 2002, the Company's major business
segments  are  pipe  cleaning  services,  tank  cleaning services and industrial
chemical  sales.

<TABLE>
<CAPTION>

Information by segment for the year ended December 31, 2003:
<S>                                          <C>            <C>         <C>            <C>           <C>
                                                Pipe          Tank         Industrial   Corporate     Consolidated
                                              Cleaning      Cleaning        Chemical
                                              Services      Services          Sales
                                            ----------------------------------------------------------------------
Sales. . . . . . . . . . . . . . . . . . .   $2,132,434     $3,433,128  $    272,526     $    -0-    $  5,838,088
Income (loss) from continuing operations . .    (14,598)       622,702       104,993   (1,456,849)       (743,752)
Total assets . . . . . . . . . . . . . . . .    720,832        491,397        73,204      399,450       1,684,883
Depreciation and amortization. . . . . . . . .  128,519         57,706         5,979       27,027         219,231
Capital expenditures . . . . . . . . . . . .     47,627         33,580           -0-          -0-          81,207

</TABLE>

<TABLE>
<CAPTION>

Information by segment for the year ended December 31, 2002:
<S>                                          <C>            <C>         <C>            <C>           <C>
                                                Pipe          Tank         Industrial   Corporate     Consolidated
                                              Cleaning      Cleaning        Chemical
                                              Services      Services          Sales
                                            ----------------------------------------------------------------------
Sales. . . . . . . . . . . . . . . . . . .   $3,176,334     $3,142,805  $    171,974     $    -0-    $  6,491,113
Income (loss) from continuing operations . .    386,329        900,328       108,301   (1,598,738)       (203,780)
Total assets . . . . . . . . . . . . . . . .    514,372        432,133        83,114      564,831       1,594,450
Depreciation and amortization. . . . . . . . .  145,149         37,539        10,010       57,559         250,257
Capital expenditures . . . . . . . . . . . .     57,342        104,221           -0-       16,452         178,015

</TABLE>

Segment  profitability  is  determined  before allocation of corporate overhead.


<PAGE>

7.  COMMITMENTS  AND  CONTINGENCIES

WASTE  DISPOSAL  LIABILITY

The  Company  has  a facility in Virginia that is currently used to store waste.
Before  the  lease  of  this  facility  expires, the Company will be required to
properly dispose of all waste.  Management has estimated the cost of disposal to
be $114,500.  This amount has been accrued at December 31, 2003.  A lease option
extension for another year was executed during the year ending December 31, 2004
at  $3,900  per  month.


LEASE  COMMITMENTS

The  Company  has  operating  leases,  expiring  through  2006,  for  office and
warehouse  facilities  in Portsmouth, Virginia and National City, California and
for  office  and  other equipment.  Rental expense associated with all operating
leases  was $95,062 and $101,199 for the years ended December 31, 2003 and 2002,
respectively.

<TABLE>
<CAPTION>

Future minimum payments under operating leases, exclusive of any subleases, as
of December 31, 2003 are:
<S>                                    <C>
Years Ending December 31,. . . . . .  .  Amount
2004 . . . . . . . . . . . . . . . .   $112,396
-------------------------------------  --------
2005 . . . . . . . . . . . . . .  . .    42,000
-------------------------------------  --------
2006 . . . . . . . . . . . . . .  . .    39,240
-------------------------------------  --------
                                       $193,636
-----------------------------------------------

</TABLE>


8.  LEGAL  PROCEEDINGS

The  Company is involved in one legal proceeding, arising out of operations
in  the  ordinary  course  of  business, in which the Company is the complainant
party.  The  suit,  which  seeks  injunctive  relief and damages, was brought to
preclude  or  otherwise  limit the benefits the Company believes were wrongfully
obtained  by  the  defendants as a result of the misappropriation and use of our
confidential  information  and  trade  secrets  by  a  former  employee.


9.  RELATED  PARTY  TRANSACTIONS

The Company paid a commissioned sales representative, who is also a greater than
5%  stockholder,  $13,672  and  $9,443  in  the  years  2003  and 2002 for sales
commissions,  respectively.

On  February  23,  2003,  the Company entered into a one-year renewable Interest
Only  Non-Recourse  Promissory Note and Security Agreement for $400,000 with one
of  its  Directors.  The Note was renewed at the end of the original term by the
mutual  agreement  of both parties. The Note, as renewed, is renewable by mutual
agreement  of  the  parties.  The  holder's  security  interest in the Company's
assets  is  subordinate  to the security interests of the Company's Factor under
its Agreement with Factor described in footnote 10. The note pays interest at 8%
per  annum.  Interest  is paid monthly.  The note was renewed by extension until
February  23,  2005  and  the parties have agreed on April 9, 2004 to extend the
term  of  $200,000  of  principal  to  be  due  on  February  23,  2007.


<PAGE>

On  September  12,  2003,  the Company entered into a Promissory Demand Note for
$30,000  with  its  Chief  Executive  Officer  and Board Chairman. The note pays
interest  at  8%  per  annum.  Interest  is  paid  monthly.

On  December  2,  2003,  the  Company  entered into a Promissory Demand Note for
$50,000  with  its  Chief  Executive  Officer and Board Chairman.  The note pays
interest  at  8%  per  annum.  Interest  is  paid  monthly.

On  December  8, 2003, the Company entered into a six-month renewable Promissory
Term  Note for $50,000 with one of its Directors. The note can be renewed at the
end  of the original term by the mutual agreement of both parties. The note pays
interest  at  8%  per  annum.  Interest  is  paid  monthly.

On  December 17, 2003, the Company entered into a six-month renewable Promissory
Term  Note for $50,000 with the spouse of its Directors. The note can be renewed
at  the  end  of  the original term by the mutual agreement of both parties. The
note  pays  interest  at  8%  per  annum.  Interest  is  paid  monthly.


10.  AGREEMENT  WITH  FACTOR

The  Company  has  an  arrangement  for  a factoring facility whereby the factor
purchases  eligible  receivables and advances 85% of the purchased amount to the
Company.  Purchased  receivables  may not exceed $1,500,000 ($1,000,000 in 2002)
at  any  one time.  Either party may cancel the arrangement with 30 days notice.
At  December  31,  2003, there was $626,036 of factored receivables ($719,132 at
December  31,  2002) of which the Company has received $620,560 from the factor.
This  $620,560 and $5,476 in interest expense are not shown as receivables. This
arrangement  is  accounted  for as a sale of receivables on which the factor has
recourse to the 15% residual of aggregate receivables purchased and outstanding.
Interest  payable by the Company to the factor is calculated as a fixed discount
fee  equal  to  0.75%  of  the amount of the receivable factored plus a variable
(1.5%  above  the  institutions  base  rate,  with a minimum of 7%) discount fee
computed  on  the  amount  advanced  to the Company and accruing on the basis of
actual  days  elapsed  from  the  date  of  the  85%  advance until 3 days after
collection of such account receivable by the factor at a per annum rate equal to
an  internal rate set by the factor.  The rate at December 31, 2003 and 2002 was
7%.  In  connection  with  this  agreement,  the Company is required to maintain
certain financial covenants.  The Company was not in compliance with the minimum
tangible net worth covenant as of December 31, 2003. In the event of a breach of
representation,  warranty  or agreement, the institution has a security interest
in  the  Company's  assets.

On  April  5,  2004,  the  Company  executed  a third amendment to its factoring
agreement.  The  amendment  increased the fixed discount rate from 0.75% to 1.0%
in  exchange  for  the  removal  of  the  tangible net worth financial covenant.


11.  401(K)  PROFIT  SHARING  PLAN

The Company has a 401(k) profit sharing plan available to all eligible employees
who are age 21 (twenty-one) and have completed six months of service.  The Board
approved  an employer matching contribution of 25% totaling $24,432 for 2003 and
$25,067  for  2002.


12.  EMPLOYMENT  AGREEMENTS

In  connection with a certain employment agreement there were no bonuses awarded
for  the  years ended December 31, 2003 and 2002.  There were no bonuses awarded
to  any  Officer  for  the  years  ended  December 31, 2003 and 2002.  The Chief
Executive  Officer's  employment agreement has been extended for another term of
one-year.  Each  Officer's employment agreement includes a non-compete agreement
effective  upon  termination  of  employment.  A  certain  executive  employment
agreement  provides  for  an  auto  allowance  or  company  car.


<PAGE>

13.  SUBSEQUENT  EVENTS

In  January  of  2004 the Company entered into a joint development agreement for
the  further development of the Company's HERC-KOAT technology for post-cleaning
water  pipe  surface  coating.  Our  development  associate paid $25,000 for the
right  and  obligation to fund further development of the existing technology to
get  to  a  stage  so  that  the  Company  would  be  capable of filing a patent
application  with  the  United  States  Patent  and Trade Office.  Any potential
patent  granted  would  be  jointly  owned.  Prior  to  the  filing  of a patent
application,  either  party  may terminate the agreement with the consent of the
other  party.  In  the  event  of  agreed  termination,  the  party desiring the
technology  shall obtain from the other assignment of all right and title to the
technology  in  exchange  for repayment of all development costs incurred by the
assigning  party.

During  January 2004, the Company granted a five-year exclusive license to Seiwa
Pro,  Ltd.  of  Osaka,  Japan to use substantially all of the Company's chemical
cleaning  patents  and technology to clean marine ship piping systems, municipal
potable  distribution  systems,  commercial,  institutional  and  industrial
infrastructure  and  facilities  piping,  water  well  rehabilitation,  and fire
protection  sprinkler  systems  in  Japan,  China,  Taiwan, Korea, Singapore and
Malaysia.  The  license  agreement  provides  that  Seiwa  will  pay the Company
royalties at rates designated in the agreement ranging from 3-10% of sales, such
royalty  percentage  rates  decreasing  as  sales  volume increases.  Seiwa will
prepay  royalties of $500,000, payable in two equal installments of $250,000 net
of  total  treaty  withholding  taxes  of  $50,000.  The  first  installment was
received  in February 2004, and accrues interest for the benefit of Seiwa at the
rate  of  2.25% per annum. The second installment is due and payable during July
2004, and once paid, the total prepaid royalty will accrue interest at a rate of
4.5%  per  annum.  Any interest accrued on the prepaid royalty will increase the
amount  of  the  prepaid  royalty.  The agreement requires Seiwa to meet minimum
royalties  of  $50,000  in  2005  and  $100,000 in each of 2006, 2007, and 2008.
Under  the  agreement  if  at the end of the primary term there is any remaining
prepaid  royalty  balance after application of credit for minimum royalties, the
Company  will  repay  to Seiwa the balance plus accrued interest.  Alternatively
under  the  agreement,  in  the event the parties agree on applicable terms, the
Company  may  permit  Seiwa to convert any unearned prepaid royalty balance into
shares  of  the  Company's  common  stock.


14.  MANAGEMENT'S  PLANS

The Company is financially recovering from the decline of revenue resulting from
the  extended  Middle  East  military  deployment  in  2003  that  reduced  the
availability  of  United  States  Navy ships on which to provide marine pipe and
tank  cleaning services from the fourth quarter of 2002 to the fourth quarter of
2003.  The recovery results from cost reductions implemented in 2003 and revenue
expansion  opportunities  in  late  2003  and 2004, with the return of the Navy.
During  2003,  the  Company  down-sized  personnel by $620,000 and cut property,
casualty  and  liability  insurance  premiums  by $100,000 to save cash totaling
$720,000  on an annualized basis.  During 2004, the Company anticipates reducing
specialty  and potable division sales and marketing costs by about $180,000, and
the Company's most significant affiliate lender has agreed to extend $200,000 of
his  $400,000  one  year  term note to a term of three years.  Revenue expansion
will  focus on providing more marine pipe and tank cleaning services to the U.S.
Navy worldwide.  The most significant expansion of revenue is anticipated in the
Navy's west coast and Japanese ports that will be serviced through the Company's
new  offices  near  San  Diego,  California.  The Company intends to expand both
sales and marketing services to marine customers, and intends to expand the menu
of  services  offered  to  augment  pipe  and  tank  cleaning.  The Company will
actively  seek  new  licensees  for  specialty  and  potable water pipe and fire
protection  cleaning technologies through anticipated licensing of the Company's
patents  in  foreign  and  domestic  markets  in  addition to servicing existing
specialty and potable customers.  The Company will continue to support sales and
marketing  efforts  to  existing  and  new  industrial  chemical  customers.


<PAGE>