AMERICAN INTERNATIONAL HOLDINGS CORP. - FORM 10-K

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EX-31.2 - EXHIBIT 31.2 - AMERICAN INTERNATIONAL HOLDINGS CORP.	exh312.htm
EX-32.2 - EXHIBIT 32.2 - AMERICAN INTERNATIONAL HOLDINGS CORP.	exh322.htm
EX-32.1 - EXHIBIT 32.1 - AMERICAN INTERNATIONAL HOLDINGS CORP.	exh321.htm
EX-31.1 - EXHIBIT 31.1 - AMERICAN INTERNATIONAL HOLDINGS CORP.	exh311.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2008

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 0-50912

HAMMONDS INDUSTRIES, INC.

(Exact Name Of Registrant As Specified In Its Charter)

Nevada	88-0225318
(State of Incorporation)	(I.R.S. Employer Identification No.)

601 Cien Street, Suite 235 Kemah, TX	77565-3077
(Address of Principal Executive Offices)	(ZIP Code)

Registrant's Telephone Number, Including Area Code: (281) 334-9479

Securities Registered Pursuant to Section 12(g) of The Act: Common Stock, $0.0001

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in the definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer, "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨	Accelerated filer ¨
Non-accelerated filer ¨	Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of June 30, 2008, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $22,167 based on the closing sale price of $0.001 on such date as reported on the OTCBB.

The number of shares outstanding of each of the issuer’s classes of equity as of February 23, 2010 is 5,031,326 shares of common stock and 3,769,626 shares of preferred stock.

TABLE OF CONTENTS

Item	Description	Page
PART I
			3
ITEM 1.	DESCRIPTION OF BUSINESS		8
ITEM 1A.	RISK FACTORS RELATED TO OUR BUSINESSES		13
ITEM 1B.	UNRESOLVED STAFF COMMENTS		13
ITEM 2.	DESCRIPTION OF PROPERTY		13
ITEM 3.	LEGAL PROCEEDINGS		13
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
PART II

ITEM 5.	MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES		14
ITEM 6.	SELECTED FINANCIAL DATA		15
ITEM 7.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATION		16
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		19
ITEM 8.	CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA		20
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE		40
ITEM 9A(T).	CONTROLS AND PROCEDURES		40
ITEM 9B.	OTHER INFORMATION		41
PART III

ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE		41
ITEM 11.	EXECUTIVE COMPENSATION		42
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS		44
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENCENCE		45
ITEM 14.	PRINCIPAL ACCOUNTING FEES AND SERVICES		45
ITEM 15.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES		45

Cautionary Statement regarding Forward-Looking Statements

This Annual Report on Form 10-K of Hammonds Industries, Inc. (hereinafter the "Company", the "Registrant" or " Hammonds") includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Registrant has based these forward-looking statements on its current expectations and projections about future events. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about the Registrant that may cause its actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "could," "would," "expect," "plan," "anticipate," "believe," "estimate," "continue," or the negative of such terms or other similar expressions. Factors that might cause or contribute to such a discrepancy include, but are not limited to, those described in this Annual Report on Form 10-K and in the Registrant's other Securities and Exchange Commission filings. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in the forward-looking statements. For a more detailed discussion of the foregoing risks and uncertainties, see "Risk Factors".

PART I

ITEM 1. DESCRIPTION OF BUSINESS

Hammonds Industries, Inc.

Hammonds Industries, Inc., a Nevada corporation, is publicly traded on the pink sheets under the symbol "HMDI". The Company was incorporated on August 18, 1986.

Description of Hammonds' Organization and Financing Transactions

Some of the statements contained in this current report of Hammonds Industries Inc., (hereinafter the "Company", "Hammonds", "We" or the "Registrant" discuss future expectations, contain projections of our operations or financial condition or state other forward-looking information. In 2005, the Company, through its parent company, acquired 51% of the capital stock of Hammonds Technical Services, Inc. Hammonds Technical Services, Inc. and Hammonds Fuel Additives, Inc. were separate privately-owned Texas companies. In connection with the 2005 acquisition by the Company, Hammonds Fuel Additives was merged into Hammonds Technical Services. In April 2005 and January 2006, respectively, Hammonds Fuel Additives and Hammonds Water Treatment Systems, respectively, were reincorporated as separate entities from Hammonds Technical Services, and all three entities are wholly-owned subsidiaries of the Company. On August 1, 2006, the Company acquired the 49% minority interest of Hammonds Technical Services, Inc., Hammonds Fuel Additives, Inc., and Hammonds Water Treatment Systems, Inc. in consideration for the issuance of 1,600,000 restricted shares of common stock, valued at a price of $2.50 per share, the price of the Company's common stock at the date of the transaction.

Prior to the year ended December 31, 2008, in accordance with FIN 46(R), American International Industries, Inc. (American), consolidated Hammonds, even though its ownership was less than 51%, because American appointed the members of Hammonds’ board of directors. Since Hammonds was incurring losses and the minority interest had no recorded common stock equity value, American recognized 100% of Hammonds’ losses.

On December 31, 2008, the board of directors of American approved the deconsolidation of Hammonds from American. To effect the deconsolidation of Hammonds, American was required to reduce its ownership percentage, board membership, and guarantee of Hammonds’ debt. After the distribution of the special dividend of approximately 1.74 million shares of Hammonds’ common stock to American's shareholders of record on December 31, 2008, American's ownership is approximately 13% of Hammonds' issued and outstanding common stock. Effective December 31, 2008, Carl Hammonds was appointed Chairman and CEO and John Stump, III was appointed CFO. Hammonds accepted the resignations of Daniel Dror, as Chairman of the Board and CEO, Sherry L. Couturier, as Director, CFO and Vice President, and Charles R. Zeller, as Director, and appointed Richard C. Richardson as a new board member unrelated to American. As a result, the majority of Hammonds’ board of directors is no longer controlled by American. Additionally, a reduction of American's guarantee of Hammonds’ debt to $1,000,000 was obtained from Texas Community Bank.

On April 16, 2009, Hammonds entered into an Asset Purchase Agreement with FabCorp, Inc., a Houston-based manufacturing company, pursuant to which Hammonds sold all of its assets, including all of the shares of its operating wholly-owned subsidiaries, Hammonds Fuel Additives, Inc., Hammonds Technical Services, Inc., Hammonds Water Treatment Systems, Inc. and Hammonds ODV, Inc. (collectively, the “Operating Subsidiaries”) to a newly formed Texas company, Hammonds Technologies, LLC., a wholly owned subsidiary of FabCorp, Inc.

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The transaction was authorized and approved pursuant to the provisions of the Nevada Revised Statutes by the Joint Written Consent of the Board of Directors and the Majority Stockholders of Hammonds.

The Board of Directors decision to enter into the Asset Purchase Agreement was based upon the following reasons, among others: the poor business outlook for the Operating Subsidiaries because of Hammonds’ inability to raise sufficient capital, either through equity or debt financing to continue its operations and grow the businesses of the Operating Subsidiaries; the weak financial viability of the Operating Subsidiaries without a substantial infusion of capital; that at December 31, 2008, Hammonds total current liabilities were about $6.9 million compared to current assets of about $2.8 million and total liabilities were about $7.3 million or about $460,000 more than total assets (all amounts unaudited); for more than the past year, Hammonds’ management had been actively seeking financing, either through equity or debt, necessary to support ongoing operations and to that end had retained investment banking consultants pursuing several possible financing opportunities, but none of these efforts were successful and no additional financing was raised; the ongoing upheaval in the credit and investment environment; and the determination by Hammonds management that it would be unable to continue as a “going concern.”

Pursuant to the Asset Purchase Agreement, FabCorp purchased all of the assets, free and clear of all liens and other encumbrances, in consideration for the payment of liabilities of Hammonds to Texas Community Bank in the amount of $2.6 million, payment of the senior promissory bridge note of $250,000 to Hammonds’ institutional investor, Vision Opportunity Master Fund, Ltd., the assumption of all payables and liabilities of the Operating Subsidiaries of approximately $2.6 million and the commitment to provide continuing financial support for the Operating Subsidiaries.

Based upon the foregoing, Hammonds’ Board of Directors determined that is was in the best interests of Hammonds and its shareholders that Hammonds enter into the Asset Purchase Agreement, so that Hammonds could pursue other business opportunities through a merger, acquisition or other business combination with an operating entity. On August 13, 2009, Hammonds, American, Delta Seaboard Well Service, Inc. (Delta), American's 51% owned subsidiary, and the minority interest owners of Delta entered into an agreement to commence a reverse merger of Delta into Hammonds.

2006 Private Financing Transactions

On August 8, 2006, the Company entered into a stock purchase agreement with Vision Opportunity Fund Limited ("VOMF"), an institutional investor, pursuant to which the Company sold VOMF 833,333 shares of Series A Convertible Preferred Stock for $1,500,000 and issued a Series A Warrant exercisable for a period of 5 years to purchase 833,333 shares of the Company’s common stock at $1.80 per share and a Series B Warrant exercisable for a period of 2 years to purchase an additional 833,333 shares of the Company’s common stock at $1.80 per share.

On September 29, 2006, the Company entered into another stock purchase agreement with VOMF pursuant to which the Company sold 833,333 shares of Series B Convertible Preferred Stock for $1,500,000 and issued a Series C Warrant exercisable for a period of 5 years to purchase 833,333 shares of the Company’s common stock at $5.00 per share.

The stock purchase agreements in the 2006 Private Financing Transactions provide that each share of Series A and Series B Convertible Preferred Stock is convertible into 1 share of Hammonds' common stock.

2007 Private Financing Transactions

In connection with the agreement of VOMF to exercise up to 400,000 Series C Warrants in March 2007, the Company reduced the exercise price of the Series C Warrants from $5.00 per share to $1.80 per share through December 31, 2007, following which the exercise price reverts to $5.00 per share. On March 27, 2007, VOMF exercised 397,040 Series C Warrants at a price of $1.80 per share with net proceeds of $694,672 to the Company.

On September 20, 2007, the Company entered into an agreement with VOMF pursuant to which the Series A, B and C Warrants were amended to: (i) adjust the exercise price of all of the Warrants to $1.00; and (ii) provide for the issuance of a total of 2,102,960 shares of the Company's newly authorized Series C Convertible Preferred Stock in lieu of 2,102,960 shares of common stock. On September 21, 2007, VOMF delivered a notice of exercise of all 2,102,960 Series A, B and C Warrants at an exercise price of $1.00 per warrant, from which the Company received net proceeds of $981,162 and VOMF cancelled Hammonds’ short-term promissory note payable in the amount of $1,000,000, representing a loan made by VOMF to the Company on August 17, 2007.

In total, the Company has received approximately $5.4 million from the 2006 and 2007 VOMF Private Financing Transactions. The material terms of these preferred stock issuances are included in Note 9 to the consolidated financial statements.

Revenue and expenses of Hammonds are included in the Company’s consolidated statements of operations from May 1, 2005 through the year ended December 31, 2008.

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General Background of Hammonds

Hammonds Technical Services, Inc. and Hammonds Fuel Additives, Inc. were separate privately-owned Texas companies. In connection with the 2005 acquisition by the Company, Hammonds Fuel Additives was merged into Hammonds Technical Services. In April 2005 and January 2006, respectively, Hammonds Fuel Additives and Hammonds Water Treatment Systems, respectively, were reincorporated as separate entities from Hammonds Technical Services, and all three entities are wholly-owned subsidiaries of the Company. Hammonds manufactures engineered products and chemicals that serve multiple segments of the fuels distribution, water treatment and utility vehicle industries. Hammonds' products are marketed by a worldwide network of distributors, manufacturer representatives and original equipment manufacturers. Hammonds was founded in 1982 by Carl Hammonds and provides the following diverse products and services:

Description of Hammonds' Products and Services

Omni Directional Vehicles

Hammonds' line of Omni Directional Vehicles (ODV®), we believe, should establish a standard for industrial utility vehicles based on vehicle safety and performance. Hammonds' ODV® is based on a round chassis, driven by two individually powered wheels located at the center axis of the circle and is able to move in any radial direction from a given point. The unique material handling capabilities of a Hammonds’ ODV® make it possible to position large, heavy objects with exact precision in confined areas with limited maneuvering room. The Hammonds’ ODV® is a highly versatile vehicle that has been configured to handle aircraft, position large components, and for use as a platform for snow management equipment, among other uses and applications. Hammonds has been granted multiple United States and foreign patents on the ODV® covering forklifts, high capacity pallet jacks, people movers, security vehicles, highway mowing machines, and terminal freight tractors.

Fuel Handling Equipment

Hammonds manufactures a wide variety of fluid injector systems that are driven and controlled by the flow of product. They utilize a fluid driven motor that furnishes power to the injector. Requiring no external power, these injectors provide accurate, proportionate-to-flow injection of up to eight different additives, separately or simultaneously. With primary applications in fuel distribution, Hammonds' fluid powered injectors are marketed to the general aviation industry and the U.S. military for injection of fuel system icing inhibitors, corrosion inhibitors, conductivity and thermal stability additives. Hammonds' fuel handling equipment provides an advanced means of blending additives and chemicals.

Water Treatment for Municipal and Industrial Use

Hammonds manufactures patented systems which provide water disinfection for a wide range of potable and waste water applications. Greater focus is being placed on water disinfection and safety issues associated with disinfection. Purification and treatment of municipal drinking water and wastewater is a worldwide concern. The water treatment market is highly fragmented, consisting of many companies, including companies that design fully integrated systems for processing millions of gallons of water for municipal, industrial, and commercial applications. Demand for water treatment has continued to grow due to economic expansion, population growth, scarcity of usable potable water, concerns about water quality and regulatory requirements. Hammonds’ technology is used in many municipal water and waste-treatment applications and our equipment is frequently specified as components in systems manufactured by other companies.

Fuel Additives

Hammonds' fuel additive division produces and markets motor and aviation fuel additives, with Biobor® JF as its primary product. Serving the aviation, stand-by power and marine fuel markets, Biobor® JF is one of only two biocides approved for use in aviation fuels. In 1991, Hammonds purchased the exclusive world-wide rights to Biobor® JF, a fuel biocide approved for control of microbial growth in hydrocarbon fuels. Biobor® JF was developed by U.S. Borax in conjunction with major oil companies and the aviation industry as a means of controlling dangerous corrosion and contamination of aviation fuel as a result of hydrocarbon-utilizing micro organisms. Biobor® JF continues to command the majority of the aviation market. Also widely used in diesel and heavy fuels of all grades, Hammonds sells performance additives including detergents, pourpoint depressants, cetane improvers, lubricity agents and fuel system icing inhibitors. These products are purchased in bulk from manufacturers such as GE and Union Carbide and are carefully selected to provide a well-rounded family of products to the commercial and marine, industry, aviation, railroad and off-road equipment markets. All such products have trademarked names owned by Hammonds.

Hammonds offers fuel test kits and materials used in quality control, filter media, water absorption materials and related accessories utilized extensively by aviation, off-road, commercial transportation, marine and railroad industries.

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Competition

The markets in which Hammonds operates are highly competitive. Several of our products and services compete against several large companies and many companies in fragmented, highly competitive markets. Many of our competitors have greater resources than Hammonds. Our business competes in the areas of water treatment technology, fuel handling equipment, fuel additives and industrial utility vehicles, principally on the basis of the following factors: product quality and specifications (water treatment technology and fuel additives); customized design and technical qualifications (fuel handling equipment and industrial utility vehicles); reputation, technical expertise and reliable service (fuel additives and fuel handling equipment). Competitive pressures and other factors could cause us additional difficulties in acquiring market share or could result in decreases in prices, either of which could have a material adverse effect on our financial position and results of operations.

Among our competitors are some of the world's largest chemical and water treatment companies and major integrated companies that have their own raw material resources and far greater financial resources than Hammonds. Hammonds must compete with numerous well-established water treatment providers, fuel additive and chemical products companies, fuel handling equipment companies and industrial vehicle manufacturing and marketing companies, many of which possess substantially greater experience, financial, marketing, personnel and other resources than Hammonds.

Price is a powerful incentive in this industry, however, and performance with low installation costs will continue to drive customer demands. Hammonds believes that Gammon Technical Services and Lubrizol are its main competitors in its fuel handling equipment business. There are a number of small competitors that use non-proprietary technology. Hammonds' fuel handling products are focused on unique market segments. Hammonds has been a sole-source vendor supplying fuel-injection and blending technology for the United States Air Force and Army since 1985.

In the fuel additive market, Hammonds developed additive blending, introducing a fluid powered system that has been widely accepted in military and general aviation. The U.S. military has accepted the Hammonds' injectors as its "sole source" for rapid deployment combat and terminal pipeline injection.

Biobor® is a fuel biocide marketed to the aviation, off-road vehicle and stand-by power generation industries and is registered by the United States Environmental Protection Agency as a fuel biocide. (EPA 65217-1). Biobor® is one of only two biocides approved for use in aviation jet fuel. Competition for the jet fuel market is limited to Kathon FP, a product of Rohm and Haas. Kathon FP is not approved for use in some parts of the United States. Biobor® has no geographical limitations and is used throughout the world as a primary choice by operators of turbine fuel aircraft. There are a host of other manufacturers producing fuel biocides for diesel and other hydrocarbon based fuels, with Angus Chemical being one of the largest.

Hammonds' Biobor® JF fuel biocide is approved for control of microbial growth in hydrocarbon fuels. The Biobor® JF product, a fuel additive, is widely recognized as a standard for control of fuel-born microbial growth and has been widely accepted in the aviation, marine and power generation industries. Hammonds has established a very competitive position with the Biobor® JF product, selling to such major customers as Boeing, Dessault, Airbus, Lockheed, Cessna, Gulfstream, Learjet, General Dynamics, Pratt & Whitney, Rolls Royce, GE, Cummins, General Motors, Ford, Caterpillar, DaimlerChrysler and John Deere. There is considerable competition in the field of fuel biocides.

The aviation industry has begun to move from engine driven to electric powered equipment. Rechargeable battery powered vehicles promise more efficiency, less maintenance and cleaner air. A majority of new equipment in the aviation industry is based on electric power. Airlines are eagerly seeking new products and ideas. Competition is significant because much of the competitors' equipment is virtually similar. However, Hammonds believes that its ODV® has better features and can move faster, safer, smoother and with easier use and operation.

Many of our competitors have achieved significant national brand name and product recognition and engage in extensive promotional programs. Moreover, certain of our products and services use technology that is widely available. Accordingly, barriers to entry, apart from capital availability, may be low in certain product segments of our business, and the entrance of new competitors into the industry may reduce our ability to capture improving profit margins in circumstances where capacity utilization in the industry is increasing. Hammonds' ability to compete successfully will depend on our success at penetrating each targeted market with our products and services, market acceptance of our products and services, our ability to license and develop new and improved products, and our ability to develop and maintain distribution networks. There can be no assurance that Hammonds will be able to compete successfully, that its products will continue to meet with customer approval, that competitors will not develop and market products that are similar or superior to our products or that Hammonds will be able to successfully enhance its products or services.

Production Facilities

Hammonds leases a 106,000 square foot manufacturing and office facility on approximately 13 acres of land located in Houston, TX. The Houston, TX facility is leased from an unaffiliated third party at an annual rental of $436,380 and has sufficient production capacity to meet the Company’s anticipated needs for the foreseeable future.

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Materials and Principal Suppliers

Hammonds' additive systems are assembled using fabricated parts from Hammonds' facility and machined parts manufactured in our in-house machine shop. Hammonds’ performance additives, including detergents, pourpoint depressants, cetane improver, lubricity agents and fuel systems icing inhibitors, are produced by Hammonds from products that are purchased in bulk from manufacturers such as GE and Union Carbide.

The ODV® utilizes three main propulsion components: wheel drives, hydrostatic pumps and the engine or electric motor that powers the system. A broad range of manufacturers offer equipment of this type, which makes sourcing of primary components selective and competitive.

Dependence on Major Customers

Hammonds depends on several major customers including Arch Chemical, CSX Railroad, Exxon/Mobil, BP Aviation, Chevron/Texaco, Tomco, KopCoat, Boeing, Defense Energy Supply and Lockheed Martin. In addition, Hammonds has been a long time supplier to all branches of the United States Military with on-going contracts to supply equipment to the U.S. Army. If any of these major industrial or governmental agencies terminated its relationship with Hammonds, whether as the result of technological advances by competitors, or otherwise, the business operations and financial condition of the Company could be adversely affected.

Patents, Trademarks And Licenses and Other Intellectual Property

Hammonds' products are covered by various United States patents and patents pending. At present, Hammonds owns over 25 patents covering various fuel additive systems, pumping technology, water treating equipment and Omni Directional Vehicles (ODV®). There are an additional 12 patents in pending status.

Employees

As of December 31, 2008, Hammonds had 47 full time employees, including Carl Hammonds, Hammonds’ founder, president and a director. No employees are covered by a collective bargaining agreement. Hammonds’ management considers relations with its employees to be satisfactory.

Environmental Laws and Regulations

Hammonds is required to comply with the rules and regulations promulgated by the U.S. Environmental Protection Agency (EPA), pursuant to the Environmental Protection Act. The original EPA registration for Biobor® JF included extensive testing in order to establish any potential adverse effects on personnel or the environment. The use of certain chemicals and other substances is subject to extensive and frequently changing federal, state, provincial 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 things, these regulatory bodies impose requirements to control air, soil and water pollution, to protect against occupational exposure to chemicals, including health and safety risks, and to require notification or reporting of the storage, use and release of certain hazardous chemicals and substances. Hammonds provides all required label warnings and instructions for the handling of its fuel additive products. Hammonds believes that it is in substantial compliance with all laws and regulations governing its material business operations and has obtained all required licenses and permits for the operation of its business. There can be no assurance in the future that Hammonds will be able to comply with all current or future government regulations in every jurisdiction in which it will conduct its material business operations without substantial cost or interruption of its operations, or that any present or future federal, state, provincial or local environmental protection regulations may not restrict Hammonds' present and possible future operations. In the event that Hammonds is unable to comply with such applicable environmental laws and regulations, Hammonds could be subject to substantial sanctions, including restrictions on its business operations, monetary liability and criminal sanctions, any of which could have a material adverse effect upon Hammonds' business. However, Hammonds' believes that it is in full compliance with all present environmental rules and regulations and that it should be able to remain in compliance in the future.

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Risk Factors

Investing in our common stock will provide an investor with an equity ownership interest. Shareholders will be subject to risks inherent in our business. The performance of our shares will reflect the performance of our business relative to, among other things, general economic and industry conditions, market conditions and competition. The value of the investment may increase or decrease and could result in a loss. An investor should carefully consider the following factors as well as other information contained in this annual report on Form 10-K.

This annual report on Form 10-K also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of many factors, including the risk factors described below and the other factors described elsewhere in this Form 10-K.

ITEM 1A. RISK FACTORS RELATED TO OUR BUSINESS

We may experience adverse impacts on our results of operations as a result of adopting new accounting standards or interpretations.

Our implementation of and compliance with changes in accounting rules, including new accounting rules and interpretations, could adversely affect our operating results or cause unanticipated fluctuations in our operating results in future periods. For example, we are required by the Sarbanes-Oxley Act of 2002 to file annual reports and quarterly reports disclosing the effectiveness of our internal controls and procedures. Although we believe our internal controls are operating effectively, and we have committed internal resources to ensure compliance, we cannot guarantee that we will not have any material weaknesses as reported by our auditors, or that such deficiencies will not be discovered through our internal reviews, and such determination could materially adversely affect our business or significantly increase our costs in order to establish effective controls and procedures.

Competition

While we believe that we are competitive and have an established presence in our water treatment technology systems, fuel handling equipment systems, additives for general fuels and commercial aviation fuels business sectors, we may face significant competition in our efforts to market and sell our new ODV® line. Further we could face competition from our customers, if they determine to produce and use the products we presently sell in our water treatment technology systems, fuel handling equipment systems, additives for general fuels and commercial aviation fuels business sectors. Many of our customers are well-established entities and possess far greater financial, technical, human and other resources than does the Company.

We must compete against many companies in fragmented, highly competitive markets and we have fewer resources than many of those companies. Our business sectors compete principally on the basis of the following factors: product quality and specifications (water treatment technology and fuel additives); customized design and technical qualifications (fuel handling equipment and industrial utility vehicles); and reputation, technical expertise and reliable service (fuel additives and fuel handling equipment). Competitive pressures, including those described above, and other factors could cause us additional difficulties in acquiring and maintaining market share or could result in decreases in prices, either of which could have a material adverse effect on our financial position and results of operations. From time to time, the intensity of competition results in price discounting in a particular industry or region. Such price discounting puts pressure on margins and can negatively impact our ability to generate an operating profit.

Development efforts for our ODV® product line are dependent upon factors outside of our control, and upon successful completion of development and market acceptance

We have devoted significant financial and other resources to the development of our new Omni Directional Vehicle (ODV®) line. We are dependent upon the ability of the third party manufacturers and subcontractors of the ODV® components necessary for us to successfully complete manufacturing of the units in a timely manner, with the features that are required, in order for us to be able to commercially exploit our development. Hammonds believes that the patented new design can be utilized in connection with forklifts, freight terminal tractors, security vehicles, industrial highway mowers and a full range of aviation ground handling vehicles. Hammonds has produced several prototypes of its ODV® products at its plant in Houston, TX. While Hammonds has been successful in generating initial ODV® stocking orders, there can be no assurance that Hammonds will be able to successfully manufacture and sell a sufficient number of ODV® units to generate significant revenues and profits.

In each of the target markets for Hammonds' ODV®, we must face competition from older and more established companies and will be dependent on gaining market approval for our patented new ODV® technology. We must compete with providers of traditional forklifts, freight terminal tractors, security vehicles, industrial highway mowers and a full range of aviation ground handling vehicles and gain market acceptance for our uniquely designed ODV®. If we are successful in generating demand for our ODV®, we will be dependent upon third party manufacturers to produce, on a timely basis, necessary ODV® components with the quality and quantity that will be required.

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We rely heavily on commodities in the manufacturing of our equipment and price fluctuations can have a material and adverse effect on the cost structure of our business

We are exposed to fluctuations in market prices for various commodities in the production of our fuel additive and water treatment products. The rising price of steel also can have an impact on the cost of production of our ODVs®. At this time, we are unable to predict the potential impact of future increases in commodity costs on the cost of our products, or our ability, if any, to increase the selling price of our products to cover such costs. We have not established arrangements to hedge commodity prices and, where possible, to limit near-term exposure to fluctuations in raw material prices. As a result, the cost to manufacture our products may rise at a time when we are unable to increase the selling price of such products.

Our business is subject to environmental regulations; failure to comply could result in substantial penalties

We are regulated by various U.S., state and local environmental laws governing our use of substances and control of emissions in all our operations. Compliance with these laws could have a material impact on our capital expenditures, earnings, or competitive position. Our failure or inability to comply with the applicable laws and regulations could result in monetary or other penalties, resulting in unanticipated expenditures or restrictions on our ability to operate.

We are dependent on third-party distributors for our ODV® sales, which could reduce our ability to gain marketplace acceptance

We have begun efforts to build the Hammonds’ ODV® brand through direct sales and through distribution networks and major supply agreements with other companies. Several distributors have elected to carry initial stocking inventories of our ODV®. We are dependent upon our distributors' success in generating customer orders for the stocking inventory they have purchased and in continued orders for future shipment.

Any material disruption or termination of our relationships with certain suppliers could have a material adverse effect on our operations

Certain of the components included in our products, including our fuel handling equipment, our fluid injector systems and our new ODV® equipment, are obtained from a limited number of suppliers. Any material disruption or termination of supplier relationships could have a material adverse effect on our operations. We believe that alternative sources could be obtained, if necessary, but the inability in a timely manner to obtain sufficient quantities of necessary components or the need to develop alternative sources, if and as required in the future, could result in delays or reductions in product shipments, which in turn could have an adverse effect on our operating results and customer relationships.

Actual results could differ from the estimates and assumptions that we use to prepare our financial statements

To prepare financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions, as of the date of the financial statements, which affects the reported values of assets, liabilities, revenues and expenses and disclosures of contingent assets and liabilities. Areas requiring significant estimates by our management include:

- contract costs and profits and revenue recognition;

- provisions for uncollectible receivables and recoveries of costs from subcontractors, vendors and others;

- provisions for income taxes and related valuation allowances;

- recoverability of other intangibles and related estimated lives;

- accruals for estimated liabilities;

- timing of the introduction of new products and services and market acceptance of the same

We are subject to the risks associated with being a government contractor

We are a provider of products and services to governmental agencies, including municipal water agencies, waste treatment, and our fuel additive and injector services for the U.S. military. We are therefore exposed to risks associated with government contracting, including reductions in government spending, canceled or delayed appropriations specific to our contracts or projects, heightened competition and modified or terminated contracts. Legislatures typically appropriate funds for a given program on a year-by-year basis, even though contract performance may take more than one year and is not always guaranteed. As a result, at the beginning of a contract or project, the related contract or project may be only partially funded, and additional funding is normally committed only as appropriations are made in each subsequent year. These appropriations, and the timing of payment of appropriated amounts, may be influenced by, among other things, the state of the economy, competing priorities, curtailments in the use of government contracting firms, budget constraints, the timing and amount of tax receipts and the overall level of government expenditures.

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Our dependence on major customers could adversely affect us

Hammonds has been dependent upon its ability to market its products and services to major industrial and governmental agencies such as Arch Chemical, CSX Railroad, Exxon/Mobil, BP Aviation, Chevron/Texaco, Tomco, KopCoat, U.S. Army, U.S. Air Force, Boeing, Defense Energy Supply and Lockheed Martin. If any of these major industrial or governmental agencies terminated its relationship with Hammonds, whether as the result of technological advances by competitors, or otherwise, the business operations and financial condition of the Company could be adversely affected.

Our failure to attract and retain qualified personnel, including key officers, could have an adverse effect on us

While we believe that our current personnel of 47 employees is sufficient for the forseeable future, our ability to attract and retain qualified engineers, and other professional personnel to satisfy our needs is an important factor in determining our future success. The market for these skilled professionals is competitive, and there can be no assurance that we will be successful in our efforts to attract and retain additional professionals as our need increases. In addition, our ability to be successful depends in part on our ability to attract and retain skilled laborers in our manufacturing and service business. Demand for these workers can be high at times and the supply can be extremely limited at times. Our success is also highly dependent upon the continued services of our key officer, Carl Hammonds, our president, and the loss of Mr. Hammonds could adversely affect us. The Company has "key" man life insurance on the life of Mr. Hammonds in an amount that it deems sufficient.

Risks inherent in establishing a new market

There can be no assurance that we will be successful in marketing our ODV® line, which uses a new technology aimed at a highly competitive industry for industrial utility vehicles. The market for new products can be very difficult to establish. There are competitors with long-established products, accepted technology and greater financial resources for marketing such products. If the market for our ODV® product line takes longer to develop and grow than anticipated, this would have an adverse effect on revenues and potential profitability. While we believe the ODV® represents an important innovation in industrial utility vehicles, we cannot be assured that our targeted customers will purchase a significant number of units or that we will be able to establish a nationwide and international network of distributors. If the market develops more slowly than anticipated we may require additional financing and will be dependent upon our parent to provide or otherwise secure necessary financing at acceptable terms and conditions.

There can be no assurance that the Company will be successful in its ability to continue to obtain the financing necessary to introduce the technology, or that having obtained such financing, will be successful in marketing the line of Hammonds’ products.

Potential risks associated with rapid technological changes

Rapid technological changes could adversely affect our business. The market for our products and technology in particular is characterized by rapid changes. Evolving industry standards and changing customer needs gives rise to a very competitive marketplace for new technology. If we are unable to meet or stay ahead of new technologies being developed and to changes in industry standards, our business could be adversely affected.

Changes in technology, competitively imposed process standards and regulatory requirements influence the demand for many of our products and services. In order for us to continue to grow and remain competitive, we must be able to anticipate changes in technological and regulatory standards. We must be able to continue to introduce new and enhanced products on a timely basis. We may not achieve these goals and some of our products may become obsolete. New products often face lack of market acceptance, development delays or operational failure. Stricter governmental regulations also may affect acceptance of new products. Our various patents may not provide substantial protection from competition or be of commercial benefit to us. We may not be able to enforce our rights under trademarks or patents against third parties. Some international jurisdictions may not protect these kinds of rights to the same extent that they are protected under U.S. law. If a third party successfully challenges our trademarks or patents, it may affect our competitive and financial position.

Environmental factors and changes in laws and regulations could increase our costs and liabilities and affect the demand for our products and services.

In addition to the environmental risks described above relating to our water treatment business and other operations, we are subject to environmental laws and regulations, including those concerning:

- emissions into the air;

- discharges into waterways;

- soil and water pollution;

- occupational health and safety.

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Environmental laws and regulations generally impose limitations and standards for regulated materials and require us to obtain a permit and comply with various other requirements

The improper characterization, handling, or disposal of regulated materials or any other failure to comply with federal, state and local environmental laws and regulations or associated environmental permits may result in the assessment of administrative, civil, and criminal penalties, the imposition of investigatory or remedial obligations, or the issuance of injunctions that could restrict or prevent our ability to perform.

The environmental health and safety laws and regulations to which we are subject are subject to change and it is impossible to predict the effect of any future changes to these laws and regulations on us. We do not yet know the full extent, if any, of environmental liabilities associated with many of our contracts or projects. There can be no assurance that our operations in the future will be able to continue to comply with future laws and regulations.

The level of enforcement of these laws and regulations also affects the demand for many of our services. Changes in regulations and the perception that enforcement of current environmental laws has been reduced have decreased the demand for some services, as customers have anticipated and adjusted to the potential changes. Future changes could result in increased or decreased demand for some of our services. The ultimate impact of the proposed changes will depend upon a number of factors, including the overall strength of the economy and customers' views on the cost-effectiveness of remedies available under the changed regulations. If proposed or enacted changes materially reduce demand for our environmental services, our results of operations could be adversely affected.

Limited patent and proprietary information protection

Hammonds believes that its patents for its various products and systems, including the ODV®, and the proprietary processes used in production of its products and equipment systems, does not infringe on the patents and proprietary rights of others. In the event that Hammonds' products infringe the patent or proprietary rights of others, we may be required to modify our process or obtain a license. There can be no assurance that we would be able to do so in a timely manner, upon acceptable terms and conditions or at all. The failure to do so would have a material adverse effect on the Company's business. In addition, there can be no assurance that the Company will have the financial or other resources necessary to prosecute or defend a patent infringement or proprietary rights action. Moreover, if any of the Company's products infringe patents or proprietary rights of others, the Company could, under certain circumstances, become liable for damages, which could have a material adverse effect on the Company. Hammonds relies on its own patents and proprietary know-how and confidential information and employs various methods to protect the processes, concepts, ideas and documentation associated with its proprietary rights. However, such patents and methods may not afford complete protection and there can be no assurance that others will not independently develop such processes, concepts, ideas and documentation or otherwise challenge the Company's patents. Although the Company requires all of its employees to sign non-disclosure, non-competition and inventions agreements, there can be no assurance that such agreements will be enforceable or will provide meaningful protection to the Company. There can be no assurance that the Company will be able to adequately protect its patents and trade secrets or that other companies will not acquire information that the Company considers proprietary. Moreover, there can be no assurance that other companies will not independently develop know-how comparable to or superior to that of the Company.

RISK FACTORS RELATED TO MARKET OF OUR COMMON STOCK

Market prices of our equity securities can fluctuate significantly

The market prices of our common stock may change significantly in response to various factors and events beyond our control, including the following:

- the other risk factors described in this Form 10-K;

- changing demand for our products and services and ability to develop and generate sufficient revenues;

- any delay in our ability to generate operating revenue or net income;

- general conditions in markets we operate in;

- general conditions in the securities markets;

- issuance of a significant number of shares, whether for compensation under employee stock options, conversion of debt, potential acquisitions, additional financing or otherwise.

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There is only a limited trading market for our common stock

Our common stock is subject to quotation on the pink sheets. There has only been limited trading activity in our common stock. Quotation of the Company's securities on the pink sheets limits the liquidity and price of the Company's common stock more than if the Company's shares of common stock were listed on The Nasdaq Stock Market or a national exchange. There can be no assurance that a more active trading market will commence in our securities as a result of the increasing operations of Hammonds. Further, in the event that an active trading market commences, there can be no assurance as to the level of any market price of our shares of Common Stock, whether any trading market will provide liquidity to investors, or whether any trading market will be sustained.

State blue sky registration; potential limitations on resale of our securities

Our common stock, the class of the Company’s securities that is registered under the Exchange Act, has not been registered for resale under the Securities Act of 1933 or the "blue sky" laws of any state. The holders of such shares and persons who desire to purchase them in any trading market should be aware that there may be significant state blue-sky law restrictions upon the ability of investors to resell our securities. Accordingly, investors should consider the secondary market for the Company's securities to be a limited one.

It is the intention of the management to seek coverage and publication of information regarding the Company in an accepted publication which permits a manual exemption. This manual exemption permits a security to be distributed in a particular state without being registered if the Company issuing the security has a listing for that security in a securities manual recognized by the state. However, it is not enough for the security to be listed in a recognized manual. The listing entry must contain (1) the names of issuers, officers, and directors, (2) an issuer's balance sheet, and (3) a profit and loss statement for either the fiscal year preceding the balance sheet or for the most recent fiscal year of operations. Furthermore, the manual exemption is a nonissuer exemption restricted to secondary trading transactions, making it unavailable for issuers selling newly issued securities.

Most of the accepted manuals are those published in Standard and Poor's, Moody's Investor Service, Fitch's Investment Service, and Best's Insurance Reports, and many states expressly recognize these manuals. A smaller number of states declare that they "recognize securities manuals" but do not specify the recognized manuals. The following states do not have any provisions and therefore do not expressly recognize the manual exemption: Alabama, Georgia, Illinois, Kentucky, Louisiana, Montana, South Dakota, Tennessee, Vermont and Wisconsin.

Dividends unlikely on our common stock

We do not expect to pay dividends for the foreseeable future. Furthermore, the August and September 2006 Private Financing Transactions with VOMF provide that no cash dividends may be paid on our common stock unless and until all accrued dividends on the Series A and Series B Preferred Stock have been paid. The payment of dividends, if any, will be contingent upon our future revenues and earnings, capital requirements and general financial condition. The payment of any dividends will be within the discretion of our board of directors. It is our intention to retain all earnings for use in the business operations of Hammonds and accordingly, we do not anticipate that the Company will declare any dividends on its common stock for the foreseeable future.

Possible issuance of additional securities

Our Articles of Incorporation authorize the issuance of 195,000,000 shares of common stock, par value $0.0001 and 5,000,000 shares of preferred stock, par value $0.0001. At December 31, 2008, we had 5,031,326 shares of common stock issued and 3,769,626 shares of preferred stock issued. We may issue additional shares of common stock in connection with any future acquisitions of operating businesses or assets or to raise additional funding for our operations. To the extent that additional shares of common stock are issued, our shareholders would experience dilution of their respective ownership interests in the Company. The issuance of additional shares of common stock may adversely affect the market price of our common stock and could impair our ability to raise capital through the sale of our equity securities.

If the 833,333 shares of Series A Preferred Stock, 833,333 shares of Series B Preferred Stock, and 2,102,960 of Series C Preferred Stock issued to VOMF are converted into shares of common, we would be required to issue an additional 3,769,626 shares of common stock.

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Compliance with Penny Stock Rules

Our securities are presently considered a "penny stock" as defined in the Exchange Act and the rules thereunder, since the price of our shares of common stock is less than $5. Unless our common stock is otherwise excluded from the definition of "penny stock," the penny stock rules apply with respect to that particular security. The penny stock rules require a broker-dealer prior to a transaction in penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document prepared by the SEC that provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its sales person in the transaction, and monthly account statements showing the market value of each penny stock held in the customer's account. In addition, the penny stock rules require that the broker-dealer, not otherwise exempt from such rules, must make a special written determination that the penny stock is suitable for the purchaser and receive the purchaser's written agreement to the transaction. These disclosure rules have the effect of reducing the level of trading activity in the secondary market for a stock that becomes subject to the penny stock rules. So long as the common stock is subject to the penny stock rules, it may become more difficult to sell such securities. Such requirements, if applicable, could additionally limit the level of trading activity for our common stock and could make it more difficult for investors to sell our common stock.

Shares eligible for future sale

As of December 31, 2008, the Registrant had 5,031,326 shares of common stock issued and outstanding, 2,814,656 shares are "restricted" as that term is defined under the Securities Act, and in the future may be sold in compliance with Rule 144 under the Securities Act. Rule 144 generally provides that a person holding restricted securities for a period of one year may sell every three months in brokerage transactions and/or market-maker transactions an amount equal to the greater of one (1%) percent of (a) the Company's issued and outstanding common stock or (b) the average weekly trading volume of the common stock during the four calendar weeks prior to such sale. Rule 144 also permits, under certain circumstances, the sale of shares without any quantity limitation by a person who has not been an affiliate of the Company during the three months preceding the sale and who has satisfied a two-year holding period. However, all of the current shareholders of the Company owning 5% or more of the issued and outstanding common stock are subject to Rule 144 limitations on selling.

ITEM 1B. UNRESOLVED STAFF COMMENTS

As of the filing of this annual report on Form 10-K, there were no material unresolved comments from the staff of the Securities and Exchange Commission.

ITEM 2. DESCRIPTION OF PROPERTIES

Hammonds' corporate office and production facilities are located on approximately 13 acres of land in Houston, TX and include a 106,000 square foot industrial manufacturing, production, warehousing and distribution plant that also serves as Hammonds' territorial sales office. The real property and plant are leased to Hammonds by an unaffiliated third party at a monthly rental of $36,365. This facility has sufficient production capacity to meet our anticipated needs for the foreseeable future.

ITEM 3. LEGAL PROCEEDING

Hammonds' officers and directors are not aware of any threatened or pending litigation to which we are a party or which any of our property is the subject and which would have any material, adverse effect on Hammonds.

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

During the year ended December 31, 2008, no matters were submitted to a vote of our security holders.

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PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Our common stock is subject to quotation on the pink sheets. There has only been limited trading activity in our common stock. Quotation of the Company's securities on the pink sheets limits the liquidity and price of the Company's common stock more than if the Company's shares of common stock were listed on The Nasdaq Stock Market or a national exchange. For the periods indicated, the following table sets forth the high and low bid prices per share of common stock. The below prices represent inter-dealer quotations without retail markup, markdown, or commission and may not necessarily represent actual transactions. The below prices have not been adjusted to reflect the 1 for 10 reverse stock split, resulting from the reverse merger of Delta into Hammonds.

	Fiscal 2008				Fiscal 2007
	High		Low		High		Low
First Quarter ended March 31	$	0.51	$	0.30	$	0.35	$	0.20
Second Quarter ended June 30	$	0.50	$	0.22	$	0.44	$	0.20
Third Quarter ended September 30	$	0.43	$	0.15	$	0.75	$	0.21
Fourth Quarter ended December 31	$	0.30	$	0.15	$	0.60	$	0.29

As of December 31, 2008, our shares of common stock were held by approximately 400 stockholders of record. The transfer agent for our common stock is Colonial Stock Transfer, Salt Lake City, UT.

Dividends

Holders of common stock are entitled to dividends when, as, and if declared by the Board of Directors, out of funds legally available therefore. We have never declared cash dividends on our common stock and our Board of Directors does not anticipate paying cash dividends in the foreseeable future as it intends to retain future earnings to finance the growth of our businesses. There are no restrictions in our articles of incorporation or bylaws that restrict us from declaring dividends. However, the 2006 Private Financing Transactions with VOMF provide that no cash dividends may be paid on our common stock unless and until all accrued dividends on the Series A and Series B Preferred Stock have been paid.

Securities Authorized for Issuance Under Equity Compensation Plans

On September 1, 2007, we entered into a service agreement with Sherry Couturier, CFO, pursuant to which the Company shall pay Ms. Couturier compensation of $4,000 per month by the issuance of a number of shares of the Company’s common stock registered on Form S-8 in an amount equivalent to $4,000 per month.

On November 1, 2007, the Company entered into an employment agreement with Daniel Dror, Chairman and CEO, pursuant to which Mr. Dror will be issued common stock of 1,000 restricted shares per month commencing on December 1, 2007 and on each consecutive month through December 31, 2008.

Sale of Unregistered Securities

During 2008, the Company issued 14,000 shares of restricted stock valued at $51,283 as stock based compensation to Daniel Dror for his services as Chairman and CEO.

On June 20, 2008, the Company issued 5,000 shares of restricted stock valued at $11,000 as a director’s fee to John W. Stump III.

On November 10, 2008, the Company issued 10,000 shares of restricted stock to both American International Industries, Inc. and Vision Opportunity Fund Limited valued at $58,000 as additional consideration for bridge loans provided to the Company.

The Company believes that the issuances of these restricted shares were exempt from registration pursuant to Section 4(2) of the Act as privately negotiated, isolated, non-recurring transactions not involving any public solicitation. Appropriate restrictive legends are affixed to the stock certificates issued in such transactions.

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Issuer purchases of equity securities

The following table provides information with respect to purchases made by or on behalf of the Corporation or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934), of the Corporation’s common stock during the fourth quarter of 2008.

							Maximum
							Number of Shares
					Total Number of		That May Yet Be
					Shares Purchased		Purchased Under
	Total Number of		Average Price		as Part of Publicly		the Plans at the
Period	Shares Purchased		Paid Per Share		Announced Plans		End of the Period

October 1, 2008 to October 31, 2008		100	$	3.00		-		-
November 1, 2008 to November 30, 2008		-		-		-		-
December 1, 2008 to December 31, 2008		100		2.20		-		-
		200	$	2.60		-		-

ITEM 6. SELECTED FINANCIAL DATA

Not applicable.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATION

The following discussion should be read in conjunction with our financial statements and the related notes appearing elsewhere in this annual report. The following discussion contains forward-looking statements reflecting our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to those discussed below and elsewhere in this report, particularly in the section entitled "Risk Factors" of this annual report.

General

In 2005, the Company, through its parent company, acquired 51% of the capital stock of Hammonds Technical Services, Inc. Hammonds Technical Services, Inc. and Hammonds Fuel Additives, Inc. were separate privately-owned Texas companies. In connection with the 2005 acquisition by the Company, Hammonds Fuel Additives was merged into Hammonds Technical Services. In April 2005 and January 2006, respectively, Hammonds Fuel Additives and Hammonds Water Treatment Systems, respectively, were reincorporated as separate entities from Hammonds Technical Services, and all three entities are wholly-owned subsidiaries of the Company. On August 1, 2006, the Company acquired the 49% minority interest of Hammonds Technical Services, Inc., Hammonds Fuel Additives, Inc., and Hammonds Water Treatment Systems, Inc. in consideration for the issuance to Carl Hammonds of 1,600,000 restricted shares of common stock, valued at a price of $2.50 per share, the price of the Company's common stock at the date of the transaction.

The transaction was authorized and approved pursuant to the provisions of the Nevada Revised Statutes by the Joint Written Consent of the Board of Directors and the Majority Stockholders of Hammonds.

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On August 13, 2009, Hammonds, American, Delta Seaboard Well Service, Inc. (Delta), American's 51% owned subsidiary, and the minority interest owners of Delta entered into an agreement to commence a reverse merger of Delta into Hammonds. The Company received approximately $5.4 million from the 2006 and 2007 VOMF Private Financing Transactions (See the discussion under "2006 Private Financing Transactions" and "2007 Private Financing Transactions" in “ITEM 1. DESCRIPTION OF BUSINESS”).

Revenue and expenses of Hammonds' subsidiaries are included in the Company’s consolidated statements of operations from May 1, 2005 through the year ended December 31, 2008.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2008 VERSUS YEAR ENDED DECEMBER 31, 2007

Revenues

Gross revenues for the year ended December 31, 2008 were $8,126,800 compared to $10,096,538 for the year ended December 31, 2007, representing a decrease of $1,969,738, or 19.5%. Hammonds Technical Services revenues decreased by $2,081,882, or 36%, due to delays caused by Hurricane Ike, the influence of an overall worldwide economic slowdown, and sales lost due to our limited showroom and marketing presence. Extensive roof damage caused by Hurricane Ike destroyed the entire office and sales showroom complex.

Cost of Sales

Cost of sales for the year ended December 31, 2008 was $6,769,140, or 83.3% of revenues, compared to $7,859,639, or 77.8% of revenues, for the year ended December 31, 2007. Costs of sales as a percentage of revenues was higher due to lower revenue volume and the impact of Hurricane Ike on production.

Impairment of intangible assets

At December 31, 2008, we reviewed Hammonds’ intangible assets for impairment. We determined that the present value of future cash flows was less than the carrying value of certain patents, based on the expected future revenues to be derived from these patented products. As a result of this review, we reduced the carrying value of intangible assets, net of amortization, and recognized an impairment of $2,180,179.

General and administrative expenses

For the year ended December 31, 2008, selling, general and administrative expenses totaled $4,856,982, or 59.8% of revenues, compared to $4,343,934, or 43.0% of revenues, for the year ended December 31, 2007. The selling, general and administrative expenses increased primarily due to increased expenses related to the mitigation of damages, relocation to new office space within the existing facility, and restoration of services.

Operating Loss

Our operating loss increased to $5,679,501 for the year ended December 31, 2008 compared to $2,107,035 for the year ended December 31, 2007.

Other Expenses

Other expenses were $497,896 for the year ended December 31, 2008, compared to $870,896 for the year ended December 31, 2007. Other expenses for the year ended December 31, 2008 includes interest expense of $450,467. Other expenses for the year ended December 31, 2007 includes interest expense of $822,659. The decrease in interest expense of $372,192 is primarily attributable to $386,334 of interest expense associated with the issuance and sale of Series A, B and C Convertible Preferred Stock during the year ended December 31, 2007. There were not any Preferred Stock sales during the year ended December 31, 2008.

Net Loss

Our net loss was $6,159,958 for the year ended December 31, 2008 and $2,671,904 for the year ended December 31, 2007.

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LIQUIDITY AND CAPITAL RESOURCES

Our current assets were $2,895,395 at December 31, 2008, consisting mainly of cash, inventories and accounts receivable, compared to $4,163,086 at December 31, 2007, or a decrease of 30.5%. We had a working capital deficit of $3,912,371 at December 31, 2008 compared to a working capital surplus of $2,660,254 at December 31, 2007. The decrease in working capital is due primarily to a decrease in cash of $1,293,586, an increase in accounts payable and accrued expenses of $1,837,786, the issuance of $500,000 in debt, and the reclassification of debt from long-term to current of $2,377,764. Our total assets at December 31, 2008 and 2007 were $6,966,017 and $10,815,238, respectively. The decrease in total assets is due primarily to a decrease in cash of $1,293,586 and the intangible asset impairment loss of $2,180,179.

We had current liabilities of $6,807,766 at December 31, 2008 compared to $2,097,472 at December 31, 2007, consisting principally of debt and accounts payable and accrued expenses. At December 31, 2008, we had long-term liabilities of $587,365 consisting primarily of notes payable to financial institutions of $206,359 and capital lease obligations of $224,471. At December 31, 2007, we had long-term liabilities of $2,945,220 consisting primarily of notes payable to banks of $2,665,585.

During 2008, we had a negative cash flow from operations of $1,275,592 mainly due to our net loss of $6,159,958, partially offset by depreciation and amortization of $921,584, impairment of intangible assets of $2,180,179, and an increase in accounts payable of $1,612,786.

During 2007, we had a negative cash flow from operations of $1,037,921 mainly due to our net loss of $2,671,904, a decrease in the provision for deferred taxes of $346,665, and an increase in inventories of $347,189, partially offset by depreciation and amortization of $828,773, stock based compensation of $469,600, and finance expense associated with the issuance and sale of Series A, B and C Convertible Preferred Stock of $386,334.

We funded our operating cash requirements in 2008 through proceeds from the issuance of debt in the amount of $500,000. We made payments of $194,893 on debt and capital lease obligations during 2008.

We funded our operating cash requirements in 2007 through proceeds from the issuance of preferred stock in the amount of $1,981,162, proceeds from the issuance of common stock in the amount of $694,672, and from the issuance of debt in the amount of $1,284,551. We made payments of $1,230,862 on borrowings during 2007.

We used cash in investing activities of $323,101 in 2008. Cash was used to purchase property and equipment in the amount of $262,344 and to secure patents and trademarks in the amount of $60,757.

We used cash in investing activities of $521,625 in 2007. Cash was used to purchase property and equipment in the amount of $365,290, secure patents and trademarks in the amount of $75,718, and an option to buy American International Industries, Inc. stock for $100,000 as part of a lawsuit settlement.

Off-Balance Sheet Arrangements

As of December 31, 2008, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K promulgated under the Securities Act of 1934.

New Accounting Pronouncements

In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles (“SFAS 168” or ASC 105-10). SFAS 168 (ASC 105-10) establishes the Codification as the sole source of authoritative accounting principles recognized by the FASB to be applied by all nongovernmental entities in the preparation of financial statements in conformity with GAAP. SFAS 168 (ASC 105-10) was prospectively effective for financial statements issued for fiscal years ending on or after September 15, 2009, and interim periods within those fiscal years. The adoption of SFAS 168 (ASC 105-10) on July 1, 2009 did not impact American’s results of operations or financial condition. The Codification did not change GAAP; however, it did change the way GAAP is organized and presented. As a result, these changes impact how companies reference GAAP in their financial statements and in their significant accounting policies. American implemented the Codification in this Report by providing references to the Codification topics alongside references to the corresponding standards.

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Contractual Obligations and Commitments

As of December 31, 2008, Hammonds leased its 106,000 square foot manufacturing and office facility in Houston, Texas from an unrelated third party at annual rental of $436,380 (see note 13 to the consolidated financial statements).

Critical Accounting Estimates

Our significant accounting policies are described in Note 1 to our consolidated financial statements for the year ended December 31, 2008. The following supplements the description of our accounting policies as described in the notes to our consolidated financial statements.

Hammonds Technical Services' business involves the manufacturing of several different lines of equipment and product systems. As a result, Hammonds is subject to fluctuations in profitability from period to period due to the types and quantities of equipment and product systems ordered by and delivered to its customers.

Subsequent to year end December 31, 2005, Hammonds Technical Services, Inc. was separated into three segments: (i) Hammonds Technical Services, Inc., which is the manufacturing segment for all Hammonds product lines (ii) Hammonds Fuel Additives, Inc., which supplies all of the fuel additives; and (iii) Hammonds Water Treatment Solutions, Inc. which provides water and waste treatment, chlorination and pumping technologies and systems.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

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ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Management’s Annual Report on Internal Control Over Financial Reporting	21
Report of Independent Registered Public Accounting Firm	22
Report of Independent Registered Public Accounting Firm	23
Financial Statements:
Consolidated Balance Sheets - December 31, 2008 and 2007	24
Consolidated Statements of Operations - Years Ended December 31, 2008 and 2007	25
Consolidated Statements of Stockholders' Equity - Years Ended December 31, 2008 and 2007	26
Consolidated Statements of Cash Flows - Years Ended December 31, 2008 and 2007	27
Notes to Consolidated Financial Statements	28

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MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL

REPORTING

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined by SEC rules adopted under the Securities Exchange Act of 1934, as amended. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. It consists of policies and procedures that:


	•	Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;

	•	Provide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

	•	Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Under the supervision and with the participation of management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), we made an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2008, in connection with the audit of the Company's financial statements. In making this assessment, we used the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our evaluation, we concluded that our internal control over financial reporting was effective as of December 31, 2008.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders

Hammonds Industries, Inc.

Houston, Texas

We have audited the accompanying consolidated balance sheet of Hammonds Industries, Inc. and Subsidiaries as of December 31, 2008 and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. 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 audit provides 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 Hammonds Industries, Inc. and Subsidiaries as of December 31, 2008, and the consolidated results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

/s/ GBH CPAs, PC

GBH CPAs, PC

www.gbhcpas.com

Houston, Texas

January 27, 2010

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders

Hammonds Industries, Inc. and Subsidiary

Houston, Texas

We have audited the accompanying consolidated balance sheet of Hammonds Industries, Inc. and subsidiaries as of December 31, 2007 and the related consolidated statements of operations, changes in shareholders’ deficit, and cash flows for the year ended December 31, 2007. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. 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 Hammonds Industries, Inc. and subsidiaries as of December 31, 2007, and the consolidated results of their operations and their cash flows for the year ended December 31, 2007 in conformity with accounting principles generally accepted in the United States of America.

/s/ GLO CPAs LLLP

GLO CPAs LLLP

March 18, 2008

Houston, Texas

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HAMMONDS INDUSTRIES, INC.

Consolidated Balance Sheets


	December 31, 2008			December 31, 2007

Assets
Current assets:
Cash	$	303,775		$	1,597,361
Trading securities		-			28,314
Accounts receivable, less allowance for doubtful accounts of
$76,280 and $104,169, respectively		745,190			791,374
Inventories, net		1,844,944			1,656,801
Prepaid expenses and other assets		1,486			89,236
Total current assets		2,895,395			4,163,086

Property and equipment, net of accumulated depreciation and amortization		1,331,084			1,132,472
Intangible assets, net of accumulated amortization and impairment		2,689,638			5,457,365
Other assets		49,900			62,315
Total assets	$	6,966,017		$	10,815,238
Liabilities and Stockholders' Equity (Deficit)

Current liabilities:
Accounts payable and accrued expenses	$	3,164,594		$	1,326,808
Short-term notes payable		339,999			89,999
Short-term notes payable - related parties		802,063			594,640
Current installments of long-term capital lease obligations		67,288			29,967
Current installments of long-term debt		2,433,822			56,058
Total current liabilities		6,807,766			2,097,472

Long-term capital lease obligations, less current installments		224,471			123,100
Long-term debt, less current installments		206,359			2,665,585
Deferred tax liability		156,535			156,535
Total liabilities		7,395,131			5,042,692

Commitments and contingencies		-			-

Stockholders' Equity (Deficit):
Preferred stock, $0.0001 par value, authorized 5,000,000 shares:
3,769,626 issued and outstanding		377			377
Additional paid-in capital - preferred stock		4,811,573			4,811,573
Additional paid-in capital - beneficial conversion feature		3,272,060			3,272,060
Common stock, $0.0001 par value, authorized 195,000,000 shares:
5,031,326 and 4,974,826 shares issued and outstanding, respectively		503			497
Additional paid-in capital - common stock		7,668,025			7,484,733
Accumulated deficit		(16,181,652	)		(9,796,694	)
Total stockholders' equity (deficit)		(429,114	)		5,772,546
Total liabilities and stockholders' equity (deficit)	$	6,966,017		$	10,815,238

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

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HAMMONDS INDUSTRIES, INC.

Consolidated Statements of Operations

	Years Ended December 31,
	2008			2007

Revenues	$	8,126,800		$	10,096,538
Costs and expenses:
Cost of sales		6,769,140			7,859,639
Selling, general and administrative		4,856,982			4,343,934
Impairment of intangible assets		2,180,179			-
Total operating expenses		13,806,301			12,203,573

Operating loss		(5,679,501	)		(2,107,035	)

Other income (expenses):
Interest income		5,267			25,992
Interest expense		(450,467	)		(822,659	)
Realized loss on trading securities		(100,000	)		-
Unrealized gain (loss) on trading securities		71,686			(71,686	)
Other expenses		(24,382	)		(2,543	)
Total other expenses		(497,896	)		(870,896	)

Net loss before income tax		(6,177,397	)		(2,977,931	)
Income tax benefit		(17,439	)		(306,027	)
Net loss	$	(6,159,958	)	$	(2,671,904	)

Preferred dividends:
Regular dividends		(225,000	)		(180,000	)
Deemed dividend		-			(1,981,162	)
Forgiveness of dividends		-			150,425
Net loss applicable to common shareholders	$	(6,384,958	)	$	(4,682,641	)

Net loss per common share - basic and diluted	$	(1.28	)	$	(1.13	)

Weighted average common shares - basic and diluted		4,996,304			4,158,813

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

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HAMMONDS INDUSTRIES, INC.

Consolidated Statement of Changes in Stockholders’ Equity (Deficit)

Years Ended December 31, 2008 and 2007

	Preferred Stock							Common Stock
	Shares		Amount		Additional Paid-in Capital			Shares		Amount		Additional Paid-in Capital		Accumulated Deficit			Total Stockholders’ Equity
Balance, December 31, 2006		1,666,666	$	167	$	4,000,851			3,613,500	$	361	$	4,971,031	$	(5,114,053	)	$	3,858,357
Series C Warrants exercised		-		-		(265,666	)		397,040		40		960,298		-			694,672
Issuance of common stock for services		-		-		-			200,000		20		448,480		-			448,500
Management fee paid to American International Industries, Inc. with common stock		-		-		-			50,000		5		104,995		-			105,000
Issuance of preferred stock		2,102,960		210		4,348,448			-		-		-		-			4,348,658
Issuance of common stock to convert promissory note due to American International Industries, Inc.		-		-		-			714,286		71		999,929		-			1,000,000
Net loss		-		-		-			-		-		-		(2,671,904	)		(2,671,904	)
Regular preferred dividends		-		-		-			-		-		-		(180,000	)		(180,000	)
Deemed preferred dividends		-		-		-			-		-		-		(1,981,162	)		(1,981,162	)
Forgiveness of dividends															150,425			150,425
Balance, December 31, 2007		3,769,626	$	377	$	8,083,633			4,974,826	$	497	$	7,484,733	$	(9,796,694	)	$	5,772,546
Issuance of common stock for services		-		-		-			36,500		4		125,294		-			125,298
Issuance of common stock for payment of debt		-		-		-			20,000		2		57,998		-			58,000
Regular preferred dividends		-		-		-			-		-		-		(225,000	)		(225,000	)
Net loss		-		-		-			-		-		-		(6,159,958	)		(6,159,958	)
Balance, December 31, 2008		3,769,626	$	377	$	8,083,633			5,031,326	$	503	$	7,668,025	$	(16,181,652	)	$	(429,114	)

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

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HAMMONDS INDUSTRIES, INC.

Consolidated Statements of Cash Flows

	Years Ended December 31,
	2008			2007

Cash flows from operating activities:
Net loss	$	(6,159,958	)	$	(2,671,904	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		921,584			828,773
Deferred income tax benefit		-			(346,665	)
Realized loss on trading securities		100,000			-
Unrealized (gain) loss on trading securities		(71,686	)		71,686
Impairment of intangible assets		2,180,179			-
Amortization of debt discount		58,000			386,334
Share-based compensation		125,298			469,600
Management fee paid to American International Industries, Inc. with common stock		-			105,000
Change in operating assets and liabilities:
Accounts receivable		46,184			536,841
Inventories		(188,142	)		(347,189	)
Prepaid expenses		87,750			29,306
Other		12,413			(42,005	)
Accounts payable and accrued expenses		1,612,786			(57,698	)
Net cash used in operating activities		(1,275,592	)		(1,037,921	)

Cash flows from investing activities:
Purchase of property and equipment		(262,344	)		(365,290	)
Costs of securing patents and trademarks		(60,757	)		(75,718	)
Purchase of option to buy American International Industries, Inc. stock		-			(100,000	)
Proceeds from notes receivable		-			19,383
Net cash used in investing activities		(323,101	)		(521,625	)

Cash flows from financing activities:
Proceeds from issuance of preferred stock		-			1,981,162
Proceeds from issuance of common stock		-			694,672
Proceeds from issuance of debt		250,000			1,319,062
Proceeds from issuance of debt - related parties		250,000			-
Principal payments under capital lease obligations		(70,854	)		(3,632	)
Principal payments on debt		(81,462	)		(1,230,862	)
Principal payments on debt - related parties		(42,577	)		-
Net cash provided by financing activities		305,107			2,760,402

Net increase (decrease) in cash and cash equivalents	$	(1,293,586	)	$	1,200,856
Cash and cash equivalents at beginning of year		1,597,361			396,505
Cash and cash equivalents at end of year	$	303,775		$	1,597,361

Supplemental schedule of cash flow information:
Interest paid	$	298,383		$	436,325
Taxes paid	$	12,785		$	11,589
Non-cash transactions:
Acquisition of fixed assets under capital lease obligations	$	209,547		$	156,700
Common stock issued as discount on debt	$	58,000		$	-
Transfer of notes receivable to pay long-term note due to American International Industries, Inc.	$	-		$	370,927
Issuance of common stock to convert promissory note due to American International Industries, Inc.	$	-		$	1,000,000

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

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HAMMONDS INDUSTRIES, INC.

Notes to Consolidated Financial Statements

Note 1 - Summary of Significant Accounting Policies

Organization, Ownership and Business

In 2005, Hammonds Industries, Inc. ("Hammonds"), through its parent company, acquired 51% of the capital stock of Hammonds Technical Services, Inc. Hammonds Technical Services, Inc. and Hammonds Fuel Additives, Inc. were separate privately-owned Texas companies. In connection with the 2005 acquisition by Hammonds, Hammonds Fuel Additives was merged into Hammonds Technical Services. In April 2005 and January 2006, respectively, Hammonds Fuel Additives and Hammonds Water Treatment Systems, respectively, were reincorporated as separate entities from Hammonds Technical Services, and all three entities are wholly-owned subsidiaries of Hammonds. On August 1, 2006, Hammonds acquired the 49% minority interest of Hammonds Technical Services, Inc., Hammonds Fuel Additives, Inc., and Hammonds Water Treatment Systems, Inc. in consideration for the issuance of 1,600,000 restricted shares of common stock, valued at a price of $2.50 per share, the price of Hammonds' common stock at the date of the transaction. As a result of this transaction, Hammonds owns 100% of each of the Hammonds subsidiaries.

Prior to the year ended December 31, 2008, in accordance with FIN 46(R) (ASC 810-10), American International Industries, Inc. (American), consolidated Hammonds, even though its ownership was less than 51%, because American appointed the members of Hammonds’ board of directors. Since Hammonds was incurring losses and the minority interest had no recorded common stock equity value, American recognized 100% of Hammonds’ losses.

On August 13, 2009, Hammonds, American, Delta Seaboard Well Service, Inc. (Delta), American's 51% owned subsidiary, and the noncontrolling interest owners of Delta entered into an agreement to commence a reverse merger of Delta into Hammonds. See further discussion of the merger in Note 15. As part of the merger, Hammonds effected a 1 for 10 reverse stock split for its common stock. All common share amounts have been retroactively adjusted to reflect the reverse stock split.

2006 Private Financing Transactions

On August 8, 2006, Hammonds entered into a stock purchase agreement with Vision Opportunity Fund Limited ("VOMF"), an institutional investor, pursuant to which Hammonds sold VOMF 833,333 shares of Series A Convertible Preferred Stock for $1,500,000 and issued a Series A Warrant exercisable for a period of 5 years to purchase 833,333 shares of Hammonds’s common stock at $1.80 per share and a Series B Warrant exercisable for a period of 2 years to purchase an additional 833,333 shares of Hammonds’s common stock at $1.80 per share.

On September 29, 2006, Hammonds entered into another stock purchase agreement with VOMF pursuant to which Hammonds sold 833,333 shares of Series B Convertible Preferred Stock for $1,500,000 and issued a Series C Warrant exercisable for a period of 5 years to purchase 833,333 shares of Hammonds’s common stock at $5.00 per share.

2007 Private Financing Transactions

In connection with the agreement of VOMF to exercise up to 400,000 Series C Warrants in March 2007, Hammonds reduced the exercise price of the Series C Warrants from $5.00 per share to $1.80 per share through December 31, 2007, following which the exercise price reverts to $5.00 per share. On March 27, 2007, VOMF exercised 397,040 Series C Warrants at a price of $1.80 per share with net proceeds of $694,672 to Hammonds.

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On September 20, 2007, Hammonds entered into an agreement with VOMF pursuant to which the Series A, B and C Warrants were amended to: (i) adjust the exercise price of all of the Warrants to $1.00; and (ii) provide for the issuance of a total of 2,102,960 shares of Hammonds' newly authorized Series C Convertible Preferred Stock in lieu of 2,102,960 shares of common stock. On September 21, 2007, VOMF delivered a notice of exercise of all 2,102,960 Series A, B and C Warrants at an exercise price of $1.00 per warrant, from which Hammonds received net proceeds of $981,162 and VOMF cancelled Hammonds’ short-term promissory note payable in the amount of $1,000,000, representing a loan made by VOMF to Hammonds on August 17, 2007.

In total, Hammonds has received approximately $5.4 million from the 2006 and 2007 VOMF Private Financing Transactions. The material terms of these preferred stock issuances are included in note 9 to the consolidated financial statements. If the 833,333 shares of Series A Preferred Stock, 833,333 shares of Series B Preferred Stock, and 2,102,960 of Series C Preferred Stock issued to VOMF are converted into shares of common, we would be required to issue an additional 3,769,626 shares of common stock.

Principles of Consolidation

The consolidated financial statements include the accounts of Hammonds and its wholly-owned subsidiaries: Hammond Technical Services, Inc., Hammonds Fuel Additives, Inc., and Hammonds Water Treatment Systems, Inc. All significant intercompany transactions and balances have been eliminated in consolidation.

Certain reclassifications have been made to amounts in prior periods to conform with the current period presentation. All reclassifications have been applied consistently to the periods presented.

Cash and Cash-Equivalents

Hammonds considers cash and cash-equivalents to include cash on hand and demand deposits with banks with an original maturity of three months or less, that Hammonds intends to convert.

Accounts Receivable

Accounts receivable consist primarily of trade receivables, net of a valuation allowance for doubtful accounts.

Allowance for Doubtful Accounts

Hammonds extends credit to customers and other parties in the normal course of business. Hammonds regularly reviews outstanding receivables and provides for estimated losses through an allowance for doubtful accounts. In evaluating the level of established reserves, Hammonds makes judgments regarding its customers' ability to make required payments, economic events and other factors. As the financial condition of these parties change, circumstances develop or additional information becomes available, adjustments to the allowance for doubtful accounts may be required. When Hammonds determines that a customer may not be able to make required payments, American increases the allowance through a charge to income in the period in which that determination is made.

Inventories

Inventories are valued at the lower-of-cost or market on a first-in, first-out basis. Hammonds assesses the realizability of its inventories based upon specific usage and future utility. A charge to income is taken when factors that would result in a need for a reduction in the valuation, such as excess or obsolete inventory, are noted.

Freight and Shipment Policy

Hammonds' policy is to expense all freight and shipment expenses as incurred.

Property, Plant, Equipment, Depreciation, Amortization and Long Lived Assets

Long-lived assets include:

Property, Plant and equipment – Assets acquired in the normal course of business are recorded at original cost and may be adjusted for any additional significant improvements after purchase. We depreciate the cost evenly over the assets’ estimated useful lives. Upon retirement or sale, the cost of the assets disposed of and the related accumulated depreciation are removed from the accounts, with any resulting gain or loss being recognized as a component of other income or expense. As required by SFAS No. 141(R) (ASC 805-10), Hammonds has recorded the acquisition of Hammonds using the purchase method of accounting with the purchase price allocated to the acquired assets and liabilities based on their respective estimated fair values at the acquisition date.

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Identifiable intangible assets – These assets are recorded at acquisition cost. Intangible assets with finite lives are amortized evenly over their estimated useful lives.

At least annually, we review all long-lived assets for impairment. When necessary, we record changes for impairments of long-lived assets for the amount by which the present value of future cash flows, or some other fair value measure, is less than the carrying value of these assets.

Revenue Recognition

Revenue is recognized when the earning process is completed, the risks and rewards of ownership have transferred to the customer, which is generally the same day as delivery or shipment of the product, the price to the buyer is fixed or determinable, and collection is reasonably assured. The Hammonds Companies have purchase orders for all sales, of which many of the items are requested to be container shipped and shipped directly to the end users. All sales are recorded when the inventory items are shipped. Taxes assessed by a governmental authority that are incurred as a result of a revenue transaction are not included in revenues. Hammonds has no significant sales returns or allowances.

Income Taxes

Hammonds is a taxable entity and recognizes deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to be in effect when the temporary differences reverse. The effect on the deferred tax assets and liabilities of a change in tax rates is recognized in income in the year that includes the enactment date of the rate change. A valuation allowance is used to reduce deferred tax assets to the amount that is more likely than not to be realized. Interest and penalties associated with income taxes are included in selling, general and administrative expense.

Loss Per Share

The basic net loss per common share is computed by dividing the net loss by the weighted average number of shares outstanding during a period. Diluted net loss per common share is computed by dividing the net loss, adjusted on an as if converted basis, by the weighted average number of common shares outstanding plus potential dilutive securities.

Management's Estimates and Assumptions

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, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses. Actual results could differ from these estimates.

Stock-Based Compensation

Hammonds sometimes grants shares of stock for goods and services and in conjunction with certain agreements. These grants are accounted for under FASB Statement No. 123R, "Accounting for Stock-Based Compensation" (ASC 718-10) based on the grant date fair values.

Fair Value of Financial Instruments

Effective January 1, 2008, Hammonds adopted the framework for measuring fair value that establishing a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:

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Basis of Fair Value Measurement

Level 1		Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2		Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the asset or the liability; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3		Unobservable inputs reflecting Hammonds' own assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.

Hammonds believes that the fair value of its financial instruments comprising cash, accounts receivable, accounts payable, and notes payable approximate their carrying amounts. The interest rates payable by Hammonds on its notes payable approximate market rates. As of December 31, 2008, Hammonds did not have any significant Level 1, 2 or 3 financial assets or liabilities.

New Accounting Standards

In addition to the pronouncements noted above, there were various other accounting standards and interpretations issued recently, none of which are expected to a have a material impact on our consolidated financial position, operations or cash flows.

Note 2 - Trading Securities

In February 2007, Hammonds paid $100,000 for an option to buy 104,398 shares of American International Industries, Inc. stock for $5.00 per share from a former Hammonds' minority shareholder as part of a lawsuit settlement. Hammonds estimated the fair value of this stock option at December 31, 2007, by using the Black-Scholes option-pricing model with the following weighted-average assumptions as follows:

	December 31, 2007
Dividend yield		0.00	%
Expected volatility		39.74	%
Risk free interest		6.25	%
Expected life	2 months

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As a result, this option was revalued to $28,314, and an unrealized loss of $71,686 was recorded in other income (expense) for the year ended December 31, 2007. This option expired in February 2008, resulting in a realized loss of $100,000 and a reversal of the previously recorded unrealized loss of $71,686.

Note 3 - Inventory

Inventory consists of the following:

	December 31, 2008			December 31, 2007
Finished goods	$	561,576		$	231,870
Work in process		123,491			36,045
Parts and materials		1,168,048			1,420,043
		1,853,115			1,687,958
Less: Obsolescence reserve		(8,171	)		(31,157	)
	$	1,844,944		$	1,656,801

Note 4 - Property and Equipment

A summary of property and equipment and related accumulated depreciation and amortization are as follows:

	Useful Lives	December 31, 2008			December 31, 2007
Machinery and equipment	5-7 yrs	$	1,888,412		$	1,416,522
Leasehold improvements	31 yrs		96,796			96,796
Total property and equipment			1,985,208			1,513,318
Less: Accumulated depreciation and amortization			(654,124	)		(380,846	)
Net property and equipment		$	1,331,084		$	1,132,472

Depreciation expense for the years ended December 31, 2008 and 2007 was $273,278 and $171,549, respectively.

Hammonds entered into various capital lease agreements for the acquisition of machinery and equipment. Assets acquired under such financing arrangements included in property and equipment are as follows:

	Useful Lives	December 31, 2008			December 31, 2007
Machinery and equipment	5-7 yrs	$	372,722		$	163,174
Less accumulated depreciation and amortization			(60,106	)		-
Net property and equipment		$	312,616		$	163,174

Principal repayment provisions of long-term capital leases are as follows at December 31, 2008:

2009	$	67,288
2010		76,745
2011		75,043
2012		67,280
2013		5,403
Total	$	291,759

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Note 5 - Intangible Assets

Intangible assets at December 31, 2008 consisted of the following:

	Gross Carrying Amount		Accumulated Amortization and Impairment			Intangibles, net	Average Weighted Lives
Patents	$	4,605,255	$	3,395,152	$	1,210,103	12 years
Trademarks		1,149,199		335,873		813,326	10 years
Sole Source Contract		1,144,039		477,830		666,209	7 years
Patents, Trademarks, and Sole Source Contracts	$	6,898,493	$	4,208,855	$	2,689,638	11 years

Intangible assets at December 31, 2007 consisted of the following:

	Gross Carrying Amount		Accumulated Amortization			Intangibles, net	Average Weighted Lives
Patents	$	4,544,498	$	845,022	$	3,699,476	12 years
Trademarks		1,149,199		220,953		928,246	10 years
Sole Source Contract		1,144,039		314,396		829,643	7 years
Patents, Trademarks, and Sole Source Contracts	$	6,837,736	$	1,380,371	$	5,457,365	11 years

Amortization expense for the years ended December 31, 2008 and 2007 was $648,305 and $657,224, respectively.

Note 6 - Short-term Notes Payable

	December 31, 2008		December 31, 2007
Note payable with interest at 10.5%, interest payments due monthly, principal due on demand	$	89,999	$	89,999
Note payable for $250,000, principal due December 31, 2008, with interest at 10% through maturity and at 15% thereafter		250,000		-
	$	339,999	$	89,999

At December 31, 2008 and December 31, 2007, the average annual interest rate of our short-term borrowing was approximately 10.1% and 10.5%, respectively. During September 2008, VOMF provided a bridge loan of $250,000. This loan has a 10% interest rate and was due December 31, 2008, or upon Hammonds receiving significant equity financing. As additional consideration, Hammonds issued 100,000 shares of restricted common stock to VOMF, resulting in finance expense of $29,000.

Note 7 - Notes Payable - Related Parties

	December 31, 2008		December 31, 2007
Note payable, principal balance due on December 31, 2008, interest at 10% through maturity and at 15% thereafter	$	552,063	$	594,640
Note payable for $250,000, principal due December 31, 2008, with interest at 10% through maturity and at 15% thereafter		250,000		-
	$	802,063	$	594,640

During September 2008, American provided a bridge loan of $250,000. This loan has a 10% interest rate and was due December 31, 2008, or upon Hammonds receiving significant equity financing. As additional consideration, Hammonds issued 100,000 shares of restricted common stock to American, resulting in finance expense of $29,000.

On August 13, 2009, Hammonds, American, Delta Seaboard Well Service, Inc. (Delta), American's 51% owned subsidiary, and the noncontrolling interest owners of Delta entered into an agreement to commence a reverse merger of Delta into Hammonds. As part of this agreement, these notes payable will be converted into Hammonds' common shares.

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Note 8 - Long-term Debt

	December 31, 2008			December 31, 2007
Note payable to a bank, interest due quarterly at prime plus 1%, principal balance due January 1, 2010, secured by assets of Hammonds' subsidiary, Hammonds Technical Services, Inc.	$	1,975,214		$	1,992,189
Note payable to a bank, due in quarterly installments of interest only at prime plus 1%, with a principal balance due on January 1, 2010, secured by assets of Hammonds' subsidiary, Hammonds Technical Services, Inc.		396,592			400,000
Note payable to a bank, with interest at 9.25%, due in monthly installments of principal and interest of $4,054 through February 26, 2012, secured by assets of Hammonds' subsidiary, Hammonds Technical Services, Inc.		189,016			220,338
Note payable to a bank, with interest at 8.25%, due in monthly installments of principal and interest of $842 through April 7, 2012, secured by assets of Hammonds' subsidiary, Hammonds Technical Services, Inc.		29,339			36,727
Note payable to a bank, due in monthly installments of principal and interest of $2,120 through April 3, 2011, secured by assets of Hammonds' subsidiary, Hammonds Technical Services, Inc.		50,020			72,389
		2,640,181			2,721,643
Less current portion		(2,433,822	)		(56,058	)
	$	206,359		$	2,665,585

On April 16, 2009, Hammonds entered into an Asset Purchase Agreement with FabCorp. Pursuant to this agreement, FabCorp paid the above long-term debt owed to Texas Community Bank on April 16, 2009 (see note 15), with the exception of $350,000, which was paid by American.

Note 9 - Preferred Stock

In August and September 2006, Hammonds sold to Vision Opportunity Fund Limited (“VOMF”) 833,333 shares of Series A Preferred Stock and 833,333 shares of Series B Preferred Stock, respectively (the “2006 Private Financing Transactions”). In connection with the sale of the Series A Convertible Preferred Stock, Hammonds issued VOMF: (i) Series A Warrants to purchase 833,333 shares of common stock at $1.80 per share, expiring in August 2011; and (ii) Series B Warrants to purchase an additional 833,333 shares of common stock at $1.80 per share, expiring in August 2007. In connection with the sale of the Series B Convertible Preferred Stock, Hammonds issued VOMF: (i) Series C Warrants to purchase an additional 833,333 shares of common stock at $5.00 per share, expiring on September 29, 2011; and (ii) Hammonds agreed to extend the expiration dates on the Series B Warrants issued in the 2006 Private Financing Transactions from August 2007 to August 2008.

Each share of Series A and Series B Convertible Preferred Stock is convertible into one share of Hammonds' common stock.

On September 20, 2007, Hammonds and VOMF agreed to amend the Series A, B and C Warrants to: (i) adjust the exercise price of all of the Warrants to $0.10; and (ii) provide for the issuance of a total of 2,102,960 shares of Hammonds' newly authorized Series C Convertible Preferred Stock in lieu of 2,102,960 shares of common stock. On September 21, 2007, VOMF delivered a notice of exercise of all 2,102,960 Series A, B and C Warrants at an exercise price of $1.00 per warrant from which Hammonds received net proceeds of $1,981,162. As a result of this agreement, there are no warrants outstanding related to the Series A, B and C Convertible Preferred Stock.

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Hammonds reviewed the following accounting standards to determine the appropriate accounting for these issuances:

- SFAS No. 133: Accounting for Derivative Instruments and Hedging Activities (ASC 815-10)

- SFAS No. 150: Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity (ASC 480-10)

- EITF 00-19: Accounting for Derivative Financial Instruments Indexed to (ASC 815-10), and Potentially Settled in, a Company’s Own Stock (ASC 815-40)

- EITF 98-5: Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios (ASC 505-10)

- EITF 00-27: Application of Issue No. 98-5 to Certain Convertible Instruments (ASC 505-10)

- EITF Topic D-98: Classification and Measurement of Redeemable Securities (ASC 505-10)

- ASR No. 268: Redeemable Preferred Stocks (ASC 505-10)

We concluded that all components of these issuances should be classified as equity, because the only way for the value of the conversion feature to be realized is through the issuance of shares. Hammonds has sufficient authorized and unissued shares available to settle the contracts after considering all other commitments that may require the issuance of stock.

We valued the warrants using the Black-Scholes model and allocated the proceeds from the preferred share issuances based on the relative fair values of the securities issued.

We determined that a beneficial conversion feature exists for the Series A, B and C Convertible Preferred Stock issuances. Based on authoritative guidance above, the amount of proceeds allocated to the Series A and Series B Convertible Preferred Stock should be assigned to the embedded conversion feature with a corresponding amount recorded as a "deemed dividend" to the preferred shareholders. This is based on ASC 505-10, which states that "the discount assigned to the beneficial conversion feature is limited to the amount of the proceeds allocated to the convertible instrument."

We allocated the following amounts to the embedded conversion feature and recorded a deemed dividend to the preferred shareholders:

Preferred A – August 8, 2006	$	387,499
Preferred A – August 23, 2006		176,643
Preferred B – September 30, 2006		726,756
Preferred C – September 20, 2007		1,981,162
Total deemed dividend	$	3,272,060

On July 25, 2007, Hammonds and VOMF entered into an agreement pursuant to which VOMF waived the cash dividends of $150,425 on the Series A and Series B Convertible Preferred Stock accrued from August and September 2006, respectively, through September 30, 2007. Additionally, VOMF agreed that future accrued dividends may be paid, at Hammonds' option, in cash or in restricted shares of Hammonds' common stock. The number of shares of common stock to be issued as payment of accrued and unpaid dividends shall be determined by dividing (i) the total amount of accrued and unpaid dividends to be converted into common stock by (ii) eighty percent (80%) of the average of the VWAP for the twenty (20) Trading Days immediately preceding the dividend payment date. The term "VWAP" means, for any date, (i) the daily volume weighted average price of the common stock for such date on the OTC Bulletin Board as reported by Bloomberg Financial L.P. (based on a trading day from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time); (ii) if the common stock is not then listed or quoted on the OTC Bulletin Board and if prices for the common stock are then reported in the "Pink Sheets" published by the Pink Sheets, LLC (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the common stock so reported; or (iii) in all other cases, the fair market value of a share of common stock as determined by an independent appraiser selected in good faith by the Investor and reasonably acceptable to Hammonds.

The modification of the exercise price to $1.00 per share for the Warrants requires a comparison of the fair values of the warrants immediately before and after the modification. As a result of this comparison, we calculated a fair value increase of $386,334 for this modification. Since additional value was given to the holders of these warrants, $386,334 was recognized and recorded as finance expense in September 2007, in accordance with SFAS No. 123R, Share-Based Payment.

We valued the warrants using the Black-Scholes model, using the following assumptions:

		Stock Price on Date of Reduction				Volatility				Risk-Free Interest Rate
Warrants A, B, & C – September 20, 2007		$	6.00				106.18	%			6.25	%

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The Black-Scholes model yielded the following valuations for the warrants:

	Exercise Price / Term	Fair Value
Warrants A, B, & C – September 20, 2007	$1.00/ 0.03 years	$	10,518,678
Warrants A, B, & C – September 20, 2007	Original Terms		10,132,344
Fair value increase		$	386,334

Note 10 - Concentration of Credit Risk

Financial instruments that potentially subject Hammonds to credit risk are primarily accounts receivable – trade. Hammonds grants credit to customers throughout the United States. Generally, Hammonds does not require collateral or other security to support customer receivables. As of, and during, the year ended December 31, 2008, Hammonds Water Treatment Systems, Inc. had one customer that accounted for 38% of trade accounts receivable and 41% of revenues on a consolidated basis.

Note 11 - Income Taxes

The provision for income taxes consists of the following:

	December 31, 2008			December 31, 2007
Current taxes	$	-		$	-
Deferred tax benefit		(2,783,282	)		(1,569,887	)
Benefits of operating loss carryforwards		2,783,282			1,223,222
Current Federal Taxes		-			(346,665	)
Difference between actual and estimated 2007 Texas Margin Tax		(29,629	)		-
Texas Margin Tax		12,190			40,638
Income tax benefit	$	(17,439	)	$	(306,027	)

The tax provision differs from amounts that would be calculated by applying federal statutory rates to income before income taxes primarily because no tax benefits have been recorded for nondeductible expenses totaling $61,484 and the valuation allowance for deferred tax assets increased by $268,321.

The following table sets forth a reconciliation of statutory income taxes:

	December 31, 2008			December 31, 2007
Net loss before taxes	$	(6,177,397	)	$	(2,977,931	)

Income tax benefit computed at statutory rate	$	(2,094,386	)	$	(1,012,497	)
Permanent differences - non deductible expenses		20,905			19,595
Net effects of temporary differences		-			(223,818	)
Effect of federal graduated rates		(709,801	)		(353,167	)
Increase in valuation allowance		2,783,282			1,223,222
Difference between actual and estimated 2007 Texas Margin Tax		(29,629	)		-
Texas Margin Tax		12,190			40,638
Income tax benefit	$	(17,439	)	$	(306,027	)

Hammonds has loss carryforwards totaling $15,633,442 available at December 31, 2008 that may be offset against future taxable income. Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carryforwards for federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur, net operating loss carryforwards may be limited as to use in future years. If not used, the carryforwards will expire as follows:

Operating Losses
Amount		Expires
$	2,587,701	2021
$	4,859,618	2022
$	8,186,123	2023

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Note 12 - Loss Per Share

Basic losses per share are calculated on the basis of the weighted average number of common shares outstanding. Diluted losses per share, in addition to the weighted average determined for basic loss per share, include common stock equivalents, which would arise from the conversion of the preferred stock to common shares. In periods in which the Company reports a net loss, dilutive securities are excluded from the calculation as the effect would be anti-dilutive.

	December 31, 2008			December 31, 2007
Basic loss per share:
Net loss	$	(6,159,958	)	$	(2,671,904	)
Preferred dividends:
Regular dividends		(225,000	)		(180,000	)
Deemed dividends		-			(1,981,162	)
Forgiveness of dividends		-			150,425
Net loss applicable to common shareholders	$	(6,384,958	)	$	(4,682,641	)
Weighted average common shares outstanding		4,996,304			4,158,813
Weighted average common shares outstanding for diluted net loss per share		4,996,304			4,158,123
Net loss per share - basic	$	(1.28	)	$	(1.13	)

Net loss per share - diluted	$	(1.28	)	$	(1.13	)

Note 13 - Commitments

Hammonds leases its 106,000 square foot manufacturing and office facility from a third party under an operating lease which expires in October 2016. Future minimum lease payments under the operating lease are as follows:

Year December 31,	Amount
2009	$	436,380
2010		436,380
2011		436,380
2012		436,380
2013		436,380
Thereafter		1,236,410
	$	3,418,310

Note 14 - Segment Information

Hammonds has three reportable segments: Hammonds Technical Services, Hammonds Fuel Additives, and Hammonds Water Treatment Systems. Hammonds manufactures engineered products and chemicals that serve multiple segments of the fuels distribution, water treatment and utility vehicle industries. Hammonds' products are marketed by a worldwide network of distributors, manufacturers' representatives and original equipment manufacturers. The corporate overhead includes Hammonds' investment holdings, including financing current operations and expansion of its current holdings, as well as evaluating the feasibility of entering into additional businesses.

The accounting policies of the segments are the same as those described in the summary of significant accounting policies. Hammonds evaluates performances based on profit or loss from operations before income taxes, not including nonrecurring gains and losses and foreign exchange gains and losses.

Hammonds' reportable segments are strategic business units that offer different technology and marketing strategies.

Hammonds' areas of operations are principally in the United States. No single foreign country or geographic area is significant to the consolidated financial statements.

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Consolidated revenues from external customers, operating income / (losses), and identifiable assets were as follows:

	Year Ended December 31,
		2008			2007
Revenues:
Hammonds Technical Services		$	3,707,216		$	5,789,098
Hammonds Fuel Additives			1,108,274			1,129,100
Hammonds Water Treatment			3,311,310			3,178,340
		$	8,126,800		$	10,096,538

Income (loss) from operations:
Hammonds Technical Services		$	(3,464,340	)	$	(1,723,637	)
Hammonds Fuel Additives			95,159			149,099
Hammonds Water Treatment			28,893			135,324
Impairment of intangible assets			(2,180,179	)		-
Corporate			(159,034	)		(667,821	)
Loss from operations			(5,679,501	)		(2,107,035	)
Other expenses			(497,896	)		(870,896	)
Net loss before income tax		$	(6,177,397	)	$	(2,977,931	)

Identifiable assets:
Hammonds Technical Services		$	6,264,997		$	8,925,595
Hammonds Fuel Additives			2,124,419			2,025,761
Hammonds Water Treatment			1,109,333			772,179
Intercompany			(2,532,732	)		(908,297	)
Total identifiable assets		$	6,966,017		$	10,815,238

Depreciation and amortization:
Hammonds Technical Services		$	915,739		$	804,927
Hammonds Fuel Additives			5,845			23,846
Total depreciation and amortization		$	921,584		$	828,773

Capital expenditures:
Hammonds Technical Services		$	259,148		$	354,187
Hammonds Fuel Additives			3,196			11,103
Total capital expenditures		$	262,344		$	365,290

Note 15 - Subsequent Events

The transaction was authorized and approved pursuant to the provisions of the Nevada Revised Statutes by the Joint Written Consent of the Board of Directors and the Majority Stockholders of Hammonds.

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On August 13, 2009, Hammonds Industries, Inc., American International Industries, Inc., Delta Seaboard Well Service, Inc., and the minority interest owners of Delta entered into an agreement to commence a reverse merger of Delta into Hammonds. As part of the merger, Hammonds effected a 1 for 10 reverse stock split for its common stock. Additionally, the Company intends to issue shares of Common Stock to the present stockholders of Delta as follows: (i) 22,186,572 post-Reverse Split shares in consideration for American’s 51% equity ownership of Delta, and 10,000,000 post-Reverse Split shares in consideration for American converting $872,353 in principal and accrued interest of debt payable by the Company to American; and (ii) a total of 21,316,510 shares to Robert W. Derrick, Jr., Delta’s president and a director of American and Ron Burleigh, Delta’s vice president, in consideration for their 49% equity ownership of Delta, and 9,607,843 post-Reverse Split shares in consideration for extending their employment agreements for five years in addition to the balance of their current employment agreements. Following the Reverse Split and Reverse Merger, American will own 32,859,935 shares of Common Stock, representing 48.2% of the Company’s total outstanding shares and Messrs. Derrick and Burleigh, will own 30,924,353 shares of Common Stock, representing 45.4% of the Company’s total outstanding shares. All other stockholders of the Company will own 4,357,962 shares of Common Stock, representing 6.4% of the Company’s total 68,142,250 outstanding shares.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

On June 3, 2008, the Board of Directors of Hammonds Industries, Inc. (the “Company”) dismissed GLO CPAs LLLP (“GLO”) as the Company’s independent registered public accountants and approved the engagement of GBH CPAs, PC (“GBH”) to serve as the Company’s independent registered public accountants for the fiscal year 2008. On June 6, 2008 the Company issued a press release announcing the change in its independent registered public accountants.

GLO’s reports on the Company’s financial statements for the years ended December 31, 2007 and 2006 did not contain an adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles.

During the years ended December 31, 2007 and 2006 and the subsequent interim period through June 3, 2008, the date of dismissal of GLO, there were no disagreements with GLO on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to GLO’s satisfaction, would have caused them to make reference to the subject matter in connection with their report on the Company’s consolidated financial statements for such years; and there were no reportable events, as listed in Item 304(a)(1)(v) of Regulation S-K.

The Company provided GLO with a copy of the disclosures in the preceding two paragraphs and requested in writing that GLO furnish the Company with a letter addressed to the Securities and Exchange Commission stating whether or not they agree with such disclosures. GLO provided a letter, dated June 5, 2008 stating its agreement with such statements.

During the years ended December 31, 2007 and 2006 and through the date of the Board's decision, the Company did not consult GBH with respect to the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s consolidated financial statements, or any other matter or reportable events listed in Items 304(a)(2)(i) and (ii) of Regulation S-K.

ITEM 9T. CONTROLS AND PROCEDURES

Our management is responsible for establishing and maintaining an adequate level of internal controls over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Internal control over financial reporting includes policies and procedures that:

- Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;

- Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

- Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the consolidated financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with existing policies or procedures may deteriorate.

Evaluation of disclosure controls and procedures. In connection with the audit of the Company's financial statements for the year ended December 31, 2008, the Company's CEO and CFO conducted an evaluation regarding the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act. Based upon the evaluation of these controls and procedures, our CEO and CFO concluded that our determined that our disclosure controls and procedures were effective as of December 31, 2008.

Changes in internal controls. There have been no significant changes in our internal controls over financial reporting that occurred during the year ended December 31, 2008 that have materially affected or are reasonably likely to materially affect, our internal controls over financial reporting.

This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide a management report in the Annual Report.

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ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

At present, we have four officers and five directors. We may elect one or more additional directors and appoint additional officers in connection with our intent to pursue new business opportunities or entering into a business combination. Our directors are elected to serve until the next annual meeting of shareholders and until their respective successors will have been elected and will have qualified. The following table sets forth the name, age and position held with respect to our present directors and executive officers:

Name	Age	Positions
Daniel Dror	69	Chairman and CEO
Robert W. Derrick, Jr.	49	Director and President
Sherry L. Couturier	48	Director, VP and CFO
Ron Burleigh	49	Director and VP
Steven M. Plumb	50	Director

Daniel Dror, Chairman of the Board, has served as Chief Executive Officer, President and Chairman of the Board of American International Industries, Inc. since September 1997. From April 2005 to December 2008, Mr. Dror served as Chairman and CEO of Hammonds Industries, Inc. and resumed this position on December 31, 2009. From 1994 to 1997, Mr. Dror served as Chairman of the Board and Chief Executive Officer of Microtel International, Inc., a public company in the telecommunication business. From 1982 until 1993, Mr. Dror served as Chairman of the Board and Chief Executive Officer of Kleer-Vu Industries, Inc., a public company.

Robert W. Derrick, Jr. was appointed to the Board of Directors of American Internatioanl Industries, Inc. on February 19, 2004. Mr. Derrick has served as President of the American's 51% owned subsidiary, Delta Seaboard Well Service, Inc., since September 2002 and was Delta's Vice President from December 1989 until September 2002. Delta has been in the oil and gas business for more than 35 years, engaged in the sale of oil field pipe, tubular, well-completion work and provides work-over services for existing oil and gas wells.

Sherry L. Couturier has served as Chief Financial Officer of American International Industries, Inc. since June 1, 2007, and has been with the company since August 1, 2006. Sherry served as CFO of Hammonds Industries, Inc. from June 2007 to December 2008, and resumed this position on December 31, 2009. Sherry graduated with a B.S. in Accounting from the University of Alabama and has been a Certified Public Accountant since 1986. She has held positions in both public and industry accounting. Prior to joining the Company, Sherry worked for El Paso Corporation for 14 years as a supervisor for various accounting departments and as a training and development consultant.

Ron Burleigh was appointed to the Board of Directors of the Company on December 31, 2009. Mr. Burleigh has served as a Director of Delta since September 2002 and was Delta's Vice-President from December 1989 to the present.

Steven M. Plumb, a CPA licensed in Texas, is a financial manager and senior executive experienced in operations, finance and marketing. Mr. Plumb is the president of Clear Financial Solutions, Inc. a business consulting firm that assists public and private companies with financing, operations improvement, outsourced CFO services, SEC reporting, mergers and acquisitions, and financial analysis. Mr. Plumb has served as the CFO of several public companies, including Striker Oil & Gas, Inc., Hyperdynamics Corp., Oncolin Therapeutics, Inc., Bluegate Corp., and Adventrx Pharmaceuticals. Prior to starting his own consulting firm, Mr. Plumb served as the Chief Financial Officer of DePelchin Children's Center, and as controller of Memorial City Rehabilitation Hospital in Houston, Texas. Mr. Plumb is a former auditor and consultant with KPMG. Mr. Plumb earned his BBA degree in accounting from the University of Texas at Austin.

Independent Public Accountants

Our Board of Directors has approved the appointment by the Company's Board of Directors of GBH CPAs, PC as independent public accountants for the fiscal year ending December 31, 2008.

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Code of Ethics

The Registrant has adopted a Code of Ethics that are designed to deter wrongdoing and to promote honest and ethical conduct, full, fair, accurate, timely and understandable disclosure in the Registrant's SEC reports and other public communications. The Code of Ethics promotes compliance with applicable governmental laws, rules and regulations.

Section 16(a) Compliance

Section 16(a) of the Securities and Exchange Act of 1934 requires the Registrant's directors and executive officers, and persons who own beneficially more than ten percent (10%) of the Registrant's Common Stock, to file reports of ownership and changes of ownership with the Securities and Exchange Commission. Copies of all filed reports are required to be furnished to the Registrant pursuant to Section 16(a). Based solely on the reports received by the Registrant and on written representations from reporting persons, the Registrant was informed that its officers and directors and ten percent (10%) shareholders have not filed reports required to be filed under Section 16(a).

ITEM 11. EXECUTIVE COMPENSATION

The following tables contain compensation data for the Chief Executive Officer and other named executive officers of the Company for the fiscal years ended December 31, 2007:

Summary Compensation Table
					Long Term
		Annual Compensation			Compensation Awards
				Other		Securities
				Annual	Stock	Underlying	Total
		Salary	Bonus	Compensation	Award(s)	Options	Compensation
Name and Principal Position	Year	($)	($)	($)	($) (1)	($)	($)
Daniel Dror, Chairman and CEO	2008	20,000	-	-	51,283	-	71,283

Sherry Couturier, Director, VP and CFO	2008	-	-	-	63,015	-	63,015

Robert W. Derrick, Jr., Director and President	2008	-	-	-	-	-	-

Ron Burleigh, Director and VP	2008	-	-	-	-	-	-

(1)	See "Stock-Based Compensation" in note 1 to the financial statements for valuation assumptions.

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On November 1, 2007, the Company entered into a five-year employment agreement with Daniel Dror, Chairman and CEO, pursuant to which the Executive will be paid $2,000 in base compensation per month. At the election of the Executive, his compensation may be payable in shares of the Company’s common stock, registered on Form S-8 under the Securities Act of 1933 or such other form as may be appropriate, or at the election of the Executive pursuant to an exemption from registration under the Act. In addition to the Executive’s base compensation, Executive will be entitled to a bonus as determined by the Company’s board of directors from time to time and issued common stock of 1,000 restricted shares per month commencing on December 1, 2007. In the event of a change in control of the Company, resulting in Executive ceasing to serve as the Company’s Chief Executive Officer and Chairman, Executive shall be entitled to receive and the Company shall pay to Executive within ninety (90) days of the change in control a sum equal to five (5) years of the base salary then payable to Executive under this Employment Agreement.

Grants of Plan-Based Awards

Name	Grant date	Stock awards: Number of shares of stock or units (#) (1)		Warrant awards: Number of securities underlying options (#)		Exercise or base price of warrant awards ($/Sh)		Grant date fair value of stock and warrant awards
Daniel Dror, Chairman and CEO	February 12, 2008		3,000		-		-	$	14,200
	April 11, 2008		2,000		-		-		10,000
	July 1, 2008		3,000		-		-		11,883
	September 30, 2008		2,000		-		-		5,800
	December 31, 2008		4,000		-		-	$	9,400
Sherry Couturier, Director, VP and CFO (1)	February 13, 2008		3,818		-		-	$	20,000
	April 11, 2008		1,826		-		-		8,000
	July 1, 2008		2,805		-		-		11,117
	September 30, 2008		4,092		-		-		12,000
	December 31, 2008		4,959		-		-	$	11,898

(1)

These shares were issued to Ms. Couturier pursuant to her service agreement with HMDI, pursuant to which she is to receive $4,000 per month in S-8 shares of HMDI, beginning September 1, 2007. The Form S-8 Registration Statement for these shares was dated December 20, 2007. The number of shares to be issued was based on $5.50 per share, the closing market price on December 20, 2007.

Director Summary Compensation Table

The directors serve without cash compensation, but may be granted stock as bonus compensation from time to time. The table below summarizes the compensation paid by the Company to non-employee Directors for the fiscal year ended December 31, 2008.

Director Summary Compensation Table

(a)

(b)

(c)

(d)

(e)

(f)

(g)

Name

Fees Earned or

Paid in Cash ($)

Stock

Awards ($)

Option

Awards ($)

Change in Pension Value and Deferred

Compensation Earnings ($)

All Other

Compensation ($)

Total ($)

Steven M. Plumb

(1) Daniel Dror, Chairman and CEO, Sherry Couturier, VP and CFO, Robert W. Derrick, Jr., President, and Ron Burleigh, VP, are not included in this table. The compensation received by these officers and directors, as employees of the Company, are shown in the Executive Summary Compensation Table.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS

The following table sets forth information regarding the beneficial ownership of our common stock as of December 31, 2008. The information in this table provides the ownership information for: each person known by us to be the beneficial owner of more than 5% of our common stock; each of our directors; each of our executive officers; and our executive officers and directors as a group. Beneficial ownership has been determined in accordance with the rules and regulations of the SEC and includes voting or investment power with respect to the shares. Unless otherwise indicated, the persons named in the table below have sole voting and investment power with respect to the number of shares indicated as beneficially owned by them.

Name of Beneficial Owner	Common Stock Beneficially Owned (1)	Percentage of Common Stock Owned (1)
American International Industries, Inc.	673,363	13.38%
601 Cien Street, Suite 235
Kemah, TX 77565

Carl Hammonds	1,700,000	33.79%
910 Rankin Road
Houston, TX 77073

Vision Opportunity Management Fund, Ltd.	407,040	8.09%
20 West 55th Street, 5th Floor
New York, NY 10019

Daniel Dror, Chairman and CEO	61,080	1.21%
601 Cien Street, 235
Kemah, TX 77565

Sherry Couturier, Director, VP and CFO	43,564	0.87%
601 Cien Street, Suite 235
Kemah, TX 77565

Robert W. Derrick Jr., Director and President	1,479	0.03%
1212 West Sam Houston Parkway North
Houston, TX 77043

Charles R. Zeller, Director	1,064	0.02%
601 Cien Street, 235
Kemah, TX 77565

Directors and Officers (4 persons) (2)	780,550	15.51%

(1) Applicable percentage ownership is based on 5,031,326 shares of common stock outstanding as of December 31, 2008. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of common stock that are currently exercisable or exercisable within 60 days of December 31, 2008 are deemed to be beneficially owned by the person holding such securities for the purpose of computing the percentage of ownership of such person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.

(2) Includes shares owned by American International Industries, Inc.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Company obtains approval from its entire Board of Directors prior to entering into any transactions with a related party or affiliate of the Company, including disclosure to the Board of Directors of such relationship prior to any action or vote of the Board of Directors. Prior to entering into any financing arrangement with any affiliated parties, disclosure is made to the Board of Directors regarding the terms and conditions of such related party transactions.

During 2007, the Company issued 200,000 shares of restricted stock valued at $448,500 in bonuses to the officers, directors and key employees of the Company, and 50,000 shares of restricted stock to American International Industries, Inc. valued at $105,000 as a management fee.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

Independent Public Accountants

The Registrant's Board of Directors has appointed GBH CPAs, PC, which firm has issued its report on our consolidated financial statements for the years ended December 31, 2008. Our financial statements for the fiscal year ended December 31, 2007 were audited by GLO CPAs, LLLP.

Principal Accounting Fees

The following table presents the fees for professional audit services rendered by GBH CPAs, PC and GLO CPAs, LLLP for the audit of the Registrant's annual financial statements for the years ended December 31, 2008 and 2007, and fees billed for other services rendered by GBH CPAs, PC and GLO CPAs, LLLP during those years. All of the services described below were approved by the Board of Directors.

	Year Ended
		December 31, 2008		December 31, 2007
Audit fees (1)		$	47,000	$	35,071
Audit-related fees (2)			-		32,196
Tax fees (3)			-		15,055
All other fees			-		448
(1) Audit fees consist of audit and review services, consents and review of documents filed with the SEC.
(2) Audit-related fees consist of assistance and discussion concerning financial accounting and reporting standards and other accounting issues.
(3) Tax fees consist of preparation of federal and state tax returns, review of quarterly estimated tax payments, and consultation concerning tax compliance issues.

ITEM 15. EXHIBITS AND REPORTS ON FORM 8-K

(a) The following documents are filed as exhibits to this report on Form 10-K or incorporated by reference herein. Any document incorporated by reference is identified by a parenthetical reference to the SEC filing that included such document.

Exhibit No.	Description
3(i)	Articles of Incorporation, as amended, attached to the Registrant's Form 10-SB/12g filed on August 24, 2004.
3(i)1	Certificate of Amendment to the Articles of Incorporation, attached to the Registrant's Form 8-K filed on March 10, 2005.
3(ii)	Bylaws, attached to the Registrant's Form 10-SB/12g filed on August 24, 2004.
17	Letter on director resignation, attached to the Registrant's Form 8-K filed on December 29, 2004.
10.1	Stock Purchase Agreement between Registrant and Hammonds Technical Services, Inc., attached to the Registrant's Form 8-K filed on March 10, 2005
31.1	Certification of CEO and CFO Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to the Sarbanes-Oxley Act of 2002, filed herewith.
32.1	Certification of CEO and CFO Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to the Sarbanes-Oxley Act of 2002, filed herewith.

(b) Reports on Form 8-K Filed During the Last Quarter of the Fiscal Year Covered by this Report: None.

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SIGNATURES

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

Hammonds Industries, Inc.

By /s/ Daniel Dror

Daniel Dror

Chief Executive Officer, President, and Chairman

February 23, 2010

By /s/ Sherry L. Couturier

Sherry L. Couturier

Director, Chief Financial Officer, and Vice-President
February 23, 2010

By /s/ Robert W. Derrick, Jr.

Robert W. Derrick, Jr.

Director and President of Delta Seaboard Well Service, Inc.

February 23, 2010

By /s/ Ron Burleigh

Ron Burleigh

Director and Vice President

February 23, 2010

By /s/ Steven M. Plumb

Steven M. Plumb

Director

February 23, 2010

Attached files

AMERICAN INTERNATIONAL HOLDINGS CORP. Reports

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