UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549




FORM 10-K




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


For the fiscal year ended December 31, 2010




 ̈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




DELTA SEABOARD INTERNATIONAL, INC.


(Exact Name Of Registrant As Specified In Its Charter)


Texas
88-0225318(State of Incorporation)
(I.R.S. Employer Identification No.)601 Cien Street, Suite 235Kemah,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   ̈No   ̈




x  ̈




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, 2010, 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 $982,564 based on the closing sale price of $0.22 on such date as reported on the OTCBB.
  The number of shares outstanding of each of the issuer’s classes of equity as of March 31, 2011 is 68,342,250 shares of common stock and 3,769,626 shares of preferred stock.







TABLEOF CONTENTS




Item

Description

PagePART I3ITEM 1.

DESCRIPTION OF BUSINESS


7ITEM 1A.

RISK FACTORS RELATED TO OUR BUSINESSES


11ITEM 1B.

UNRESOLVED STAFF COMMENTS


11ITEM 2.

DESCRIPTION OF PROPERTY


12ITEM 3.

LEGAL PROCEEDINGS


12ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSPART IIITEM 5.

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


12ITEM 6.

SELECTED FINANCIAL DATA


13ITEM 7.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATION


14ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


16ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


17ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE


30ITEM 9A(T).

CONTROLS AND PROCEDURES


30ITEM 9B.

OTHER INFORMATION


31PART IIIITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE


31ITEM 11.

EXECUTIVE COMPENSATION


32ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS


34ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENCENCE


35ITEM 14.

PRINCIPAL ACCOUNTING FEES AND SERVICES


35ITEM 15.

EXHIBITS, FINANCIAL STATEMENT SCHEDULES


35










Cautionary Statement regarding Forward-Looking Statements




This Annual Report on Form 10-K of Delta Seaboard International, Inc. (hereinafter the "Company", the "Registrant", or "Delta") 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




ITEM1. DESCRIPTION OF BUSINESS




Delta Seaboard International, Inc.




Delta Seaboard International, Inc., formerly Hammonds Industries, Inc., ("Hammonds") a Texas corporation, is a 48.1% owned subsidiary of American International Industries, Inc. ("American") (OTCBB: AMIN).


Description of Delta's Organization and Financing Transactions




Some of the statements contained in this current report of Delta Seaboard International Inc., (hereinafter the "Company", "Delta", "We" or the "Registrant" discuss future expectations, contain projections of our operations or financial condition or state other forward-looking information.





On February 3, 2010, Hammonds and Delta Seaboard Well Service, Inc. ("Delta Seaboard"), a Texas corporation, completed a reverse merger ("Reverse Merger").  In connection with the reverse merger, Hammonds changed its name to Delta Seaboard International, Inc. and authorized a reverse stock split ("Reverse Split") applying a ratio of one for ten (1:10) to all shareholders of common stock on record on December 31, 2009.  Following the effective date of the Reverse Split, Delta issued shares of common stock to the existing stockholders of Delta Seaboard as follows: (i) 22,186,572 post-Reverse Split shares in consideration for American’s 51% equity ownership of Delta Seaboard, and 10,000,000 post-Reverse Split shares in consideration for American converting $872,353 in principal and accrued interest of debt payable by Delta to American; (ii) a total of 21,316,510 shares to Robert W. Derrick, Jr., a newly appointed director of Delta as well as Delta Seaboard’s president and a director of American and Ron Burleigh, a newly-appointed director of Delta as well as Delta Seaboard’s vice president, in consideration for their 49% equity ownership of Delta Seaboard; and (iii) 9,607,843 post-Reverse Split shares in consideration for Messrs. Derrick and Burleigh 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 owns 32,859,935 shares of common stock, representing 48.1% of Delta's total outstanding shares and Messrs. Derrick and Burleigh, the owners of the noncontrolling interest in Delta Seaboard, own 30,925,832 shares of common stock, representing 45.2% of Delta's total outstanding shares. All other stockholders of Delta own 4,556,483 shares of common stock, representing 6.7% of Delta's total 68,342,250 outstanding shares. As part of the Reverse Merger, Delta assumed $709,551 in liabilities from Hammonds, including $615,000 in preferred dividends payable in shares of Delta's common stock.





Delta Seaboard is a 100% owned subsidiary of Delta.  Delta Seaboard is managed by Robert W. Derrick, Jr. and Ron Burleigh, who are Delta Seaboard's executive officers.  Delta Seaboard was founded in 1958 in Houston, Texas.  Delta Seaboard's well site services provide a broad range of products and services that are used by oil companies and independent oil and natural gas companies operating in South and East Texas, and the Gulf Coast market. Delta Seaboard's services include workover services, plugging and abandonment, and well completion and recompletion services.






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 3


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 5 to the financial statements.
  General Background of Delta
  From May 1, 2005 through April 16, 2009, the Company had three subsidiaries.  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 manufactured engineered products and chemicals that serve multiple segments of the fuels distribution, water treatment and utility vehicle industries.
  provides the following products and services:
  Description of Delta’s Business
 
 Overview
 
 On September 30, 2003, American acquired a 51% interest in Delta Seaboard Well Service, Inc. and a related entity, Seaboard Well Service (collectively "Delta"), both Texas corporations, pursuant to a stock purchase agreement for cash consideration of $1,000,000. American also issued 400,000 shares of Series A 5% cumulative redeemable convertible preferred stock ("Series A Preferred Stock") to a creditor of Delta in consideration for the release of the creditor’s interest in certain of Delta's coastal rigs and in satisfaction of certain Delta indebtedness.
  Delta's Business
 Delta's well site services provide a broad range of products and services that are used by oil companies and independent oil and natural gas companies operating in South and East Texas, and the Gulf Coast market. Delta's services include workover services, plugging and abandonment, and well completion and recompletion services. During 2004, Delta combined its Louisiana operations into its Houston operation and facilities and sold three rigs in Louisiana to third parties. Delta continues to own one land-based rig in Louisiana and five land-based rigs in the Gulf Coast region of Texas.


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Well Service Market





Demand for Delta's workover and related services are correlated to the level of expenditures by oil and gas producers, which is a function of oil and gas prices. In general, we expect demand for Delta's services to increase significantly due to expanding activities of oil and gas producers in the United States as a result of the significant increase in energy prices in the U.S. and worldwide. Delta is dependent to a significant degree on the level of development and workover activities in the U.S. Gulf Coast area. Delta faces competition from many larger companies in the U.S. Gulf of Mexico market.




Products and Services
 
 Delta provides workover products and services primarily to customers in the U.S. Gulf Coast market. Workover products and services are used to restore or increase production on a producing well. Workover services are typically used during the well development, production and abandonment stages. Delta's hydraulic workover units are typically contracted on a short-term dayrate basis. As a result, utilization of our workover units varies from period to period and the time to complete a particular service contract depends on several factors, including the number of wells and the type of workover or pressure control situations involved. Usage of our workover units is also affected by the availability of trained personnel. With our current level of trained personnel, we estimate that we have the capability to crew and operate multiple jobs simultaneously.
 
 During 2008, Delta had the opportunity to purchase and import new Chinese Seamless Pipe (OCTG) and make it available to our customers who were drilling and completing new wells in the United States.
  Competition 
 Delta believes that it has certain competitive advantages related to cost efficiencies, material coordination, reduced engineering time resulting from its highly experienced staff of toolpushers, field supervisors and operations managers, and its fully integrated operations with cementing and electric wireline operations that include cutting casing and tubing as part of Delta's services. Delta also believes that with the financial resources as a separate public Company and its access to the public capital markets, Delta will be able to pursue strategic acquisitions and enter into ventures that should result in long-term growth and market expansion.
 
 Delta's services are sold in highly competitive markets. The competition in the oil and gas industry could result in reduced profitability or inability to increase market share. In its markets, principally in South and East Texas, and the Gulf Coast, Delta competes principally with the following entities: Tetra Applied Technologies and Five J.A.B., as well as a number of smaller companies. The land drilling service business is highly fragmented and consists of a small number of large companies and many smaller companies. Many of Delta's competitors have greater financial resources than Delta. Delta relies upon the Company's ability to provide working capital and secure debt and/or equity financing in order for Delta to continue to expand its oil and gas well services business and pursue its growth plan in land-based exploration and drilling operations.
 
 We reasonably expect competition to intensify because of the business opportunities presented by the opportunities in the oil and gas industry. In addition, competition may also increase as a result of consolidation. We may be faced with new technological advancements developed by new competitors that change the way the service business of the oil and gas industry operates. In addition, some of our current or future competitors may have longer operating histories, larger customer bases and/or greater marketing resources than we have. Increased competition may result in reduced operating margins, loss of market share and diminished value in our products and services, as well as different pricing, service or marketing decisions.
 Government Regulation
 
 The business of Delta is significantly affected by federal, state and local laws and regulations relating to the oil and natural gas industry. Changes in these laws and regulations, including more restrictive administrative regulations and enforcement of these laws and regulations, could significantly affect Delta's business and results of operations. Delta cannot predict future changes in existing laws and regulations or how these changes in laws and regulations may be interpreted or the effect changes in these laws and regulations may have on Delta or its future operations or earnings. Delta cannot predict whether additional laws and regulations will be adopted. Delta depends on the demand for its products and services from oil and natural gas companies. This demand is affected by economic cycles, changing taxes and price and other laws and regulations relating to the oil and gas industry, including those specifically directed to oilfield and offshore operations. The adoption of new laws and regulations curtailing exploration and development drilling for oil and natural gas in our areas of operation could also adversely affect Delta's operations by limiting demand for its products and services. Delta cannot determine the extent to which its future operations and earnings may be affected by new legislation, new regulations or changes in existing regulations or enforcement. Although Delta believes that it is in compliance with existing laws and regulations, there can be no assurance that substantial costs for compliance will not be incurred in the future. Moreover, it is possible that other developments, such as the adoption of more restrictive environmental laws, regulations and enforcement policies, could result in additional costs or liabilities that Delta cannot currently quantify.





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 5
 
 Employees
 
 As of December 31 2010, Delta had 33 employees, including its two executive officers. No employees are covered by a collective bargaining agreement and Delta considers relations with its employees satisfactory.
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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.






ITEM1A. RISK FACTORS RELATED TO OUR BUSINESS




Delta’s operations are materially dependent on levels of oil and gas workover and abandonment activities in the United States
 
 Delta's services include workover services, plugging and abandonment, and well completion and recompletion services. Activity levels for Delta’s oil and gas related services businesses are affected both by short-term and long-term trends in oil and gas prices and supply and demand balance, among other factors. Oil and gas prices and, therefore, the levels of workover and abandonment activities, tend to fluctuate. Demand for Delta's services can vary significantly due to levels of activities of oil and gas producers in the United States which are directly effected by the significant increase in energy prices in the U.S. and worldwide. Delta is dependent to a significant degree on the level of development and workover activities in the U.S. Gulf Coast area.
 
 Any prolonged slowdown of the U.S. economy may contribute to an eventual downward trend in the demand for Delta’s services
 
 Other factors affecting Delta’s oil and gas services business include any decline in production of oil and gas wells in the Texas and Gulf Coast area in which it operates. Delta’s revenues and profitability are particularly dependent upon oil and gas industry activity and spending levels in the Texas and Gulf Coast region. Delta’s operations may also be affected by interest rates and cost of capital, tax policies and overall economic activity. Adverse changes in any of these other factors may depress the levels of well workover and abandonment and result in a corresponding decline in the demand for Delta’s products and services and, therefore, have a material adverse effect on Delta’s revenues and profitability.
 
 Profitability of Delta’s operations is dependent on numerous factors beyond Delta’s control
 
 Delta’s operating results in general, and gross margin in particular, are functions of market conditions and the product and service mix sold in any period. Other factors impact the cost of sales, such as the price of steel, because approximately 65% of Delta’s oil and gas related revenues in 2010 were from the sale of new drilling pipe and used pipe extracted during Delta’s well plugging business. Competition for pipe which is impacted by the US and worldwide cost of and demand for steel, availability of skilled labor and contract services, shortages in raw materials due to untimely supplies or ability to obtain items at reasonable prices may also continue to affect the cost of sales and the profitability in future periods.
  Delta encounters and expects to continue to encounter intense competition in the sale of Delta’s products and services
 
 Delta competes with numerous companies and its services are sold in highly competitive markets. The competition in the oil and gas industry could result in reduced profitability or inability to increase market share. In its markets, principally in South and East Texas, and the Gulf Coast, Delta competes principally with the following entities: Tetra Applied Technologies, Key Energy Services, Basic Energy, which are far larger than Delta, as well as a number of smaller companies. The land drilling service business is highly fragmented and consists of a small number of large companies and many smaller companies. Many of Delta's competitors have greater financial resources than Delta. Many of Delta’s competitors have substantially greater financial and other related resources than us.
 
 Dependence upon major customers for Delta’s workover products and services
 
 Delta provides workover products and services primarily to customers in the U.S. Gulf Coast market. Workover products and services are used to restore or increase production on a producing well. Workover services are typically used during the well development, production and abandonment stages. Delta's hydraulic workover units are typically contracted on a short-term dayrate basis. As a result, utilization of Delta’s workover units varies from period to period and the time to complete a particular service contract depends on several factors, including the number of wells and the type of workover or pressure control situations involved. In 2010, Delta’s largest customers for workover services were XTO Energy, Legend Natural Gas, Newfield Exploration, and Killam Oil Co., Ltd.
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 Delta’s revenues and cash flows from pipe sales are subject to commodity price risk
 Approximately 65% of Delta’s oil and gas related revenues in 2010 were from the sale of pipe; therefore, Delta has increased market risk exposure in the pricing applicable to the costs of steel. Realized pricing is primarily driven by the prevailing worldwide price and demand for steel. The cost of steel has been increasing significantly due to increased world demand generally and from China and India specifically.
 
 Delta’s business involves certain operating risks, and its insurance may not be adequate to cover all losses or liabilities Delta might incur in its operations
 
 Delta’s operations are subject to many hazards and risks, including the following:
 -  fires and explosions;
 -  accidents resulting in serious bodily injury and the loss of life or property;
 -  pollution and other damage to the environment; and
 -  liabilities from accidents or damage by our fleet of trucks, rigs and other equipment.
 
 If these hazards occur, they could result in suspension of operations, damage to or destruction of our equipment and the property of others, or injury or death to our or a third party's personnel.
 
 Risks related to government regulation
 
 Delta’s business is significantly affected by federal, state and local laws and regulations relating to the oil and natural gas industry. Changes in these laws and regulations, including more restrictive administrative regulations and stricter enforcement of these laws and regulations, could significantly affect Delta's business and results of operations. Delta cannot predict future changes in existing laws and regulations or how these laws and regulations may be interpreted or the effect changes in these laws and regulations may have on Delta or its future operations and profitability. Delta cannot predict whether additional laws and regulations will be adopted. The adoption of new laws and regulations curtailing exploration and development drilling for oil and natural gas in Delta’s areas of operation could also materially adversely affect Delta's operations by limiting demand for its products and services.
 
 Delta’s workover products and services are subject to and affected by various types of government regulation, including numerous federal and state environmental protection laws and regulations. These laws and regulations are becoming increasingly complex and stringent. Governmental authorities have the power to enforce compliance with these regulations, and violators are subject to civil and criminal penalties, including civil fines, injunctions, or both. Third parties may also have the right to pursue legal actions to enforce compliance. It is possible that increasingly strict environmental laws, regulations and enforcement policies could result in substantial costs and liabilities to Delta and could subject its operations to increased scrutiny.
  Delta May Be Unable To Achieve Profitability
 
 Delta incurred a net losses of $904,039 and $1,296,629 during the years ended December 31, 2010 and 2009, respectively. As of December 31, 2010, Delta's accumulated deficit was $2,087,324.Delta may continue to incur significant expenditures as we believe Delta will continue to grow and expand to develop new products and services. As a result, Delta will need to generate significant additional revenue to achieve profitability. Delta may not be able to achieve significant revenue growth in the future. Delta's operating results for future periods are subject to numerous uncertainties and Delta may not achieve sufficient revenue to sustain profitability.
  Our Quarterly Revenues May Fluctuate Significantly, Our Capital Expenditures Are Based on Estimated Future Revenues, Revenue Shortfall Would Have an Adverse Impact on Our Operating Results.
 
 Because the market we operate and compete in is volatile and rapidly evolving, our future revenue is difficult to forecast. Further, our expense levels are based largely on our expansion plan and estimates of future revenue. We may be unable to adjust our spending to compensate for an unexpected shortfall in revenue. Accordingly, any significant shortfall in revenue relative to our planned expenditures in a particular quarter would harm our results of operations and could lead our stock price to fall sharply, particularly following quarters in which our operating results fail to meet expectations.
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 Factors that may cause fluctuations in our revenues or operating results on a quarterly basis include the following, some of which are beyond our control:
  ·the amount and timing of operating costs and capital expenditures related to the expansion of our business;
 ·the impact on our renewal rates caused by our customers’ financial restrictions or a perceived lack of need for our product and services;
 ·changes in demand for our products and services due to the announcement or introduction of new products and services or the cancellation of existing products and services by us or our competitors;
 ·changes in the pricing of our products and services in light of the services and pricing offered by our competitors;
 ·the impact of possible acquisitions or equity investments both on our operations and on our reported operating results due to associated accounting charges; and
 ·technical difficulties or service interruptions that significantly harm our ability to deliver our products and services on schedule.
  We May Not Be Able to Hire and Retain Qualified Personnel
  Our future success depends in large part on our ability to attract, retain and motivate highly skilled employees. Although we believe we provide compensation packages that include competitive salaries, bonus incentives and other employee benefits, we may be unable to retain our key employees or to attract and retain other highly qualified employees in the future. If we are unable to attract or retain key employees, our business would suffer.
  We Cannot Predict Our Future Capital Needs And We May Not Be Able To Secure Additional Financing.
  We believe that the cash we have on hand will not be sufficient to meet our presently anticipated working capital and capital expenditure requirements for existing operations for the next twelve months, however our belief is based on our operating plan which in turn is based on assumptions, which may prove to be incorrect. As a result, our financial resources may not be sufficient to satisfy our capital requirements for this period.
  Further, we may require additional working capital to support our operations. We expect to raise any required additional funds through public or private equity offerings, debt financings, corporate collaborations, governmental research grants may in some cases be available to us. We may also seek to raise additional capital to fund additional products and services, even if we have sufficient funds for our planned operations.
  There can be no assurance that any such required additional funding will be available to us at all or available on terms acceptable to us. Further, we currently have no credit facility or similar financing currently available. And any debt financing, if available, may involve restrictive covenants, which may limit our operating flexibility with respect to certain business matters. If additional funds are raised through the issuance of equity securities, the percentage ownership of our existing stockholders will be reduced and our stockholders will experience additional dilution in net tangible book value per share. If adequate funds are not available on acceptable terms, we may be unable to successfully market our products and services, take advantage of future opportunities, repay debt obligations as they become due or respond to competitive pressures, any and all of which would have an adverse effect on our business.
  We May Not Be Able to Adapt to Trends In our Industry  We may not be able to adapt our product and services as customer demand or preferences evolves; whether attributable to regulatory constraints, mismanagement or a lack of financial resources or, our failure to respond in a timely manner; to new technologies, customer preferences, changing market conditions or new developments in our industry. Any of the failures to adapt or inabilities described herein or otherwise would have a material adverse effect on our business, prospects, financial condition and results of operations. 
 We may Encounter Difficulties in Managing Our Growth, Which Would Adversely Affect Our Results of Operations.
 
 If we are successful in growing our business we will need to significantly expand our operations, which could put significant strain on our management and our operational and financial resources. To manage future growth, we will need to hire, train, and manage additional employees. We may not be able to support, financially or otherwise, future growth, or hire, train, motivate, and manage the required personnel. Our failure to manage growth effectively could limit our ability to achieve our goals.
 
 Our success in managing our growth will depend in part on the ability of our executive officers to continue to implement and improve our operational, management, information and financial control systems and to expand, train and manage our employee base, and particularly to attract, expand, train, manage and retain a sales force to market our products on acceptable terms. Our inability to manage growth effectively could cause our operating costs to grow at a faster pace than we currently anticipate, and could have a material adverse effect on our business, financial condition, results of operations and prospects.
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RISK FACTORS RELATED TO MARKET OF OUR COMMON STOCK


The Company's officers and directors own or control 93.4% of issued shares of Common Stock, a controlling interest in the Company, and thus may influence certain actions requiring stockholder vote.
  Pursuant to the Agreement, former members of the Company’s board of directors resigned and five (5) persons designated by American and Delta were appointed as the new board of directors of the Company, which resulted in the change in control of the Company. Pursuant to the Schedule 14C Information Statement and the joint consent of the Company’s board of directors and holders of a majority of the Company’s presently issued and outstanding shares of Common Stock, all of the newly-appointed directors will continue in office at least until the next shareholder meeting is called by the current board of directors. If there is an annual meeting, as a consequence of the controlling interest of the Company's management, it has broad discretion regarding proposals submitted to a vote by shareholders. Accordingly, the Company's existing directors will continue to exert substantial control.
  Your Percentage Ownership of our Common Shares will be Diluted by Future Share Issuances
  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, 2009, we had 43,503,082 shares of common stock issued and 0 shares of preferred stock issued.  In February 2010, we issued 24,839,168 shares of common stock in connection with the reverse merger with Delta. 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.


In addition to the issuance of post-reverse shares to American and Delta’s noncontrolling shareholders, to the extent we issue new shares to fund acquisitions, to raise additional capital, to compensate employees and other persons your percentage ownership of our shares will be further diluted.




We Do Not Intend To Pay Future Cash Dividends.




We currently do not anticipate paying cash dividends on our Common Stock at any time in the near future. We may never pay cash dividends or distributions on our Common Stock. Any credit agreements which we may enter into with institutional lenders may restrict our ability to pay dividends. Whether we pay cash dividends in the future will be at the discretion of our board of directors and will be dependent upon our financial condition, results of operations, capital requirements and any other factors that the board of directors decides is relevant.




Our Common Stock is Illiquid And Should A Market For Our Securities Develop The Price Of Our Securities May Be Volatile.




Our Common Stock is currently subject to quotation on the Pinksheets and the trading market for our securities may likely remain illiquid. This means that as an investor you will likely have a difficult time selling our Common Stock at market. Furthermore, because of the small amount of shares that will represent the public float, and notwithstanding the Reverse Split of our shares, the market price of our Common Stock may experience significant volatility. Other factors that may contribute to volatility should a market for our Common Stock develop are, our quarterly results, announcements by us or our competitors regarding acquisitions or dispositions, loss of existing clients, new procedures or technology, litigation, changes in general conditions in the economy and general market conditions could cause the market price of the Common Stock to fluctuate substantially. In addition, the stock market has experienced significant price and volume fluctuations that have particularly affected the trading prices of equity securities of many companies. Frequently, these price and volume fluctuations have been unrelated to the operating performance of the affected companies.






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 10


Future Sales Of Our Common Stock May Depress Our Stock Price. 
 If our controlling stockholders sell substantial amounts of our Common Stock in the public market following this Reverse Merger or at any time in the future, the market price of our Common Stock could fall. Existing non-affiliate Shareholders, following the implementation of the Reverse Split, will beneficially hold approximately 4,556,483 shares of Common Stock of which approximately 2,856,483 shares are in the public float and are eligible to be sold free of any restrictions. All other shares are “restricted” as defined in Rule 144 under the Securities Act (“Rule 144”). Since the Company has previously been designated a shell company , the restricted shares issued during the Company’s status as shell Company must be held for one year from the date of this filing prior to being eligible to be sold pursuant to Rule 144. The Company can make no prediction as to the effect, if any, that sale of shares, or the availability of shares for future sale, will have on the market price of the shares prevailing from time to time. Sales of substantial amounts of shares in the public market, or the perception that such sales could occur, could depress prevailing market prices for the shares. Such sales may also make it more difficult for the Company to sell equity securities or equity-related securities in the future at a time and price which it deems appropriate.
 
 Broker-Dealers may be discouraged from effecting transactions in our Common Stock because they may be considered a “Penny Stock” and are subject to the applicable Penny Stock rules.
 
 Rules 15g-1 through 15g-9 promulgated under the Exchange Act impose sales practice and disclosure requirements on certain brokers-dealers who engage in certain transactions involving a “penny stock.” Subject to certain exceptions, a penny stock generally includes any non-NASDAQ equity security that has a market price of less than $5.00 per share. There is currently no established price quotation for our shares, however, we expect that initial quotations will not exceed $5.00 and there is the possibility that the quoted shares price may never exceed $5.00, and that our Common Stock will be deemed penny stock for the purposes of the Exchange Act. The additional sales practice and disclosure requirements imposed upon brokers-dealers may discourage broker-dealers from effecting transactions in our Common Stock, which could severely limit the market liquidity of the stock and impede the sale of our stock in the secondary market. Specifically, any broker-dealer selling penny stock to anyone other than an established customer or “accredited investor,” generally, an individual with net worth in excess of $1,000,000 or an annual income exceeding $200,000, or $300,000 together with his or her spouse, must make a special suitability determination for the purchaser and must receive the purchaser’s written consent to the transaction prior to sale, unless the broker-dealer or the transaction is otherwise exempt. In addition, the penny stock regulations require the broker-dealer to deliver, prior to any transaction involving a penny stock, a disclosure schedule prepared by the United States Securities and Exchange Commission relating to the penny stock market, unless the broker-dealer or the transaction is otherwise exempt. A broker-dealer is also required to disclose commissions payable to the broker-dealer and the registered representative and current quotations for the securities. Finally, a broker-dealer is required to send monthly statements disclosing recent price information with respect to the penny stock held in a customer’s account and information with respect to the limited market in penny stocks.


ITEM1B. UNRESOLVED STAFF COMMENTS








ITEM2. DESCRIPTION OF PROPERTIES




At December 31, 2010, Delta's facilities consist of 2,500 square feet of office space and 10,000 square feet of warehouse located in Houston, TX. These facilities were formerly leased by Delta and were acquired by Delta in 2005 from a third party for $850,000. In 2006, these facilities were acquired by American (51%) and Delta's executive officers and owners of the noncontrolling interest of Delta (49%). During the year ended December 31, 2010, American sold its 51% ownership in Delta's facilities to Southwest Gulf Coast Properties, Inc. ("SWGCP"). Subsequently, Wintech Partners, LLC ("Wintech"), a company owned by the former noncontrolling interest owners of Delta, acquired this 51% ownership from SWGCP and assumed the note payable. Wintech now owns 100% of Delta's facilities and is responsible for the associated $1,850,000 note payable. American and Wintech entered into a profit sharing agreement in October 2010, whereby American will receive 50% of any profit if the property is sold, based on the sales price for the property less any outstanding balance on the note payable. Delta continues to utilize these facilities and pays a lease to Wintech by paying the interest due on the note payable.





During 2004, Delta consolidated its Louisiana operations and offices into its Houston facilities to create operating efficiencies. Delta has retained a 5,000 square foot office and warehouse facility in Louisiana which is leased from a third party at an annual rental of $18,000.






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 11
 
 ITEM3. LEGAL PROCEEDINGS
 
 Delta's 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 Delta.
 
 ITEM4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
 
 During the year ended December 31, 2010, no matters were submitted to a vote of our security holders.
 
 PART II






ITEM5. 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.


Fiscal 2010


Fiscal 2009High


Low


High


LowFirst Quarter ended March 31


$
0.10


$
0.03


$
0.02


$
0.00Second Quarter ended June 30


$
0.65


$
0.01


$
0.00


$
0.00Third Quarter ended September 30


$
0.23


$
0.04


$
0.00


$
0.00Fourth Quarter ended December 31


$
0.15


$
0.03


$
0.05


$
0.00




As of December 31, 2010, our shares of common stock were held by approximately 232 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
  None.
  Sale of Unregistered Securities
  None.
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 12
 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 2010.


MaximumNumber of SharesTotal Number of


That May Yet BeShares Purchased


Purchased UnderTotal Number of


Average Price


as Part of Publicly


the Plans at thePeriod

Shares Purchased


Paid Per Share


Announced Plans


End of the PeriodOctober 1, 2010 to October 31, 2010


-


$
-



-



-November 1, 2010 to November 30, 2010


-



-



-



-December 1, 2010 to December 31, 2010


-



-



-



--


$
-



-



-




ITEM6. SELECTED FINANCIAL DATA




Not required.




















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 13


ITEM7. 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





Delta, a Texas corporation, is a 48.1% owned subsidiary of American International Industries, Inc. ("American") (OTCBB: AMIN).
 
 On February 3, 2010, Hammonds and Delta Seaboard Well Service, Inc. ("Delta Seaboard"), a Texas corporation, completed a reverse merger ("Reverse Merger"). In connection with the reverse merger, Hammonds changed its name to Delta Seaboard International, Inc. and authorized a reverse stock split ("Reverse Split") applying a ratio of one for ten (1:10) to all shareholders of common stock on record on December 31, 2009. Following the effective date of the Reverse Split, Delta issued shares of common stock to the existing stockholders of Delta Seaboard as follows: (i) 22,186,572 post-Reverse Split shares in consideration for American’s 51% equity ownership of Delta Seaboard, and 10,000,000 post-Reverse Split shares in consideration for American converting $872,353 in principal and accrued interest of debt payable by Delta to American; (ii) a total of 21,316,510 shares to Robert W. Derrick, Jr., a newly appointed director of Delta as well as Delta Seaboard’s president and a director of American and Ron Burleigh, a newly-appointed director of Delta as well as Delta Seaboard’s vice president, in consideration for their 49% equity ownership of Delta Seaboard; and (iii) 9,607,843 post-Reverse Split shares in consideration for Messrs. Derrick and Burleigh 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 owns 32,859,935 shares of common stock, representing 48.1% of Delta's total outstanding shares and Messrs. Derrick and Burleigh, the owners of the noncontrolling interest in Delta Seaboard, own 30,925,832 shares of common stock, representing 45.2% of Delta's total outstanding shares. All other stockholders of Delta own 4,556,483 shares of common stock, representing 6.7% of Delta's total 68,342,250 outstanding shares. As part of the Reverse Merger, Delta assumed $709,551 in liabilities from Hammonds, including $615,000 in preferred dividends payable in shares of Delta's common stock.
 
 Delta Seaboard is a 100% owned subsidiary of Delta. Delta Seaboard is managed by Robert W. Derrick, Jr. and Ron Burleigh, who are Delta Seaboard's executive officers. Delta Seaboard was founded in 1958 in Houston, Texas. Delta Seaboard's well site services provide a broad range of products and services that are used by oil companies and independent oil and natural gas companies operating in South and East Texas, and the Gulf Coast market. Delta Seaboard's services include workover services, plugging and abandonment, and well completion and recompletion services.
  RESULTS OF OPERATIONS
  YEAR ENDED DECEMBER 31, 2010 VERSUS YEAR ENDED DECEMBER 31, 2009
  During the year ended December 31, 2010, Delta had revenues of $9,023,129, compared to $8,789,809 during the year ended December 31, 2009, representing an increase of $233,320, or 2.7%. Pipe sales for the year ended December 31, 2010 were $5,878,377 compared to $4,208,215 for the year ended December 31, 2009, representing an increase of $1,670,162, or 39.7%. Pipe sales increased primarily due to significantly increased drilling activities during 2010.  Additionally, the cost of steel products decreased, allowing Delta to be more competitive in the pipe market. More pipe was sold to end-users, affording Delta larger pipe orders with higher margins. Rig service revenues decreased for the year ended December 31, 2010 by $1,436,842, or 31.4%, to $3,144,752 compared to $4,581,594 for the year ended December 31, 2009. Rig service revenues have decreased due to major maintenance on two rigs during 2010.
  Operating expenses increased by $704,527 or 7.1%, to $10,676,449 for the year ended December 31, 2010, compared to operating expenses of $9,971,922 for the year ended December 31, 2009. Cost of sales for the year ended December 31, 2010 was $4,701,810, compared to $3,583,773 during the year ended December 31, 2009, an increase of $1,118,037, or 31.2%. The increase in cost of sales was due to the increase in pipe sales during the year ended December 31, 2010. General and administrative expenses were $5,974,639 for the year ended December 31, 2010, compared to $6,388,149 for the year ended December 31, 2009, representing a decrease of $413,510, or 6.5%. General and administrative expenses for 2010 include non-cash stock-based compensation of $858,750 primarily to the executive officers of Delta Seaboard in consideration for extending their employment agreements (as described in Note 1 to the consolidated financial statements). This was offset significantly by lower operating expenses associated with the decline in rig service revenues.
  Delta had an operating loss of $1,653,320 during the year ended December 31, 2010, compared to $1,182,113 during the year ended December 31, 2009, an increase of $421,207 from the prior period.





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 14


Other income during the year ended December 31, 2010 was $693,651, compared to other expenses of $93,042 during the year ended December 31, 2009, an increase in other income of $786,693 from the prior period. Other income increased for the year ended December 31, 2010 compared to the prior year, mainly due to the receipt of a $700,000 cash settlement for its claims in an insurance lawsuit (as described in greater detail in Note 9 to the consolidated financial statements) and $76,710 for a bankruptcy settlement with one of Delta's customers.


Delta had a net loss of $904,039 for ended year ended December 31, 2010, compared to $1,296,629 for the year ended December 31, 2009, an decrease in net loss of $392,590 from the prior period.





LIQUIDITY AND CAPITAL RESOURCES


Liquidity is our ability to generate sufficient cash flows from operating activities to meet the Company’s obligations and commitments, or obtain appropriate financing. Currently, our liquidity needs arise primarily from working capital requirements, debt service on indebtedness, and capital expenditures. We have funded these liquidity requirements from operations and net borrowings under lines of credit agreements of $288,620.
 
 Capital expenditures for the year ended December 31, 2010 were $166,883 compared to $171,207 for the year ended December 31, 2009. The Company has no major capital expenditure commitments for the next 12 months.
 
 We believe that our cash on hand, operating cashflows, and credit facilities will be sufficient to fund our operations, service our debt, and fund planned capital expenditures for at least 12 months from the date of this report.
 
 As of December 31, 2010, Delta had total assets of $6,112,938, consisting primarily of $4,474,610 in current assets and $1,588,303 in property and equipment. Delta had $1,547,434 in accounts receivable and $2,443,720 in inventories as of December 31, 2010, which were included in current assets.
 
 As of December 31, 2010, Delta had total liabilities of $4,042,858, of which $3,645,920 were current liabilities. As of December 31, 2010, Delta's current liabilities consisted of $1,598,897 in accounts payable and non-cash accrued stock dividends, $91,183 in short-term debt, and $1,955,840 in current installments of long-term debt. Long-term debt, less current installments was $396,938 at Decamber 31, 2010.
 
 Delta had working capital of $828,690 and total stockholders’ equity of $2,070,080 as of December 31, 2010. Working capital excluding non-cash accrued stock dividends of $795,000 was $1,623,690 as of December 31, 2010.
 
 Net cash provided by operating activities was $786,381 during the year ended December 31, 2010, which was derived from a net loss of $904,039 and offset primarily by non-cash expenses of $1,251,356, including stock-based compensation of $858,750 and depreciation of $392,606, a decrease in inventory of $337,626, and an increase in accounts payable of $155,072. Accounts receivable increased by $266,897 and prepaid expenses and other current assets decreased by $208,942. Net cash provided by operating activities was $656,024 during the year ended December 31, 2009, which was primarily derived from a net loss of $1,296,629, offset by depreciation and amortization expense of $454,094, a decrease in accounts receivable of $1,221,740, and a decrease in prepaid expenses and other current assets of $266,174.
  Net cash used in investing activities during the year ended December 31, 2010 was $417,896, compared to $58,083 during the year ended December 31, 2009. Net cash used in investing activities during the year ended December 31, 2010 was primarily for the purchase of property and equipment for $166,883 and a net investment in a certificate of deposit of $250,000. Net cash provided by investing activities during the year ended December 31, 2009 included proceeds from notes receivable of $114,009 offset by the purchase of property and equipment for $171,207.
 
 Net cash used in financing activities during the year ended December 31, 2010 was $370,899 due to principal payments on debt of $539,519 and repayment of loans from related parties of $120,000, offset by borrowings under lines of credit of $288,620. Net cash used in financing activities during the year ended December 31, 2009 was $595,140, primarily due to principal payments on debt of $705,941, offset by loans from related parties of $120,000.


Off-Balance Sheet Arrangements




As of December 31, 2010, 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.










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 15


New Accounting Pronouncements
 There were various 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.
 
 Contractual Obligations and Commitments
 
 None.
 
 Critical Accounting Estimates
 
 Our significant accounting policies are described in Note 1 to our financial statements for the year ended December 31, 2010.





ITEM7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK




Not applicable.









































































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 16




ITEM8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA




Management’s Annual Report on Internal Control Over Financial Reporting
18Report of Independent Registered Public Accounting Firm
19Financial Statements:Consolidated Balance Sheets - December 31, 2010 and 2009
20Consolidated Statements of Operations - Years Ended December 31, 2010 and 2009
21Consolidated Statements of Changes in Stockholders' Equity - Years Ended December 31, 2010 and 2009
22Consolidated Statements of Cash Flows - Years Ended December 31, 2010 and 2009
23Notes to Consolidated Financial Statements
24






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 17


MANAGEMENT’SANNUAL 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, 2010, in connection with the audit of the Company's financial statements. In making this assessment, we used the criteria established in Internal Control — Integrated Frameworkissued 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, 2010.


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 18


REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




To the Shareholders
 Delta Seaboard International, Inc.
 Kemah, Texas
 
 We have audited the accompanying balance sheets of Delta Seaboard International, Inc. as of December 31, 2010 and 2009 and the related statements of operations, changes in stockholders’ equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
 
 We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits 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 audits 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 financial statements referred to above present fairly, in all material respects the financial position of Delta Seaboard International, Inc. as of December 31, 2010 and 2009, and the results of its operations and its cash flows for the years 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
 March 31, 2011


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 19




DELTA SEABOARD INTERNATIONAL, INC.

(Formerly HAMMONDS INDUSTRIES, INC.)Consolidated Balance Sheets December 31, 2010


December 31, 2009AssetsCurrent assets:Cash and cash equivalents

$
24,672


$
27,086Certificate of deposit


250,000



-Trading securities


6,772



10,080Accounts receivable, less allowance for doubtful accountsof $55,087 and $208,130, respectively


1,547,434



1,280,537Inventories


2,443,720



2,781,346Prepaid expenses and other current assets


202,012



160,201Total current assets


4,474,610



4,259,250Property and equipment, net of accumulated depreciation and amortization


1,588,303



1,814,026Other assets


50,025



50,025Total assets

$
6,112,938


$
6,123,301Liabilities and Stockholders' EquityCurrent liabilities:Accounts payable and accrued expenses

$
803,897


$
606,694Dividends payable


795,000



-Short-term notes payable


91,183



103,219Advances from officers


-



120,000Current installments of long-term debt


1,955,840



1,639,807Total current liabilities


3,645,920



2,469,720Long-term debt, less current installments


396,938



701,081Total liabilities


4,042,858



3,170,801Commitments and contingencies


-



-Stockholders' equity:Preferred stock, $0.0001 par value, authorized 5,000,000 shares;3,769,626 and 0 shares issued and outstanding, respectively


377



-Common stock, $0.0001 par value, authorized 195,000,000 shares;68,342,250 and 43,503,082 shares issued and outstanding, respectively


6,834



4,350Additional paid-in capital


4,150,193



3,891,435Accumulated deficit


(2,087,324
)


(943,285
)Total stockholders' equity


2,070,080



2,952,500Total liabilities and stockholders' equity

$
6,112,938


$
6,123,301The accompanying notes are an integral part of these consolidated financial statements.




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 20


DELTA SEABOARD INTERNATIONAL, INC.

(Formerly HAMMONDS INDUSTRIES, INC.)Consolidated Statements of Operations Year ended December 31,2010


2009Revenues

$
9,023,129


$
8,789,809Costs and expenses:Cost of sales


4,701,810



3,583,773Selling, general and administrative


5,974,639



6,388,149Total operating expenses


10,676,449



9,971,922Operating loss


(1,653,320
)


(1,182,113
)Other income (expenses):Interest and dividend income


7,126



2,878Lawsuit settlement


700,000



-Bankruptcy settlement


76,710



-Unrealized gains (losses) on trading securities


(4,321
)


7,612Gain on the sale of assets


3,500



-Interest expense


(146,452
)


(132,883
)Other income


57,088



29,351Total other income (expense)


693,651



(93,042
)Loss before income tax


(959,669
)


(1,275,155
)Income tax expense (benefit)


(55,630
)


21,474Net loss

$
(904,039
)

$
(1,296,629
)Preferred dividends:Regular dividends


(240,000
)


-Net loss applicable to common shareholders

$
(1,144,039
)

$
(1,296,629
)Net loss per common share - basic and diluted

$
(0.02
)

$
(0.03
)Weighted average common shares - basic and diluted


65,997,780



43,503,082The accompanying notes are an integral part of these consolidated financial statements.










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 21


DELTA SEABOARD INTERNATIONAL, INC.

(Formerly HAMMONDS INDUSTRIES, INC.)Consolidated Statement of Changes in Stockholders’ EquityYears Ended December 31, 2010 and 2009


Preferred Stock

Common StockShares


Amount


Shares


Amount


Additional

Paid-in Capital


Accumulated

Earnings (Deficit)


Total

Stockholders’ EquityBalance, December 31, 2008


-


$
-



43,503,082


$
4,350


$
3,891,435


$
353,344


$
4,249,129Net loss


-



-



-



-



-



(1,296,629
)


(1,296,629
)Balance, December 31, 2009


-



-



43,503,082



4,350



3,891,435



(943,285
)


2,952,500Reverse merger with Hammonds


3,769,626



377



5,031,325



503



(1,512,494
)


-



(1,511,614
)Issuance of common stock for payment of debt


-



-



10,000,000



1,000



871,352



-



872,352Issuance of common stock for services


-



-



9,807,843



981



857,769



-



858,750Forgiveness of accounts payable


-



-



-



-



42,131







42,131Regular preferred dividends


-



-



-



-



-



(240,000
)


(240,000
)Net loss


-



-



-



-



-



(904,039
)


(904,039
)Balance, December 31, 2010


3,769,626


$
377



68,342,250


$
6,834


$
4,150,193


$
(2,087,324
)

$
2,070,080


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


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 22


DELTA SEABOARD INTERNATIONAL, INC.

(Formerly HAMMONDS INDUSTRIES, INC.)Consolidated Statements of Cash FlowsYear Ended December 31,2010

2009Cash flows from operating activities:Net loss

$
(904,039
)
$
(1,296,629
)Adjustments to reconcile net loss to net cash provided by operating activities:Depreciation


392,606


454,094Share-based compensation


858,750


-Unrealized (gains) losses on trading securities


4,321


(7,612
)Change in operating assets and liabilities:Accounts receivable


(266,897
)

1,221,740Inventories and deposits for pipe inventory purchases


337,626


28,648Prepaid expenses and other current assets


208,942


266,174Other assets


-


30,000Accounts payable and accrued expenses


155,072


(40,391
)Net cash provided by operating activities


786,381


656,024Cash flows from investing activities:Purchase of trading securities


(1,013
)

(885
)Purchase of property and equipment


(166,883
)

(171,207
)Redemption of certificate of deposit


250,000


-Investment in certificate of deposit


(500,000
)

-Proceeds from notes receivable


-


114,009Net cash used in investing activities


(417,896
)

(58,083
)Cash flows from financing activities:Advances received (repaid) from / to officer


(120,000
)

120,000Net borrowings (repayments) under lines of credit agreements and short-term notes


288,620


(9,199
)Principal payments on debt


(539,519
)

(705,941
)Net cash used in financing activities


(370,899
)

(595,140
)Net increase (decrease) in cash and cash equivalents


(2,414
)

2,801Cash and cash equivalents at beginning of period


27,086


24,285Cash and cash equivalents at end of period

$
24,672

$
27,086Supplemental schedule of cash flow information:Interest paid

$
146,452

$
132,883Taxes paid

$
-

$
-Non-cash investing and financing transactions:Issuance of common stock to convert promissory note due to American International Industries, Inc.

$
872,352

$
-Forgiveness of accounts payable to shareholder as contribution of capital

$
42,131

$
-Accounts payable and dividends payable assumed in reverse merger transaction

$
709,551

$
-Short-term debt assumed in reverse merger transaction

$
802,063

$
-Dividends declared and unpaid

$
240,000

$
-Finance of prepaid insurance

$
250,753

$
283,851Receipt of pipe inventory for prepaid deposits

$
-

$
1,336,244TERP assets placed in service

$
-

$
171,793The accompanying notes are an integral part of these consolidated financial statements.
 
 Back to Table of Contents
 
 DELTA SEABOARD INTERNATIONAL, INC.


(Formerly HAMMONDS INDUSTRIES, INC.)
 Notesto Consolidated Financial Statements




Note 1 - Summary of Significant Accounting Policies




Organization, Ownership and Business


Delta Seaboard International, Inc., formerly Hammonds Industries, Inc., a Texas corporation, is a 48.1% owned subsidiary of American International Industries, Inc. ("American") (OTCBB: AMIN).
 On February 3, 2010, Hammonds and Delta Seaboard Well Service, Inc. ("Delta Seaboard"), a Texas corporation, completed a reverse merger ("Reverse Merger").  In connection with the reverse merger, Hammonds changed its name to Delta Seaboard International, Inc. and authorized a reverse stock split ("Reverse Split") applying a ratio of one for ten (1:10) to all shareholders of common stock on record on December 31, 2009.  Following the effective date of the Reverse Split, Delta issued shares of common stock to the existing stockholders of Delta Seaboard as follows: (i) 22,186,572 post-Reverse Split shares in consideration for American’s 51% equity ownership of Delta Seaboard, and 10,000,000 post-Reverse Split shares in consideration for American converting $872,353 in principal and accrued interest of debt payable by Delta to American; (ii) a total of 21,316,510 shares to Robert W. Derrick, Jr., a newly appointed director of Delta as well as Delta Seaboard’s president and a director of American and Ron Burleigh, a newly-appointed director of Delta as well as Delta Seaboard’s vice president, in consideration for their 49% equity ownership of Delta Seaboard; and (iii) 9,607,843 post-Reverse Split shares in consideration for Messrs. Derrick and Burleigh 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 owns 32,859,935 shares of common stock, representing 48.1% of Delta's total outstanding shares and Messrs. Derrick and Burleigh, the owners of the noncontrolling interest in Delta Seaboard, own 30,925,832 shares of common stock, representing 45.2% of Delta's total outstanding shares. All other stockholders of Delta own 4,556,483 shares of common stock, representing 6.7% of Delta's total 68,342,250 outstanding shares. As part of the Reverse Merger, Delta assumed $709,551 in liabilities from Hammonds, including $615,000 in preferred dividends payable in shares of Delta's common stock.
 Delta Seaboard is a 100% owned subsidiary of Delta.  Delta Seaboard is managed by Robert W. Derrick, Jr. and Ron Burleigh, who are Delta Seaboard's executive officers.  Delta Seaboard was founded in 1958 in Houston, Texas.  Delta Seaboard's well site services provide a broad range of products and services that are used by oil companies and independent oil and natural gas companies operating in South and East Texas, and the Gulf Coast market. Delta Seaboard's services include workover services, plugging and abandonment, and well completion and recompletion services.
 
 Principals of Consolidation
 The consolidated financial statements include the accounts of Delta Seaboard International, Inc. (“Delta”) and its wholly-owned subsidiary, Delta Seaboard Well Service, Inc. All significant intercompany transactions and balances have been eliminated in consolidation.
 
 Certain reclassifications have also 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
 
 Delta considers cash and cash-equivalents to include cash on hand and certificates of deposits with banks with an original maturity of three months or less, that Delta intends to convert.
  Back to Table of Contents
 24
 Accounts Receivable and Allowance for Doubtful Accounts


Accounts receivable consist primarily of trade receivables, net of a valuation allowance for doubtful accounts. Delta's ability to collect outstanding receivables from our customers is critical to our operating performance and cash flows. Accounts receivable are stated at an amount management expects to collect from outstanding balances.Delta extends credit to customers and other parties in the normal course of business. Delta regularly reviews outstanding receivables and provides for estimated losses through an allowance for doubtful accounts. In evaluating the level of established reserves, Delta 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 Delta determines that a customer may not be able to make required payments, Delta increases the allowance through a charge to income in the period in which that determination is made. Though Delta's bad debts have not historically been significant, we could experience increased bad debt expense should a major customer or market segment experience a financial downturn or our estimate of uncollectible accounts, which is based on our historical experience, prove to be inaccurate.
  Inventories
  Inventories are valued at the lower-of-cost or market on a first-in, first-out basis. Delta assesses the realizability of its inventories based upon specific usage and future utility. Delta regularly evaluates their inventory and maintain a reserve for excess or obsolete inventory. Generally, Delta records an impairment allowance for products with no movement in over twelve months that they believe to be either unsalable or salable only at a reduced selling price. Management further uses their judgment in evaluating the recoverability of all inventory based upon known and expected market conditions.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
  Delta expenses all freight and shipment expenses as incurred.
 
 Investment Securities
  Management determines the appropriate classification of its investments in marketable securities at the time of purchase and reevaluates such determination at each balance sheet date. Securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities. Debt securities for which Delta does not have the intent or ability to hold to maturity and equity securities not classified as trading securities are classified as available-for-sale. The cost of investments sold is determined on the specific identification or the first-in, first-out method. Trading securities are reported at fair value with unrealized gains and losses recognized in earnings, and available-for-sale securities are also reported at fair value but unrealized gains and losses are shown in the caption "unrealized gains (losses) on shares available-for-sale" included in stockholders' equity. Management determines fair value of its investments based on quoted market prices at each balance sheet date.
  Property 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 resultant gain or loss being recognized as a component of other income or expense.
  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. Delta receives purchase orders for all of its service work and related pipe sales. All sales are recorded when the work is completed or when the pipe is sold.  Taxes assessed by a governmental authority that are incurred as a result of a revenue transaction are not included in revenues. Delta has no significant sales returns or allowances.
  Income Taxes
  Delta 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.
 Back to Table of Contents
 25


Delta evaluates the tax benefits from uncertain positions and determines if it is "more likely than not" that the position is sustainable, based upon its technical merits. The tax benefit of a qualifying position is the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement with a taxing authority having full knowledge of all relevant information. As of December 31, 2010, Delta had not recorded any tax benefits from uncertain tax positions.
 Advertising Costs
  The cost of advertising is expensed as incurred.
  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.
  Fair Value of Financial Instruments
 Delta utilizes the fair value that establishes 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:
 
 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 Delta's 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.
 
 Delta believes that the fair value of its financial instruments comprising cash, accounts receivable, notes receivable, accounts payable, and notes payable approximate their carrying amounts.  The interest rates payable by Delta on its notes payable approximate market rates.  The fair values of Delta's Level 1 financial assets, trading securities that primarily include shares of common stock in various companies, are based on quoted market prices of the identical underlying security.  As of December 31, 2010, Delta did not have any significant Level 2 or 3 financial assets or liabilities.  The following table provides fair value measurement information for Delta's trading securities:
  As of December 31, 2010Fair Value Measurements Using:Carrying

Amount


Total

Fair Value


Quoted Prices

in Active Markets

(Level 1)


Significant Other

Observable Inputs

(Level 2)


Significant

Unobservable Inputs

(Level 3)Financial Assets:Trading Securities

$
6,772


$
6,772


$
6,772


$
-


$
-
 Subsequent Events
  Delta has evaluated all subsequent events from December 31, 2010 through the issuance date of the consolidated financial statements.
  New Accounting Pronouncements
 There were various 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.


Back to Table of Contents
 26


Note 2 - Inventories
 Inventories consisted of the following:
 December 31, 2010


December 31, 2009Finished goods

$
2,443,720


$
2,781,346Less reserve


-



-$
2,443,720


$
2,781,346
   Note 3 - Property and Equipment
  Major classes of property and equipment together with their estimated useful lives, consisted of the following:
  Years

December 31, 2010


December 31, 2009Building and improvements
20

$
44,558


$
44,558Machinery and equipment
7-15


3,336,247



3,171,901Office equipment and furniture
7


137,696



135,160Automobiles
5


724,013



745,7124,242,514



4,097,331Less accumulated depreciation



(2,654,211
)


(2,283,305
)Net property and equipment


$
1,588,303


$
1,814,026
  Depreciation expense for the years ended December 31, 2010 and 2009 was $392,606 and $454,094, respectively.
  Note 4 - Short-term Notes Payable
 December 31, 2010


December 31, 2009Insurance note payable with interest at 4.99%, principal and interest due in monthly payments of $22,796 through May 1, 2011

$
91,183


$
103,219$
91,183


$
103,219
  Note 5 - Advances from Officer
  Delta periodically receives advances from an officer to fund operating expenses. These advances are non-interest bearing and are due on demand. At December 31, 2010 and 2009, the balance due on the advances was $0 and $120,000, respectively.
 
 Note 6 - Long-term Debt
  Long-term debt consisted of the following:
 December 31, 2010


December 31, 2009Note payable to a bank, which allows Delta to borrow up to $2,000,000, due in monthly payments of interest only, with interest at prime floating rate, with the principal balance due in April 2011, secured by assets of Delta

$
1,658,527


$
1,369,907Note payable due in monthly payments of $19,373, including interest at 6%, through March 2013, secured by assets of Delta


571,013



761,982Note payable to a bank, due in monthly payments of $6,120, including interest at 8.25%, through August 9, 2012, secured by assets of Delta


108,442



174,990Other secured notes with various terms


14,796



34,0092,352,778



2,340,888Less current portion


(1,955,840
)


(1,639,807
)$
396,938


$
701,081


Principal repayment provisions of long-term debt are as follows at December 31, 2010:
 2011
$
1,955,8402012

264,6342013

132,304Total
$
2,352,778
  Back to Table of Contents
 27
 Note 7 - Concentration of Credit Risk
  Trade accounts receivable subject Delta to the potential for credit risk with customers in the retail and distribution sectors. To reduce credit risk, Delta performs ongoing evaluations of its customers' financial condition but generally does not require collateral. As of and during the year ended December 31 2010, Delta had one customer that accounted for 18% of revenues, one customer that accounted for 19% of trade accounts receivable, one customer that accounted for 14% of trade accounts receivable, and one customer that accounted for 10% of trade accounts receivable.
  Note 8 - Income Taxes
  The components of the income tax provision (benefit) for the years ended December 31, 2010 and 2009 are as follows:
  2010

2009Current:Federal

$
(72,479
)
$
-State


16,849


21,474Total current


(55,630
)

21,474Deferred:Federal


-


-State


-


-Total deferred


-


-Total income tax provision (benefit)

$
(55,630
)
$
21,474
  The following table sets forth a reconciliation of the statutory federal income tax for the years ended December 31, 2010 and 2009:
 
 2010



2009Income tax expense (benefit) computed at statutory rate

$
(326,287
)

$
(433,553
)Share-based compensation


291,975



-Meals and entertainment


14,074



5,395Other


162



123Change in valuation allowance


20,076



428,035Refund for taxes


(72,479
)


-Texas Margin Tax


16,849



21,474$
(55,630
)

$
21,474
 
 The tax effects of the temporary differences between financial statement income and taxable income are recognized as a deferred tax asset and liabilities. Significant components of the deferred tax asset and liability as of December 31, 2010 and 2009 are set out below:
  2010

2009Deferred Tax Assets:Net operating loss carryforward

$
478,916

$
458,840Book depreciation in excess of tax


25,830


56,430Other


4,832


2,957Total deferred tax assets


509,578


518,227Deferred Tax Liabilities:Unrealized gains on trading securities


-


(2,588
)Total deferred tax liabilities





(2,588
)Valuation allowance


(509,578
)

(515,639
)Net deferred tax asset

$
-

$
-
 Back to Table of Contents
 28
 Delta has loss carryforwards totaling $1,408,576 available at December 31, 2010 that may be offset against future taxable income.  If not used, the carryforwards will expire as follows:
 Operating LossesAmount

Expires$
1,349,528

202959,048

2030$
1,408,576
 
 Note 9 - Commitments and Contingencies
 Delta’s president and vice president entered into employment agreements that provide for an annual base salary of $150,000 each, however, for the years ended December 31, 2009 and 2010, they agreed to an annual salary reduction to $110,000 due to the decline in the economy and reduced revenues.
  On July 23, 2008, Delta Seaboard Well Service, Inc., our wholly-owned subsidiary negotiated a settlement in the Fort Apache Energy, Inc. v. Delta Seaboard Well Service, Inc. lawsuit for $1,450,000. Delta partially recovered this loss through insurance as described below.
 Delta Seaboard Well Service, Inc. v. Houstoun, Woodard, Eason, Gentle Tomforde and Anderson, Inc., D/B/A Insurance Alliance and Robert Holman (“Broker Lawsuit”). On February 19, 2010, Delta settled its claims in the Broker Lawsuit and received $700,000, which is included in other income for the year ended December 31, 2010.
  Delta is the recipient of a Texas Emissions Reduction Plan ("TERP") grant from the Texas Commission on Environmental Quality in the amount of $1,157,273, of which $781,728 has been recognized through December 31, 2008.  For the year ended December 31, 2010, no TERP grant revenue has been recognized.  TERP is a comprehensive set of incentive programs aimed at improving air quality in Texas. Through this grant, Delta’s rig engines are being replaced with engines certified to emit 25% less nitrogen oxide (“NOx”) than required under the current federal standard for the horsepower of the engines. The old engines must be destroyed or rendered permanently inoperable.  TERP grant recipients are required to monitor and track the total NOx emission reductions and cost-effectiveness. The grant contract includes provisions for the return of a prorated share of the grant if the NOx emission reductions originally projected are not achieved. Delta has not recorded any liabilities in connection with this matter because management has determined that return of any grant receipts is not likely.  Based on the advice of the State of Texas authorities who administer the grant, the taxability of this grant has not been determined and the advice of the Internal Revenue Service has been inconsistent.  Delta is still determining the effect this will have, but believes it will not materially affect Delta because of the tax loss carryforwards explained in Note 8.
 Delta pays a lease to Wintech by paying the interest due on the note payable. Delta has a 5,000 square foot office and warehouse facility in Louisiana which is leased from a third party at an annual rental of $18,000.
 Future minimum lease payments are as follows:
 AmountYear December 31, 2011

$
55,500
 Note 10 - Equity


On February 3, 2010, Hammonds and Delta Seaboard,  a Texas corporation, completed a reverse merger.  In connection with the reverse merger, Hammonds changed its name to Delta Seaboard International, Inc.  Following the effective date of the Reverse Split (as defined in Note 1), Delta issued shares of common stock to the existing stockholders of Delta Seaboard as follows: (i) 22,186,572 post-Reverse Split shares in consideration for American’s 51% equity ownership of Delta Seaboard, and 10,000,000 post-Reverse Split shares in consideration for American converting $872,353 in principal and accrued interest of debt payable by Delta to American; (ii) a total of 21,316,510 shares to Robert W. Derrick, Jr., a newly appointed director of Delta as well as Delta Seaboard’s president and a director of American and Ron Burleigh, a newly-appointed director of Delta as well as Delta Seaboard’s vice president, in consideration for their 49% equity ownership of Delta Seaboard; and (iii) 9,607,843 post-Reverse Split shares in consideration for Messrs. Derrick and Burleigh extending their employment agreements for five years in addition to the balance of their current employment agreements. Stock-based compensation of $847,750 was recorded as a result of the 9,607,843 shares issued to Messrs. Derrick and Burleigh. Following the Reverse Split and Reverse Merger, American owns 32,859,935 shares of common stock, representing 48.1% of Delta's total outstanding shares and Messrs. Derrick and Burleigh, the owners of the noncontrolling interest in Delta Seaboard, own 30,925,832 shares of common stock, representing 45.2% of Delta's total outstanding shares. All other stockholders of Delta own 4,556,483 shares of common stock, representing 6.7% of Delta's total 68,342,250 outstanding shares.
 Back to Table of Contents
 29
 As part of the Reverse Merger, Delta assumed $709,552 in liabilities from Hammonds, including $615,000 in preferred dividends payable in shares of Delta's common stock.  Additionally, during the year ended December 31, 2010, a payable to American was forgiven and recorded as contributed capital in the amount of $42,131 for legal and audit fees incurred on behalf of Delta during the year ended December 31, 2009.
  During the year ended December 31, 2010, Delta issued 200,000 restricted shares of common stock as stock-based compensation at a cost of $11,000.  John W. Stump III and Richard C. Richardson, two former officers of Hammonds, each received 100,000 restricted shares of common stock in connection with a settlement and release agreement.
      Note 11 - Subsequent Events
  issued 2,550,000 restricted shares of common stock for services valued at $127,500.
     ITEM9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
 None.
 
 ITEM9T. 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 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, 2010, 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, 2010.
 
 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, 2010 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 rules of the Securities and Exchange Commission that permit the Company to provide a management report in the Annual Report.
 
 
 Back to Table of Contents
 30
 ITEM9B. OTHER INFORMATION


None.
 PART III






ITEM10. DIRECTORS AND EXECUTIVE OFFICERSAND 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
PositionsDaniel Dror
70
Chairman and CEORobert W. Derrick, Jr.
50
Director and PresidentSherry L. McKinzey
50
Director, VP and CFORon Burleigh
58
Director and VPSteven M. Plumb
51
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 International 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. McKinzey 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.




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, 2010.






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 31
 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). 
 ITEM11. 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, 2010 and 2009:
 
 Summary Compensation TableLong TermAnnual Compensation
Compensation AwardsOther

SecuritiesAnnual
Stock
Underlying
TotalSalary
Bonus
Compensation
Award(s)
Options
CompensationName and Principal Position

Year
($)
($)
($)
($) (1)
($)
($)Daniel Dror,

2009
-
-
-
-
-
-Chairman and CEO

2010
-
-
-
-
-
-Sherry McKinzey,

2009
-
-
-
-
-
-Director, VP and CFO

2010
-
$2,500
-
-
-
$2,500Robert W. Derrick, Jr.,

2009
$145,625
$25,000
$3,000 (2)


$173,625Director and President

2010
$125,417
-
-
$423,875
-
$549,292Ron Burleigh,

2009
$111,638
$25,000
$29,717 (3)


$173,625Director and VP

2010
$92,022
-
$33,395 (4)
$423,875
-
$549,292
 
 (1)

(2)

(3)

(4)
See "Stock-Based Compensation" in note 1 to the financial statements for valuation assumptions.

Represents payments for 401-K matching for Mr. Derrick.

Represents payments for personal insurance premiums for Mr. Burleigh in the amount of $37,208 and payment for 401-K matching in the amount of $4,829.

Represents payments for personal insurance premiums for Mr. Burleigh.
 
 
 
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 32
 Grants of Plan-Based Awards
 
 None.
 
 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, 2010.
 
 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 McKinzey, 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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 33
 ITEM12. 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, 2010. 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.

32,859,935
48.1%601 Cien Street, Suite 235Kemah, TX 77565Robert W. Derrick Jr., Director and President

15,463,656
22.6%1212 West Sam Houston Parkway NorthHouston, TX 77043Ron Burleigh, Director and Vice President

15,462,176
22.6%1212 West Sam Houston Parkway NorthHouston, TX 77043Sherry Couturier, Director, VP and CFO

38,579
0.1%601 Cien Street, Suite 235Kemah, TX 77565Directors and Officers (3 persons) (2)

63,824,346
93.4%
 
 (1) Applicable percentage ownership is based on 68,342,250 shares of common stock outstanding as of December 31, 2010. 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, 2010 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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 34
 ITEM13. 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.
 ITEM14. 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 financial statements for the years ended December 31, 2010 and 2009.
 
 Principal Accounting Fees
 
 The following table presents the fees for professional audit services rendered by GBH CPAs, PC for the audit of the Registrant's annual financial statements for the years ended December 31, 2010 and 2009, and fees billed for other services rendered by GBH CPAs, PC during those years. All of the services described below were approved by the Board of Directors.
 
 Year EndedDecember 31,  2010

December 31,  2009Audit fees (1)

$
57,500

$
52,000Audit-related fees (2)

$
-

$
-Tax fees (3)

$
12,000

$
3,800All other fees

$
-

$
-(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
 
 (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.
Description3(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, 2004.31.1
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.
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 35
 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.
 
 Delta Seaboard International, Inc. 
 
 By /s/ Daniel Dror
 Daniel Dror
 Chief Executive Officer, President, and Chairman
 March 31, 2011
 
 By /s/ Sherry L. McKinzey
 Sherry L. McKinzey
 Director, Chief Financial Officer, and Vice-PresidentMarch 31, 2011
 
 By /s/ Robert W. Derrick, Jr.
 Robert W. Derrick, Jr.
 Director and President of Delta Seaboard Well Service, Inc.
 March 31, 2011
 
 By /s/ Ron Burleigh
 Ron Burleigh
 Director and Vice President
 March 31, 2011
 
 By /s/ Steven M. Plumb
 Steven M. Plumb
 Director
 March 31, 2011