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**UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549**___________________**FORM 10-QSB**_______________________

**ý                                QUARTERLY REPORT PURSUANTTO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

For the quarterly period endedMarch 31, 2007

 

** ̈                                TRANSITION REPORTPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

  

For the transition period from               to     

  

Commission file number 0-50912

  **HAMMONDS INDUSTRIES, INC.**(Exact Name Of RegistrantAs Specified In Its Charter)
| Nevada                                      | 88-0225318                              |
|---------------------------------------------|-----------------------------------------|
| (State of Incorporation)                    | (I.R.S. Employer    Identification No.) |
|                                   |                               |
| 601    Cien Street, Suite 235, Kemah, TX    | 77565-3077                              |
| (Address of Principal    Executive Offices) | (ZIP Code)                              |

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

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or forsuch shorter period that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days. Yes x No ** ̈**Indicateby check mark whether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act). Yes  ̈ No x

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer.
| Large accelerated    filer  ̈ | Accelerated filer  ̈  | Non-accelerated    filer x |
|----------------------------------|-------------------------------|--------------------------------|

At March 31, 2007,the Registrant had 40,105,400 shares of common stock outstanding.

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**TABLE OF CONTENTS**
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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        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| **PART I - FINANCIAL INFORMATION** |
|                               |
| ITEM    1.                         |      |   FINANCIAL    STATEMENTS.
        3  
ITEM    2.
    
  MANAGEMENT'S    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATION.
        3   
ITEM    3.
    
     CONTROLS AND PROCEDURES.
        4     
**PART II - OTHER INFORMATION**
  
ITEM 1.
    
  LEGAL    PROCEEDINGS.
        4  
ITEM 2.
    
  CHANGES IN    SECURITIES.
        4   
ITEM 3.
    
  DEFAULT UPON SENIOR SECURITIES.
        5   
ITEM 4.
    
  SUBMISSION OF    MATERS TO A VOTE OF SECURITY HOLDERS.
        5   
ITEM 5.
    
  OTHER    INFORMATION.
        5   ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.5
 
****
**PART I - FINANCIAL INFORMATION**

ITEM 1. FINANCIALSTATEMENTSBack to Table of Contents
The Registrant's financial statements for the three-month periods endedMarch 31, 2007 and 2006 are attached to this quarterly report.

Financial Statements

ITEM2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATION Back toTable of Contents
As used in this Quarterly Report, the terms *"we","us", "our" and the "Company"* means Hammonds Industries,Inc., formerly International American Technologies, Inc., a Nevada corporation, and itssubsidiaries, Hammonds Technical Services, Inc., Hammonds Fuel Services, Inc. and HammondsWater Treatment Systems, Inc. (collectively, "Hammonds"). To the extent that wemake any forward-looking statements in the *"Management's Discussion and Analysisof Financial Condition and Results of Operations"* in this Quarterly Report, weemphasize that forward-looking statements involve risks and uncertainties and our actualresults may differ materially from those expressed or implied by our forward-lookingstatements. Our forward-looking statements in this Quarterly Report reflect our currentviews about future events and are based on assumptions and are subject to risks anduncertainties. Generally, forward-looking statements include phrases with words such as *"expect","anticipate", "intend", "plan", "believe","seek", "estimate"* and similar expressions to identifyforward-looking statements.

Organization, Principal Activities and Basis of Presentation

Hammonds Industries, Inc., formerly International AmericanTechnologies, Inc., a Nevada corporation, is publicly traded under the symbol"HMDI" on the NASD Bulletin Board, an NASD-sponsored and operated inter-dealerautomated quotation system for equity securities not included on The NASDAQ Stock Market.The Company was incorporated on August 18, 1986 and is a 40.7% owned subsidiary of itsparent, American International Industries, Inc., also publicly traded under the symbol"AMIN" on the NASD Bulletin Board. the Company is consolidated with its parent,American International Industries, because its parent exercises the right to elect two ofthe three board of directors and because the parent controls the Company’s financing.

On February 28, 2005, the Company acquired 51% of the capital stock ofHammonds Technical Services, Inc., a privately-owned Texas corporation, in considerationfor the Company or its parent, American International Industries, Inc., providing: (i)$998,300 in cash to Hammonds for working capital; (ii) a secured revolving long-term lineof credit in the amount of $2,000,000; and (iii) the Registrant's parent, AmericanInternational Industries, Inc., issuing 145,000 restricted shares of common stock to theRegistrant in consideration for a $1,450,000 promissory note. These restricted shares wereexchanged for two minority equity interests in Hammonds owned by third parties, whichminority interests were canceled. Pursuant to the Agreement, which closed on April 28,2005, Hammonds became a majority-owned subsidiary of the Registrant. In 2006, HammondsTechnical Services was separated into three separate entities, Hammonds TechnicalServices, Inc., Hammonds Fuel Additives, Inc., and Hammonds Water Treatment Systems, Inc.

On August 1, 2006, the Company acquired the 49% minority interest ofHammonds Technical Services, Inc., Hammonds Fuel Additives, Inc., and Hammonds WaterTreatment Systems, Inc. from Carl L. Hammonds, Hammonds founder and CEO, in considerationfor the issuance of 16,000,000 restricted shares of the Company’s common stock basedupon a value of $0.25 per share. The additional cost of $4,000,000 has been allocated topatents, trademarks, and Hammonds’ sole source contract for its additive injectionsystem and is being amortized in a manner equivalent to the amortization used on theintangible assets acquired in the initial purchase of 51% of Hammonds.

In August 2006, the Company entered into a Series A ConvertiblePreferred Stock Purchase Agreement with Vision Opportunity Fund Limited, an institutionalinvestor ("VOMF"), pursuant to which the Company sold to VOMF 833,333 shares ofa newly authorized series A convertible preferred stock ("Series A PreferredStock") for consideration of $1,500,000 or $1.80 per share, and issued 8,333,333Series A and Series B Warrants exercisable at $0.18 per share. In September 2006 theCompany sold to VOMF 833,333 shares of series B convertible preferred stock ("SeriesB Preferred Stock") for the same consideration and issued 8,333,333 Series C Warrantsexercisable at $0.50 per share. Each share of Series A and Series B Preferred Stock isconvertible into ten shares of the Company’s common stock. See "Liquidity andCapital Resources" below regarding VOMF’s exercise of Series C Warrants in March2007.

Revenues and expenses of Hammonds are included in the Company’sconsolidated statements of operations from May 1, 2005 through the period ended March 31,2007. The condensed consolidated balance sheets, statements of operations andcomprehensive income, and cash flow included herein are unaudited, except for thecondensed consolidated balance sheet as of December 31, 2006. The unaudited financialstatements include, in the opinion of management, all the adjustments, consisting only ofthe normal recurring adjustments, necessary for a fair presentation of the financialposition, results of operations and cash flows for the periods presented. The unauditedfinancial statements included herein have been prepared in accordance with the rules ofthe Securities and Exchange Commission for Form 10QSB and accordingly do not include allfootnote disclosures that would normally be included in financial statements prepared inaccordance with generally accepted accounting principles, although the Company believesthat the disclosures presented are adequate to make the information presented notmisleading.

The nature of the Company’s business is such that the results ofinterim periods are not necessarily indicative of results that may be expected for anyfuture interim period or for a full year.
**Results of Operations

Three Months Ended March 31, 2007 Compared to Three Months Ended March 31, 2006.

The following is derived from, and should be read in conjunction with,our unaudited condensed consolidated financial statements, and related notes, as of andfor the three months ended March 31, 2007 and 2006.
*Revenues. Hammonds revenues for the three months ended March 31,2007 were $1,619,399, compared to $1,325,169 for the three months ended March 31, 2006,representing an increase of $294,230. The increase in revenues was due to an increase inrevenues from Hammonds Water Treatment by $367,871, or 126%, as a result of increaseddemand for its water treatment products. In addition, during the three month period endedMarch 31, 2007, Hammonds projected backlog of orders has increased to approximately$8,000,000, representing a substantial increase from 2006.
*Cost of Sales.Cost of salesfor the three months ended March 31, 2007 was $1,465,241, compared to $1,041,113 for thesame period of the prior year. The increase was primarily associated with the increasedrevenues for Hammonds Water Treatment.
*Selling and Administrative. Selling and administrative expensesincreased to $864,719 for the three months ended March 31, 2007, from $653,303 for thethree months ended March 31, 2006. The increase was primarily due to increased sales andmarketing expenses associated Hammonds new line of omni direction utility vehicles (ODVs),the on-going sales and marketing efforts associated with all of its product lines, and theincrease in amortization costs of the patents and trademarks.
*Loss from Operations. Our loss from operations, excluding interestexpense and income, for the three month period ended March 31, 2007, was $710,561 comparedto a loss of $369,247 for the same period of the prior year. 
*Other Income (Expense). Other expense increased to $135,306 for thethree month period ended March 31, 2007, from $78,727 for the three month period endedMarch 31, 2006. The increase was primarily due to added interest expense due to theincrease in the size of working capital loans.
*Net Income (Loss). Net Loss increased to $845,867 for the threemonth period ended March 31, 2007, compared to a net loss of $447,974 for the three monthperiod ended March 31, 2006. The increase in net loss is primarily attributable to costsassociated with Hammonds’ introduction of its new line of ODVs.

Hammonds recently purchased $240,000 in capital equipment, including aCNC controlled plasma steel cutting system, a state-of-the-art painting facility, multiplematerial handling cranes throughout the production area, an automated production saw and anew mill for the machine shop. In addition to tools, Hammonds installed new compressed airsystems and expanded plant lighting and power distribution to support additional weldingand assembly stations. New production flow testing stands and hydrostatic test stationswill be installed by the end of May 2007 and, when operational, the new equipment willsignificantly increase production capability and efficiency. In addition, Hammonds isimplementing manufacturing and cost saving procedures in order to generate increasedrevenues with greater cost efficiencies.
**Liquidity and Capital Resources

At March 31, 2007 and December 31, 2006, we had total assets of$10,482,882 and $10,384,397, respectively. We had current liabilities at March 31, 2007and December 31, 2006 of $1,611,035 and $1,627,734, respectively. Our accumulated deficitat March 31, 2007 and December 31, 2006 was $4,714,022 and $3,823,155, respectively. Wehad positive working capital of $1,952,038 at March 31, 2007, compared to $1,754,559 atDecember 31, 2006. 

Net cash used in operations was $493,912 during the three months endedMarch 31, 2007, compared to $447,267 for the same period of the prior year. The cash usedwas derived primarily from the net loss of $845,867 and an increase in inventories of$272,344, offset by a decrease in accounts receivable of $271,574, an increase in accountspayable of $98,196, depreciation and amortization of $204,176, and an unrealized loss ontrading securities of $40,781. 

Net cash used in investing activities was $87,396 during the threemonth period ended March 31, 2007, compared to cash provided of $571,581 for the sameperiod of the prior year. The cash used was from an increase of $90,271 in amounts due toour parent, American International Industries, Inc., offset by purchases of an option tobuy American International Industries, Inc. stock for $100,000 as part of a lawsuitsettlement, property and equipment of $79,991, and patents and trademarks of $4,840. 

At March 31, 2007, we had net cash provided from financing activitiesof $755,884 compared to net cash used in financing activities of $149,906 at March 31,2006. The net cash provided by financing activities was mainly due to net proceeds fromissuance of 3,970,400 shares of common stock upon the exercise by VOMF of Series CWarrants at an exercise price of $0.18 per share resulting in gross proceeds of $714,672and net proceeds of $694,672, and proceeds from long-term borrowings of $243,247, offsetby payments on debt of $182,035.

We believe that the net proceeds from our August and September 2006private financing transactions, including the March 2007 exercise of Series C Warrants,together with anticipated positive cash flow from operations starting in mid-2007, fundingprovided under our bank line-of-credit and funding available from our parent, that we willhave adequate funding to execute our planned expansion of our manufacturing capacity andour sales and marketing efforts to meet our increasing orders in each of Hammonds' productlines. We believe that we have sufficient cash to implement our growth plan. The Companyplans to use funds, if any, generated from the exercise of Series A, C or C Warrants forour working capital.

ITEM 3. CONTROLS ANDPROCEDURESBack to Table of Contents*Evaluation of disclosure controls and procedures. As of March 31,2007, the Company's chief executive officer and chief financial officer conducted anevaluation 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 theevaluation of these controls and procedures, our chief executive officer and chieffinancial officer concluded that our disclosure controls and procedures were effective asof the end of the period covered by this report.
*Changes in internal controls. During the quarterly period covered by this report,no changes occurred in our internal control over financial reporting that materiallyaffected, or is reasonably likely to materially affect, our internal control overfinancial reporting.

**PART II - OTHER INFORMATION**

ITEM 1. LEGAL PROCEEDINGSBack toTable of Contents
During the first quarter of 2007, the Company settled two lawsuits withtwo former minority shareholders of Hammonds as follows: (i) the payment of $300,000 toone shareholder in payment of $200,000 principal and interest on a note payable and$100,000 for an option to purchase from such person a total of 104,398 shares of commonstock of American International Industries, the parent, at $5.00 per share; and (ii) theother shareholder returned 8,800 shares of the parent’s common stock. TheRegistrant's officers and directors are not aware of any threatened or pending litigationto which the Registrant is a party or which any of its property is the subject and whichwould have any material, adverse effect on the Registrant.

ITEM 2. CHANGES IN SECURITIES Back toTable of Contents
In connection with VOMF’s agreement to exercise of Series CWarrants in March 2007, the Company reduced the exercise price from $0.50 per share to$0.18 per share through December 31, 2007, following which the exercise price reverts to$0.50 per share. On March 27, 2007, the Company issued 3,970,400 restricted shares to VOMFupon its exercise of Series C Warrants at a price of $0.18 per share. The net proceeds of$694,672 were used for working capital. 

ITEM3. DEFAULTS UPON SENIOR SECURITIES Back to Table of Contents
None.

ITEM4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Back toTable of Contents
None.

ITEM 5. OTHER INFORMATIONBack to Table of Contents
None.

ITEM6. EXHIBITS AND REPORTS ON FORM 8-K Back to Table of Contents
(a) The following documents are filed as exhibits to this report on Form 10-QSB orincorporated by reference herein. Any document incorporated by reference is identified bya parenthetical reference to the SEC filing that included such document.
**Exhibit No.****Description**
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
32.1
Certification of CEO and    CFO Pursuant to Section 906 of Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K During the Period Covered by this Report: None

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 andin the capacities and on the date indicated.

/s/ GARY D. WOERZ

CEO and CFO
*Dated: May 14, 2007**
**FinancialStatements**Back to Table of Contents

Condensed Consolidated Financial Statements
   Unaudited Condensed Consolidated Balance Sheets - March 31, 2007    and December 31, 2006 (Audited)7
   Unaudited Condensed Consolidated    Statement of Operations - Three months ended March 31, 2007 and 20068
   Unaudited Condensed Consolidated Statement of Cash Flows    - Three months ended March 31, 2007 and 20069
   Notes to    Unaudited Financial Statements10**HAMMONDS    INDUSTRIES, INC.**Consolidated Balance SheetsBack to Table of ContentsMarch 31, 2007    December 31, 2006  **March 31, 2007****December 31, 2006**   **(Unaudited)****(Audited)**  
AssetsCurrent assets:
      Cash$571,081$396,505   Trading securities59,219-   Accounts    receivable, net1,056,6411,328,215   Current portion of    notes receivable222,255229,418   Inventories, net1,581,9561,309,612   Prepaid expenses    and other assets71,921118,543        Total current assets3,563,0733,382,293   Long-term notes receivable,    less current portions160,892160,892Property and equipment, net824,452782,032Intangible assets, net5,877,1056,038,870Other assets57,36020,310          Total assets$10,482,882$10,384,397
Liabilities    and Stockholders' Equity (Deficiency)  Current liabilities:   Accounts payable    and accrued expenses$1,477,027$1,333,831   Short-term note    payable100,512276,410   Current    installments of long-term debt33,49617,493        Total current liabilities1,611,0351,627,734  Long-term debt, less current    installments2,685,1582,464,050Due to American International    Industries, Inc.2,021,3271,931,056Deferred tax liability503,200503,200        Total liabilities6,820,7206,526,040  Stockholders' equity    (deficiency):   Preferred stock,    $0.001par value, authorized 5,000,000 shares:    1,666,666    issued and outstanding167167   Common stock,    $0.0001 par value, authorized 195,000,000 shares:        40,105,400 shares issued and outstanding at March 31, 2007, and        36,135,000 shares issued and outstanding at December 31, 20064,0113,614   Additional paid-in    capital8,372,0067,677,731   Accumulated    deficit(4,714,022)(3,823,155)     Total    stockholders' equity (deficit)3,662,1623,858,357        Total liabilities and stockholders' equity (deficit)$10,482,882$10,384,397  See accompanying    notes to consolidated financial statements.**HAMMONDS INDUSTRIES, INC.**Consolidated Statements of OperationsBack to Table of ContentsFor three three months ended March 31, 2007 and 2006      **Three Months****Three Months****ended****ended****  ****March 31, 2007****March 31, 2006**  Revenues $1,619,399
$1,325,169Costs and expenses:    Cost of sales 1,465,2411,041,113   Selling, general    and administrative 864,719653,303        Total operating expenses 2,329,9601,694,416   Operating loss(710,561)(369,247)   Other income (expenses):    Interest income 6,2763,780   Interest expense(100,987)(50,607)   Unrealized loss on    trading securities(40,781)-   Other income    (expense)186(31,900)     Total    other expenses(135,306)(78,727)   Net loss before income tax(845,867)(447,974)   Provision for    income tax--Net loss from operations before    minority interest(845,867)(447,974)Net loss(845,867)(447,974)Preferred dividends(45,000)-        Net loss applicable to common shareholders $(890,867)
$(447,974)  Net loss per    common share - basic$(0.02)$(0.02)   Weighted    average common shares - basic36,307,62620,135,000   See accompanying    notes to consolidated financial statements**Hammonds Industries, Inc.**Consolidated Statements of Cash FlowsBack to Table of ContentsThree months ended March 31, 2007 and 2006  **Three Months****Three Months****Ended****Ended****  **
**March 31, 2007**
**March 31, 2006**  Cash flows from operating    activities:    Net loss
$(845,867)
$(447,974)   Adjustments    to reconcile net loss to net cash used in operating activities:           Depreciation and amortization of property and equipment37,571103,563          Amortization of intangibles166,605-          Unrealized loss on trading securities40,781-          (Increase) decrease of operating assets:             Accounts receivable 271,574(159,642)             Inventories (272,344)(198,875)             Prepaid expenses and other current assets46,622(29,400)             Other(37,050)(300)          Increase (decrease) in operating liabilities:             Accounts payable and accrued expenses98,196285,361                Net cash used in operating activities (493,912)(447,267)  Cash flows from investing    activities:    Patents and    trademarks(4,840)-   Purchase of    property and equipment(79,991)(70,865)   Purchase of option    to buy American International Industries, Inc. stock(100,000)-   Notes receivable7,1647,229   Amount due to    American International Industries, Inc.90,271635,217               Net cash provided by (used in) investing activities 
(87,396)
571,581   Cash flows from financing    activities:    Proceeds from    issuance of common stock694,672-   Proceeds from    long-term borrowing243,247-   Principal payment    of short-term borrowings(175,899)-   Principal payments    of long-term borrowings(6,136)(149,906)               Net cash provided by (used in) financing activities 
755,884
(149,906)                 Net increase (decrease) in cash 174,576(25,592)Cash and cash equivalents at    beginning of year
396,505
61,875Cash and cash    equivalents at end of period
$
571,081
$
36,283   Supplemental schedule of cash    flow information:   Interest paid$100,987$50,607  See accompanying    notes to consolidated financial statements**HAMMONDS INDUSTRIES, INC.Notes to Consolidated Financial StatementsBack to Table of ContentsMarch 31, 2007
**(1) Summary of Significant Accounting Policies

Organization, Ownership and Business

Hammonds Industries, Inc., f/k/a International American Technologies,Inc. (the "Company"), was a public shell company with no operations in 2004. TheCompany is a 40.7% owned subsidiary of American International Industries, Inc.

In 2005, the Company acquired, through its parent company, 51% of thecapital stock of Hammonds Technical Services, Inc. On August 1, 2006, the Company acquiredthe 49% minority interest of Hammonds Technical Services, Inc., Hammonds Fuel Additives,Inc., and Hammonds Water Treatment Systems, Inc. in consideration for the issuance of16,000,000 restricted shares of common stock, valued at a price of $.25 a share, the priceof the common stock at the date of the transaction. As a result of this transaction, theCompany owns 100% of each of the Hammonds subsidiaries.

On August 8, 2006 the Company entered into a stock purchase agreementwith Vision Opportunity Fund Limited ("VOMF"), an institutional investor,pursuant to which the Company sold 833,333 shares of series A convertible preferred stockfor $1,500,000 and issued a series A warrant exercisable for a period of 5years topurchase 8,333,333 shares at $0.18 per share and a series B warrant exercisable for 2years to purchase an additional 8,333,333 shares at $0.18 per share.

On September 29, 2006 the Company entered into a stock purchaseagreement with VOMF pursuant to which the Company sold 833,333 shares of series Bconvertible preferred stock for $1,500,000 and issued a series C warrant C exercisable for5 years to purchase 8,333,333 shares at $0.50 per share.

Each share of series A and series B convertible preferred stock isconvertible at 10 shares of common stock.

In connection with the agreement of VOMF to exercise up to 4,000,000Series C Warrants in March 2007, the Company reduced the exercise price from $0.50 pershare to $0.18 per share through December 31, 2007, following which the exercise pricereverts to $0.50 per share. On March 27, 2007, VOMF exercised 3,970,400 Series C Warrantsat a price of $0.18 per share with net proceeds of $694,672 to the Company.
**Principles of Consolidation

The consolidated financial statements include the accounts of theCompany and its wholly-owned subsidiaries: Hammond Technical Services, Inc., Hammonds FuelAdditives, Inc., and Hammonds Water Treatment Systems, Inc. In accordance with FIN 46(r),American International Industries, Inc., our parent, consolidates Hammonds even though itsownership is less than 51%, because the parent exercises its right to occupy two of thethree board of director seats. Since the Company is incurring losses and there is nominority interest, the parent recognizes 100% of the Company’s losses. Allsignificant intercompany transactions and balances have been eliminated in consolidation. 
**Cash and Cash-Equivalents

The Company considers cash and cash-equivalents to include cash on handand demand deposits with banks with an original maturity of three months or less.
**Accounts Receivable

Accounts receivable consist primarily of trade receivables, net of avaluation allowance for doubtful accounts.
**Allowance for Doubtful Accounts

The Company extends credit to customers and other parties in the normalcourse of business. The Company regularly reviews outstanding receivables and provides forestimated losses through an allowance for doubtful accounts. In evaluating the level ofestablished reserves, the Company makes judgments regarding its customers' ability to makerequired payments, economic events and other factors. As the financial condition of theseparties change, circumstances develop or additional information becomes available,adjustments to the allowance for doubtful accounts may be required.
**Inventories

Inventories are valued at the lower-of-cost or market on a first-in,first-out basis. The Company assesses the reliability of its inventories based uponspecific usage and future utility. A charge to results of operations is taken when factorsthat would result in a need for a reduction in the valuation, such as excess or obsoleteinventory, are noted.
**Property, Plant, Equipment, Depreciation, Amortization and Long LivedAssets

Long-lived assets include:

Property, Plant and equipment – Assets acquired in the normalcourse of business are recorded at original cost and may be adjusted for any additionalsignificant improvements after purchase. We depreciate the cost evenly over theassets’ estimated useful lives. Upon retirement or sale, the cost of the assetsdisposed of and the related accumulated depreciation are removed from the accounts, withany resultant the Company gain or loss being recognized as a component of other income orexpense. As required by SFAS No. 141, has recorded the acquisition of Hammonds using thepurchase method of accounting with the purchase price allocated to the acquired assets andliabilities based on their respective estimated fair values at the acquisition date. Formore information on the acquisition of Hammonds, see note 2.

Identifiable intangible assets – These assets are recorded atacquisition cost. Intangible assets with finite lives are amortized evenly over theirestimated useful lives.

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

During April, 2005 the Company acquired Hammonds Technical Services,Inc. for a purchase price of approximately $2,455,700 (See Note 2). The operations ofthe Hammonds companies are included in the consolidated statements of operations from dateof acquisition.
**Revenue Recognition

Revenue is recognized when the earning process is completed, the risksand rewards of ownership have transferred to the customer, which is generally the same dayas delivery or shipment of the product, the price to the buyer is fixed or determinable,and collection is reasonably assured. The Company has no significant sales returns orallowances.
**Income Taxes

The Company is a taxable entity and recognizes deferred tax assets andliabilities for the future tax consequences attributable to differences between thefinancial statement carrying amounts of existing assets and liabilities and theirrespective tax basis. Deferred tax assets and liabilities are measured using enacted taxrates expected to be in effect when the temporary differences reverse. The effect on thedeferred tax assets and liabilities of a change in tax rates is recognized in income inthe year that includes the enactment date of the rate change. A valuation allowance isused to reduce deferred tax assets to the amount that is more likely than not to berealized.
**Earnings (Loss) Per Share

The basic net earnings (loss) per common share is computed by dividingthe net earnings (loss) by the weighted average number of shares outstanding during aperiod. Diluted net earnings (loss) per common share is computed by dividing the netearnings (loss), adjusted on an as if converted basis, by the weighted average number ofcommon shares outstanding plus potential dilutive securities. 
**Management's Estimates and Assumptions

The preparation of financial statements in conformity with generallyaccepted accounting principles requires management to make estimates and assumptions thataffect the reported amounts of assets and liabilities, disclosure of contingent assets andliabilities at the date of the financial statements, and the reported amounts of revenuesand expenses. Actual results could differ from these estimates.
**Fair Value of Financial Instruments

The Company estimates the fair value of its financial instruments usingavailable market information and appropriate valuation methodologies. However,considerable judgment is required in interpreting market data to develop the estimates offair value. Accordingly, the Company estimates of fair value are not necessarilyindicative of the amounts that the Company could realize in a current market exchange. Theuse of different market assumption and/or estimation methodologies may have a materialeffect on the estimated fair value amounts. The interest rates payable by the Company onits notes payable approximate market rates. The Company believes that the fair value ofits financial instruments comprising accounts receivable, notes receivable, accountspayable, and notes payable approximate their carrying amounts.
**New Standards Implemented

In May 2005, the Financial Accounting Standards Board (*"FASB"*)issued Statement of Financial Accounting Standard (*"SFAS"*) No. 154, *AccountingChanges and Error Corrections*. SFAS No. 154 replaces Accounting Principles BoardOpinion No. 20, *Accounting Changes*, and SFAS No. 3, *Reporting Accounting Changesin Internal Financial Statements*, and changes the requirements for the accounting forand reporting of a change in accounting principle. SFAS No. 154 requires retrospectiveapplication of changes in accounting principle to prior periods’ financialstatements, unless it is impracticable to determine either the period-specific effects orthe cumulative effect of the change. SFAS No. 154 is effective for accounting changes andcorrections of errors made in fiscal years beginning after December 15, 2005. We adoptedSFAS No. 154 on January 1, 2006. Any impact on the Company’s consolidated results ofoperations and earnings per share will be dependent on the amount of any accountingchanges or corrections of errors whenever recognized.

In 2006 and 2007, the Financial Accounting Standards Board issued thefollowing:
*- SFAS No. 155: *Accounting for Certain Hybrid Financial Instrument- SFAS No. 156: Accounting for Servicing of Financial Assets- SFAS No. 157: Fair Value Measurements- SFAS No. 158: Employers’ Accounting for Defined Benefit Pension and OtherPostretirement Plans- SFAS No. 159: The Fair Value Option for Financial Assets and FinancialLiabilities—Including an amendment of FASB Statement No. 115- FIN No. 48: Accounting for Uncertainty in Income Taxes—an interpretation of FASBStatement No. 109*
Management has reviewed these new standards and believes that they haveno impact on the financial statements of the Company at this time; however, they may applyin the future.
**(2) Acquisition

On February 28, 2005, the Company acquired 51% of the capital stock ofHammonds Technical Services, Inc., a privately-owned Texas corporation, in considerationfor the Company or its parent, American International Industries, Inc., providing: (i)$998,300 in cash to Hammonds for working capital; (ii) a secured revolving long-term lineof credit in the amount of $2,000,000; and (iii) the Registrant's parent, AmericanInternational Industries, Inc., issuing 145,000 restricted shares of common stock to theRegistrant in consideration for a $1,450,000 promissory note. The value of the stock at$10.00 per share was guaranteed. These restricted shares were exchanged for two minorityequity interests in Hammonds owned by third parties, which minority interests werecanceled. The total purchase price to acquire the 51% in Hammonds was $2,455,700representing cash payments of $825,000, 145,000 shares of the parent’s restrictedcommon stock valued at $1,450,000 and the assumption of a note payable to one of theformer shareholders in the amount of $173,300 and liabilities in excess of assets in theamount of $7,400. Pursuant to the Agreement, which closed on April 28, 2005, Hammondsbecame a majority-owned subsidiary of the Registrant. In 2006, Hammonds Technical Serviceswas separated into three separate entities, Hammonds Technical Services, Inc., HammondsFuel Additives, Inc., and Hammonds Water Treatment Systems, Inc.

Prior to the acquisition, Hammonds was two separate legal entities,Hammonds Technical Services, Inc. and Hammonds Fuel Additives, Inc. (collectively *"Hammonds"*)manufacturers engineered products and chemicals that serve multiple segments of the fuelsdistribution, water treatment and utility vehicle industries. Hammonds products aremarketed by a worldwide network of distributors, manufacturers representatives andoriginal equipment manufacturers. On February 28, 2005, Hammond Fuels Additives, Inc. wasmerged into Hammonds Technical Services, Inc.

As required by SFAS No. 141, the Company has recorded the acquisitionusing the purchase method of accounting with the purchase price allocated to the acquiredassets and liabilities based on their respective estimated fair values at the acquisitiondate. The purchase price of $2,455,700 had been allocated at follows:
**Hammonds Net Book Value**Allocation of Purchase Price**Consolidated
Current assets
$
1,435,939
$
-
$
1,435,939
Property and equipment
418,603
408,162
826,765
Patents, trademarks and    contract
173,749
2,550,738
2,724,487
Other non-current assets
70,085
-
70,085
Current liabilities
(2,090,976)
(7,400)
(2,098,376)
Deferred tax liability
-
(503,200)
(503,200)
$
7,400
$
2,448,300
$
2,455,700
A summary of the intangible assets acquired is included in note 6.
**(3) Trading Securities

In February 2007, the Company paid $100,000 for an option to buy 104,398 shares ofAmerican International Industries, Inc. stock for $5.00 per share from a former Hammondsminority shareholder as part of a lawsuit settlement. The Company estimated the fair valueof this stock option at March 31, 2007, by using the Black-Scholes option-pricing modelwith the following weighted-average assumptions as follows:
**March 31,    2007Dividend yield
0.00%Expected volatility
38.68%Risk free interest
6.25%Expected life
11 months
As a result, this option has been revalued at $59,219, and the unrealized loss of$40,781 has been recorded in other income (expense) in March 2007.
**(4) Inventory

Inventory at March 31, 2007 consisted of the following:
**March 31, 2007**December 31, 2006
Finished    goods
$
105,054
$
106,000
Work in    process
100,680
40,680
Parts and    materials
1,545,736
1,332,446
1,751,470
1,479,126
Less:    Obsolescence reserve
(169,514)
(169,514)
$
1,581,956
$
1,309,612**(5) Long-term Notes Receivable

Long-term notes receivable at March 31, 2007 consisted of the following:
**March    31, 2007**December    31, 2006Sale of former subsidiary, Marald,    Inc., principal and interest due monthly through June 5, 2012
183,147
190,310Sale of former subsidiary, Marald,    Inc., principal due October 5, 2007
200,000
200,000Notes receivable
383,147
390,310Less current portion
222,255
229,418Notes receivable, less current portion
$
160,892
$
160,892
**(6) Property and Equipment**

A summary of property and equipment and related accumulateddepreciation and amortization are as follows:
**March 31, 2007**December 31, 2006
Machinery and equipment
$
943,525
$
894,533
Leasehold improvements
127,795
96,796
Total property and    equipment
1,071,320
991,329
Less: Accumulated    depreciation and amortization
(246,868)
(209,297)
Net property and equipment
$
824,452
$
782,032**(7) Intangible Assets

Intangible assets at March 31, 2007 consisted of the following:
**As of    March 31, 2007
Gross Carrying Amount
Accumulated Amortization
Average Weighted Lives
Patents
$
4,473,620
$
563,170
12 years
Trademarks
1,149,199
134,763
10 years
Sole Source    Contract
1,144,039
191,820
7 yearsPatents, Trademarks, and Sole    Source Contracts
$
6,766,858
$
889,753
11 years
Intangible assets at December 31, 2006 consisted of the following:
**As of    December 31, 2006
Gross Carrying Amount
Accumulated Amortization
Average Weighted Lives
Patents
$
4,468,780
$
466,154
12 years
Trademarks
1,149,199
106,033
10 years
Sole Source    Contract
1,144,039
150,961
7 yearsPatents, Trademarks, and Sole    Source Contracts
$
6,762,018
$
723,148
11 years
 

Aggregate    Amortization Expense
For year ending December    31, 2007
$
654,906
For year ending December    31, 2008
$
638,979
For year ending December    31, 2009
$
638,979
For year ending December    31, 2010
$
638,979
For year ending December    31, 2011
$
638,979
The Company’s patents, trademarks, and sole source contract forthe additive injection system resulted from the April 28, 2005 acquisition of 51% ofHammonds Technical Services and from the August 1, 2006 acquisition of the 49% minorityinterest of the Hammonds Companies.

The following table contains a summary of the intangible assets acquired from theacquisition of Hammonds Technical Services on April 28, 2005:
**As of    March 31, 2007
Gross Carrying Amount
Accumulated Amortization
Average Weighted Lives
Patents
$
1,806,387
$
414,187
12 years
Trademarks
465,199
89,163
10 years
Sole Source    Contract
464,039
127,058
7 yearsPatents, Trademarks, and Sole    Source Contracts
$
2,735,625
$
630,408
11 years
On August 1, 2006, the Company acquired the 49% minority interest ofHammonds Technical Services, Inc., Hammonds Fuel Additives, Inc., and Hammonds WaterTreatment Systems, Inc. in consideration for the issuance of 16,000,000 restricted sharesof common stock at a price of $0.25 a share. The additional cost of $4,000,000 has beenallocated to patents, trademarks, and sole source contract for the additive injectionsystem and is being amortized in a manner equivalent to the amortization used on theintangible assets acquired in the initial purchase of 51% of the company. Additionally,the Company acquired patents totaling $26,393 in 2006 and 4,840 during the quarter endedMarch 31, 2007. The following table contains a summary of the intangible assets acquiredin 2006 and during the quarter ended March 31, 2007:
**As of    December 31, 2006
Gross Carrying Amount
Accumulated Amortization
Average Weighted Lives
Patents
$
2,667,233
$
148,983
12 years
Trademarks
684,000
45,600
10 years
Sole Source    Contract
680,000
64,762
7 yearsPatents, Trademarks, and Sole    Source Contracts
$
4,031,233
$
259,345
11 years
 **(8) Short-term Notes Payable To Banks**
**March    31, 2007**December    31, 2006
Note payable with interest    at 10.75%, interest payments due quarterly, with a principal balance due on December 10,    2007
$
90,459
$
90,459
Note payable to former    owner of equity interest in Hammonds payable on July 20, 2005 with accrued interest at    prime plus 4%
-
173,300
Other notes with various    terms
10,053
12,651
$
100,512
$
276,410**(9) Long-term Debt

Long-term debt consisted of the following:
**March 31, 2007**December 31, 2006
Note payable to    a bank, interest due monthly at prime plus 1%, principal payment due August 26, 2008,    secured by assets of the Company's subsidiary
$
1,992,189
$
1,992,189  
Note payable to    a bank, due in monthly installments of interest only at prime plus 1%, with a principal    balance due on August 26, 2008
400,000
400,000  Note payable to a bank, with    interest at 9.25%, due in monthly installments of principal and interest of $4,050 through    February 26, 2012, secured by assets of the Company’s subsidiary241,193-  
Note payable to    a bank, due in monthly installments of principal and interest of $2,119.65 through April    3, 2011
85,272
89,354
2,718,654
2,481,543
Less current    portion
(33,496)
(17,493)
$
2,685,158
$
2,464,050
Principal repayment provisions of long-term debt are as follows atMarch 31, 2007:

2007
$
33,496
2008
2,440,820
2009
53,450
2010
58,7252011
46,938****************************************************************************************** |