10KSB 1 v110220_10ksb.htm Unassociated Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-KSB

x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934. For the fiscal year ended December 31, 2007.

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

Commission file number: 000-30563
DELTA MUTUAL, INC.
(Name of small business issuer in its charter)

DELAWARE
 
14-1818394
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
 
111 North Branch Street, Sellersville, Pennsylvania          18960
(Address of principal executive offices)  (Zip Code)

(Former Address)

(215) 258-2800
(Registrant's telephone number)

Securities registered under Section 12(b) of the Exchange Act: NONE

Securities registered under Section 12(g) of the Exchange Act:

COMMON STOCK (par value $0.0001 per share)
 
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days. Yes x  No o

Check if no disclosure of delinquent filers in response to Item 405 of Regulation S-B is contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. x

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

Issuer's revenue for its fiscal year ended December 31, 2007: $ -0-

Aggregate market value of the voting and non-voting common shares held by non-affiliates of the registrant as of April 9, 2008: $5,379,436 (See Item 5)

Number of shares outstanding of registrant's Common Stock, par value $.0001, as of April 9, 2008: 219,807,273 shares of Common Stock (See Item 11)

Documents incorporated by reference: NONE

Transitional Small Business Disclosure Format (check one): Yes o No x



PART I

NOTE REGARDING FORWARD LOOKING STATEMENTS

CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS

OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This Annual Report contains historical information as well as forward- looking statements. Statements looking forward in time are included in this Annual Report pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements involve known and unknown risks and uncertainties that may cause our actual results in future periods to be materially different from any future performance suggested herein. We wish to caution readers that in addition to the important factors described elsewhere in this Form 10-KSB, the following forward-looking statements, among others, sometimes have affected, and in the future could affect, our actual results and could cause our actual consolidated results during 2007, and beyond, to differ materially from those expressed in any forward-looking statements made by or on our behalf.

Forward-looking statements include, but are not limited to, statements under the following headings; (i) "Business Plan," about the development of certain projects and business opportunities and the Company's attempts to convert these plans and opportunities into operating businesses that generate revenues and profits; (ii) "Business Plan," about the intentions of the Company to fund its businesses and operations by borrowings and the successful placement of debt and equity financings; (iii) "Results of Operations"; (iv) "Liquidity and Capital Resources," about the Company's plan to raise additional capital; and (v) "Liquidity and Capital Resources," about the contingent nature of the consummation of any agreements with its contracting, joint venture and partnership parties.
 
ITEM 1. DESCRIPTION OF BUSINESS
 
Unless the context otherwise requires, the terms "the Company," "we," "our" and "us" refers to Delta Mutual, Inc., and, as the context requires, its consolidated subsidiaries.
 
GENERAL
 
We were incorporated under the name Delta Mutual, Inc. on November 17, 1999, in the State of Delaware with the purpose of providing mortgage services through the Internet. Since current management joined the Company in 2003, we have established business operations focused on providing environmental and construction technologies and services to specific geographic reporting segments in the Far East, the Middle East, and the United States.

Our offices are located at 111 North Branch Street, Sellersville, PA 18960. Our telephone number is (215) 258-2800. Our common stock is quoted on the Over-the-Counter Electronic Bulletin Board under the symbol "DLTM.OB".

2


Recent Developments

Effective March 4, 2008, we entered into a Membership Interest Purchase Agreement (the “Agreement”) with Egani, Inc., an Arizona corporation (“Egani”), providing for the acquisition by the Company from Egani 100% of the issued and outstanding membership interests held by it in Altony SA, an Uruguay Sociedad Anonima (“Altony”), which owns 100% of the issued and outstanding membership interests in South American Hedge Fund LLC, a Delaware limited liability company (sometimes herein referred to as “SAHF”). At a closing held on March 4, 2008, pursuant to the Agreement we acquired from Egani 100% of the issued and outstanding membership interests held by it in Altony which owns 100% of the issued and outstanding membership interests in SAHF, in exchange for our issuance of 130,000,000 shares of our common stock. SAHF is seeking investments in South America. In addition, following this acquisition, management intends that the Company continue to pursue business opportunities in the Middle East related to environmental remediation and other projects.

The stockholders of Egani, Inc. are Daniel R. Peralta and Monica Laura Gallo, husband and wife, each a beneficial owner of 65,000,000 million shares of our common stock. Based on the number of our outstanding voting securities as of April 9, 2008, each of Mr. Peralta and Ms. Gallo own beneficially approximately 29.67% of our issued and outstanding shares of common stock. It is the intention of the two controlling stockholders of Egani, Inc. to designate
a majority of our directors.

Business Plan
 
We have acquired South American Hedge Fund LLC, a limited liability company that intends to make investments in South America.

The Company has established a wholly-owned subsidiary and a joint venture subsidiary, primarily to establish business operations focused on providing environmental and construction technologies and services in the Far East, the Middle East and the United States. As of the close of the quarterly period ended September 30, 2007, we terminated all operations in Puerto Rico because the limited partner in our Tao Alta low-income housing project elected not to proceed with the project redesigned for moderate income housing.

Following the acquisition of South American Hedge Fund LLC, management intends that the Company continue to pursue business opportunities in the Middle East related to environmental remediation and other projects. Our environmental remediation operations are carried out through Delta-Envirotech, Inc., a joint venture company formed in January 2004, with Hi Tech Consulting and Construction, Inc., to provide environmental technology and other services for certain business segments located in the Far East and the Middle East. We have operating control of, and a forty-five percent ownership interest in, Delta-Envirotech. We have entered into strategic alliance agreements with several United States-based entities with technologies and products in the environmental field to support the Company's worldwide activities.

Our construction technology (Delta Wall) activities are carried out by Delta Technologies, Inc. (our wholly owned subsidiary), and focused on the United States construction industry but are equally well suited for use internationally. The Company intends to license the products and seek cooperative projects with respect to our construction technology.

South America

On March 4, 2008, we acquired South American Hedge Fund LLC, which is seeking investments in South America.

Far East (Indonesia)

In Indonesia, we formed a local joint venture company to commence energy and waste recovery operations. The joint venture company, PT Triyudha-Envirotech, began operations in December 2005, pursuant to a contract with Pertamina, the government owned oil company. The initial contract that required us to process 3,000 metric tons of oil sludge was successfully completed in October 2006.

In January 2007, we began negotiating a second contract to process oil sludge over a 12-month period at the same refinery. After delays in the contract negotiations, Pertamina, as required by law, issued an invitation for bids for oil sludge treatment in February 2008. We are now proceeding to submit our bid.

3


Middle East

In 2004, our environmental remediation joint venture, Delta-Envirotech, Inc. ("Envirotech"), entered into a strategic alliance agreement with ZAFF International, Ltd. to jointly pursue environmental and other projects in the Middle East.

On March 8, 2007, Envirotech received a purchase agreement to supply the equipment and services for a factory to manufacture insulating concrete form (ICF) products in Saudi Arabia. This is our first contract in Saudi Arabia and our largest to date, valued at $3,369,000. The equipment specified in the agreement consists of several ICF technologies including the machinery that produces our Delta Wall system. The agreement requires payment by letter of credit. The purchaser has conditioned the opening of the letter of credit on receipt of an award of a proposed housing project that is in technical review. We anticipate this technical review to be concluded during the second quarter.

The gas-imaging product, which detects and visualizes harmful gasses produced by oilfield and refinery operations, for which Envirotech holds the exclusive Middle East distribution rights, has been approved for testing. The U.S. office of ARAMCO is arranging an on-site inspection at an existing installation prior to ordering test units.

Over the past 18 months, Envirotech has been working with the operators of oil sludge processing facilities in Bahrain and Kuwait to improve the processing technology currently in use. A test unit was put into operation in Ras Tanura, Saudi Arabia, to process oil sludge from Bahrain and ARAMCO. The test results showed good separation of the sediment from the oil sludge. A detailed technical proposal and a draft processing contract have been prepared and forwarded by Envirotech to the operator of the Bahrain facility.

Saudi Arabia has a network of farms that produce fruit, grains and cattle feed. During the second half of 2007, Envirotech, as a distributor, has introduced an organic supplement, designed to increase crop yield, to one of the major Saudi farming operations, which has placed an initial order for field trials.

United States

In August 2005, Delta Technologies, Inc. acquired certain intellectual property and filed a patent application for a new insulating concrete wall forming (ICF) system, the technology on which our Delta Wall product is based.

Production of the Delta Wall blocks began in September 2006. An independent testing laboratory was hired in January 2007 to evaluate the blocks for the purpose of applying for International Commercial Code (ICC) approval. The testing laboratory has issued its interim report. The data in the interim report provided the information necessary to begin the required engineering studies.

COMPETITION
 
Until we have successfully obtained the full amount of debt or equity financing required to fund our projected business operations, it is difficult to compete with large, well-capitalized companies for governmental or private sector environmental remediation contracts. Many of these contracts require significant up-front expenditures on behalf of the firm awarded the contract.
 
There are many established environmental remediation companies that have significantly greater financial and personnel resources and technical expertise than we do. There are
well-capitalized environmental services and technology companies as well as highly capitalized building material companies in our target marketplaces that will continue to retain their dominance and competitive advantages over us.

Our Delta Wall product faces competition from established companies and various technologies that have been used in the construction industry for many years.

4


EMPLOYEES
 
Currently, we have three employees: Peter F. Russo, President and Chief Executive Officer; Martin G. Chilek, Senior Vice President and Chief Financial Officer; and Judith M. Dallas, Director, Administration.
 
RISK FACTORS
 
Our business is subject to numerous risk factors, including the following:
 
WE HAVE NOT OPERATED PROFITABLY SINCE INCEPTION, AND WE EXPECT TO INCUR LOSSES IN THE FUTURE. WE WILL BE REQUIRED TO RAISE ADDITIONAL CAPITAL.
 
Our operations have only generated limited revenue and they are not profitable. We have incurred net operating losses from the formation of our company through December 31, 2007, of $11,082,853. Our failure to achieve or maintain profitability may materially and adversely affect the future value of our common stock.
 
We will have to obtain additional capital to continue development of our proposed business. There is no assurance that we will be able to obtain sufficient capital to develop our proposed environmental remediation and building material businesses, and market these services and products successfully.
 
WE HAVE BEEN THE SUBJECT OF A GOING CONCERN OPINION FROM OUR INDEPENDENT AUDITORS, WHICH MEANS THAT WE MAY NOT BE ABLE TO CONTINUE OPERATIONS UNLESS WE OBTAIN ADDITIONAL FUNDING.
 
Our independent auditors have added an explanatory paragraph to their audit opinion, issued in connection with our consolidated financial statements, which states that our ability to continue as a going concern is uncertain due to our continued operating losses, the excess of our liabilities over our assets and uncertain conditions we face in our day-to-day operations. Our consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

INVESTMENTS MADE BY OUR SUBSIDIARY SOUTH AMERICAN HEDGE FUND LLC MAY NOT BE PROFITABLE.

The success of our South American investment plan of operation, if we complete one or more investments, will depend to a great extent on the operations, financial condition and management of companies acquired or that we invest in. In the event we complete one or more investments, the success of our operations may be dependent upon management of the operations in which the investment is made and numerous other factors beyond our control.

SCARCITY OF AND COMPETITION FOR INVESTMENT OPPORTUNITIES.

We are and will continue to be an insignificant participant in the business of seeking investments in South America. A large number of established and well-financed entities, including venture capital firms, hedge funds and corporate investors, are active in investments in companies that may be desirable target candidates for us. Nearly all such entities have significantly greater financial resources, technical expertise and managerial capabilities than us and, consequently, we will be at a competitive disadvantage in identifying possible investments and successfully completing an investment.

WE ARE SUBJECT TO EXTENSIVE GOVERNMENTAL REGULATION FOR OUR PROPOSED ENVIRONMENTAL REMEDIATION OPERATIONS.
 
Each aspect of our proposed environmental remediation business is subject to significant environmental regulations by foreign governments. No assurances can be given that such environmental laws or regulations, or that future changes in environmental laws, regulations, or interpretations currently applicable to the Company or changes in the nature of the Company's operations, will not adversely impact our proposed operations or have a material adverse effect on the financial condition, operations and liquidity of the Company.

5


OUR BUSINESS IS SUBJECT TO RISKS ASSOCIATED WITH OUR OFFSHORE OPERATIONS.

We have engaged in energy and waste recovery operations in Indonesia for the processing of oil sludge from refineries. We have received all environmental approvals necessary to operate the permanent processing installation. Adverse changes in governmental permits, approvals, laws or regulations in Indonesia could harm our business, as could our failure to receive from Pertamina further contracts for processing sludge in our processing facility.

OUR INTERNATIONAL OPERATIONS EXPOSE US TO POLITICAL, ECONOMIC AND CURRENCY RISKS.

With regard to our operations outside of the United States, we are subject to the risks of doing business abroad, including,

·
Currency fluctuations;
·
Changes in tariffs and taxes; and
·
Political and economic instability.
 
Changes in currency exchange rates may affect the relative costs at which we are able to process sludge in Indonesia, and may affect the cost of certain items required in our processing operation, thus possibly adversely affecting our profitability.

There are inherent risks for the foreseeable future of conducting business internationally. Language barriers, foreign laws and tariff and taxation issues all have a potential negative effect on our ability to transact business. Changes in tariffs or taxes applicable to our joint venture in Indonesia may adversely affect its profitability. Political instability may increase the difficulties and costs of doing business. We may be subject to the jurisdiction of the government and/or private litigants in foreign countries where we transact business, and may be forced to expend funds to contest legal matters in those countries in disputes with those governments or with customers or suppliers.

AS A SUPPLIER OF BUILDING PRODUCTS WE FACE ECONOMIC AND TECHNOLOGY RISKS.

The market for suppliers of building materials is very competitive. Our success as a supplier of building materials will be subject to many factors that are beyond our control including, among others, our successful marketing of our products to construction firms in the various regions where we would operate, general economic conditions in the construction industry and real estate market conditions, technological developments by competitors, the availability and cost of borrowed funds, government building codes and regulations, and compliance with and potential liability under environmental and other laws.

OUR MARKETS ARE VERY COMPETITIVE.
 
Virtually all of our current and potential competitors have significantly greater financial, marketing and technical resources than we have. As a result, they may be able to leverage a customer base, adapt more quickly to new technologies and changes in customer requirements, or devote greater resources to the promotion and sale of their services and products than we can.

WE DO NOT EXPECT TO PAY DIVIDENDS.
 
We have never paid dividends on our common stock. Company management anticipates that any earnings generated from our operations would be used to finance our working capital requirements, to develop services and products and for marketing. For the foreseeable future, cash dividends will not be paid to holders of our common stock.
 
ITEM 2. DESCRIPTION OF PROPERTY.

We currently lease office space consisting of approximately 1,700 square feet in an office building located in Sellersville, Pennsylvania. We are obligated to pay a monthly rent of $650 as well as pay for certain utilities serving the premises. Our current lease was for an initial term of one year from March 1, 2006 to February 28, 2007, with additional twelve- month renewal periods. The second twelve-month renewal period began on March 1, 2008. We anticipate that our current office space will accommodate our operations for the foreseeable future. We leased an apartment in San Juan, Puerto Rico of approximately 650 square feet for a monthly rental of $750. That lease expired on March 31, 2006 and was not renewed. We also lease office space in Saudi Arabia on a month-to-month basis.

6


ITEM 3. LEGAL PROCEEDINGS.
 
None.

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

None.
 
PART II
 
ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES.
 
Our common stock has been quoted on the Over-the-Counter Bulletin Board operated by the National Association of Securities Dealers, since approximately February 1, 2001. Our shares are listed under the symbol "DLTM". The quotations in the table below reflect inter-dealer prices, without retail mark-up, mark-down, or commission and may not represent actual transactions.
 
       
High
 
Low
 
               
2006:
   
1st Quarter
   
0.32
   
0.10
 
   
2nd Quarter
   
0.12
   
0.06
 
   
3rd Quarter
   
0.45
   
0.10
 
   
4th Quarter
   
0.25
   
0.10
 
                     
2007:
   
1st Quarter
   
0.16
   
0.04
 
   
2nd Quarter
   
0.12
   
0.04
 
   
3rd Quarter
   
0.08
   
0.04
 
   
4th Quarter
   
0.06
   
0.02
 
                     
2008:
   
1st Quarter
   
0.07
   
0.01
 
 
During the last two fiscal years, no cash dividends have been declared on Delta's common stock and Company management does not anticipate that dividends will be paid in the foreseeable future. As of March 31, 2008, there were 77 record holders of our common stock.

7

 
Securities Authorized for Issuance under Equity Compensation Plans
 
The following table sets forth information with respect to our common stock issued and available to be issued under outstanding options, warrants and rights as of December 31, 2007.
 
   
(a)
 
(b)
 
(c) 
 
Plan category
 
Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights
 
Weighted-average exercise
price of outstanding
options, warrants and
rights
 
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a)) 
 
Equity compensation plans approved by security holders
   
7,978,000
 
$
0.11
   
2,022,000
 
Equity compensation plans not approved by security holders
                   
Total
   
7,978,000
 
$
0.11
   
2,022,000
 
 
RECENT SALES OF UNREGISTERED SECURITIES

These sales were not previously included on the Company’s quarterly reports on Form 10-QSB or in a current report on Form 8-K.

Date
  
Title and Amount
  
Purchasers
  
Principal
Underwriter
  
Total Offering
Price/Underwriting
Discounts
 
February 15, 2005
 
45,000 shares of common stock
 
Consultant
 
NA
 
$19,125/NA
 
December 12, 2005
 
45,000 shares of common stock
 
Consultant
 
NA
 
$12,870/NA
 
November 14, 2006
 
335,000 shares of common stock
 
Consultant
 
NA
 
$50,250/NA
 
December 15, 2006
 
1,120,000 shares of common stock issued upon conversion of a promissory note in principal amount of $50,000 (including accrued interest)
 
Private Investor
 
NA
 
$56,000/NA
 
 
The issuances of common stock to consultants are viewed as exempt from registration under the Securities Act of 1933, as amended (“Securities Act”), under section 4(2) thereof, as transactions not involving any public offering. The private placements of the Company’s common stock and the offerings of notes, convertible notes and common stock warrants to U.S. investors, are viewed as exempt under the provisions of Rule 506 of Regulation D under the Securities Act.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
 
The following discussion of our consolidated financial condition and results of operations should be read in conjunction with the consolidated financial statements and notes thereto and the other financial information included elsewhere in this report.

Certain statements contained in this report, including, without limitation, statements containing the words "believes," "anticipates," "expects" and words of similar import, constitute "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including our ability to create, sustain, manage or forecast our growth; our ability to attract and retain key personnel; changes in our business strategy or development plans; competition; business disruptions; adverse publicity; and international, national and local general economic and market conditions.
 
GENERAL
 
We were incorporated in the State of Delaware on November 17, 1999 and will require additional capital to execute our current and planned business operations.

8


RESULTS OF OPERATIONS
 
During the fiscal year ended December 31, 2007, we incurred a net loss of $2,220,349, because we had no revenue to offset operating expenses. The loss in fiscal 2007 was primarily attributable to general and administrative expenses of approximately $2,213,000 that included compensatory element of stock options in the amount of $786,980. In addition, we incurred a $25,000 impairment of long term asset. From inception (November 17, 1999) to December 31, 2007, we had a net loss of $11,082,853. The Independent Auditors' Report and Note 1 of the Notes to Consolidated Financial Statements accompanying this report state that substantial doubt has been raised about our ability to continue as a going concern.
 
2007 COMPARED TO 2006
 
The net loss decreased from approximately $2,542,000 in 2006 to approximately $2,220,000 for the twelve months ended December 31, 2007.
 
Cost of sales decreased approximately $239,000 from the prior year. General and administrative expenses also decreased from the prior year by approximately $136,000.

The items of significant decrease in general and administrative expenses for the year ended December 31, 2007 were a decrease in salaries and wages of approximately $35,000 and a decrease in consulting fees of approximately $180,000.

Accretion of convertible debt decreased by approximately $175,000 from approximately $175,000 in 2006 and interest expense decreased approximately $12,000 from approximately $43,000 in 2006.

PLAN OF OPERATION

We have acquired South American Hedge Fund LLC, a limited liability company that intends to make investments in South America. Prior to the acquisition, the Company established subsidiaries to conduct business operations focused on providing environmental and construction technologies and services in the Far East, the Middle East and the United States.

Following the acquisition of South American Hedge Fund LLC, management intends that the Company continue to pursue business opportunities in the Middle East related to environmental remediation and other projects. We intend to license our Delta Wall product and seek cooperative projects with respect to our construction technology business activities.

Far East (Indonesia)

In Indonesia, we formed a local joint venture company, PT Triyudha-Envirotech, to conduct oil sludge processing operations with Pertamina, the government owned oil company. After completing an initial contract in October 2006, we are preparing to submit our bid on a second contract at the same refinery.

Middle East

On March 8, 2007, Envirotech received a purchase agreement to supply the equipment and services for a factory to manufacture insulating concrete form (ICF) products in Saudi Arabia. This is our first contract in Saudi Arabia and our largest to date, valued at $3,369,000. The equipment specified in the agreement consists of several ICF technologies including the machinery that produces our Delta Wall system. The agreement requires payment by letter of credit. The purchaser has conditioned the opening of the letter of credit on receiving approval for a proposed housing project.

Envirotech holds the exclusive Middle East distribution rights to a gas-imaging product, which detects and visualizes harmful gasses produced by oilfield and refinery operations. The U.S. office of ARAMCO is arranging an on-site inspection at an existing installation prior to ordering test units.

9


Envirotech has been working with the operators of oil sludge processing facilities in Bahrain and Kuwait to improve their current processing technology. A test unit was put into operation in Saudi Arabia. Based on very good test results, a draft processing contract has been prepared by Envirotech and forwarded to the operator of the Bahrain facility.

During the second half of 2007, Envirotech, as a distributor, has introduced an organic supplement, designed to increase crop yield, to one of the major Saudi farming operations, which has placed an initial order for field trials.

United States

Production of the Delta Wall blocks began in September 2006. An independent testing laboratory was hired in January 2007 to evaluate the blocks for the purpose of applying for International Commercial Code (ICC) approval. The testing laboratory has issued its interim report which provided the information necessary to begin the required engineering studies.

FUNDING
 
We will require additional capital in order to continue to fund our current activities and to finance our planned business operations.
 
LIQUIDITY
 
Because we have generated no revenue from our current operations, we must rely primarily on private placements of Company stock or debt to pay operating expenses.
 
At December 31, 2007 we had a working capital deficit of $1,977,492, an increase in our working capital deficit of $769,444 as compared with 2006. This increase for the year ended December 31, 2007 is a result of a decrease in cash and prepaid expenses, an increase in accrued expenses and partially offset by a decrease in accretion of convertible debt. Since we have limited sources of revenue, we expect a working capital deficit until our revenue is sufficient to cover our operating expenses.

In 2007, to provide financing for our activities, we issued $567,000 of convertible notes.

ASSETS
 
At December 31, 2007, we had total assets of $554,637, compared to total assets of $1,044,549 at December 31, 2006. The decrease in total assets as of December 31, 2007 was due to a decrease in cash, prepaid expenses and fixed assets.

CRITICAL ACCOUNTING ISSUES
 
The Company's discussion and analysis of its financial condition and results of operations are based upon the Company's financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of the financial statements requires the Company to make estimates and judgments that affect the reported amount of assets, liabilities, and expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to intangible assets, income taxes and contingencies and litigation. The Company bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

10


Other Matters
 
Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which enhances existing guidance for measuring assets and liabilities using fair value. This Standard provides a single definition of fair value, together with a framework for measuring it, and requires additional disclosure about the use of fair value to measure assets and liabilities. SFAS No. 157, as amended by FASB Staff Position 157-2, is effective for financial statements issued for fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The Company does not believe that SFAS No. 157 will have a material impact on its consolidated financial statements.

In July 2006, the FASB issued Interpretation No. 48 “Accounting for Uncertainty in Income Taxes” (“FIN 48”). The Interpretation requires a two step approach for recognizing and measuring tax benefits based on a recognition threshold of “more likely than not.” The FASB also requires explicit disclosure about uncertainties in tax positions including a detailed rollforward of tax benefits that do not qualify for financial statement recognition. The adoption of FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company adopted the provisions of FIN 48 on January 1, 2007. As a result of he implementation of FIN 48, the Company recognized no adjustment in the net liability for unrecognized income tax benefits.

In February 2007, the FASB issued SFAS No. 159 ("SFAS 159") "The Fair Value Option for Financial Assets and Financial Liabilities," providing companies with an option to report selected financial assets and liabilities at fair value. The Standard's objective is to reduce both complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. It also requires entities to display the fair value of those assets and liabilities for which the Company has chosen to use fair value on the face of the balance sheet. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact of the adoption of this Statement on its consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141 (revised 2007) (“SFAS 141(R)”) “Business Combinations,” which replaces SFAS 141 “Business Combinations.” This Statement improves the relevance, completeness and representational faithfulness of the information provided in financial reports about the assets acquired and liabilities assumed in a business combination. This Statement requires an acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date, measured at their fair values as of that date, with limited exceptions specified in the Statement. Under SFAS 141 (R), the acquisition-related costs, including restructuring costs, must be recognized separately from the acquisition and will generally be expensed as incurred. That replaces SFAS 141’s cost-allocation process, which required the cost of an acquisition to be allocated to the individual assets acquired and liabilities assumed based on their estimated fair values. SFAS 141(R) shall be applied prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual report period beginning on or after December 15, 2008. The Company will implement this Statement in 2009.

In December 2007, the FASB issued SFAS No. 160 “Non-Controlling Interests in Consolidated Financial Statements – An Amendment of ARB No. 151 (“SFAS 160”). SFAS 160 established new accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. Specifically, this Statement requires the recognition of non-controlling interests (minority interests) as equity in the consolidated financial statements and separate from parent’s equity. The amount of net income attributable to the non-controlling interest will be included in consolidated net income on the face of the income statement. SFAS 160 clarifies that changes in a parent’s ownership in a subsidiary that does not result in deconsolidation, are equity transactions if the parent retains its controlling financial interest. In addition, this Statement requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. Such gain or loss will be measured using the fair value of the non-controlling equity investment as of the deconsolidation date. SFAS 160 also includes expanded disclosure requirements regarding the interest of the parent and its non-controlling interest. SFAS 160 is effective for fiscal years, and interim periods other than fiscal years, beginning on or after December 2008. The Company is currently evaluating the impact of the adoption of this Statement on its financial statements.

11

 

In January 2008, Staff Accounting Bulletin (SAB”) 110 “Share-Based Payment” (“SAB 110”) was issued. Registrants may continue, under certain circumstances, to use the simplified method in developing estimates of the expected term of share options as initially allowed by SAB 107, “Share-Based Payments.” The adoption of SAB 110 should have no effect on the financial position and results of operations of the Company.
 
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
We are primarily exposed to foreign currency risk, interest rate risk and commodity price risk.

Foreign Currency Risk - Our financial results could be affected by factors such as changes in foreign currency exchange rates or, if we initiate our planned international operations, weak economic conditions in foreign markets. Because our revenue is reported in U.S. dollars, fluctuating exchange rates of the local currency, when converted into U.S. dollars, may have an adverse impact on our revenue and income. We have not hedged foreign currency exposures related to transactions denominated in currencies other than U.S. dollars. We do not engage in financial transactions for trading or speculative purposes.

Interest Rate Risk - Interest rate risk refers to fluctuations in the value of a security resulting from changes in the general level of interest rates. Investments that are classified as cash and cash equivalents have original maturities of three months or less. Interest income is sensitive to changes in the general level of U.S. interest rates. We do not have significant short-term investments, and due to the short-term nature of our investments, we believe that there is not a material risk exposure.

Commodity Price Risk - The raw material for our Delta Wall system is a petroleum-based material. Our manufacturing costs, in the normal course of business, could be affected by increased oil prices. If we commence manufacturing our Delta Wall blocks on a larger scale, we could be subject to this risk.
 
ITEM 7. FINANCIAL STATEMENTS.
 
The Company's Consolidated Financial Statements and Notes to Consolidated Financial Statements are attached hereto as Exhibit A and incorporated herein by reference.
 
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
 
There have been no changes in or disagreements with the Company's independent auditors during the last two years.
 
ITEM 8A (T). CONTROLS AND PROCEDURES.

As supervised by our board of directors and our principal executive and principal financial officers, management has established a system of disclosure controls and procedures and has evaluated the effectiveness of that system. The system and its evaluations are reported on below in the Management’s Annual Report on Internal Control over Financial Reporting. Our principal executive and principal financial officer have concluded that our disclosure controls and procedures (as defined in the 1934 Securities Exchange Act Rule 13a-15(e)) as of December 31, 2007, are effective, based on the evaluation of these controls and procedures required by paragraph (b) of Rule 13a-15.
 
Management’s Annual Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Securities Exchange Act of 1934 (the “Exchange Act”). 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 U.S. generally accepted accounting principles.
 
12

 
Management assessed the effectiveness of internal control over financial reporting as of December 31, 2007. We carried out this assessment using the criteria of the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.

This annual report does not include an attestation of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm, pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report. Management concluded in this assessment that as of December 31, 2007, our internal control over financial reporting is effective.

There have been no significant changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth quarter of 2007 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
ITEM 8B. OTHER INFORMATION.
 
In May 2004, we issued a 4% convertible promissory note to Neil Berman, a stockholder of the Company, (the “Lender”) in the principal amount of $193,740, convertible into shares of our common stock at $0.125 per share, with a maturity date of May 12, 2006 (the “Convertible Note”). The Convertible Note was subsequently amended during 2006 and 2007 extending the maturity date to December 1, 2007. The Convertible Note states that if any of the principal amount (including interest) has not been converted on or before the maturity date, then the Convertible Note shall be in default, provided that no repayment is made within 15 days after receipt of written notice from the Lender of such failure to pay when due. We did not repay the Convertible Note on the maturity date and the Lender has not provided the Company with any written notice of failure to pay. The Lender has verbally agreed to extend the maturity date and we are currently negotiating an extension of the maturity date with the Lender. If the Company and the Lender do not agree upon a mutually acceptable extension of the maturity date, then the Company may receive a notice of default from the Lender.
 
PART III
 
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
 
DIRECTORS AND EXECUTIVE OFFICERS
 
As of the date of this report, the executive officers and director of Delta Mutual, Inc. were as follows:

NAME
 
AGE
 
TITLE(S)
Peter F. Russo
 
65
 
President, CEO, Assistant Secretary
and Director
         
Martin G. Chilek
 
57
 
Sr. Vice President, Chief
Financial Officer, Treasurer and Secretary
 
Mr. James L. Weintraub resigned as a director for personal reasons on April 4, 2008.
 
13

 
Peter F. Russo joined the Company on March 11, 2003 as President and a director, and was elected Chief Executive Officer in June 2003. Mr. Russo had been an independent consultant to several private businesses during the period from August 2001 until he joined the Company. In that capacity, he developed business and operating strategies and plans for a start-up, new concept modular housing company focused on the affordable housing market. In that assignment, he developed proposals for low-income housing projects under the federal Section 42 tax credit program in Philadelphia, Baltimore and Washington D.C. In another assignment, Mr. Russo was instrumental in structuring a new U.S. holding company with affiliated real estate service operations in Europe.
 
Martin G. Chilek joined the Company as Vice President, CFO, Treasurer and Assistant Secretary in January 2004. He was promoted to Senior Vice President and elected Secretary in March 2006. Prior to joining the Company, from June 2003 to December 2003, he was an independent consultant providing transitional management, strategic planning and financial management services to privately held and public companies. During the past five years, Mr. Chilek also served as Vice President-Operations of MicroTech Leasing Corporation from October 2000 through May 2003.

Our directors are elected by the stockholders and our officers are appointed by our board of directors. Our officers hold office until their successors are elected and qualified. Vacancies in our board are filled by the board itself. There are currently two vacancies on our board of directors.

There are no family relationships between any of our executive officers and/or directors.

AUDIT COMMITTEE

We do not have a separate Audit Committee. Our Board of Directors performs the functions usually designated to an Audit Committee. 

CODE OF CONDUCT
 
We have a corporate code of conduct and a corporate disclosure policy in place, which provide for internal procedures concerning the reporting and disclosure of corporate matters that are material to our business and to our stockholders. Our corporate code of conduct includes a code of ethics for our officers and employees as to workplace conduct, dealings with customers, compliance with laws, improper payments, conflicts of interest, insider trading, company confidential information, and behavior with honesty and integrity. Our corporate disclosure policy includes guidelines for publicly disseminating financial and other material developments to the investing public.
 
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
 
We believe that during 2007, all of our officers and directors complied with the reporting requirements of Section 16(a).
 
ITEM 10. EXECUTIVE COMPENSATION
 
The following table sets forth information for the periods indicated concerning the aggregate compensation paid by the Company and its subsidiaries to the Company’s Executive Officers (the “Named Executives”) and one former officer who was the most highly compensated employee of the Company in 2006.

14


SUMMARY COMPENSATION TABLE

Name and
Principal
Position
 
Year
 
Salary
($)
 
Bonus
($)
 
Stock
Awards
($)
 
Option
Awards
($)
 
Non-Equity
Incentive
Plan
Compensation
($)
 
Change in
Pension
Value and
Nonquali-
fied Deferred
Compensation
Earnings
($)
 
All
Other
Compen-
Sation
 
Total
($)
 
Peter F. Russo, President and CEO (1)
   
2007
 
$
97,500
                                     
$
97,500
 
Peter F. Russo,
   
2006
 
$
87,750
             
$
41,516
                   
$
129,266
 
                                                         
Martin G. Chilek, Chief Financial Officer
   
2007
 
$
91,000
                                     
$
91,000
 
Martin G. Chilek, Chief Financial Officer
   
2006
 
$
86,500
             
$
28,966
                   
$
115,466
 
                                                         
Jerome Kindrachuk, Vice President
   
2006
 
$
54,000
                               
$
88,262
(2) 
$
142,262
 
 
 
(1)
Mr. Russo is also the sole director of the Company but receives no additional compensation for serving in that capacity.
 
(2)
Upon the termination of Mr. Kindrachuk’s employment with the Company in December 2006, he received $88,262 of his accrued salary from 2003 and 2004.
 
EXECUTIVE COMPENSATION NARRATIVE

On March 11, 2003, we entered into a contract with Peter F. Russo to serve as President. It provided for three years' employment from March 11, 2003, at a salary of $10,000 per month through June 30, 2003, and $15,000 per month thereafter, payable in bi-monthly installments, plus benefits. On September 20, 2004 the contract was amended to adjust the salary to $6,500 per month effective January 1, 2004. Certain benefits were also eliminated effective the same dates.

On February 28, 2006, we entered into a new employment agreement with Mr. Russo. This agreement was effective March 11, 2006, for a term of three years. The agreement provides for a base salary of $180,000 per year, but until the Board of Directors determines that the financial condition of the Company permits the payment of that salary, the minimum salary to be paid to Mr. Russo is $6,500 per month. In July 2006, Mr. Russo’s minimum monthly salary was increased to $8,125. The agreement contains provisions for discharge for "cause", including disability, in which cases no further compensation or benefits would be payable under the agreement. If a termination is other than for death or "cause", the base salary is continued for six months following the termination of employment, or up to the time Mr. Russo commences other full time employment. The agreement also contains a provision for additional compensation to Mr. Russo if his employment is terminated without “cause” due to a change in control.
 
15

 
A general understanding has been reached for Mr. Russo to allow termination of the present employment agreement on July 15, 2008, and at which time the Board of Directors will determine whether a new contract is to be offered to Mr. Russo. As a part of the general understanding, Mr. Russo has agreed to waive any severance compensation that may have been due at termination at that time. All other aspects of the current employment agreement shall remain in effect through July 15, 2008.

On May 23, 2005, we entered into an executive employment agreement with Mr. Chilek. This agreement was effective June 1, 2005, for an initial term of three years, and the term is automatically extended for additional one year periods if neither party gives notice of termination at least 90 days prior to the end of the initial term or any current additional one year term. The agreement provides for a base salary of $132,000 per year, but until the Board of Directors determines that the financial condition of the Company permits the payment of that salary, the minimum salary to be paid to Mr. Chilek is $6,000 per month. In July 2006, Mr. Chilek’s minimum monthly salary was increased to $7,500. The agreement contains provisions for discharge for "cause", including disability, in which cases no further compensation or benefits would be payable under the agreement. If a termination is other than for death or "cause", or the Company elects not to renew the agreement, the base salary is continued for six months following the termination of employment, or up to the time Mr. Chilek commences other full time employment. The agreement also contains a provision for additional compensation to Mr. Chilek if his employment is terminated without “cause” due
to a change in control.

On July 3, 2006, the Company’s board of directors cancelled: 2,500,000 stock options granted to Mr. Russo in November 2004 with an exercise price of $0.25 per share; and 350,000 stock options granted to him in February 2006 with an exercise price of $0.17 per share. Also on July 3, 2006, the board of directors granted Mr. Russo 2,850,000 new stock options at an exercise price of $0.11 per share. These actions were treated as a repricing of his stock options and the $41,516 indicated as option award compensation in 2006 represents the incremental fair value of the new stock options as of the date of the repricing.

On July 3, 2006, the Company’s board of directors cancelled: 1,750,000 stock options granted to Mr. Chilek in November 2004 with an exercise price of $0.25 per share; and 250,000 stock options granted to him in February 2006 with an exercise price of $0.17 per share. Also on July 3, 2006, the board of directors granted Mr. Chilek 2,000,000 new stock options at an exercise price of $0.11 per share. These actions were treated as a repricing of his stock options and the $28,966 indicated as option award compensation in 2006 represents the incremental fair value of the new stock options as of the date of the repricing.
 
We also had an employment contract with Mr. Kindrachuk effective July 2003, prior to his appointment as an officer of the Company. It provided for three years' employment beginning July 1, 2003, at a base salary of $10,000 per month, plus benefits. On September 22, 2004 the contract was amended to adjust salary to $6,000 per month effective January 1, 2004, until the Board of Directors determined that the financial condition of the Company permitted the payment of that salary. Certain benefits were also eliminated effective the same dates.
 
On July 1, 2006, we did not renew Mr. Kindrachuk’s employment contract and he was offered and accepted other employment with the Company as an at will employee. His employment with the Company was terminated on December 28, 2006.

16

 
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

The following table sets forth information as of the end of the Company’s last fiscal year concerning option and stock awards to the Company’s Named Executives.

   
Option Awards
 
Stock Awards
 
Name
 
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
 
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
 
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
 
Option
Exercise
Price
($)
 
Option
Expiration
Date
 
Number
of
Shares
or Units
of
Stock
That
Have
Not
Vested
(#)
 
Market
Value
of
Shares
or
Units
of
Stock
That
Have
Not
Vested
($)
 
Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
(#)
 
Equity
Incentive
Plan
Awards:
Market
or Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
($)
 
Peter F. Russo
   
2,850,000
   
-0-
   
-0-
 
$
0.11
   
July 2011
                         
                                                         
Martin G. Chilek
   
2,000,000
   
-0-
   
-0-
 
$
0.11
   
July 2011
                         
 
DIRECTORS' COMPENSATION
 
We do not compensate directors in their capacity as such nor do we compensate our directors for attendance at meetings. We do reimburse our officers and directors for reasonable expenses incurred in the performance of their duties.

COMPENSATION PLANS
 
STOCK OPTION PLAN
 
In August 2004, our stockholders approved the 2004 Stock Option Plan (the "2004 Plan"), pursuant to which 10,000,000 shares of common stock were reserved for issuance. As of December 31, 2007, 2,022,000 shares were available for the grant of options under the 2004 Plan.

The 2004 Plan authorizes the Board of Directors (the "Board"), or a committee comprised of non-employee directors ("Committee"), to grant, over a 10-year period, options to purchase up to 10,000,000 shares of the Company's common stock. Persons eligible to receive options under the Plan include key employees and directors who are also employees of the Company or any subsidiary, and consultants to the Company or any subsidiary, as determined by the Board or Committee. The persons to be granted options under the Plan and the number and purchase price of the shares represented by each option, the time or times at which the options may be exercised, and the terms and provisions of each option (which need not be uniform for all options) will be determined by the Board or Committee. The purchase price per share may not be less than 100% of the fair market value of the Company's stock at the time of grant. The purchase price may be paid in cash or common stock of the Company held for at least six months with a market value equal to that of the shares being acquired or, in the discretion of the board or committee, any combination of these. Options granted under the Plan may be in the form of "incentive stock options" which qualify as such under Section 422 of the Internal Revenue Code or non-qualified stock options which do not meet the criteria for incentive stock options under Section 422. The tax treatment afforded stock options qualifying as incentive stock options is generally more favorable to employees than that afforded to non-qualified stock options, in that the exercise of an incentive stock option does not require the optionee to recognize income for federal income tax purposes at the time of exercise. (The difference between the exercise price of the incentive stock option and the fair market value of the stock at the time of purchase is, however, an item of tax preference which may require payment of an alternative minimum tax.)
 
17

 
Options granted under the Plan are, generally, transferable only by will or by the laws of descent and distribution, and may be exercised during the lifetime of the optionee only by the optionee or by his legal representative in the event of his disability. In its sole discretion, however, the Board or Committee may permit an optionee to make certain transfers of non-qualified stock options, provided that the transfers are to "family members" and are not for value, as defined in the General Instructions to Form S-8 under the Securities Act of 1933.
 
The term of each option cannot be more than 10 years from the date of grant, and options can be exercised only during the participant's employment with the Company or one of its subsidiaries. If any option expires or is terminated prior to its exercise in full and prior to the termination of the Plan, the shares subject to such unexercised option will be available for the grant of new options under the Plan. Further, any shares used as full or partial payment by an optionee upon exercise of an option may subsequently be used by the Company to satisfy other options granted under the Plan, subject to the limitation on the total number of shares authorized to be issued under the Plan.
 
The Plan permits an outstanding option to be exercised after termination of employment only to the extent that the option was exercisable on the date of termination but in no event beyond the original term of the option (i) within one year by the estate or rightful heir(s) of the optionee if the optionee's employment is terminated due to the optionee's death; (ii) within one year after the date of such termination if the termination is due to the optionee's Disability (as defined in the Plan); or (iii) within three months after the date of such termination if the termination was due to the optionee's Retirement (as defined in the Plan) or was for reasons other than death or Disability and other than "for cause" (as defined in the Plan). Upon termination of an optionee's employment "for cause," any unexercised options held by the optionee will be forfeited.
 
Unexercised options will terminate in the event of the Company's dissolution, liquidation, or sale of all or substantially all of its assets. In the event of our merger with another corporation, the option would be assumed or an equivalent option substituted by the successor corporation or, if such successor corporation does not agree to assume the option or substitute an equivalent option, the Board can provide for the option holder to have the right to exercise the option as to all of the optioned shares, including shares as to which the option would not otherwise be exercisable. The number of shares subject to options and the option prices will be appropriately adjusted in the event of changes in our outstanding common stock by reason of stock dividends, recapitalizations, mergers, consolidations, stock splits and combinations of shares, and the like. The Board may at any time terminate or modify the Plan except, that without further approval of the stockholders, the Board may not make any changes to the Plan which would materially increase the number of shares that may be issued under the Plan, materially modify the eligibility requirements for participation in the Plan, or require stockholder approval under the Delaware General Corporation Law, the Exchange Act, or the Internal Revenue Code.
 
The 2004 Plan gives the Board the power to issue a restricted stock award to an employee representing shares of common stock that are issued subject to such restrictions on transfer and other incidents of ownership and such forfeiture conditions as the Board may determine ("Restricted Shares"). In connection with issuance of any Restricted Shares, the Board may (but shall not be obligated to) require the payment of a specified purchase price (which price may be less than Fair Market Value as defined in the Plan).
 
18

 
OTHER PLANS
 
We have not adopted any other deferred compensation, pension, profit sharing, stock option plan or programs for the benefit of our officers or employees. During 2003, the Company established a health insurance benefit plan that is offered to all employees. During 2004, the Company made a dental insurance plan available to all employees.
 
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
 
The following table sets forth information, as of April 9, 2008, with respect to the beneficial ownership of the Company's Common Stock by each person known by the Company to be the beneficial owner of more than five percent (5%) of the outstanding Common Stock and by directors and officers of the Company, both individually and as a group:
 
 
Number of Shares Owned
 
Percentage**
 
   
Beneficially
     
           
Peter F. Russo (1)
   
2,950,000
     
1.33
%
               
Martin G. Chilek (2)
   
2,050,000
   
0.92
%
               
All Officers and Directors as a Group
   
5,000,000
   
2.25
%
               
Egani, Inc. (3)
   
130,000,000
   
59.14
%
               
GZSZ (4)
   
11,000,000
   
5.00
%
 
** Based on 219,807,273 shares outstanding on April 9, 2007.
 

 
(1) In addition to 100,000 shares owned directly, Mr. Russo holds options expiring July 11, 2011 to purchase an aggregate of 2,850,000 shares of common stock at an exercise price of $0.11 per share. Mr. Russo’s address is c/o Delta Mutual, Inc., 111 North Branch Street, Sellersville, PA 19860.

(2) In addition to 50,000 shares owned beneficially, Mr. Chilek holds options expiring July 3, 2011 to purchase an aggregate of 2,000,000 shares of common stock at an exercise price of $0.11 share. Mr. Chilek’s address is c/o Delta Mutual, Inc., 111 North Branch Street, Sellersville, PA 18960.

(3) Egani, Inc. is owned by Daniel R. Peralta and Laura Monica Gallo, each of whom owns 50% of the outstanding equity interests of Egani, Inc. Mr. Peralta is the President and controls the operations of Egani, Inc. The address of Egani, Inc. is 8260 East Raintree Drive, Scottsdale, AZ 85206.

(4) The address of GZSZ Corporation is 119 Lee Avenue, Suite # 188, Brooklyn, NY 11211.
 
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
 
None.
 
19

 
ITEM 13. EXHIBITS.

Exhibit No.
 
Description of Exhibits
     
3.1
 
Articles of Incorporation of the Company, as currently in effect, incorporated herein by reference to Exhibit 3.1 to Amendment No. 1 to the Company's Registration Statement on Form 10-SB filed with the Commission on June 15, 2000.
     
3.1a
 
Amendment to Certificate of Incorporation, filed September 1, 2004. Incorporated herein by reference to Exhibit 3.1a to the Company's Current Report on Form 8-K, filed with the Commission on September 3, 2004.
     
3.1b
 
Form of Restatement of Certificate of Incorporation of Delta Mutual, Inc., as amended. Incorporated herein by reference to Exhibit 3.1b to the Company's Quarterly Report on Form 10-QSB, filed with the Commission on November 15, 2004.
     
3.2
 
By-Laws of the Company. Incorporated herein by reference to Exhibit 3.2 to Amendment No. 1 to the Company's Registration Statement on Form 10-SB filed with the Commission on June 15, 2000.
     
3.2a
 
Amendment to Article III, Section I of the By-Laws. Incorporated herein by reference to the Company's quarterly report on Form 10-QSB, filed with the Commission on November 21, 2000.
     
3.1c
 
Certificate of Amendment to Certificate of Incorporation, filed June 26, 2007. Incorporated herein by reference to Exhibit 3.1c to the Company's quarterly report on Form 10-QSB, filed with the Commission on August 10, 2007.
     
3.1d
 
Form of Restatement of Certificate of Incorporation of Delta Mutual, Inc., as amended. Incorporated herein by reference to Exhibit 3.1d to the Company's quarterly report on Form 10-QSB, filed with the Commission on August 10, 2007.
     
4.1
 
Delta Mutual, Inc. 2001 Employee Stock Option Plan, incorporated herein by reference to Appendix B to the Company's definitive Information Statement pursuant to Section 14C of the Exchange Act, filed with the Commission on November 9, 2001.
     
4.2
 
Delta Mutual, Inc. 2001 Employee Stock Option Plan, as amended December 1, 2003.
     
4.2a
 
Delta Mutual, Inc. 2004 Stock Option Plan. Incorporated herein by reference to Exhibit B to the Company's Definitive Proxy Statement, filed with the Commission on June 16, 2004.
     
4.3
 
Form of 6% Convertible Promissory Notes of the Company due 2006. Incorporated by reference to Exhibit 4.3 to the Company's Current Report on Form 8-K, filed with the Commission on September 24, 2004.
     
4.4
 
Form of Warrants to purchase shares of Common Stock, of the Company issued to the purchasers of the Company's 6% Convertible Promissory Notes. Incorporated by reference to Exhibit 4.4 to the Company's Current Report on Form 8-K, filed with the Commission on September 24, 2004.
     
4.5
 
4% Convertible Promissory Note of the Company due May 2006 issued in the principal amount of $129,160 on May 12, 2004. Incorporated herein by reference to Exhibit 4.5 to the Company's Quarterly Report on Form 10-QSB, filed with the Commission on November 15, 2004.
 
20

 
4.5a
 
Amendment, dated as of May 2, 2006, to 4% Convertible Promissory Note in the principal amount of $129,160. Incorporated herein by reference to Exhibit 4.5a to the Company’s Annual Report on Form 10-KSB, filed with the Commission on April 2, 2007.
     
4.5b
 
Amendment, dated as of July 6, 2006, to 4% Convertible Promissory Note in the principal amount of $129,160. Incorporated herein by reference to Exhibit 4.5b to the Company’s Annual Report on Form 10-KSB, filed with the Commission on April 2, 2007.
     
4.5c
 
Amendment, dated as of October 10, 2006, to 4% Convertible Promissory Note in the principal amount of $100,000. Incorporated herein by reference to Exhibit 4.5c to the Company’s Annual Report on Form 10-KSB, filed with the Commission on April 2, 2007.
     
4.5d
 
Amendment, dated as of November 27, 2006, to 4% Convertible Promissory Note in the principal amount of $100,000. Incorporated herein by reference to Exhibit 4.5d to the Company’s Annual Report on Form 10-KSB, filed with the Commission on April 2, 2007.
     
4.5e
 
Amendment, dated as of February 21, 2007, to 4% Convertible Promissory Note in the principal amount of $100,000. Incorporated herein by reference to Exhibit 4.5e to the Company’s Annual Report on Form 10-KSB, filed with the Commission on April 2, 2007.
     
4.5f
 
Amendment, dated as of February 14, 2008 to 4% Convertible Promissory Note in the principal amount of $100,000, filed herewith.
     
4.6
 
4% Convertible Promissory Note of the Company due May 2006 issued in the principal amount of $193,740 on May 12, 2004. Incorporated herein by reference to Exhibit 4.6 to the Company's Quarterly Report on Form 10-QSB, filed with the Commission on November 15, 2004.
     
4.6a
 
Amendment, dated as of May 2, 2006, to 4% Convertible Promissory Note in the principal amount of $193,740. Incorporated herein by reference to Exhibit 4.6a to the Company’s Annual Report on Form 10-KSB, filed with the Commission on April 2, 2007.
     
4.6b
 
Amendment, dated as of July 6, 2006, to 4% Convertible Promissory Note in the principal amount of $193,740. Incorporated herein by reference to Exhibit 4.6b to the Company’s Annual Report on Form 10-KSB, filed with the Commission on April 2, 2007.
     
4.6c
 
Amendment, dated as of September 8, 2006, to 4% Convertible Promissory Note in the principal amount of $193,740. Incorporated herein by reference to Exhibit 4.6c to the Company’s Annual Report on Form 10-KSB, filed with the Commission on April 2, 2007.
     
4.6d
 
Amendment, dated as of November 21, 2006, to 4% Convertible Promissory Note in the principal amount of $193,740. Incorporated herein by reference to Exhibit 4.6d to the Company’s Annual Report on Form 10-KSB, filed with the Commission on April 2, 2007.
     
4.6e
 
Amendment, dated April 4, 2007, to 4% Convertible Promissory Note in the Principal Amount of $193,740. Incorporated herein by reference to Exhibit 4.6e to the Company's quarterly report on Form 10-QSB, filed with the Commission on August 10, 2007.
 
21

 
4.6f
 
Amendment, dated September 7, 2007 to Convertible Promissory Note in the principal amount of $193,740. Incorporated herein by reference to Exhibit 4.6f to the Company's quarterly report on Form 10-QSB, filed with the Commission on November 9, 2007.
     
4.7
 
4% Convertible Promissory Note "A" of the Company due December 2006 issued in the principal amount of $157,000 on July 1, 2004. Incorporated herein by reference to Exhibit 4.7 to the Company's Quarterly Report on Form 10-QSB, filed with the Commission on November 15, 2004.
 
4.8
 
4% Convertible Promissory Note "B" of the Company due January 2007 issued in the principal amount of $37,500 on July 16, 2004. Incorporated herein by reference to Exhibit 4.8 to the Company's Quarterly Report on Form 10-QSB, filed with the Commission on November 15, 2004.
     
4.9
 
6% Promissory note of the Company due December 2005 issued in the principal amount of $71,731.29 on March 22, 2005. Incorporated herein by reference to Exhibit 4.9 to the Company's current report on Form 8K filed with the Commission on March 25, 2005.
     
4.10
 
8% Promissory note of the Company due October 2, 2005 issued in the principal amount of $210,655.04 on April 5, 2004. Incorporated herein by reference to Exhibit 4.10 to the Company's current report on Form 8K filed with the Commission on April 11, 2005.
     
4.11
 
6% Convertible Promissory Note due September 6, 2007, issued in the aggregate principal amount of $266,000 on April 5, 2007. Incorporated herein by reference to Exhibit 4.7 to the Company's current report on Form 8K filed with the Commission on April 11, 2007.
     
4.11a
 
Amended and Restated 6% Convertible Promissory Note due April 5, 2008, issued in the aggregate principal amount of $266,000 on April 30, 2007. Incorporated herein by reference to Exhibit 4.7a to the Company's current report on Form 8K filed with the Commission on May 2, 2007.
     
4.12
 
10% Convertible Promissory Note due June 2008, issued in the aggregate principal amount of $550,000 on May 1, 2007. Incorporated herein by reference to Exhibit 4.12 to the Company's current report on Form 8K filed with the Commission May 5, 2007.
     
10.1
 
Agreement of Sale with Enterprises Solutions, Inc. dated May 11, 2001, and amendments. Incorporated herein by reference to Exhibit 10.2 to the Company's current report on Form 8-K, filed with the Commission on May 23, 2001.
     
10.2
 
Promissory note from Enterprises Solutions, Inc. dated October 31, 2001. Incorporated by reference to Exhibit 10.3 to the Company's annual report on Form 10-KSB, filed with the Commission on April 16, 2002.
     
10.3
 
Promissory Note to Rosanne Solomon dated November 27, 2001. Incorporated herein by reference to Exhibit 10.1 to Amendment No. 3 to the Company's registration statement on Form S-4,filed with the Commission on November 30, 2001.
 
22

 
10.4
 
License Agreement with Enterprises Solutions, Inc. dated December 11, 2001. Incorporated by reference to Exhibit 10.5 to the Company's annual report on Form 10-KSB, filed with the Commission on April 16, 2002.
     
10.5
 
Employment Agreement between Kenneth A. Martin and the Company. Incorporated by reference to Exhibit 10.6 to the Company's annual report on Form 10-KSB, filed with the Commission on April 16, 2002.
     
10.6
 
Agreement, dated January 13, 2003, between the Company and Kenneth A. Martin. Incorporated by reference to Exhibit 10.7 to the Company's registration statement on Form S-8, filed with the Commission on February 13, 2003.
 
23

 
10.7
 
Agreement, dated February 3, 2003, between the Company and Peter F. Russo. Incorporated by reference to Exhibit 10.8 to the Company's registration statement on Form S-8, filed with the Commission on February 13, 2003.
     
10.8
 
Agreement, dated February 4, 2003, between the Company and J. Dapray Muir. Incorporated by reference to Exhibit 10.9 to the Company's registration statement on Form S-8, filed with the Commission on February 13, 2003.
     
10.9
 
Executive Employment Agreement, effective March 11, 2003, by and between the Company and Peter F. Russo. Incorporated herein by reference to Exhibit 10.8 to the Company's Annual Report on Form 10-KSB, filed with the Commission on April 14, 2003.
     
10.10
 
Consulting Agreement, effective February 28, 2003, between M.U.R.G., LLC and Delta Mutual, Inc. Incorporated herein by reference to Exhibit 10.9 to the Company's Annual Report on Form 10-KSB, filed with the Commission on April 14, 2003.
     
10.11
 
Agreement, March 31, 2003, between the Company and Burrows Consulting Inc. Incorporated herein by reference to Exhibit 10.3 to the Company's current report on Form 8-K, filed with the Commission on April 25, 2003.
     
10.12
 
License Agreement with Joseph Friedman and Sons, International, Inc., dated April 2, 2003. Incorporated herein by reference to Exhibit 10.7 to the Company's Annual Report on Form 10-KSB, filed with the Commission on April 14, 2003.
     
10.13
 
Agreement, dated July 1, 2003, between the Company and Gary T. Robinson. Incorporated herein by reference to Exhibit 10.10 to the Company's registration statement on Form S-8, filed with the Commission on August 20, 2003.
     
10.14
 
Agreement, dated August 29, 2003, between the Company and Burrows Consulting Inc. Incorporated herein reference to Exhibit 10.10 to the Company's current report on Form 8-K, filed with the Commission on September 4, 2003.

24

 
10.15
 
Strategic Alliance Agreement, dated September 10, 2003, between Delta-Envirotech, Inc. and ZAFF International Ltd. Incorporated herein by reference to Exhibit 99.2 to the Company's current report on Form 8-K, filed with the Commission on January 22, 2004.
     
10.16
 
Agreement, dated January 14, 2004, by and between Delta Mutual, Inc. and Hi Tech Consulting and Construction, Inc. Incorporated herein by reference to Exhibit 10.16 to the Company's Annual Report on Form 10-KSB, filed with the Commission on April 6, 2004.
     
10.17
 
Agreement to Purchase Stock, dated January 14, 2004, between Delta Mutual, Inc. and Hi Tech Consulting and Construction, Inc., as sellers, and Ali Razmara, as purchaser. Incorporated herein by reference to Exhibit 10.17 to the Company's Annual Report on Form 10-KSB, filed with the Commission on April 6, 2004.
     
10.18
 
Consulting Agreement, dated as of March 21, 2004, between Delta Mutual, Inc. and Clark Street Capital. Incorporated herein by reference to Exhibit 10.18 to the Company's Quarterly Report on Form 10-QSB, filed May 19, 2004.
     
10.19
 
Consulting Services Agreement, dated as of April 16, 2004, between Delta Mutual, Inc. and Basic Investors, Inc. Incorporated herein by reference to Exhibit 10.19 to the Company's Quarterly Report on Form 10-QSB, filed May 19, 2004.
     
10.20
 
Memorandum of Understanding, dated as of March 17, 2004, by and between Delta-Envirotech, Inc., PT Faryan Nusantara and Crescent Aeronautical Technology. Incorporated herein by reference to Exhibit 10.20 to the Company's Quarterly Report on Form 10-QSB, filed May 19, 2004.
     
10.21
 
Agreement, dated April 5, 2004, Trans Indies Realty Investment Corporation and Delta Developers Corp. Incorporated herein by reference to Exhibit 10.21 to the Company's Quarterly Report on Form 10-QSB, filed August 12, 2004.
 
25

 
10.22
 
Term Sheet, dated May 12, 2004, among Delta Mutual, Inc., Neil Berman and Ivano Angelastri. Incorporated herein by reference to Exhibit 10.22 to the Company's Quarterly Report on Form 10-QSB, filed August 12, 2004.
     
10.23
 
Term Sheet, dated July 1, 2004, between Delta Mutual, Inc. and Neil Berman. Incorporated herein by reference to Exhibit 10.23 to the Company's Quarterly Report on Form 10-QSB, filed August 12, 2004.
     
10.24
 
Settlement Agreement and Mutual General Releases, dated November 26, 2004, between the Company and Joseph Friedman and Sons International, Inc. Incorporated herein by reference to Exhibit 10.24 to the Company's Current Report on Form 8-K, filed with the Commission on December 2, 2004.
     
10.26
 
Executive Employment Agreement, dated May 23, 2005, between Delta Mutual, Inc. and Martin G. Chilek. Incorporated herein by reference to Exhibit 10.26 to the Company's Current Report on Form 8-K, filed with the Commission on May 25, 2005.
     
10.27
 
Investment Banking Agreement, dated June 17, 2005, between Delta Mutual, Inc. and T&T Vermoegensverwaltungs AG. Incorporated herein by reference to Exhibit 10.27 to the Company's Current Report on Form 8-K, filed with the Commission on June 30, 2005.
     
10.27a
 
Addendum, dated August 3, 2005, to Investment Banking Agreement, dated June 17, 2005, by and between Delta Mutual, Inc. and T&T Vermoegensverwaltungs AG. Incorporated herein by reference to Exhibit 10.27a to the Company's Amended Current Report on Form 8-K, filed with the Commission on August 18, 2005.
     
10.28
 
Purchase Agreement, dated August 26, 2005, by and between Delta Technologies, Inc., as Buyer, and Richard F. Straub, Jr. and John M. Latza, as Sellers. Incorporated herein by reference to Exhibit 10.28 to the Company's Current Report on Form 8-K, filed with the Commission on August 31, 2005.
     
10.29
 
Consulting Services Agreement, dated August 26, 2005, by and between Delta Mutual, Inc. and Juan Bautista Rodriguez Pagan. Incorporated herein by reference to Exhibit 10.29 to the Company's Current Report on Form 8-K, filed with the Commission on August 31, 2005.
     
10.30
 
Consulting Services Agreement, dated August 26, 2005, by and between Delta Technologies, Inc. and Richard F. Straub, Jr. Incorporated herein by reference to Exhibit 10.30 to the Company's Current Report on Form 8-K, filed with the Commission on August 31, 2005.
     
10.31
 
Service Order, dated February 6, 2006, between Pertamina and PT. Triyudha. Incorporated herein by reference to Exhibit 10.31 to the Company's Current Report on Form 8-K, filed with the Commission on February 27, 2006.
     
10.32
 
Executive Employment Agreement, dated February 28, 2006, between Delta Mutual, Inc. and Peter F. Russo. Incorporated herein by reference to Exhibit 10.32 to the Company's Current Report on Form 8-K, filed with the Commission on March 1, 2006.
     
10.33
 
Form of 8% Term Notes issued April 5, 2005 by Delta Mutual, Inc., in the aggregate principal amount of $210,655. Incorporated herein by reference to Exhibit 10.33 to the Company’s Annual Report on Form 10-KSB, filed with the Commission on April 3, 2006.
 
26

 
10.33a
 
Form of Amendment, dated September 30, 2005, to Delta Mutual, Inc. 8% Term Notes issued April 5, 2005. Incorporated herein by reference to Exhibit 10.33a to the Company’s Annual Report on Form 10-KSB, filed with the Commission on April 3, 2006.

10.33b
 
Form of Second Amendment, dated December 19, 2005, to Delta Mutual, Inc. 8% Term Notes issued April 5, 2005. Incorporated herein by reference to Exhibit 10.33b to the Company’s Annual Report on Form 10-KSB, filed with the Commission on April 3, 2006.
     
10.33c
 
Form of Third Amendment, dated March 20, 2006, to Delta Mutual, Inc. 8% Term Notes issued April 5, 2005. Incorporated herein by reference to Exhibit 10.33c to the Company’s Annual Report on Form 10-KSB, filed with the Commission on April 3, 2006.
     
10.33d
 
Form of Fourth Amendment, dated as of June 2, 2006, to 8% Term Notes issued April 5, 2005. Incorporated herein by reference to Exhibit 10.33d to the Company’s Annual Report on Form 10-KSB, filed with the Commission on April 2, 2007.
     
10.33e
  Form of Amended and Restated 8% Term Notes issued March 6, 2008 by Delta Mutual, Inc. in the aggregate principal amount of $150,655, filed herewith.
     
10.34
 
Placement Agent Agreement, dated June 6, 2006, between Delta Mutual, Inc. And SDM Consultant Corporation. Incorporated herein by reference to Exhibit 10.34 to the Company’s Annual Report on Form 10-KSB, filed with the Commission on April 2, 2007.
     
10.35
 
Membership Interest Purchase Agreement, dated March 4, 2008, between Delta Mutual, Inc. and Egani, Inc. Incorporated herein by reference to Exhibit 10.35 to the Company’s Current Report on Form 8-K, filed with the Commission on March 11, 2008.
     
10.36
 
Consulting Services Agreement, dated September 10, 2007, between Delta Mutual, Inc. and Security Systems International, Inc. Incorporated herein by reference to Exhibit 10.36 to the Company’s Current Report on Form 8-K, filed with the Commission on March 11, 2008.
     
10.37
 
Form of 6% Promissory Notes issued March 6, 2008 by Delta Mutual, Inc. in the aggregate principal amount of $121,000, filed herewith.
     
14.
 
Delta Mutual, Inc. Code of Conduct and Business Ethics. Incorporated herein by reference to Exhibit 10.25 to the Company’s Annual Report on Form 10-KSB, filed with the Commission on April 14, 2005.
     
31.1
 
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.
     
31.2
 
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.
     
32.1
 
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.
     
32.2
 
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.
 
27

 
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
 
(1) Aggregate fees for the last two years:
 
2007
 
2006
 
       
$
41,071
 
$
84,453
 
 
(2) Audit related fees:
 
2007
 
2006
 
       
$
41,071
 
$
76,953
 
 
(3) Tax fees:
 
2007
 
2006
 
$
-0-
 
$
7,500
 
 
(4) All other fees: NA
 
(5) Audit committee pre-approval processes, percentages of services approved by audit committee, percentage of hours spent on audit engagement by persons other than principal accountant's full time employees: NA
 
SIGNATURES
 
In accordance with Section 13 or 15(d) of the Exchange Act, the Company caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
DELTA MUTUAL, INC.
 
Dated: April 11, 2008
 
By:
/s/ Peter F. Russo
Peter F. Russo
President, Chief Executive Officer and Sole Director
 
By:
/s/ Martin G. Chilek
Martin G. Chilek
Senior Vice President and Chief Financial Officer
Principal Financial Officer
 
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following person on behalf of the Registrant in the capacities indicated, on April 11, 2008.
 
/s/ Peter F. Russo
Peter F. Russo, President, Chief Executive Officer and Sole Director
 
28

 
EXHIBIT A
 
DELTA MUTUAL, INC. AND CONSOLIDATED SUBSIDIARIES

INDEX TO FINANCIAL STATEMENTS

   
PAGE
     
Report of Independent Registered Public Accounting Firm
 
F-1
     
Financial Statements:
   
     
Consolidated Balance Sheet as of December 31, 2007 and 2006
 
F-2
     
Consolidated Statements of Operations for the years ended
   
December 31, 2007 and 2006
 
F-3
     
Consolidated Statements of Stockholders' Deficiency as of
   
December 31, 2007 and 2006
 
F-4
     
Consolidated Statements of Cash Flows for the years ended
   
December 31, 2007 and 2006
 
F-6
     
Notes to Consolidated Financial Statements
 
F-8

29

 

[LETTERHEAD OF WIENER, GOODMAN & COMPANY, P.C.]
 
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and Stockholders of
Delta Mutual Inc.


We have audited the accompanying consolidated balance sheets of Delta Mutual, Inc. and subsidiaries (“Delta” or the “Company”) as of December 31, 2007 and 2006 and the related consolidated statements of operations, stockholders’ deficiency and cash flows for each of the two years in the period ended December 31, 2007. 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 audit.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Delta Mutual, Inc. and subsidiaries as of December 31, 2007 and 2006, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2007, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. Since 2003, Company management has embarked upon a new mission and strategic direction, by establishing a series of subsidiaries and joint ventures, primarily engaged in providing environmental and construction technologies and services to certain geographic reporting segments. As more fully explained in Note 1 to the financial statements, the Company has a deficiency in working capital at December 31, 2007, incurred losses from operations since inception, needs to obtain additional financing to meet its obligations on a timely basis and to fulfill its proposed activities and ultimately achieve a level of sales adequate to support its cost structure.

These uncertainties raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans are also described in Note 1. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties should the Company be unable to continue as a going concern.

 

Wiener, Goodman & Company, P.C.

Eatontown, New Jersey
March 27, 2008
 
F-1

 
DELTA MUTUAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
 
   
December 31,
 
   
2007
 
2006
 
ASSETS
         
           
Current Assets:
         
Cash
 
$
57,633
 
$
211,147
 
Prepaid expenses
   
1,914
   
249,954
 
Total Current Assets
   
59,547
   
461,101
 
               
Property and equipment - net
   
368,123
   
448,581
 
Intangible asset
   
126,317
   
133,467
 
Other assets
   
650
   
1,400
 
               
TOTAL ASSETS
 
$
554,637
 
$
1,044,549
 
               
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
             
               
Current Liabilities:
             
Accounts payable
 
$
173,370
 
$
168,403
 
Accrued expenses
   
1,225,674
   
890,351
 
Convertible debt
   
397,340
   
369,740
 
Notes payable
   
240,655
   
240,655
 
               
TOTAL LIABILITIES
   
2,037,039
   
1,669,149
 
               
Minority interest in consolidated subsidiaries
   
225,797
   
241,550
 
               
Stockholders' Deficiency:
             
Common stock $0.0001 par value - authorized 250,000,000 shares; 78,882,953 and 62,161,246 outstanding, respectively
   
7,888
   
6,216
 
Additional paid-in-capital
   
9,366,766
   
7,734,138
 
Accumulated deficit
   
(11,082,853
)
 
(8,862,504
)
Deferred Stock Purchase
   
-
   
266,000
 
Subscription Receivable
   
-
   
(10,000
)
Total Stockholders' Deficiency
   
(1,708,199
)
 
(866,150
)
               
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY
 
$
554,637
 
$
1,044,549
 

See Notes to Consolidated Financial Statements
 
F-2


DELTA MUTUAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

   
Years Ended December 31,
 
   
2007
 
2006
 
           
Revenue
   
-
 
$
279,870
 
               
Costs and Expenses:
             
Cost of Sales
   
-
   
238,897
 
General and administrative expenses
   
2,213,030
   
2,349,438
 
Impairment of long term assets
   
25,000
   
35,200
 
     
2,238,030
   
2,623,535
 
               
Loss from operations
   
(2,238,030
)
 
(2,343,665
)
               
Accretion of convertible debt
   
-
   
(175,385
)
               
Interest expense
   
(31,041
)
 
(42,876
)
               
Loss before minority interest
   
2,269,071
   
(2,561,926
)
               
Minority interest share of loss of consolidated subsidiaries
   
48,722
   
19,661
 
               
Loss before benefit from income taxes
   
(2,220,349
)
 
(2,542,265
)
               
Provision for income taxes
   
-
   
-
 
               
Net loss
 
$
(2,220,349
)
$
(2,542,265
)
               
Loss per common share- basic and diluted
 
$
(0.03
)
$
(0.05
)
               
Weighted average number of common shares outstanding- basic and diluted
   
66,169,646
   
48,419,689
 

See Notes to Consolidated Financial Statements
 
F-3


DELTA MUTUAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY

   
Number of
                 
Deferred
     
   
Common
 
Common
 
Paid in
 
Accumulated
 
Subscription
 
Stock
     
   
Shares
 
Stock
 
Capital
 
Deficit
 
Receivable
 
Purchase
 
Total
 
                               
Balance, January 1, 2007
   
62,161,246
   
6,216
   
7,734,138
   
(8,862,504
)
 
(10,000
)
 
266,000
   
(866,150
)
                                             
Issuance of common stock for interest expense (valued at $0.06 - $0.125 per share)
   
135,040
   
13
   
15,307
   
-
   
-
   
-
   
15,320
 
                                             
Issuance of common stock for convertible debt (valued at $0.05 - $.125 per share)
   
16,586,667
   
1,659
   
830,341
   
-
   
-
   
-
   
832,000
 
                                             
Conversion to convertible notes
   
-
   
-
   
-
   
-
   
-
   
(266,000
)
 
(266,000
)
                                             
Receipt of subscribed stock
   
-
   
-
   
-
   
-
   
10,000
   
-
   
10,000
 
                                             
Stock based compensation expense
   
-
   
-
   
786,980
   
-
   
-
   
-
   
786,980
 
                                             
Net (loss)
   
-
   
-
   
-
   
(2,220,349
)
 
-
   
-
   
(2,220,349
)
                                             
Balance, December 31, 2007
   
78,882,953
 
$
7,888
 
$
9,366,766
 
$
(11,082,853
)
$
-
 
$
-
 
$
(1,708,199
)

See Notes to Consolidated Financial Statements

F-4


DELTA MUTUAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY

   
Number of
                 
Deferred
 
Deferred
     
   
Common
 
Common
 
Paid in
 
Accumulated
 
Subscription
 
Stock
 
Compensation
     
   
Shares
 
Stock
 
Capital
 
Deficit
 
Receivable
 
Purchase
 
Expense
 
Total
 
                                   
Balance, January 1, 2006
   
35,321,598
 
$
3,532
 
$
5,441,047
 
$
(6,320,239
)
$
(10,000
)
$
-
 
$
(300,000
)
$
(1,185,660
)
                                                   
Issuance of common stock for interest expense (valued at $0.05 per share)
   
517,426
   
52
   
25,819
   
-
   
-
   
-
   
-
   
25,871
 
                                                   
Issuance of common stock for convertible debt (valued at $0.05 - $.125 per share)
   
5,753,280
   
575
   
386,628
   
-
   
-
   
-
   
-
   
387,203
 
                                                   
Sales of common stock (valued at $0.05 - $.12 per share)
   
17,182,212
   
1,718
   
832,782
   
-
   
-
   
-
   
-
   
834,500
 
                                                   
Issuance of common stock for services (valued at $0.09 - $.38 per share)
   
2,431,730
   
243
   
462,398
   
-
   
-
   
-
   
-
   
462,641
 
                                                   
Issuance of common stock upon exercise of warrants (valued at $0.10 per share)
   
730,000
   
73
   
72,927
   
-
   
-
   
-
   
-
   
73,000
 
                                                   
Issuance of common stock for settlement (valued at $0.19 per share)
   
225,000
   
23
   
42,727
   
-
   
-
   
-
   
-
   
42,750
 
                                                   
Adoption of SFAS No. 123 [R]
   
-
   
-
   
(300,000
)
 
-
   
-
   
-
   
300,000
   
-
 
                                                   
Deposit on common stock not yet issued
   
-
   
-
   
-
   
-
   
-
   
266,000
   
-
   
266,000
 
                                                   
Stock based compensation expense
   
-
   
-
   
769,810
   
-
   
-
   
-
   
-
   
769,810
 
                                                   
Net (loss)
   
-
   
-
   
-
   
(2,542,265
)
 
-
   
-
   
-
   
(2,542,265
)
                                                   
Balance, December 31, 2006
   
62,161,246
   
6,216
   
7,734,138
   
(8,862,504
)
 
(10,000
)
 
266,000
   
-
   
(866,150
)

See Notes to Consolidated Financial Statements
 
F-5


DELTA MUTUAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

   
Years Ended December 31,
 
   
2007
 
2006
 
Cash flows from operating activities:
         
           
Net loss
 
$
(2,220,349
)
$
(2,542,265
)
Adjustments to reconcile net loss to net cash used in operating activities:
             
Depreciation and amortization
   
52,108
   
48,825
 
Non-cash compensation
   
15,320
   
427,512
 
Accretion of convertible debt
   
-
   
175,385
 
Compensatory element of option issuance
   
786,980
   
769,810
 
Impairment of long term asset
   
25,000
   
35,200
 
Minority interest in losses of consolidated subsidiaries
   
(48,722
)
 
(19,661
)
Changes in operating assets and liabilities
   
615,680
   
139,153
 
Net cash used in operating activities
   
(773,983
)
 
(966,041
)
               
Cash flows from investing activities:
             
Deposit on land
   
(25,000
)
 
-
 
Purchase of fixed assets
   
-
   
(89,258
)
Refund of land deposit
   
35,500
   
-
 
Net cash provided by investing activities
   
10,500
   
(89,258
)
               
Cash flows from financing activities:
             
Proceeds from sale of common stock and deferred stock purchase
   
10,000
   
1,100,500
 
Proceeds from exercise of warrants
   
-
   
73,000
 
Proceeds from loans
   
-
   
30,000
 
Proceeds from convertible debt financing
   
567,000
   
16,000
 
Repayment of loan
   
-
   
(23,910
)
Payments to minority interests
   
(60,376
)
 
(311,261
)
Proceeds from minority interest
   
93,345
   
315,074
 
               
Net cash provided by financing activities
   
609,969
   
1,199,403
 
               
Net increase (decrease) in cash
   
(153,514
)
 
144,104
 
Cash - Beginning of year
   
211,147
   
67,042
 
Cash - End of year
 
$
57,633
 
$
211,146
 

See Notes to Consolidated Financial Statements
 
F-6


DELTA MUTUAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)

   
Years Ended December 31,
 
   
2007
 
2006
 
Supplementary information:
             
Cash paid during year for:
             
Interest
 
$
-
 
$
1,564
 
Income taxes
 
$
-
 
$
-
 
               
Changes in operating assets and liabilities consists of:
             
Increase in accounts receivable
   
-
   
20,000
 
Decrease in prepaid expenses
   
248,040
   
15,895
 
Decrease in other assets
   
750
   
-
 
Increase in accounts payable and accrued expenses
   
366,890
   
103,258
 
   
$
615,680
 
$
139,153
 
Non-cash financing activities:
             
               
Issuance of common stock for convertible debt
 
$
832,000
 
$
387,202
 
               
Issuance of convertible notes for deferred stock purchase
 
$
266,000
 
$
-
 
               
Issuance of common stock in lieu of payment of accrued expenses
 
$
15,320
 
$
-
 
               
Issuance of common stock for services
 
$
-
 
$
462,641
 
               
Issuance of common stock for settlement
 
$
-
 
$
42,750
 

See Notes to Consolidated Financial Statements
 
F-7

 
DELTA MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2007 and 2006

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

Delta Mutual, Inc. and its subsidiaries ("Delta" or the "Company") are engaged in providing environmental and construction technologies and services to certain geographic reporting segments in the Far East, the Middle East and the United States. The Company formerly operated in a fourth reportable segment, Puerto Rico. As of the close of the quarterly reporting period ended September 30, 2007, the Company discontinued all operations in Puerto Rico. See Note 4 and Note 12 for further information regarding these discontinued operations.

The Company's environmental activities are conducted by its joint venture subsidiary, Delta-Envirotech, Inc. ("Envirotech") headquartered in Virginia. Envirotech has established a strategic alliance with ZAFF International, Ltd., a technology company in Saudi Arabia, to pursue environmental and other projects in Saudi Arabia and other areas of the Middle East. Envirotech also formed a local joint venture company in Indonesia, PT Triyudha-Envirotech, to perform energy and waste recovery operations in that country.

The Company's construction technology activities are conducted through its wholly owned U.S. subsidiary, Delta Technologies, Inc. ("Technologies"). Technologies acquired the intellectual property rights and filed a patent for a new insulating concrete wall forming (ICF) system known as Delta Wall.

BASIS OF PRESENTATION

The Company's financial statements for the year ended December 31, 2007 have been prepared on a going concern basis which contemplates the realization of assets and settlement of liabilities and commitments in the normal course of business. The Company had no revenue in 2007 and as of December 31, 2007, there was a working capital deficit of approximately $2 million. Management recognizes that the Company's continued existence is dependent upon its ability to obtain needed working capital through additional equity and/or debt financing and revenue to cover expenses as the Company continues to incur losses.

The Company's business is subject to most of the risks inherent in the establishment of a new business enterprise. The likelihood of success of the Company must be considered in light of the expenses, difficulties, delays and unanticipated challenges encountered in connection with the formation of a new business, raising operating and development capital, and the marketing of a new product. There is no assurance the Company will ultimately achieve a profitable level of operations.
 
F-8


The Company presently does not have sufficient liquid assets to finance its anticipated funding needs and obligations. The Company's continued existence is dependent upon its ability to obtain needed working capital through additional equity and/or debt financing and achieve a level of sales adequate to support its cost structure. Management is actively seeking additional capital to ensure the continuation of its current activities and complete its proposed activities. However, there is no assurance that additional capital will be obtained or that the Company’s subsidiaries will be profitable. These uncertainties raise substantial doubt about the ability of the Company to continue as a going concern. The accompanying financial statements do not include any adjustments that might result from the outcome of these uncertainties should the Company be unable to continue as a going concern.

SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The Company's financial statements include the accounts of all majority-owned subsidiaries where its ownership is more than 50 percent of common stock. The consolidated financial statements also include the accounts of any Variable Interest Entities ("VIEs") where the Company is deemed to be the primary beneficiary, regardless of its ownership percentage. All significant intercompany balances and transactions with consolidated subsidiaries are eliminated in the consolidated financial statements. Where the Company's ownership interest is less than 100 percent, the minority ownership interests are reported in the consolidated balance sheets as a liability. The minority ownership interest of the Company's earnings or loss, net of tax, is classified as "Minority interest in earnings of consolidated subsidiaries" in the consolidated statements of operations.

USE OF ESTIMATES

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates.

LOSS PER SHARE

Basic and diluted loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding during the year. Potential common shares are excluded from the loss per share calculation because the effect would be antidilutive. Potential common shares relate to the convertible debt, stock options and common stock purchase warrants. As of December 31, 2007 and 2006, there were 4,421,920 and 3,816,587 potential common shares related to convertible debt, respectively, and 7,978,000 and 7,978,000, potential common shares related to stock options, respectively.

REVENUE RECOGNITION

The Company recognizes revenue in accordance with the guidance contained in SEC Staff Accounting Bulletin No. 104 "Revenue Recognition Financial Statements" (SAB No. 104). Revenue is recognized from the Company's environmental remediation operation as the services are performed over the life of the remediation contracts.
 
F-9


PREACQUISITION COSTS

The Company accounts for costs incurred prior to the date of an acquisition of real property as preacquisition costs. Preacquisition costs are capitalized if the property was acquired or the acquisition of the property is probable. Capitalized preacquisition costs in excess of recoverable amounts are charged to expense.

EVALUATION OF LONG-LIVED ASSETS

The Company reviews property and equipment and finite-lived intangible assets for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable in accordance with guidance in Statement of Financial Accounting Standards (SFAS) No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets." If the carrying value of the long-lived asset exceeds the present value of the related estimated future cash flows, the asset would be adjusted to its fair value and an impairment loss would be charged to operations in the period identified.

DEPRECIATION AND AMORTIZATION

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

STOCK-BASED COMPENSATION

The Company has a stock-based compensation plan under which stock options are granted to employees. Effective January 1, 2006, the Company accounts for stock based compensation under Statement of Financial Accounting Standards ("SFAS") No. 123(R), "Share-Based Payment." The Company adopted SFAS 123(R) using the modified prospective method. Under modified prospective application, this SFAS applies to new awards and to awards for which the requisite service has not been rendered that are outstanding as of the required effective date shall be recognized as the requisite service is rendered on or after the required effective date. The compensation cost for the portion of awards shall be based on the grant-date fair value of those awards as calculated for either recognition or pro forma disclosures under SFAS 123. Changes to the grant-date fair value of equity awards granted before the required effective date of this Statement are precluded. The compensation cost for those earlier awards shall be attributed to periods beginning on or after the required effective date of this SFAS using the attribution method that was used under SFAS 123, except that the method of recognizing forfeitures only as they occur shall not be continued.
 
INCOME TAXES

The Company accounts for income taxes using an asset and liability approach under which deferred taxes are recognized by applying enacted tax rates applicable to future years to the differences between financial statement carrying amounts and the tax basis of reported assets and liabilities. The principal item giving rise to deferred taxes are future tax benefits of certain net operating loss carryforwards.

F-10

 
FOREIGN CURRENCY TRANSLATION

The functional currency for some foreign operations is the local currency. Assets and liabilities of foreign operations are translated at balance sheet date rates of exchange and income, expense and cash flow items are translated at the average exchange rate for the period. Translation adjustments in future periods will be recorded in Cumulative Other Comprehensive Income. The translation gains or losses were not material for the years ended December 31, 2007 and 2006.

INTANGIBLES

Effective January 1, 2002, the Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 specifies the financial accounting and reporting for acquired goodwill and other intangible assets. Goodwill and intangible assets deemed to have indefinite useful lives are not amortized but are subject to, at a minimum, an annual impairment test. If the carrying value of goodwill or intangible assets exceeds its fair market value, an impairment loss would be recorded.

FAIR VALUE OF FINANCIAL INSTRUMENTS

For financial instruments including cash, accounts payable, accrued expenses, notes payable and convertible debt, it was assumed that the carrying amount approximated fair value because of the short maturities of such instruments.

RECLASSIFICATIONS

Certain reclassifications of accrued expenses have been made to prior period amounts to conform to the current year presentation.

NEW FINANCIAL ACCOUNTING STANDARDS

In September 2006, the Finanacial Acounting Standards Board (“FASB”) issued SFAS No. 157, "Fair Value Measurements," (“SFAS 157”) which enhances existing guidance for measuring assets and liabilities using fair value. This Standard provides a single definition of fair value, together with a framework for measuring it, and requires additional disclosure about the use of fair value to measure assets and liabilities. SFAS 157, as amended by FASB Staff Position 157-2, is effective for financial statements issued for fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The Company does not believe that SFAS No. 157 will have a material impact on its consolidated financial statements.

In July 2006, the FASB issued Interpretation No. 48 “Accounting for Uncertainty in Income Taxes” (“FIN 48”). The Interpretation requires a two step approach for recognizing and measuring tax benefits based on a recognition threshold of “more likely than not.” The FASB also requires explicit disclosure about uncertainties in tax positions including a detailed rollforward of tax benefits that do not qualify for financial statement recognition. The adoption of FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company adopted the provisions of FIN 48 on January 1, 2007. As a result of the implementation of FIN 48, the Company recognized no adjustment in the net liability for unrecognized income tax benefits.

F-11

 
In February 2007, the FASB issued SFAS No. 159 ("SFAS 159") "The Fair Value Option for Financial Assets and Financial Liabilities," providing companies with an option to report selected financial assets and liabilities at fair value. The Standard's objective is to reduce both complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. It also requires entities to display the fair value of those assets and liabilities for which the Company has chosen to use fair value on the face of the balance sheet. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact of the adoption of this Statement on its consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141 (revised 2007) (“SFAS 141(R)”) “Business Combinations,” which replaces SFAS 141 “Business Combinations.” This Statement improves the relevance, completeness and representational faithfulness of the information provided in financial reports about the assets acquired and liabilities assumed in a business combination. This Statement requires an acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date, measured at their fair values as of that date, with limited exceptions specified in the Statement. Under SFAS 141 (R), the acquisition-related costs, including restructuring costs, must be recognized separately from the acquisition and will generally be expensed as incurred. That replaces SFAS 141’s cost-allocation process, which required the cost of an acquisition to be allocated to the individual assets acquired and liabilities assumed based on their estimated fair values. SFAS 141(R) shall be applied prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual report period beginning on or after December 15, 2008. The Company will implement this Statement in 2009.

In December 2007, the FASB issued SFAS No.160 “Non-Controlling Interests in Consolidated Financial Statements – An Amendment of ARB No. 151” (“SFAS 160”). SFAS 160 established new accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. Specifically, this Statement requires the recognition of non-controlling interests (minority interests) as equity in the consolidated financial statements and separate from parent’s equity. The amount of net income attributable to the non-controlling interest will be included in consolidated net income on the face of the income statement. SFAS 160 clarifies that changes in a parent’s ownership in a subsidiary that does not result in deconsolidation, are equity transactions if the parent retains its controlling financial interest. In addition, this Statement requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. Such gain or loss will be measured using the fair value of the non-controlling equity investment as of the deconsolidation date. SFAS 160 also includes expanded disclosure requirements regarding the interest of the parent and its non-controlling interest. SFAS 160 is effective for fiscal years, and interim periods other than fiscal years, beginning on or after December 2008. The Company is currently evaluating the impact of the adoption of this Statement on its financial statements.

F-12

 
In January 2008, Staff Accounting Bulletin (SAB”) 110 “Share-Based Payment” (“SAB 110”) was issued. Registrants may continue, under certain circumstances, to use the simplified method in developing estimates of the expected term of share options as initially allowed by SAB 107, “Share-Based Payments.” The adoption of SAB 110 should have no effect on the financial position and results of operations of the Company.

2. PROPERTY AND EQUIPMENT

   
December 31,
 
   
2007
 
2006
 
           
Equipment
 
$
455,035
 
$
455,035
 
Deposits on land
   
0
   
35,500
 
Leasehold improvements
   
7,807
   
7,807
 
     
462,842
   
498,342
 
Less accumulated depreciation
   
94,719
   
49,761
 
               
   
$
368,123
 
$
448,581
 

Depreciation expense for the years ended December 31, 2007 and 2006, amounted to $44,958 and $41,675 respectively.

3. INTANGIBLE ASSETS

Intangible assets are intellectual property included in a patent application. If the patent is not issued, the Company will write-off the unamortized amounts immediately. Amortization expense was $7,150 and $7,150 for the years ended December 31, 2007 and 2006, respectively. Other intangible assets consist of the following:

   
December 31,
 
   
2007
 
2006
 
           
Gross Carrying Amount
 
$
143,000
 
$
143,000
 
               
Accumulated Amortization
   
16,683
   
9,533
 
Intellectual property costs
 
$
126,317
 
$
133,467
 
 
Estimated amortization expense for intangible assets for the next five years is as follows:
 
F-13

 
Estimated
 
 
 
Year Ending
 
Amortization
 
December 31,
 
Expense
 
2008
   
7,150
 
2009
   
7,150
 
2010
   
7,150
 
2011
   
7,150
 
2012
   
7,150
 
 
4. IMPAIRMENT LOSS

During the years ended December 31, 2007 and 2006, the Company wrote off $25,000 and $35,200; respectively, of land deposits related to low income housing projects in Puerto Rico.
 
5. INVESTMENT IN JOINT VENTURES

a.
In December 2003, the Company formed a joint venture to develop Section 124, low income housing in the Commonwealth of Puerto Rico. The Company became the general partner and 75% majority owner of a limited partnership, Delta Development Partners, LP that owns the 85% majority share of Delta Developers Corp., a Puerto Rico corporation, formed to manage the construction and related activities required to build approximately 270 homes under Section 124. During the year ended December 31, 2006, the activities associated with this joint venture were discontinued.

In October 2004, the Company formed a second joint venture to develop Section 124 low income housing in Puerto Rico. The Company became the general partner and majority owner of a limited partnership, Delta Development Partners II, LP that owns the 85% majority share of Delta Developers Guayanilla Corp., a Puerto Rico corporation formed to manage the construction and related activities required to build approximately 300 homes under Section 124. During the first quarter of 2007, the activities associated with this joint venture were discontinued and the land deposit was returned to the joint venture.

In November 2006, the Company entered into a new joint venture to develop Section 124 housing in Puerto Rico. The Company became the general partner and 35% minority owner of limited partnership, Delta TA, LP formed to manage the construction and related activities to build approximately 338 residential units under the Section 124 program. As of the quarter ended September 30, 2007, the activities associated with this partnership have been discontinued.

b.
On January 14, 2004, the Company entered into a joint venture agreement with Hi tech Consulting and Construction, Inc. (“Hi Tech”) forming Delta-Envirotech, Inc. for the purpose of providing environmental technologies and services to markets in the Middle East. The joint venture company is based in Virginia and focuses on participating in foreign government sponsored pollution remediation and other projects.

F-14

 
In July 2004, the Company and Hi-Tech, pursuant to an agreement to purchase stock dated January 14, 2004, each sold 75 shares of the joint venture to a third party, representing a ten percent (10%) interest for $2. The Company and Hi-Tech each own forty-five percent (45%) of the joint venture.

Delta-Envirotech, Inc. meets the definition of a Variable Interest Entity as defined in Financial Accounting Standards Board Interpretation No. 46 (FIN 46),"Consolidation of Variable Interest Entities" requiring the primary beneficiaries of a variable interest entity to consolidate that entity. The primary beneficiary of a variable interest entity is the party that absorbs the majority of the expected losses of the entity or receives a majority of the entity's expected residual return, or both, as a result of ownership, contractual or other financial interest in the entity.

c.
Minority interests primarily consist of outside investors ownership interest in Delta Development Partners, L.P.; Delta Development Partners II, L.P.; Delta TA, LP; Delta Developers Corp.; Delta Developers Guayanilla Corp.; Delta-Envirotech, Inc. and PT Triyudha– Envirotech.
 
The income and losses from operations of these entities and their respective minority interests have been reflected in the Company's statement of operations for the years ended December 31, 2007 and 2006. There are excess losses not absorbed by the minority interests due to limitations of their capital contributions. In future periods, the profits first attributable to the minority interests will be first absorbed against any unused losses until the losses are fully absorbed. The amount on the Company's consolidated balance sheet represents the minority interests as of December 31, 2007 and 2006.
 
The following represents a schedule of minority interests as of December 31,

   
2007
 
2006
 
Delta Development Partners L.P.
 
$
82,087
 
$
145,092
 
Delta Development Partners II, L.P.
   
36,808
   
39,741
 
Delta TA L.P.
   
106,902
   
110,891
 
Delta Developers Corp.
   
   
 
Delta Developers Guayanilla Corp.
   
   
 
Delta-Envirotech, Inc.
   
   
 
PT Triyudha – Envirotech
   
   
(54,174
)
               
   
$
225,797
 
$
241,550
 

F-15


6. NOTES PAYABLE

In April 2005, the Company issued 8% term notes to private investors in the amount of $210,655, with the principal and interest due at maturity on October 2, 2005. Pursuant to note modification agreements, the maturity dates of these notes were extended and in June 2006 these notes became payable on written demand by the lenders. Interest expense for the years ended December 31, 2007 and 2006 amounted to $16,852 and $16,852, respectively. As of December 31, 2007 and 2006, accrued interest of $37,860 and $21,008, respectively, is included in accrued expenses on the Company's consolidated balance sheet.

In May 2006, the Company borrowed $30,000 from an investor (formerly a related party) at interest of 6% per annum with the principal and interest due on May 17, 2008. Interest expense for the years ended December 31, 2007 and 2006 amounted to $1,800 and $1,122, respectively. As of December 31, 2007 and 2006 accrued interest of $2,922 and $1,122, respectively, is included in accrued expenses on the Company's consolidated balance sheet.

7. CONVERTIBLE DEBT

During the year ended December 31, 2004, the Company issued convertible notes in the principal amounts of $961,400. The convertible notes had interest rates from 4% to 6% and matured at various dates between May 12, 2006 and January 16, 2007. These notes are convertible into common stock at a conversion price of $0.05 to $0.125 per share. One note, in the original principal amount of $129,160 that originally matured in May 2006 was amended during 2006 and 2007 extending the maturity date until June 2008. Another note, in the principal amount of $193,740 that originally matured in May 2006 was amended during 2006 and 2007 extending the maturity date to December 1, 2007. The holder of this note has verbally agreed to extend the maturity date and has not made a written demand for payment. The Company is currently negotiating an extension with the noteholder. If the Company and the noteholder can not agree upon an extended maturity date, the Company may receive a notice of default. One note issued by the Company in the principal amount of $60,000, became payable upon written demand by the lender in September 2006. The balance of the convertible notes were converted into 12,923,280 shares of common stock through December 31, 2007.

In connection with the issuance of the convertible notes, the Company issued 8,880,000 common stock purchase warrants at an exercise price of $0.10 per share. The warrants expired March 31, 2006.

The Company accounted for the warrants and the convertible debt with detachable warrants in accordance with Emerging Issues Task Force 00-27 and 00-19 and SFAS No. 33. The Company performed calculations allocating the proceeds of convertible debt with detachable warrants to each respective security at their fair values. The Company used the conversion value of the convertible debt and calculated fair value of the warrants using the Black-Scholes valuation model for its estimate of fair value. The Company compared the allocated proceeds of the convertible debt to the difference between its conversion value and face amount. The calculated fair value of the convertible debt of $722,855 was recorded as the value of the Beneficial Conversion Feature and accordingly credited to Additional Paid-in Capital. The value of the warrants of $235,545 was recorded as a reduction of the convertible debt. The convertible debt was recorded at zero. The convertible debt was accreted to its face value after 2004, 2005 and 2006 conversions, under the interest method per APB 21, until it either converted or matured.

F-16

 
In May 2006, the Company issued a convertible note to a related party in the principal amount of $16,000, bearing interest at 6% per annum. The note was convertible into common stock at a conversion price of $0.06 per share, the fair value at the date of issuance. The note matured on November 3, 2007 and upon maturity the Company issued 266,667 shares of common stock in payment of the principal amount and 24,000 shares of common stock in payment of $1,440 of accrued interest.

During the first quarter of 2007, the Company issued a convertible note to a related party in the principal amount of $17,000, and a convertible note to an investor in the principal amount of $266,000. Both notes bear interest of 6% per annum and are convertible into common stock at an initial conversion price of $0.05 per share, the fair value at the date of issuance. The notes mature in April 2008. In conjunction with the issuance of these two notes, the Company reclassified $266,000 recorded as deferred stock purchase, on its consolidated balance sheet as of December 31, 2006, to convertible notes at March 31, 2007. On October 30, 2007, the holder of the $266,000 note converted the principal amount of the note into 5,320,000 shares of common stock and waived all accrued interest.

In April 2007, the Company issued a convertible note to a related party in the principal amount of $26,600 bearing interest of 6% per annum and convertible into common stock at the conversion price of $0.05 per share, the fair value at the date of issuance. The note matures in April 2008.

During the second and third quarters of 2007, the Company borrowed $550,000 from an investor pursuant to the terms of a convertible promissory note with a maturity date of May 2008; interest of 10% per annum; and convertible into common stock at the conversion price of $0.05 per share, the fair value at the date of issuance. In September 2007, the investor converted the principal amount of the note into 11,000,000 shares of common stock and waived all accrued interest.

During the years ended December 31, 2007 and 2006, the noteholders converted $832,000 and $305,160 principal amount into 16,586,667 and 5,753,280 shares of common stock, respectively.
 
At December 31, 2007, the Company's outstanding convertible notes were convertible into 4,421,920 shares of common stock.

The following table shows the maturities by year of total face amount of the convertible debt obligations at December 31, 2007:

2008
 
$
397,340
 
   
$
397,340
 
 
F-17

 
For the years ended December 31, 2007 and 2006, the Company recorded interest expense of $22,931 and $26,094, respectively. As of December 31, 2007 and 2006, accrued interest of $39,657 and $42,271; respectively, is included in accrued expenses on the Company's consolidated balance sheet.
 
8. ACCRUED EXPENSES

Accrued expenses consists of the following:

   
December 31,
 
   
2007
 
2006
 
           
Professional fees
 
$
34,703
 
$
61,500
 
Interest expense
   
80,439
   
63,278
 
Payroll expense
   
462,195
   
353,320
 
Payroll expense-officers
   
117,436
   
117,436
 
Payroll tax expense
   
34,742
   
36,445
 
Accrued consulting fees
   
144,000
   
30,000
 
Other accrued expenses
   
352,159