FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
{X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2004
OR
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _________________
Commission File Number 000-30563
DELAWARE 14-1818394
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
|
111 NORTH BRANCH STREET, SELLERSVILLE, PA 18960
(215) 258-2800
(Address and telephone number, including area code, of
registrant's principal executive office)
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES X NO
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
At November 11, 2004, there were 15,415,688 shares of Common Stock, $.0001 par value, outstanding.
DELTA MUTUAL, INC.
INDEX
Page
Part I. Financial Information
Item 1. Financial Statements
Balance Sheet as of September 30, 2004 (unaudited) 2
Statements of Operations for the Nine Months Ended September 30,
2004 and 2003 (unaudited) and the Period November 17, 1999 (Date of
Formation) through September 30, 2004 4
Statements of Cash Flows for the Nine Months Ended September 30, 2004
and 2003 (unaudited) and the Period November 17, 1999 (Date of Formation)
through September 30, 2004 5-6
Notes to Financial Statements (unaudited) 7-13
|
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14-20
Item 14. Controls and Procedures 20
Part II. Other Information
Item 1. Legal Proceedings 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
Signatures 22
PART I. Financial Information
Item 1. Financial Statements
Certain information and footnote disclosures required under accounting principles generally accepted in the United States of America have been condensed or omitted from the following consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission. It is suggested that the following consolidated financial statements be read in conjunction with the year-end consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-KSB for the year ended December 31, 2003.
The results of operations for the three and nine months ended September 30, 2004 and 2003 are not necessarily indicative of the results for the entire fiscal year or for any other period.
DELTA MUTUAL INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
ASSETS
September 30,
2004
-----------
(Unaudited)
Current Assets:
Cash $ 98,152
Loan receivable - former officer/stockholder 51,221
Due from related parties 192,000
Prepaid expenses 40
-----------
Total Current Assets 341,413
Fixed assets - net 30,914
Investment in joint ventures 216,023
Capitalized construction costs 170,000
Other assets 1,400
-----------
418,337
-----------
TOTAL ASSETS $ 759,750
===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Current portion of convertible debtentures/notes $ 331,500
Accounts payable 239,011
Accrued expenses 237,016
Due to related party 159,295
-----------
Total Current Liabilities 966,822
-----------
Long Term Liabilities:
Convertible debtentures/notes 517,400
-----------
Minority interest in subsidiaries 122,218
-----------
TOTAL LIABILITIES 1,606,440
Stockholders' Deficiency:
Common stock $0.0001 par value - authorized
100,000,000 shares; 14,415,688
shares issued and outstanding 1,442
Additional paid-in-capital 3,351,370
Deficit accumulated during
the development stage (4,199,502)
-----------
Total Stockholders' Deficiency (846,690)
-----------
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIENCY $ 759,750
===========
|
See notes to consolidated unaudited financial statements.
DELTA MUTUAL INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Period from
Nine Months Ended Three Months Ended November 17, 1999
September 30, September 30, (Date of Formation)
---------------------------- ---------------------------- through
2004 2003 2004 2003 September 30, 2004
------------ ------------ ------------ ------------ ------------------
Revenue $ -- $ -- $ -- $ -- $ --
------------ ------------ ------------ ------------ ------------
Costs and Expenses
General and administrative
expenses (865,316) (805,436) (258,393) (241,425) (2,611,408)
Compensatory element of
warrant issuance (1,456,200) -- (1,456,200) -- (1,456,200)
------------ ------------ ------------ ------------ ------------
(2,321,516) (805,436) (1,714,593) (241,425) (4,067,608)
------------ ------------ ------------ ------------ ------------
Net loss from operations (2,321,516) (805,436) (1,714,593) (241,425) (4,067,608)
------------ ------------ ------------ ------------ ------------
Interest expense (16,889) (35,877) (5,519) (3,318) (60,197)
Minority interest in losses of
consolidated subsidiaries 38,578 -- 13,850 -- 38,578
Equity in losses of joint ventures (110,275) -- (36,336) -- (110,275)
------------ ------------ ------------ ------------ ------------
(88,586) (35,877) (28,005) (3,318) (131,894)
------------ ------------ ------------ ------------ ------------
Net loss $ (2,410,102) $ (841,313) $ (1,742,598) $ (244,743) $ (4,199,502)
============ ============ ============ ============ ============
Loss per common share -
basic and diluted $ 0.17 $ 0.14 $ 0.12 $ 0.03
============ ============ ============ ============
Weighted average number of
common shares outstanding-
basic and diluted 14,051,148 5,987,573 14,250,963 8,236,079
============ ============ ============ ============
|
See notes to consolidated unaudited financial statements.
DELTA MUTUAL INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Period
Nine Months Ended November 17, 1999
September 30, (Date of Formation)
-------------------------- through
2004 2003 September 30, 2004
----------- ----------- -------------------
Cash flows from operating activities:
Net loss $(2,410,102) $ (841,313) $(4,199,502)
Adjustment to reconcile net loss to
net cash used in operating activities:
Depreciation 1,318 798 3,077
Non-cash compensation 214,400 260,500 641,412
Equity in losses of joint ventures 110,275 -- 110,275
Minority interest in losses of
consolidated subsidiaries (38,578) -- (38,578)
Fair market value of warrants 1,456,200 -- 1,456,200
Bad debt -- -- 96,625
Changes in operating assets
and liabilities: (37,299) 253,998 403,067
----------- ----------- -----------
Net cash used in operating activities: (703,786) (326,017) $(1,527,424)
----------- ----------- -----------
Cash flows from investing activities:
Purchase of fixed assets -- (8,792) (33,992)
Advances to joint ventures (328,905) (157,432) (444,014)
----------- ----------- -----------
Net cash used in investing activities (328,905) (166,224) (478,006)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from sale of common stock 186,250 100,000 339,500
Proceeds from loans 363,900 -- 904,644
Repayment of loans -- -- (540,744)
Proceeds from convertible debt 485,000 -- 735,000
Proceeds from former officer and stockholder -- 377,504 570,411
Proceeds from minority interest 148,000 -- 148,150
Repayment to former officer and stockholder (56,364) (165,379)
Proceeds from related party -- 22,000 187,000
Repayment to related parties (10,000) -- (75,000)
----------- ----------- -----------
Net cash provided by
financing activities 1,116,786 499,504 2,103,582
----------- ----------- -----------
Net (decrease) increase in cash 84,095 7,263 98,152
Cash - Beginning of period 14,057 2,871 --
----------- ----------- -----------
Cash - End of period $ 98,152 $ 10,134 $ 98,152
=========== =========== ===========
|
See notes to consolidated unaudited financial statements.
DELTA MUTUAL INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
(Unaudited)
Period
Nine Months Ended November 17, 1999
September 30, (Date of Formation)
------------------------ through
2004 2003 September 30, 2004
--------- --------- -------------------
Non-cash financing activities:
Issuance of common stock for
promissory note $ -- $ 40,000 $ 458,630
========= ========= =========
Offset of note receivable and
convertible debt in connection
with termination agreement $ -- $ 250,000 $ 253,638
========= ========= =========
Issuance of common stock for debt $ 330,400 $ -- $ 330,400
========= ========= =========
Offset of note receivable to
liquidate loan to officer $ -- $ -- $ 350,000
========= ========= =========
Issuance of common stock for
investment in unconsolidated subsidiary $ 7,500 $ -- $ 15,000
========= ========= =========
Issuance of common stock in lieu
of payment of accrued expenses $ -- $ -- $ 93,625
========= ========= =========
Forgiveness of debt to former
shareholder $ -- $ 100,000 $ 398,653
========= ========= =========
Forgiveness of debt from officer
shareholder $ -- $ 93,625 $ 93,625
========= ========= =========
Supplementary information:
Cash paid during year for:
Interest $ -- $ -- $ --
========= ========= =========
Income taxes $ -- $ -- $ --
========= ========= =========
Changes in operating assets and
liabilities consists of:
(Increase) in loan receivable $ (51,221) $ -- $ (51,221)
Decrease in prepaid expenses 3,922 -- (40)
(Increase) decrease in other assets (170,750) (650) (171,400)
Increase in accounts payable
and accrued expenses 180,750 254,648 625,728
--------- --------- ---------
$ (37,299) $ 253,998 $ 403,067
========= ========= =========
|
See notes to consolidated unaudited financial statements.
DELTA MUTUAL INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated balance sheet as of September 30, 2004, and the consolidated statements of operations and cash flows for the periods presented herein have been prepared by Delta Mutual, Inc. (the "Company" or "Delta") and are unaudited. In the opinion of management, all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly, the financial position, results of operations and cash flows for all periods presented have been made.
DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company's consolidated financial statements for the period ended September 30, 2004 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. 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 the commencement of its planned principal operations. At September 30, 2004 operations had not yet commenced and no revenue has been derived; accordingly the Company is considered a development stage enterprise. There is no assurance the Company will achieve a profitable level of operations.
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.
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 development activities and complete the proposed joint ventures. However, there is no assurance that additional capital will be obtained and the joint ventures 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.
Organization
The Company was incorporated under the name Delta Mutual, Inc. ("Delta" or the "Company") on November 17, 1999 in the State of Delaware. The Company is a development stage company and at that time prior Company management intended to provide mortgage services through the Internet to borrowers having substandard credit. Prior management intended to offer varied levels of mortgage and lending services by capitalizing on the popularity of Internet based financial services companies and secured the domain name rights to the name deltamutual.com.
During its first year of existence, prior management believed that it would be able to fund the Company's intended operations through the sale of its common stock. The Company's common stock is quoted on the Over-the-Counter Electronic Bulletin Board under the symbol "DLTM". At the time of its formation, companies with Internet based businesses were treated favorably in the capital markets. In 2000, however, the market for the stock of Internet based businesses deteriorated substantially and many such companies went out of business because they were unable to generate sufficient revenues and were unable to raise additional capital.
From inception through September 30, 2004, the Company raised a limited amount of capital through the sale of common stock: during the period from inception through December 31, 2003, it raised $153,250 through such private placements, and investments and $186,250 during the nine months ended September 30, 2004. These funds were not sufficient to capitalize any of the Company's business plans.
Prior Operations
In April 2001, Kelcon, Inc. ("Kelcon"), a company newly organized by Kenneth A. Martin, acquired a controlling interest (450,000 shares) in Delta with a view to acquiring the assets of Enterprises Solutions, Inc. ("Enterprises"). Kelcon's Delta shares were acquired from two of Delta's directors, James E. Platek (300,000 shares) and Bonnie Cunningham (150,000), for which Kelcon paid a total of $450,000. Mr. Martin paid $75,000 of the purchase price for Delta's shares, and an overseas investor who had previously invested in Enterprises paid $375,000, for which Kelcon issued a 20% promissory note due October 31, 2001. The investor had the right to convert $100,000 principal amount of the note into 100,000 shares of Kelcon's Delta stock. As part of this transaction, Mr. Platek, Ms. Cunningham, and Delta's third director, Robert Franz, resigned and appointed Mr. Martin as Delta's sole director. Mr. Martin then appointed Mr. Sailor H. Mohler and Mr. Phillip Chung as additional directors.
In May 2000, prior Company management entered into an Agreement of Sale pursuant to which Delta was to acquire substantially all Enterprises' assets in exchange for approximately 11,068,307 shares of Delta's common stock. In June 2001, prior Company management prepared and filed with the Securities and Exchange Commission a registration statement for the shares to be issued to Enterprises' stockholders, with a view to consummating the acquisition.
Due to the death of Enterprises' president, the Agreement of Sale with Enterprises was terminated and the Company's registration statement was withdrawn. Shortly thereafter, Messrs. Sailor H. Mohler and Phillip Chung resigned as directors of the Company.
In August, 2002, prior Company management executed a letter of intent to merge with Helvetia Pharmaceuticals, Inc. After a due diligence period, prior Company management terminated negotiations and that proposed transaction was never consummated.
Change of Control
In November, 2002, Kelcon, Inc. contracted for the sale of its 450,000 Company common shares to Mr. Gary T. Robinson, a New York businessman, for $275,000 in a private transaction. This transaction represented a "Change in Control" for the Company. As part of this transaction, on March 10, 2003, Kenneth A. Martin appointed Mr. Gary Robinson and Mr. Peter Russo to serve as members of the Board of Directors. On March 11, 2003 Mr. Robinson was appointed as Chief Executive Officer and Chairman of the Board of Directors, and Mr. Russo was appointed as President and Secretary. Thereafter, on March 11, 2003, Mr. Martin resigned as an officer and director of the Company. On June 11, 2003 Mr. Robinson resigned as Chief Executive Officer and Mr. Russo was appointed to that office. On November 28, 2003 Mr. Robinson resigned as a director.
Business Plan
Since the change in control, new Company management has embarked upon a new mission and strategic direction, by establishing joint venture subsidiaries and a limited partnership, primarily to establish business operations focused on providing construction and environmental technologies and services in Puerto Rico, the Middle East, Africa and the Far East.
Puerto Rico
The Company formed a majority owned joint venture in Puerto Rico to manage the construction and related activities required to build low income homes in Puerto Rico under the Federal Government's Section 124 low income housing program. In December 2003, the Company secured the purchase rights to 36 acres that are designated Section 124 eligible. Approximately 270 low-income homes are planned for construction on this property.
Middle East, Africa and Far East
The Company intends to establish local operating joint ventures in specific countries in the Middle East and the Far East primarily aimed at soil and water reclamation. The initial step of forming a strategic alliance leading to a joint venture has been established with a local organization in Saudi Arabia, and in Indonesia. The Company intends to provide only environmental remediation services in Africa as these projects are primarily funded by international financial institutions.
Central and Eastern Europe
The Company has made a strategic decision to minimize its activities in Eastern Europe and to maintain a small passive investment in the area that can be expanded in the future if current circumstances change. While the potential for significant environmental remediation activity remains, local government priorities and hard currency shortages relegate these activities to a low status.
SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany transactions and balances have been eliminated.
INVESTMENTS
The Company has investments of 50% or less in associated companies that are accounted for under the equity method and are included in Investment in Joint Ventures on the Company's balance sheet at September 30, 2004. Investments in associated companies where the Company has a controlling interest are consolidated with the Company's operations unless otherwise disclosed.
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. There were no potential common shares outstanding as of September 30, 2004 and 2003.
REVENUE RECOGNITION ON CONSTRUCTION CONTRACTS
Revenue and profits in construction contracts are recorded under the percentage of completion method. Progress toward completion is measured using the cost to cost method. Under the cost to cost method, revenues and profits are recognized based on the ratio that costs incurred bear to total estimated costs. This method is subject to physical verification of actual progress towards completion.
EVALUATION OF LONG-LIVED ASSETS
The Company reviews property and equipment for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable in accordance with guidance in 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 OPTION PLAN
The Company accounts for equity-based compensation issued to employees in accordance with Accounting Principles Board ("APB") Opinion No. 25 "Accounting for Stock Issued to Employees". APB No. 25 requires the use of intrinsic value method, which measures compensation cost as the excess, if any, of the quoted market price of the stock at the measurement date over the amount an employee must pay to acquire the stock. The Company makes disclosures of pro forma net earnings and earnings per share as if the fair-value-based method of accounting had been applied as required by SFAS No.123 "Accounting for Stock-Based Compensation-Transition and Disclosure".
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure an amendment of FASB Statement No. 123". SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. It also requires disclosure in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. SFAS No. 148 is effective for annual and interim periods beginning after December 15, 2002. The Company will continue to account for stock-based employee compensation under the recognition and measurement principle of APB Opinion No. 25 and related interpretations.
The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS No.123) for stock options issued to employees.
The Company is also authorized to make stock awards to its employees from its 2001 Employee Stock Option Plan. The Company has adopted the expense provisions of SFAS No. 123 in the issuance of stock awards. Stock awards are expensed at the time of issuance as the common stock issued has no restrictions to the employees. The Company issued stock awards to two employees totaling 179,000 shares from the Plan during 2004. The shares were issued at fair market value for compensation due to the employees. The Company recorded compensation expense of $14,000 and is included in the Company's statement of operations for the nine months ended September 30, 2004.
STOCK-BASED COMPENSATION
The Company issues shares of its common stock to employees and non-employees as stock-based compensation. The Company accounts for the services using the fair market value of the services rendered. For the nine months ended September 30, 2004 and 2003, the Company issued 1,794,500 and 840,000 common shares, respectively, and recorded compensation expense of $214,400 and $260,500, respectively, in connection with the issuance of these shares.
The Company also granted 6,630,000 warrants to the various lenders to
acquire the Company's common stock. The warrants are exercisable at a price per
share of $0.10 per share. The warrant may be exercised anytime after the
issuance. The warrants expire March 31, 2006.
The fair value of the 6,630,000 warrants amounts to $1,456,200 and was
charged to operations and is included in compensatory element in the
accompanying statement of operations for the nine months ended September 30,
2004.
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.
FAIR VALUE OF FINANCIAL INSTRUMENTS
For financial instruments including cash, accounts payable, accrued expenses, and convertible debt, it was assumed that the carrying amount approximated fair value because of the short maturities of such instruments.
RECLASSIFICATIONS
Certain reclassifications have been made to prior period amounts to conform to the current year presentation.
2. LOAN RECEIVABLE - FORMER OFFICER/SHAREHOLDER
During 2003, the Company entered into a revolving credit agreement with Gary Robinson ("Robinson"), the former Chairman and Chief Executive Officer of the Company, in the amount of $300,000. The credit agreement bears interest at the prime rate. Robinson advanced the Company $515,383 and the Company repaid Robinson $109,515 through September 30, 2004.
Robinson was a guarantor on a note receivable due the Company from CEVA International Inc. ("CEVA"). CEVA did not pay the note and the Company exercised its right by reducing the amount owed on the revolving line of credit with Robinson in the amount of $250,000.
In March 2003, the Company entered into a consulting agreement with M.U.R.G. and advanced M.U.R.G. $100,000 against future compensation in the form of a promissory note. The project did not go forward and on June 16, 2003, Robinson agreed to assume the promissory note from M.U.R.G. and reduce the amount due him.
On March 4, 2004, the Company paid $121,508 to David Green ("Green"), which constituted full and complete repayment of a $100,000 loan made by Green to Robinson. The loan was secured by a pledge of Delta Mutual, Inc. common stock. The Company offset the payment to Green against the amount due Robinson.
After adjustments for expense reimbursements due Robinson and offsets as noted above, Robinson owed the Company $51,221 as of September 30, 2004.
The Company recorded interest expense of $7,986 on the revolving line of credit for the period November 17, 1999 (date of formation) through September 30, 2004. No interest was recorded during the nine months ended September 30, 2004.
3. INVESTMENT IN JOINT VENTURES
a) In December 2003, the Company formed a joint venture project to develop government sponsored, Section 124, low income housing in the commonwealth of Puerto Rico. The Company became the general partner and majority owner of a limited partnership, Delta Development Partners, LP, that holds the majority share of Delta Developers Corp, a Puerto Rico corporation, formed to manage the construction and related activities required to build approximately 270 low income homes under Section 124. The operations of the joint venture have been consolidated with the Company for the three and nine months ended September 30, 2004.
From January 12, 2004 through September 30, 2004, Neil Berman, an investor, purchased a 25% interest in Delta Development Partners, LP for $148,000.
b) On March 18, 2003, the Company entered into a letter of intent with Hi-Tech Consulting and Construction, Inc. ("Hi-Tech") to form a joint venture to provide environmental technology services primarily to markets in the Middle East and Africa. The joint venture company, named Delta-Envirotech, Inc., is based in Virginia and focuses on participating in foreign government sponsored pollution remediation projects. The joint venture agreement was concluded January 14, 2004 and Delta-Envirotech, Inc., a Delaware Corporation, was formed. As of December 31, 2003 the Company expensed $35,000 that was advanced to the Hi-Tech and is included in the Company's statement of operations for the year ended December 31, 2003. In 2004, the Company was unable to make all the payments due per the agreement but Hi-Tech has indefinitely extended the date of the payments. As of September 30, 2004, the Company paid $136,905 to the joint venture and is currently obligated to pay the joint venture an additional $155,595. In addition, the Company loaned the joint venture $192,000.
On January 14, 2004, Delta and Hi-Tech agreed to each sell 75 shares of the joint venture to Ali Razmara, representing a ten (10%) percent interest, for $2. The transaction became effective July 14, 2004.
On January 22, 2004, the Company announced the conclusion of a strategic alliance agreement between Delta-Envirotech, Inc. and ZAFF International, Ltd., an advanced technology company located in Saudi Arabia. The strategic alliance states that the two companies will jointly pursue projects related to soil and water reclamation requirements in the Middle East.
For the nine months ended September 30, 2004, the Company recorded a loss of $110,277 from the joint venture.
c) On May 1, 2003, the Company entered into a joint venture in Romania, forming a new Company, Delta TP Mediu, SRL. The joint venture, of which the Company owns 10%, was organized to primarily pursue the sourcing, treatment and processing of hydrocarbon based and other industrial residuals and, where possible, to create alternative fuels and raw materials for industrial use primarily in Romania. The Company invested $33,800 in the joint venture, consisting of $15,100 in cash, the issuance of 100,000 shares of the Company's common stock valued at $15,000 and a cash obligation of $3,700 to the joint venture which is included in the Due to Related Party amount on the Company's balance sheet at September 30, 2004.
d) On April 25, 2003, the Company entered into a letter of intent with Ms. Jamie Burrows and Burrows Consulting, Inc., a Texas based corporation (collectively referred to as "Burrows") to form a joint venture company to be known as Delta Specialty Services based in Houston, Texas and was to engage in providing waste remediation technologies and services on a project basis to the United States Government, foreign governments and their respective departments, agencies, political sub-divisions as well as to private entities around the world. The funding commitments were not accomplished on the established timetable and the joint venture has not commenced operations. The Company expensed $75,000 that had been advanced to the joint venture and is included in the Company's statement of operations for the year ended December 31, 2003.
The following represents a schedule of investments as of September 30, 2004:
Delta-Envirotech, Inc. $ 182,223
Delta TP Mediu 33,800
---------
$ 216,023
=========
4. CONVERTIBLE DEBENTURES/NOTES
|
a) The Company entered into several agreements with various lenders for the issuance of $331,500 of the Company's convertible debentures due September 20, 2006. The debentures bear interest of 6% per annum and are convertible into the Company's common stock at an initial conversion price of $0.05 per share.
b) The Company issued a convertible note to a related party for $37,500 which is due January 16, 2007. The note bears interest of 4% per annum and is convertible into the Company's common stock at an initial conversion price of $0.05 per share. The Company issued a convertible note to a related party for $157,000 which is due December 31, 2006. The note bears interest of 4% per annum and is convertible into the Company's common stock at an initial conversion price of $0.05 per share. The Company issued a convertible note to a related party for $193,740 which is due May 12, 2006. The note bears interest of 4% per annum and is convertible into the Company's common stock at an initial conversion price of $0.125 per share. The Company issued a convertible note to the spouse of a related party for $129,160 which is due May 12, 2006. The note bears interest of 4% per annum and is convertible into the Company's common stock at an initial conversion price of $0.125 per share.
c) As of September 30, 2004, the holders of the convertible debentures and convertible notes can convert the debentures/notes into 9,213,200 shares of the Company's common stock.
5. ACCRUED EXPENSES
Accrued expenses consist of the following:
September 30,
2004
-------------
Professional fees $ 8,058
Interest expense 9,792
Payroll expense 202,574
Payroll tax expense 16,594
----------
$ 237,018
==========
|
6. LOANS TO RELATED PARTIES
a) On January 7, 2003, the Company borrowed $15,000 from Michael Pisani ("Pisani") (a stockholder) of the Company. Pisani received 50,000 common shares of the Company's common stock which represented the payment of interest accruing on the unpaid principal balance through January 27, 2003, the maturity date. The Company recorded interest expense of $15,000 in 2003 for the issuance of the shares.
The Company did not pay the outstanding balance on the maturity date and was required to pay monthly interest of one (1%) percent to Pisani. On April 7, 2003, the Company repaid Pisani $5,000 against the outstanding balance. In May 2003, the note was amended. Subsequently, a dispute arose between the parties about the validity of the amendment.
In March 2004, the Company repaid the principal and interest due under the terms of the amended note. Pisani, through counsel, has informed the Company that, by accepting repayment, he does not prejudice his position regarding the validity of the original note. The Company is attempting to resolve this dispute. If the matter can not be resolved and Pisani prevails in a legal action against the Company, Pisani may be entitled to, in addition to the principal amount and interest that he has received from the Company, shares of common stock as additional interest.
The Company recorded interest expense of $1,599 for the nine months ended September 30, 2004 and $3,199 for the period November 17, 1999 (date of formation) through September 30, 2004.
b. On May 15, 2003, the Company borrowed $12,000 from Michael Fasci ("Fasci") a stockholder of the Company. Fasci received 50,000 common shares of the Company's common stock which represented the payment of interest through May 26, 2003, the maturity date. The Company recorded interest expense of 13,750 in connection with the issuance of the shares.
The Company did not pay the outstanding balance on the maturity date and the amount of $12,000 was due as of December 31, 2003. In accordance with the agreement the Company must pay monthly interest of one (1%) to Fasci. The Company recorded interest expense in the amount of $240 and $1,080 for the nine months ended September 30, 2004, and November 17, 1999 (date of formation) through September 30, 2004, respectively. On February 27, 2004 the Company issued 140,000 common shares in repayment of the loan plus interest and penalty amounting to $18,705.
c. On December 30, 2003, the Company borrowed $50,000 from Edward Tuccio, a shareholder of the Company. The note is due December 29, 2004, interest at 6 (6%) per annum. On February 11, 2004, the Company issued Tuccio 400,000 shares of the Company's common stock which represented the full payment of this loan plus interest amounting to $168, which is included in the statement of operations for the nine months ended September 30, 2004 and for the period November 17, 1999 (date of formation) through September 30, 2004.
d. On December 11, 2003, the Company borrowed $50,000 from Neil Jones, a shareholder of the Company. The note was due December 16, 2004 with interest at six (6%) per annum. On January 24, 2004, the Company issued Jones 400,000 shares of the Company's common stock which represented the full payment of this loan plus interest. The Company recorded interest expense of $63 and $195 for the nine months ended September 30, 2004 and for the period November 17, 1999 (date of formation) through September 30, 2004, respectively.
e. The Company borrowed $322,900 from Neil Berman, a shareholder, and Sophie Angelastri, the assignee of a shareholder of the Company, on various dates during the period ending June 30, 2004. The loans bear interest at four (4%) per annum and are due May 2006, and are convertible into 2,583,200 shares of common stock of the Company at a conversion price of $0.125 per share. The Company recorded interest expense of $3,074 for the nine months ended September 30, 2004 and for the period November 17, 1999 (date of formation) through September 30, 2004.
f. The Company borrowed $157,000 from Neil Berman , a shareholder of the Company, of which $41,000 was received as of June 30, 2004 and the balance received in July, 2004. The note bears interest at 4% and principal and interest are due December 31, 2006, and the principal amount is convertible into 3,140,000 shares of the Company's common stock at a conversion price of $.05 per share.
7. MINORITY INTERESTS
Minority interests primarily consists of a twenty-five (25%) percent ownership interest in Delta Development Partners, L.P. and a fifteen (15%) percent ownership interest in Delta Developers Corp. 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 nine months ended September 30, 2004. The amount on the Company's balance sheet represents the minority interests as of September 30, 2004.
The following represents a schedule of minority interests as of September 30, 2004:
Delta Development Partners L.P. $ 144,384
Delta Developers Corp (22,166)
---------
$ 122,218
=========
|
8. STOCKHOLDER'S DEFICIENCY
a. The former president of the Company purchased 300,000 shares of common stock for $33 in November of 1999. Such shares were issued without registration in reliance on an exemption in federal security laws that permit issuance of stock up to $1 million without registration of the securities.
b. In April 2001, Kelcon, Inc., a Delaware corporation, purchased 450,000 shares of common stock from former officers of the Company, in a private transaction, effectively changing the ownership of the Company.
c. During November 2002, Gary Robinson contracted for the acquisition of the controlling equity position from Kelcon, Inc. in a private transaction.
d. On December 11, 2002, Cyberlinx Inc. purchased 300,000 restricted shares of the Company's common stock for $30,000 at $.10 per share.
e. On January 12, 2003, the Company entered into an agreement with Ken Martin, the Company's former controlling shareholder, to compensate him for past services rendered to the Company in the amount of $12,454, all of which was accrued at December 31, 2002. The Company issued 30,000 shares of the Company's common stock on Form S-8 registration statement in full payment of the Company's debt.
f. On February 4, 2003, the Company and J. Dapray Muir, Esq. ( the Company's previous attorney) entered into an agreement to compensate him for past services rendered to the Company in the amount of $34,669, all of which was accrued at December 31, 2002. The Company issued 50,000 shares of the Company's common stock on a Form S-8 registration statement in full payment of the Company's debt.
g. On February 3, 2003, the Company and Peter Russo, an executive of the Company, entered into an agreement to compensate him for past services rendered to the Company in the amount $20,000, all of which was accrued at December 31, 2002. The Company issued 40,000 shares of the Company's common stock on Form S-8 registration statement in full payment of the Company's debt
h. On February 10, 2003, the Company and Jerome Kindrachuk, an executive of the Company, entered into an agreement to compensate him for past services rendered to the Company in the amount of $20,000, all of which was accrued at December 31, 2002. The Company issued 200,000 shares of the Company's common stock in full payment of the Company's debt in February 2003.
i. On February 24, 2003, the Board of Directors effected a forward stock split of five for one. All references to common stock after that date reflect the forward stock split.
j. On April 29, 2003, the Company and Peter Russo, the president of the Company, entered into an agreement to compensate him in recognition of his commitment for services in the amount of $22,500. The Company issued 100,000 shares of the Company stock in full payment of this debt.
k. On April 29, 2003, the Company and Jerry Kindrachuk, an executive of the Company, entered into an agreement to compensate him in recognition of his commitment for services in the amount of $22,500. The Company issued 100,000 shares of the Company stock in full payment of this debt.
l. On April 29, 2003 the Company and Steven L. Gray, entered into an agreement to compensate him for past services rendered to the Company in the amount of $50,000. The Company issued 100,000 shares of the Company stock in full payment of this debt.
m. On April 29, 2003, the Company and Kevin Forcier, entered into an agreement to compensate him for past services rendered to the Company in the amount of $10,000. The Company issued 20,000 shares of the Company stock in full payment of this debt.
n. On April 29, 2003, the Company and T&T Asset Management of Zurich, Switzerland, entered into an agreement to compensate them for past services rendered in the amount of $50,000. The Company issued 240,000 shares of the Company stock in full payment of this debt.
o. On June 30 and July 23, 2003, the Company and Michael Kahn entered into agreements to compensate him for past services rendered to the Company in the amount of $16,500 and $16,500 respectively. The Company issued 80,000 shares of the Company stock in full payment of this debt.
p. On July 1, 2003, the Company entered into an agreement with Gary Robinson, a stockholder, former CEO and former chairman, to compensate him for past services rendered to the Company in the amount of $93,625, the fair value of the services. The Company issued 280,000 shares of the Company's common stock on Form S-8 registration statement in full payment of the Company's debt.
q. On August 8, 2003 the Company and Joseph Tomasek entered into an agreement to compensate him for past services rendered in the amount of $40,000. The Company issued 200,000 shares of the Company stock in full payment of this debt.
r. On August 8, 2003, the Company and Peter Hallam entered into an agreement to sell 100,000 shares of the Company's common stock for $50,000.
s. On August 11, 2003, the Company and Joy Miller entered into an agreement for compensation of services to the Company in the amount of $43,750. The Company issued 100,000 shares of the Company stock in full payment of this debt.
t. On August 22, 2003, the Company and Michael Kahn entered into an agreement to sell 250,000 shares of the Company common stock for $50,000.
u. On October 21, 2003, the Company entered into agreements for compensation for services with Nela Pavaliou and Business Centres International, Inc. in the amount of $1,750 for each. The Company issued 50,000 shares of the Company's common stock to each in full payment of this debt.
v. On November 15, 2003, the Company and Neil Berman entered into an agreement to sell 100,000 shares of the Company common stock for $12,500.
On November 15 and December 15, 2003 the Company and Neil Berman entered into consulting agreements for compensation and consulting for $8,500 and $850 respectively. The Company issued 100,000 and 10,000 shares respectively in full payment of this debt.
w. On January 14, 2004, the Company and David Razmara, entered into an agreement to compensate him for past services rendered to the Company in the amount of $4,125,all of which was accrued at December 31, 2003. The Company issued 50,000 shares of the Company's common stock in full payment of this debt.
x. In February 2004, the Company sold 300,000 shares of restricted common stock for $37,500, valued at $.125 per share, fair market value at the time of issuance.
y. The Company and Citrus Land and Development Company entered into an agreement for services rendered to the Company in the amount of $25,000. In February 2004, the Company issued 355,000 shares of the Company common stock in connection with these agreements.
z. The Company and Kenneth Martin entered into an agreement to compensate him for past services in the amount of $50,000, all of which was accrued at December 31, 2003. In March 2004, the Company issued 200,000 shares of the Company's common stock in full payment of this debt.
aa. On March 31, 2004, pursuant to a joint venture agreement dated January 14, 2004, the Company issued 50,000 shares of Company common stock to David Razmara in consideration of services rendered to the joint venture in the amount of $4,125.
bb. On April 16, 2004, the Company and Burton Lasalle Capital Corporation, entered into an agreement for services rendered to the Company in the amount of $36,000. In April 2004 the Company issued 200,000 shares of the Company common stock in connection with this agreement.
cc. On April 16, 2004, the Company and Basic Investors, Inc. entered into an agreement for services rendered to the Company in the amount of $72,000. In April 2004, the Company issued 400,000 shares of the Company common stock in connection with this agreement.
dd. On March 4, 2004, the Company and Charter Capital Resources, Inc. entered into an agreement for services rendered to the Company in the amount of $12,500. In May 2004, the Company issued 100,000 shares of the Company common stock in connection with this agreement.
ee. On March 21, 2004 the Company and Clark Street Capital, entered into an agreement for services rendered to the Company in the amount of $72,000. In June 2004, the Company issued 400,000 shares of the Company common stock in connection with this agreement.
ff. On May 5, 2004, the Company issued to three employees 185,000 shares of the Company common stock valued at $25,900 in consideration for their respective commitments as employees of the Company.
gg. During the second quarter of 2004 the Company sold 840,000 shares of restricted common stock for $105,000 valued at $.125 per share, fair market value at the time of issuance.
hh. In August 2004, pursuant to a placement agent agreement dated May 3, 2004, the Company issued 250,000 shares of Company common stock to T&T Asset Management of Zurich, Switzerland in consideration of past services rendered to the Company in the amount of $31,250, all of which was expensed at September 30, 2004.
ii. On September 16, 2004, pursuant to a placement agent agreement dated September 1, 2004, the Company issued 125,000 shares of Company common stock to T&T Asset Management of Zurich, Switzerland in consideration of services rendered to the Company in the amount of $6,250.
jj. On September 17, 2004, pursuant to an amended and restated consulting services agreement dated September 7, 2004, the Company issued 100,000 shares of Company common stock to Basic Investors, Inc. to compensate them for past services rendered to the Company in the amount of $12,000 as full payment of the Company's debt, all of which was expensed at September 30, 2004. In return, Basic Investors returned to the Company 400,000 shares of Company common stock that was issued to Basic in April 2004 in consideration of services rendered to the Company in the amount of $72,000.
kk. On September 10, 2004, the Company and B C N Investments, L.L.C. entered into an agreement to compensate them for services rendered to the Company in the amount of $36,000 all of which was expensed at September 30, 2004. The Company issued 300,000 shares of the Company's common stock in connection with this agreement.
ll. On September 20, 2004, the Company and Commonwealth Holdings, Inc. entered into an agreement to compensate them for services rendered to the Company in the amount of $12,000 all of which was expensed at September 30, 2004. The Company issued 100,000 shares of the Company's common stock in connection with this agreement.
mm. During the third quarter of 2004, the Company sold 350,000 shares of restricted common stock for $43,750 valued at $.125 per share, fair market value at the time of issuance..
9. COMMITMENTS AND CONTINGENCIES
a. Executive Employment Agreement
Effective March 11, 2003, the Company entered into an employment agreement with Peter Russo for three years with a renewal option upon mutual agreement. The agreement compensates Mr. Russo $10,800 per month. Additionally, Mr. Russo will receive an incentive of 1.5% of adjusted net profits beginning with the year 2003 and each fiscal year thereafter during the term of this agreement, payable in stock. This agreement and Mr. Russo's employment may be terminated by the Company at its discretion at any time after the initial term, provided that the Mr. Russo be paid six months of his base compensation then in effect. Effective June 11, 2003, Mr. Russo was appointed president and chief executive officer and in recognition of his new responsibilities agreed to compensation of $15,000 per month effective July 1, 2003. On September 20, 2004, Mr. Russo's employment agreement was amended by mutual agreement, and his monthly salary was reduced to $6,500 for the entire year 2004. In addition, he will be eligible for any incentive compensation program for senior executives that is established by the board of directors.
b. License Agreements
(1) In April 2003, the Company entered into a License Agreement (the "License Agreement") with Joseph Friedman and Sons International, Inc. ("Friedman") for the territory of the Former Soviet Union. The License Agreement was predicated upon technologies that were assigned to Delta Mutual, Inc. under an agreement with the technology owner. Due to actions taken against the technology owner by its creditors during the latter part of 2003, it lost its ability to assign the technologies to the Company. Accordingly, the Company was unable to convey these rights to Friedman.
The Company and Friedman executed an Addendum to the License Agreement (the "Addendum") in April 2003 that granted Friedman shares of the Company's common stock and a seat on the Company's board of directors. The Company issued Friedman 288,368 shares of common stock representing a value of $40,000 in consideration of Friedman executing and delivering of the license agreement. In November 2003, Friedman made a claim for additional shares of stock, citing the antidilution language in the Addendum. Friedman also required that its nominee be appointed to the Board of Directors.
In light of the events that have effected the License Agreement, the Company notified Friedman on March 30, 2004, as provided in the License Agreement, terminating the License Agreement and the Addendum. The Company has taken the position that the termination of the License Agreement eliminates Friedman's right to a board seat.
The Company has agreed to a settlement amount to be paid to Friedman in settlement of its claims against the Company, and expects to conclude the settlement in the near future.
(2) The Company and Delta Envirotech ("Licensee") entered into a license agreement permitting the licensee to utilize any and all technologies, licenses and permits acquired by the Company to develop environmental remediation projects. The license agreement included the Middle East, Africa, and the Far East. The current license agreement lapsed and a new license agreement is pending.
c. Financing Agreement
On July 8, 2003, the Company entered into an agreement with Rolan Jansen and Ivano Angelastri ("J&A") to introduce and arrange equity debt or other financing agreements with strategic partners, for the Company, or its affiliates for a finders fee of 6.0% to Rolan Jansen and 2.0% to Ivano Angelastri of the gross proceeds of the equity financing. For the nine months ended September 30, 2004, no financing was introduced to the Company in connection with this agreement.
9. NEW FINANCIAL ACCOUNTING STANDARDS
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." This Statement requires recording costs associated with exit or disposal activities at their fair values when a liability has been incurred. Under previous guidance, certain exit costs were accrued upon management's commitment to an exit plan. The Company adopted SFAS No. 146 on January 1, 2003. The adoption of SFAS No. 146 did not have a material impact on the Company's result of operations or financial position.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement No. 133 on Derivative Instruments and Hedging Activities." This statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities." This Statement is effective for contracts entered into or modified after June 30, 2003, and for hedging relationships designated after June 30, 2003. Adoption of this statement did not have a material impact on the Company's results of operations or financial position.
In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45), Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, and interpretation of FASB Statements No. 5, 57,and 107 and Rescission of FASB Interpretation No. 34. FIN 45 clarifies the requirements of FASB Statement No. 5, Accounting for Contingencies, relating to the guarantor's accounting for, and disclosure of, the issuance of certain types of guarantees. This interpretation clarifies that a guarantor is required to recognize, at the inception of certain types of guarantees, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and initial measurement provisions of this Interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantor's fiscal year-end. The disclosure requirements in this interpretation were effective for financial statements of interim or annual periods ending after December 15, 2002. The Company adopted FIN 45 on January 1, 2003. The adoption of FIN 45 did not have a material impact on the Company's results of operations or financial position.
In January 2003, the FASB issued FIN No. 46, Consolidation of Variable Interest Entities. In December 2003, the FASB issued FIN No. 46 (Revised) ("FIN 46-R") to address certain FIN 46 implementation issues. This interpretation requires that the assets, liabilities, and results of activities of a Variable Interest Entity ("VIE") be consolidated into the financial statements of the enterprise that has a controlling interest in the VIE. FIN 46R also requires additional disclosures by primary beneficiaries and other significant variable interest holders. For entities acquired or created before February 1, 2003, this interpretation is effective no later than the end of the first interim or reporting period ending after March 15, 2004, except for those VIE's that are considered to be special purpose entities, for which the effective date is no later than the end of the first interim or annual reporting period ending after December 15, 2003. For all entities that were acquired subsequent to January 31, 2003, this interpretation is effective as of the first interim or annual period ending after December 31, 2003. The adoption of FIN 46 did not have a material impact on the Company's results of operations or financial position.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity." SFAS No. 150 clarifies the accounting for certain financial instruments with characteristics of both liabilities and equity and requires that those instruments be classified as liabilities in statements of financial position. Previously, many of those financial instruments were classified as equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of the provisions of SFAS No. 150 did not have a material impact on the Company's financial position.
In December 2003, the FASB issued SFAS No. 132 (Revised) ("SFAS No. 132-R"), "Employer's Disclosure about Pensions and Other Postretirement Benefits." SFAS No. 132-R retains disclosure requirements of the original SFAS No. 132 and requires additional disclosures relating to assets, obligations, cash flows, and net periodic benefit cost for defined benefit pension plans and defined benefit post retirement plans. SFAS No. 132-R is effective for fiscal years ending after December 15, 2003, except that certain disclosures are effective for fiscal years ending after June 15, 2004. Interim period disclosures are effective for interim periods beginning after December 15, 2003.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The following discussion of our financial condition and results of operations should be read in conjunction with the 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 remain a development stage company that will require additional capital to execute our planned business operations.
RESULTS OF OPERATIONS
During the fiscal year ended December 31, 2003 we incurred a net loss of $1,249,509, because we had no revenue to offset operating expenses. During the fiscal year ended December 31, 2002 we incurred a net loss of $325,384 that was primarily attributable to bad debts in the aggregate amount of $96,625, consulting expenses of approximately $71,000 and professional fees in the approximate amount of $114,500. From inception (November 17, 1999) to December 31, 2003, we had a net loss of $1,789,400. For the nine months ended September 30, 2004, we incurred a net loss of $2,410,102.
The Independent Auditors' Report and Note 1 of the Notes to Financial Statements accompanying this report state that substantial doubt has been raised about our ability to continue as a going concern. Our present business operations do not generate any revenue with which to cover our expenses. We will have to raise capital through the placement of our securities in order to remain viable. We are continuing to incur management and administrative costs, professional fees and other expenses. If we are unable to raise capital we will be unable to fund our plan of operations. Because we will continue to incur net losses, we may have to cease operations entirely. This factor, among others, raises substantial doubt about our ability to continue as a going concern.
Our ability to continue as a going concern is dependent upon our ability to obtain funds to meet our obligations on a timely basis, obtain additional financing or refinancing as may be required, and ultimately to attain profitability. There are no assurances that we will be able to obtain any additional financing or, if we are able to obtain additional financing, that such financing will be on terms favorable to us. The inability to obtain additional financing when needed would have a material adverse effect on our operating results.
2004 COMPARED TO 2003
The net loss increased from approximately $841,313 for the nine months ended September 30, 2003 to approximately $2,410,102 for the nine months ended September 30, 2004. The items of significant increase or decrease in the nine months ended September 30, 2004 over the comparable period of the prior year were $1,456,200 compensatory stock expense resulting from the issuance of warrants to purchase an aggregate of 6,630,000 of our common stock, as compared with no such expense in 2003, an increase in general and administrative expense from approximately $805,436 in 2003 to approximately $865,316 for the nine months ended September 30, 2004, and a decrease in interest expense from approximately $35,873 in 2003 to approximately $16,889 for the nine months ended September 30, 2004.
The net loss increased from approximately $244,743 for the three months ended September 30, 2003 to approximately $1,742,598 for the three months ended September 30, 2004. The items of significant increase or decrease in the three months ended September 30, 2004 over the comparable period of the prior year were $1,456,200 compensatory stock expense resulting from the issuance of warrants to purchase an aggregate of 6,630,000 shares of our common stock, as compared with no such expense in 2003,an increase in general and administrative expense from approximately $241,425 in 2003 to approximately $258,393 for the three months ended September 30, 2004, and an increase in interest expense from approximately $3,318 in 2003 to approximately $5,519 for the three months ended September 30, 2004.
PLAN OF OPERATION
Since the Change in Control, new Company management has embarked upon a new mission and strategic direction, by establishing joint venture subsidiaries and a limited partnership, primarily to establish business operations focused on providing construction and environmental technologies and services in Puerto Rico, the Middle East, Africa and the Far East.
Puerto Rico
The Company formed a majority owned joint venture in Puerto Rico to manage the
construction and related activities required to build low income homes in Puerto
Rico under the Federal Government's Section 124 low income housing program. In
December 2003, the Company secured the purchase rights to 36 acres that are
designated Section 124 eligible. Approximately 270 low-income homes are planned
for construction on this property. The necessary building permits have been
submitted for approval and a real estate agency has been hired to sell the homes
planned for construction.
Middle East, Africa and Far East
We intend to establish local operating joint ventures in specific countries in
the Middle East and the Far East primarily aimed at soil and water reclamation.
The initial step of forming a strategic alliance leading to a joint venture has
been established with a local organization in Saudi Arabia and Indonesia. The
Company intends to provide environmental remediation services only in Africa as
these projects are primarily funded by international financial institutions.
Central and Eastern Europe
The Company has made a strategic decision to minimize its activities in Eastern
Europe and to maintain a small passive investment in the area that can be
expanded in the future if current circumstances change. While the potential for
significant environmental remediation activity remains, local government
priorities and hard currency shortages relegate these activities to a low
status.
We are currently dependent on equity investments from private investors to pay our operating expenses. There are no assurances that such investors will continue to advance funds or invest in the Company's securities. In the event we are unable to obtain additional capital or funding we may be unable to pursue our business plans. Due to the fact that we have limited operations at this time, it is anticipated that our cash requirements will be limited, and that all necessary capital, to the extent required, will be provided by investors. We estimate that we will require approximately $400,000 in working capital for Puerto Rico, and $637,000 for our environmental activities in the Middle East and Indonesia. We anticipate that we will be required to raise capital in the approximate amount of $1,800,000 in the next 12 months in order to continue to fund our limited operations and to finance our planned business operations.
LIQUIDITY
We have no current operations that have generated any revenue. We must rely entirely on private placements of Company stock and debtto pay operating expenses.
At December 31, 2003, we had a working capital deficit of $623,423, and at September 30, 2004 we had a working deficit of $ 625,409, as compared with a working capital deficit of $411,625 at September 30, 2003. The increase in our working capital deficit in 2003 is a result of the net loss incurred during the year ended December 31, 2003 and the nine month period ended September 30, 2004. Since we have no source of revenue, our working capital deficit will continue to increase as we incur additional operating expenses. Presently, we have no external sources of cash and we are dependent upon private placements of our stock or debt for funding.
In 2003, we raised $162,500 of equity capital, through the sale of 550,000 shares of common stock. In addition, we borrowed $100,000 from our Former Chief Executive Officer in March 2003 to make a payment of an identical amount to a consultant. On June 30, 2003, the Former Chief Executive Officer agreed to release the Company from the note and assume the responsibility for recovering the amount paid to the Consultant.
In the nine months ended September 30, 2004, we raised $186,250 of equity capital from private investors through the sale of common stock and $484,900 through the issuance of convertible notes to private investors.
ASSETS
At December 31, 2003, we had total assets of $84,702, and at September 30, 2004, we had total assets of $759,750, as compared to total assets of $466,210 at September 30, 2003. The increase in assets as of September 30, 2004, was due to an increase in cash, an increase in fixed assets, an investment in joint ventures, and capitalized construction costs.
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 effect 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.
Other Matters
Accounting Pronouncements
In August 2001, the FASB issued SFAS No. 143 "Accounting for Asset Retirement Obligations". SFAS No. 143 addresses financial accounting and reporting for obligations and costs associated with the retirement of tangible long-lived assets. The Company adopted SFAS 143 on January 1, 2003. The adoption of SFAS No.143 did not have a material impact on the Company's results of operations or financial position.
In April 2002, the FASB issued SFAS No. 145 "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections". This statement eliminates the automatic classification of gain or loss on extinguishment of debt as an extraordinary item of income and requires that such gain or loss be evaluated for extraordinary classification under the criteria of Accounting Principles Board No. 30 "Reporting Results of Operations". This statement also requires sales-leaseback accounting for certain lease modifications that have economic effects that are similar to sales-leaseback transactions, and makes various other technical corrections to existing pronouncements. This statement will be effective for the Company for the year ending December 31, 2003. Management believes that adopting this statement will not have a material effect on the Company's results of operations or financial position.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." This Statement requires recording costs associated with exit or disposal activities at their fair values when a liability has been incurred. Under previous guidance, certain exit costs were accrued upon management's commitment to an exit plan. The Company adopted SFAS No. 146 on January 1, 2003. The adoption of SFAS No. 146 did not have a material impact on the Company's result of operations or financial position.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure, an amendment of FASB Statement No. 123". SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. It also requires disclosure in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. SFAS No. 148 is effective for annual and interim periods beginning after December 15, 2002. The Company will continue to account for stock-based employee compensation under the recognition and measurement principle of APB Opinion No. 25 and related interpretations. The Company complied with the additional annual and interim disclosure requirements effective December 31, 2002 and September 30, 2003.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement No. 133 on Derivative Instruments and Hedging Activities." This statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities." This Statement is effective for contracts entered into or modified after June 30, 2002, and for hedging relationships designated after June 30, 2003. Management believes that adopting this statement will not have a material effect on the Company's results of operations or financial position.
In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45), Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, and interpretation of FASB Statements No. 5, 57,and 107 and Rescission of FASB Interpretation No. 34. FIN 45 clarifies the requirements of FASB Statement No. 5, Accounting for
Contingencies, relating to the guarantor's accounting for, and disclosure of, the issuance of certain types of guarantees. This interpretation clarifies that a guarantor is required to recognize, at the inception of certain types of guarantees, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and initial measurement provisions of this Interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantor's fiscal year-end. The disclosure requirements in this interpretation are effective for financial statements of interim or annual periods ending after December 15, 2002. The Company adopted FIN 45 on January 1, 2003. The adoption of FIN 45 did not have a material impact on the Company's results of operations or financial position.
In January 2003, the Financial Accounting Standards Board issued Interpretation No. 46, "Consolidation of Variable Interest Entities," which addresses consolidation by business enterprises of variable interest entities. In general, a variable interest entity is a corporation, partnership, trust, or any other legal structure used for business purposes that either (a) does not have equity investors with voting rights or (b) has equity investors that do not provide sufficient financial resources for the entity to support its activities. A variable interest entity often holds financial assets, including loans or receivables, real estate or other property. A variable interest entity may be essentially passive or it may engage in research and development or other activities on behalf of another company. The objective of Interpretation No. 46 is not to restrict the use of variable interest entities but to improve financial reporting by companies involved with variable interest entities. Until now, a company generally has included another entity in its consolidated financial statements only if it controlled the entity through voting interests. Interpretation No. 46 changes that by requiring a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity's activities or entitled to receive a majority of the entity's residual returns or both. The consolidation requirements of Interpretation No. 46 apply immediately to variable interest entities created after January 31, 2003. The consolidation requirements apply to older entities in the first fiscal year or interim period beginning after June 15, 2003. Certain of the disclosure requirements apply in all financial statements issued after January 31, 2003, regardless of when the variable interest entity was established. The Company does not have any variable interest entities, and, accordingly, adoption is not expected to have a material effect on the Company's results or operations or financial position.
In May 2003, the FASB issued SFAS No. 150 "Accounting for Financial Instruments with the Characteristics of Both Liabilities and Equities". SFAS No. 150 establishes standards regarding the manner in which an issuer classifies and measures certain types of financial instruments having characteristics of both liabilities and equity. Pursuant to SFAS No. 150, such freestanding financial instruments (i.e. those entered into separately from an entity's other financial instruments or equity transactions or that are legally detachable and separately exercisable) must be classified as liabilities or, in some cases, assets. In addition, SFAS No. 150 requires that financial instruments containing obligations to repurchase the issuing entity's equity shares and, under certain circumstances, obligations that are settled by delivery of the issuer's shares be classified as liabilities. The Statement is effective for financial instruments entered into or modified after May 31, 2003 and for other instruments at the beginning of the first interim period after June 15, 2003. Management believes adopting this statement will not have a material effect on the statement of operations or financial position.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Fair Value of Financial Instruments - The following disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments". The estimated fair values of financial instruments have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange.
The Company has not entered into, and does not expect to enter into, financial instruments for trading or hedging purposes. The Company does not currently anticipate entering into interest rate swaps and/or similar instruments.
The Company's carrying values of cash, marketable securities, accounts receivable, accounts payable and accrued expenses are a reasonable approximation of their fair value.
Item 4. Controls and Procedures
(a) Disclosure controls and procedures. As of the end of the Company's most recently completed fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) covered by this report, the Company carried out an evaluation, with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company's disclosure controls and procedures pursuant to
Securities Exchange Act Rule 13a-15. Based upon that evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms.
(b) Changes in internal controls over financial reporting. There have been no changes in the Company's internal controls over financial reporting that occurred during the Company's last fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no legal proceedings against the Company, however, the two claims discussed below are currently under negotiation.
Joseph Friedman and Sons International, Inc.
In April 2003, the Company entered into a License Agreement (the "License Agreement") with Joseph Friedman and Sons International, Inc. ("Friedman") for territory of the Former Soviet Union. The License Agreement was predicated upon technologies that were assigned to Delta Mutual, Inc. under an agreement with the technology owner. Due to actions taken against the technology owner by its creditors during the latter part of 2003, it lost its ability to assign the technologies to the Company and its agreement with the Company was terminated. Accordingly, the Company was unable to convey these rights to Friedman.
The Company and Friedman executed an Addendum to the License Agreement (the "Addendum") in April 2003 that granted Friedman shares of the Company's common stock and a seat on the Company's board of directors. The Company issued Friedman 288,368 shares of common stock in consideration of Friedman executing the License Agreement. In October 2003, Friedman made a claim for additional shares of stock, citing the antidilution language in the Addendum, and requested that its nominee be appointed to the Company's board of directors.
In light of the events that have effected the License Agreement, the Company notified Friedman on March 30, 2004 that it considers the License Agreement terminated and that the termination of the License Agreement eliminates Friedman's right to a seat on the Company's board of directors.
We have agreed to a settlement amount to be paid to Friedman in settlement of its claims against the Company, and are expecting to conclude the settlement in the near future.
B. Michael Pisani
On January 7, 2003, the Company borrowed $15,000 from B. Michael Pisani ("Pisani"), a stockholder of the Company, which was payable with interest on January 27, 2003. The promissory note provided for the issuance of shares of common stock to Pisani for each month that amounts due and owing were not paid by the Company. The Company did not pay the outstanding balance on the maturity date. In April 2003, the Company repaid $5,000 of the outstanding balance.
In May 2003, the promissory note was amended to eliminate the requirement of additional shares and subsequently a dispute arose about the validity of the amendment.
On March 24, 2004, the Company repaid the principal and interest due under the terms of the amended note. Pisani, through counsel, informed the Company that, by accepting repayment, he does not prejudice his position regarding the validity of the original note.
The Company is attempting to resolve this dispute. If Pisani prevails in a legal action against the Company, he may be entitled to, in additional to the principal amount and interest that he has received from the Company, shares of common stock as additional interest.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company held its Annual Meeting of Stockholders on August 30, 2004, at the offices of the Company in Sellersville, Pennsylvania.
(c) At the Annual Meeting, a total of 9,136,917 shares were present in person or by proxy out of 13,590,688 shares outstanding. The following is the result of stockholder voting on the proposals before the meeting:
Abstentions/
Proposal Votes in Favor Votes Against Broker Nonvotes
Election of Peter F. 9,127,917 9,000 0
Russo as sole Director
Increase of Authorized 8,811,694 325,223 0
Common Stock to
100,000,000 shares
Authorization of New 5,060,746 321,023 0/3,755,148
Class of Preferred
Stock*
Adoption of 2004 5,317,384 39,385 25,000/3,755,148
Stock Option Plan
(10,000,000 shares)
-----------
|
* The proposal to authorize a new class of preferred stock was not approved. All other proposals were approved.
ITEM 5. OTHER INFORMATION
Effective September 22, 2004, the Company entered into agreements with Peter F. Russo, its President and Chief Executive Officer, and Jerome Kindrachuk, its Vice President-International to modify their employment agreements with the Company. For the year 2004, Messrs. Russo and Kindrachuk agreed to a reduction in monthly salary to $6,500 and $6,000, respectively. In addition, their incentive compensation formula was eliminated but they will be eligible for any future incentive program for senior executives that is established by the board of directors. All other material provisions of their employment agreements remain in effect.
ITEM 6. Exhibits
3.1b Form of Restatement of Certificate of Incorporation of Delta Mutual,
Inc., as amended.
4.5 4% Convertible Promissory Note of the Company due May 2006 issued in
the principal amount of $129,160 on May 12, 2004.
4.6 Convertible Promissory Note of the Company due May 2006 issued in the
principal amount of $193,740 on May 12, 2004.
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.
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.
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.
|
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
DELTA MUTUAL, INC.
BY: /s/ Peter F. Russo
------------------------
Peter F. Russo
President and Chief
Executive Officer
Dated: November 15, 2004
|
EXHIBIT INDEX
3.1b Form of Restatement of Certificate of Incorporation of Delta Mutual,
Inc., as amended.
4.5 4% Convertible Promissory Note of the Company due May 2006 issued in
the principal amount of $129,160 on May 12, 2004.
4.6 Convertible Promissory Note of the Company due May 2006 issued in the
principal amount of $193,740 on May 12, 2004.
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.
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.
31.1 Certification of Chief Executive Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
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.
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.
|
Exhibit 3.1b
FORM OF RESTATED
CERTIFICATE OF INCORPORATION
OF
DELTA MUTUAL, INC.
The undersigned, a natural person, for the purpose of organizing a corporation for conducting the business and promoting the purposes hereinafter stated, under the provisions and subject to the requirements of the laws of the State of Delaware (particularly Chapter 1, Title 8 of the Delaware Code and the acts amendatory thereof and supplemental thereto, and known, identified, and referred to as the "General Corporation Law of the State of Delaware"), hereby certifies that:
FIRST: The name of the corporation (hereinafter called the "corporation") is Delta Mutual, Inc.
SECOND: The address, including street, number, city, and county, of the registered office of the corporation in the State of Delaware is 1013 Centre Road, City of Wilmington 19805, County of New Castle; and the name of the registered agent of the corporation in the State of Delaware at such address is Corporation Service Company.
THIRD: The nature of the business and purposes to be conducted and promoted by the corporation are as follows: to conduct a mortgage company. To conduct any lawful business, to promote any lawful purpose, and to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware.
FOURTH: The total number of shares of stock which the corporation shall have authority to issue is One Hundred Million (100,000,000) shares of Common Stock, having a par value each of One-hundredth of One Cent ($.0001) per share.
FIFTH: The name and the mailing address of the incorporator are as follows:
NAME MAILING ADDRESS
Charles G. Youngblood 4 Tower Place
Albany, New York 12203
|
SIXTH: The corporation is to have perpetual existence.
SEVENTH: Whenever a compromise or arrangement is proposed between this corporation and its creditors or any class of them and/or between this corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this corporation under Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this corporation under Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this corporation, as the case may be, and also on this corporation.
EIGHTH: For the management of the business and for the conduct of the affairs of the corporation, and in further definition, limitation, and regulation of the powers of the corporation and of its directors and of its stockholders or any class thereof, as the case may be, it is further provided:
1. The management of the business and the conduct of the affairs of the corporation shall be vested in its Board of Directors. The number of directors which shall constitute the whole Board of Directors shall be fixed by, or in the manner provided in, the Bylaws. The phrase "whole Board" and the phrase "total number of directors" shall be deemed to have the same meaning, to wit, the total number of directors which the corporation would have if there were no vacancies. No election of directors need be by written ballot.
2. After the original or other Bylaws of the corporation have been adopted,
amended, or repealed, as the case may be, in accordance with the provisions of
Section 109 of the General Corporation Law of the State of Delaware, and, after
the corporation has received any payment for any of its stock, the power to
adopt, amend, or repeal the Bylaws of the corporation may be exercised by the
Board of Directors of the corporation; provided, however, that any provision for
the classification of directors of the corporation for staggered terms pursuant
to the provisions of subsection (d) of Section 141 of the General Corporation
Law of the State of Delaware shall be set forth in an initial Bylaw or in a
Bylaw adopted by the stockholders entitled to vote of the corporation unless
provisions for such classification shall be set forth in this certificate of
incorporation.
3. Whenever the corporation shall be authorized to issue only one class of stock, each outstanding share shall entitle the holder thereof to notice of, and the right to vote at, any meeting of stockholders. Whenever the corporation shall be authorized to issue more than one class of stock, no outstanding share of any class of stock which is denied voting power under the provisions of the certificate of incorporation shall entitle the holder thereof to the right to vote at any meeting of stockholders except as the provisions of paragraph (2) of subsection (b) of Section 242 of the General Corporation Law of the State of Delaware shall otherwise require; provided, that no share of any such class which is otherwise denied voting power shall entitle the holder thereof to vote upon the increase or decrease in the number of authorized shares of said class.
NINTH: The personal liability of the directors of the corporation is hereby eliminated to the fullest extent permitted by the provisions of paragraph (7) of subsection (b) of Section 102 of the General Corporation Law of the State of Delaware, as the same may be amended and supplemented.
TENTH: The corporation shall, to the fullest extent permitted by the provisions of Section 145 of the General Corporation Law of the State of Delaware, as the same may be amended and supplemented, indemnify any and all persons whom it shall have power to indemnify under said Section from and against any and all of the expenses, liabilities, or other matters referred to in or covered by said section, and the indemnification provided for herein shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any Bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person's official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee, or agent and shall inure to the benefit of the heirs, executors, and administrators of such person.
ELEVENTH: From time to time any of the provisions of this certificate of incorporation may be amended, altered, or repealed, and other provisions authorized by the laws of the State of Delaware at the time in force may be added or inserted in the manner and at the time prescribed by said laws, and all rights at any time conferred upon the stockholders of the corporation by this certificate of incorporation are granted subject to the provisions of this Article ELEVENTH.
Signed on November 17th, 1999.
/S/ Charles G. Youngblood ----------------------------------- Charles G. Youngblood, Incorporator |
Exhibit 4.5
THIS NOTE AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER APPLICABLE STATE SECURITIES LAWS AND HAVE BEEN TAKEN FOR INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TO OR FOR SALE IN CONNECTION WITH ANY DISTRIBUTION THEREOF. NEITHER THIS NOTE NOR THE SECURITIES REPRESENTED HEREBY MAY BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION AND QUALIFICATION WITHOUT, EXCEPT
UNDER CERTAIN SPECIFIC LIMITED CIRCUMSTANCES, AN OPINION OF COUNSEL FOR THE LENDER, REASONABLY ACCEPTABLE TO THE COMPANY, THAT SUCH REGISTRATION AND QUALIFICATION ARE NOT REQUIRED.
DELTA MUTUAL, INC.
4% CONVERTIBLE PROMISSORY NOTE
$129,160 May 12, 2004
Sellersville, Pennsylvania
FOR VALUE RECEIVED, DELTA MUTUAL INC., a Delaware corporation (the
"COMPANY"), with offices at 111 North Branch Street, Sellersville, PA
18960, promises to pay to Sophie Angelastri, an individual, (the
"Lender"), of Alte Bergstrasse 171, 8707 Uetikon am See, Switzerland,
in lawful money of the United States of America, the principal sum of
One Hundred Twenty Nine Thousand One Hundred Sixty Dollars ($129,160),
together with interest from the date of this Note on the unpaid
principal balance at a rate equal to four percent (4.0%) per annum,
computed on the basis of the actual number of days elapsed and a year
of 365 days and compounded quarterly on the last day of each calendar
quarter. All unpaid principal, together with any then unpaid and
accrued interest and other amounts payable hereunder, shall be due and
payable at any time after the earlier of (i) the Maturity Date (as
defined below), or (ii) when, upon or after the occurrence of an Event
of Default (as defined below), such amounts are declared due and
payable by the Lender or made automatically due and payable in
accordance with the terms hereof.
The following is a statement of the rights of the Lender and the
|
conditions to which this Note is subject, and to which the Lender, by the acceptance of this Note, agrees:
1. DEFINITIONS. As used in this Note, the following capitalized terms have the following meanings:
1.1 "COMMON STOCK" shall mean the common stock, par value $.0001 per share, of Delta Mutual, Inc., a Delaware corporation.
1.2 "COMPANY" includes the corporation initially executing this Note and any Person which shall succeed to or assume the obligations of the Company under this Note.
1.3 "COMPANY SALE" shall mean a merger or reorganization of the Company with or into any other corporation or corporations, where the Company's shareholders immediately prior to such transaction or transactions own immediately after such transaction less than a majority of the voting equity securities of the surviving corporation or its parent, or a sale of substantially all of the assets of the Company.
1.4 "EVENT OF DEFAULT" has the meaning given in Section 6 hereof.
1.5 "LENDER" shall mean the Person specified in the introductory paragraph of this Note or any Person who shall at the time be the registered holder of this Note.
1.6 "MATURITY DATE" shall mean May 12, 2006.
1.7 "OBLIGATIONS" shall mean all obligations, owed by the Company to the Lender, now existing or hereafter arising under or pursuant to the terms of this Note.
1.8 "Person" shall mean and include an individual, a partnership, a corporation (including a business trust), a joint stock the Company, a limited liability the Company, an unincorporated association, a joint venture or other entity or a governmental authority.
2. INTEREST. All accrued and unpaid interest on this Note shall be due and payable on the Maturity Date.
3. SENIORITY. This Note shall be senior to all general obligations of the Company including, trade payables and other obligations incurred in the ordinary course of business.
4. REPAYMENT AT THE COMPANY'S OPTION. At any time prior to the Maturity Date, the Company may repay this Note, including all expenses due under this Note and all interest accrued on this Note, without penalty or premium, in whole or in part; provided that any such repayment will be applied first to the payment of expenses due under this Note, second to unpaid interest accrued on this Note and third, to the payment of principal of this Note. Notwithstanding the foregoing, at any time after the Maturity Date and upon thirty (30) days prior written notice to the Lender, the Company may repay this Note, including all expenses due under this Note and all accrued but unpaid interest, without penalty or premium, in whole, but not in part, provided that prior to the expiration of the thirty-day notice period, the Lender shall have the right to convert this Note in accordance herewith prior to any such repayment.
5. REPRESENTATIONS AND WARRANTIES OF THE LENDER. The Lender represents and warrants to the Company upon the acquisition of the Note as follows:
5.1 Binding Obligation. The Lender has full legal capacity, power and authority to execute and deliver this Note and to perform its obligations hereunder. This Note is a valid and binding obligation of the Lender, enforceable in accordance with its terms, except as limited by bankruptcy, insolvency or other laws of general application relating to or affecting the enforcement of creditors' rights generally and general principles of equity.
5.2 Securities Law Compliance. The Lender has been advised that this Note has not been registered under the Securities Act of 1933, as amended (the "Securities Act"), or any state securities laws and, therefore, cannot be resold unless it is registered under the Securities Act and applicable state securities laws or unless an exemption from such registration requirements is available. The Lender is aware that the Company is under no obligation to effect any such registration with respect to this Note or to file for or comply with any exemption from registration. The Lender is purchasing this Note for its own account for investment, not as a nominee or agent, and not with a view to, or for resale in connection with, the distribution thereof. The Lender has such knowledge and experience in financial and business matters that the Lender is capable of evaluating the merits and risks of such investment, is able to incur a complete loss of such investment and is able to bear the economic risk of such investment for an indefinite period of time.
6. EVENTS OF DEFAULT. The occurrence of any of the following shall constitute an "Event of Default" under this Note:
6.1 Failure to Pay. If the Note shall not have been converted pursuant to Section 8 hereof, the Company shall fail to pay any principal or interest payment or any other payment required under the terms of this Note on the date due and such payment shall not have been made within fifteen (15) business days of the Company's receipt of written notice from the Lender of such failure to pay;
6.2 Failure to Comply With Covenants. The Company shall have failed to perform, keep, or observe any other material term, provision, condition, covenant, or agreement contained in this Note and has failed to cure such default within fifteen (15) business days after the Company's receipt of written notice from the Lender of such default;
6.3 Voluntary Bankruptcy or Insolvency Proceedings. The Company shall
(I) apply for or consent to the appointment of a receiver, trustee, liquidator
or custodian of itself or of all or a substantial part of its property, (II) be
unable, or admit in writing its inability, to pay its debts generally as they
mature, (III) make a general assignment for the benefit of its or any of its
creditors, (IV) be dissolved or liquidated, (V) become insolvent (as such term
may be defined or interpreted under any applicable statute), (VI) commence a
voluntary case or other proceeding seeking liquidation, reorganization or other
relief with respect to itself or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or consent to any such relief or to
the appointment of or taking possession of its property by any official in an
involuntary case or other proceeding commenced against it, or (VII) take any
action for the purpose of effecting any of the foregoing; or
6.4 Involuntary Bankruptcy or Insolvency Proceedings. Proceedings for the appointment of a receiver, trustee, liquidator or custodian of the Company or of all or a substantial part of the property thereof, or an involuntary case or other proceedings seeking liquidation, reorganization or other relief with respect to the Company or the debts thereof under any bankruptcy, insolvency or other similar law now or hereafter in effect shall be commenced and an order for relief entered or such proceeding shall not be dismissed or discharged within sixty (60) days of commencement.
7. RIGHTS OF THE LENDER UPON DEFAULT. Upon the occurrence or existence of any Event of Default (other than an Event of Default referred to in Sections 6.3 and 6.4) and at any time thereafter during the continuance of such Event of Default, the Lender may, by written notice to the Company, declare all outstanding Obligations payable by the Company hereunder to be immediately due and payable without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived. Upon the occurrence or existence of any Event of Default described in Sections 6.3 and 6.4, immediately and without notice, all outstanding Obligations payable by the Company hereunder shall automatically become immediately due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived. In addition to the foregoing remedies, upon the occurrence or existence of any Event of Default, the Lender may exercise any other right, power or remedy otherwise permitted to it by law, either by suit in equity or by action at law, or both.
8. CONVERSION.
8.1 Optional Conversion. At any time prior to the Maturity Date, the Lender may convert all or any portion of the outstanding principal balance of this Note, and, unless paid in cash by or on behalf of the Company, all accrued and unpaid interest thereon, into fully paid and nonassessable shares of Common Stock. The number of shares of Common Stock into which this Note may be converted (the "Conversion Shares") shall be determined by dividing the aggregate principal amount, and, if applicable, accrued and unpaid interest, of the Note by the Conversion Price (as defined below) in effect at the time of such conversion. The "Conversion Price" shall be equal to $0.125 per share (subject to adjustment for stock splits, combinations and other similar transactions).
8.2 Automatic Conversion. The outstanding principal balance of this Note and all accrued and unpaid interest thereon shall be automatically converted upon the occurrence of a Company Sale into fully paid and nonassessable shares of Common Stock without any action by the Lender and whether or not the Note is surrendered to the Company or its transfer agent. The Company shall not be obligated to issue certificates evidencing the Conversion Shares upon a Company Sale unless this Note is either delivered to the Company or its transfer agent, or the Lender notifies the Company or its transfer agent that this Note has been lost, stolen or destroyed and executes an agreement satisfactory to the Company to indemnify the Company from any loss incurred by it in connection with this Note. The number of Conversion Shares into which this Note shall be converted upon a Company Sale shall be determined by dividing the aggregate principal amount, and, if applicable, accrued and unpaid interest, of the Note by the Conversion Price in effect at the time of such conversion. Such conversion shall be deemed to have been made immediately prior to the close of business of the date of closing of the Company Sale.
8.3 Fractional Shares; Effect of Conversion. No fractional shares shall be issued upon conversion of this Note. Cash shall be paid to the Lender in lieu of any fractional share. Upon conversion of this Note in full, the Company shall be forever released from all its obligations and liabilities under this Note.
8.4 Reservation of Stock Issuable Upon Conversion. The Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock solely for the purpose of effecting the conversion of this Note such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of the Note; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of the entire outstanding principal amount and, if applicable, accrued and unpaid interest, of the Note, without limitation of such
other remedies as shall be available to the Lender of this Note, the Company will use its best efforts to take such corporate action as may, in the opinion of counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes.
8.5 Adjustment to Conversion Price. In the event that the Company shall at any time subdivide the outstanding securities into which this Note shall be convertible, or shall issue a stock dividend on the securities into which this Note shall be convertible, the number of Conversion Shares immediately prior to such subdivision or to the issuance of such stock dividend shall be proportionately increased, and the Conversion Price shall be proportionately decreased, and in the event that the Company shall at any time combine the outstanding securities into which this Note shall be convertible, the number of Conversion Shares immediately prior to such combination shall be proportionately decreased, and the Conversion Price shall be proportionately increased, effective at the close of business on the date of such subdivision, stock dividend or combination, as the case may be.
8.6 Maturity. At the election of the Lender at any time after the Maturity Date, the outstanding principal balance of this Note and, unless paid in cash by or on behalf of the Company, all accrued and unpaid interest thereon, shall be automatically converted into fully paid and nonassessable shares of Common Stock. The number of Conversion Shares shall be determined by dividing the aggregate principal amount and accrued and unpaid interest by the Conversion Price in effect at the time of such conversion.
9. COVENANTS OF THE COMPANY. The Company will, until the earlier to occur of the conversion or repayment in full of this Note, have authorized a sufficient number of shares of each class or series of capital stock into which this Note is convertible pursuant to Section 8 hereof and shall reserve for issuance upon conversion hereof a sufficient number of shares thereof.
10. REGISTRATION RIGHTS. If at any time, the Company proposes to register any of its securities under the Securities Act (the "Act"), whether or not for its own account (other than by a registration statement on Form S-8 or Form S-4), it shall give written notice to Lender of its intent to file a registration statement and include in such registration statement that number of Conversion Shares held by Lender to be included in such registration Statement, subject to the limitations set forth in this Section 10 ("Piggyback Registration Rights").
10.1 Underwritten Public Offerings. If The Company elects to register its securities by or through an underwriter, the Lender may elect to sell its Conversion Shares on the same terms and conditions as apply to other selling shareholders or may elect not to have its Conversion Shares included in such registration. The Company shall pay all expenses in connection with the registration of Lenders Conversion Shares pursuant to the Piggyback Registration Rights.
10.2 Priority in Piggyback Registration. The Company shall not be required to include any Conversion Shares to the extent the managing underwriter reasonably believes and advises Lender that inclusion of such shares would materially adversely affect such offering; provided, however, that any such reduction or elimination shall be pro rata among all other holders of Common Stock exercising any registration rights in proportion to the respective number of shares of Common Stock requested to be registered, if any.
11. SUCCESSORS AND ASSIGNS. Subject to the restrictions on transfer described in Sections 13 and 14 below, the rights and obligations of the Company and the Lender of this Note shall be binding upon and benefit the successors, assigns, heirs, administrators and transferees of the parties.
12. WAIVER AND AMENDMENT. Any provision of this Note may be amended, waived or modified upon the written consent of the Company and the Lender.
13. TRANSFER OF THIS NOTE OR SECURITIES ISSUABLE ON CONVERSION HEREOF. This Note may not be sold, assigned or transferred by the Lender. With respect to any offer, sale or other disposition of the securities into which this Note may be converted, the Lender will give written notice to the Company prior thereto, describing briefly the manner thereof, together with a written opinion of the Lender's counsel, or other evidence if reasonably satisfactory to the Company, to the effect that such offer, sale or other distribution may be effected without registration or qualification (under any federal or state law then in effect). Upon receiving such written notice and reasonably satisfactory opinion, if so requested, or other evidence, the Company, as promptly as practicable, shall notify the Lender that the Lender may sell or otherwise dispose of such
securities, all in accordance with the terms of the notice delivered to the Company. If a determination has been made pursuant to this Section 12 that the opinion of counsel for the Lender, or other evidence, is not reasonably satisfactory to the Company, the Company shall so notify the Lender promptly after such determination has been made. Each certificate representing the securities thus transferred shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with the Securities Act, unless in the opinion of counsel for the Company such legend is not required in order to ensure compliance with the Securities Act. The Company may issue stop transfer instructions to its transfer agent in connection with such restrictions. Subject to the foregoing, transfers of this Note or the securities underlying this Note shall be registered upon registration books maintained for such purpose by or on behalf of the Company. Prior to presentation of this Note or such securities for registration of transfer, the Company shall treat the registered Lender hereof as the owner and holder of this Note for the purpose of receiving all payments of principal and interest hereon and for all other purposes whatsoever, whether or not this Note shall be overdue, and the Company shall not be affected by notice to the contrary.
14.ASSIGNMENT BY THE COMPANY. Neither this Note nor any of the rights, interests or obligations hereunder may be assigned, by operation of law or otherwise, in whole or in part, by the Company without the prior written consent of the Lender.
15.NOTICES. All notices, requests, demands, consents, instructions or other
communications required or permitted hereunder shall in writing and faxed,
mailed or delivered to each party at the respective addresses or facsimile
numbers of the parties. All such notices and communications shall be effective
(A) when sent by Federal Express or other overnight service of recognized
standing, on the business day following the deposit with such service; (B) when
mailed, by registered or certified mail, first class postage prepaid and
addressed as aforesaid through the United States Postal Service, upon receipt;
(C) when delivered by hand, upon delivery; and (D) when faxed, upon confirmation
of receipt.
16. USURY. In the event any interest is paid on this Note that is deemed to be in excess of the then legal maximum rate, then that portion of the interest payment representing an amount in excess of the then legal maximum rate shall be deemed a payment of principal and applied against the principal of this Note.
17. WAIVERS. The Company hereby waives notice of default, presentment or demand for payment, protest or notice of nonpayment or dishonor and all other notices or demands relative to this instrument.
18. GOVERNING LAW. This Note and all actions arising out of or in connection with this Note shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania, without regard to the conflicts of law provisions of the Commonwealth of Pennsylvania, or of any other state.
IN WITNESS WHEREOF, The Company has caused this Note to be issued as of the date first written above.
DELTA MUTUAL, INC.
a Delaware corporation
By: /s/ Peter F. Russo
--------------------
Name: Peter F. Russo
Title: President & CEO
|
Exhibit 4.6
THIS NOTE AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER APPLICABLE STATE SECURITIES LAWS AND HAVE BEEN TAKEN FOR INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TO OR FOR SALE IN CONNECTION WITH ANY DISTRIBUTION THEREOF. NEITHER THIS NOTE NOR THE SECURITIES REPRESENTED HEREBY MAY BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION AND QUALIFICATION WITHOUT, EXCEPT
UNDER CERTAIN SPECIFIC LIMITED CIRCUMSTANCES, AN OPINION OF COUNSEL FOR THE LENDER, REASONABLY ACCEPTABLE TO THE COMPANY, THAT SUCH REGISTRATION AND QUALIFICATION ARE NOT REQUIRED.
DELTA MUTUAL, INC.
CONVERTIBLE PROMISSORY NOTE
$193,740 May 12, 2004
Sellersville, Pennsylvania
FOR VALUE RECEIVED, DELTA MUTUAL INC., a Delaware corporation (the
"COMPANY"), with offices at 111 North Branch Street, Sellersville, PA
18960, promises to pay to Neil Berman, an individual, (the "LENDER"),
of 21346 St. Andrews Street, # 421, Boca Raton, FL 33433 in lawful
money of the United States of America, the principal sum of One Hundred
Ninety Three Thousand Seven Hundred Forty Dollars ($193,740), together
with interest from the date of this Note on the unpaid principal
balance at a rate equal to four percent (4.0%) per annum, computed on
the basis of the actual number of days elapsed and a year of 365 days
and compounded quarterly on the last day of each calendar quarter. All
unpaid principal, together with any then unpaid and accrued interest
and other amounts payable hereunder, shall be due and payable at any
time after the earlier of (i) the Maturity Date (as defined below), or
(ii) when, upon or after the occurrence of an Event of Default (as
defined below), such amounts are declared due and payable by the Lender
or made automatically due and payable in accordance with the terms
hereof.
The following is a statement of the rights of the Lender and the
|
conditions to which this Note is subject, and to which the Lender, by the acceptance of this Note, agrees:
1.DEFINITIONS. As used in this Note, the following capitalized terms have the following meanings:
1.1 "COMMON STOCK" shall mean the common stock, par value $.0001 per share, of Delta Mutual, Inc., a Delaware corporation.
1.2 "COMPANY" includes the corporation initially executing this Note and any Person which shall succeed to or assume the obligations of the Company under this Note.
1.3 "COMPANY SALE" shall mean a merger or reorganization of the Company with or into any other corporation or corporations, where the Company's shareholders immediately prior to such transaction or transactions own immediately after such transaction less than a majority of the voting equity securities of the surviving corporation or its parent, or a sale of substantially all of the assets of the Company.
1.4 "EVENT OF DEFAULT" has the meaning given in Section 6 hereof.
1.5 "LENDER" shall mean the Person specified in the introductory paragraph of this Note or any Person who shall at the time be the registered holder of this Note.
1.6 "MATURITY DATE" shall mean May 12, 2006.
1.7 "OBLIGATIONS" shall mean all obligations, owed by the Company to the Lender, now existing or hereafter arising under or pursuant to the terms of this Note.
1.8 "PERSON" shall mean and include an individual, a partnership, a corporation (including a business trust), a joint stock the Company, a limited liability the Company, an unincorporated association, a joint venture or other entity or a governmental authority.
2.INTEREST. All accrued and unpaid interest on this Note shall be due and payable on the Maturity Date.
3. SENIORITY. This Note shall be senior to all general obligations of the Company including, trade payables and other obligations incurred in the ordinary course of business.
4. REPAYMENT AT THE COMPANY'S OPTION. At any time prior to the Maturity Date, the Company may repay this Note, including all expenses due under this Note and all interest accrued on this Note, without penalty or premium, in whole or in part; provided that any such repayment will be applied first to the payment of expenses due under this Note, second to unpaid interest accrued on this Note and third, to the payment of principal of this Note. Notwithstanding the foregoing, at any time after the Maturity Date, and upon thirty (30) days prior written notice to the Lender, the Company may repay this Note, including all expenses due under this Note and all accrued but unpaid interest, without penalty or premium, in whole, but not in part, provided that prior to the expiration of the thirty-day notice period, the Lender shall have the right to convert this Note in accordance herewith prior to any such repayment.
5. REPRESENTATIONS AND WARRANTIES OF THE LENDER. The Lender represents and warrants to the Company upon the acquisition of the Note as follows:
5.1 Binding Obligation. The Lender has full legal capacity, power and authority to execute and deliver this Note and to perform its obligations hereunder. This Note is a valid and binding obligation of the Lender, enforceable in accordance with its terms, except as limited by bankruptcy, insolvency or other laws of general application relating to or affecting the enforcement of creditors' rights generally and general principles of equity.
5.2 Securities Law Compliance. The Lender has been advised that this Note has not been registered under the Securities Act of 1933, as amended (the "Securities Act"), or any state securities laws and, therefore, cannot be resold unless it is registered under the Securities Act and applicable state securities laws or unless an exemption from such registration requirements is available. The Lender is aware that the Company is under no obligation to effect any such registration with respect to this Note or to file for or comply with any exemption from registration. The Lender is purchasing this Note for its own account for investment, not as a nominee or agent, and not with a view to, or for resale in connection with, the distribution thereof. The Lender has such knowledge and experience in financial and business matters that the Lender is capable of evaluating the merits and risks of such investment, is able to incur a complete loss of such investment and is able to bear the economic risk of such investment for an indefinite period of time.
6. EVENTS OF DEFAULT. The occurrence of any of the following shall constitute an "Event of Default" under this Note:
6.1 Failure to Pay. If the Note shall not have been converted pursuant to Section 8 hereof, the Company shall fail to pay any principal or interest payment or any other payment required under the terms of this Note on the date due and such payment shall not have been made within fifteen (15) business days of the Company's receipt of written notice from the Lender of such failure to pay;
6.2 Failure to Comply With Covenants. The Company shall have failed to perform, keep, or observe any other material term, provision, condition, covenant, or agreement contained in this Note and has failed to cure such default within fifteen (15) business days after the Company's receipt of written notice from the Lender of such default;
6.3 Voluntary Bankruptcy or Insolvency Proceedings.. The Company shall
(I) apply for or consent to the appointment of a receiver, trustee, liquidator
or custodian of itself or of all or a substantial part of its property, (II) be
unable, or admit in writing its inability, to pay its debts generally as they
mature, (III) make a general assignment for the benefit of its or any of its
creditors, (IV) be dissolved or liquidated, (V) become insolvent (as such term
may be defined or interpreted under any applicable statute), (VI) commence a
voluntary case or other proceeding seeking liquidation, reorganization or other
relief with respect to itself or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or consent to any such relief or to
the appointment of or taking possession of its property by any official in an involuntary case or other proceeding commenced against it, or (VII) take any action for the purpose of effecting any of the foregoing; or
6.4 INVOLUNTARY BANKRUPTCY OR INSOLVENCY PROCEEDINGS. Proceedings for the appointment of a receiver, trustee, liquidator or custodian of the Company or of all or a substantial part of the property thereof, or an involuntary case or other proceedings seeking liquidation, reorganization or other relief with respect to the Company or the debts thereof under any bankruptcy, insolvency or other similar law now or hereafter in effect shall be commenced and an order for relief entered or such proceeding shall not be dismissed or discharged within sixty (60) days of commencement.
7. RIGHTS OF THE LENDER UPON DEFAULT. Upon the occurrence or existence of any Event of Default (other than an Event of Default referred to in Sections 6.3 and 6.4) and at any time thereafter during the continuance of such Event of Default, the Lender may, by written notice to the Company, declare all outstanding Obligations payable by the Company hereunder to be immediately due and payable without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived. Upon the occurrence or existence of any Event of Default described in Sections 6.3 and 6.4, immediately and without notice, all outstanding Obligations payable by the Company hereunder shall automatically become immediately due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived. In addition to the foregoing remedies, upon the occurrence or existence of any Event of Default, the Lender may exercise any other right, power or remedy otherwise permitted to it by law, either by suit in equity or by action at law, or both.
8. CONVERSION.
8.1 Optional Conversion. At any time prior to the Maturity Date, the Lender may convert all or any portion of the outstanding principal balance of this Note, and, unless paid in cash by or on behalf of the Company, all accrued and unpaid interest thereon, into fully paid and nonassessable shares of Common Stock. The number of shares of Common Stock into which this Note may be converted (the "Conversion Shares") shall be determined by dividing the aggregate principal amount, and, if applicable, accrued and unpaid interest, of the Note by the Conversion Price (as defined below) in effect at the time of such conversion. The "Conversion Price" shall be equal to $0.125 per share (subject to adjustment for stock splits, combinations and other similar transactions).
8.2 Automatic Conversion. The outstanding principal balance of this Note and all accrued and unpaid interest thereon shall be automatically converted upon the occurrence of a Company Sale into fully paid and nonassessable shares of Common Stock without any action by the Lender and whether or not the Note is surrendered to the Company or its transfer agent. The Company shall not be obligated to issue certificates evidencing the Conversion Shares upon a Company Sale unless this Note is either delivered to the Company or its transfer agent, or the Lender notifies the Company or its transfer agent that this Note has been lost, stolen or destroyed and executes an agreement satisfactory to the Company to indemnify the Company from any loss incurred by it in connection with this Note. The number of Conversion Shares into which this Note shall be converted upon a Company Sale shall be determined by dividing the aggregate principal amount, and, if applicable, accrued and unpaid interest, of the Note by the Conversion Price in effect at the time of such conversion. Such conversion shall be deemed to have been made immediately prior to the close of business of the date of closing of the Company Sale.
8.3 Fractional Shares; Effect of Conversion. No fractional shares shall be issued upon conversion of this Note. Cash shall be paid to the Lender in lieu of any fractional share. Upon conversion of this Note in full, the Company shall be forever released from all its obligations and liabilities under this Note.
8.4 Reservation of Stock Issuable Upon Conversion. The Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock solely for the purpose of effecting the conversion of this Note such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of the Note; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of the entire outstanding principal amount and, if applicable, accrued and unpaid interest, of the Note, without limitation of such other remedies as shall be available to the Lender of this Note, the Company will use its best efforts to take such corporate action as may, in the opinion of counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes.
8.5 Adjustment to Conversion Price. In the event that the Company shall at any time subdivide the outstanding securities into which this Note shall be convertible, or shall issue a stock dividend on the securities into which this
Note shall be convertible, the number of Conversion Shares immediately prior to such subdivision or to the issuance of such stock dividend shall be proportionately increased, and the Conversion Price shall be proportionately decreased, and in the event that the Company shall at any time combine the outstanding securities into which this Note shall be convertible, the number of Conversion Shares immediately prior to such combination shall be proportionately decreased, and the Conversion Price shall be proportionately increased, effective at the close of business on the date of such subdivision, stock dividend or combination, as the case may be.
8.6 Maturity. At the election of the Lender at any time after the Maturity Date, the outstanding principal balance of this Note and, unless paid in cash by or on behalf of the Company, all accrued and unpaid interest thereon, shall be automatically converted into fully paid and nonassessable shares of Common Stock. The number of Conversion Shares shall be determined by dividing the aggregate principal amount and accrued and unpaid interest by the Conversion Price in effect at the time of such conversion.
9. COVENANTS OF THE COMPANY. The Company will, until the earlier to occur of the conversion or repayment in full of this Note, have authorized a sufficient number of shares of each class or series of capital stock into which this Note is convertible pursuant to Section 8 hereof and shall reserve for issuance upon conversion hereof a sufficient number of shares thereof.
10. REGISTRATION RIGHTS. If at any time, the Company proposes to register any of its securities under the Securities Act (the "Act"), whether or not for its own account (other than by a registration statement on Form S-8 or Form S-4), it shall give written notice to Lender of its intent to file a registration statement and include in such registration statement that number of Conversion Shares held by Lender , subject to the limitations set forth in this Section 10 ("Piggyback Registration Rights").
10.1 Underwritten Public Offerings. If The Company elects to register its securities by or through an underwriter, the Lender may elect to sell its Conversion Shares on the same terms and conditions as apply to other selling shareholders or may elect not to have its Conversion Shares included in such registration. The Company shall pay all expenses in connection with the registration of Lenders Conversion Shares pursuant to the Piggyback Registration Rights.
10.2 Priority in Piggyback Registration. The Company shall not be required to include any Conversion Shares to the extent the managing underwriter reasonably believes and advises Lender that inclusion of such shares would materially adversely affect such offering; provided, however, that any such reduction or elimination shall be pro rata among all other holders of Common Stock exercising any registration rights in proportion to the respective number of shares of Common Stock requested to be registered, if any.
11. SUCCESSORS AND ASSIGNS. Subject to the restrictions on transfer described in Sections 13 and 14 below, the rights and obligations of the Company and the Lender of this Note shall be binding upon and benefit the successors, assigns, heirs, administrators and transferees of the parties.
12. WAIVER AND AMENDMENT. Any provision of this Note may be amended, waived or modified upon the written consent of the Company and the Lender.
13. TRANSFER OF THIS NOTE OR SECURITIES ISSUABLE ON CONVERSION HEREOF. This Note may not be sold, assigned or transferred by the Lender. With respect to any offer, sale or other disposition of the securities into which this Note may be converted, the Lender will give written notice to the Company prior thereto, describing briefly the manner thereof, together with a written opinion of the Lender's counsel, or other evidence if reasonably satisfactory to the Company, to the effect that such offer, sale or other distribution may be effected without registration or qualification (under any federal or state law then in effect). Upon receiving such written notice and reasonably satisfactory opinion, if so requested, or other evidence, the Company, as promptly as practicable, shall notify the Lender that the Lender may sell or otherwise dispose of such securities, all in accordance with the terms of the notice delivered to the Company. If a determination has been made pursuant to this Section 12 that the opinion of counsel for the Lender, or other evidence, is not reasonably
satisfactory to the Company, the Company shall so notify the Lender promptly after such determination has been made. Each certificate representing the securities thus transferred shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with the Securities Act, unless in the opinion of counsel for the Company such legend is not required in order to ensure compliance with the Securities Act. The Company may issue stop transfer instructions to its transfer agent in connection with such restrictions. Subject to the foregoing, transfers of this Note or the securities underlying this Note shall be registered upon registration books maintained for such purpose by or on behalf of the Company. Prior to presentation of this Note or such securities for registration of transfer, the Company shall treat the registered Lender hereof as the owner and holder of this Note for the purpose of receiving all payments of principal and interest hereon and for all other purposes whatsoever, whether or not this Note shall be overdue, and the Company shall not be affected by notice to the contrary.
14. ASSIGNMENT BY THE COMPANY. Neither this Note nor any of the rights, interests or obligations hereunder may be assigned, by operation of law or otherwise, in whole or in part, by the Company without the prior written consent of the Lender.
15. NOTICES. All notices, requests, demands, consents, instructions or other
communications required or permitted hereunder shall in writing and faxed,
mailed or delivered to each party at the respective addresses or facsimile
numbers of the parties. All such notices and communications shall be effective
(A) when sent by Federal Express or other overnight service of recognized
standing, on the business day following the deposit with such service; (B) when
mailed, by registered or certified mail, first class postage prepaid and
addressed as aforesaid through the United States Postal Service, upon receipt;
(C) when delivered by hand, upon delivery; and (D) when faxed, upon confirmation
of receipt.
16. USURY. In the event any interest is paid on this Note that is deemed to be in excess of the then legal maximum rate, then that portion of the interest payment representing an amount in excess of the then legal maximum rate shall be deemed a payment of principal and applied against the principal of this Note.
17. WAIVERS. The Company hereby waives notice of default, presentment or demand for payment, protest or notice of nonpayment or dishonor and all other notices or demands relative to this instrument.
18. GOVERNING LAW. This Note and all actions arising out of or in connection with this Note shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania, without regard to the conflicts of law provisions of the Commonwealth of Pennsylvania, or of any other state.
IN WITNESS WHEREOF, The Company has caused this Note to be issued as of the date first written above.
DELTA MUTUAL, INC.
a Delaware corporation
By /s/ Peter F. Russo ------------------------ Name: Peter F. Russo Title: President & CEO |
Exhibit 4.7
THIS NOTE AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER APPLICABLE STATE SECURITIES LAWS AND HAVE BEEN TAKEN FOR INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TO OR FOR SALE IN CONNECTION WITH ANY DISTRIBUTION THEREOF. NEITHER THIS NOTE NOR THE SECURITIES REPRESENTED HEREBY MAY BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION AND QUALIFICATION WITHOUT, EXCEPT
UNDER CERTAIN SPECIFIC LIMITED CIRCUMSTANCES, AN OPINION OF COUNSEL FOR THE LENDER, REASONABLY ACCEPTABLE TO THE COMPANY, THAT SUCH REGISTRATION AND QUALIFICATION ARE NOT REQUIRED.
DELTA MUTUAL, INC.
4% CONVERTIBLE PROMISSORY NOTE "A"
$157,000 July 1, 2004
Sellersville, Pennsylvania
FOR VALUE RECEIVED, DELTA MUTUAL INC., a Delaware corporation (the
"COMPANY"), with offices at 111 North Branch Street, Sellersville, PA
18960, promises to pay to Neil Berman, an individual, (the "LENDER"),
of 21346 St. Andrews Street, # 421, Boca Raton, FL 33433 in lawful
money of the United States of America, the principal sum of One Hundred
Fifty Seven Thousand Dollars ($157,000), together with interest from
the date of this Note on the unpaid principal balance at a rate equal
to four percent (4.0%) per annum, computed on the basis of the actual
number of days elapsed and a year of 365 days and compounded quarterly
on the last day of each calendar quarter. All unpaid principal,
together with any then unpaid and accrued interest and other amounts
payable hereunder, shall be due and payable at any time after the
earlier of (i) the Maturity Date (as defined below), or (ii) when, upon
or after the occurrence of an Event of Default (as defined below), such
amounts are declared due and payable by the Lender or made
automatically due and payable in accordance with the terms hereof.
The following is a statement of the rights of the Lender and the
|
conditions to which this Note is subject, and to which the Lender, by the acceptance of this Note, agrees:
1.DEFINITIONS. As used in this Note, the following capitalized terms have the following meanings:
1.1 "COMMON STOCK" shall mean the common stock, par value $.0001 per share, of Delta Mutual, Inc., a Delaware corporation.
1.2 "COMPANY" includes the corporation initially executing this Note and any Person which shall succeed to or assume the obligations of the Company under this Note.
1.3 "COMPANY SALE" shall mean a merger or reorganization of the Company with or into any other corporation or corporations, where the Company's shareholders immediately prior to such transaction or transactions own immediately after such transaction less than a majority of the voting equity securities of the surviving corporation or its parent, or a sale of substantially all of the assets of the Company.
1.4 "EVENT OF DEFAULT" has the meaning given in Section 6 hereof.
1.5 "LENDER" shall mean the Person specified in the introductory paragraph of this Note or any Person who shall at the time be the registered holder of this Note.
1.6 "MATURITY DATE" shall mean December 31, 2006.
1.7 "OBLIGATIONS" shall mean all obligations, owed by the Company to the Lender, now existing or hereafter arising under or pursuant to the terms of this Note.
1.8 "PERSON" shall mean and include an individual, a partnership, a corporation (including a business trust), a joint stock the Company, a limited liability the Company, an unincorporated association, a joint venture or other entity or a governmental authority.
2. Interest. All accrued and unpaid interest on this Note shall be due and payable on the Maturity Date.
3. SENIORITY. This Note shall be senior to all general obligations of the Company including, trade payables and other obligations incurred in the ordinary course of business.
4. REPAYMENT AT THE COMPANY'S OPTION. At any time after January 1, 2005 and
prior to the Maturity Date, the Company may repay this Note, including all
interest accrued on this Note, without penalty or premium, in whole or in part;
provided that any such repayment will be applied first to the payment of unpaid
interest accrued on this Note and second, to the payment of principal of this
Note, by providing thirty (30) days prior written notice to the Lender.
Notwithstanding the foregoing, prior to the expiration of the thirty-day notice
period, the Lender shall have the right to convert this Note in accordance
herewith prior to any such repayment, subject to the limitation set forth in
Section 8.1 hereof.
5. REPRESENTATIONS AND WARRANTIES OF THE LENDER. The Lender represents and warrants to the Company upon the acquisition of the Note as follows:
5.1 Binding Obligation. The Lender has full legal capacity, power and authority to execute and deliver this Note and to perform its obligations hereunder. This Note is a valid and binding obligation of the Lender, enforceable in accordance with its terms, except as limited by bankruptcy, insolvency or other laws of general application relating to or affecting the enforcement of creditors' rights generally and general principles of equity.
5.2 Securities Law Compliance. The Lender has been advised that this Note has not been registered under the Securities Act of 1933, as amended (the "Securities Act"), or any state securities laws and, therefore, cannot be resold unless it is registered under the Securities Act and applicable state securities laws or unless an exemption from such registration requirements is available. The Lender is aware that the Company is under no obligation to effect any such registration with respect to this Note or to file for or comply with any exemption from registration. The Lender is purchasing this Note for its own account for investment, not as a nominee or agent, and not with a view to, or for resale in connection with, the distribution thereof. The Lender has such knowledge and experience in financial and business matters that the Lender is capable of evaluating the merits and risks of such investment, is able to incur a complete loss of such investment and is able to bear the economic risk of such investment for an indefinite period of time.
6. EVENTS OF DEFAULT. The occurrence of any of the following shall constitute an "Event of Default" under this Note:
6.1 Failure to Comply With Covenants. The Company shall have failed to perform, keep, or observe any other material term, provision, condition, covenant, or agreement contained in this Note and has failed to cure such default within fifteen (15) business days after the Company's receipt of written notice from the Lender of such default;
6.2 Voluntary Bankruptcy or Insolvency Proceedings. The Company shall
(I) apply for or consent to the appointment of a receiver, trustee, liquidator
or custodian of itself or of all or a substantial part of its property, (II) be
unable, or admit in writing its inability, to pay its debts generally as they
mature, (III) make a general assignment for the benefit of its or any of its
creditors, (IV) be dissolved or liquidated, (V) become insolvent (as such term
may be defined or interpreted under any applicable statute), (VI) commence a
voluntary case or other proceeding seeking liquidation, reorganization or other
relief with respect to itself or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or consent to any such relief or to
the appointment of or taking possession of its property by any official in an involuntary case or other proceeding commenced against it, or (VII) take any action for the purpose of effecting any of the foregoing; or
6.3 Involuntary Bankruptcy or Insolvency Proceedings. Proceedings for the appointment of a receiver, trustee, liquidator or custodian of the Company or of all or a substantial part of the property thereof, or an involuntary case or other proceedings seeking liquidation, reorganization or other relief with respect to the Company or the debts thereof under any bankruptcy, insolvency or other similar law now or hereafter in effect shall be commenced and an order for relief entered or such proceeding shall not be dismissed or discharged within sixty (60) days of commencement.
7. RIGHTS OF THE LENDER UPON DEFAULT. Upon the occurrence or existence of any Event of Default (other than an Event of Default referred to in Sections 6.2 and 63) and at any time thereafter during the continuance of such Event of Default, the Lender may, by written notice to the Company, declare all outstanding Obligations payable by the Company hereunder to be immediately due and payable without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived. Upon the occurrence or existence of any Event of Default described in Sections 6.2 and 6.3, immediately and without notice, all outstanding Obligations payable by the Company hereunder shall automatically become immediately due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived. In addition to the foregoing remedies, upon the occurrence or existence of any Event of Default, the Lender may exercise any other right, power or remedy otherwise permitted to it by law, either by suit in equity or by action at law, or both.
8. Conversion.
8.1 Optional Conversion. At any time after October 1, 2004 and prior to the Maturity Date, the Lender may convert all or any portion of the outstanding principal balance of this Note, and, unless paid in cash by or on behalf of the Company, all accrued and unpaid interest thereon, into fully paid and nonassessable shares of Common Stock. The number of shares of Common Stock into which this Note may be converted (the "Conversion Shares") shall be determined by dividing the aggregate principal amount, and, if applicable, accrued and unpaid interest, of the Note by the Conversion Price (as defined below) in effect at the time of such conversion. The "Conversion Price" shall be equal to $0.05 per share (subject to adjustment for stock splits, combinations and other similar transactions).
8.2 Automatic Conversion. The outstanding principal balance of this Note and all accrued and unpaid interest thereon shall be automatically converted upon the occurrence of a Company Sale into fully paid and nonassessable shares of Common Stock without any action by the Lender and whether or not the Note is surrendered to the Company or its transfer agent. The Company shall not be obligated to issue certificates evidencing the Conversion Shares upon a Company Sale unless this Note is either delivered to the Company or its transfer agent, or the Lender notifies the Company or its transfer agent that this Note has been lost, stolen or destroyed and executes an agreement satisfactory to the Company to indemnify the Company from any loss incurred by it in connection with this Note. The number of Conversion Shares into which this Note shall be converted upon a Company Sale shall be determined by dividing the aggregate principal amount, and, if applicable, accrued and unpaid interest, of the Note by the Conversion Price in effect at the time of such conversion. Such conversion shall be deemed to have been made immediately prior to the close of business of the date of closing of the Company Sale.
8.3 Fractional Shares; Effect of Conversion. No fractional shares shall be issued upon conversion of this Note. Cash shall be paid to the Lender in lieu of any fractional share. Upon conversion of this Note in full, the Company shall be forever released from all its obligations and liabilities under this Note.
8.4 Reservation of Stock Issuable Upon Conversion. The Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock solely for the purpose of effecting the conversion of this Note such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of the Note; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of the entire outstanding principal amount and, if applicable, accrued and unpaid interest, of the Note, without limitation of such other remedies as shall be available to the Lender of this Note, the Company will use its best efforts to take such corporate action as may, in the opinion of counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes.
8.5 Adjustment to Conversion Price. In the event that the Company shall at any time subdivide the outstanding securities into which this Note shall be convertible, or shall issue a stock dividend on the securities into which this Note shall be convertible, the number of Conversion Shares immediately prior to such subdivision or to the issuance of such stock dividend shall be proportionately increased, and the Conversion Price shall be proportionately decreased, and in the event that the Company shall at any time combine the outstanding securities into which this Note shall be convertible, the number of Conversion Shares immediately prior to such combination shall be proportionately decreased, and the Conversion Price shall be proportionately increased, effective at the close of business on the date of such subdivision, stock dividend or combination, as the case may be.
8.6 Maturity. At the Maturity Date, the outstanding principal balance of this Note and, unless paid in cash by or on behalf of the Company, all accrued and unpaid interest thereon, shall be automatically converted into fully paid and nonassessable shares of Common Stock. The number of Conversion Shares shall be determined by dividing the aggregate principal amount and accrued and unpaid interest by the Conversion Price in effect at the time of such conversion.
9. COVENANTS OF THE COMPANY. The Company will, until the earlier to occur of the conversion or repayment in full of this Note, have authorized a sufficient number of shares of each class or series of capital stock into which this Note is convertible pursuant to Section 8 hereof and shall reserve for issuance upon conversion hereof a sufficient number of shares thereof.
10. REGISTRATION RIGHTS. If at any time, the Company proposes to register any of its securities under the Securities Act (the "Act"), whether or not for its own account (other than by a registration statement on Form S-8 or Form S-4), it shall give written notice to Lender of its intent to file a registration statement and include in such registration statement that number of Conversion Shares held by Lender , subject to the limitations set forth in this Section 10 ("Piggyback Registration Rights").
10.1 Underwritten Public Offerings. If The Company elects to register its securities by or through an underwriter, the Lender may elect to sell its Conversion Shares on the same terms and conditions as apply to other selling shareholders or may elect not to have its Conversion Shares included in such registration. The Company shall pay all expenses in connection with the registration of Lenders Conversion Shares pursuant to the Piggyback Registration Rights.
10.2 Priority in Piggyback Registration. The Company shall not be required to include any Conversion Shares to the extent the managing underwriter reasonably believes and advises Lender that inclusion of such shares would materially adversely affect such offering; provided, however, that any such reduction or elimination shall be pro rata among all other holders of Common Stock exercising any registration rights in proportion to the respective number of shares of Common Stock requested to be registered, if any.
11. SUCCESSORS AND ASSIGNS. Subject to the restrictions on transfer described in Sections 13 and 14 below, the rights and obligations of the Company and the Lender of this Note shall be binding upon and benefit the successors, assigns, heirs, administrators and transferees of the parties.
12. WAIVER AND AMENDMENT. Any provision of this Note may be amended, waived or modified upon the written consent of the Company and the Lender.
13. TRANSFER OF THIS NOTE OR SECURITIES ISSUABLE ON CONVERSION HEREOF. This Note may not be sold, assigned or transferred by the Lender. With respect to any offer, sale or other disposition of the securities into which this Note may be converted, the Lender will give written notice to the Company prior thereto, describing briefly the manner thereof, together with a written opinion of the Lender's counsel, or other evidence if reasonably satisfactory to the Company, to the effect that such offer, sale or other distribution may be effected without registration or qualification (under any federal or state law then in effect). Upon receiving such written notice and reasonably satisfactory opinion, if so requested, or other evidence, the Company, as promptly as practicable, shall notify the Lender that the Lender may sell or otherwise dispose of such securities, all in accordance with the terms of the notice delivered to the
Company. If a determination has been made pursuant to this Section 12 that the opinion of counsel for the Lender, or other evidence, is not reasonably satisfactory to the Company, the Company shall so notify the Lender promptly after such determination has been made. Each certificate representing the securities thus transferred shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with the Securities Act, unless in the opinion of counsel for the Company such legend is not required in order to ensure compliance with the Securities Act. The Company may issue stop transfer instructions to its transfer agent in connection with such restrictions. Subject to the foregoing, transfers of this Note or the securities underlying this Note shall be registered upon registration books maintained for such purpose by or on behalf of the Company. Prior to presentation of this Note or such securities for registration of transfer, the Company shall treat the registered Lender hereof as the owner and holder of this Note for the purpose of receiving all payments of principal and interest hereon and for all other purposes whatsoever, whether or not this Note shall be overdue, and the Company shall not be affected by notice to the contrary.
14. ASSIGNMENT BY THE COMPANY. Neither this Note nor any of the rights, interests or obligations hereunder may be assigned, by operation of law or otherwise, in whole or in part, by the Company without the prior written consent of the Lender.
15. NOTICES. All notices, requests, demands, consents, instructions or other
communications required or permitted hereunder shall in writing and faxed,
mailed or delivered to each party at the respective addresses or facsimile
numbers of the parties. All such notices and communications shall be effective
(A) when sent by Federal Express or other overnight service of recognized
standing, on the business day following the deposit with such service; (B) when
mailed, by registered or certified mail, first class postage prepaid and
addressed as aforesaid through the United States Postal Service, upon receipt;
(C) when delivered by hand, upon delivery; and (D) when faxed, upon confirmation
of receipt.
16. USURY. In the event any interest is paid on this Note that is deemed to be in excess of the then legal maximum rate, then that portion of the interest payment representing an amount in excess of the then legal maximum rate shall be deemed a payment of principal and applied against the principal of this Note.
17. WAIVERS. The Company hereby waives notice of default, presentment or demand for payment, protest or notice of nonpayment or dishonor and all other notices or demands relative to this instrument.
18. GOVERNING LAW. This Note and all actions arising out of or in connection with this Note shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania, without regard to the conflicts of law provisions of the Commonwealth of Pennsylvania, or of any other state.
IN WITNESS WHEREOF, The Company has caused this Note to be issued as of the date first written above.
DELTA MUTUAL, INC.
a Delaware corporation
By /s/ Peter F. Russo ----------------------- Name: Peter F. Russo Title: President & CEO |
Exhibit 4.8
THIS NOTE AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER APPLICABLE STATE SECURITIES LAWS AND HAVE BEEN TAKEN FOR INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TO OR FOR SALE IN CONNECTION WITH ANY DISTRIBUTION THEREOF. NEITHER THIS NOTE NOR THE SECURITIES REPRESENTED HEREBY MAY BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION AND QUALIFICATION WITHOUT, EXCEPT
UNDER CERTAIN SPECIFIC LIMITED CIRCUMSTANCES, AN OPINION OF COUNSEL FOR THE LENDER, REASONABLY ACCEPTABLE TO THE COMPANY, THAT SUCH REGISTRATION AND QUALIFICATION ARE NOT REQUIRED.
DELTA MUTUAL, INC.
4% CONVERTIBLE PROMISSORY NOTE "B"
$37,500 July 16, 2004
Sellersville, Pennsylvania
FOR VALUE RECEIVED, DELTA MUTUAL INC., a Delaware corporation (the
"COMPANY"), with offices at 111 North Branch Street, Sellersville, PA
18960, promises to pay to Neil Berman, an individual, (the "LENDER"),
of 21346 St. Andrews Street, # 421, Boca Raton, FL 33433 in lawful
money of the United States of America, the principal sum of Thirty
Seven Thousand Five Hundred Dollars ($37,500), together with interest
from the date of this Note on the unpaid principal balance at a rate
equal to four percent (4.0%) per annum, computed on the basis of the
actual number of days elapsed and a year of 365 days and compounded
quarterly on the last day of each calendar quarter. All unpaid
principal, together with any then unpaid and accrued interest and other
amounts payable hereunder, shall be due and payable at any time after
the earlier of (i) the Maturity Date (as defined below), or (ii) when,
upon or after the occurrence of an Event of Default (as defined below),
such amounts are declared due and payable by the Lender or made
automatically due and payable in accordance with the terms hereof.
The following is a statement of the rights of the Lender and the
|
conditions to which this Note is subject, and to which the Lender, by the acceptance of this Note, agrees:
1. DEFINITIONS. As used in this Note, the following capitalized terms have the following meanings:
1.1 "COMMON STOCK" shall mean the common stock, par value $.0001 per share, of Delta Mutual, Inc., a Delaware corporation.
1.2 "COMPANY" includes the corporation initially executing this Note and any Person which shall succeed to or assume the obligations of the Company under this Note.
1.3 "COMPANY SALE" shall mean a merger or reorganization of the Company with or into any other corporation or corporations, where the Company's shareholders immediately prior to such transaction or transactions own immediately after such transaction less than a majority of the voting equity securities of the surviving corporation or its parent, or a sale of substantially all of the assets of the Company.
1.4 "EVENT OF DEFAULT" has the meaning given in Section 6 hereof.
1.5 "LENDER" shall mean the Person specified in the introductory paragraph of this Note or any Person who shall at the time be the registered holder of this Note.
1.6 "MATURITY DATE" shall mean JANUARY 16, 2007.
1.7 "OBLIGATIONS" shall mean all obligations, owed by the Company to the Lender, now existing or hereafter arising under or pursuant to the terms of this Note.
1.8 "PERSON" shall mean and include an individual, a partnership, a corporation (including a business trust), a joint stock the Company, a limited liability the Company, an unincorporated association, a joint venture or other entity or a governmental authority.
2. INTEREST. All accrued and unpaid interest on this Note shall be due and payable on the Maturity Date.
3. SENIORITY. This Note shall be senior to all general obligations of the Company including, trade payables and other obligations incurred in the ordinary course of business.
4. REPAYMENT AT THE COMPANY'S OPTION. At any time after January 16, 2005 and
prior to the Maturity Date, the Company may repay this Note, including all
interest accrued on this Note, without penalty or premium, in whole or in part;
provided that any such repayment will be applied first to the payment of unpaid
interest accrued on this Note and second, to the payment of principal of this
Note, by providing thirty (30) days prior written notice to the Lender.
Notwithstanding the foregoing, prior to the expiration of the thirty-day notice
period, the Lender shall have the right to convert this Note in accordance
herewith prior to any such repayment, subject to the limitation set forth in
Section 8.1 hereof.
5. REPRESENTATIONS AND WARRANTIES OF THE LENDER. The Lender represents and warrants to the Company upon the acquisition of the Note as follows:
5.1 Binding Obligation. The Lender has full legal capacity, power and authority to execute and deliver this Note and to perform its obligations hereunder. This Note is a valid and binding obligation of the Lender, enforceable in accordance with its terms, except as limited by bankruptcy, insolvency or other laws of general application relating to or affecting the enforcement of creditors' rights generally and general principles of equity.
5.2 Securities Law Compliance. The Lender has been advised that this Note has not been registered under the Securities Act of 1933, as amended (the "Securities Act"), or any state securities laws and, therefore, cannot be resold unless it is registered under the Securities Act and applicable state securities laws or unless an exemption from such registration requirements is available. The Lender is aware that the Company is under no obligation to effect any such registration with respect to this Note or to file for or comply with any exemption from registration. The Lender is purchasing this Note for its own account for investment, not as a nominee or agent, and not with a view to, or for resale in connection with, the distribution thereof. The Lender has such knowledge and experience in financial and business matters that the Lender is capable of evaluating the merits and risks of such investment, is able to incur a complete loss of such investment and is able to bear the economic risk of such investment for an indefinite period of time.
6. EVENTS OF DEFAULT. The occurrence of any of the following shall constitute an "Event of Default" under this Note:
6.1 Failure to Comply With Covenants. The Company shall have failed to perform, keep, or observe any other material term, provision, condition, covenant, or agreement contained in this Note and has failed to cure such default within fifteen (15) business days after the Company's receipt of written notice from the Lender of such default;
6.2 Voluntary Bankruptcy or Insolvency Proceedings. The Company shall
(I) apply for or consent to the appointment of a receiver, trustee, liquidator
or custodian of itself or of all or a substantial part of its property, (II) be
unable, or admit in writing its inability, to pay its debts generally as they
mature, (III) make a general assignment for the benefit of its or any of its
creditors, (IV) be dissolved or liquidated, (V) become insolvent (as such term
may be defined or interpreted under any applicable statute), (VI) commence a
voluntary case or other proceeding seeking liquidation, reorganization or other
relief with respect to itself or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or consent to any such relief or to the appointment of or taking possession of its property by any official in an involuntary case or other proceeding commenced against it, or (VII) take any action for the purpose of effecting any of the foregoing; or
6.3 Involuntary Bankruptcy or Insolvency Proceedings. Proceedings for the appointment of a receiver, trustee, liquidator or custodian of the Company or of all or a substantial part of the property thereof, or an involuntary case or other proceedings seeking liquidation, reorganization or other relief with respect to the Company or the debts thereof under any bankruptcy, insolvency or other similar law now or hereafter in effect shall be commenced and an order for relief entered or such proceeding shall not be dismissed or discharged within sixty (60) days of commencement.
7. RIGHTS OF THE LENDER UPON DEFAULT. Upon the occurrence or existence of any Event of Default (other than an Event of Default referred to in Sections 6.2 and 6.3) and at any time thereafter during the continuance of such Event of Default, the Lender may, by written notice to the Company, declare all outstanding Obligations payable by the Company hereunder to be immediately due and payable without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived. Upon the occurrence or existence of any Event of Default described in Sections 6.2 and 6.3, immediately and without notice, all outstanding Obligations payable by the Company hereunder shall automatically become immediately due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived. In addition to the foregoing remedies, upon the occurrence or existence of any Event of Default, the Lender may exercise any other right, power or remedy otherwise permitted to it by law, either by suit in equity or by action at law, or both.
8. CONVERSION.
8.1 Optional Conversion. At any time after October 16, 2004 and prior to the Maturity Date, the Lender may convert all or any portion of the outstanding principal balance of this Note, and, unless paid in cash by or on behalf of the Company, all accrued and unpaid interest thereon, into fully paid and nonassessable shares of Common Stock. The number of shares of Common Stock into which this Note may be converted (the "CONVERSION Shares") shall be determined by dividing the aggregate principal amount, and, if applicable, accrued and unpaid interest, of the Note by the Conversion Price (as defined below) in effect at the time of such conversion. The "CONVERSION PRICE" shall be equal to $0.05 per share (subject to adjustment for stock splits, combinations and other similar transactions).
8.2 Automatic Conversion. The outstanding principal balance of this Note and all accrued and unpaid interest thereon shall be automatically converted upon the occurrence of a Company Sale into fully paid and nonassessable shares of Common Stock without any action by the Lender and whether or not the Note is surrendered to the Company or its transfer agent. The Company shall not be obligated to issue certificates evidencing the Conversion Shares upon a Company Sale unless this Note is either delivered to the Company or its transfer agent, or the Lender notifies the Company or its transfer agent that this Note has been lost, stolen or destroyed and executes an agreement satisfactory to the Company to indemnify the Company from any loss incurred by it in connection with this Note. The number of Conversion Shares into which this Note shall be converted upon a Company Sale shall be determined by dividing the aggregate principal amount, and, if applicable, accrued and unpaid interest, of the Note by the Conversion Price in effect at the time of such conversion. Such conversion shall be deemed to have been made immediately prior to the close of business of the date of closing of the Company Sale.
8.3 Fractional Shares; Effect of Conversion. No fractional shares shall be issued upon conversion of this Note. Cash shall be paid to the Lender in lieu of any fractional share. Upon conversion of this Note in full, the Company shall be forever released from all its obligations and liabilities under this Note.
8.4 Reservation of Stock Issuable Upon Conversion. The Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock solely for the purpose of effecting the conversion of this Note such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of the Note; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of the entire outstanding principal amount and, if applicable, accrued and unpaid interest, of the Note, without limitation of such other remedies as shall be available to the Lender of this Note, the Company will use its best efforts to take such corporate action as may, in the opinion of counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes.
8.5 Adjustment to Conversion Price. In the event that the Company shall at any time subdivide the outstanding securities into which this Note shall be convertible, or shall issue a stock dividend on the securities into which this Note shall be convertible, the number of Conversion Shares immediately prior to such subdivision or to the issuance of such stock dividend shall be proportionately increased, and the Conversion Price shall be proportionately decreased, and in the event that the Company shall at any time combine the outstanding securities into which this Note shall be convertible, the number of Conversion Shares immediately prior to such combination shall be proportionately decreased, and the Conversion Price shall be proportionately increased, effective at the close of business on the date of such subdivision, stock dividend or combination, as the case may be.
8.6 Maturity. At the Maturity Date, the outstanding principal balance of this Note and, unless paid in cash by or on behalf of the Company, all accrued and unpaid interest thereon, shall be automatically converted into fully paid and nonassessable shares of Common Stock. The number of Conversion Shares shall be determined by dividing the aggregate principal amount and accrued and unpaid interest by the Conversion Price in effect at the time of such conversion.
9. COVENANTS OF THE COMPANY. The Company will, until the earlier to occur of the conversion or repayment in full of this Note, have authorized a sufficient number of shares of each class or series of capital stock into which this Note is convertible pursuant to Section 8 hereof and shall reserve for issuance upon conversion hereof a sufficient number of shares thereof.
10. REGISTRATION RIGHTS. If at any time, the Company proposes to register any of its securities under the Securities Act (the "Act"), whether or not for its own account (other than by a registration statement on Form S-8 or Form S-4), it shall give written notice to Lender of its intent to file a registration statement and include in such registration statement that number of Conversion Shares held by Lender , subject to the limitations set forth in this Section 10 ("Piggyback Registration Rights").
10.1 Underwritten Public Offerings. If The Company elects to register its securities by or through an underwriter, the Lender may elect to sell its Conversion Shares on the same terms and conditions as apply to other selling shareholders or may elect not to have its Conversion Shares included in such registration. The Company shall pay all expenses in connection with the registration of Lenders Conversion Shares pursuant to the Piggyback Registration Rights.
10.2 Priority in Piggyback Registration. The Company shall not be required to include any Conversion Shares to the extent the managing underwriter reasonably believes and advises Lender that inclusion of such shares would materially adversely affect such offering; provided, however, that any such reduction or elimination shall be pro rata among all other holders of Common Stock exercising any registration rights in proportion to the respective number of shares of Common Stock requested to be registered, if any.
11. SUCCESSORS AND ASSIGNS. Subject to the restrictions on transfer described in Sections 13 and 14 below, the rights and obligations of the Company and the Lender of this Note shall be binding upon and benefit the successors, assigns, heirs, administrators and transferees of the parties.
12. WAIVER AND AMENDMENT. Any provision of this Note may be amended, waived or modified upon the written consent of the Company and the Lender.
13. TRANSFER OF THIS NOTE OR SECURITIES ISSUABLE ON CONVERSION HEREOF. This Note may not be sold, assigned or transferred by the Lender. With respect to any offer, sale or other disposition of the securities into which this Note may be converted, the Lender will give written notice to the Company prior thereto, describing briefly the manner thereof, together with a written opinion of the Lender's counsel, or other evidence if reasonably satisfactory to the Company, to the effect that such offer, sale or other distribution may be effected without registration or qualification (under any federal or state law then in effect). Upon receiving such written notice and reasonably satisfactory opinion, if so requested, or other evidence, the Company, as promptly as practicable,
shall notify the Lender that the Lender may sell or otherwise dispose of such securities, all in accordance with the terms of the notice delivered to the Company. If a determination has been made pursuant to this Section 12 that the opinion of counsel for the Lender, or other evidence, is not reasonably satisfactory to the Company, the Company shall so notify the Lender promptly after such determination has been made. Each certificate representing the securities thus transferred shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with the Securities Act, unless in the opinion of counsel for the Company such legend is not required in order to ensure compliance with the Securities Act. The Company may issue stop transfer instructions to its transfer agent in connection with such restrictions. Subject to the foregoing, transfers of this Note or the securities underlying this Note shall be registered upon registration books maintained for such purpose by or on behalf of the Company. Prior to presentation of this Note or such securities for registration of transfer, the Company shall treat the registered Lender hereof as the owner and holder of this Note for the purpose of receiving all payments of principal and interest hereon and for all other purposes whatsoever, whether or not this Note shall be overdue, and the Company shall not be affected by notice to the contrary.
14. ASSIGNMENT BY THE COMPANY. Neither this Note nor any of the rights, interests or obligations hereunder may be assigned, by operation of law or otherwise, in whole or in part, by the Company without the prior written consent of the Lender.
15. NOTICES. All notices, requests, demands, consents, instructions or other
communications required or permitted hereunder shall in writing and faxed,
mailed or delivered to each party at the respective addresses or facsimile
numbers of the parties. All such notices and communications shall be effective
(A) when sent by Federal Express or other overnight service of recognized
standing, on the business day following the deposit with such service; (B) when
mailed, by registered or certified mail, first class postage prepaid and
addressed as aforesaid through the United States Postal Service, upon receipt;
(C) when delivered by hand, upon delivery; and (D) when faxed, upon confirmation
of receipt.
16. USURY. In the event any interest is paid on this Note that is deemed to be in excess of the then legal maximum rate, then that portion of the interest payment representing an amount in excess of the then legal maximum rate shall be deemed a payment of principal and applied against the principal of this Note.
17. WAIVERS. The Company hereby waives notice of default, presentment or demand for payment, protest or notice of nonpayment or dishonor and all other notices or demands relative to this instrument.
18. GOVERNING LAW. This Note and all actions arising out of or in connection with this Note shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania, without regard to the conflicts of law provisions of the Commonwealth of Pennsylvania, or of any other state.
IN WITNESS WHEREOF, The Company has caused this Note to be issued as of the date first written above.
DELTA MUTUAL, INC.
a Delaware corporation
By /s/ Peter F. Russo
-----------------------
Name: Peter F. Russo
Title: President & CEO
|
Exhibit 31.1
CERTIFICATION
I, Peter F. Russo, Chief Executive Officer of Delta Mutual, Inc. (the "Company"), certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Delta Mutual, Inc.;
2. Based on my knowledge, this Report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;
4. The Company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the company and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) disclosed in this report any change in the Company's internal control over financial reporting that occurred during the Company's most recent fiscal quarter (the Company's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting; and
5. The Company's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company's auditors and the audit committee of the Company's board of directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the Company's ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal control over financial reporting.
Date: November 15, 2004 /s/ Peter F. Russo
--------------------------
Peter F. Russo
Chief Executive Officer
|
Exhibit 31.2
CERTIFICATION
I, Martin G. Chilek, Chief Financial Officer of Delta Mutual, Inc. (the "Company"), certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Delta Mutual, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;
4. The Company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the company and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) disclosed in this report any change in the Company's internal control over financial reporting that occurred during the Company's most recent fiscal quarter (the Company's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting; and
5. The Company's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company's auditors and the audit committee of the Company's board of directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the Company's ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal control over financial reporting.
Date: November 15, 2004 /s/ Martin G. Chilek
----------------------------
Martin G. Chilek
Chief Financial Officer
|
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Delta Mutual, Inc. (the "Company") on Form 10-QSB for the quarter ended September 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Peter F. Russo, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
/s/ Peter F. Russo
--------------------------
Peter F. Russo
President and
Chief Executive Officer
November 15, 2004
|
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Delta Mutual, Inc. (the "Company") on Form 10-QSB for the quarter ended September 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Martin G. Chilek, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
/s/ Martin G. Chilek
---------------------
Martin G. Chilek
Chief Financial Officer
November 15, 2004
|