UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934. For the fiscal year ended
December 31, 2006.
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number: 000-30563
DELTA MUTUAL, INC.
(Name of small business issuer in its charter)
DELAWARE 14-1818394
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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(215) 258-2800
(Registrant's telephone number)
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK (par value $0.0001 per share)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to the filing requirements for the past 90 days. Yes [X] No [_]
Check if no disclosure of delinquent filers in response to Item 405 of Regulation S-B is contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [X]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [_] Yes [X] No
Issuer's revenue for its fiscal year ended December 31, 2006: $279,870.
Aggregate market value of the voting and non-voting common shares held by non-affiliates of the registrant as of March 28, 2006: $3,106,144 (See Item 5)
Number of shares outstanding of registrant's Common Stock, par value $.0001, as of March 28, 2007: 62,272,286 shares of Common Stock (See Item 11)
Documents incorporated by reference: NONE
Transitional Small Business Disclosure Format (check one): Yes [_] No [X]
PART I
NOTE REGARDING FORWARD LOOKING STATEMENTS
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS
OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Annual Report contains historical information as well as forward- looking statements. Statements looking forward in time are included in this Annual Report pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements involve known and unknown risks and uncertainties that may cause our actual results in future periods to be materially different from any future performance suggested herein. We wish to caution readers that in addition to the important factors described elsewhere in this Form 10-KSB, the following forward-looking statements, among others, sometimes have affected, and in the future could affect, our actual results and could cause our actual consolidated results during 2007, and beyond, to differ materially from those expressed in any forward-looking statements made by or on our behalf.
Forward-looking statements include, but are not limited to, statements under the following headings; (i) "Business Plan," about the development of certain projects and business opportunities and the Company's attempts to convert these plans and opportunities into operating businesses that generate revenues and profits; (ii) "Business Plan," about the intentions of the Company to fund its businesses and operations by borrowings and the successful placement of debt and equity financings; (iii) "Results of Operations"; (iv) "Liquidity and Capital Resources," about the Company's plan to raise additional capital; and (v) "Liquidity and Capital Resources," about the contingent nature of the consummation of any agreements with its contracting, joint venture and partnership parties.
ITEM 1. DESCRIPTION OF BUSINESS
Unless the context otherwise requires, the terms "the Company," "we," "our" and "us" refers to Delta Mutual, Inc., and, as the context requires, its consolidated subsidiaries.
GENERAL
We were incorporated under the name Delta Mutual, Inc. on November 17, 1999, in the State of Delaware with the purpose of providing mortgage services through the Internet. Since current management joined the Company in 2003, we have established business operations focused on providing environmental and construction technologies and services to specific geographic reporting segments in the Far East, the Middle East, the United States and Puerto Rico.
Our offices are located at 111 North Branch Street, Sellersville, PA 18960. Our telephone number is (215) 258-2800. Our common stock is quoted on the Over-the-Counter Electronic Bulletin Board under the symbol "DLTM.OB".
Business Plan
Since 2003, we have established a wholly owned subsidiary, a joint venture and limited partnerships. This structure is primarily for the establishment of business operations focused on providing construction and environmental technologies and services to specific geographic business reporting segments in the Far East, the Middle East, the United States and Puerto Rico.
The Company established a joint venture subsidiary primarily to conduct business operations focused on providing environmental and construction technologies and services in the Far East and the Middle East. In the United States, we established a wholly owned subsidiary for development of construction technologies. In Puerto Rico, we have established limited partnerships for housing development.
Our environmental remediation operations are carried out through Delta-Envirotech, Inc., a joint venture company formed in January 2004, with Hi Tech Consulting and Construction, Inc., to provide environmental technology services for certain business segments located in the Far East and the Middle East. We have operating control of, and a forty-five percent ownership interest in, Delta-Envirotech. We have entered into strategic alliance agreements with several United States-based entities with technologies and products in the environmental field to support the Company's worldwide activities and have these technologies available.
Our wholly owned subsidiary, Delta Technologies, Inc., acquired intellectual property and designed machine tool equipment to manufacture an innovative concrete wall forming system. This system, known as Delta Wall, was developed for the United States housing construction industry as well as for use in residential housing construction projects in Puerto Rico.
We formed limited partnerships to conduct our housing development activities in Puerto Rico for residential construction under the Section 124 low-income housing program.
Far East (Indonesia)
In Indonesia, we formed a local joint venture company to conduct energy and waste recovery operations. The joint venture company, PT Triyudha-Envirotech, began operations in December 2005, pursuant to a contract with Pertamina, the state owned oil company. We successfully completed the initial contract to process 3,000 tons of oil sludge, in October 2006. We are currently negotiating a second contract to process an unlimited amount of oil sludge at the same refinery over a 12-month period.
Our joint venture's processing facility, located in Indramayu, Java, at the Balengan Refinery, consists of sludge and water treatment holding tanks, a centrifuge processing unit, an oil recovery tank, a water discharge pipeline into the refinery waste water treatment facility and a self contained electrical generator. All equipment was procured locally. The sludge is treated with approved chemical emulsifiers that assist in breaking down the sludge. The treated liquid is heated and enters into the centrifuge unit and is subjected to approximately 500 G's of force, which separates the sludge into its components. The separated oil rises to the top where it is recovered into an oil holding tank. The water is sent via pipeline back to the refinery's water treatment system for re-use. All of the equipment has been approved by the government environmental authorities. The facility has the capacity to process 200 metric tons of oil sludge per day, depending on the density of the sludge.
Middle East
In January 2004, we entered into a strategic alliance agreement between our environmental remediation joint venture, Delta-Envirotech, Inc. ("Envirotech"), and ZAFF International, Ltd. ("ZAFF"), to jointly pursue environmental and other projects in the Middle East. In November 2004, ZAFF received its operating license from the Saudi Arabia environmental authorities to employ all environmental technologies held by Envirotech.
In August 2005, we reached a working agreement to provide equipment to manufacture insulating concrete form (ICF) products for the building industry in Saudi Arabia. In the first quarter of 2006, a memorandum of understanding was signed that provided for two additional ICF factories. In July 2006, Envirotech submitted a detailed proposal to the potential purchaser that resulted in a Letter of Intent from the purchaser in September 2006.
On March 8, 2007, we received the purchase agreement to supply machinery, equipment and other components and services for an ICF factory that will be located in Saudi Arabia. This is our first project in Saudi Arabia and our largest to date, valued at $3,369,000.
The equipment specified in the agreement consists of several ICF technologies including our Delta Wall system. Under the terms of the agreement, payment will be made by a letter of credit in four installments. We currently anticipate that the letter of credit will be opened in the second quarter of 2007 and expect the final payment in the first quarter of 2008.
On July 18, 2006 the Company announced that Envirotech had expanded its product line by securing the master distribution rights for the Middle East, among other areas, for environmentally friendly organic emulsifiers used in oil tank cleaning and to enhance oil well production. The products are scheduled to be tested in an oil storage tank in Ras Tanura, Saudi Arabia during the second quarter of 2007. An oil well test application in Al Khafji, Saudi Arabia is also scheduled during the second quarter.
In August 2006, we announced that Envirotech further expanded it product and service offerings by securing the exclusive Middle East distribution rights for an infrared gas-imaging product that detects and visualizes harmful gasses produced by oilfield and refinery operations. The gas-imaging product is currently under evaluation by ARAMCO, the Saudi government oil company. We believe that if the evaluation is satisfactory, ARAMCO will purchase a unit.
During the fourth quarter 2006, Envirotech issued proposals for oil sludge processing and recovery activities, using our combined technologies, for three sites in the Middle East. These proposals are currently undergoing technical and economic evaluation.
In August 2005, we reached a working agreement to provide technology and equipment, on a turn-key basis, to recover silver from used x-ray film with the Saudi Gulf Environmental Protection Company (SEPCO). During the second quarter of 2006, a Letter of Intent was signed, subject to approval from the Saudi environmental authority (PME). An inspection of this equipment in the U.S. was scheduled by PME for the third quarter of 2006, for the purpose of issuing its approval. Prior to the final inspection visit, SEPCO determined that the amount of used x-ray film in country was not sufficient to justify its investment in the processing equipment.
United States
In August 2005, we acquired, through Delta Technologies, Inc., certain intellectual property and filed a patent application for a new insulating concrete wall forming (ICF) system called Delta Wall. In addition to the patent filing, the Company engaged a technical consultant and a business development consultant to further the design and development of the Company's ICF products.
The machine tool equipment required to produce the new Delta Wall product was completed in July 2006 and initial production began on September 15. In December 2006, we engaged an independent testing laboratory to evaluate our Delta Wall product for the purpose of applying for approval under the International Commercial Code (ICC). This evaluation is in process. ICC approval of our Delta Wall product will facilitate local, national and international approvals.
Puerto Rico
We are pursuing low-income housing development in Puerto Rico. In November 2006,
we formed a new limited partnership, of which we are the general partner and 35%
owner, to acquire a suitable parcel of land for low income housing development
approved for Section 124 housing and zoned for residential construction. In
January 2007, we acquired an option, subject to bank financing, to purchase a 13
acre site located in Toa Alta for the planned development of approximately 338
residential housing units. The housing development project proposed on this
property was initiated by the property owner and has been approved under the
Section 124 program and is zoned for residential housing. We are currently in
the process of securing bank financing for the property acquisition and the
first phase of the housing construction.
Our initial Section 124 housing project for approximately 270 homes on a 36 acre tract in Aguadilla , known as " Brisas del Atlantico," was ultimately rejected for re-zoning and has been discontinued.
Our second majority owned joint venture was established in conjunction with another developer, to build approximately 300 Section 124 homes on a 40 acre tract located in Guayanilla. In March 2007, the project's developer informed us that he does not intend to proceed with the development of this property. Accordingly, we are in the process of discontinuing our activities associated with this project.
COMPETITION
Until we have successfully obtained the full amount of debt or equity financing required to fund our projected business operations, it is difficult to compete with large, well-capitalized companies for governmental or private sector environmental remediation contracts. Many of these contracts require significant up-front expenditures on behalf of the firm awarded the contract.
There are many established environmental remediation companies that have significantly greater financial and personnel resources and technical expertise than we do. There are well-capitalized environmental services and technology companies as well as highly capitalized housing development companies in our target marketplaces that will continue to retain their dominance and competitive advantages over us.
Our planned housing construction activity in Puerto Rico also faces intense competition from larger, better-financed developers and construction companies. Our new environmentally friendly wall forming system faces competition from established companies and various technologies that have been used in the industry for many years.
EMPLOYEES
Currently, we have four employees: Peter F. Russo, President and Chief Executive Officer; Martin G. Chilek, Senior Vice President and Chief Financial Officer; John Latza, President, Delta Technologies, Inc. and Judith Dallas, Director, Administration. Assuming that we obtain the necessary funding to operate our planned businesses, we plan to hire several additional personnel to support our projected business operations.
RISK FACTORS
Our business is subject to numerous risk factors, including the following:
WE HAVE NOT OPERATED PROFITABLY SINCE INCEPTION, AND WE EXPECT TO INCUR LOSSES IN THE FUTURE. WE WILL BE REQUIRED TO RAISE ADDITIONAL CAPITAL.
Our operations have only generated limited revenue and they are not profitable. We have incurred net operating losses from the formation of our company through December 31, 2006, Of $8,862,504 and expect that we will continue to incur operating losses in the future. In 2006, we generated revenue of $279,870, incurred operating expenses of $2,623,535 and had a net loss of $2,542,265. As of March 28, 2007, we had approximately $50,000 of cash on hand to fund operations. There is no assurance that we will operate profitably in the future. Failure to achieve or maintain profitability may materially and adversely affect the future value of our common stock.
We will have to obtain additional capital to continue development of our proposed business. There is no assurance that we will be able to obtain sufficient capital to develop our proposed environmental remediation and housing development businesses and market our services successfully.
WE HAVE BEEN THE SUBJECT OF A GOING CONCERN OPINION FROM OUR INDEPENDENT AUDITORS, WHICH MEANS THAT WE MAY NOT BE ABLE TO CONTINUE OPERATIONS UNLESS WE OBTAIN ADDITIONAL FUNDING.
Our independent auditors have added an explanatory paragraph to their audit opinion, issued in connection with our consolidated financial statements, which states that our ability to continue as a going concern is uncertain due to our continued operating losses, the excess of our liabilities over our assets and uncertain conditions we face in our day- to-day operations. Our consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
WE ARE SUBJECT TO EXTENSIVE GOVERNMENTAL REGULATION FOR OUR PROPOSED ENVIRONMENTAL REMEDIATION OPERATIONS.
Each aspect of our proposed environmental remediation business is subject to significant environmental regulations by foreign governments. No assurances can be given that such environmental laws or regulations, or that future changes in environmental laws, regulations, or interpretations currently applicable to the Company or changes in the nature of the Company's operations, will not adversely impact our proposed operations or have a material adverse effect on the financial condition, operations and liquidity of the Company.
OUR BUSINESS IS SUBJECT TO RISKS ASSOCIATED WITH OUR OFFSHORE OPERATIONS IN INDONESIA.
We have commenced energy and waste recovery operations in Indonesia for the processing of oil sludge from refineries. Our joint venture partner has received all environmental approvals necessary to operate the permanent processing installation. Adverse changes in governmental permits, approvals, laws or regulations in Indonesia could harm our business, as could our failure to receive from Pertamina further contracts for processing sludge in our processing facility.
OUR INTERNATIONAL OPERATIONS EXPOSE US TO POLITICAL, ECONOMIC AND CURRENCY RISKS.
With regard to our operations outside of the United States in Indonesia, we are subject to the risks of doing business abroad, including,
o Currency fluctuations;
o Changes in tariffs and taxes; and
o Political and economic instability.
Changes in currency exchange rates may affect the relative costs at which we are able to process sludge in Indonesia, and may affect the cost of certain items required in our processing operation, thus possibly adversely affecting our profitability.
There are inherent risks of conducting business internationally. Language barriers, foreign laws and tariff and taxation issues all have a potential negative effect on our ability to transact business in the Far East. Changes in tariffs or taxes applicable to our joint venture in Indonesia may adversely affect its profitability. Political instability may increase the difficulties and costs of doing business in Indonesia. We may be subject to the jurisdiction of the government and/or private litigants in foreign countries where we transact business, and may be forced to expend funds to contest legal matters in those countries in disputes with those governments or with customers or suppliers.
AS A HOUSING DEVELOPER WE FACE ECONOMIC AND MARKET RISKS.
Many factors which are beyond our control will affect our proposed business as a developer of housing, including, among others, general economic and real estate market conditions, competitive factors, the availability and cost of borrowed funds, real estate tax rates, federal and state income tax laws, operating expenses (including maintenance and insurance), energy costs, government regulations, including delays in acquiring or our inability to acquire required permits, and potential liability under and changes in environmental and other laws, as well as the successful management of the properties.
Our success as a developer of housing will also be subject to certain additional risks including, but not limited to, (i) competition for existing and future projects from other developers in the areas of our developed properties, (ii) adverse changes in mortgage interest or terms of governmental financing, (iii) possible adverse changes in general economic conditions and adverse local conditions, such as competitive over-bidding, a decrease in employment or adverse changes in real estate zoning laws, and (iv) other circumstances over which we may have little or no control.
AS A SUPPLIER OF BUILDING PRODUCTS WE FACE ECONOMIC AND TECHNOLOGY RISKS.
The market for suppliers of building materials is very competitive. Our success as a supplier of building materials will be subject to many factors that are beyond our control including, among others, our successful marketing of our products to construction firms in the various regions where we would operate, general economic conditions in the construction industry and real estate market conditions, technological developments by competitors, the availability and cost of borrowed funds, government building codes and regulations, and compliance with and potential liability under environmental and other laws.
OUR MARKETS ARE VERY COMPETITIVE.
Virtually all of our current and potential competitors have significantly greater financial, marketing and technical resources than we have. As a result, they may be able to leverage a customer base, adapt more quickly to new technologies and changes in customer requirements, or devote greater resources to the promotion and sale of their services and products than we can.
WE DO NOT EXPECT TO PAY DIVIDENDS.
We have never paid dividends on our common stock. Current Company management anticipates that any earnings generated from our operations would be used to finance our working capital requirements, to develop services and products and for marketing. For the foreseeable future, cash dividends will not be paid to holders of our common stock.
VOLATILITY OF STOCK PRICE.
The market price of our common stock, as is the case for companies without established operations, is extremely volatile due to our uncertain future prospects and general market and economic conditions. During the two year period ended December 31, 2006, the closing per share price of our common stock has fluctuated from $0.96 to $0.06 per share. Our common stock currently trades in the OTC Bulletin Board market.
ITEM 2. DESCRIPTION OF PROPERTY.
We currently lease office space consisting of approximately 1,700 square feet in an office building located in Sellersville, Pennsylvania. We are obligated to pay a monthly rent of $650 as well as pay for certain utilities serving the premises. Our lease is for a period of one year from March 1, 2006 to February 28, 2007, with additional twelve month renewal periods. The fist twelve month renewal period began on March 1, 2007. We anticipate that our current office space will accommodate our operations for the foreseeable future. We leased an apartment in San Juan, Puerto Rico of approximately 650 square feet for a monthly rental of $750. That lease expired on March 31, 2006 and was not renewed. We also lease office space in Saudi Arabia on a month-to-month basis.
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS
ISSUER PURCHASES OF EQUITY SECURITIES.
Our common stock has been quoted on the Over-the-Counter Bulletin Board operated by the National Association of Securities Dealers, since approximately February 1, 2001. Our shares are listed under the symbol "DLTM". The quotations in the table below reflect inter-dealer prices, without retail mark-up, mark-down, or commission and may not represent actual transactions.
High Low
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2005: 1st Quarter 0.69 0.28
2nd Quarter 0.96 0.23
3rd Quarter 0.45 0.28
4th Quarter 0.40 0.15
2006: 1st Quarter 0.32 0.10
2nd Quarter 0.12 0.06
3rd Quarter 0.45 0.10
4th Quarter 0.25 0.10
2007: 1st Quarter 0.16 0.04
(through March 28, 2007)
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During the last two fiscal years, no cash dividends have been declared on Delta's common stock and Company management does not anticipate that dividends will be paid in the foreseeable future. As of March 28, 2007, there were 86 record holders of our common stock.
The following table sets forth information with respect to our common stock issued and available to be issued under outstanding options, warrants and rights as of December 31, 2006.
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(a) (b) (c)
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Plan category Number of securities to be Weighted-average exercise Number of securities
issued upon exercise of price of outstanding remaining available for
outstanding options, options, warrants and future issuance under
warrants and rights rights equity compensation plans
(excluding securities
reflected in column (a))
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Equity compensation plans
approved by security holders 7,978,000 $0.11 2,022,000
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Equity compensation plans not
approved by security holders
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Total 7,978,000 $0.11 2,022,000
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RECENT SALES OF UNREGISTERED SECURITIES
This table sets forth our sales of unregistered securities in the last three fiscal years that were not reported in a Current Report on Form 8-K or a Quarterly Report on Form 10-QSB.
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Date Title and Amount Purchasers Principal Total Offering
Underwriter Price/Underwriting
Discounts
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November 1, 2004 250,000 shares of
common stock Consultant NA $31,250/NA
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November 8, 2004 500,000 shares of
common stock issued Private Investor NA $25,000/NA
upon conversion of a
promissory note in
the principal amount
of $25,000
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November 19, 2004 403,951 shares of Private Investor NA $20,198/NA
common stock issued
upon conversion of a
promissory note in
the principal amount
of $20,000 (including
accrued interest)
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November 23, 2004 502,887 shares of Private Investor NA $25,144/NA
common stock issued
upon conversion of a
promissory note in the
principal amount of
$25,00 (including
accrued interest)
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December 6, 2004 150,000 shares of Private Investor NA $15,000/NA
common stock issued
upon exercise of
outstanding common
stock purchase warrant
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December 7, 2004 200,000 shares of Private Investor NA $20,000/NA
common stock issued
upon exercise of
outstanding common
stock purchase warrant
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December 13, 2004 150,000 shares of Private Investor NA $15,000/NA
common stock issued
upon exercise of
outstanding common
stock purchase warrant
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December 15, 2004 54,055 shares of Private Investor NA $10,000/NA
common stock
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December 22, 2004 300,000 shares of Private Investor NA $30,000/NA
common stock issued
upon exercise of
outstanding common
stock purchase warrant
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February 15, 2005 45,000 shares of Consultant NA $19,125/NA
common stock
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December 12, 2005 45,000 shares of Consultant NA $12,870/NA
common stock
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November 14, 2006 335,000 shares of Consultant NA $50,250/NA
common stock
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December 15, 2006 1,120,000 shares of Private Investor NA $56,000/NA
common stock issued
upon conversion of a
promissory note in
principal amount of
$50,000 (including accrued interest)
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The issuances of common stock to consultants are viewed as exempt from registration under the Securities Act of 1933, as amended ("Securities Act"), under section 4(2) thereof, as transactions not involving any public offering. The private placements of the Company's common stock and the offerings of notes, convertible notes and common stock warrants to U.S. investors, are viewed as exempt under the provisions of Rule 506 of Regulation D under the Securities Act. The issuance of certain notes, convertible notes and common stock warrants to foreign investors, are viewed as exempt from registration under Regulation S of the Securities Act.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The following discussion of our consolidated financial condition and results of operations should be read in conjunction with the consolidated financial statements and notes thereto and the other financial information included elsewhere in this report.
Certain statements contained in this report, including, without limitation, statements containing the words "believes," "anticipates," "expects" and words of similar import, constitute "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including our ability to create, sustain, manage or forecast our growth; our ability to attract and retain key personnel; changes in our business strategy or development plans; competition; business disruptions; adverse publicity; and international, national and local general economic and market conditions.
GENERAL
We were incorporated in the State of Delaware on November 17, 1999 and will require additional capital to execute our current and planned business operations.
RESULTS OF OPERATIONS
During the fiscal year ended December 31, 2006, we incurred a net loss of $2,542,265, because we had limited revenue to offset operating expenses. The loss in fiscal 2006 was primarily attributable to general and administrative expenses of approximately $2,349,000 that included a non-cash expense for stock options in the amount of $769,810. In addition, we incurred cost of sales of $238,897 in 2006.
The Independent Auditors' Report and Note 1 of the Notes to Consolidated Financial Statements accompanying this report state that substantial doubt has been raised about our ability to continue as a going concern. Our present business operations do not generate enough revenue to cover our expenses. We will have to raise capital 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. If we 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.
2006 COMPARED TO 2005
The net loss of $2,542,265 for the twelve months ended December 31, 2006, approximated the prior year's loss of $2,580,440.
Cost of sales increased approximately $233,000 from the prior year. General and administrative expenses also increased from the prior year by approximately $500,000. The items of significant increase in general and administrative expenses for the year ended December 31, 2006 were an increase in compensatory expense associated with stock options of approximately $770,000 and an increase in consulting fees of approximately $485,000.
The increases in cost of sales and in general and administrative expenses were offset by a decrease of the accretion of convertible debt of approximately $248,000 and a decrease in interest expense of approximately $87,000 from the prior year.
PLAN OF OPERATION
The Company has established a wholly-owned subsidiary, a joint venture subsidiary and limited partnerships, primarily to establish business operations focused on providing environmental and construction technologies and services in the Far East, the Middle East, the United States and Puerto Rico.
Our environmental remediation operations are carried out through Delta-Envirotech, Inc., a joint venture company formed in January 2004, with Hi Tech Consulting and Construction, Inc., to provide environmental technology and other services for certain business segments located in the Far East and the Middle East. We have operating control of, and a forty-five percent ownership interest in, Delta-Envirotech. We have entered into strategic alliance agreements with several United States-based entities with technologies and products in the environmental field to support the Company's worldwide activities.
Our construction technology activities are carried out by Delta Technologies, Inc. and focused on the United States construction industry but are equally well suited for use in Puerto Rico and internationally.
We have formed a new limited partnership for low-income housing development and have a purchase option to acquire a parcel of land that is already zoned and approved for this purpose. Our first low-income housing project in Puerto Rico was rejected for re-zoning and was terminated for that reason. Our second low-income housing project was part of a master development plan that was terminated by the project's developer and will not go forward.
Far East (Indonesia)
In Indonesia, we formed a local joint venture company to commence energy and waste recovery operations. The joint venture company, PT Triyudha-Envirotech, began operations in December 2005, pursuant to a contract with Pertamina. The initial contract that required us to process 3,000 metric tons of oil sludge was successfully completed in October 2006. We are currently negotiating a second contract to process an unlimited amount of oil sludge over a 12-month period at the same refinery.
Middle East
In 2004, we entered into a strategic alliance agreement between our environmental remediation joint venture, Delta-Envirotech, Inc. ("Envirotech"), and ZAFF International, Ltd., to jointly pursue environmental and other projects in the Middle East.
In August 2005, we reached a working agreement to provide equipment to manufacture insulating concrete form (ICF) products for the building industry in Saudi Arabia. In September 2006, Envirotech received a letter of intent from a purchaser.
On March 8, 2007, Envirotech received the purchase agreement to supply the equipment and services for the factory in Saudi Arabia. This is our first contract in Saudi Arabia and our largest to date, valued at $3,369,000.
The equipment specified in the agreement consists of several ICF technologies including our Delta Wall system. The agreement requires payment by letter of credit in four installments. We anticipate that the letter of credit will be opened during the second quarter of 2007 and that the final payment will be received in the first quarter of 2008.
During July and August 2006, we announced that Envirotech expanded its product line by securing the master distribution rights for the Middle East for environmentally friendly organic emulsifiers used to clean oil wells and oil storage tanks, as well as a gas-imaging product used in oilfield and refining operations. These products are currently being evaluated or scheduled for testing during the second quarter of 2007.
United States
In August 2005, Delta Technologies, Inc. acquired, certain intellectual property and filed a patent application for a new insulating concrete wall forming (ICF) system, now know as Delta Wall. In addition to the patent filing, the Company engaged a technical consultant and a business development consultant to further the design and development of the Company's ICF products.
The machine tool equipment required to produce the new product was completed in July 2006 and production began on September 15. An independent testing laboratory is currently evaluating the Delta Wall blocks for the purpose of applying for International Commercial Code (ICC) approval.
Puerto Rico
In November 2006, we formed a new limited partnership to acquire a suitable parcel of land for a new housing development approved for Section 124 housing and zoned for residential construction. In January 2007, we secured an option on a 13 acre tract in Toa Alta that met these requirements. Currently, we are in the process of obtaining bank financing to acquire the property and begin construction of the first phase of the project that will ultimately consist of approximately 338 residential housing units.
Our initial Section 124 housing project for approximately 270 homes on a 36 acre tract in Aguadilla was ultimately rejected for re-zoning and has been discontinued. As of December 31, 2006, we wrote off the deposit on the land associated with this project.
Our second majority owned joint venture was established, in conjunction with another developer, to build approximately 300 Section 124 homes on a 40 acre tract located in Guayanilla. This tract of land was part of a 150 acre master development plan. In March 2007, the project's developer informed us that he has elected not to proceed with the proposed development of this property and this project will not go forward.
FUNDING
We are currently dependent on equity investments or borrowing 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. We anticipate that we will be required to raise capital in the approximate amount of $700,000 in the next six months in order to continue to fund our current activities and to finance our planned business operations.
LIQUIDITY
We have generated limited revenue from our current operations. We must rely primarily on private placements of Company stock or debt to pay operating expenses.
At December 31, 2006 we had a working capital deficit of $1,208,048, a decrease in our working capital deficit as compared with 2005. This decrease for the year ended December 31, 2006 is a result of an increase in cash and prepaid expenses and a decrease in accounts payable and accretion of convertible debt. Since we have limited sources of revenue, we expect a working capital deficit until our revenue is sufficient to cover our operating expenses.
In 2006, to provide financing for our activities, we raised $834,500 of equity capital, through the sale of 17,182,212 shares of common stock and raised $73,000 through the exercise of our common stock warrants. In addition, in May 2006, we borrowed $46,000 from two related parties pursuant to a 6% convertible note in the principal amount of $16,000 and a 6% promissory note in the principal amount of $30,000, respectively. The maturity dates of the notes are November 2007 and May 2008, respectively.
ASSETS
At December 31, 2006, we had total assets of $1,044,549, compared to total assets of $870,108 at December 31, 2005. The increase in total assets as of December 31, 2006 was due to an increase in cash, prepaid expenses and fixed assets, offset by a decrease in accounts receivable.
CRITICAL ACCOUNTING ISSUES
The Company's discussion and analysis of its financial condition and results of perations are based upon the Company's financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of the financial statements requires the Company to make estimates and judgments that affect the reported amount of assets, liabilities, and expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to intangible assets, income taxes and contingencies and litigation. The Company bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Other Matters
Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 158, "Employers' Accounting for Defined Benefit and Other Post Retirement Plans," an amendment of FASB Statements No. 87, 88, 106 and 132(R). SFAS 158 requires employers to recognize their defined benefit plans' overfunded orunderfunded status in their balance sheets, requires employers to measure planassets and plan obligations as of the balance sheet date, immediately recognize any remaining transition obligations currently being deferred, and recognize actuarial gains and losses through other comprehensive income. The Statement is effective for fiscal years ending after December 15, 2006
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements," which enhances existing guidance for measuring assets and liabilities using fair value. This Standard provides a single definition of fair value, together with a framework for measuring it, and requires additional disclosure about the use of fair value to measure assets and liabilities. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company does not believe that SFAS No. 157 will have a material impact on its consolidated financial statements.
In September 2006, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin ("SAB") No. 108, "Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements" ("SAB No. 108"). SAB No. 108 provides guidance on the consideration of effects of the prior year misstatements in quantifying current year misstatements for the purpose of a materiality assessment. We adopted SAB No. 108 in the fourth quarter of 2006 and the adoption did not impact our consolidated financial results.
In July 2006, the FASB issued Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" ("FIN 48"). The interpretation requires a two step approach for recognizing and measuring tax benefits based on a recognition threshold of "more likely than not." The FASB also requires explicit disclosures about uncertainties in tax positions including a detailed rollforward of tax benefits that do not qualify for financial statement recognition. The adoption of FIN 48 is effective for fiscal years beginning after December 15, 2006. While the Company's analysis of the impact of this Interpretation is not yet complete, we do not anticipate it will have a material impact on the consolidated financial statements or with any of the Company's debt covenants.
In February 2007, the FASB issued SFAS No. 159 "The Fair Value Option for Financial Assets and Financial Liabilities," providing companies with an option to report selected financial assets and liabilities at fair value. The Standard's objective is to reduce both complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. It also requires entities to display the fair value of those assets and liabilities for which the Company has chosen to use fair value on the face of the balance sheet. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact of the adoption of this Statement on its consolidated financial statements.
FOREIGN CURRENCY TRANSLATION
The functional currency for some foreign operations is the local currency. Assets and liabilities of foreign operations are translated at balance sheet date rates of exchange and income, expense and cash flow items are translated at the average exchange rate for the period. Translation adjustments in future periods will be recorded in Other Comprehensive Income. The translation gains or losses were not material for the year ended December 31, 2006.
GOODWILL AND OTHER INTANGIBLES
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 specifies the financial accounting and reporting for acquired goodwill and other intangible assets. Goodwill and intangible assets that have indefinite useful lives are not amortized but rather they are tested at least annually for impairment unless certain impairment indications are identified.
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 7. FINANCIAL STATEMENTS.
The Company's Consolidated Financial Statements and Notes to Consolidated Financial Statements are attached hereto as Exhibit A and incorporated herein by reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
There have been no changes in or disagreements with the Company's independent auditors during the last two years.
ITEM 8A. CONTROLS AND PROCEDURES.
Evaluation of disclosure controls and procedures:
Based on their evaluation as of the close of the fiscal year covered by this report, Peter F. Russo, our Chief Executive Officer, and Martin G. Chilek, our Chief Financial Officer, have concluded that the Company's disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in this Annual Report on Form 10-KSB. There have been no changes in the Company's internal controls or in other factors which could significantly affect internal controls subsequent to the date the Company carried out its evaluation.
Limitations on the effectiveness of controls:
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected.
ITEM 8B. OTHER INFORMATION.
None.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
DIRECTORS AND EXECUTIVE OFFICERS
As of the date of this report, the executive officers and director of Delta Mutual, Inc. were as follows:
NAME AGE TITLE(S)
---------- -------- ------------
Peter F. Russo 64 President, CEO, Assistant Secretary
and Director
Martin G. Chilek 56 Sr. Vice President, Chief
Financial Officer, Treasurer and Secretary
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Peter F. Russo joined the Company on March 11, 2003 as President and a director, and was elected Chief Executive Officer in June 2003. Mr. Russo had been an independent consultant to several private businesses during the period from August 2001 until he joined the Company. In that capacity, he developed business and operating strategies and plans for a start-up, new concept modular housing company focused on the affordable housing market. In that assignment, he developed proposals for low-income housing projects under the federal Section 42 tax credit program in Philadelphia, Baltimore and Washington D.C. In another assignment, Mr. Russo was instrumental in structuring a new U.S. holding company with affiliated real estate service operations in Europe. From June 2000 to July 2001, Mr. Russo served as President and Chief Operating Officer for Bartram Healthcare Financial Services, Inc., a start-up healthcare services company providing financial systems and services.
Martin G. Chilek joined the Company as Vice President, CFO, Treasurer and Assistant Secretary in January 2004. He was promoted to Senior Vice President and elected Secretary in March 2006. Prior to joining the Company, from June 2003 to December 2003, he was an independent consultant providing transitional management, strategic planning and financial management services to privately held and public companies. During the past five years, Mr. Chilek also served as Vice President-Operations of MicroTech Leasing Corporation from October 2000 through May 2003.
Our directors are elected by the stockholders and our officers are appointed by our board of directors. Our officers hold office until their successors are elected and qualified. Vacancies in our board are filled by the board itself. There are currently two vacancies on our board of directors.
There are no family relationships between any of our executive officers and/or directors.
AUDIT COMMITTEE
We do not have a separate Audit Committee. Our full Board of Directors performs the functions usually designated to an Audit Committee.
CODE OF CONDUCT
We have a corporate code of conduct and a corporate disclosure policy in place, which provide for internal procedures concerning the reporting and disclosure of corporate matters that are material to our business and to our stockholders. Our corporate code of conduct includes a code of ethics for our officers and employees as to workplace conduct, dealings with customers, compliance with laws, improper payments, conflicts of interest, insider trading, company confidential information, and behavior with honesty and integrity. Our corporate disclosure policy includes guidelines for publicly disseminating financial and other material developments to the investing public.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
We believe that during 2006, all of our officers and directors complied with the reporting requirements of Section 16(a).
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth information for the periods indicated concerning the aggregate compensation paid by the Company and its subsidiaries to the Company's Executive Officers (the "Named Executives") and one former officer who was the most highly compensated employee of the Company in 2006.
SUMMARY COMPENSATION TABLE
---------------- ------- --------- -------- ---------- ----------- --------------- ---------------- ----------- -----------
Name and Year Salary Bonus Stock Option Non-Equity Change in All Other Total
Principal ($) ($) Awards Awards Incentive Pension Value Compen- ($)
Position ($) ($) Plan and Nonquali- Sation
Compensation fied Deferred
($) Compensation
Earnings
($)
---------------- ------- --------- -------- ---------- ----------- --------------- ---------------- ----------- -----------
Peter F. 2006 $87,750 $41,516 $129,266
Russo,
President and
CEO (1)
---------------- ------- --------- -------- ---------- ----------- --------------- ---------------- ----------- -----------
2005 $79,200 $12,260 $91,460
---------------- ------- --------- -------- ---------- ----------- --------------- ---------------- ----------- -----------
---------------- ------- --------- -------- ---------- ----------- --------------- ---------------- ----------- -----------
---------------- ------- --------- -------- ---------- ----------- --------------- ---------------- ----------- -----------
Martin G. 2006 $86,500 $28,966 $115,466
Chilek, Chief
Financial
Officer
---------------- ------- --------- -------- ---------- ----------- --------------- ---------------- ----------- -----------
2005 $82,100 $12,260 $94,360
---------------- ------- --------- -------- ---------- ----------- --------------- ---------------- ----------- -----------
---------------- ------- --------- -------- ---------- ----------- --------------- ---------------- ----------- -----------
---------------- ------- --------- -------- ---------- ----------- --------------- ---------------- ----------- -----------
Jerome 2006 $54,000 $88,262 $142,262
Kindrachuk, (2)
Vice President
---------------- ------- --------- -------- ---------- ----------- --------------- ---------------- ----------- -----------
2005 $73,000 $12,260 $85,260
---------------- ------- --------- -------- ---------- ----------- --------------- ---------------- ----------- -----------
---------------- ------- --------- -------- ---------- ----------- --------------- ---------------- ----------- -----------
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(1) Mr. Russo is also the sole director of the Company but receives no additional compensation for serving in that capacity.
(2) Upon the termination of Mr. Kindrachuk's employment with the Company in December 2006, he received $88,262 of his accrued salary from 2003 and 2004.
EXECUTIVE COMPENSATION NARRATIVE
On March 11, 2003, we entered into a contract with Peter F. Russo to serve as President. It provided for three years' employment from March 11, 2003, at a salary of $10,000 per month through June 30, 2003, and $15,000 per month thereafter, payable in bi-monthly installments, plus benefits. On September 20, 2004 the contract was amended to adjust the salary to $6,500 per month effective January 1, 2004. Certain benefits were also eliminated effective the same dates.
On February 28, 2006, we entered into a new employment agreement with Mr. Russo. This agreement was effective March 11, 2006, for a term of three years. The agreement provides for a base salary of $180,000 per year, but until the Board of Directors determines that the financial condition of the Company permits the payment of that salary, the minimum salary to be paid to Mr. Russo is $6,500 per month. In July 2006, Mr. Russo's minimum monthly salary was increased to $8,125. The agreement contains provisions for discharge for "cause", including disability, in which cases no further compensation or benefits would be payable under the agreement. If a termination is other than for death or "cause", the base salary is continued for six months following the termination of employment, or up to the time Mr. Russo commences other full time employment. The agreement also contains a provision for additional compensation to Mr. Russo if his employment is terminated without "cause" due to a change in control.
On May 23, 2005, we entered into an executive employment agreement with Mr. Chilek. This agreement was effective June 1, 2005, for an initial term of three years, and the term is automatically extended for additional one year periods if neither party gives notice of termination at least 90 days prior to the end of the initial term or any current additional one year term. The agreement provides for a base salary of $132,000 per year, but until the Board of Directors determines that the financial condition of the Company permits the payment of that salary, the minimum salary to be paid to Mr. Chilek is $6,000 per month. In July 2006, Mr. Chilek's minimum monthly salary was increased to $7,500. The agreement contains provisions for discharge for "cause", including disability, in which cases no further compensation or benefits would be payable under the agreement. If a termination is other than for death or "cause", or the Company elects not to renew the agreement, the base salary is continued for six months following the termination of employment, or up to the time Mr. Chilek commences other full time employment. The agreement also contains a provision for additional compensation to Mr. Chilek if his employment is terminated without "cause" due to a change in control.
On July 3, 2006, the Company's board of directors cancelled: 2,500,000 stock options granted to Mr. Russo in November 2004 with an exercise price of $0.25 per share; and 350,000 stock options granted to him in February 2006 with an exercise price of $0.17 per share. Also on July 3, 2006, the board of directors granted Mr. Russo 2,850,000 new stock options at an exercise price of $0.11 per share. These actions were treated as a repricing of his stock options. The incremental fair value of all the stock options granted to Mr. Russo in 2006 is included as option awards in the Summary Compensation Table.
On July 3, 2006, the Company's board of directors cancelled: 1,750,000 stock options granted to Mr. Chilek in November 2004 with an exercise price of $0.25 per share; and 250,000 stock options granted to him in February 2006 with an exercise price of $0.17 per share. Also on July 3, 2006, the board of directors granted Mr. Chilek 2,000,000 new stock options at an exercise price of $0.11 per share. These actions were treated as a repricing of his stock options. The incremental fair value of all the stock options granted to Mr. Chilek in 2006 is included as option awards in the Summary Compensation Table.
We also had an employment contract with Mr. Kindrachuk effective July 2003, prior to his appointment as an officer of the Company. It provided for three years' employment beginning July 1, 2003, at a base salary of $10,000 per month, plus benefits. On September 22, 2004 the contract was amended to adjust salary to $6,000 per month effective January 1, 2004, until the Board of Directors determined that the financial condition of the Company permitted the payment of that salary. Certain benefits were also eliminated effective the same dates.
On July 1, 2006, we did not renew Mr. Kindrachuk's employment contract and he was offered and accepted other employment with the Company as an at will employee. His employment with the Company was terminated on December 28, 2006.
The following officers of the Company were issued shares of common stock under the 2001 Employee Stock Option Plan ("the 2001 Plan") as follows:
-------------------------------------------------------------------------------------------------------------
Name Date of Issuance Number of Shs. Per Share
Valuation
-------------------------------------------------------------------------------------------------------------
Peter F. Russo January 21, 2005 122,600 $0.10
-------------------------------------------------------------------------------------------------------------
Martin G. Chilek January 21, 2005 122,600 $0.10
-------------------------------------------------------------------------------------------------------------
Jerome Kindrachuk January 21, 2005 122,600 $0.10
-------------------------------------------------------------------------------------------------------------
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OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
The following table sets forth information as of the end of the Company's last fiscal year concerning option and stock awards to the Company's Named Executives.
------------------------------------------------------------------------------------------------------------------------------------
Option Awards Stock Awards
------------------------------------------------------------------------------------------------------------------------------------
Name Number of Number of Equity Option Option Number Market Equity Equity
Securities Securities Incentive Exercise Expiration of Value Incentive Incentive
Underlying Underlying Plan Price Date Shares of Plan Plan
Unexercised Unexercised Awards: ($) or Units Shares Awards: Awards:
Options Options Number of of Stock or Number of Market or
(#) (#) Securities That Units Unearned Payout
Exercisable Unexercisable Underlying Have Not of Shares, Value of
Unexercised Vested Stock Units or Unearned
Unearned (#) That Other Shares,
Options Have Rights Units or
(#) Not That Other
Vested Have Not Rights
($) Vested That
(#) Have Not
Vested
($)
------------------------------------------------------------------------------------------------------------------------------------
Peter 909,090 1,940,910 -0- $0.11 July 2011
F.
Russo
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Martin 909,090 1,090,910 -0- $0.11 July 2011
G.
Chilek
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
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DIRECTORS' COMPENSATION
We do not compensate directors in their capacity as such nor do we compensate our directors for attendance at meetings. We do reimburse our officers and directors for reasonable expenses incurred in the performance of their duties.
COMPENSATION PLANS
STOCK OPTION PLAN
In August 2004, our stockholders approved the 2004 Stock Option Plan (the "2004 Plan"), pursuant to which 10,000,000 shares of common stock were reserved for issuance. As of December 31, 2006; 2,022,000 shares were available for the grant of options under the 2004 Plan.
The 2004 Plan authorizes the Board of Directors (the "Board"), or a committee
comprised of non-employee directors ("Committee"), to grant, over a 10-year
period, options to purchase up to 10,000,000 shares of the Company's common
stock. Persons eligible to receive options under the Plan include key employees
and directors who are also employees of the Company or any subsidiary, and
consultants to the Company or any subsidiary, as determined by the Board or
Committee. The persons to be granted options under the Plan and the number and
purchase price of the shares represented by each option, the time or times at
which the options may be exercised, and the terms and provisions of each option
(which need not be uniform for all options) will be determined by the Board or
Committee. The purchase price per share may not be less than 100% of the fair
market value of the Company's stock at the time of grant. The purchase price may
be paid in cash or common stock of the Company held for at least six months with
a market value equal to that of the shares being acquired or, in the discretion
of the board or committee, any combination of these. Options granted under the
Plan may be in the form of "incentive stock options" which qualify as such under
Section 422 of the Internal Revenue Code or non-qualified stock options which do
not meet the criteria for incentive stock options under Section 422. The tax
treatment afforded stock options qualifying as incentive stock options is
generally more favorable to employees than that afforded to non-qualified stock
options, in that the exercise of an incentive stock option does not require the
optionee to recognize income for federal income tax purposes at the time of
exercise. (The difference between the exercise price of the incentive stock
option and the fair market value of the stock at the time of purchase is,
however, an item of tax preference which may require payment of an alternative
minimum tax.)
Options granted under the Plan are, generally, transferable only by will or by the laws of descent and distribution, and may be exercised during the lifetime of the optionee only by the optionee or by his legal representative in the event of his disability. In its sole discretion, however, the Board or Committee may permit an optionee to make certain transfers of non-qualified stock options, provided that the transfers are to "family members" and are not for value, as defined in the General Instructions to Form S-8 under the Securities Act of 1933.
The term of each option cannot be more than 10 years from the date of grant, and options can be exercised only during the participant's employment with the Company or one of its subsidiaries. If any option expires or is terminated prior to its exercise in full and prior to the termination of the Plan, the shares subject to such unexercised option will be available for the grant of new options under the Plan. Further, any shares used as full or partial payment by an optionee upon exercise of an option may subsequently be used by the Company to satisfy other options granted under the Plan, subject to the limitation on the total number of shares authorized to be issued under the Plan.
The Plan permits an outstanding option to be exercised after termination of employment only to the extent that the option was exercisable on the date of termination but in no event beyond the original term of the option (i) within one year by the estate or rightful heir(s) of the optionee if the optionee's employment is terminated due to the optionee's death; (ii) within one year after the date of such termination if the termination is due to the optionee's Disability (as defined in the Plan); or (iii) within three months after the date of such termination if the termination was due to the optionee's Retirement (as defined in the Plan) or was for reasons other than death or Disability and other than "for cause" (as defined in the Plan). Upon termination of an optionee's employment "for cause," any unexercised options held by the optionee will be forfeited.
Unexercised options will terminate in the event of the Company's dissolution, liquidation, or sale of all or substantially all of its assets. In the event of our merger with another corporation, the option would be assumed or an equivalent option substituted by the successor corporation or, if such successor corporation does not agree to assume the option or substitute an equivalent option, the Board can provide for the option holder to have the right to exercise the option as to all of the optioned shares, including shares as to which the option would not otherwise be exercisable. The number of shares subject to options and the option prices will be appropriately adjusted in the event of changes in our outstanding common stock by reason of stock dividends, recapitalizations, mergers, consolidations, stock splits and combinations of shares, and the like. The Board may at any time terminate or modify the Plan except, that without further approval of the stockholders, the Board may not make any changes to the Plan which would materially increase the number of shares that may be issued under the Plan, materially modify the eligibility requirements for participation in the Plan, or require stockholder approval under the Delaware General Corporation Law, the Exchange Act, or the Internal Revenue Code.
The 2004 Plan gives the Board the power to issue a restricted stock award to an employee representing shares of common stock that are issued subject to such restrictions on transfer and other incidents of ownership and such forfeiture conditions as the Board may determine ("Restricted Shares"). In connection with issuance of any Restricted Shares, the Board may (but shall not be obligated to) require the payment of a specified purchase price (which price may be less than Fair Market Value as defined in the Plan).
OTHER PLANS
We have not adopted any other deferred compensation, pension, profit sharing, stock option plan or programs for the benefit of our officers or employees. During 2003, the Company established a health insurance benefit plan that is offered to all employees. During 2004, the Company made a dental insurance plan available to all employees.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The following table sets forth information, as of March 28, 2006, with respect to the beneficial ownership of the Company's Common Stock by each person known by the Company to be the beneficial owner of more than five percent (5%) of the outstanding Common Stock and by directors and officers of the Company, both individually and as a group:
Name and Address of Beneficial Owner Number of Shares Owned Percentage**
Beneficially
Peter F. Russo (1) 1,009,090 1.60%
Martin G. Chilek (2) 959,000 1.52%
All Officers and Directors as a Group 1,986,090 3.12%
Neil Berman (3) 6,517,315 9.79%
Ben Eluzer Company (4) 5,000,000 8.03%
Mesacmech Lev Company (5) 4,000,000 6.42%
Devlin Development Inc. (6) 3,125,000 5.02%
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** Based on 62,272,286 shares outstanding on March 28, 2007.
(1) In addition to 100,000 shares owned directly, Mr. Russo holds options expiring July 3, 2011 to purchase an aggregate of 2,850,000 shares of common stock at an exercise price of $0.11 per share, of which 909,090 are currently exercisable. Mr. Russo's address is c/o Delta Mutual, Inc., 111 North Branch Street, Sellersville, PA 19860.
(2) In addition to 50,000 shares owned beneficially, Mr. Chilek holds options expiring July 3, 2011 to purchase an aggregate of 2,000,000 shares of common stock at an exercise price of $0.11 per share, of which 909,090 are currently exercisable. Mr. Chilek's address is c/o Delta Mutual, Inc., 111 North Branch Street, Sellersville, PA 18960.
(3) In addition to 4,967,395 shares owned directly, Mr. Berman holds a note convertible into 1,549,920 shares of common stock at a conversion price of $0.125 per share. Mr. Berman's address is 21346 St. Andrews Blvd., # 421, Boca Raton, FL 33433.
(4) The address of the Ben Eluzer Company is 1025 - 46th Street , Brooklyn, NY 11219.
(5) The address of the Mesacmech Lev Company is 1426 - 57th Street, Brooklyn, NY 11219.
(6) The address of Devlin Development Inc. is 450 - 7th Avenue, Suite 2309, New York, NY 10016.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
ITEM 13. EXHIBITS.
Exhibit No. Description of Exhibits
------------ ---------------------------------------------------------------
3.1 Articles of Incorporation of the Company, as currently in
effect, incorporated herein by reference to Exhibit 3.1 to
Amendment No. 1 to the Company's Registration Statement on Form
10-SB filed with the Commission on June 15, 2000.
3.1a Amendment to Certificate of Incorporation, filed September 1,
2004. Incorporated herein by reference to Exhibit 3.1a to the
Company's Current Report on Form 8-K, filed with the Commission
on September 3, 2004.
3.1b Form of Restatement of Certificate of Incorporation of Delta
Mutual, Inc., as amended. Incorporated herein by reference to
Exhibit 3.1b to the Company's Quarterly Report on Form 10-QSB,
filed with the Commission on November 15, 2004.
3.2 By-Laws of the Company. Incorporated herein by reference to
Exhibit 3.2 to Amendment No. 1 to the Company's Registration
Statement on Form 10-SB filed with the Commission on June 15,
2000.
3.2a Amendment to Article III, Section I of the By-Laws.
Incorporated herein by reference to the Company's quarterly
report on Form 10-QSB, filed with the Commission on November
21, 2000.
22
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4.1 Delta Mutual, Inc. 2001 Employee Stock Option Plan,
incorporated herein by reference to Appendix B to the Company's
definitive Information Statement pursuant to Section 14C of the
Exchange Act, filed with the Commission on November 9, 2001.
4.2 Delta Mutual, Inc. 2001 Employee Stock Option Plan, as amended
December 1, 2003.
4.2a Delta Mutual, Inc. 2004 Stock Option Plan. Incorporated herein
by reference to Exhibit B to the Company's Definitive Proxy
Statement, filed with the Commission on June 16, 2004.
4.3 Form of 6% Convertible Promissory Notes of the Company due
2006. Incorporated by reference to Exhibit 4.3 to the Company's
Current Report on Form 8-K, filed with the Commission on
September 24, 2004.
4.4 Form of Warrants to purchase shares of Common Stock, of the
Company issued to the purchasers of the Company's 6%
Convertible Promissory Notes. Incorporated by reference to
Exhibit 4.4 to the Company's Current Report on Form 8-K, filed
with the Commission on September 24, 2004.
4.5 4% Convertible Promissory Note of the Company due May 2006
issued in the principal amount of $129,160 on May 12, 2004.
Incorporated herein by reference to Exhibit 4.5 to the
Company's Quarterly Report on Form 10-QSB, filed with the
Commission on November 15, 2004.
4.5a Amendment, dated as of May 2, 2006, to 4% Convertible
Promissory Note in the principal amount of $129,160, filed
herewith.
4.5b Amendment, dated as of July 6, 2006, to 4% Convertible
Promissory Note in the principal amount of $129,160, filed
herewith.
4.5c Amendment, dated as of October 10, 2006, to 4% Convertible
Promissory Note in the principal amount of $129,160, filed
herewith.
4.5d Amendment, dated as of November 27, 2006, to 4% Convertible
Promissory Note in the principal amount of $129,160, filed
herewith.
4.5e Amendment, dated as of February 21, 2007, to 4% Convertible
Promissory Note in the principal amount of $129,160, filed
herewith.
4.6 4% Convertible Promissory Note of the Company due May 2006
issued in the principal amount of $193,740 on May 12, 2004.
Incorporated herein by reference to Exhibit 4.6 to the
Company's Quarterly Report on Form 10-QSB, filed with the
Commission on November 15, 2004.
4.6a Amendment, dated as of May 2, 2006, to 4% Convertible
Promissory Note in the principal amount of $193,740, filed
herewith.
4.6b Amendment, dated as of July 6, 2006, to 4% Convertible
Promissory Note in the principal amount of $193,740, filed
herewith.
4.6c Amendment, dated as of September 8, 2006, to 4% Convertible
Promissory Note in the principal amount of $193,740, filed
herewith.
4.6d Amendment, dated as of November 21, 2006, to 4% Convertible
Promissory Note in the principal amount of $193,740, filed
herewith.
23
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4.7 4% Convertible Promissory Note "A" of the Company due December
2006 issued in the principal amount of $157,000 on July 1,
2004. Incorporated herein by reference to Exhibit 4.7 to the
Company's Quarterly Report on Form 10-QSB, filed with the
Commission on November 15, 2004.
4.8 4% Convertible Promissory Note "B" of the Company due January
2007 issued in the principal amount of $37,500 on July 16,
2004. Incorporated herein by reference to Exhibit 4.8 to the
Company's Quarterly Report on Form 10-QSB, filed with the
Commission on November 15, 2004.
4.9 6% Promissory note of the Company due December 2005 issued in
the principal amount of $71,731.29 on March 22, 2005.
Incorporated herein by reference to Exhibit 4.9 to the
Company's current report on Form 8K filed with the Commission
on March 25, 2005.
4.10 8% Promissory note of the Company due October 2, 2005 issued in
the principal amount of $210,655.04 on April 5, 2004.
Incorporated herein by reference to Exhibit 4.10 to the
Company's current report on Form 8K filed with the Commission
on April 11, 2005.
10.1 Agreement of Sale with Enterprises Solutions, Inc. dated May
11, 2001, and amendments. Incorporated herein by reference to
Exhibit 10.2 to the Company's current report on Form 8-K, filed
with the Commission on May 23, 2001.
10.2 Promissory note from Enterprises Solutions, Inc. dated October
31, 2001. Incorporated by reference to Exhibit 10.3 to the
Company's annual report on Form 10-KSB, filed with the
Commission on April 16, 2002.
10.3 Promissory Note to Rosanne Solomon dated November 27, 2001.
Incorporated herein by reference to Exhibit 10.1 to Amendment
No. 3 to the Company's registration statement on Form S-4,filed
with the Commission on November 30, 2001.
10.4 License Agreement with Enterprises Solutions, Inc. dated
December 11, 2001. Incorporated by reference to Exhibit 10.5 to
the Company's annual report on Form 10-KSB, filed with the
Commission on April 16, 2002.
10.5 Employment Agreement between Kenneth A. Martin and the Company.
Incorporated by reference to Exhibit 10.6 to the Company's
annual report on Form 10-KSB, filed with the Commission on
April 16, 2002.
10.6 Agreement, dated January 13, 2003, between the Company and
Kenneth A. Martin. Incorporated by reference to Exhibit 10.7 to
the Company's registration statement on Form S-8, filed with
the Commission on February 13, 2003.
25
|
10.7 Agreement, dated February 3, 2003, between the Company and
Peter F. Russo. Incorporated by reference to Exhibit 10.8 to
the Company's registration statement on Form S-8, filed with
the Commission on February 13, 2003.
10.8 Agreement, dated February 4, 2003, between the Company and J.
Dapray Muir. Incorporated by reference to Exhibit 10.9 to the
Company's registration statement on Form S-8, filed with the
Commission on February 13, 2003.
10.9 Executive Employment Agreement, effective March 11, 2003, by
and between the Company and Peter F. Russo. Incorporated herein
by reference to Exhibit 10.8 to the Company's Annual Report on
Form 10-KSB, filed with the Commission on April 14, 2003.
10.10 Consulting Agreement, effective February 28, 2003, between
M.U.R.G., LLC and Delta Mutual, Inc. Incorporated herein by
reference to Exhibit 10.9 to the Company's Annual Report on
Form 10-KSB, filed with the Commission on April 14, 2003.
10.11 Agreement, March 31, 2003, between the Company and Burrows
Consulting Inc. Incorporated herein by reference to Exhibit
10.3 to the Company's current report on Form 8-K, filed with
the Commission on April 25, 2003.
10.12 License Agreement with Joseph Friedman and Sons, International,
Inc., dated April 2, 2003. Incorporated herein by reference to
Exhibit 10.7 to the Company's Annual Report on Form 10-KSB,
filed with the Commission on April 14, 2003.
10.13 Agreement, dated July 1, 2003, between the Company and Gary T.
Robinson. Incorporated herein by reference to Exhibit 10.10 to
the Company's registration statement on Form S-8, filed with
the Commission on August 20, 2003.
10.14 Agreement, dated August 29, 2003, between the Company and
Burrows Consulting Inc. Incorporated herein reference to
Exhibit 10.10 to the Company's current report on Form 8-K,
filed with the Commission on September 4, 2003.
26
|
10.15 Strategic Alliance Agreement, dated September 10, 2003, between
Delta-Envirotech, Inc. and ZAFF International Ltd. Incorporated
herein by reference to Exhibit 99.2 to the Company's current
report on Form 8-K, filed with the Commission on January 22,
2004.
10.16 Agreement, dated January 14, 2004, by and between Delta Mutual,
Inc. and Hi Tech Consulting and Construction, Inc. Incorporated
herein by reference to Exhibit 10.16 to the Company's Annual
Report on Form 10-KSB, filed with the Commission on April 6,
2004.
10.17 Agreement to Purchase Stock, dated January 14, 2004, between
Delta Mutual, Inc. and Hi Tech Consulting and Construction,
Inc., as sellers, and Ali Razmara, as purchaser. Incorporated
herein by reference to Exhibit 10.17 to the Company's Annual
Report on Form 10-KSB, filed with the Commission on April 6,
2004.
10.18 Consulting Agreement, dated as of March 21, 2004, between
Delta Mutual, Inc. and Clark Street Capital. Incorporated
herein by reference to Exhibit 10.18 to the Company's Quarterly
Report on Form 10-QSB, filed May 19, 2004.
10.19 Consulting Services Agreement, dated as of April 16, 2004,
between Delta Mutual, Inc. and Basic Investors, Inc.
Incorporated herein by reference to Exhibit 10.19 to the
Company's Quarterly Report on Form 10-QSB, filed May 19, 2004.
10.20 Memorandum of Understanding, dated as of March 17, 2004, by and
between Delta-Envirotech, Inc., PT Faryan Nusantara and
Crescent Aeronautical Technology. Incorporated herein by
reference to Exhibit 10.20 to the Company's Quarterly Report on
Form 10-QSB, filed May 19, 2004.
10.21 Agreement, dated April 5, 2004, Trans Indies Realty Investment
Corporation and Delta Developers Corp. Incorporated herein by
reference to Exhibit 10.21 to the Company's Quarterly Report on
Form 10-QSB, filed August 12, 2004.
27
|
10.22 Term Sheet, dated May 12, 2004, among Delta Mutual, Inc., Neil
Berman and Ivano Angelastri. Incorporated herein by reference
to Exhibit 10.22 to the Company's Quarterly Report on Form
10-QSB, filed August 12, 2004.
10.23 Term Sheet, dated July 1, 2004, between Delta Mutual, Inc. and
Neil Berman. Incorporated herein by reference to Exhibit 10.23
to the Company's Quarterly Report on Form 10-QSB, filed August
12, 2004.
10.24 Settlement Agreement and Mutual General Releases, dated
November 26, 2004, between the Company and Joseph Friedman and
Sons International, Inc. Incorporated herein by reference to
Exhibit 10.24 to the Company's Current Report on Form 8-K,
filed with the Commission on December 2, 2004.
10.26 Executive Employment Agreement, dated May 23, 2005, between
Delta Mutual, Inc. and Martin G. Chilek. Incorporated herein by
reference to Exhibit 10.26 to the Company's Current Report on
Form 8-K, filed with the Commission on May 25, 2005.
10.27 Investment Banking Agreement, dated June 17, 2005, between
Delta Mutual, Inc. and T&T Vermoegensverwaltungs AG.
Incorporated herein by reference to Exhibit 10.27 to the
Company's Current Report on Form 8-K, filed with the Commission
on June 30, 2005.
10.27a Addendum, dated August 3, 2005, to Investment Banking
Agreement, dated June 17, 2005, by and between Delta Mutual,
Inc. and T&T Vermoegensverwaltungs AG. Incorporated herein by
reference to Exhibit 10.27a to the Company's Amended Current
Report on Form 8-K, filed with the Commission on August 18,
2005.
10.28 Purchase Agreement, dated August 26, 2005, by and between Delta
Technologies, Inc., as Buyer, and Richard F. Straub, Jr. and
John M. Latza, as Sellers. Incorporated herein by reference to
Exhibit 10.28 to the Company's Current Report on Form 8-K,
filed with the Commission on August 31, 2005.
10.29 Consulting Services Agreement, dated August 26, 2005, by and
between Delta Mutual, Inc. and Juan Bautista Rodriguez Pagan.
Incorporated herein by reference to Exhibit 10.29 to the
Company's Current Report on Form 8-K, filed with the Commission
on August 31, 2005.
10.30 Consulting Services Agreement, dated August 26, 2005, by and
between Delta Technologies, Inc. and Richard F. Straub, Jr.
Incorporated herein by reference to Exhibit 10.30 to the
Company's Current Report on Form 8-K, filed with the Commission
on August 31, 2005.
10.31 Service Order, dated February 6, 2006, between Pertamina and
PT. Triyudha. Incorporated herein by reference to Exhibit 10.31
to the Company's Current Report on Form 8-K, filed with the
Commission on February 27, 2006.
10.32 Executive Employment Agreement, dated February 28, 2006,
between Delta Mutual, Inc. and Peter F. Russo. Incorporated
herein by reference to Exhibit 10.32 to the Company's Current
Report on Form 8-K, filed with the Commission on March 1, 2006.
10.33 Form of 8% Term Notes issued April 5, 2005 by Delta Mutual,
Inc., in the aggregate principal amount of $210,655.
Incorporated herein by reference to Exhibit 10.33 to the
Company's Annual Report on Form 10-KSB, filed with the
Commission on April 3, 2006.
28
|
10.33a Form of Amendment, dated September 30, 2005, to Delta Mutual,
Inc. 8% Term Notes issued April 5, 2005. Incorporated herein by
reference to Exhibit 10.33a to the Company's Annual Report on
Form 10-KSB, filed with the Commission on April 3, 2006.
10.33b Form of Second Amendment, dated December 19, 2005, to Delta
Mutual, Inc. 8% Term Notes issued April 5, 2005. Incorporated
herein by reference to Exhibit 10.33b to the Company's Annual
Report on Form 10-KSB, filed with the Commission on April 3,
2006.
10.33c Form of Third Amendment, dated March 20, 2006, to Delta
Mutual, Inc. 8% Term Notes issued April 5, 2005. Incorporated
herein by reference to Exhibit 10.33c to the Company's Annual
Report on Form 10-KSB, filed with the Commission on April 3,
2006.
10.33d Form of Fourth Amendment, dated as of June 2, 2006, to 8% Term
Notes issued April 5, 2005, filed herewith.
10.34 Placement Agent Agreement, dated June 6, 2006, between Delta
Mutual, Inc. And SDM Consultant Corporation, filed herewith.
14. Delta Mutual, Inc. Code of Conduct and Business Ethics.
Incorporated herein by reference to Exhibit 10.25 to the
Company's Annual Report on Form 10-KSB, filed with the
Commission on April 14, 2005.
31.1 Certification of Chief Executive Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002, filed herewith.
31.2 Certification of Chief Financial Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002, filed herewith.
32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, filed herewith.
32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, filed herewith.
|
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(1) Aggregate fees for the last two years:
2006 2005
---- ----
$84,453 $99,000
(2) Audit related fees: 2006 2005
---- ----
$76,953 $91,500
(3) Tax fees:
2005 2004
---- ----
$7,500 $7,500
|
(4) All other fees: NA
(5) Audit committee pre-approval processes, percentages of services approved by audit committee, percentage of hours spent on audit engagement by persons other than principal accountant's full time employees: NA
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Company caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
DELTA MUTUAL, INC.
Dated: March 30, 2007 By:/s/ Peter F. Russo ------------------------------ Peter F. Russo President, Chief Executive Officer and Director By:/s/ Martin G. Chilek ------------------------------ Martin G. Chilek Senior Vice President and Chief Financial Officer Principal Financial Officer |
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
----------------- ----------------- ---------------
/s/ Peter F. Russo
---------------------
Peter F. Russo President March 30, 2007
and Director
|
DELTA MUTUAL, INC. AND CONSOLIDATED SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
PAGE
Report of Independent Registered Public Accounting Firm F-1 Financial Statements: Consolidated Balance Sheet as of December 31, 2006 F-2 Consolidated Statements of Operations for the years ended December 31, 2006 and 2005 F-3 Consolidated Statements of Stockholders' Deficiency as of December 31, 2005 and 2006 F-4-5 Consolidated Statements of Cash Flows for the years ended December 31, 2006 and 2005 F-6-7 Notes to Consolidated Financial Statements F-8 |
[LETTER HEAD OF WIENER, GOODMAN & COMPANY, P.C.]
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Delta Mutual Inc.
To the Board of Directors and Stockholders of Delta Mutual Inc.
We have audited the accompanying consolidated balance sheet of Delta Mutual, Inc. and subsidiaries ("Delta" or the "Company") as of December 31, 2006 and the related consolidated statements of operations, stockholders deficiency and cash flows for each of the two years in the period ended December 31, 2006. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Delta Mutual, Inc. and subsidiaries as of December 31, 2006, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2006, in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. Since 2003, Company management embarked upon a new mission and strategic direction, by establishing a series of subsidiaries and joint ventures, primarily engaged in providing environmental and construction technologies and services to certain geographic reporting segments. As more fully explained in Note 1 to the financial statements, the Company has a deficiency in net assets at December 31, 2006, incurred losses from operations since inception, needs to obtain additional financing to meet its obligations on a timely basis and to fulfill its proposed activities and ultimately achieve a level of sales adequate to support its cost structure.
These uncertainties raise substantial doubt about the Company's ability to continue as a going concern. Management's plans are also described in Note 1. The accompanying consolidated financial statements do not include an adjustments that might result from the outcome of these uncertainties should the Company be unable to continue as a going concern.
Wiener, Goodman & Company, P.C.
Eatontown, New Jersey
March 29, 2007
DELTA MUTUAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
Current Assets:
Cash $ 211,147
Prepaid expenses 249,954
-------------------
Total Current Assets 461,101
Property and equipment - net 448,581
Intangible asset 133,467
Other assets 1,400
-------------------
TOTAL ASSETS $ 1,044,549
===================
|
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Accounts payable $ 168,403
Accrued expenses 890,351
Convertible debt 369,740
Notes payable 240,655
-------------------
TOTAL LIABILITIES 1,669,149
-------------------
Minority interest in consolidated subsidiaries 241,550
-------------------
Stockholders' Deficiency:
Common stock $0.0001 par value - authorized
100,000,000 shares: 62,161,246 outstanding 6,216
Additional paid-in-capital 7,734,138
Deficit (8,862,504)
Deferred stock purchase 266,000
Subscription receivable (10,000)
-------------------
Total Stockholders' Deficiency (866,150)
-------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIENCY $ 1,044,549
===================
|
See Notes to Consolidated Financial Statements
DELTA MUTUAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31,
----------------------------------------------
2006 2005
----------------------------------------------
Revenue $ 279,870 $ 20,000
------------ ------------
Costs and Expenses
Cost of Sales 238,897 6,000
General and administrative
expenses 2,349,438 1,847,561
Impairment of long term asset 35,200 170,000
------------ ------------
2,623,535 2,023,561
------------ ------------
Loss from operations (2,343,665) (2,003,561)
Accretion of convertible debt (175,385) (423,357)
Interest expense (42,876) (130,292)
------------ ------------
Loss before minority interest (2,561,926) (2,557,210)
Minority interest share of (income)
loss of consolidated subsidiaries 19,661 (23,230)
Benefit from income taxes -- --
------------ ------------
Net loss $ (2,542,265) $ (2,580,440)
============ ============
Loss per common share-
basic and diluted $ (0.05) $ (0.10)
============ ============
Weighted average number of
common shares outstanding-
basic and diluted 48,419,689 25,128,690
============ ============
|
See Notes to Consolidated Financial Statements
DELTA MUTUAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
Number of
Common Common Paid in Accumulated
Shares Stock Capital Deficit
---------- ----------- ----------- -----------
Balance, January 1, 2005 19,133,571 $ 1,913 $ 3,224,904 $(3,739,799)
Shares associated with convertible debt 4,650,000 465 (465) --
Issuance of common stock for conversion
of debt and interest expense
(valued at $0.05 per share) 230,852 24 11,518 --
Issuance of common stock
for services (valued at $0.279 - $0.66 per share) 902,895 90 411,995 --
Issuance of common stock for intellectual
property (valued at $0.43 per share) 216,279 22 92,978 --
Sale of common stock
(at $0.13 - $0.50 per share) 9,075,001 907 1,138,928 --
Issuance of common stock upon exercise of warrants
( $0.10 per share) 500,000 50 49,950 --
Issuance of common stock awards from the
Company's stock option plan (valued at $.10 per share) 613,000 61 61,239 --
Compensatory element of warrants -- -- 450,000 --
Deferred compensation expense -- -- -- --
Net (loss) -- -- -- (2,580,440)
----------- ----------- ----------- -----------
Balance at December 31, 2005 35,321,598 3,532 5,441,047 (6,320,239)
=========== =========== ========== ===========
Deferred Deferred
Stock Subscription Compensation
Purchase Receivable Expense Total
-------- ----------- ----------- -----------
Balance, January 1, 2005 $ -- $ -- $ -- $ (512,982)
Shares associated with convertible debt -- -- -- --
Issuance of common stock for conversion
of debt and interest expense
(valued at $0.05 per share) -- -- -- 11,542
Issuance of common stock
for services (valued at $0.279 - $0.66 per share) -- -- -- 412,085
Issuance of common stock for intellectual
property (valued at $0.43 per share) -- -- -- 93,000
Sale of common stock
(at $0.13 - $0.50 per share) -- -- -- 1,139,835
Issuance of common stock upon exercise of warrants
( $0.10 per share) -- (10,000) -- 40,000
Issuance of common stock awards from the
Company's stock option plan (valued at $.10 per share) -- -- -- 61,300
Compensatory element of warrants -- -- -- 450,000
Deferred compensation expense -- -- (300,000) (300,000)
Net (loss) -- -- -- (2,580,440)
-------- ----------- ----------- -----------
Balance at December 31, 2005 -- (10,000) (300,000) (1,185,660)
======== =========== =========== ===========
|
See Notes to Consolidated Financial Statements
DELTA MUTUAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
Number of
Common Common Paid in Accumulated
Shares Stock Capital Deficit
---------- ----------- ----------- -----------
Issuance of common stock for convertible debt
(valued at $0.05 - $0.125 per share) 5,753,280 575 386,628 --
Issuance of common stock for interest expense
(valued at $0.05 per share) 517,426 52 25,819 --
Issuance of common stock
for services (valued at $0.09 - $0.38 per share) 2,431,730 243 462,398 --
Issuance of common stock for settlement
(valued at $0.19 per share) 225,000 23 42,727 --
Sale of common stock
(at $0.05 - $0.12 per share) 17,182,212 1,718 832,782 --
Issuance of common stock upon exercise of warrants
( $0.10 per share) 730,000 73 72,927 --
Deposit on common stock not yet issued -- -- -- --
Adoption of SFAS No. 123 (R) -- -- (300,000) --
Stock based compensation expense -- -- 769,810 --
Net (loss) -- -- -- (2,542,265)
----------- ----------- ----------- -----------
Balance at December 31, 2006 62,161,246 $ 6,216 $ 7,734,138 $(8,862,504)
=========== =========== =========== ===========
Deferred Deferred
Stock Subscription Compensation
Purchase Receivable Expense Total
----------- ----------- --------- -----------
Issuance of common stock for convertible debt
(valued at $0.05 - $0.125 per share) -- -- -- 387,203
Issuance of common stock for interest expense
(valued at $0.05 per share) -- -- -- 25,871
Issuance of common stock
for services (valued at $0.09 - $0.38 per share) -- -- -- 462,641
Issuance of common stock for settlement
(valued at $0.19 per share) -- -- -- 42,750
Sale of common stock
(at $0.05 - $0.12 per share) -- -- -- 834,500
Issuance of common stock upon exercise of warrants
( $0.10 per share) -- -- -- 73,000
Deposit on common stock not yet issued 266,000 -- -- 266,000
Adoption of SFAS No. 123 (R) -- -- 300,000 --
Stock based compensation expense -- -- -- 769,810
Net (loss) -- -- -- (2,542,265)
----------- ----------- ----------- -----------
Balance at December 31, 2006 $ 266,000 $ (10,000) $ -- $ (866,150)
=========== =========== =========== ===========
|
See Notes to Consolidated Financial Statements
DELTA MUTUAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
2006 2005
Cash flows from operating activities:
Net loss $(2,542,265) $(2,580,440)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 48,826 9,406
Non-cash employee compensation -- 61,300
Non-cash compensation 427,512 423,627
Accretion of convertible debt 175,385 423,357
Compensatory element of option
issuance 769,810 150,000
Impairment of long term asset 35,200 170,000
Minority interest in income (losses) of
consolidated subsidiaries (19,661) 23,230
Changes in operating assets
and liabilities 139,153 218,371
----------- -----------
Net cash used in operating activities (966,040) (1,101,149)
----------- -----------
Cash flows from investing activities:
Acquisition of intellectual property
rights -- (50,000)
Purchase of fixed assets (89,258) (360,999)
----------- -----------
Net cash used in
investing activities (89,258) (410,999)
----------- -----------
Cash flows from financing activities:
Proceeds from sale of common stock
and deferred stock purchase 1,100,500 1,139,835
Proceeds from exercise of warrants 73,000 40,000
Proceeds from loans 30,000 282,385
Repayment of loan (23,910) (47,820)
Proceeds from convertible debt 16,000 --
Payments to minority interests (311,261) (96,504)
Proceeds from minority interest 315,074 147,514
----------- -----------
Net cash provided by
financing activities 1,199,403 1,465,410
----------- -----------
Net increase (decrease) in cash 144,105 (46,738)
Cash - Beginning of year 67,042 113,780
----------- -----------
Cash - End of year $ 211,147 $ 67,042
=========== ===========
|
See Notes to Consolidated Financial Statements
DELTA MUTUAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
Years Ended December 31,
--------------------------
2006 2005
--------------------------
Supplementary information:
Cash paid during year for:
Interest $ 1,564 $ 10,445
========= =========
Income taxes $ -- $ --
========= =========
Changes in operating assets and liabilities consists of:
(Increase) in accounts receivable 20,000 (20,000)
(Increase) decrease in prepaid expenses 15,895 (204,809)
(Increase) decrease in deposits -- 74,000
Increase in accounts payable
and accrued expenses 103,258 369,180
--------- ---------
$ 139,153 $ 218,371
========= =========
Non-cash financing activities:
Issuance of common stock for debt $ 387,202 $ 232,500
========= =========
Issuance of common stock for settlement $ 42,750 $ --
========= =========
Issuance of common stock for services $ 462,641 $ --
========= =========
Issuance of common stock for intellectual
property rights $ -- $ 93,000
========= =========
|
DELTA MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2006 and 2005
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Delta Mutual, Inc. and its subsidiaries ("Delta" or the "Company") are engaged in providing environmental and construction technologies and services to certain geographic reporting segments in the Far East, the Middle East, the United States and Puerto Rico.
The Company's environmental activities are conducted by its joint venture subsidiary Delta-Envirotech, Inc. ("Envirotech") headquartered in Virginia. Envirotech has established a strategic alliance with ZAFF International, Ltd., a technology company in Saudi Arabia, to pursue environmental and other projects in Saudi Arabia and other areas of the Middle East. Envirotech also formed a local joint venture company in Indonesia, PT Triyudha-Envirotech, to perform energy and waste recovery operations in that country.
The Company's construction technology activities are conducted through its wholly owned U.S. subsidiary, Delta Technologies, Inc. ("Technologies"). Technologies acquired the intellectual property rights and filed a patent for a new insulating concrete wall forming (ICF) system known as Delta Wall.
In Puerto Rico, the Company's housing development activities are conducted through limited partnerships, of which the Company is the general partner.
BASIS OF PRESENTATION
The Company's financial statements for the year ended December 31, 2006 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 revenue to cover expenses as the Company continues to incur losses.
The Company's business is subject to most of the risks inherent in the establishment of a new business enterprise. The likelihood of success of the Company must be considered in light of the expenses, difficulties, delays and unanticipated challenges encountered in connection with the formation of a new business, raising operating and development capital, and the marketing of a new product. There is no assurance the Company will ultimately achieve a profitable level of operations.
The Company presently does not have sufficient liquid assets to finance its anticipated funding needs and obligations. The Company's continued existence is dependent upon its ability to obtain needed working capital through additional equity and/or debt financing and achieve a level of sales adequate to support its cost structure. Management is actively seeking additional capital to ensure the continuation of its current activities and complete its proposed activities. However, there is no assurance that additional capital will be obtained or that the 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.
SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The Company's consolidated financial statements include the accounts of all majority-owned subsidiaries where its ownership is more than 50 percent of common stock. The consolidated statements also include the accounts of any Variable Interest Entities ("VIEs") where the Company is deemed to be the primary beneficiary, regardless of its ownership percentage. All significant intercompany balances and transactions with consolidated subsidiaries are eliminated in the consolidated financial statements. Where the Company's ownership interest is less than 100 percent, the minority ownership interests are reported in the consolidated balance sheets as a liability. The minority ownership interest of the Company's earnings or loss, net of tax, is classified as "Minority interest in earnings of consolidated subsidiaries" in the consolidated statements of operations.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to concentration of credit risk consist principally of accounts receivable. The Company grants credit to customers based on an evaluation of the customer's financial condition, without requiring collateral. Exposure to losses on the receivables is principally dependent on each customer's financial condition. The Company controls its exposure to credit risk through credit approvals.
LOSS PER SHARE
Basic and diluted loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding during the year. Potential common shares are excluded from the loss per share calculation because the effect would be antidilutive. Potential common shares relate to the convertible debt, stock options and common stock purchase warrants. As of December 31, 2006, there were 3,816,587 potential common shares related to convertible debt, 7,978,000 potential common shares related to stock options and no potential common shares related to common stock purchase warrants issued by the Company. As of December 31, 2005 there were 9,303,200 potential common shares related to convertible debt; 8,000,000 potential common shares related to stock options and 7,580,000 potential common shares related to common stock purchase warrants issued by the Company.
REVENUE RECOGNITION
The Company recognizes revenue in accordance with the guidance contained in SEC Staff Accounting Bulletin No. 104 "Revenue Recognition Financial Statements" (SAB No. 104). Revenue is recognized from the Company's environmental remediation operation as the services are performed over the life of the remediation contracts.
PREACQUISITION COSTS
The Company accounts for costs incurred prior to the date of acquisition of a parcel of real property as preacquisition costs. Preacquisition cots are capitalized if the property was acquired or the acquisition of the property is probable. Capitalized preacquisition costs in excess of recoverable amounts are charged to expense.
EVALUATION OF LONG-LIVED ASSETS
The Company reviews property and equipment and finite-lived intangible assets for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable in accordance with guidance in Statement of Financial Accounting Standards (SFAS) No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets." If the carrying value of the long-lived asset exceeds the present value of the related estimated future cash flows, the asset would be adjusted to its fair value and an impairment loss would be charged to operations in the period identified.
DEPRECIATION AND AMORTIZATION
Property and equipment are stated at cost. Depreciation is provided for by the straight-line method over the estimated useful lives of the related assets.
STOCK-BASED COMPENSATION
The Company has a stock-based compensation plan under which stock options and stock awards are granted to employees. Effective January 1, 2006, the Company accounts for stock based compensation under Statement of Financial Accounting Standards ("SFAS") No. 123(R), "Share-Based Payment." The Company adopted SFAS 123(R) using the modified prospective method. Under modified prospective application, this SFAS applies to new awards and to awards for which the requisite service has not been rendered that are outstanding as of the required effective date shall be recognized as the requisite service is rendered on or after the required effective date. The compensation cost for the portion of awards shall be based on the grant-date fair value of those awards as calculated for either recognition or pro forma disclosures under SFAS 123. Changes to the grant-date fair value of equity awards granted before the required effective date of this Statement are precluded. The compensation cost for those earlier awards shall be attributed to periods beginning on or after the required effective date of this SFAS using the attribution method that was used under SFAS 123, except that the method of recognizing forfeitures only as they occur shall not be continued. Prior to January 1, 2006, the Company accounted for stock option grants issued to employees in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," along with the disclosure requirements of SFAS No. 123, "Accounting for Stock-Based Compensation," and for periods prior to January 1, 2006, the Company made the following disclosure of pro forma net earnings and earnings per share as if the fair-value-based method of accounting had been applied under SFAS No.123.
Had compensation cost for the Company's stock option plan been determined based on the fair value at the grant date for awards for the year ended December 31, 2005, consistent with the provisions of SFAS No. 123, the Company's net loss and net loss per share would have been increased to the pro forma amounts indicated below:
Year Ended
December 31,
2005
------------------
Net loss-as reported $ (2,580,440)
Deduct: Total stock-based
employee compensation
expense determined
under the fair value
based method for all
awards, net of taxes 585,000
------------------
Net loss-pro forma $ (3, 165,440)
==================
Loss per common share
basic and diluted -
as reported $ (0.10)
Loss per common share
basic and diluted-
pro forma $ (0.13)
|
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.
FOREIGN CURRENCY TRANSLATION
The functional currency for some foreign operations is the local currency. Assets and liabilities of foreign operations are translated at balance sheet date rates of exchange and income, expense and cash flow items are translated at the average exchange rate for the period. Translation adjustments in future periods will be recorded in Accumulated Other Comprehensive Income. The translation gains or losses were not material for the years ended December 31, 2006 and 2005.
INTANGIBLES
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 specifies the financial accounting and reporting for acquired goodwill and other intangible assets. Goodwill and intangible assets that have indefinite useful lives are not amortized but rather they are tested at least annually for impairment unless certain impairment indications are identified.
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.
NEW FINANCIAL ACCOUNTING STANDARDS
In September 2006, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 158, "Employers' Accounting for Defined Benefit Pension and Other Post Retirement Plans," an amendment of FASB Statements No. 87, 88, 106 and 132(R). SFAS 158 requires employers to recognize their defined benefit plans' overfunded or underfunded status in their balance sheets, requires employers to measure plan assets and plan obligations as of the balance sheet date, immediately recognize any remaining transition obligation currently being deferred, and recognize actuarial gains and losses through other comprehensive income. The statement is effective for fiscal years ending after December 15, 2006.
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements," which enhances existing guidance for measuring assets and liabilities using fair value. This Standard provides a single definition of fair value, together with a framework for measuring it, and requires additional disclosure about the use of fair value to measure assets and liabilities. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company does not believe that SFAS No. 157 will have a material impact on its consolidated financial statements.
In September 2006, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin ("SAB") No. 108, "Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements" ("SAB No. 108"). SAB No. 108 provides guidance on the consideration of effects of the prior year misstatements in quantifying current year misstatements for the purpose of a materiality assessment. The Company adopted SAB No. 108 in the fourth quarter of 2006 and adoption of SAB No. 108 did not impact our consolidated financial results.
In July 2006, FASB issued Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" ("FIN 48"). The interpretation requires a two step approach for recognizing and measuring tax benefits based on a recognition threshold of "more likely than not". The FASB also requires explicit disclosures about uncertainties in tax positions including a detailed rollforward of tax benefits that do not qualify for financial statement recognition. The adoption of FIN 48 is effective for fiscal years beginning after December 15, 2006. While the Company's analysis of the impact of this Interpretation is not yet complete, we do not anticipate it will have a material impact on the consolidated financial statements or with any of the Company's debt covenants.
In February 2007, the FASB issued SFAS No. 159 ("SFAS 159") "The Fair Value Option for Financial Assets and Financial Liabilities," providing companies with an option to report selected financial assets and liabilities at fair value. The Standard's objective is to reduce both complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. It also requires entities to display the fair value of those assets and liabilities for which the Company has chosen to use fair value on the face of the balance sheet. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact of the adoption of this Statement on its consolidated financial statements.
2. PROPERTY AND EQUIPMENT
December 31, 2006
-----------------
Equipment $ 455,035
Deposits on land 35,500
Leasehold improvements 7,807
-------------
498,342
Less accumulated
Depreciation 49,761
-------------
$ 448,581
=============
|
Depreciation expense for the years ended December 31, 2006 and 2005, amounted to $41,675 and $4,189 respectively.
3. INTANGIBLE ASSETS
Intellectual property costs are intellectual property included in a patent application. If the patent is not issued, the Company will write-off the unamortized amounts immediately. Other intangibles are being amortized over 20 years. Amortization expense was $7,150 and $5,217 for the years ended December 31, 2006 and 2005, respectively. Other intangible assets consist of the following:
December 31, 2006
Gross Carrying Accumulated
Amount Amortization
--------------- --------------
Intellectual property costs $ 143,000 $ 9,533
=============== ==============
|
Estimated amortization expense for intangible assets for the next five years is as follows:
Estimated
Year Ending Amortization
December 31, Expense
-------------- -------------
2007 7,150
2008 7,150
2009 7,150
2010 7,150
2011 7,150
|
4. IMPAIRMENT LOSS
During the year ended December 31, 2006, the Company wrote off the $35,200 deposit on land related to the Puerto Rico low income housing project know as "Brisas del Atlantico." During the year ended December 31, 2005, the Company wrote off $170,000 in preacquistion design costs related to the same project.
5. INVESTMENT IN JOINT VENTURES
a. In December 2003, the Company formed a joint venture to develop
Section 124, low income housing in the Commonwealth of Puerto Rico.
The Company became the general partner and 75% majority owner
of a limited partnership, Delta Development Partners, LP that owns
the 85% majority share of Delta Developers Corp., a Puerto Rico
corporation, formed to manage the construction and related activities
required to build approximately 270 homes under Section 124. During
the year ended December 31, 2006, the activities associated with
this joint venture were discontinued. The operations of this joint
venture have been consolidated with the Company since December 2003.
In October 2004, the Company formed a second joint venture to develop
Section 124 low income housing in Puerto Rico. The Company became the
general partner and majority owner of a limited partnership, Delta
Development Partners II, LP that owns the 85% majority share of Delta
Developers Guayanilla Corp., a Puerto Rico corporation formed to manage
the construction and related activities required to build approximately
300 homes under Section 124. In March 2007, the developer of this project
informed the Company that he will not proceed with the development of this
property. The operations of this joint venture have been consolidated with
the Company since October 2004.
In November 2006, the Company entered into a new joint venture to develop
Section 124 housing in Puerto Rico. The Company became the general partner
and 35% minority owner of limited partnership, Delta TA, LP formed to
manage the construction and related activities to build approximately 338
residential units under the Section 124 program. During 2006, Bonaich
Ventures, LLC, an investor, purchased a 9% interest in the partnership for
$112,000. The operations of this partnership have been consolidated with
the Company for the year ended December 31, 2006.
b. On January 14, 2004, the Company entered into a joint venture agreement forming Delta-Envirotech, Inc. for the purpose of providing environmental technologies and services to markets in the Middle East. The joint venture company is based in Virginia and focuses on participating in foreign government sponsored pollution remediation projects. Upon formation, David Razmara was named President and became an employee of Delta-Envirotech.
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 projects in the Middle East.
On July 14, 2004, the Company and Hi-Tech, pursuant to an agreement to purchase stock dated January 14, 2004, each sold 75 shares of the joint venture to a third party, representing a ten percent (10%) interest for $2. The Company and Hi-Tech each own forty-five percent (45%) of the joint venture.
The operations of the joint venture have been consolidated with the Company for the years ended December 31, 2006 and 2005. Delta-Envirotech, Inc. meets the definition of a Variable Interest Entity as defined in Financial Accounting Standards Board Interpretation No. 46 (FIN 46),"Consolidation of Variable Interest Entities" requiring the primary beneficiaries of a variable interest entity to consolidate that entity. The primary beneficiary of a variable interest entity is the party that absorbs the majority of the expected losses of the entity or receives a majority of the entity's expected residual return, or both, as a result of ownership, contractual or other financial interest in the entity.
c. Minority interests primarily consist of ownership interest in Delta-Envirotech, Inc.; Delta Development Partners, L.P.; Delta Development Partners II, L.P.; Delta TA, LP; PT Triyudha - Envirotech; Delta Developers Corp. and Delta Developers Guayanilla 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 years ended December 31, 2006 and 2005. There are excess losses not absorbed by the minority interests due to limitations of their capital contributions. In future periods, the profits first attributable to the minority interests will be first absorbed against any unused losses until the losses are fully absorbed. The amount on the Company's balance sheets represents the minority interests as of December 31, 2006.
The following represents a schedule of minority interests as of December 31,
2006
-----------
Delta Development Partners L.P. $ 145,092
Delta Development Partners II, L.P. 39,741
Delta Developers Guayanilla Corp. --
Delta TA L.P. 110,891
Delta-Envirotech, Inc. --
PT Triyudha - Envirotech (54,174)
Delta Developers Corp. --
------------
$ 241,550
============
|
6. NOTES PAYABLE
On April 5, 2005, the Company issued 8% term notes to private investors in the amount of $210,655, with the principal and interest due at maturity on October 2, 2005. Pursuant to note modification agreements, the maturity dates of these notes were extended to June 5, 2006. On June 2, 2006, by further amendment, these notes became payable on written demand by the lenders. Interest expense for the years ended December 31, 2006 and 2005 amounted to $16,852 and $12,466, respectively. As of December 31, 2006, accrued interest of $21,008 is included in accrued expenses on the Company's consolidated balance sheet.
7. CONVERTIBLE DEBT
During the year ended December 31, 2004, the Company issued convertible notes in the principal amounts of $961,400. The convertible notes had interest rates from 4% to 6% and matured at various dates between May 12, 2006 and January 16, 2007. These notes are convertible into common stock at a conversion price of $0.05 to $0.125 per share. Two notes that originally matured in May 2006 were amended during 2006 extending the maturity dates until April 2007 and February 2008, respectively. The note with the maturity date of January 16, 2007, was converted into shares of common stock in the second quarter of 2006. A portion of these convertible notes, in the principal amount of $444,000, have an initial conversion price of $0.05 per share subject to adjustment if the Company issues common stock at a price below $0.05 per share. On September 16, 2004, the Company's board of directors resolved to prohibit the issuance of shares of common stock at a price below $0.05 per share for as long as any of the $444,000 convertible notes are outstanding.
In connection with the issuance of the $444,000 convertible notes, the Company issued 8,880,000 common stock purchase warrants at an exercise price of $0.10 per share. The warrants expired March 31, 2006.
The Company accounted for the warrants and the convertible debt with detachable warrants in accordance with Emerging Issues Task Force 00-27 and 00-19 and SFAS No. 33. The Company performed calculations allocating the proceeds of convertible debt with detachable warrants to each respective security at their fair values. The Company used the conversion value of the convertible debt and calculated fair value of the warrants using the Black-Scholes valuation model for its estimate of fair value. The Company compared the allocated proceeds of the convertible debt to the difference between its conversion value and face amount. The calculated fair value of the convertible debt of $722,855 was recorded as the value of the Beneficial Conversion Feature and accordingly credited to Additional Paid-in Capital. The value of the warrants of $235,545 was recorded as a reduction of the convertible debt. The convertible debt was recorded at zero. The convertible debt was accreted to its current face value of $369,740, after 2004, 2005 and 2006 conversions, under the interest method per APB No. 21 until it is either converted or matures.
During the year ended December 31, 2005, the note holders converted $232,500 into 4,650,000 shares of common stock, respectively. During the year ended December 31, 2006, the noteholders converted an additional $305,160 principal amount into 5,753,280 shares of common stock. At December 31, 2006, the Company's outstanding convertible notes were convertible into 3,816,587 shares of common stock.
On May 3, 2006, the Company issued a convertible note to a related party in the principal amount of $16,000. The note bears interest at 6% per annum and matures on November 3, 2007. The note is convertible into common stock at a conversion price of $0.06 per share.
The following table shows the maturities by year of total face amount of the long-term convertible debt obligations at December 31, 2006:
2007 $ 269,740
2008 100,000
-----------
369,740
===========
|
For the years ended December 31, 2006 and 2005, the Company recorded interest expense of $26,094 and $130,292 respectively. As of December 31, 2006, accrued interest of $42,271 is included in accrued expenses on the Company's consolidated balance sheet.
8. ACCRUED EXPENSES
Accrued expenses as of December 31, 2006, consist of the following:
Professional fees $ 61,500
Interest expense 63,278
Payroll expense 353,320
Payroll expense-officers 117,436
Payroll tax expense 36,445
Other accrued expenses 258,352
--------
$890,351
========
|
9. LOANS FROM RELATED PARTIES
In March 2005, the Company borrowed $71,731 from a shareholder of the Company, with interest at 6% per annum and the principal and interest due in three equal installments on June 21, September 19, and December 20, 2005. On May 6, 2005, the Company paid the first installment consisting of $23,910 principal and $1,105 interest. On September 19, 2005, the Company paid the second installment consisting of $23,910 principal and $1,029 interest. The note was amended on December 16, 2005 to extend the final installment payment to February 20, 2006. On February 3, 2006, the Company made the final payment consisting of $23,910 of principal and $1,563 of accrued interest. Interest expense for the year ended December 31, 2006 and 2005 amounted to $349 and $3,349, respectively.
On May 17, 2006, the Company borrowed $30,000 from a related party at interest of 6% per annum with the principal and interest due on May 17, 2008. Interest expense for the years ended December 31, 2006 amounted to $1,122. As of December 31, 2006 accrued interest of $1,122 is included in accrued expenses on the Company's consolidated balance sheet. The balance due to the shareholder is included in Notes Payable on the Company's consolidated balance sheet at December 31, 2006.
10. OTHER RELATED PARTY TRANSACTIONS
a. The Company's subsidiary, Delta-Envirotech, Inc. ("Envirotech") pays monthly office rent to David Razmara, the president of Envirotech and a shareholder of the Company, in the amount of $1,000. The rent expense for the years ended December 31, 2006 and 2005 amounted to $12,000 and $-0-, respectively.
b. As of December 31, 2006, Delta Developers Corp., a majority-owned subsidiary of the Company, eliminated $203,000 of management fees payable to a related party, because the Company's initial low income housing project in Puerto Rico was disapproved and all activities associated with that project were discontinued. The elimination of the management fee expense is included in the Company's consolidated statements of operations for the year ended December 31, 2006.
11. STOCKHOLDERS' DEFICIENCY
The Company issues shares of common stock for services or repayment of debt valued at fair market value at time of issuance.
a. For the year ended December 31, 2006, the Company issued 5,753,280 shares of common stock upon the conversion of convertible notes in the original principal amount of $305,160, valued at $0.05 - $0.125 per share, and issued 517,426 shares of common stock for payment of accrued interest in the amount of $25,871, valued at $0.05 per share. For the year ended December 31, 2005, the Company issued 4,650,000 shares of common stock upon the conversion of convertible notes in the principal amount of $232,500 valued at $0.05 per share, and 230,852 shares of common stock for payment of accrued interest in the amount of $11,545, also valued at $0.05 per share.
b. For the year ended December 31, 2006, the Company issued 2,431,730 shares of common stock for services valued at $462,641 at a price per share of $0.09 - $0.38. For the year ended December 31, 2005, the Company issued 902,895 shares of common stock for services valued at $412,085, at prices per share of $0.30 - $0.66.
c. For the year ended December 31, 2006, the Company sold 17,182,212 shares of common stock for net proceeds of $834,500, valued at $0.05 - $0.12 per share. At December 31, 2006, $266,000 classified as Deferred Stock Purchase is included on the Company's consolidated balance sheet. As of March 28, 2007, these shares have not been issued. For the year ended December 31, 2005, the Company sold 7,645,001 shares of common stock and issued 1,430,000 shares of common stock as associated commissions for net proceeds of $1,139,835.
d. For the year ended December 31, 2006, the Company issued 730,000 shares of common stock upon the exercise of the Company's common stock purchase warrants at a conversion price of $73,000, valued at $0.10 per share. For the year ended December 31, 2005, the Company issued 500,000 shares of common stock upon the exercise of the Company's common stock purchase warrants at a conversion price of $50,000, valued at $0.10 per share.
e. For the year ended December 31, 2005, the Company issued, to five employees, 613,000 shares of common stock, in the aggregate, from the Company's 2001 Employee Stock Option Plan (the " 2001 Plan"), for $61,300, valued at $0.10 per share. There were no shares of common stock from the 2001 Plan issued during the year ended December 31, 2006.
f. For the year ended December 31, 2006, the Company issued 225,000 shares of common stock in settlement of a lawsuit for $42,750, valued at $0.19 per share, which expense was included in the Company's consolidated statements of operations for the year ended December 31, 2005.
12. BUSINESS SEGMENT INFORMATION
The Company operates in four reportable segments. The segments are geographic and include the Far East (Indonesia), the Middle East, North America (United States) and Puerto Rico. The primary criteria by which financial performance is evaluated and resources allocated are revenue and operating income.
The following is a summary of key financial data:
Years
Ended December 31
2006 2005
-----------------------
Total Revenue:
North America $ -- $ --
Indonesia 279,870 20,000
Middle East -- --
Puerto Rico -- --
----------- -----------
$279,870 $20,000
=========== ===========
|
Income (loss) from Operations:
North America $(2,330,053) $(1,579,446)
Indonesia -- (123,998)
Middle East (1,100) (27,500)
Puerto Rico (12,512) (272,617)
----------- -----------
$(2,343,665) $(2,003,561)
=========== ===========
Long-lived Assets:
North America $225,896
Indonesia 322,052
Middle East --
Puerto Rico 35,500
--------
$583,448
=========
Capital Expenditures:
North America $89,258 $ 1,500
Indonesia -- 359,499
Middle East -- --
Puerto Rico -- --
-------- --------
$89,258 $360,999
========== ==========
|
Depreciation and Amortization:
North America $ 12,875 $ 7,908
Indonesia 35,950 1,498
Middle East -- --
Puerto Rico -- --
-------- --------
$ 48,826 $ 9,406
======== ========
13. INCOME TAXES
|
The liability method, prescribed by SFAS No. 109, "Accounting for Income Taxes," is used by the Company in accounting for income taxes. Under This method, deferred tax assets and liabilities are based on differences between financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse.
During the year ended December 31, 2006, the Company recorded a deferred tax asset associated with its net operating loss ("NOL") carryforwards of approximately $8,734,479 that was fully offset by a valuation allowance due to the determination that it was more likely than not that the Company would be unable to utilize these benefits in the foreseeable future. The Company's NOL carryforward expires beginning in 2010 through 2017.
There is no provision for income taxes for the years ended December 31, 2006 and 2005 as there was no taxable income in either year.
The types of temporary differences between tax basis of assets and liabilities and their financial reporting amounts that give rise to the deferred tax liability and deferred tax asset and their approximate tax effects are as follows:
For the Year Ended
December 31, 2006
--------------------------------
Temporary Tax
Difference Effect
-------------- --------------
Gross deferred tax
asset resulting
from net operating
loss carryforward $ 8,850,000 $ 3,009,000
Valuation allowance $ (8,850,000) $ (3,009,000)
-------------- --------------
Net deferred income
tax asset
$ -- $ --
============== ==============
|
The reconciliation of the effective income tax rate to the federal statutory rate is as follows:
For the Year Ended
December 31,
-------------------
2006 2005
------- -------
Federal income tax rate (34%) (34%)
Effect of unused operating losses 34% 34%
Effective income tax rate 0% 0%
======= =======
|
14. SHARE BASED COMPENSATION
On January 1, 2006, the Company adopted SFAS No. 123(R) "Share-Based Payment," requiring the recognition of compensation expense in the Consolidated Statements of Operations related to the fair value of its employee share-based options and awards. SFAS No. 123(R) revises SFAS No. 123 "Accounting for Stock-Based Compensation" and supercedes APB Opinion No. 25 "Accounting for Stock Issued to Employees." SFAS No. 123(R) is supplemented by SEC Staff Accounting Bulletin ("SAB") No. 107 "Share-Based Payment." SAB No. 107 expresses the SEC staff's views regarding the interaction between SFAS No. 123(R) and certain SEC rules and regulations including the valuation of share-based payment arrangements.
The Company recognizes the cost of all employee stock options on a straight-line attribution basis over their respective vesting periods, net of estimated forfeitures. The Company has selected the modified prospective method of transition; accordingly, prior periods have not been restated. Prior to adopting SFAS No. 123(R), the Company applied APB Opinion No. 25, and related interpretation in accounting for its stock-based compensation plans. All employee stock options were granted at or above the grant date market price. Accordingly, no compensation cost was recognized for fixed stock option grants.
On December 31, 2006, the Company had one share-based compensation plan, which is described below. During fiscal year 2006, the adoption of SFAS No.123(R) resulted in incremental stock-based compensation expense of $585,000. The incremental stock-based compensation expense caused earnings before provision for income taxes and net earnings to decrease by $585,000, and basic and diluted earnings per common share to decrease by $0.01 per share.
Under the provisions of SFAS 123(R), the recognition of deferred compensation, representing the amount of unrecognized restricted stock expense that is reduced as expense is recognized, at the date restricted stock is granted, is not longer required. Therefore, in the quarter ended March 31, 2006, the amount that had been in "Deferred compensation" in the consolidated balance sheets was reversed to zero.
Stock Option Plan
In December 2001, the Company's stockholders approved the 2001 Employee Stock Option Plan (the "2001 Plan"), pursuant to which 2,000,000 shares of common stock were reserved for issuance. In August 2004, the Company's stockholders approved the 2004 Stock Option Plan (the "2004 Plan"), pursuant to which 10,000,000 shares of common stock were reserved for issuance. As of December 31, 2006, all shares under the 2001 Plan had been issued and 2,022,000 shares of common stock remained available for issuance under the 2004 Plan.
The Company was also authorized to issue shares of stock to its employees from its 2001 Plan. The Company expensed the issuance of stock awards in accordance with SFAS No. 123. Shares issued from the2001 Plan were expensed at the time of issuance, as the stock issued had no restrictions to the employees. There were no stock awards to employees from the 2001 Plan during the year ended December 31, 2006 and the Company issued 613,000 shares to five employees during the similar period of 2005. The shares issued were at fair market value as compensation to employees. The Company recorded compensation expense of $-0- and $61,300 in the Company's consolidated statements of operations for the years ended December 31, 2006 and 2005, respectively.
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 year ended December 31, 2006, the Company issued 2,431,730 common shares, and recorded expense of $462,641, of which $250,000 was included in prepaid expenses on the consolidated balance sheet at December 31, 2006, in conjunction with the issuance of these shares.
On February 17, 2006, the Company issued 778,000 stock options to five employees. The Company recorded an expense of $22,050 which is included in the consolidated statements of operations for the year ended December 31, 2006.
On July 3, 2006, the Company cancelled incentive stock options to purchase a total of 6,478,000 shares of common stock granted in November 2004 and February 2006 to four employees; and 1,500,000 non statutory options granted in December 2005 to an employee of a subsidiary, all from the Company's 2004 Plan. Exercise prices for these options ranged from $0.17 to $0.25 per share. In accordance with SFAS No. 123(R), the Company expensed $75,000 and eliminated $225,000 of deferred compensation expense related to the cancellation of the 1,500,000 non-statutory options, which is included in the consolidated statements of operations for the year ended December 31, 2006.
On July 3, 2006, the Company replaced the cancelled options by granting 7,978,000 new stock options with an exercise price of $0.11 per share and recorded an expense of $87,760 associated with the new option grants which is included in the consolidated statements of operations for the year ended December 31, 2006.
The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 2006: dividends yield of 0%, expected volatility of 116% and expected life of 5 years.
A summary of the status of the Company's options and stock awards under its stock option plans as of December 31, 2006 and 2005, and changes during the years then ended, is presented below.
2006 2005
--------------------------------- ----------------------------------
Weighted-Average Weighted-Average
Shares Exercise Share Price Shares Exercise Share Price
Options outstanding,
beginning of year 8,000,000 $ 0.25 6,500,000 $ 0.25
Options granted 8,756,000 $ 0.12 1,500,000 $ 0.25
Options exercised -- $ -- -- $ --
Stock awards granted -- $ -- 613,000 $ 0.10
Stock awards issued -- $ -- (613,000) $ (0.10)
Options cancelled/expired (8,778,000) $ 0.24 -- $ --
--------------------------------- ----------------------------------
Options outstanding,
end of year 7,978,000 $ 0.11 8,000,000 $ 0.25
================================= ==================================
Options price range
at end of year $ 0.11 $ 0.25
=========== =============== ========== ===============
Options price range
for exercised shares -- --
Options available for grant
at end of year 2,022,000 2,000,000
=========== =============== ========== ===============
Weighted-average fair value
of options granted during year $ 0.12 $ 0.25
================================= ==================================
|
Stock compensation expense applicable to stock options and stock awards for the years ended December 31, 2006 and 2005 was approximately $769,810 and $61,300, respectively. The aggregate intrinsic value of options outstanding as of December 31, 2006 was $319,120.
The following table summarizes information about fixed price stock options outstanding at December 31, 2006.
Range of Number Outstanding Weighted-Average Weighted-Average Number Exercisable Weighted-Average
Exercise Price December 31, 2006 Remaining Contractual Life Exercise Price December 31, 2006 Exercise Price
$ 0.11 7,978,000 4.5 $0.11 3,908,940 $0.11
|
A summary of the Company's non-vested options as of December 31, 2006 and 2005, and changes during the year ended December 31, 2006 is presented below.
Weighted-Average
Grant-Date
Non-vested Options Options Fair Value
----------------- ------- ----------------
Non-vested at December 31, 2005: 1,000,000 $ 0.25
Granted 4,847,060 0.12
Vested (525,000) 0.25
Forfeited, expired or cancelled: (1,253,000) --
---------- ----------------
Non-vested at December 31, 2006 4,069,060 0.11
----------
|
At December 31, 2006, there was $2,196,250 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the 2004 Plan. The cost is expected to be recognized over a weighted average period of 4.5 years. The total fair value of shares vested during 2006 was $125,000. The aggregate intrinsic value of options vested during 2006 was $36,750. Currently, the Company believes that substantially all options will vest.
A summary of the status of the Company's stock purchase warrants as of December 31, 2006 and 2005, and changes during the years then ended, is presented below.
2006 2005
------------------------------------- --------------------------------------
Weighted-Average Weighted-Average
Shares Exercise Share Price Shares Exercise Share Price
Warrants outstanding,
beginning of year 7,580,000 $ 0.10 8,080,000 $ 0.10
Warrants granted -- $ -- -- $ --
Warrants exercised (730,000) $ 0.10 (500,000) $ 0.10
Warrants cancelled/expired (6,850,000) $ 0.10 -- $ --
------------------------------------- --------------------------------------
Warrants outstanding,
end of year -- $ -- 7,580,000 $ 0.10
===================================== ======================================
|
The following table summarizes information about fixed price warrants outstanding at December 31, 2006
Range of Number Outstanding Weighted-Average Weighted-Average Number Exercisable Weighted-Average
Exercise Price December 31, 2006 Remaining Contractual Life Exercise Price December 31, 2006 Exercise Price
-- -- -- -- -- --
|
15. COMMITMENTS AND CONTINGENCIES
a. Executive Employment Agreements
The Company has employment agreements with both of its principal executive officers.
In February 2006, the Company entered into a new three-year employment agreement with Peter F. Russo, its president and CEO, effective March 11, 2006. If Mr. Russo's employment is terminated other than for "cause," his base salary is continued for six months following his termination. The agreement also contains a provision for additional compensation if his employment is terminated without "cause" following a change in control. For the year ended December 31, 2006, the Company had accrued salary liability to Mr. Russo of $117,436 which is included in accrued expenses on the Company's consolidated balance sheet.
In 2005, the Company entered into a three-year employment agreement with Martin G. Chilek, its chief financial officer, effective June 1, 2005. If Mr. Chilek's employment is terminated other than for "cause," or his employment agreement is not renewed by the Company, his base salary is continued for six months following his termination. The agreement also contains a provision for additional compensation if his employment is terminated without "cause" following a change in control. For the year ended December 31, 2006, there was no accrued salary liability to Mr. Chilek.
b. Consulting Agreements
In August 2005, the Company entered into a consulting agreement with Juan B. Rodriguez Pagan ("Rodriguez") to provide certain services and assistance to the Company in developing its construction and building materials businesses. The Company agreed to pay Rodriguez 48 monthly payments of $6,000 over the four-year term of the agreement and issue him shares of common stock upon his execution of the agreement and at subsequent intervals during the term of the agreement. As of December 31, 2006, the Company issued Rodriguez $516,000 of its common stock. In addition, Rodriguez is entitled to a commission of 5% of the sales of Delta Technologies, Inc. Either party may terminate the agreement upon written notice, however, if the Company terminates the agreement, Rodriguez is entitled to all of the remaining monthly payments he would have been entitled to receive during the term of the agreement.
For the year ended December 31, 2006, consulting fees of $72,000 are included in accrued expenses on the Company's consolidated statements of operations. For the year ended December 31, 2006, the Company expensed $189,000 in consulting fees in conjunction with the issuance of common stock to Rodriguez. The remainder of the stock value of $248,000 is included as a prepaid expense on the Company's consolidated balance sheet.
In August 2005, Delta Technologies, Inc. entered into a consulting agreement with Richard F. Straub, Jr. ("Straub") for a period of three years, to provide ongoing technical assistance and support in the production of Technologies' insulating concrete wall forming products. Technologies agreed to pay Straub $4,400 per month over the term of the agreement and issue him shares of common stock at subsequent intervals during the term of the agreement. As of December 31, 2006, 131,578 shares with a value of$50,000 have been issued. Technologies can terminate the agreement at any time, but only for cause (defined, among other things, as a breach of the agreement by Straub). In the event of termination for cause, Technologies has no further liability to Straub.
For the year ended December 31, 2006, consulting fees of $52,800 have been expensed and $16,667 of the stock value is included in accrued expenses on the Company's consolidated statements of operations.
c. Leases
The Company leases its office space in Pennsylvania. The Company entered into a new 12-month lease on March 1, 2006 that contained a year- to-year renewal provision. The first renewal period became effective March 1, 2007.
The Company also has a month-to-month lease for a business office in Saudi Arabia at a cost of $1,000 per month.
The Company's apartment lease in San Juan Puerto Rico expired on March 31, 2006 and was not renewed.
Future minimum lease payments are as follows:
Year ending
December 31,
------------------------
2007 $ 19,800
2008 1,950
----------
$ 21,750
|
Rent expense was $31,800 and $47,100 for the years ended December 31, 2005 and 2006, respectively.
15. SUBSEQUENT EVENT
a. In 2007, the Company issued 111,040 shares of common stock as payment of $13,880 of accrued interest due as of March 12, 2007, pursuant to a 4% convertible promissory note issued by the Company in May 2004.
EXHIBIT 4.5a
AMENDMENT TO
AMENDED AND RESTATED
4% CONVERTIBLE PROMISSORY NOTE
AMENDMENT, dated as of May 2, 2006, TO AMENDED AND RESTATED 4% CONVERTIBLE PROMISSORY NOTE, dated May 12, 2004, made by and between Delta Mutual, Inc., a Delaware corporation, with its principal offices located at 111 North Branch Street, Sellersville, PA 18960 (the "Borrower") and Ebony Finance, Ltd., as lawful transferee of Sophie Angelastri, (the "Lender") of Bahnhofstrasse 73, 8001 Zurich, Switzerland. Capitalized terms used herein and not otherwise defined herein shall have the meaning assigned to such term in the Original Note.
WHEREAS, the Borrower and the Lender are parties to that certain Amended and Restated 4% Convertible Promissory Note, dated May 12, 2004 (the "Original Note") pursuant to which the Borrower has borrowed the amount of $129,160 from the Lender;
WHEREAS, the Original Note provides that the Maturity Date shall be May 12, 2006; and
WHEREAS, the Borrower and the Lender have agreed to extend the Maturity Date and to amend Section 1.6 of the Original Note in order to provide the Borrower with additional time to secure financing; and
WHEREAS, in accordance with the terms and conditions of the Original Note, the Borrower and the Lender hereby approve the amendment of the Original Note as set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants contained herein, the parties agree as follows:
1. By their respective execution of this Agreement, the Borrower and the Lender agree that Section 1.6 of the Original Note is hereby amended to read in its entirety as follows: "Maturity Date" shall mean July 12, 2006.
2. Except as expressly provided herein, the Original Note shall continue in full force and effect.
3. This AMENDMENT may be executed by facsimile and in counterparts, which, taken together, shall be deemed an original and shall constitute a single AMENDMENT.
SIGNATURE PAGE FOLLOWS
IN WITNESS WHEREOF, the Borrower and the Lender have executed this Amendment as of the date first written above.
DELTA MUTUAL INC. EBONY FINANCE, LTD. (LENDER)
By: /s/ Peter F. Russo By: /s/ Ivano Angelastri
---------------------------- ----------------------
Peter F. Russo Name: Ivano Angelastri
President & CEO Title: Director
|
EXHIBIT 4.5b
AMENDMENT TO
SECOND AMENDED AND RESTATED
4% CONVERTIBLE NOTE
AMENDMENT TO SECOND AMENDED AND RESTATED 4% CONVERTIBLE NOTE, dated as of July 6, 2006, made by and between Delta Mutual, Inc., a Delaware corporation, with its principal offices located at 111 North Branch Street, Sellersville, PA 18960 (the "Borrower") and T&T Vermoegensverwaltungs AG, as lawful transferee, dated May 12, 2004, of Bahnhofstrasse 73, 8001 Zurich, Switzerland (the "Holder"). Capitalized terms used herein and not otherwise defined herein shall have the meaning assigned to such term in the Original Note.
WHEREAS, the Borrower and the Holder are parties to that certain Second Amended and Restated 4% Convertible Note, dated May 12, 2004, (the "Original Note") pursuant to which the Borrower has borrowed the amount of $129,160 from the Holder;
WHEREAS, the Original Note provides that the Maturity Date shall be
July 12, 2006; and WHEREAS, the Borrower and the Holder have agreed to
extend the Maturity
Date and to amend Section 1.6 of the Original Note in order to provide the
Borrower with additional time to secure financing; and
WHEREAS, in accordance with the terms and conditions of the Original Note, the Borrower and the Holder hereby approve the amendment of the Original Note as set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants contained herein, the parties agree as follows:
1. By their respective execution of this AMENDMENT, the Borrower and the Holder agree that Section 1.6 of the Original Note is hereby amended to read in its entirety as follows: "Maturity Date" shall mean October 12, 2006.
2. Except as expressly provided herein, the Original Note shall continue in full force and effect.
3. This AMENDMENT may be executed by facsimile and in counterparts, which, taken together, shall be deemed an original and shall constitute a single AMENDMENT.
-SIGNATURE PAGE FOLLOWS-
DELTA MUTUAL INC. T&T VERMOEGENSVERWALTUNGS AG
By: /s/ Peter F. Russo By: /s/ Ivano Angelastri
------------------- ------------------------
Peter F. Russo Name: Ivano Angelastri
President & CEO Title: President
|
EXHIBIT 4.5c
AMENDMENT TO
THIRD AMENDED AND RESTATED
4% CONVERTIBLE NOTE
AMENDMENT TO THIRD AMENDED AND RESTATED 4% CONVERTIBLE NOTE, is dated as of October 10, 2006; made by and between Delta Mutual, Inc., a Delaware corporation, with its principal offices located at 111 North Branch Street, Sellersville, PA 18960 (the "Borrower") and T&T Vermoegensverwaltungs AG, as lawful transferee, of Bahnhofstrasse 73, 8001 Zurich, Switzerland (the "Holder"). Capitalized terms used herein and not otherwise defined herein shall have the meaning assigned to such term in the Original Note.
WHEREAS, the Borrower and the Holder are parties to that certain Third Amended and Restated 4% Convertible Note, dated May 12, 2004, (the "Original Note") pursuant to which the Borrower has borrowed the amount of $100,000 from the Holder;
WHEREAS, the Original Note provides that the Maturity Date shall be
October 12, 2006; and WHEREAS, the Borrower and the Holder have agreed
to extend the Maturity
Date and to amend Section 1.6 of the Original Note in order to provide the
Borrower with additional time to secure financing; and
WHEREAS, in accordance with the terms and conditions of the Original Note, the Borrower and the Holder hereby approve the amendment of the Original Note as set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants contained herein, the parties agree as follows:
1. By their respective execution of this AMENDMENT, the Borrower and the Holder agree that Section 1.6 of the Original Note is hereby amended to read in its entirety as follows: "Maturity Date" shall mean November 30, 2006.
2. Except as expressly provided herein, the Original Note shall continue in full force and effect.
3. This AMENDMENT may be executed by facsimile and in counterparts, which, taken together, shall be deemed an original and shall constitute a single AMENDMENT.
4. IN WITNESS WHEREOF, the Borrower and the Holder have caused this AMENDMENT to be executed as of the date first written above.
-SIGNATURE PAGE FOLLOWS-
DELTA MUTUAL, INC. T&T VERMOEGENSVERWALTUNGS AG
(BORROWER) (HOLDER)
By: /s/ Peter F. Russo By: /s/ I. Angelastri
--------------------------- -----------------------------
Peter F. Russo Name: Ivano Angelastri
President & CEO Title: Director
|
EXHIBIT 4.5d
AMENDMENT TO
THIRD AMENDED AND RESTATED
4% CONVERTIBLE NOTE
AMENDMENT TO THIRD AMENDED AND RESTATED 4% CONVERTIBLE NOTE, is dated as of November 27, 2006; made by and between Delta Mutual, Inc., a Delaware corporation, with its principal offices located at 111 North Branch Street, Sellersville, PA 18960 (the "Borrower") and T&T Vermoegensverwaltungs AG, as lawful transferee, of Bahnhofstrasse 73, 8001 Zurich, Switzerland (the "Holder"). Capitalized terms used herein and not otherwise defined herein shall have the meaning assigned to such term in the Original Note.
WHEREAS, the Borrower and the Holder are parties to that certain Third Amended and Restated 4% Convertible Note, dated May 12, 2004, as amended (the "Original Note"), pursuant to which the Borrower has borrowed the amount of $100,000 from the Holder;
WHEREAS, the Original Note provides that the Maturity Date shall be
November 30, 2006; and WHEREAS, the Borrower and the Holder have agreed
to extend the Maturity
Date and to amend Section 1.6 of the Original Note in order to provide the
Borrower with additional time to secure financing; and
WHEREAS, in accordance with the terms and conditions of the Original Note, the Borrower and the Holder hereby approve the amendment of the Original Note as set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants contained herein, the parties agree as follows:
1. By their respective execution of this AMENDMENT, the Borrower and the Holder agree that Section 1.6 of the Original Note is hereby amended to read in its entirety as follows: "Maturity Date" shall mean February 28, 2007.
2. Except as expressly provided herein, the Original Note shall continue in full force and effect.
3. This AMENDMENT may be executed by facsimile and in counterparts, which, taken together, shall be deemed an original and shall constitute a single AMENDMENT.
4. IN WITNESS WHEREOF, the Borrower and the Holder have caused this AMENDMENT to be executed as of the date first written above.
-SIGNATURE PAGE FOLLOWS-
DELTA MUTUAL, INC. T&T VERMOEGENSVERWALTUNGS AG
(BORROWER) (HOLDER)
By: /s/ Peter F. Russo By: /s/ Ivano Angelastri__
---------------------- -----------------------
Peter F. Russo Name: Ivano Angelastri
President & CEO Title: Managing Director
|
EXHIBIT 4.5e
AMENDMENT TO
THIRD AMENDED AND RESTATED
4% CONVERTIBLE NOTE
AMENDMENT TO THIRD AMENDED AND RESTATED 4% CONVERTIBLE NOTE, is dated as of February 21, 2007; made by and between Delta Mutual, Inc., a Delaware corporation, with its principal offices located at 111 North Branch Street, Sellersville, PA 18960 (the "Borrower") and T&T Vermoegensverwaltungs AG, as lawful transferee, of Bahnhofstrasse 73, 8001 Zurich, Switzerland (the "Holder"). Capitalized terms used herein and not otherwise defined herein shall have the meaning assigned to such term in the Original Note.
WHEREAS, the Borrower and the Holder are parties to that certain Third Amended and Restated 4% Convertible Note, dated May 12, 2004, as amended (the "Original Note"), pursuant to which the Borrower has borrowed the amount of $100,000 from the Holder;
WHEREAS, the Original Note provides that the Maturity Date shall be
February 28, 2007; and WHEREAS, the Borrower and the Holder have agreed
to extend the Maturity
Date and to amend Section 1.6 of the Original Note in order to provide the
Borrower with additional time to secure financing; and
WHEREAS, in accordance with the terms and conditions of the Original Note, the Borrower and the Holder hereby approve the amendment of the Original Note as set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants contained herein, the parties agree as follows:
1. By their respective execution of this AMENDMENT, the Borrower and the Holder agree that Section 1.6 of the Original Note is hereby amended to read in its entirety as follows: "Maturity Date" shall mean February 28, 2008.
2. Except as expressly provided herein, the Original Note shall continue in full force and effect.
3. This AMENDMENT may be executed by facsimile and in counterparts, which, taken together, shall be deemed an original and shall constitute a single AMENDMENT.
4. IN WITNESS WHEREOF, the Borrower and the Holder have caused this AMENDMENT to be executed as of the date first written above.
-SIGNATURE PAGE FOLLOWS-
DELTA MUTUAL, INC. T&T VERMOEGENSVERWALTUNGS AG
(BORROWER) (HOLDER)
By: /s/ Peter F. Russo By: /s/ I. Angelastri
--------------------------- ---------------------------
Peter F. Russo
|
President & CEO Name: Ivano Angelastri
Title: Managing Director
EXHIBIT 4.6a
AMENDMENT TO 4% CONVERTIBLE PROMISSORY NOTE
AMENDMENT, dated as of May 2, 2006, TO 4% CONVERTIBLE PROMISSORY NOTE, dated May 12, 2004, made by and between Delta Mutual, Inc., a Delaware corporation, with its principal offices located at 111 North Branch Street, Sellersville, PA 18960 (the "Borrower") and Neil Berman, an individual, of 21346 St. Andrews Boulevard, # 421, Boca Raton, FL 33433 (the "Holder"). Capitalized terms used herein and not otherwise defined herein shall have the meaning assigned to such term in the Original Note.
WHEREAS, the Borrower and the Holder are parties to that certain 4% Convertible Promissory Note, dated May 12, 2004 (the "Original Note") pursuant to which the Borrower has borrowed the amount of $193,740 from the Holder;
WHEREAS, the Original Note provides that the Maturity Date shall be May 12, 2006; and
WHEREAS, the Borrower and the Holder have agreed to extend the Maturity Date and to amend Section 1.6 of the Original Note in order to provide the Borrower with additional time to secure financing; and
WHEREAS, in accordance with the terms and conditions of the Original Note, the Borrower and the Holder hereby approve the amendment of the Original Note as set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants contained herein, the parties agree as follows:
1. By their respective execution of this AMENDMENT, the Borrower and the Holder agree that Section 1.6 of the Original Note is hereby amended to read in its entirety as follows: "Maturity Date" shall mean July 12, 2006.
2. Except as expressly provided herein, the Original Note shall continue in full force and effect.
3. This AMENDMENT may be executed by facsimile and in counterparts, which, taken together, shall be deemed an original and shall constitute a single AMENDMENT.
SIGNATURE PAGE FOLLOWS
IN WITNESS WHEREOF, the Borrower and the Holder have executed this Amendment as of the date first written above.
DELTA MUTUAL INC. NEIL BERMAN (HOLDER)
By: /s/ Peter F. Russo By: /s/ Neil Berman
-------------------- -----------------
Peter F. Russo Neil Berman
President & CEO
|
EXHIBIT 4.6b
SECOND AMENDMENT TO
4% CONVERTIBLE PROMISSORY NOTE
SECOND AMENDMENT, dated as of July 6, 2006, TO 4% CONVERTIBLE PROMISSORY NOTE, dated May 12, 2004, made by and between Delta Mutual, Inc., a Delaware corporation, with its principal offices located at 111 North Branch Street, Sellersville, PA 18960 (the "Borrower") and Neil Berman, an individual, of 21346 St. Andrews Boulevard, # 421, Boca Raton, FL 33433 (the "Holder"). Capitalized terms used herein and not otherwise defined herein shall have the meaning assigned to such term in the Original Note.
WHEREAS, the Borrower and the Holder are parties to that certain 4% Convertible Promissory Note, dated May 12, 2004, as amended, (the "Original Note") pursuant to which the Borrower has borrowed the amount of $193,740 from the Holder;
WHEREAS, the Original Note provides that the Maturity Date shall be July 12, 2006; and
WHEREAS, the Borrower and the Holder have agreed to extend the Maturity Date and to amend Section 1.6 of the Original Note in order to provide the Borrower with additional time to secure financing; and
WHEREAS, in accordance with the terms and conditions of the Original Note, the Borrower and the Holder hereby approve the amendment of the Original Note as set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants contained herein, the parties agree as follows:
1. By their respective execution of this AMENDMENT, the Borrower and the Holder agree that Section 1.6 of the Original Note is hereby amended to read in its entirety as follows: "Maturity Date" shall mean September 12, 2006.
2. Except as expressly provided herein, the Original Note shall continue in full force and effect.
3. This THIRD AMENDMENT supercedes any and all prior written or oral agreements with respect to the Original Note, and may be executed by facsimile and in counterparts, which, taken together, shall be deemed an original and shall constitute a single AMENDMENT.
SIGNATURE PAGE FOLLOWS
IN WITNESS WHEREOF, the Borrower and the Holder have executed this Third Amendment as of the date first written above.
DELTA MUTUAL INC. NEIL BERMAN
(BORROWER) (HOLDER)
By: /s/ Peter F. Russo By: /s/ Neil Berman
------------------------- ---------------------
Peter F. Russo Neil Berman
President & CEO
|
EXHIBIT 4.6c
THIRD AMENDMENT TO
4% CONVERTIBLE PROMISSORY NOTE
THIRD AMENDMENT, dated as of September 8, 2006, TO 4% CONVERTIBLE PROMISSORY NOTE, dated May 12, 2004, made by and between Delta Mutual, Inc., a Delaware corporation, with its principal offices located at 111 North Branch Street, Sellersville, PA 18960 (the "Borrower") and Neil Berman, an individual, of 21346 St. Andrews Boulevard, # 421, Boca Raton, FL 33433 (the "Holder"). Capitalized terms used herein and not otherwise defined herein shall have the meaning assigned to such term in the Original Note.
WHEREAS, the Borrower and the Holder are parties to that certain 4% Convertible Promissory Note, dated May 12, 2004, as amended, (the "Original Note") pursuant to which the Borrower has borrowed the amount of $193,740 from the Holder;
WHEREAS, the Original Note provides that the Maturity Date shall be September 12, 2006; and
WHEREAS, the Borrower and the Holder have agreed to extend the Maturity Date and to amend Section 1.6 of the Original Note in order to provide the Borrower with additional time to secure financing; and
WHEREAS, in accordance with the terms and conditions of the Original Note, the Borrower and the Holder hereby approve the amendment of the Original Note as set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants contained herein, the parties agree as follows:
1. By their respective execution of this AMENDMENT, the Borrower and the Holder agree that Section 1.6 of the Original Note is hereby amended to read in its entirety as follows: "Maturity Date" shall mean November 28, 2006.
2. Except as expressly provided herein, the Original Note shall continue in full force and effect.
3. This THIRD AMENDMENT supercedes any and all prior written or oral agreements with respect to the Original Note, and may be executed by facsimile and in counterparts, which, taken together, shall be deemed an original and shall constitute a single AMENDMENT.
SIGNATURE PAGE FOLLOWS
IN WITNESS WHEREOF, the Borrower and the Holder have executed this Third Amendment as of the date first written above.
DELTA MUTUAL INC. NEIL BERMAN
(BORROWER) (HOLDER)
By: /s/ Peter F. Russo By: /s/ Neil Berman
-------------------------- -----------------
Peter F. Russo Neil Berman
President & CEO
|
EXHIBIT 4.6d
FOURTH AMENDMENT TO
4% CONVERTIBLE PROMISSORY NOTE
FOURTH AMENDMENT, dated as of November 21, 2006, TO 4% CONVERTIBLE PROMISSORY NOTE, dated May 12, 2004, made by and between Delta Mutual, Inc., a Delaware corporation, with its principal offices located at 111 North Branch Street, Sellersville, PA 18960 (the "Borrower") and Neil Berman, an individual, of 21346 St. Andrews Boulevard, # 421, Boca Raton, FL 33433 (the "Holder"). Capitalized terms used herein and not otherwise defined herein shall have the meaning assigned to such term in the Original Note.
WHEREAS, the Borrower and the Holder are parties to that certain 4% Convertible Promissory Note, dated May 12, 2004, as amended, (the "Original Note") pursuant to which the Borrower has borrowed the amount of $193,740 from the Holder;
WHEREAS, the Original Note provides that the Maturity Date shall be November 28, 2006; and
WHEREAS, the Borrower and the Holder have agreed to extend the Maturity Date and to amend Section 1.6 of the Original Note in order to provide the Borrower with additional time to secure financing; and
WHEREAS, in accordance with the terms and conditions of the Original Note, the Borrower and the Holder hereby approve the amendment of the Original Note as set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants contained herein, the parties agree as follows:
1. By their respective execution of this AMENDMENT, the Borrower and the Holder agree that Section 1.6 of the Original Note is hereby amended to read in its entirety as follows: "Maturity Date" shall mean April 10, 2007.
2. Except as expressly provided herein, the Original Note shall continue in full force and effect.
3. This FOURTH AMENDMENT supercedes any and all prior written or oral agreements with respect to the Original Note, and may be executed by facsimile and in counterparts, which, taken together, shall be deemed an original and shall constitute a single AMENDMENT.
SIGNATURE PAGE FOLLOWS
IN WITNESS WHEREOF, the Borrower and the Holder have executed this Fourth Amendment as of the date first written above.
DELTA MUTUAL INC. NEIL BERMAN
(BORROWER) (HOLDER)
By: /s/ Peter F. Russo By: /s/ Neil Berman
------------------------- ------------------------
Peter F. Russo Neil Berman
President & CEO
|
EXHIBIT 10.33d
FOURTH AMENDMENT TO 8% TERM NOTE
FOURTH AMENDMENT, dated as of June 2, 2006, TO 8% TERM NOTE, dated April 5, 2005, as amended on September 30 and December 19, 2005, and March 20, 2006, made by and between Delta Mutual, Inc., a Delaware corporation, with its principal offices located at 111 North Branch Street, Sellersville, PA 18960 (the "Borrower") and ____________________, (the "Lender"). Capitalized terms used herein and not otherwise defined herein shall have the meaning assigned to such term in the Original Note.
WHEREAS, the Borrower and the Lender are parties to that certain 8% Term Note, dated April 5, 2005, as amended on September 30 and December 19, 2005, and March 20, 2006, (the "Original Note") pursuant to which the Borrower has borrowed the amount of $__________ from the Lender;
WHEREAS, the Original Note provides that the Maturity Date shall be June 5, 2006; and
WHEREAS, the Borrower and the Lender have agreed to further amend the Original Note to make payment due upon demand by the Lender; and
WHEREAS, in accordance with the terms and conditions of the Original Note, the Borrower and the Lender hereby approve the amendment of the Original Note as set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants contained herein, the parties agree as follows:
1. By their respective execution of this Fourth Amendment, the Borrower and the Lender agree that:
(a) the initial paragraph of the Original Note is hereby amended to read in its entirety as follows: "FOR VALUE RECEIVED, DELTA MUTUAL INC., a Delaware corporation (the "Company"), with offices at 111 North Branch Street, Sellersville, PA 18960, promises to pay ____________________, (the "Lender"), _________on demand, in lawful money of the United States of America, the principal sum of ___________________________, together with interest from the date of this Note on the unpaid principal balance at a rate equal to eight percent (8%) 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 unpaid and accrued interest, shall be due and payable at any after the earlier of receipt by the Company of written demand for payment by the Lender, or (ii) when, upon or after the occurrence of an Event of Default (as defined below), such amounts are declared due and payable by Lender or made automatically due and payable in accordance with the terms hereof."
(b) Subparagraph 1.4 is hereby amended to read in its entirety as follows: "`Maturity Date" shall mean the date on which demand for payment in writing from Lender is received by the Company."
2. Except as expressly provided herein, the Original Note shall continue in full force and effect.
3. This Fourth Amendment may be executed by facsimile and in counterparts which taken together, shall be deemed an original and shall constitute a single agreement.
IN WITNESS WHEREOF, the Borrower and the Lender have executed this Fourth Amendment as of the date first written above.
DELTA MUTUAL INC.
By: By:
----------------------- ---------------------------
Peter F. Russo
President & CEO
|
EXHIBIT 10.34
PLACEMENT AGENT AGREEMENT
This Placement Agent Agreement (the "Agreement") dated June 6, 2006, is made by and between Delta Mutual, Inc., a corporation organized under the laws of the State of Delaware, having its principal office located at 111 North Branch Street, Sellersville, PA 18960, ("Delta"), and SDM Consultant Corporation having its principal address at 1418 - 65th Street, Brooklyn, NY 11219 ("Agent").
WHEREAS, Delta desires to appoint a placement agent to place up to One Million Dollars ($1,000,000) of its restricted common stock at a minimum offering price of $ 0.05 per share, and
WHEREAS, Agent agrees to act as a placement agent for Delta's restricted common stock as described herein, subject to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual promises made by the parties to each other, it is agreed as follows:
1. DURATION. This Agreement will commence on June 6, 2006 and terminate on December 31, 2006 unless extended by mutual written agreement of the parties.
2. COMMISSION. Agent will receive a commission of ten percent (10%) of the gross proceeds of stock sales arranged by Agent that are accepted by Delta. Delta agrees that Agent, at its sole option, may deduct any cash compensation due it under this section of the Agreement from the gross proceeds due to Delta from the placement of private equity in accordance with this Agreement. In addition to the foregoing, Agent will receive shares of restricted common stock of Delta equal to five percent (5%) of the aggregate number of restricted common stock sold by the Delta to purchasers arranged by Agent.
3. SHARE SUBSCRIPTIONS. All shares of Delta's common stock sold must be in accordance with a Share Subscription that meets the criteria and qualifications established by Delta, in its sole discretion. Delta, in its sole discretion, may reject any subscription to purchase from any purchaser(s) arranged by Agent and, in such event, will have no obligation whatsoever to compensate Agent (as described in Section 2. above) for any subscriptions to purchase rejected by Delta.
4. AGENT'S EXPENSES. All expenses for travel, office, or general expenses of any kind related to the efforts of Agent with respect to this Agreement, shall be borne entirely by Agent. Delta will not be responsible or liable for such expenses.
5. INDEPENDENT CONTRACTOR. Agent agrees that it is an independent contractor and is not an employee of Delta and Agent will not hold itself out as such or as an agent or employee. Agent has no authority or responsibility to enter into any contracts on behalf of Delta.
6. CONFIDENTIAL INFORMATION. During the course of the performance of the services contemplated by this Agreement, Agent may have access to, have disclosed to it, or otherwise obtain information which Delta identifies in writing or through labeling as being of a confidential and/or a proprietary nature to it (the "Confidential Information"). Agent shall use such Confidential Information solely in performance of its obligations under this Agreement and shall not disclose or divulge it to, or use for the benefit of, any third parties without Delta's written consent. Information shall not be deemed as confidential if such information is: i) already known to Agent free of any restrictions at the time it is obtained; ii) subsequently learned from an independent third party free of any restriction; or iii) available publicly.
7. BEST EFFORTS. Delta understands that Agent shall utilize its best efforts in providing the Services set forth in Section 2. Delta fully understands that Agent does not and cannot promise that any specific result will be achieved through engagement of Agent.
8. GOVERNING LAW. The parties agree that the enforcement of this Agreement will be governed by the laws of the State of Delaware.
9. CONTENTS OF AGREEMENT; AMENDMENTS. No amendments or modifications shall be binding upon either party unless made in writing and signed by both parties.
10.OTHER. This Agreement may be executed by facsimile and in counterparts which, taken together, shall be deemed an original and shall constitute a single Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the date and year first written above.
SDM Consultant Corporation Delta Mutual, Inc.
(AGENT) (DELTA)
BY: /s/ Mayer Unger BY: /s/ Peter F. Russo
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Peter F. Russo
President & CEO
Name: Mayer Unger
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Title: President
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EXHIBIT 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES OXLEY ACT OF 2002.
I, Peter F. Russo, certify that:
1. I have reviewed this annual report on Form 10-KSB of Delta Mutual, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a 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 small business issuer as of, and for, the periods presented in this report;
4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the small business issuer 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 small business issuer, 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 small business issuer'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 small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and
5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer'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 are reasonably likely to adversely affect the small business issuer'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 small business issuer's internal control over financial reporting;
DATE: March 30, 2007 /s/ Peter F. Russo
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Peter F. Russo
President and Chief Executive Officer
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EXHIBIT 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES OXLEY ACT OF 2002.
I, Martin G. Chilek, certify that:
1. I have reviewed this annual report on Form 10-KSB of Delta Mutual, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a 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 small business issuer as of, and for, the periods presented in this report;
4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the small business issuer 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 small business issuer, 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;
e. evaluated the effectiveness of the small business issuer'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
f. disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and
5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer'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 are reasonably likely to adversely affect the small business issuer'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 small business issuer's internal control over financial reporting;
DATE: March 30, 2007 /s/ Martin G. Chilek
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Martin G. Chilek, Chief Financial Officer
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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 Annual Report of Delta Mutual, Inc. (the "Company") on Form 10-KSB for the period ended December 31, 2006 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
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Peter F. Russo
President and Chief Executive Officer
March 30, 2007
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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 Annual Report of Delta Mutual, Inc. (the "Company") on Form 10-KSB for the period ended December 31, 2006 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
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Martin G. Chilek
Chief Financial Officer
March 30, 2007
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