DELTA MUTUAL INC (Form: 10QSB, Received: 07/03/2008 16:44:50)

SECURITIES AND EXCHANGE COMMISSION

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

For the quarterly period ended March 31, 2008

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

For the transition period from ____________ to _________________

Commission File Number 000-30563

(Exact name of registrant as specified in its charter)

DELAWARE	14-1818394

(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

111 NORTH BRANCH STREET, SELLERSVILLE, PA 18960

(Address and telephone number, including area code, of

registrant's principal executive office)

(Former name, former address and former fiscal year, if changed

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a smaller reporting company. (Check One):

Large accelerated filer o Accelerated filer o

Non-accelerated filer o Smaller reporting company x

(Do not check if a smaller reporting company)

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

The number of shares outstanding the issuer's common stock, par value $.0001 per share, was 221,849,158 as of June 30, 2008.

	Page

Part I. Financial Information	3

Item 1. Financial Statements	3

Consolidated Balance Sheet as of March 31, 2008 (unaudited) and as of December 31, 2007	3

Consolidated Statements of Operations for the Three Months Ended March 31, 2008 and 2007 (unaudited)	4

Consolidated Statement of Stockholders' Equity (unaudited)	5

Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2008 and 2007 (unaudited)	6-7

Notes to Unaudited Consolidated Financial Statements	8-23

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	24

Item 3. Quantitative and Qualitative Disclosures About Market Risk	27

Item 4T.Controls and Procedures.	27

Part II. Other Information	27

Item 1A. Risk Factors.	28

Item 5. Other Information.	29

Item 6. Exhibits.	30

Signatures	31

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Certain information and footnote disclosures required under accounting principles generally accepted in the United States of America have been condensed or omitted from the following consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission. It is suggested that the following consolidated financial statements be read in conjunction with the year-end consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-KSB for the year

ended December 31, 2007.

The results of operations for the three months ended March 31, 2008 and 2007 are not necessarily indicative of the results for the entire fiscal year or for any other period.

DELTA MUTUAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

	March 31,			December 31,
	2008			2007
	(Unaudited)
ASSETS

Current Assets:
Cash	$	12,697		$	57,633
Investments		2,409,596			4,709,020
Prepaid expenses		1,914			1,914
Total Current Assets		2,424,207			4,768,567

Property and equipment - net		356,915			368,123
Intangible asset		124,529			126,317
Investments in oil and gas concessions		2,300,000			2,300,000
Other assets		650			650

TOTAL ASSETS	$	5,206,301		$	7,563,657

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
Accounts payable	$	163,184		$	412,922
Accrued expenses		1,283,682			1,225,674
Convertible debt		397,340			397,340
Notes payable		2,601,655			2,540,655
Total Current Liabilities		4,445,861			4,576,591

Minority interest in consolidated subsidiaries		225,576			225,797

Stockholders' Equity:
Common stock $0.0001 par value - authorized 250,000,000 shares: 218,882,953 and 208,882,953 outstanding, respectively		21,888			20,888
Additional paid-in-capital		12,349,511			11,953,766
Accumulated deficit		(11,836,535	)		(9,213,385	)
Total Stockholders' Equity		534,864			2,761,269

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	5,206,301		$	7,563,657

See Notes to Unaudited Consolidated Financial Statements

DELTA MUTUAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

	Three Months Ended March 31,
	2008			2007

Investment results	$	(2,060,953	)	$	(483,523	)

General and administrative expenses		601,678			540,323
Valuation results		22			-
		601,700			540,323

Loss from operations		(2,662,653	)		(1,023,846	)

Interest expense		32,209			(6,983	)

Loss before minority interest		(2,630,444	)		(1,030,829	)

Minority interest share of income (loss) of consolidated subsidiaries		7,295			(37,053	)

Loss before benefit from income taxes		(2,623,149	)		(1,067,882	)

Benefit from income taxes		-			-

Net loss	$	(2,623,149	)	$	(1,067,882	)

Loss per common share- basic and diluted	$	(0.01	)	$	(0.01	)

Weighted average number of common shares outstanding- basic and diluted		211,994,064			192,185,922

See Notes to Unaudited Consolidated Financial Statements

DELTA MUTUAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

(Unaudited)


	Number of												Deferred
	Common		Common		Paid in		Accumulated			Subscription			Stock
	Shares		Stock		Capital		Deficit			Receivable			Purchase			Total

Balance, January 1, 2007		192,161,246	$	19,216	$	10,321,138	$	(5,883,087	)	$	(10,000	)	$	266,000		$	4,713,267

Issuance of common stock for interest expense
(valued at $0.06 - $0.125 per share)		135,040		13		15,307		-			-			-			15,320

Issuance of common stock for convertible debt
(valued at $0.05 - $0.125 per share)		16,586,667		1,659		830,341		-			-			-			832,000

Conversion to convertible notes		-		-		-		-			-			(266,000	)		(266,000	)

Receipt of subscribed stock											10,000						10,000

Stock based compensation expense		-		-		786,980		-			-			-			786,980

Net (loss)		-		-		-		(3,330,298	)		-			-			(3,330,298	)

Balance, December 31, 2007		208,882,953		20,888		11,953,766		(9,213,385	)		-			-			2,761,269

Issuance of common stock for services
(valued at $0.02 per share)		10,000,000		1,000		199,000		-			-			-			200,000

Stock based compensation expense		-		-		196,745		-			-			-			196,745

Net (loss)		-		-		-		(2,623,149	)		-			-			(2,623,149	)

Balance, March 31, 2008		218,882,953	$	21,888	$	12,349,511	$	(11,836,534	)		-			-		$	534,864

See Notes to Unaudited Consolidated Financial Statements

DELTA MUTUAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Three Months Ended March 31,
	2008			2007
Cash flows from operating activities:

Net loss	$	(2,623,149	)	$	(1,067,882	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		12,996			13,121
Non-cash compensation		200,000			13,880
Compensatory element of option issuance		196,745			196,745
Minority interest in income (losses) of consolidated subsidiaries		(7,295	)		37,053
Changes in operating assets and liabilities		(191,730	)		107,031
Net cash used in operating activities		(2,412,433	)		(700,052	)

Cash flows from investing activities:
Deposit on land		-			(25,000	)
Decrease in investments		2,299,424			480,299
Refund of land deposit		-			35,500
Net cash provided by investing activities		2,299,424			490,799

Cash flows from financing activities:
Proceeds from loans		121,000			-
Proceeds from convertible debt financing		-			17,000
Repayment of loan		(60,000	)		-
Payments to minority interests		-			(5,000	)
Proceeds from minority interest		7,073			20,880

Net cash provided by financing activities		68,073			32,880

Net decrease in cash		(44,936	)		(176,373	)
Cash - Beginning of period		57,633			211,147
Cash - End of period	$	12,697		$	34,774

See Notes to Unaudited Consolidated Financial Statements

DELTA MUTUAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Three Months Ended March 31,
	2008			2007
Supplementary information:
Cash paid during year for:
Interest	$	-		$	-
Income taxes	$	-		$	-

Changes in operating assets and liabilities consists of:
Decrease in prepaid expenses		-			47,250
(Increase) decrease in accrued expenses		(191,730	)		59,781
	$	(191,730	)	$	107,031
Non-cash financing activities:

Issuance of convertible notes for deferred stock purchase	$	-		$	283,000

Issuance of common stock in lieu of payment of accrued expenses	$	-		$	13,880

Issuance of common stock for services	$	200,000		$	-

See Notes to Unaudited Consolidated Financial Statements

DELTA MUTUAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

For the Three Months Ended March 31, 2008 and 2007

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

Delta Mutual, Inc. and subsidiaries (“Delta” or the “Company”) was incorporated in Delaware on November 17, 1999. Since 2003, when the current management joined the Company, its principal business activities have focused on providing environmental and construction technologies and services to certain geographic reporting segments in the Far East, Middle East and the United States.

On March 4, 2008, the Company entered into a Membership Interest Purchase Agreement (the “Agreement”) with Egani, Inc., an Arizona corporation (“Egani”). Pursuant to the Agreement, the Company acquired from Egani 100% of the issued and outstanding membership interests held by Egani in Altony S.A., an Uruguay Sociedad Anonima (“Altony”), which owns 100% of the issued and outstanding membership interests in South American Hedge Fund LLC, a Delaware limited liability company (“SAHF”). At the closing of the Agreement, the Company issued 130,000,000 shares of its common stock to Egani, for the purchase of all of the outstanding membership interests in Altony which constituted, following such issuance, a majority of the outstanding shares of the Company’s common stock.

Immediately following the closing of the Agreement, Altony became a wholly owned subsidiary of the Company. For accounting purposes only, the transaction was treated as a recapitalization of the Company with Altony as the acquirer. The financial statements prior to March 4, 2008 are those of Altony and reflect the assets and liabilities of Altony at historical carrying amounts. The financial statements show a retroactive restatement of Altony’s historical stockholders’ equity to reflect the equivalent number of shares issued to the subsidiary.

The principal business activity of Altony is the ownership and management of its SAHF subsidiary. SAHF has initially focused on oil and gas investments in Argentina and intends to continue its focus on the energy sector, including the development and supply of energy and alternate energy sources in Latin America and the United States.

In August 2007, SAHF signed a purchase option for a partial interest in three oil and gas concessions in Argentina. SAHF is in the process of obtaining the necessary government and environmental permits to operate these concessions.

The Company intends to continue its environmental and construction technology and service activities. Its environmental activities are conducted by its joint venture subsidiary Delta-Envirotech, Inc. (“Envirotech”), headquartered in Virginia. The construction technology activities are conducted by the Company’s wholly owned subsidiary Delta Technologies, Inc. (“Technologies”) that holds intellectual property rights and has filed a patent for a new insulating concrete wall forming (ICF) system now known as Delta Wall .

Page 8

BASIS OF PRESENTATION

The consolidated balance sheet as of March 31, 2008, and the consolidated statements of operations and cash flows for the periods presented herein have been prepared by the Company and are unaudited. In the opinion of management, all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly, the financial position, results of operations and cash flows for all periods presented have been made. The information for the consolidated balance sheet as of December 31, 2007 was derived from audited financial statements.

The consolidated financial statements for the period ended March 31, 2008 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 Company’s subsidiaries will be profitable. These uncertainties raise substantial doubt about the ability of the Company to continue as a going concern. The accompanying financial statements do not include any adjustments that might result from the outcome of these uncertainties should the Company be unable to continue as a going concern.

SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

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

Page 9

USE OF ESTIMATES

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

LOSS PER SHARE

Basic and diluted loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding during the year. Potential common shares are excluded from the loss per share calculation because the effect would be antidilutive. Potential common shares relate to the convertible debt, stock options and common stock purchase warrants. As of March 31, 2008 and 2007, there were 4,421,920 and 9,476,587 potential common shares related to convertible debt, respectively, and 7,978,000 and 6,998,000 potential common shares related to stock options, respectively.

REVENUE RECOGNITION

The Company recognizes revenue from the results of its investment portfolio as the difference between proceeds from the sale of securities and their acquisition cost, less commissions paid to the firm that conducts the securities transactions.

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.

Page 10

STOCK-BASED COMPENSATION

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

INCOME TAXES

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

FOREIGN CURRENCY TRANSLATION

The functional currency for some foreign operations is the local currency. Assets and liabilities of foreign operations are translated at balance sheet date rates of exchange and income, expense and cash flow items are translated at the average exchange rate for the period. Translation adjustments in future periods will be recorded in Cumulative Other Comprehensive Income. The translation gains or losses were not material for the three months ended March 31, 2008 and 2007.

INTANGIBLES

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

FAIR VALUE OF FINANCIAL INSTRUMENTS

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

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NEW FINANCIAL ACCOUNTING STANDARDS

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. The adoption of SFAS 159 on January 1, 2008 did not impact the Company’s consolidated financial statements.

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

In December 2007, the FASB issued SFAS No.160 “Non-Controlling Interests in Consolidated Financial Statements – An Amendment of ARB No. 151” (“SFAS 160”). SFAS 160 established new accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. Specifically, this Statement requires the recognition of non-controlling interests (minority interests) as equity in the consolidated financial statements and separate from parent’s equity. The amount of net income attributable to the non-controlling interest will be included in consolidated net income on the face of the income statement. SFAS 160 clarifies that changes in a parent’s ownership in a subsidiary that does not result in deconsolidation, are equity transactions if the parent retains its controlling financial interest. In addition, this Statement requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. Such gain or loss will be measured using the fair value of the non-controlling equity investment as of the deconsolidation date. SFAS 160 also includes expanded disclosure requirements regarding the interest of the parent and its non-controlling interest. SFAS 160 is effective for fiscal years, and interim periods other than fiscal years, beginning on or after December 2008. The Company will adopt SFAS No. 160 on January 1, 2009, as required, and is currently evaluating the impact of the adoption of this Statement on its financial statements.

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In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities,” an amendment of FASB Statement No. 133 (“SFAS No. 161”). The new standard is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance and cash flows. It is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company does not believe that SFAS No. 161 will have a material impact on its financial statements.

2. INVESTMENTS

The Company has investments in public and private securities of the United States and Latin American countries as well as long-term investments in oil and gas concessions. The fair market value of these investments at March 31, 2008 and December 31, 2007 is indicated below.

	March 31,		December 31,
	2008		2007

Public securities	$	—	$	322,300
Private securities		2,409,596		4,386,720
Current investments		2,409,596		4,709,020

Investments in oil and gas concessions		2,300,000		2,300,000

3. PROPERTY AND EQUIPMENT

	March 31,		December 31,
	2008		2007

Equipment	$	455,035	$	455,035
Deposits on land		—		—
Leasehold improvements		7,807		7,807
		462,842		462,842
Less accumulated depreciation		105,927		94,719
	$	356,915	$	368,123

Page 13

Depreciation expense for the three months ended March 31, 2008 and 2007, amounted to $11,208 and $11,333, respectively.

4. INTANGIBLE ASSETS

Intangible assets are intellectual property included in a patent application. If the patent is not issued, the Company will write-off the unamortized amounts immediately. Amortization expense was $1,788 and $1,788 for the three months ended March 31, 2008 and 2007, respectively. Other intangible assets consist of the following:

	March 31,		December 31,
	2008		2007

Gross Carrying Amount	$	143,000	$	143,000
Accumulated Amortization		18,471		16,683
Intellectual property costs	$	124,529	$	126,317

Estimated amortization expense for intangible assets for the next five years is as follows:

Estimated
Year Ending	Amortization
December 31,	Expense
2008		5,364
2009		7,150
2010		7,150
2011		7,150
2012		7,150

2008 represents amortization from April 1, through December 31, 2008.

5. INVESTMENT IN JOINT VENTURES

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

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

Page 14

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

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

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

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

c.	Minority interests primarily consist of outside investors ownership interest in Delta Development Partners, L.P.; Delta Development Partners II, L.P.; Delta TA, LP; Delta Developers Corp.; Delta Developers Guayanilla Corp.; Delta-Envirotech, Inc. and PT Triyudha– Envirotech.

The income and losses from operations of these entities and their respective minority interests have been reflected in the Company's statement of operations for the three months ended March 31, 2008 and 2007. There are excess losses not absorbed by the minority interests due to limitations of their capital contributions. In future periods, the profits first attributable to the minority interests will be first absorbed against any unused losses until the losses are fully absorbed. The amount on the Company's consolidated balance sheet represents the minority interests as of March 31, 2008 and December 31, 2007.

Page 15

The following represents a schedule of minority interests as of:

	March 31,		December 31,
	2008		2007
Delta Development Partners L.P.	$	81,966	$	82,087
Delta Development Partners II, L.P.		36,739		36,808
Delta TA L.P.		106,871		106,902
Delta Developers Corp.		—		—
Delta Developers Guayanilla Corp.		—		—
Delta-Envirotech, Inc.		—		—
PT Triyudha - Envirotech		—		—

	$	225,576	$	225,797

6. NOTES PAYABLE

In April 2005, the Company issued three 8% term notes to private investors in the amount of $210,655, with the principal and interest due at maturity on October 2, 2005. Pursuant to note modification agreements, the maturity dates of these notes were extended and in June 2006 these notes became payable on written demand by the lenders. In March 2008, the Company paid $60,000 of the principal amount of the original notes and each of the three notes was amended and restated. By amendment, the noteholders waived all of the accrued and unpaid interest on the original notes and the aggregate principal amount was reduced to $150,655. The amended and restated notes bear interest of 8% and mature in November 2008. Interest expense for the three months ended March 31, 2008 and 2007 amounted to $(36,856) and $4,213, respectively. As of March 31, 2008 and December 31, 2007, accrued interest of $1,004 and $37,860, respectively, is included in accrued expenses on the Company's consolidated balance sheet.

In May 2006, the Company borrowed $30,000 from an investor (formerly a related party) at interest of 6% per annum with the principal and interest due on May 17, 2008. In May 2008, the note was amended extending the maturity date to August 2008. Interest expense for the three months ended March 31, 2008 and 2007 amounted to $450 and $450, respectively. As of March 31, 2008 and December 31, 2007 accrued interest of $3,372 and $2,922, respectively, is included in accrued expenses on the Company's consolidated balance sheet.

In August 2007, the SAHF borrowed $2,300,000 from Oxipetrol-Petroleros de Ocidente, S.A. in conjunction with its investment in oil and gas concessions. This is a non interest-bearing loan that matures on July 15, 2008. The principal amount of $2,300,000 is included in Notes payable on the Company’s consolidate balance sheet at March 31, 2008 and December 31, 2007.

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7. CONVERTIBLE DEBT

During the year ended December 31, 2004, the Company issued convertible notes in the principal amounts of $961,400. The convertible notes had interest rates from 4% to 6% and matured at various dates between May 12, 2006 and January 16, 2007. These notes are convertible into common stock at a conversion price of $0.05 to $0.125 per share. One note, in the original principal amount of $129,160 that originally matured in May 2006 was amended during 2006 and 2007 extending the maturity date until June 2008. After partial conversion of the principal amount of this note in July 2006, and the payment of accrued interest in March 2007, the remaining principal amount and all accrued interest was converted into 1,491,886 shares of common stock in April 2008. Another note, in the principal amount of $193,740 that originally matured in May 2006 was amended during 2006 and 2007 extending the maturity date to December 1, 2007. The Company did not repay the note on the maturity date but the holder of this note has verbally agreed not to make written demand for payment. The Company is currently negotiating amended terms with the noteholder. If the Company and the noteholder can not agree upon an amendment to the note, including an extension of the maturity date, the Company may receive a notice of default. One note issued by the Company in the principal amount of $60,000, became payable upon written demand by the lender in September 2006. The balance of the convertible notes issued in 2004 was converted into 12,923,280 shares of common stock through March 31, 2008.

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

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

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

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During the first quarter of 2007, the Company issued a convertible note to a related party in the principal amount of $17,000, and a convertible note to an investor in the principal amount of $266,000. Both notes bear interest of 6% per annum and are convertible into common stock at a conversion price of $0.05 per share, the fair value at the date of issuance. Both notes matured in April 2008. In conjunction with the issuance of these two notes, the Company reclassified $266,000 recorded as deferred stock purchase, on its consolidated balance sheet as of December 31, 2006, to convertible notes at March 31, 2007. On October 30, 2007, the holder of the $266,000 note converted the principal amount of the note into 5,320,000 shares of common stock and waived all accrued interest. In April 2008, the Company issued 340,000 shares of common stock in payment of the principal amount of the $17,000 note and issued 20,400 shares of common stock in payment of the accrued interest of $1,020.

In April 2007, the Company issued a convertible note to a related party in the principal amount of $26,600 bearing interest of 6% per annum and convertible into common stock at the conversion price of $0.05 per share, the fair value at the date of issuance, with a maturity date of April 9, 2008. On the maturity date, the Company issued 532,000 shares of common stock in payment of the principal amount and 31,920 shares of common stock in payment of the accrued interest of $1,596.

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

At March 31, 2008, the Company's outstanding convertible notes were convertible into 4,421,920 shares of common stock.

The following table shows the maturities by year of total face amount of the convertible debt obligations at March 31, 2008:

2008		$	397,340
		$	397,340

For the three months ended March 31, 2008 and 2007, the Company recorded interest expense of $3,591 and $3,219, respectively. As of March 31, 2008 and December 31, 2007, accrued interest of $43,249 and $22,931; respectively, is included in accrued expenses on the Company's consolidated balance sheet.

8. ACCRUED EXPENSES

Accrued expenses consists of the following:

	March 31,		December 31,
	2008		2007
Professional fees	$	49,257	$	34,703
Interest expense		48,230		80,439
Payroll expense		494,661		462,195
Payroll expense-officers		126,061		117,436
Payroll tax expense		38,614		34,742
Accrued consulting fees		144,000		144,000
Other accrued expenses		382,859		352,159
	$	1,283,682	$	1,225,674

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9. LOANS FROM RELATED PARTIES

In March 2008, the Company borrowed $121,000, in the aggregate, from two stockholders of the Company, with interest of 6% per annum and the principal and interest due on September 6, 2008. The balance due to the stockholders is included in Notes Payable on the Company’s consolidated balance sheet at March 31, 2008. Accrued interest of $605 is included in accrued expenses on the Company’s consolidated balance sheet at March 31, 2008.

10. OTHER RELATED PARTY TRANSACTION

The Company's subsidiary, Delta-Envirotech, Inc. ("Envirotech") pays monthly office rent to David Razmara, the president of Envirotech and a stockholder of the Company, in the current amount of $2,000. The rent expense for the three months ended March 31, 2008 and 2007 amounted to $6,000, respectively.

11. STOCKHOLDERS' EQUITY

The Company issues shares of common stock for services and repayment of debt and interest valued at fair market value at time of issuance.

a. For the three months ended March 31, 2008 and 2007, the Company issued -0- and 111,040 shares of common stock, respectively, for payment of accrued interest in the amount of $-0- and $13,880, respectively, valued at $-0- and $0.125 per share.

b. For the three months ended March 31, 2008 and 2007, the Company issued 10,000,000 and -0- shares of common stock, respectively, for services valued at $200,000 and -0-, respectively, valued at $0.02 per share.

12. DISCONTINUED OPERATIONS

As of September 30, 2007, the Company adopted a formal plan to discontinue all its operations in Puerto Rico. As a result of the Company’s decision, the operations of Delta Development Partners, LP; Delta Developers Corp.; Delta Development Partners II, LP; Delta Developers Guayanilla Corp., and Delta TA, LP have been classified as discontinued operations. The assets and liabilities, results of operations, and cash flows of these discontinued operations have been included with the operations of the Company in its consolidated financial statements due to the immaterial nature of the transactions.

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13. BUSINESS SEGMENT INFORMATION

The Company’s reporting business segments are geographic and include the Far East (Indonesia), the Middle East, North America (United States) and South America. The Company formerly operated in a fifth reporting segment, 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:

	Three Months Ended
	March 31,
	2008			2007

Total Revenue:

North America	$	—		$	—
Indonesia		—			—
Middle East		—			—
Puerto Rico		—			—
South America		(2,060,953	)		(483,523	)
	$	(2,060,953	)	$	(483,523	)

Loss from Operations:

North America	$	(554,371	)	$	(515,677	)
Indonesia		(8,988	)		(8,988	)
Middle East		(38,006	)		(5,000	)
Puerto Rico		(313	)		(12,270	)
South America		(2,060,975	)		(488,894	)
	$	(2,662,653	)	$	(1,030,829	)

14. INCOME TAXES

The Company adopted the provisions of Financial Accounting Standards Board Interpretation No. 48 “Accounting for Uncertainties in Income Taxes,” (“FIN 48”) on January 1, 2007. As a result of the implementation of FIN 48, the Company recognized no adjustment in the net liability for unrecognized income tax benefits.

15. 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.

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The Company recognizes the cost of all employee stock options on a straight-line attribution basis over their respective contractual terms, 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.

At March 31, 2008 and 2007, the Company had one share-based compensation plan, which is described below. During the three months ended March 31, 2008 and 2007, the adoption of SFAS No.123(R) resulted in an aggregate pretax compensation expense recognized in net loss for stock based compensation of $196,745 and $196,745, respectively. For the three months ended March 31, 2008 and 2007, the aggregate pretax compensation expense caused basic and diluted earnings per common share to decrease by $-0- and $0.01 per share, respectively.

The Company also issues shares of its common stock to non-employees as stock-based compensation. The Company accounts for the services using the fair market value of the services rendered. For the three months ended March 31, 2008 and 2007, the Company issued 10,000,000 and -0- shares, respectively, and recorded compensation expense of $200,000 and $-0-, respectively, in conjunction with the issuance of these shares.

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 March 31, 2008, there were 3,002,000 shares of common stock 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 the 2001 Plan were expensed at the time of issuance, as the stock issued had no restrictions to the employees.

The Company did not issue any stock options to its employees during the three months ended March 31, 2008 and 2007.

A summary of the option activity under the 2004 Plan as of December 31, 2007 and changes during the three months ended March 31, 2008, is presented below.

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Options	Shares			Weighted-Average Exercise Share Price		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value

Outstanding at January 1, 2008		7,978,000		$	0.11
Options granted		-		$	-
Options exercised		-		$	-
Options cancelled/expired		(980,000	)	$	0.11

Outstanding at March 31, 2008		6,998,000		$	0.11		3.2	$	(419,880	)

Exercisable at March 31, 2008		6,998,000		$	0.11		3.2		—

Stock compensation expense applicable to stock options for the three months ended March 31, 2008 and 2007 was approximately $196,745 and $196,745, respectively. The aggregate intrinsic value of options outstanding as of March 31, 2008 and December 31, 2007 was $(419,880) and $(398,900), respectively.

At March 31, 2008, there was $1,212,525 of total unrecognized compensation cost related to share-based compensation arrangements granted under the 2004 Plan. The cost is expected to be recognized over a weighted average period of 3.2 years.

16. COMMITMENTS AND CONTINGENCIES

Consulting Agreements

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.

For the three moths ended March 31, 2008 and 2007, consulting fees of $13,200 and $13,200, respectively have been expensed and $79,167 and $29,167, respectively, of the stock value associated with the issuance of shares to Straub is included in accrued expenses on the Company's consolidated balance sheet.

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17. SUBSEQUENT EVENTS

In April 2008, the Company issued 924,320 shares of common stock as payment of $43,600 principal amount and accrued interest, pursuant to two convertible notes issued by the Company in April 2007. Also in April 2008, the Company issued 1,491,885 shares of common stock as payment of $100,000 principal amount and accrued interest pursuant to a convertible note issued by the Company in May 2004.

In April 2008, the Company issued 550,000 shares of common stock to a consultant for services valued at $38,500, at a price per share of $0.07.

During the second quarter of 2008, the Company borrowed $46,450, in the aggregate, from two stockholders of the Company pursuant to 6% promissory notes maturing in October and November 2008.

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ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and notes thereto and 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.

We were incorporated in the State of Delaware on November 17, 1999. Since current management joined the Company in 2003, our principal business activities focused on providing environmental and construction technologies and services in the Far East, the Middle East, and the United States.

On March 4, 2008, we entered into a Membership Interest Purchase Agreement (the “Agreement”) with Egani, Inc., an Arizona corporation (“Egani”). Pursuant to the Agreement, we acquired from Egani 100% of the issued and outstanding membership interests held by Egani in Altony S.A., an Uruguay Sociedad Anonima, (“Altony”) which owns 100% of the issued and outstanding membership interests in South American Hedge Fund LLC, a Delaware limited liability company (“South American Hedge Fund”). At the closing of the Agreement, we issued 130,000,000 shares of our Common stock to Egani for the purchase of all of its interest in Altony which constituted, following such issuance, a majority of the outstanding shares of our common stock. Immediately following the closing of the Agreement, Altony became a wholly owned subsidiary of the Company. For accounting purposes, the transaction was treated as a recapitalization of the Company with Altony as the acquirer.

The principal business of Altony is the ownership and management of South American Hedge Fund, a hedge fund that maintains its business office in Uruguay and invests in public and private securities of the United States and Latin American countries. South American Hedge Fund also plans to proceed with investments in oil and gas concessions in Argentina and intends to focus its investments in the energy sector, including development of energy producing investments and alternative energy production in Latin America and the United States.

RESULTS OF OPERATIONS

During the three months ended March 31, 2008, we incurred a net loss of $2,623,149 primarily attributable to operating expenses related to the South American Hedge Fund. 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 additional financing or 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.

THREE MONTHS ENDED MARCH 31, 2008 COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2007.

During the three months ended March 31, 2008, we incurred a net loss of approximately $2,600,000 compared to a net loss of approximately $1,068,000 for the three months ended March 31, 2007.

The increase in our operating loss for the three months ended March 31, 2008 over the comparable period of the prior year was due to an increase of approximately $1,577,000 in expenses related the to investment portfiolio; an increse in general and administrative expenses of approximately $61,000 and an increase in the minority interest share of the loss of our consolidated subsidiaries of approximately $44,000.

The Company’s newly-acquired South American Hedge Fund subsidiary has oil and gas investments in Argentina and will continue to focus on the energy sector, including the development and supply of energy and alternative energy sources in Latin America and the United States.

In August 2007, South American Hedge Fund signed a purchase option for three interests in oil and gas concessions in Argentina. We are in the process of obtaining the necessary government and environmental operating permits for our operation of these concessions. Our primary focus will be, upon receipt of the governmental approvals relative to our investment in these concessions, to develop operating wells on these properties over the near term.

To supplement our growth, we may also consider mergers and acquisitions, although we have no acquisitions contemplated or under discussion at this time.

In addition, we are currently evaluating newly developed alternative energy technologies for possible investment and development.

Environmental and Construction Technologies and Services

Following the acquisition of Altony and South America Hedge Fund, we have continued to pursue environmental remediation and other projects in the Middle East and Far East. These activities are conducted by our joint venture subsidiary, Delta-Envirotech, Inc. (“Envirotech”). We have operating control of Envirotech and hold a 45% percent ownership interest. Envirotech has entered into strategic alliance agreements with several United States-based entities with technologies and products in the environmental field to support its activities.

In the Middle East, we reached a working agreement to provide equipment to manufacture insulating concrete form (ICF) products for the building industry in Saudi Arabia. Envirotech expanded its product line by securing the master distribution rights for the Middle East for a gas-imaging product used in oilfield and refining operations that has been approved for testing by ARAMCO, the Saudi government oil company. ARAMCO has scheduled field trials to test this equipment in August 2008.

We have decided not to pursue a second contract in Indonesia and withdraw from this market. Our decision was based on the additional expenses we would incur to met the new requirement of Pertamina (the government-owned oil company), that our processing equipment be moved off the refinery property. We are currently evaluating whether to redeploy the processing equipment or sell it to a third party.

Our construction technology activities are conducted by our wholly owned subsidiary, Delta Technologies, Inc. (“Technologies”). In August 2005, Technologies acquired certain intellectual property and filed a patent application for a new insulating concrete wall forming (ICF) system, call Delta Wall . We intend to license the Delta Wall technology and seek other cooperative arrangements with respect to this technology.

At March 31, 2008 we had a working capital deficit of $2,021,654, compared with a surplus of $191,976 at December 31, 2007. This decrease at March 31, 2008 is a result of a decrease in current investments of approximately $2,300,000.

At March 31, 2008, we had total assets of $5,206,301, compared to total assets of $7,563,657 at December 31, 2007. The decrease in total assets was primarily due to the decrease in current assets of approximately $2,300,000.

CRITICAL ACCOUNTING ISSUES

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

Accounting Pronouncements

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. The adoption of SFAS 159 on January 1, 2008 did not impact the Company’s consolidated financial statements.

In December 2007, the FASB issued SFAS 141(R), which replaces SFAS 141 “Business Combinations.” This Statement is intended to improve the relevance, completeness and representational faithfulness of the information provided in financial reports about the assets acquired and the liabilities assumed in a business combination. This Statement requires an acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date, measured at their fair values as of that date, with limited exceptions specified in the Statement. Under SFAS 141(R), acquisition-related costs, including restructuring costs, must be recognized separately from the acquisition and will generally be expensed as incurred. That replaces SFAS 141’s cost-allocation process, which required the cost of an acquisition to be allocated to the individual assets acquired and liabilities assumed based on their estimated fair values. SFAS 141(R) shall be applied prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual report period beginning on or after December 15, 2008. The Company will implement this Statement in 2009.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51” (“SFAS No. 160”). SFAS No. 160 amends Accounting Research Bulletin (“ARB”) No. 51 to establish accounting and reporting standards for the noncontrolling (minority) interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the Consolidated Financial Statements. SFAS No. 160 also requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest on the face of the consolidated statement of income. Under SFAS No. 160, the accounting for changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation must be accounted for as equity transactions for the difference between the parent’s carrying value and the cash exchanged in the transaction. In addition, SFAS No. 160 also requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated (except in the case of a spin-off), and requires expanded disclosure in the Consolidated Financial Statements that clearly identify and distinguish between the interests of the parent’s ownership interest and the interests of the noncontrolling owners of a subsidiary. This Statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. The Company will adopt SFAS No. 160 on January 1, 2009, as required, and is currently evaluating the impact of such adoption on its 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 periods ended March 31, 2008 and 2007.

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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We are primarily exposed to foreign currency risk, interest rate risk and commodity price risk.

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

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

Commodity Price Risk – With operations in the energy sector, our results will be dependent on the pricing of energy commodities.

ITEM 4T. CONTROLS AND PROCEEDURES

a. Disclosure controls and procedures.

As of the end of the Company's most recently completed fiscal quarter (the fourth fiscal quarter in the case of an annual report) covered by this report, the Company carried out an evaluation, with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company's disclosure controls and procedures pursuant to Securities Exchange Act Rule 13a-15. Based upon that evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms.

b. Changes in internal controls over financial reporting.

There have been no changes in the Company's internal controls over financial reporting that occurred during the Company's last fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II–OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS.

ITEM 1A. RISK FACTORS.

There are material changes in the risk factors previously disclosed in our 10-KSB for the year ended December 31, 2007, which additional risk factors are relevant to and should be considered in connection with an evaluation of our energy and alternative energy businesses related to the acquisition of the South American Hedge Fund. These additional risks are as follows.

Volatile global commodity pricing in the energy sector would strongly affect our results of operations.

In our investments in the energy sector, our financial results would be governed by the volatile prices of energy commodities. Drilling and exploration activity levels, inventory levels, production disruptions, the actions of OPEC, competing fuel prices, prevailing currency exchange rates, price speculation, changes in consumption patterns, weather and geophysical and technical limitations and other matters affect the supply of oil and gas and contribute to price volatility.

Our investments in the energy sector could involve many operating risks that may result in substantial losses for which insurance may be unavailable or inadequate.

Operations in the energy production sector are subject to hazards and risks inherent in operational and environmental hazards. Any of these risks can cause substantial losses resulting from injury or loss of life, damage to or destruction of property, natural resources and equipment, pollution and other environmental damages, regulatory investigations and penalties, suspension of our operations and repair and remediation costs.

Our oil and natural gas production investments depend on oil and natural gas transportation facilities, most of which are owned by others.

The marketability of our oil and natural gas production depends in large part on receiving governmental approvals, the availability, proximity and capacity of pipeline systems owned by third parties. The unavailability of or lack of available capacity on these systems and facilities could result in the shut-in of producing wells or the delay or discontinuance of development plans for properties. The lack of availability of these facilities for an extended period of time could negatively affect our revenues. Federal and state regulation of oil and natural gas production and transportation, tax and energy policies, changes in supply and demand, pipeline pressures, damage to or destruction of pipelines and general economic conditions could adversely affect our ability to produce, gather and transport oil and natural gas.

Competition in our industry is intense and many of our competitors have greater financial and technological resources.

We operate in the competitive area of energy and alternative energy production. Many of our competitors are large, well-established companies that have larger operating staffs and significantly greater capital resources than we do.

We are subject to complex laws and regulations that can adversely affect the cost, manner or feasibility of doing business.

Exploration, development, production and sale of oil and gas are subject to extensive governmental and provincial laws and regulations, including complex environmental laws. We may be required to make large expenditures to comply with environmental and other governmental regulations. Failure to comply with these laws and regulations may result in the suspension or termination of our operations and subject us to administrative, civil and criminal penalties. Matters subject to regulation include discharge permits for drilling operations, drilling bonds, spacing of wells, unitization and pooling of properties, environmental protection, and taxation. Our operations create the risk of environmental liabilities to the government or third parties for any unlawful discharge of oil, gas or other pollutants into the air, soil or water. In the event of environmental violations, we may be charged with remedial costs. Pollution and similar environmental risks generally are not fully insurable. Such liabilities and costs could have a material adverse effect on our financial condition and results of operations.

Competition for experienced, technical personnel may negatively impact our operations.

Operations in the energy sector entail significant complexities and utilize advanced technologies requiring highly trained personnel. Our success will depend, in part, on our ability to attract and retain experienced professional personnel to manage our proposed alternative energy operations, as well as any direct energy production investments.

Governmental actions and political instability may affect our results of operations.

Our investments in the energy sector internationally would be subject to the regulatory authority of the U.S. and foreign governments and political interests, as well as political instability in foreign countries in which we invest. As a result, we would face risks of:

Ø	changes in laws and regulations, import, export and use of products, environmental protection, climate change and energy security, all of which may increase costs or reduce the demand for our products;

Ø	expropriation of our assets and properties; and

Ø	refusal to extend or grant, or delay in the extension or grant of, energy production or development contracts.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

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

ITEM 5. OTHER INFORMATION.

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

Throughout this report, we make statements that may be deemed "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical facts, that address activities, events, outcomes and other matters that Chancellor plans, expects, intends, assumes, believes, budgets, predicts, forecasts, projects, estimates or anticipates (and other similar expressions) will, should or may occur in the future are forward-looking statements. These forward-looking statements are based on management's current belief, based on currently available information, as to the outcome and timing of future events. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this report.

We caution you that these forward-looking statements are subject to all of the risks and uncertainties, many of which are beyond our control, incident to the exploration for and development, production and sale of oil and gas. These risks include, but are not limited to, commodity price volatility, inflation, lack of availability of goods and services, environmental risks, operating risks, regulatory changes, the uncertainty inherent in estimating proved oil and natural gas reserves and in projecting future rates of production and timing of development expenditures and other risks described herein.

Through South American Hedge Fund, we plan to proceed with investments in oil and gas concessions in Argentina and intend to focus our investments in the energy sector, including alternative energy producing investments in Latin America and the United States. In August 2007, South American Hedge Fund signed the purchase option for three interests in oil and gas concessions in Argentina. We are in the process of obtaining the necessary government and environmental operating permits for our operation of the concessions. Our primary focus will be, upon completion of governmental approvals relative to our investment in these concessions, to develop operating wells on these properties over the near term.

Industry and economic factors

In managing our business in the oil and gas production sector we must deal with many factors inherent in our industry. First and foremost is wide fluctuation of oil and gas prices. Oil and gas markets are cyclical and volatile, with future price movements difficult to predict. While our revenues are a function of both production and prices, wide swings in prices often have the greatest impact on our results of operations.

Our operations entail significant complexities. Advanced technologies requiring highly trained personnel are utilized in restoration of wells and production. The oil and gas industry is highly competitive. We compete with major and diversified energy companies, independent oil and gas companies, and individual operators. In addition, the industry as a whole competes with other businesses that supply energy to industrial, commercial, and residential end users.

Approach to our business

Implementation of our business approach relies on our ability to fund ongoing development projects with cash flow provided by operating activities and external sources of capital.

Critical accounting policies and estimates

The process of estimating quantities of oil and gas reserves is complex, requiring significant decisions in the evaluation of all available geological, geophysical, engineering and economic data. The data for a given field may also change substantially over time as a result of numerous factors including, but not limited to, additional development activity, evolving production history and continual reassessment of the viability of production under varying economic conditions. As a result, material revisions to existing reserve estimates may occur from time to time. Although every reasonable effort is made to ensure that reserve estimates reported represent the most accurate assessments possible, the subjective decisions and variances in available data for various fields make these estimates generally less precise than other estimates included in the financial statement disclosures.

ITEM 6. EXHIBITS.

10.38	6% promissory note issued April 15, 2008 by Delta Mutual, Inc. to Security Systems International, Inc. in the principal amount of $20,000.

10.39	6% promissory note issued April 28, 2008 by Delta Mutual, Inc. to Egani, Inc. in the principal amount of $9,550.

10.40	6% promissory note issued May 14, 2008 by Delta Mutual, Inc. to Security Systems International, Inc. in the principal amount of $16,900.

31.1	Certification of Chief Executive Officer Pursuant to Section 302 of The Sarbanes Oxley Act of 2002.

31.2	Certification of Chief Financial Officer Pursuant to Section 302 of The Sarbanes Oxley Act of 2002.

32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Oxley Act of 2002.

32.2	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Oxley Act of 2002.

In accordance with the requirements of the Exchange Act, the Company has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	DELTA MUTUAL, INC.

	BY:	/s/ Peter F. Russo
		Peter F. Russo
		President and Chief
		Executive Officer

10.38	6% promissory note issued April 15, 2008 by Delta Mutual, Inc. to Security Systems Interna tional, Inc. in the principal amount of $20,000, filed herewith.

10.39	6% promissory note issued April 28, 2008 by Delta Mutual, Inc. to Egani, Inc. in the principal amount of $9,550, filed herewith.

10.40	6% promissory note issued May 14, 2008 by Delta Mutual, Inc. to Security Systems International, Inc. in the principal amount of $16,900, filed herewith.

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.

DELTA MUTUAL, INC.

6% PROMISSORY NOTE

$20,000	April 15, 2008

	Sellersville, Pennsylvania

FOR VALUE RECEIVED, DELTA MUTUAL INC., a Delaware corporation (the " Company "), with offices at 111 North Branch Street, Sellersville, PA 18960, promises to pay to Security Systems International, Inc. , a Delaware corporation, (the " Lender "), with a mailing address of 9034 East Caribbean Lane, Scottsdale, AZ 85260, in lawful money of the United States of America, the principal sum of Twenty Thousand Dollars ($20,000), together with interest from the date of this Note on the unpaid principal balance at a rate equal to six percent (6.0%) per annum, computed on the basis of a year of 360 days. All unpaid principal, together with any then unpaid and accrued interest, shall be due and payable at any time after the earlier of each of (i) the Maturity Date (as defined below), or (ii) when, upon or after the occurrence of an Event of Default (as defined below), such amounts are declared due and payable by the Lender or made automatically due and payable in accordance with the terms hereof.

The following is a statement of the rights of the Lender and the conditions to which this Note is subject, and to which the Lender, by the acceptance of this Note, agrees:

"Company" includes the corporation initially executing this Note and any Person which shall succeed to or assume the obligations of the Company under this Note.

1.2 "Event of Default" has the meaning given in Section 5 hereof.

1.3 "Lender" shall mean the Person specified in the introductory paragraph of this Note.

1.4 "Maturity Date" shall mean six months from the date hereof.

1.5 "Obligations" shall mean all obligations, owed by the Company to the Lender, now existing or hereafter arising under or pursuant to the terms of this Note.

1.6 "Person" shall mean and include an individual, a partnership, a corporation (including a business trust), a joint stock Company, a limited liability Company, an unincorporated association, a joint venture or other entity or a governmental authority.

2. Interest . All accrued and unpaid interest on this note shall be due and payable on the Maturity Date.

3. Repayment at the Company’s Option. At any time after the date hereof and prior to the maturity Date, the Company my repay this Note, including all accrued interest, without penalty or premium, in whole or in part; provided that such repayment will be applied first to the payment of unpaid interest accrued n this Note, and second, to payment of the principal amount of this Note.

4. Representations and Warranties of The Lender . The Lender represents and warrants to the Company upon the acquisition of the Note as follows:

4.1 Binding Obligation . The Lender has full legal capacity, power and authority to execute and deliver this Note and to perform its obligations hereunder. This Note is a valid and binding obligation of the Lender, enforceable in accordance with its terms, except as limited by bankruptcy, insolvency or other laws of general application relating to or affecting the enforcement of creditors' rights generally and general principles of equity.

4.2 Own Account . The Lender is purchasing this Note for his own account for investment, not as a nominee or agent, and not with a view to, or for resale in connection with, the distribution thereof. The Lender has such knowledge and experience in financial and business matters that the Lender is capable of evaluating the merits and risks of such investment, is able to incur a complete loss of such investment and is able to bear the economic risk of such investment for an indefinite period of time.

5. Events of Default . The occurrence of any of the following shall constitute an "Event of Default" under this Note:

5.1 Failure to Pay . If the Company shall fail to pay any principal or interest payment or any other payment required under the terms of this Note on the date due and such payment shall not have been made within fifteen (15) business days of the Company's receipt of written notice from the Lender of such failure to pay;

5.2 Voluntary Bankruptcy or Insolvency Proceedings . The Company shall (i) apply for or consent to the appointment of a receiver, trustee, liquidator or custodian of itself or of all or a substantial part of its property, (ii) be unable, or admit in writing its inability, to pay its debts generally as they mature, (iii) make a general assignment for the benefit of its or any of its creditors, (iv) be dissolved or liquidated, (v) become insolvent (as such term may be defined or interpreted under any applicable statute), (vi) commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or consent to any such relief or to the appointment of or taking possession of its property by any official in an involuntary case or other proceeding commenced against it, or (vii) take any action for the purpose of effecting any of the foregoing; or

5.3 Involuntary Bankruptcy or Insolvency Proceedings . Proceedings for the appointment of a receiver, trustee, liquidator or custodian of the Company or of all or a substantial part of the property thereof, or an involuntary case or other proceedings seeking liquidation, reorganization or other relief with respect to the Company or the debts thereof under any bankruptcy, insolvency or other similar law now or hereafter in effect shall be commenced and an order for relief entered or such proceeding shall not be dismissed or discharged within sixty (60) days of commencement.

6. Rights of The Lender upon Default . Upon the occurrence or existence of any Event of Default (other than an Event of Default referred to in Sections 5.2 and 5.3) and at any time thereafter during the continuance of such Event of Default, the Lender may, by written notice to the Company, declare all outstanding Obligations payable by the Company hereunder to be immediately due and payable without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived. Upon the occurrence or existence of any Event of Default described in Sections 5.2 and 5.3, immediately and without notice, all outstanding Obligations payable by the Company hereunder shall automatically become immediately due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived. In addition to the foregoing remedies, upon the occurrence or existence of any Event of Default, the Lender may exercise any other right, power or remedy otherwise permitted to it by law, either by suit in equity or by action at law, or both.

7. Successors and Assigns . Subject to the restrictions on transfer described in Sections 9 and 10 below, the rights and obligations of the Company and the Lender of this Note shall be binding upon and benefit the successors, assigns, heirs, administrators and transferees of the parties.

8. Waiver and Amendment . Any provision of this Note may be amended, waived or modified upon the written consent of the Company and the Lender.

9. Transfer of this Note. This Note may not be sold, assigned or transferred by the Lender. The Company shall treat the Lender hereof as the owner and holder of this Note for the purpose of receiving all payments of principal and interest hereon and for all other purposes whatsoever, whether or not this Note shall be overdue, and the Company shall not be affected by notice to the contrary.

10. Assignment by The Company . Neither this Note nor any of the rights, interests or obligations hereunder may be assigned, by operation of law or otherwise, in whole or in part, by the Company without the prior written consent of the Lender.

11. Notices . All notices, requests, demands, consents, instructions or other communications required or permitted hereunder shall in writing and faxed, mailed or delivered to each party at the respective addresses or facsimile numbers of the parties. All such notices and communications shall be effective (a) when sent by Federal Express or other overnight service of recognized standing, on the business day following the deposit with such service; (b) when mailed, by registered or certified mail, first class postage prepaid and addressed as aforesaid through the United States Postal Service, upon receipt; (c) when delivered by hand, upon delivery; and (d) when faxed, upon confirmation of receipt.

12. Waivers . The Company hereby waives notice of default, presentment or demand for payment, protest or notice of nonpayment or dishonor and all other notices or demands relative to this instrument.

13. Governing Law . This Note and all actions arising out of or in connection with this Note shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania, without regard to the conflicts of law provisions of the Commonwealth of Pennsylvania, or of any other state.

IN WITNESS WHEREOF, The Company has caused this Note to be issued as of the date first written above.

	DELTA MUTUAL, INC.
	a Delaware corporation

	By: /s/ Peter F. Russo
	Name: Peter F. Russo
	Title: President & CEO

DELTA MUTUAL, INC.

6% PROMISSORY NOTE

$9,550	April 28, 2008

	Sellersville, Pennsylvania

FOR VALUE RECEIVED, DELTA MUTUAL INC., a Delaware corporation (the " Company "), with offices at 111 North Branch Street, Sellersville, PA 18960, promises to pay to Egani, Inc. , an Arizona corporation, (the " Lender "), with a mailing address of 8260 East Raintree Drive, Suite No. 3, Scottsdale, AZ 85260, in lawful money of the United States of America, the principal sum of Nine Thousand Five Hundred Fifty Dollars ($9,550), together with interest from the date of this Note on the unpaid principal balance at a rate equal to six percent (6.0%) per annum, computed on the basis of a year of 360 days. All unpaid principal, together with any then unpaid and accrued interest, shall be due and payable at any time after the earlier of each of (i)the Maturity Date (as defined below), or (ii)when, upon or after the occurrence of an Event of Default (as defined below), such amounts are declared due and payable by the Lender or made automatically due and payable in accordance with the terms hereof.

The following is a statement of the rights of the Lender and the conditions to which this Note is subject, and to which the Lender, by the acceptance of this Note, agrees:

1. Definitions . As used in this Note, the following capitalized terms have the following meanings:

"Company" includes the corporation initially executing this Note and any Person which shall succeed to or assume the obligations of the Company under this Note.

1.2 "Event of Default" has the meaning given in Section 5 hereof.

1.3 "Lender" shall mean the Person specified in the introductory paragraph of this Note.

1.4 "Maturity Date" shall mean six months from the date hereof.

1.5 "Obligations" shall mean all obligations, owed by the Company to the Lender, now existing or hereafter arising under or pursuant to the terms of this Note.

2. Interest . All accrued and unpaid interest on this note shall be due and payable on the Maturity Date.

3. Repayment at the Company’s Option. At any time after the date hereof and prior to the maturity Date, the Company my repay this Note, including all accrued interest, without penalty or premium, in whole or in part; provided that such repayment will be applied first to the payment of unpaid interest accrued n this Note, and second, to payment of the principal amount of this Note.

4. Representations and Warranties of The Lender . The Lender represents and warrants to the Company upon the acquisition of the Note as follows:

5. Events of Default . The occurrence of any of the following shall constitute an "Event of Default" under this Note:

5.2 Voluntary Bankruptcy or Insolvency Proceedings . The Company shall (i)apply for or consent to the appointment of a receiver, trustee, liquidator or custodian of itself or of all or a substantial part of its property, (ii)be unable, or admit in writing its inability, to pay its debts generally as they mature, (iii)make a general assignment for the benefit of its or any of its creditors, (iv)be dissolved or liquidated, (v)become insolvent (as such term may be defined or interpreted under any applicable statute), (vi)commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or consent to any such relief or to the appointment of or taking possession of its property by any official in an involuntary case or other proceeding commenced against it, or (vii)take any action for the purpose of effecting any of the foregoing; or

8. Waiver and Amendment . Any provision of this Note may be amended, waived or modified upon the written consent of the Company and the Lender.

11. Notices . All notices, requests, demands, consents, instructions or other communications required or permitted hereunder shall in writing and faxed, mailed or delivered to each party at the respective addresses or facsimile numbers of the parties. All such notices and communications shall be effective (a)when sent by Federal Express or other overnight service of recognized standing, on the business day following the deposit with such service; (b)when mailed, by registered or certified mail, first class postage prepaid and addressed as aforesaid through the United States Postal Service, upon receipt; (c)when delivered by hand, upon delivery; and (d)when faxed, upon confirmation of receipt.

IN WITNESS WHEREOF, The Company has caused this Note to be issued as of the date first written above.

	DELTA MUTUAL, INC.
	a Delaware corporation

	By: /s/ Peter F. Russo
	Name: Peter F. Russo
	Title: President & CEO

DELTA MUTUAL, INC.

6% PROMISSORY NOTE

$16,900	May 14, 2008

	Sellersville, Pennsylvania

FOR VALUE RECEIVED, DELTA MUTUAL INC., a Delaware corporation (the " Company "), with offices at 111 North Branch Street, Sellersville, PA 18960, promises to pay to Security Systems International, Inc. , a Delaware corporation, (the " Lender "), with a mailing address of 9034 East Caribbean Lane, Scottsdale, AZ 85260, in lawful money of the United States of America, the principal sum of Sixteen Thousand Nine Hundred Dollars ($16,900), together with interest from the date of this Note on the unpaid principal balance at a rate equal to six percent (6.0%) per annum, computed on the basis of a year of 360 days. All unpaid principal, together with any then unpaid and accrued interest, shall be due and payable at any time after the earlier of each of (i)the Maturity Date (as defined below), or (ii)when, upon or after the occurrence of an Event of Default (as defined below), such amounts are declared due and payable by the Lender or made automatically due and payable in accordance with the terms hereof.

The following is a statement of the rights of the Lender and the conditions to which this Note is subject, and to which the Lender, by the acceptance of this Note, agrees:

1. Definitions . As used in this Note, the following capitalized terms have the following meanings:

"Company" includes the corporation initially executing this Note and any Person which shall succeed to or assume the obligations of the Company under this Note.

1.2 "Event of Default" has the meaning given in Section 5 hereof.

1.3 "Lender" shall mean the Person specified in the introductory paragraph of this Note.

1.4 "Maturity Date" shall mean six months from the date hereof.

1.5 "Obligations" shall mean all obligations, owed by the Company to the Lender, now existing or hereafter arising under or pursuant to the terms of this Note.

2. Interest . All accrued and unpaid interest on this note shall be due and payable on the Maturity Date.

Date: July 3, 2008	/s/ Martin G. Chilek
	Martin G. Chilek
	Chief Financial Officer