-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BH2hNttjeTDFi56RnNpxZsxl0yAWaFBRAjh2e/HS2ZM1wO7ldOBaO1IWbZmpwLoX PhNUtEje43IGZje0NTOKYQ== 0001144204-05-018666.txt : 20050611 0001144204-05-018666.hdr.sgml : 20050611 20050610172206 ACCESSION NUMBER: 0001144204-05-018666 CONFORMED SUBMISSION TYPE: PRE 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20050610 FILED AS OF DATE: 20050610 DATE AS OF CHANGE: 20050610 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DELTA MUTUAL INC CENTRAL INDEX KEY: 0001112985 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 141818394 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: PRE 14A SEC ACT: 1934 Act SEC FILE NUMBER: 000-30563 FILM NUMBER: 05890737 BUSINESS ADDRESS: STREET 1: 111 NORTH BRANCH STREET CITY: SELLERSVILLE STATE: PA ZIP: 18960 BUSINESS PHONE: 2152582800 MAIL ADDRESS: STREET 1: 111 NORTH BRANCH STREET CITY: SELLERSVILLE STATE: PA ZIP: 18960 PRE 14A 1 v20028_pre14a.txt SCHEDULE 14A (RULE 14a-101) INFORMATION REQUIRED IN PROXY STATEMENT SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. ) Filed by the Registrant [X] Filed by a Party other than the Registrant [_] Check the appropriate box: [X] Preliminary Proxy Statement [_] Confidential, For Use of the Commission Only (As Permitted by Rule 14a-6(e)(2)) [ ] Definitive Proxy Statement [_] Definitive Additional Materials [_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12 DELTA MUTUAL, INC. (Name of Registrant as Specified In Its Charter) (Name of Person(s) Filing Proxy Statement, if other than the Registrant) Payment of Filing Fee (Check the appropriate box): [X] No fee required [_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. (1) Title of each class of securities to which transaction applies: (2) Aggregate number of securities to which transaction applies: (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): (4) Proposed maximum aggregate value of transaction: (5) Total fee paid: [_] Fee paid previously with preliminary materials. [_] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing. (1) Amount Previously Paid: (2) Form, Schedule or Registration Statement No.: (3) Filing Party: (4) Date Filed: ii Preliminary Copy dated June 10, 2005 DELTA MUTUAL, INC. NOTICE OF THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD AUGUST , 2005 Sellersville, Pennsylvania July , 2005 The Annual Meeting of Stockholders (the "Annual Meeting") of Delta Mutual, Inc., a Delaware corporation (the "Company"), will be held at the offices of the Company, 111 North Branch Street, Sellersville, PA 18960, on _____________ , August __, 2005, at 10:00 A.M. (local time) for the following purposes: 1. To elect three directors to serve and hold office until the next annual meeting of stockholders and until their successors are elected and qualified (Proposal No. 1); 2. To amend the Certificate of Incorporation of the Company to change the name of the Company from Delta Mutual, Inc. to Delta Global Technologies, Inc. (Proposal No. 2); 3. To amend the Certificate of Incorporation of the Company to authorize a new class of 5,000,000 shares of preferred stock, par value $.0001 per share, and to authorize the Board of Directors to issue one or more series of the preferred stock with such designations, rights, preferences, limitations and/or restrictions as it should determine by vote of a majority of such directors (Proposal No. 3); 4. To transact such other business as may properly come before the Annual Meeting and any adjournment or postponement thereof. The Board of Directors has fixed the close of business on ______, July __, 2005, as the record date for determining the stockholders entitled to notice of and to vote at the Annual Meeting and any adjournment or postponement thereof. Shares of Common Stock can be voted at the meeting only if the holder is present at the meeting in person or by valid proxy. All stockholders are cordially invited to attend the Annual Meeting in person. However, whether or not you expect to attend the Annual Meeting in person, you are urged to mark, date, sign and return the enclosed proxy card as promptly as possible in the postage-prepaid envelope provided to ensure your representation and the presence of a quorum at the Annual Meeting. If you send in your proxy card and then decide to attend the Annual Meeting to vote your shares in person, you may still do so. Your proxy is revocable in accordance with the procedures set forth in the Proxy Statement. By Order of the Board of Directors, Peter F. Russo President and Chief Executive Officer IMPORTANT WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE. IF A QUORUM IS NOT REACHED, THE COMPANY WILL HAVE THE ADDED EXPENSE OF RE-ISSUING THESE PROXY MATERIALS. IF YOU ATTEND THE MEETING AND SO DESIRE, YOU MAY WITHDRAW YOUR PROXY AND VOTE IN PERSON. THANK YOU FOR ACTING PROMPTLY 2 DELTA MUTUAL, INC. 111 NORTH BRANCH STREET SELLERSVILLE, PA 18960 PROXY STATEMENT GENERAL This Proxy Statement is furnished in connection with the solicitation by the Board of Directors (the "Board") of Delta Mutual, Inc., a Delaware corporation (the "Company"), of proxies in the enclosed form for use in voting at the Annual Meeting of Stockholders (the "Annual Meeting") to be held at the at the offices of the Company, 111 North Branch Street, Sellersville, PA 18960, on ________, August __, 2005, at 10:00 A.M. (local time), and any adjournment or postponement thereof. Only holders of record of the Company's Common Stock, par value $.0001 per share (the "Common Stock"), on July __, 2005 (the "Record Date") will be entitled to vote at the Annual Meeting. At the close of business on the Record Date, the Company had outstanding _______ shares of Common Stock. Any person giving a proxy in the form accompanying this Proxy Statement has the power to revoke it prior to its exercise. Any proxy given is revocable prior to the Annual Meeting by an instrument revoking it or by a duly executed proxy bearing a later date delivered to the Secretary of the Company. Such proxy is also revoked if the stockholder is present at the Annual Meeting and elects to vote in person. The Company will bear the entire cost of preparing, assembling, printing and mailing the proxy materials furnished by the Board of Directors to stockholders. Copies of the proxy materials will be furnished to brokerage houses, fiduciaries and custodians to be forwarded to the beneficial owners of the Common Stock. In addition to the solicitation of proxies by use of the mail, some of the officers, directors and regular employees of the Company may (without additional compensation) solicit proxies by telephone or personal interview, the costs of which the Company will bear. This Proxy Statement and the accompanying form of proxy is being sent or given to stockholders on or about July __, 2005. Stockholders of the Company's Common Stock are entitled to one vote for each share held. Such shares may not be voted cumulatively. Each validly returned proxy (including proxies for which no specific instruction is given) which is not revoked will be voted "FOR" each of the proposals as described in this Proxy Statement and, at the proxy holders' discretion, on such other matters, if any, which may come before the Annual Meeting (including any proposal to adjourn the Meeting). Determination of whether a matter specified in the Notice of Annual Meeting of Stockholders has been approved will be determined as follows. As to Proposal No. 1, each nominee for director will be elected as a director of the Company if he receives a plurality of the votes cast at the Annual Meeting in person or by proxy and entitled to vote on the election. Accordingly, abstentions or directions to withhold authority will have no effect on the outcome of the vote. Proposal No. 2, approval of an amendment of the Certificate of Incorporation of the Company to change the name of the Company from Delta Mutual, Inc. to Delta Global Technologies, Inc., requires for approval the affirmative vote of the holders of a majority of the outstanding shares of the Company's Common Stock. Proposal No. 3, approval of an amendment of the Certificate of Incorporation of the Company to authorize a new class of 5,000,000 shares of preferred stock, par value $.0001 per share, and to authorize the Board of Directors to issue one or more series of the preferred stock with such designations, rights, preferences, limitations and/or restrictions as it should determine by vote of a majority of such directors requires for approval the affirmative vote of the holders of a majority of the outstanding shares of the Company's Common Stock. .. Abstentions will be considered shares present in person or by proxy and entitled to vote and, therefore, except as to the election of directors, will have the effect of a vote against the matter. Broker non-votes will be considered shares not present for this purpose and will have no effect on the outcome of the vote. Directions to withhold authority to vote for directors, abstentions and broker non-votes will be counted for purposes of determining whether a quorum is present for the Annual Meeting. PROPOSAL NO. 1 ELECTION OF DIRECTORS NOMINEES At the Annual Meeting, the stockholders will elect three (3) directors to serve a one year terms or until their respective successors are elected and qualified. In the event any nominee is unable or unwilling to serve as a director at the time of the Annual Meeting, the proxies may be voted for any substitute nominee designated by the present Board or the proxy holders to fill such vacancy. The Board has no reason to believe that any of the persons named below will be unable or unwilling to serve as a nominee or as a director if elected. Assuming a quorum is present, the nominees receiving the highest number of affirmative votes of shares entitled to be voted for him or her will be elected as a director of the Company for the ensuing year. Unless marked otherwise, proxies received will be voted "FOR" the election of the nominees named below. In the event that additional persons are nominated for election as directors, the proxy holders intend to vote all proxies received by them in such a manner as will ensure the election of the nominees listed below.
NAME AGE POSITION Peter F. Russo 62 President, CEO, Secretary and Director Martin G. Chilek 54 Vice President, Chief Financial Officer, Treasurer and Assistant Secretary Robert W. Harris 56 Director
Peter F. Russo joined the Company on March 11, 2003 as President and a director, and was elected Chief Executive Officer in June 2003. Mr. Russo had been an independent consultant to several private businesses during the period from 2 August 2001 until he joined the Company. In that capacity, he developed business and operating strategies and plans for a start-up, new concept modular housing company focused on the affordable housing market. In that assignment, he developed proposals for low-income housing projects under the federal Section 42 tax credit program in Philadelphia, Baltimore and Washington D.C. In another assignment, Mr. Russo was instrumental in structuring a new U.S. holding company with affiliated real estate service operations in Europe. From June 2000 to July 2001, Mr. Russo served as President and Chief Operating Officer for Bartram Healthcare Financial Services, Inc., a start-up healthcare services company providing financial systems and services. From January 1998 to June 2000, Mr. Russo was an independent consultant for projects that included the development of new market penetration strategies in various regions of the former Yugoslavia, that included securing a U.S. export grant and providing environmental technologies to Eastern European power generating stations. Martin G. Chilek joined the Company as Vice President and CFO in January 2004. Prior to joining the Company, from June 2003 to December 2003, he was an independent consultant providing transitional management, strategic planning and financial management services to privately held and public companies. During the past five years, Mr. Chilek also served as Vice President-Operations of MicroTech Leasing Corporation from October 2000 through May 2003. From October 1999 through October 2000, Mr. Chilek was employed by Acquisitions Management Services, Inc., a merger and acquisitions services company, as Director of Business Development. Mr. Chilek filed for personal bankruptcy in February 2000, and discharged in July 2000, as a protective measure due to stockholder suits following the bankruptcy of U.S. Physicians, Inc. in October 1998. Mr. Chilek was Senior Vice President-Administration of U.S. Physicians, Inc. at the time it filed its petition in bankruptcy. Robert W. Harris has, since December 2004 been the President of HHWS Systems, Friendswood, Texas, a consulting company providing product support for clients, as well as customer relationship management and assistance to compete more effectively. From August 2001 to November 2004, Mr. Harris was Vice President and Chief Technology officer for Platforms Wireless International, Houston, Texas and Los Angeles, California, where his responsibilities involved business, technical and marketing aspects for telecommunications systems. From May 1988 to July 2001, Mr. Harris was with SPACEHAB, Houston, Texas, and Johnson Engineering Corporation, which was acquired by SPACEHAB. Prior thereto he was with the US Air Force, and was a Space Shuttle Flight Controller with the National Aeronautics and Space Administration from July 1980 to May 1985. Mr. Harris holds a Bachelor of Science in Electrical Engineering from Texas Tech University. MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS During the fiscal year ended December 31, 2004, the Board of Directors of the Company held four (4) meetings and acted by unanimous written consent on fifty-two (52) occasions. Peter F. Russo, our sole director, attended all of the meetings of the Board of Directors during the last fiscal year. Our directors are elected by the stockholders and our officers are appointed by our Board of Directors. Our officers hold office until their successors are elected and qualified. Vacancies in our board are filled by the board itself. There are currently two vacancies on our board of directors. We do not have an audit committee, although we intend to establish such a committee, with an independent "financial expert" member as defined in the rules of the Securities and Exchange Commission. 3 We do not have a nominating committee or a committee performing the functions of a nominating committee. Our Board of Directors fulfills the role of a nominating committee. It is the position of our Board of Directors that it is appropriate for us at this time not to have a separate nominating committee in light of the fact that we have a small Board of Directors, and new candidates for membership on the Board will be evaluated and contacted by our Board members over the coming year. Moreover, at present we are not required to have a nominating committee until such time as we are listed on a stock exchange in which event we would have to abide by the applicable rules and regulations of such exchange. We do not expect to be listed on an exchange in the near future. If we do create a nominating committee prior to our 2006 annual meeting, our proxy statement for our 2006 annual meeting will provide information regarding this committee, including functions held by the committee and the names of directors who are members. There are no formal procedures for stockholders to nominate persons to serve as directors; however, the Board will consider nominations from stockholders, which should be addressed to Martin G. Chilek, Chief Financial Officer, at the Company's address set forth above. Stockholder Communications with the Board of Directors Our stockholders may communicate with our Board of Directors by writing directly to the Board of Directors or to Martin G. Chilek, Chief Financial Officer, at the Company's address set forth above. Our corporate officer will deliver stockholder communications to the Board of Directors. COMPENSATION OF DIRECTORS Directors currently receive no compensation for meetings attended and are reimbursed for reasonable out-of-pocket expenses incurred in connection with attendance at meetings of the Board or any committee thereof they attend. The proxy holders intend to vote the shares represented by proxies for the Board's nominees, except to the extent authority to vote for the nominee or any nominee is withheld. RECOMMENDATION OF THE BOARD: THE BOARD RECOMMENDS A VOTE FOR THE ELECTION OF THE NOMINEES NAMED ABOVE. MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The following table sets forth the names and ages of the Directors and Executive Officers of the Company, as well as the positions held by such persons: Name Age Position Peter F. Russo 62 President, CEO and Director Martin G. Chilek 54 Vice President, Chief Financial Officer, Treasurer and Assistant Secretary Jerome Kindrachuk 60 Vice President--International 4 No director or executive officer of the Company has any family relationship with any other director or executive officer of the Company. ITEM 10. EXECUTIVE COMPENSATION
Annual Compensation Awards Payouts - ------------------------------------------------- -------------------------- --------------------- (a) (b) (c) (d) (e) (f) (g) (h) (i) Name Other Restricted Securities and Year Annual Stock Underlying LTIP All Other Principal Salary Bonus Comp. Awards Options/ Payouts Comp. Position (1) ($) ($) ($) ($) SARs(#) ($) ($) - ------------- ---- ------- ----- ------ ---------- ---------- ------ --------- Peter F. 2004 $57,588 $9,000 Russo 2003 $31,800 $6,000 $31,938 President (2) Martin G. Chilek 2004 $64,700 $16,000 Jerome Kindrachuk 2004 $42,738 $9,000 $13,612 Gary T. 2003 $20,000 $93,625 Robinson (2)
EMPLOYMENT AGREEMENTS On March 11, 2003, we entered into a contract with Peter F. Russo to serve as President. It provides for three years' employment from March 11, 2003, at a salary of $10,000 per month through June 30, 2003, and $15,000 per month thereafter, payable in bi-monthly installments, plus benefits. An Amendment was made to the contract to reduce his compensation to $6,500 per month effective January 1, 2004. We also have an employment contract with Jerome Kindrachuk, effective July 2003 prior to Mr. Kindrachuk's appointment as an officer of the Company. It provides for three years' employment from July 1, 2003, at a salary of $10,000 per month, payable in bi-monthly installments, plus benefits. An amendment was made to the contract to reduce compensation to $6,000 per month effective January 1, 2004. On May 23, 2005, the Company entered into an employment agreement with Martin G. Chilek, effective June 1, 2005, for an initial term of three years, and an automatic extension for additional one year periods if neither party gives notice of termination at least 90 days prior to the end of the initial term or any current additional one year term. The agreement provides for a base salary of $132,000 per year, plus benefits, but until the Board of Directors determines that the financial condition of the Company permits the payment of that salary, the minimum salary to be paid to Mr. Chilek is $6,000 per month. The agreement also contains provisions for discharge 5 for "cause," including disability, in which case no further compensation or benefits would be payable. If a termination is other than for death or "cause," or the Company elects not to renew the agreement, the base salary is continued for six months following termination of employment, or up to the time Mr. Chilek commences other full time employment. All other employees are employed by us on an at will basis, and the terms and conditions of employment are subject to change. DIRECTORS' COMPENSATION We do not compensate directors in their capacity as such nor do we compensate our directors for attendance at meetings. We do reimburse our officers and directors for reasonable expenses incurred in the performance of their duties. Option/SAR Grants in Last Fiscal Year Individual Grants Option/SAR Grants in Last Fiscal Year Individual Grants:
- ---------------------------------------------------------------------------------------------------------- (a) (b) (c) (d) (e) Number of Percent of Exercise or Securities Total Base Price Expiration Name Underlying Options/SARSs ($/Sh) Date Options/SARS Granted to Granted Employee in Fiscal Year - ---------------------------------------------------------------------------------------------------------- Peter F. Russo (1) 2,500,000 38.5 $0.25 11/19/09 - ---------------------------------------------------------------------------------------------------------- Martin G. Chilek 1,750,000 26.9 $0.25 11/19/09 (2) - ---------------------------------------------------------------------------------------------------------- Jerome Kindrachuk 750,000 11.5 $0.25 11/19/09 (3) - ----------------------------------------------------------------------------------------------------------
(1) The options are exercisable as to 16 percent of the shares covered by each option immediately upon grant of the option; the option grant became exercisable as to an additional 16 percent on January 3, 2005; and becomes exercisable as to an additional 68 percent on January 3, 2006. (2) The options are exercisable as to 23 percent of the shares covered by each option immediately upon grant of the option; the option grant became exercisable as to an additional 23 percent on January 3, 2005; and becomes exercisable as to an additional 54 percent on January 3, 2006. (3) The options are exercisable as to 33 percent of the shares covered by each option immediately upon grant of the option; the option grant became exercisable as to an additional 33 percent on January 3, 2005; and becomes exercisable as to an additional 33 percent on January 3, 2006. The following table summarizes the number and value of unexercised options held by our executive officers as of December 31, 2004. 6
FISCAL YEAR-END OPTION VALUES - --------------------------------------------------------------------------------------------------------------- Number of Securities Value of Unexercised Underlying Unexercised in-the-Money Option/ Options/SARS At SARs at Fiscal Fiscal Year-End (#) Year-End ($) Shares Acquired on Exercisable/ Exercisable/ Name Exercise (#) Value Realized ($) Unexercisable Unexercisable - ---------------------- -------------------- ------------------- ------------------------ ---------------------- Peter F. Russo - - 2,500,000/0 1,200,000/0 400,000/2,100,000 192,000/1,008,000 Martin G. Chilek 1,750,000/0 840,000/0 400,000/1,350,000 192,000/648,000 Jerome Kindrachuk 750,000/0 360,000/0 250,000/500,000 120,000/240,000
The above value has been calculated based on closing price of the common stock as quoted on the OTC Bulletin Board on December 31, 2004. No officer or director exercised any options in the fiscal year ended December 31, 2004. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. The following table sets forth information, as of May 31, 2005, with respect to the beneficial ownership of the Company's Common Stock by each person known by the Company to be the beneficial owner of more than five percent (5%) of the outstanding Common Stock and by directors and officers of the Company, both individually and as a group: Name and Address of Beneficial Owner Number of Shares Owned Percentage** Beneficially Peter F. Russo 900,000(1) 3.87 Martin G. Chilek 900,000(2) 3.87 Jerome Kindrachuk 600,000(3) 2.61 All Officers and Directors as a Group 2,400,000 9.77 T&T Asset Management 2,925,000(4) 12.30 J. Friedman & Sons 2,700,638(5) 11.03 United Charities of America 1,202,877(6) 5.24 Sophie Angelastri 1,837,231(7) 7.68 Nice Holdings, Ltd. 2,400,000(8) 9.65 Neil Berman 6,624,920(9) 24.02 Ivano Angelastri 1,265,500(10) 5.63 The Divergence Fund, LP 1,720,090(11) 7.26 David Wang 2,000,000(12) 8.17 ** Based on 22,476,824 shares outstanding on May 31, 2005. - ------------ (1) In addition to 100,000 shares owned directly, Mr. Russo holds options expiring November 19, 2009 to purchase an aggregate of 2,500,000 shares of common stock at an exercise price of $.25 per share, of which options to purchase 800,000 shares are presently exercisable. Mr. Russo's address is c/o the Company at 111 North Branch Street, Sellersville, PA 18960. 7 (2) In addition to 100,000 shares owned directly, Mr. Chilek holds options expiring November 19, 2009 to purchase an aggregate of 1,750,000 shares of common stock at an exercise price of $.25 per share, of which options to purchase 800,000 shares are presently exercisable. Mr. Chilek's address is c/o the Company at 111 North Branch Street, Sellersville, PA 18960. (3) In addition to 100,000 shares owned directly, Mr. Kindrachuk holds options expiring November 19, 2009 to purchase an aggregate of 750,000 shares of common stock at an exercise price of $.25 per share, of which options to purchase 500,000 shares are presently exercisable. Mr. Kindrachuk's address is c/o the Company at 111 North Branch Street, Sellersville, PA 18960. (4) In addition to 1,625,000 shares owned directly, T&T Asset Management holds notes convertible into 800,000 shares of common stock at a conversion price of $0.05 per share and warrants expiring March 31, 2006 to purchase 500,000 shares of common stock at an exercise price of $0.10 per share. The address of T&T Asset Management is Bahnhofstrasse 73, CH-8001 Zurich, Switzerland. (5) In addition to 700,638 shares owned directly, J.Friedman & Sons holds notes convertible into 1,000,000 shares of common stock at a conversion price of $0.05 per share and warrants expiring March 31, 2006 to purchase 1,000,000 shares of common stock at an exercise price of $0.10 per share. The address of J. Friedman & Sons is 9380 Route 130 North, Pennsauken, NJ 08110. (6) In addition to 702,877 shares owned directly, United Charities of America holds warrants expiring March 31, 2006 to purchase 500,000 shares of common stock at an exercise price of $0.10 per share. The address of United Charities is 170 Prospect Avenue #2, Hackensack, NJ 07601. (7) In addition to 403,951 shares owned directly, Ms. Angelastri holds notes convertible into 1,033,280 shares of common stock at a conversion price of $.125 per share and warrants expiring March 31, 2006 to purchase 400,000 shares of common stock at an exercise price of $0.10 per share. Ms. Angelastri disclaims any beneficial ownership of shares of common stock held by her husband Ivano Angelastri. The address of Ms. Angelastri is Alte Bergstrasse 171, CH-8707 Uetikon am See, Switzerland. (8) Nice Holdings, Ltd., holds notes convertible into 1,200,000 shares of common stock at a conversion price of $0.05 per share and warrants expiring March 31, 2006 to purchase 1,200,000 shares of common stock at an exercise price of $0.10 per share. The address of Nice Holdings is 555 Zhen Nin Road, B-1904, Shanghai, P.R. China. (9) In addition to 1,295,000 shares owned directly, Neil Berman holds notes convertible into 1,549,920 shares of common stock at a conversion price of $0.125 per share, notes convertible into 3,620,000 shares at a conversion price of $0.05 per share, and warrants expiring March 31, 2006 to purchase 230,000 shares of common stock at an exercise price of $0.10 per share. Mr. Berman's address is 21346 St. Andrews Blvd., Boca Raton, FL 33433. (10) Mr. Angelastri holds 1,265,000 shares directly. Mr. Angelastri disclaims any beneficial ownership of shares of common stock, convertible notes and warrants held by his wife Sophie Angelastri. Mr. Angelastri's address is Alte Bergstrasse 171, CH-8707 Uetikon am See, Switzerland. (11) In addition to the 520,090 shares owned directly, The Divergence Fund, LP holds notes convertible into 500,000 shares of common stock at a conversion price of $0.05 per share and warrants expiring March 31, 2006 to purchase 700,000 shares of common stock at an exercise price of $0.10 per share. The address of The Divergence Fund is 1120 Avenue of the Americas, 4th Floor, Suite 4065, New York, NY 10036. 8 (12) David Wang holds notes convertible into 1,000,000 shares of common stock at a conversion price of $0.05 per share and warrants expiring March 31, 2006 to purchase 1,000,000 shares of common stock at an exercise price of $0.10 per share. Mr. Wang's address is 8801 Mary Mead Court, Potomac, MD 20854. TRANSACTIONS WITH MANAGEMENT On March 6, 2003 the Company entered into a consulting agreement with M.U.R.G. LLC ("M.U.R.G."), a Florida-based real estate consulting firm. The consultant was to provide advisor services in connection with a proposed construction of approximately 500 homes in Puerto Rico by the Company. We advanced M.U.R.G. $100,000 against its future commission compensation and M.U.R.G. delivered to us its promissory note payable on demand with interest accruing at the rate of 5% per annum. Gary T. Robinson, Former Chief Executive Officer and Former Chairman of the Board, loaned the Company $100,000 that enabled us to make the advance to M.U.R.G. The project did not go forward and on June 16, 2003 Mr. Robinson agreed to assume the promissory note from M.U.R.G. and eliminate the loan amount due him from the Company. On March 11, 2003, we entered into a contract with Peter F. Russo to serve as President. It provides for three years' employment from March 11, 2003, at a salary of $10,000 per month through June 30, 2003, and $15,000 per month thereafter, payable in bi-monthly installments, plus benefits. On September 20, 2004 the contract was amended to adjust the salary to $6,500 per month effective January 1, 2004. Certain benefits were also eliminated effective the same dates. We also have an employment contract with Jerome Kindrachuk effective July 2003, prior to Mr. Kindrachuk's appointment as an officer of the Company. It provides for three years' employment from July 1, 2003, at a salary of $10,000 per month, payable in bi-monthly installments, plus benefits. On September 22, 2004 the contract was amended to adjust salary to $6,000 per month effective January 1, 2004. Certain benefits were also eliminated effective the same dates. During the first quarter of 2004, the Company paid consulting fees to Jerome Kindrachuk of $13,612 for services rendered prior to his employment. The following officers of the Company were issued shares of common stock under the 2001 Employee Stock Option Plan as follows:
- ------------------------------------------------------------------------------------------------------- Name Date of Issuance Number of Shs. Per Share Valuation - ------------------------------------------------------------------------------------------------------- Peter F. Russo December 10, 2004 50,000 $0.18 - ------------------------------------------------------------------------------------------------------- Martin G. Chilek January 14, 2004 89,500 $0.078 December 10, 2004 50,000 $0.18 - ------------------------------------------------------------------------------------------------------- Jerome Kindrachuk December 10, 2004 50,000 $0.18 - -------------------------------------------------------------------------------------------------------
9 PROPOSAL NO. 2 APPROVE AN AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION TO CHANGE THE NAME OF THE COMPANY FROM DELTA MUTUAL, INC. TO DELTA GLOBAL TECHNOLOGIES, INC. The Board of Directors of the Company has adopted a resolution unanimously approving and recommending to the Company's stockholders for their approval an amendment to the Company's Certificate of Incorporation to change the name of the Company from Delta Mutual, Inc. to Delta Global Technologies, Inc. The Board of Directors determined that it would be appropriate that the name of the Company more accurately reflect the Company's business and licensed technology. If Proposal No. 2 is approved by the Company's stockholders, the Board of Directors expects to file a Certificate of Amendment to the Company's Certificate of Incorporation changing the name of the Company to Delta Global Technologies, Inc. as soon as practicable after the date of the Annual Meeting. The Certificate of Amendment would amend Article FIRST of the Company's Certificate of Incorporation to read as set forth in the text of the proposed Amendment to our Certificate of Incorporation attached as Exhibit A to this Proxy Statement. PROPOSAL NO. 3 APPROVE AN AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION TO AUTHORIZE A NEW CLASS OF 5,000,000 SHARES OF PREFERRED STOCK, PAR VALUE $.001 PER SHARE The Board of Directors of the Company has adopted a resolution unanimously approving and recommending to the Company's stockholders for their approval an amendment to the Company's Certificate of Incorporation to authorize a new class of 5,000,000 shares of preferred stock, par value $.0001 per share, and to authorize the Board of Directors to issue one or more series of the preferred stock with such designations, rights, preferences, limitations and/or restrictions as it should determine by vote of a majority of such directors. The Company's Certificate of Incorporation currently only permits the Company to issue shares of Common Stock. This, the Company believes, has limited the Company's flexibility in seeking additional working capital. The Board of Directors has recommended that the Certificate of Incorporation be amended to authorize a class of 5,000,000 shares of Preferred Stock and to allow the Board of Directors of the Company the widest possible flexibility in setting the terms of Preferred Stock that may be issued in the future. The Company will, therefore, be afforded the greatest flexibility possible in seeking additional financing, as the Board of Directors deems appropriate in the exercise of its reasonable business judgment. The Company currently has no commitments or plans for the issuance of any shares of Preferred Stock. If the Amendment is approved, the Board of Directors will have the right, without further stockholder approval or action, to issue up to 5,000,000 shares of Preferred Stock, having such rights and preferences, including voting rights, as the Board of Directors may determine. The ability of the Company to issue such shares of Preferred Stock may, under certain circumstances, make it more difficult for a third party to gain control of the Company (e.g., by means of a tender offer), prevent or substantially delay such a change of control, discourage bids for the Common Stock at a premium, or otherwise adversely affect the market price of the Common Stock. 10 * * * The vote required for approval of the Proposals to amend the Certificate of Incorporation is the affirmative vote of the holders of a majority of the outstanding shares of the Company's Common Stock. RECOMMENDATION OF THE BOARD OF DIRECTORS: THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSALS TO AMEND THE CERTIFICATE OF INCORPORATION. DISSENTERS' OR APPRAISAL RIGHTS Under Delaware law, our stockholders do not have any dissenters' or appraisal rights with respect to the approval of the Amendments to the Certificate of Incorporation. INDEPENDENT AUDITORS Wiener, Goodman & Company, P.C., Eatontown, New Jersey, has served as the Company's independent auditors since our 2000 fiscal year and has been appointed by the Board to continue as the Company's independent auditors for the fiscal year ending December 31, 2005. Wiener, Goodman & Company, P.C. has no interest, financial or otherwise, in the Company. A representative of Wiener, Goodman & Company, P.C. is not expected to be present at the Annual Meeting. Audit Fees The aggregate fees billed by our independent auditors for the last two years were as follows: 2004: $75,116; and 2003: $52,885. Audit related fees Audit related fees were $72,704 for 2004 and $48,855 for 2003. Tax fees For 2004, fees for tax compliance, tax advice and tax planning were $5,000; such fees were $4,000 for 2003. Our independent auditors' services were related to our corporate tax returns. All other fees There were no other fees billed by our independent auditors for 2004 and 2003. 11 DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS FOR 2006 ANNUAL MEETING Proposals of stockholders intended to be presented at next year's Annual Meeting of Stockholders must be received by Martin G. Chilek, Chief Financial Officer, Delta Mutual, Inc., 111 North Branch Street, Sellersville, PA 18960, on or before March 1, 2006. OTHER PROPOSED ACTION The Board of Directors is not aware of any other business which will come before the Annual Meeting, but if any such matters are properly presented, the proxies solicited hereby will be voted in accordance with the best judgment of the persons holding the proxies. All shares represented by duly executed proxies will be voted at the Annual Meeting. APPENDIX - FORM 10-KSB The Company's 2004 Form 10-KSB containing all financial statements is attached to this proxy statement as an Appendix. FINANCIAL INFORMATION - INCORPORATED BY REFERENCE The Company's report on Form 10-QSB for the three months ended March 31, 2005, as well as Management's Discussion and Analysis of Financial Condition and Results of Operations contained in the Form 10-QSB, is incorporated herein by reference. AVAILABILITY OF CERTAIN DOCUMENTS REFERRED TO HEREIN THIS PROXY STATEMENT AND THE APPENDIX HERETO REFER TO CERTAIN DOCUMENTS OF THE COMPANY THAT ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS ARE AVAILABLE TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS PROXY STATEMENT IS DELIVERED, UPON ORAL OR WRITTEN REQUEST, WITHOUT CHARGE, DIRECTED TO MARTIN G. CHILEK, CHIEF FINANCIAL OFFICER, DELTA MUTUAL, INC., 111 NORTH BRANCH STREET, SELLERSVILLE, PA 18960, TELEPHONE NUMBER (215) 258-2800. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, SUCH REQUESTS SHOULD BE MADE BY JULY , 2005. OTHER MATTERS The Board of Directors knows of no other business that will be presented to the Annual Meeting. If any other business is properly brought before the Annual Meeting, proxies in the enclosed form will be voted in respect thereof as the proxy holders deem advisable. It is important that the proxies be returned promptly and that your shares be represented. Stockholders are urged to mark, date, execute and promptly return the accompanying proxy card in the enclosed envelope. 12 By Order of the Board of Directors, /s/ Peter F. Russo Sellersville, Pennsylvania Peter F. Russo, July , 2005 President and Chief Executive Officer 13 FORM OF PROXY PROXY FOR ANNUAL MEETING OF DELTA MUTUAL, INC. 111 NORTH BRANCH STREET, SELLERSVILLE, PA 18960 (215) 258-2800 SOLICITATION ON BEHALF OF THE BOARD OF DIRECTORS OF DELTA MUTUAL, INC. THE UNDERSIGNED hereby appoint(s) Peter F. Russo and Martin G. Chilek, or either of them, with full power of substitution, to vote at the Annual Meeting of Stockholders of Delta Mutual, Inc., a Delaware corporation (the "Company"), to be held on August , 2005, at 10:00 A.M., Eastern Daylight Time, at the offices of the Company at 111 North Branch Street, Sellersville PA 18960, or any adjournment thereof, all shares of the common stock which the undersigned possess(es) and with the same effect as if the undersigned was personally present, as follows: PROPOSAL (1): ELECTION OF DIRECTORS. Peter F. Russo Martin G. Chilek Robert W. Harris
( ) For the Nominees Listed Above ( ) Withhold Authority to Vote (except as marked to the contrary below) for the Nominees Listed Above
------------------------------------------------------------------------------- (To withhold vote for any nominee or nominees, print the name(s) above.) PROPOSAL (2): APPROVE AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION TO CHANGE THE NAME OF THE COMPANY TO DELTA GLOBAL TECHNOLOGIES, INC. ( ) For ( ) Against ( ) Abstain PROPOSAL (3): APPROVE AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION TO AUTHORIZE A NEW CLASS OF 5,000,000 SHARES OF PREFERRED STOCK. ( ) For ( ) Against ( ) Abstain PROPOSAL (4): TRANSACT SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING. ( ) In their discretion, the proxy-holders are ( ) Withhold Authority authorized to vote upon such other business as may properly come before the meeting or any adjournment thereof. 14 WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED AS DIRECTED. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2 AND 3 AND IN THE DISCRETION OF THE PROXIES NOMINATED HEREBY ON ANY OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING. (Please sign exactly as name appears hereon. If the stock is registered in the names of two or more persons, then each should sign. Executors, administrators, trustees, guardians, attorneys and corporate officers should include their capacity or title.) Please sign, date and promptly return this Proxy in the enclosed envelope. - ---------------------------------- ------------------------ Signature Date - ---------------------------------- ------------------------ Signature Date 15 EXHIBIT A CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF DELTA MUTUAL, INC. Pursuant to Section 242 of the General Corporation Law of the State of Delaware, Delta Mutual, Inc. (the "corporation"), a corporation organized and existing under the General Corporation Law of the State of Delaware, does hereby certify: FIRST: That the Board of Directors of the corporation on , 2005, adopted resolutions proposing and declaring advisable the following amendment to the Certificate of Incorporation of the corporation: RESOLVED, that the Board of Directors declares advisable, and recommends to the stockholders for adoption, the following amended First Article to replace, in its entirety, the First Article of the corporation's Certificate of Incorporation: FIRST: The name of the corporation (hereinafter called the "corporation") is Delta Global Technologies, Inc. RESOLVED, that the Board of Directors further declares advisable, and recommends to the stockholders for adoption, the following amended Fourth Article to replace, in its entirety, the Fourth Article of the corporation's Certificate of Incorporation: FOURTH: The total number of shares of stock which the corporation shall have authority to issue is One Hundred Five Million (105,000,000), of which One Hundred Million (100,000,000) are Common Stock, having a par value each of One-hundredth of One Cent ($0.0001) per share, and Five Million (5,000,000) are Preferred Stock, having a par value each of One-hundredth of One Cent ($0.0001) per share. Authority is hereby expressly vested in the Board of Directors of the corporation, subject to the provisions of this Fourth Article and to the limitations prescribed by law, to authorize the issue from time to time of one or more series of Preferred Stock and with respect to each such series to fix by resolution or resolutions adopted by the affirmative vote of a majority of the whole Board of Directors providing for the issue of such series, the voting powers, full or limited, if any, of the shares of such series and the designations, preferences and relative, participating, optional or other special rights and the qualifications, limitations or restrictions thereof. The authority of the Board of Directors with respect to each series shall include, but not be limited to, the determination or fixing of the following: (a) The number of shares constituting the series and the designation of such series; (b) The dividend rate on the shares of such series, the conditions and dates upon which such dividends shall be payable, the relation which such dividends shall bear to the dividends payable on any other class or classes or series of the corporation's capital stock, and whether such dividends shall be cumulative or non-cumulative; 1 (c) Whether the shares of such series shall be subject to redemption by the corporation at the option of either the corporation or the holder or both or upon the happening of a specified event, and, if made subject to any such redemption, the times or events, prices and other terms and conditions of such redemption; (d) The terms and amount of any sinking fund provided for the purchase or redemption of the shares of such series; (e) Whether or not the shares of such series shall be convertible into, or exchangeable for, at the option of either the holder or the corporation or upon the happening of a specified event, shares of any other class or classes or any other series of the same or any other class or classes of the corporation's capital stock, and, if provision be made for conversion or exchange, the times or events, prices, rates, adjustments, and other terms and conditions of such conversions or exchanges; (f) The restrictions, if any, on the issue or reissue of any additional Preferred Stock; (g) The rights of the holders of the shares of such series upon the voluntary or involuntary liquidation, dissolution or winding up of the corporation, and the relative rights of priority, if any, of payment of shares of that series; and (h) The provisions as to voting, optional and/or other special rights and preferences, if any. Dividends on outstanding shares of Preferred Stock shall be paid or declared and set apart for payment before any dividends shall be paid or declared and set apart for payment on the Common Stock with respect to the same dividend period. If upon any voluntary or involuntary liquidation, dissolution or winding up of the corporation, the assets available for distribution to holders of shares of Preferred Stock of all series shall be insufficient to pay such holders the full preferential amount to which they are entitled, then such assets shall be distributed ratably among the shares of all series of Preferred Stock in accordance with the respective preferential amounts (including unpaid cumulative dividends, if any) payable with respect thereto. SECOND: That the amendment was fully approved and adopted by the affirmative vote of the majority of shares present in person at the Annual Meeting of Stockholders held on August __, 2005, in accordance with the provisions of Sections 211 and 216 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, the corporation has caused this Certificate of Amendment of Certificate of Incorporation to be signed by its President and attested to by its Secretary this ____ day of August, 2005. Delta Mutual, Inc. By: ____________________________ President ATTEST: - ---------------------------- Secretary 2 ANNEX B UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-KSB [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2004 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 000-30563 DELTA MUTUAL, INC. (Name of small business issuer in its charter) DELAWARE 14-1818394 --------------- -------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 111 North Branch Street, Sellersville, Pennsylvania 18960 (Address of principal executive offices) (Zip Code) --------------------------------------------- (Former Address) (215) 258-2800 (Registrant's telephone number) Securities registered under Section 12(b) of the Exchange Act: NONE Securities registered under Section 12(g) of the Exchange Act: COMMON STOCK (par value $0.0001 per share) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days. Yes |X| No |_| Check if no disclosure of delinquent filers in response to Item 405 of Regulation S-B is contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. |_| Issuer's revenues for its fiscal year ended December 31, 2004: $-0- Aggregate market value of the voting and non-voting common shares held by non-affiliates of the registrant as of April 12, 2005: $9,863,574 (See Item 5) Number of shares outstanding of registrant's Common Stock, par value $.0001, as of April 12, 2005: 20,849,113 shares of Common Stock (See Item 11) Documents incorporated by reference: NONE Transitional Small Business Disclosure Format (check one): Yes |_| No |X| PART I NOTE REGARDING FORWARD LOOKING STATEMENTS CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 This Annual Report contains historical information as well as forward-looking statements. Statements looking forward in time are included in this Annual Report pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements involve known and unknown risks and uncertainties that may cause our actual results in future periods to be materially different from any future performance suggested herein. We wish to caution readers that in addition to the important factors described elsewhere in this Form 10-KSB, the following forward-looking statements, among others, sometimes have affected, and in the future could affect, our actual results and could cause our actual consolidated results during 2004, and beyond, to differ materially from those expressed in any forward-looking statements made by or on our behalf. Forward-looking statements include, but are not limited to, statements under the following headings; (i) "Business Plan," about the development of certain projects and business opportunities and the Company's attempts to convert these plans and opportunities into operating businesses that generate revenues and profits; (ii) "Business Plan," about the intentions of the Company to fund its businesses and operations by borrowings and the successful placement of debt and equity financings; (iii) "Results of Operations"; (iv) "Liquidity and Capital Resources," about the Company's plan to raise additional capital; (v) "Liquidity and Capital Resources," about the contingent nature of the consummation of any agreements with its contracting, joint venture and partnership parties. ITEM 1. DESCRIPTION OF BUSINESS Unless the context otherwise requires, the terms "the Company," "we," "our" and "us" refers to Delta Mutual, Inc., and, as the context requires, its consolidated subsidiaries. GENERAL We were incorporated under the name Delta Mutual, Inc. on November 17, 1999, in the State of Delaware. We have established business operations focused on providing construction and environmental technologies and services to specific geographic areas in Puerto Rico, the Middle East, and the Far East. Our offices are located at 111 North Branch Street, Sellersville, PA 18960. Our telephone number is (215) 258-2800. Our common stock is quoted on the Over-the-Counter Electronic Bulletin Board under the symbol "DLTM". Prior Operations At the time of the Company's formation, prior Company management intended to provide mortgage services through the Internet to borrowers with substandard credit. In 2000, however, the market for the stock of Internet-based businesses deteriorated substantially and many such companies went out of business because they were unable to generate sufficient revenue and were unable to raise additional capital. From inception through December 31, 2002, prior to initiating our current plan of operations, we raised a limited amount of capital through the sale of our common stock. These funds were not sufficient to capitalize any of our planned business activities in that period. In April 2001, Kelcon, Inc. ("Kelcon"), a company newly organized for the purpose by Kenneth A. Martin, acquired a controlling interest in us with a view to acquiring the assets of Enterprises Solutions, Inc. ("Enterprises") pursuant to an Agreement of Sale in exchange for shares of our common stock. Due to the death of Enterprises' president, the Agreement of Sale with Enterprises was terminated. In November 2002, Kelcon contracted for the sale of its 450,000 shares of our common stock to Mr. Gary T. Robinson, a New York businessman, pursuant to an agreement providing for a total purchase price of $275,000 in a private transaction. Mr. Robinson paid $50,000 of the purchase price in connection with the execution of the purchase agreement. We have viewed this transaction as representing a change in control of the Company. On June 11, 2003, Mr. Robinson resigned as Chief Executive Officer and Mr. Peter F. Russo was appointed to that office. On November 28, 2003, Mr. Robinson resigned as a director. Business Plan Since the change in control, new Company management has embarked upon a new mission and strategic direction, through the establishment of joint ventures and two limited partnerships. This structure is primarily for the establishment of business operations focused on providing construction and environmental technologies and services to specific geographic areas in Puerto Rico, the Middle East and the Far East. The Company, simultaneously, made a strategic decision to minimize its activities in Eastern Europe and to maintain a small passive investment in the area that can be expanded in the future should circumstances change. Access to technologies for our proposed environmental remediation and housing construction activities has been secured primarily through strategic alliance agreements with the manufacturers and/or patent license holders. These agreements enable the Company, in most cases, to utilize the technology holder as the sub-contractor for the projects thereby minimizing the need for Company trained employees. We have entered into strategic alliance agreements with several United States-based entities with technologies in the environmental technology field to support our activities in the Middle East and Far East. On March 18, 2003 we entered into a Letter Of Intent with Hi Tech Consulting and Construction, Inc. to form a joint venture to provide environmental technology services for certain business sectors located in the Middle East and Africa. The joint venture agreement was concluded January 14, 2004, and the joint venture company, Delta-Envirotech, Inc., is based in the Commonwealth of Virginia and incorporated in the State of Delaware. Middle East On January 22, 2004, the Company announced the conclusion of a strategic alliance agreement between Delta-Envirotech, Inc. and ZAFF International, Ltd., an advanced technology company located in Saudi Arabia. The strategic alliance states that the two companies will jointly pursue projects related to soil and water reclamation requirements in the Middle East. Under the terms of the agreement, the strategic alliance is to transition to a joint venture as soon as possible within the formation and registration process of Saudi Arabia. On December 1, 2004, the Company announced that ZAFF International, Ltd., Delta's strategic partner, received its operating license from the Saudi Arabia environmental authorities to employ all soil, refinery waste and waste water technologies held by Delta for environmental recovery projects. ZAFF International, Ltd. is one of the first companies to be granted a multi-technology environmental license in Saudi Arabia. The technologies that will be deployed are related centrifugal recovery of oil from shorelines, sludge pools and other collection areas, thermal removal of non-hydrocarbon contamination from soil and water and oxygenation wastewater recovery systems. We believe that the potential in the Middle East is significant for energy and water recovery projects. Far East In April 2004, Delta-Envirotech, Inc. executed an agreement with the Indonesian government's technology authority, LIPI. The agreement outlines a joint cooperation between Delta-Envirotech, Inc. and a local Indonesian technology company to commence energy recovery and waste processing operations in Indonesia. The initial technology will be for separation of water and hydrocarbons through centrifuges, water cleaning using a reverse osmosis system, and removal of the remaining waste. Subsequent technology will be for the further centrifugal treatment of the recovered hydrocarbons to yield heavy pipeline grade crude oil. A local joint venture is being established to conduct the actual recovery and processing activities. The Company estimates a large market for environmental remediation in Indonesia, Malaysia, Singapore and the Philippines. Today, according to our estimates more than seven million tons of oil sludge are located in refineries, collection areas and storage pools in Indonesia. Puerto Rico On January 20, 2004, the Company announced the formation of a joint venture project to develop government sponsored, Section 124 low income housing in the Commonwealth of Puerto Rico. The development, Brisas Del Atlantico, has been approved for development under Section 124 of the Puerto Rico Housing Authority (Vivendes), which provides for government subsidized low-income housing. The Company is the General Partner and majority owner of a limited partnership that is the majority shareholder of Delta Developers Corp., a Puerto Rico corporation, formed to manage the construction and related activities required to build approximately 270 low income homes under Section 124. The Company will use insulated concrete form technology (ICF) to construct the houses. This technology allows for stronger and less expensive construction than conventional concrete block. ICF also incorporates insulation in its basic design that must be added with conventional construction. The necessary building permits have been submitted for approval and a real estate agency has been hired to sell the homes planned for construction. Due to events related to the ballot recount in the Puerto Rico gubernatorial election held November 2, 2004, the election of a new governor was not certified until late December 2004. These events have delayed the Company's permit approval process. Currently, we expect the building permits to be approved and presale of the homes to begin in the third quarter of 2005. On December 9, 2004, the Company announced the formation of a second joint venture project to develop government sponsored, Section 124 low income housing in the Commonwealth of Puerto Rico. Using the same ownership structure as the first project, Delta Mutual, Inc. is the majority owner of Delta Developers Guayanilla Corp., a Puerto Rico corporation. The Company plans to build approximately 300 low income houses under Section 124. Demand for Section 124 low income housing exceeded 60,000 units, based on a 2000 study conducted for the Puerto Rico Bankers Association, which projected the shortage would continue to increase. The Company currently estimates the Section 124 low income housing market to be in excess of $6 billion. COMPETITION Until we have successfully obtained the full amount of debt or equity financing required to fund our projected business operations, it is difficult to compete with large, well-capitalized companies for environmental remediation governmental or private sector contracts. Many of these contracts require significant up-front expenditures on behalf of the firm awarded the contract. There are many established environmental remediation companies that have significantly greater financial and personnel resources and technical expertise than we do. There are well-capitalized environmental services and technology companies as well as highly capitalized housing development companies in our target marketplaces that will continue to retain their dominance and competitive advantages over us. Our planned housing construction activities in Puerto Rico also face intense competition from larger, better-financed developers and construction companies. EMPLOYEES Currently, we have five employees: Peter F. Russo, President and Chief Executive Officer; Martin G. Chilek, Vice President and Chief Financial Officer; Jerome Kindrachuk, Vice President--International; John Latza, Vice President-Puerto Rico Operations and Judith Dallas, Director, Administration. Assuming that we obtain the necessary funding to operate our planned businesses, we will hire several additional personnel to support our projected business operations. RISK FACTORS Our business is subject to numerous risk factors, including the following: NO REVENUE AND MINIMAL ASSETS. We have no revenues. The Company's ability to continue as a going concern is dependent upon its ability to obtain funds to meet its obligations on a timely basis, obtain additional financing or refinancing as may be required, and ultimately to attain profitability. There are no assurances that the Company will be able to obtain any additional financing or, if it is able to obtain additional financing, that such financing will be on favorable terms. The inability to obtain additional financing when needed would have a material adverse effect on operating results. WE HAVE NOT OPERATED PROFITABLY SINCE INCEPTION, AND WE EXPECT TO INCUR LOSSES IN THE FUTURE. WE WILL BE REQUIRED TO RAISE SUBSTANTIAL AMOUNTS OF CAPITAL. Our operations have not generated any revenue nor are they profitable. We have incurred net operating losses from the formation of our company through December 31, 2004, of $5,710,099 and expect that we will continue to incur operating losses in the future. In 2004, we generated no revenue, incurred operating expenses of $1,848,078 and had a net loss of $3,920,699. As of April 12, 2005, we had approximately $7,500 of cash on hand to fund operations. There is no assurance that we will operate profitably in the future. Failure to achieve or maintain profitability may materially and adversely affect the future value of our common stock. We will have to obtain significant additional capital to continue development of our proposed business. There is no assurance that we will be able to obtain sufficient capital to develop our proposed environmental remediation and housing businesses and market our services successfully. WE HAVE BEEN THE SUBJECT OF A GOING CONCERN OPINION FROM OUR INDEPENDENT AUDITORS, WHICH MEANS THAT WE MAY NOT BE ABLE TO CONTINUE OPERATIONS UNLESS WE OBTAIN ADDITIONAL FUNDING. Our independent auditors have added an explanatory paragraph to their audit opinions, issued in connection with our financial statements, which states that our ability to continue as a going concern is uncertain due to our continued operating losses, the excess of our liabilities over our assets and uncertain conditions we face in our day-to-day operations. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty. WE ARE SUBJECT TO EXTENSIVE GOVERNMENTAL REGULATION FOR OUR PROPOSED ENVIRONMENTAL REMEDIATION OPERATIONS. Each aspect of our proposed environmental remediation business is subject to significant international governmental and U.S. federal, state and local environmental regulations. No assurances can be given that such environmental laws or regulations, or that future changes in environmental laws, regulations, or interpretations currently applicable to the Company or changes in the nature of the Company's operations, will not adversely impact our proposed operations or have a material adverse effect on the financial condition, operations and liquidity of the Company. AS A HOUSING DEVELOPER WE FACE ECONOMIC AND MARKET RISKS. Many factors which are beyond our control will affect our proposed business as a developer of housing, including, among others, general economic and real estate market conditions, competitive factors, the availability and cost of borrowed funds, real estate tax rates, federal and state income tax laws, operating expenses (including maintenance and insurance), energy costs, government regulations, including delays in acquiring or our inability to acquire required permits, and potential liability under and changes in environmental and other laws, as well as the successful management of the properties. Our success as a developer of housing will also be subject to certain additional risks including, but not limited to, (i) competition for existing and future projects from other developers in the areas of our developed properties, (ii) adverse changes in mortgage interest or terms of governmental financing, (iii) possible adverse changes in general economic conditions and adverse local conditions, such as competitive over-bidding, a decrease in employment or adverse changes in real estate zoning laws, and (iv) other circumstances over which we may have little or no control. OUR MARKETS ARE VERY COMPETITIVE. Virtually all of our current and potential competitors have significantly greater financial, marketing and technical resources than we have. As a result, they may be able to leverage a customer base, adapt more quickly to new technologies and changes in customer requirements, or devote greater resources to the promotion and sale of their services and products than we can. WE DO NOT EXPECT TO PAY DIVIDENDS. We have never paid dividends on our common stock. Current Company management anticipates that any earnings generated from our operations will be used to finance our working capital requirements, to develop services and products and for marketing. For the foreseeable future, cash dividends will not be paid to holders of our common stock. VOLATILITY OF STOCK PRICE. The market price of our common stock, as is the case for companies without established operations, is extremely volatile due to our uncertain future prospects and general market and economic conditions. During the fifteen month period ended April 12, 2005, the closing per share price of our common stock has fluctuated from $1.09 to $0.16 per share. Our common stock currently trades in the OTC Bulletin Board market. "PENNY" STOCK REGULATION OF BROKER-DEALER SALES OF OUR SECURITIES. The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in "penny stocks." Generally, penny stocks are equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ system). If our shares are traded for less than $5.00 per share, as they currently are, the shares will be subject to the SEC's penny stock rules unless: (1) our net tangible assets exceed $5,000,000 during our first three years of continuous operations or $2,000,000 after our first three years of continuous operations; or (2) we have had average revenue of at least $6,000,000 for the last three years. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document prescribed by the SEC that provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer's account. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction. These requirements may have the effect of reducing the level of trading activity in the secondary market for a stock that becomes subject to the penny stock rules. As long as our common stock is subject to the penny stock rules, the holders of the common stock may find it difficult to sell our common stock. ITEM 2. DESCRIPTION OF PROPERTY. We currently lease office space consisting of approximately 1,700 square feet in an office building located in Sellersville, Pennsylvania. We are obligated to pay a monthly rent of $650 as well as pay for the utilities serving the premises. Our lease is for a period of three years from March 1, 2003 to February 28, 2006. We anticipate that our current office space will accommodate our operations for the foreseeable future. We also rent, commencing in November 2004, an office located in McLean, Virginia consisting of approximately 150 square feet. We are obligated to pay a monthly rental of $1,100 under a month-to-month arrangement. ITEM 3. LEGAL PROCEEDINGS. We have no pending legal proceedings and are not aware of any threatened legal proceedings. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. PART II ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES. Our common stock has been quoted on the Over-the-Counter Bulletin Board operated by the National Association of Securities Dealers, since approximately February 1, 2001. Our shares are listed under the symbol "DLTM". The quotations in the table below reflect inter-dealer prices, without retail mark-up, mark-down, or commission and may not represent actual transactions. High Low ----- ----- 2003: 1st Quarter 2.80 2.10 2nd Quarter 2.00 .65 3rd Quarter 1.35 .63 4th Quarter .95 .17 2004: 1st Quarter 1.09 0.49 2nd Quarter 0.79 0.16 3rd Quarter 0.35 0.17 4th Quarter 0.48 0.17 2005: 1st Quarter 0.69 0.28 During the last two fiscal years, no cash dividends have been declared on Delta's common stock and current Company management does not anticipate that dividends will be paid in the foreseeable future. As of April 12, 2005, there were 77 record holders of our common stock. RECENT SALES OF UNREGISTERED SECURITIES
- --------------------------------------------------------------------------------------------------------------------- Date Title and Amount Purchasers Principal Total Offering Underwriter Price/Underwriting Discounts - --------------------------------------------------------------------------------------------------------------------- May 23, 2003 100,000 shares of common Private Investor NA $.50 per share/NA stock - --------------------------------------------------------------------------------------------------------------------- May 23, 2003 20,000 shares of common Consultant NA Consulting Services valued stock issued for at $.50 per share/NA consulting services - --------------------------------------------------------------------------------------------------------------------- May 23, 2003 240,000 shares of common Consultant NA Consulting Services valued stock issued for at $.1667 per share/NA consulting services - --------------------------------------------------------------------------------------------------------------------- May 23, 2003 100,000 shares of common Consultant NA Consulting Services valued stock issued for at $.25 per share/NA consulting services - --------------------------------------------------------------------------------------------------------------------- May 23, 2003 100,000 shares of common Consultant NA Consulting Services valued stock issued for at $.25 per share/NA consulting services - --------------------------------------------------------------------------------------------------------------------- May 23, 2003 288,638 shares of common Licensee NA Services under License stock issued for Agreement valued at $.139 consulting services per share/NA - --------------------------------------------------------------------------------------------------------------------- May 23 and 800,000 shares of common Private Investors NA Purchase of $250,000 September 5, 2003 stock principal amount note, valued at $.3125 per share/NA - --------------------------------------------------------------------------------------------------------------------- May 23, 2003 50,000 shares of common Private Investor NA Interest on loan valued at stock, issued as payment $.275 per share/NA of interest on outstanding debt - --------------------------------------------------------------------------------------------------------------------- May 23, 2003 37,000 shares of common Consultant NA Consulting Services valued stock issued for at $.405 per share/NA consulting services - --------------------------------------------------------------------------------------------------------------------- May 23, 2003 3,000 shares of common Consultant NA Consulting Services valued stock issued for at $.50 per share/NA consulting services - --------------------------------------------------------------------------------------------------------------------- May 23, 2003 50,000 shares of common Private Investor NA Interest on loan valued at stock, issued as payment $.333 per share/NA of interest on outstanding debt - --------------------------------------------------------------------------------------------------------------------- July 23, 2003 37,000 shares of common Consultant NA Consulting Services valued stock issued for at $.405 per share/NA consulting services - ---------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------- Date Title and Amount Purchasers Principal Total Offering Underwriter Price/Underwriting Discounts - --------------------------------------------------------------------------------------------------------------------- July 23, 2003 3,000 shares of common Consultant NA Consulting Services valued stock issued for at $.50 per share/NA consulting services - --------------------------------------------------------------------------------------------------------------------- August 1, 2003 200,000 shares of common Consultant NA Consulting Services valued stock issued for at $.20 per share/NA consulting services - --------------------------------------------------------------------------------------------------------------------- August 8, 2003 100,000 shares of common Private Investor NA $.50 per share/NA stock - --------------------------------------------------------------------------------------------------------------------- August 11, 2003 50,000 shares of common Consultant NA Consulting Services valued stock issued for at $.4375 per share/NA consulting services - --------------------------------------------------------------------------------------------------------------------- August 11, 2003 25,000 shares of common Consultant NA Consulting Services valued stock issued for at $.4375 per share/NA consulting services - --------------------------------------------------------------------------------------------------------------------- August 11, 2003 15,000 shares of common Consultant NA Consulting Services valued stock issued for at $.4375 per share/NA consulting services - --------------------------------------------------------------------------------------------------------------------- August 11, 2003 10,000 shares of common Consultant NA Consulting Services valued stock issued for at $.4375 per share/NA consulting services - --------------------------------------------------------------------------------------------------------------------- August 22, 2003 250,000 shares of common Private Investor NA $.20 per share/NA stock - --------------------------------------------------------------------------------------------------------------------- November 15, 2003 100,000 shares of common Private Investor NA $.125 per share/NA stock - --------------------------------------------------------------------------------------------------------------------- November 15, 2003 100,000 shares of common Consultant NA Consulting Services valued stock issued for at $.085 per share/NA consulting services - --------------------------------------------------------------------------------------------------------------------- November 21, 2003 50,000 shares of common Consultant NA Consulting Services valued stock issued for at $.035 per share/NA consulting services - --------------------------------------------------------------------------------------------------------------------- November 21, 2003 50,000 shares of common Consultant NA Consulting Services valued stock issued for at $.035 per share/NA consulting services - --------------------------------------------------------------------------------------------------------------------- December 15, 2003 10,000 shares of common Consultant NA Consulting Services valued stock issued for at $.085 per share/NA consulting services - ---------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------- Date Title and Amount Purchaser Principal Total Offering Underwriter Price/Underwriting Discounts - --------------------------------------------------------------------------------------------------------------------- 50,000 shares of January 14, 2004 common stock Consultant NA $.0825 per share/NA - --------------------------------------------------------------------------------------------------------------------- 400,000 shares of January 24, 2004 common stock Private Investor NA $.125 per share/NA - --------------------------------------------------------------------------------------------------------------------- February 11, 2004 400,000 shares of Private Investor NA $.125 per share/NA common stock - --------------------------------------------------------------------------------------------------------------------- 200,000 shares of Private Investor February 18, 2004 common stock NA $.125 per share/NA - --------------------------------------------------------------------------------------------------------------------- 155,000 shares of Consultant February 25, 2004 common stock NA $.16 per share/NA - --------------------------------------------------------------------------------------------------------------------- 200,000 shares of Consultant February 25, 2004 common stock NA $.10 per share/NA - --------------------------------------------------------------------------------------------------------------------- 100,000 shares of Private Investor February 26, 2004 common stock NA $.125 per share/NA - --------------------------------------------------------------------------------------------------------------------- 140,000 shares of Private Investor February 27, 2004 common stock NA $.137 per share/NA - --------------------------------------------------------------------------------------------------------------------- March 2, 2004 200,000 shares of Consultant NA $.25 per share/NA common stock - --------------------------------------------------------------------------------------------------------------------- 30,000 shares of March 31, 2004 common stock Vendor NA $.30 per share/NA - --------------------------------------------------------------------------------------------------------------------- 50,000 shares of March 31, 2004 common stock Consultant NA $.0825 per share/NA - --------------------------------------------------------------------------------------------------------------------- 200,000 shares of April 14, 2004 common stock Private Investor NA $.125/NA - --------------------------------------------------------------------------------------------------------------------- 400,000 shares of April 16, 2004 common stock Consultant NA $.18/NA - --------------------------------------------------------------------------------------------------------------------- 200,000 shares of April 16, 2004 common stock Consultant NA $.18/NA - --------------------------------------------------------------------------------------------------------------------- 100,000 shares of May 5, 2004 common stock Employee NA $.14/NA - --------------------------------------------------------------------------------------------------------------------- 60,000 shares of May 5, 2004 common stock Employee NA $.14/NA - --------------------------------------------------------------------------------------------------------------------- 25,000 shares of May 5, 2004 common stock Employee NA $.14/NA - --------------------------------------------------------------------------------------------------------------------- 35,000 shares of May 5, 2004 common stock Private Investor NA $.125/NA - --------------------------------------------------------------------------------------------------------------------- 35,000 shares of May 5, 2004 common stock Private Investor NA $.125/NA - --------------------------------------------------------------------------------------------------------------------- 200,00 shares of May 6, 2004 common stock Private Investor NA $.125/NA - --------------------------------------------------------------------------------------------------------------------- 100,000 shares of May 6, 2004 common stock Consultant NA $.125/NA - --------------------------------------------------------------------------------------------------------------------- 100,000 shares of May 11, 2004 common stock Private Investor NA $.125/NA - --------------------------------------------------------------------------------------------------------------------- $193,740 principal Private Investor NA $193,740/NA amount of 4% May 12, 2004 convertible note due May 12, 2006 convertible into 1,549,920 shares of common stock - --------------------------------------------------------------------------------------------------------------------- May 12, 2004 $129,160 principal Private Investor NA $129,160/NA amount of 4% convertible note due May 12, 2006 convertible into 1,033,280 shares of common stock - --------------------------------------------------------------------------------------------------------------------- May 25, 2004 60,000 shares of Private Investor NA $.125/NA common stock - ---------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------- Date Title and Amount Purchaser Principal Total Offering Underwriter Price/Underwriting Discounts - --------------------------------------------------------------------------------------------------------------------- June 8, 2004 50,000 shares of Private Investor NA $.125/NA common stock - --------------------------------------------------------------------------------------------------------------------- 50,000 shares of June 10, 2004 common stock Private Investor NA $.125/NA - --------------------------------------------------------------------------------------------------------------------- 50,000 shares of June 10,2004 common stock Private Investor NA $.125/NA - --------------------------------------------------------------------------------------------------------------------- 30,000 shares of June 10,2004 common stock Private Investor NA $.125/NA - --------------------------------------------------------------------------------------------------------------------- 15,000 shares of June 10,2004 common stock Private Investor NA $.125/NA - --------------------------------------------------------------------------------------------------------------------- 15,000 shares of June 10,2004 common stock Private Investor NA $.125/NA - --------------------------------------------------------------------------------------------------------------------- 400,000 shares of June 14, 2004 common stock Private Investor NA $.18/NA - --------------------------------------------------------------------------------------------------------------------- July 1, 2004 $157,000 principal Private Investor NA $157,000/NA amount of 4% convertible promissory note due December 31, 2006 convertible into 3,140,000 shares of common stock - --------------------------------------------------------------------------------------------------------------------- July 16, 2004 $37,500 principal Private Investor NA $37,500/NA amount of 4% convertible promissory note due January 16, 2007 convertible into 750,000 shares of common stock - --------------------------------------------------------------------------------------------------------------------- August 18, 2004 50,000 shares of Private Investor NA $.125/NA common stock - --------------------------------------------------------------------------------------------------------------------- August 18, 2004 250,000 shares of Consultant NA $.125/NA common stock - --------------------------------------------------------------------------------------------------------------------- AUGUST 30, 2004 100,000 shares of Private Investor NA $.125/NA common stock - --------------------------------------------------------------------------------------------------------------------- August 31, 2004 200,000 shares of Private Investor NA $.125/NA common stock - --------------------------------------------------------------------------------------------------------------------- September 7, 2004 100,000 shares of Consultant NA $.12/NA common stock - --------------------------------------------------------------------------------------------------------------------- September 10, 2004 300,000 shares of Consultant NA $.12/NA common stock - --------------------------------------------------------------------------------------------------------------------- September 16, 2004 125,000 shares of Consultant NA $.05/NA common stock - --------------------------------------------------------------------------------------------------------------------- September 20, 2004 100,000 shares of Consultant NA $.12/NA common stock - --------------------------------------------------------------------------------------------------------------------- September 20, 2004 $301,500 principal Private Investors NA $301,500/NA amount of 6% convertible promissory notes due September 16, 2006, convertible into an aggregate of 6,030,000 shares of common stock - --------------------------------------------------------------------------------------------------------------------- September 20, 2004 Warrants to purchase Private Investors NA NA/NA an aggregate of 6,030,000 shares of common stock issued in connection with the sale of the 6% convertible promissory notes - ---------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------- September 23, 2004 $10,000 principal Private Investor NA $10,000/NA amount of 6% convertible promissory note due September 22, 2006, convertible into an aggregate of 200,000 shares of common stock - --------------------------------------------------------------------------------------------------------------------- September 23, 2004 Warrants to purchase Private Investor NA NA/NA an aggregate of 200,000 share of common stock issued in connection with the sale of the 6% convertible promissory note - --------------------------------------------------------------------------------------------------------------------- September 27, 2004 $20,000 principal Private Investor NA $20,000/NA amount of 6% convertible promissory note due September 26, 2006, convertible into an aggregate of 400,000 shares of common stock - --------------------------------------------------------------------------------------------------------------------- September 27, 2004 Warrants to purchase Private Investor NA NA/NA an aggregate of 400,000 shares of common stock issued in connection with the sale of the 6% convertible promissory note - --------------------------------------------------------------------------------------------------------------------- October 4, 2004 750,000 shares of Consultant NA $0.05/NA common stock - --------------------------------------------------------------------------------------------------------------------- October 19, 2004 $25,000 principal Private Investor NA $25,000/NA amount of 6% convertible promissory note due October 18, 2006, convertible into an aggregate of 500,000 shares of common stock - --------------------------------------------------------------------------------------------------------------------- October 19, 2004 Warrants to purchase Private investor NA NA/NA an aggregate of 500,000 shares of common stock issued in connection with the sale of the 6% convertible promissory note - --------------------------------------------------------------------------------------------------------------------- October 22, 2004 250,000 shares of Consultant NA $0.1415/NA common stock - --------------------------------------------------------------------------------------------------------------------- November 2, 2004 $12,500 principal Private investor NA $12,500/NA amount of 6% convertible promissory note due November 1, 2006, convertible into an aggregate of 250,000 shares of common stock - --------------------------------------------------------------------------------------------------------------------- November 1, 2004 250,000 shares of Consultant NA $0.125/NA common stock - --------------------------------------------------------------------------------------------------------------------- November 2, 2004 Warrants to purchase Private investor NA NA/NA an aggregate of 250,000 shares of common stock issued in connection with the sale of the 6% convertible promissory note - ---------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------- November 5, 2004 $25,000 principal Private investor NA $25,000/NA amount of 6% convertible promissory note due November 4, 2006, convertible into an aggregate of 500,000 shares of common stock - --------------------------------------------------------------------------------------------------------------------- November 5, 2004 Warrants to purchase Private investor NA NA/NA an aggregate of 500,000 shares of common stock issued in connection with the sale of the 6% convertible promissory note - --------------------------------------------------------------------------------------------------------------------- November 8, 2004 500,000 shares of Common Stock issued Private investor NA $25,000/NA upon conversion of a promissory note in the principal amount of $25,000 - --------------------------------------------------------------------------------------------------------------------- November 9,2004 250,000 shares of Consultant NA $0.10/NA common stock - --------------------------------------------------------------------------------------------------------------------- November 15, 2004 45,000 shares of Consultant NA $0.12/NA common stock - --------------------------------------------------------------------------------------------------------------------- November 16, 2004 250,000 shares of Consultant NA $0.15/NA common stock - --------------------------------------------------------------------------------------------------------------------- November 19, 2004 403,951 shares of Private Investor NA $20,000/NA common stock issued upon conversion of a promissory note in the principal amount of $20,000 (including accrued interest) - --------------------------------------------------------------------------------------------------------------------- November 23, 2004 502,887 shares of Private Investor NA $25,000/NA common stock issued upon conversion of a promissory note in the principal amount of $25,000 (including accrued interest) - --------------------------------------------------------------------------------------------------------------------- November 25, 2004 $50,000 principal Private Investor NA $50,000/NA amount of 6% (settlement) convertible promissory notes due November 24, 2006, convertible into an aggregate of 1,00000 shares of common stock - --------------------------------------------------------------------------------------------------------------------- November 25, 2004 Warrants to purchase an Private Investor NA NA/NA aggregate of 1,000,000 (settlement) shares of common stock issued in connection with the sale of the 6% convertible promissory notes - --------------------------------------------------------------------------------------------------------------------- November 26, 2004 412,000 shares of Private Investor NA $0.17/NA common stock (settlement) - ---------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------- December 6, 2004 150,000 shares of Private Investor NA $.10 per share/NA common stock issued upon exercise of outstanding common stock purchase warrant - --------------------------------------------------------------------------------------------------------------------- December 7, 2004 200,000 shares of Private Investor NA $.10 per share/NA common stock issued upon exercise of outstanding common stock purchase warrant - --------------------------------------------------------------------------------------------------------------------- December 13, 2004 150,000 shares of Private Investor NA $.10 per share/NA common stock issued upon exercise of outstanding common stock purchase warrant - --------------------------------------------------------------------------------------------------------------------- December 15, 2004 54,055 shares of Private Investor NA $.185 per share/NA common stock - --------------------------------------------------------------------------------------------------------------------- December 22, 2004 300,000 shares of Private Investor NA $.10 per share/NA common stock issued upon exercise of outstanding common stock purchase warrant - ---------------------------------------------------------------------------------------------------------------------
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION. The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and notes thereto and the other financial information included elsewhere in this report. Certain statements contained in this report, including, without limitation, statements containing the words "believes," "anticipates," "expects" and words of similar import, constitute "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including our ability to create, sustain, manage or forecast our growth; our ability to attract and retain key personnel; changes in our business strategy or development plans; competition; business disruptions; adverse publicity; and international, national and local general economic and market conditions. GENERAL We were incorporated in the State of Delaware on November 17, 1999 and will require additional capital to execute our planned business operations. RESULTS OF OPERATIONS During the fiscal year ended December 31, 2004 we incurred a net loss of $3,920,699, because we had no revenue to offset operating expenses. The loss in fiscal 2004 was primarily attributable to general and administrative expenses of approximately $1,848,000 including professional fees in the approximate amount of $366,100, gain on minority interest share of consolidated losses of $101,644, write down of joint venture of $33,799, interest element of warrant issue of $2,112,500 and interest expense of about $28,000. From inception (November 17, 1999) to December 31, 2004, we had a net loss of $5,710,099. The Independent Auditors' Report and Note 1 of the Notes to Financial Statements accompanying this report state that substantial doubt has been raised about our ability to continue as a going concern. Our present business operations do not generate any revenue with which to cover our expenses. We will have to raise capital through the placement of our securities in order to remain viable. We are continuing to incur management and administrative costs, professional fees and other expenses. If we are unable to raise capital we will be unable to fund our plan of operations. Because we will continue to incur net losses, we may have to cease operations entirely. This factor, among others, raises substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent upon our ability to obtain funds to meet our obligations on a timely basis, obtain additional financing or refinancing as may be required, and ultimately to attain profitability. There are no assurances that we will be able to obtain any additional financing or, if we are able to obtain additional financing, that such financing will be on terms favorable to us. The inability to obtain additional financing when needed would have a material adverse effect on our operating results. 2004 COMPARED TO 2003 The net loss increased from approximately $1,250,000 in 2003 to approximately $3,921,000 for the twelve months ended December 31, 2004. The items of significant increase or decrease in the twelve months ended December 31, 2004 over the comparable period of the prior year were an increase in general and administrative expense from approximately $1,210,000 in 2003 to approximately $1,848,000, gain on minority share of consolidated losses of $101,644, write down of joint venture of $33,799, for the twelve months ended December 31, 2004, interest element of warrant issue of $2,112,500 and a decrease in interest expense from approximately $40,000 in 2003 to approximately $28,000 for the twelve months ended December 31, 2004. PLAN OF OPERATION We have established joint venture subsidiaries and two limited partnerships, primarily to establish business operations focused on providing construction and environmental technologies and services in Puerto Rico, the Middle East and the Far East. Puerto Rico The Company formed majority owned joint ventures in Puerto Rico to manage the construction and related activities required to build low income homes in Puerto Rico under the Federal Government's Section 124 low income housing program. In December 2003, the Company secured the purchase rights to 36 acres that are designated Section 124 eligible. Approximately 270 low income homes are planned for construction on this property. The necessary building permits have been submitted for approval and a real estate agency has been hired to sell the homes planned for construction. Due to events related to the ballot recount in the Puerto Rico gubernatorial election held November 2, 2004, the election of a new governor was not certified until late December 2004. These events have delayed the Company's permit approval process. Currently, we expect the building permits to be approved and presale of the homes to begin in the third quarter of 2005. The Company formed a second majority owned joint venture in Puerto Rico in December 2004, to manage construction and related activities required to build approximately 300 additional homes under the Section 124 low income housing program. We secured the rights to an additional 40 acre tract for the second project in December, 2004. Middle East and Far East The Company intends to establish local operating joint ventures in specific countries in the Middle East and the Far East primarily aimed at soil and water reclamation primarily related to oil contamination recovery. The initial step of forming strategic alliances leading to joint ventures, has been established with local organizations in Saudi Arabia and Indonesia. Central and Eastern Europe The Company has made a strategic decision to minimize its activities in Eastern Europe and to maintain a small passive investment in the area that can be expanded in the future should circumstances change. FUNDING We are currently dependent on equity investments or borrowing from private investors to pay our operating expenses. There are no assurances that such investors will continue to advance funds or invest in the Company's securities. In the event we are unable to obtain additional capital or funding we may be unable to pursue our business plans. We anticipate that we will be required to raise capital in the approximate amount of $3,000,000 in the next 12 months in order to continue to fund our limited operations and to finance our planned business operations. LIQUIDITY We have no current operations that have generated any revenue. We must rely entirely on private placements of Company stock or debt to pay operating expenses. At December 31, 2004 and 2003, we had working capital deficits of $370,546 and $623,423, respectively. The decrease in our working capital deficit is a result of the net loss incurred during the year ended December 31, 2004, partially offset by the increase in cash and refundable deposits. Since we have no source of revenue, our working capital deficit will continue to increase as we incur additional operating expenses. Presently, we have no external sources of cash and we are dependent upon loans from private investors and private placements of our stock for funding. In 2004, we raised $276,250 of equity capital, through the sale of 2,544,055 shares of common stock. In addition, we borrowed $961,400 from outside lenders to provide financing for our activities. ASSETS At December 31, 2004, we had total assets of $441,444, compared to total assets of $84,702 at December 31, 2003. The increase in assets as of December 31, 2004 was due to an increase in cash, an increase in deposits, an increase in fixed assets and capitalized pre-construction cost payments. CRITICAL ACCOUNTING ISSUES The Company's discussion and analysis of its financial condition and results of operations are based upon the Company's financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of the financial statements requires the Company to make estimates and judgments that effect the reported amount of assets, liabilities, and expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to intangible assets, income taxes and contingencies and litigation. The Company bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Other Matters Accounting Pronouncements In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." This Statement requires recording costs associated with exit or disposal activities at their fair values when a liability has been incurred. Under previous guidance, certain exit costs were accrued upon management's commitment to an exit plan. The Company adopted SFAS No. 146 on January 1, 2003. The adoption of SFAS No. 146 did not have a material impact on the Company's result of operations or financial position. In November 2002, the FASB issued FIN No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others", and interpretation of FASB Statements No. 5, 57 and 107 and Rescission of FASB Interpretation No. 34. FIN No. 45 clarifies the requirements of SFAS No. 5, Accounting for Contingencies, relating to the guarantor's accounting for, and disclosure of, the issuance of certain types of guarantees. This interpretation clarifies that a guarantor is required to recognize, at the inception of certain types of guarantees, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and initial measurement provisions of this Interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantor's fiscal year-end. The disclosure requirements in this interpretation are effective for financial statements of interim or annual periods ending after December 15, 2002. The Company adopted FIN No. 45 on January 1, 2003. The adoption of FIN No. 45 did not have a material impact on the Company's results of operations or financial position. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure, an amendment of FASB Statement No. 123". SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. It also requires disclosure in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. SFAS No. 148 is effective for annual and interim periods beginning after December 15, 2002. The Company will continue to account for stock-based employee compensation under the recognition and measurement principle of APB Opinion No. 25 and related interpretations. The Company complied with the additional annual and interim disclosure requirements effective December 31, 2002 and September 30, 2003. In January 2003, the Financial Accounting Standards Board issued Interpretation No. 46, "Consolidation of Variable Interest Entities," which addresses consolidation by business enterprises of variable interest entities. In general, a variable interest entity is a corporation, partnership, trust, or any other legal structure used for business purposes that either (a) does not have equity investors with voting rights or (b) has equity investors that do not provide sufficient financial resources for the entity to support its activities. A variable interest entity often holds financial assets, including loans or receivables, real estate or other property. A variable interest entity may be essentially passive or it may engage in research and development or other activities on behalf of another company. The objective of Interpretation No. 46 is not to restrict the use of variable interest entities but to improve financial reporting by companies involved with variable interest entities. Until now, a company generally has included another entity in its consolidated financial statements only if it controlled the entity through voting interests. Interpretation No. 46 changes that by requiring a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity's activities or entitled to receive a majority of the entity's residual returns or both. The consolidation requirements of Interpretation No. 46 apply immediately to variable interest entities created after January 31, 2003. The consolidation requirements apply to older entities in the first fiscal year or interim period beginning after June 15, 2003. Certain of the disclosure requirements apply in all financial statements issued after January 31, 2003, regardless of when the variable interest entity was established. The Company does not have any variable interest entities, and, accordingly, adoption is not expected to have a material effect on the Company's results or operations or financial position. In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement No. 133 on Derivative Instruments and Hedging Activities." This statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities." This Statement is effective for contracts entered into or modified after September 30, 2003, and for hedging relationships designated after September 30, 2003. Adoption of this statement did not have a material impact on the Company's results of operations or financial position. In May 2003, the FASB issued SFAS No. 150 "Accounting for Financial Instruments with the Characteristics of Both Liabilities and Equities". SFAS No. 150 establishes standards regarding the manner in which an issuer classifies and measures certain types of financial instruments having characteristics of both liabilities and equity. Pursuant to SFAS No. 150, such freestanding financial instruments (i.e. those entered into separately from an entity's other financial instruments or equity transactions or that are legally detachable and separately exercisable) must be classified as liabilities or, in some cases, assets. In addition, SFAS No. 150 requires that financial instruments containing obligations to repurchase the issuing entity's equity shares and, under certain circumstances, obligations that are settled by delivery of the issuer's shares be classified as liabilities. The Statement is effective for financial instruments entered into or modified after May 31, 2003 and for other instruments at the beginning of the first interim period after June 15, 2003. Management believes adopting this statement will not have a material effect on the statement of operations or financial position. In December 2003, the FASB issued SFAS No. 132(R), "Employer's Disclosure about Pensions and Other Postretirement Benefits" (revised). SFAS No. 132(R) retains disclosure requirements of the original SFAS No. 132(R) and requires additional disclosures relating to assets, obligations, cash flows, and net periodic benefit cost. SFAS No. 132(R) is effective for fiscal years ending after December 15, 2003, except that certain disclosures are effective for fiscal years ending after June 15, 2004. Interim period disclosures are effective for interim periods beginning after December 15, 2003. The adoption of SFAS No. 132(R) did not have a material effect on the Company's results of operations or financial position. In November 2004 the FASB issued SFAS No. 151, an amendment to ARB No. 43 chapter 4 "Inventory Costs". SFAS No. 151 requires that abnormal costs of idle facility expenses, freight, handling costs and wasted material (spoilage) be recognized as current-period charges. SFAS No. 151 is effective for fiscal years beginning after June 15, 2005. Adoption of SFAS No. 151 is not expected to have a material impact on the Company's results of operations or financial position. In December 2004, the FASB issued SFAS No. 153 an amendment of APB Opinion No. 29 "Exchanges of Nonmonetary Assets". SFAS No. 153 amends APB Opinion No. 29 by eliminating the exception under APB No. 29 for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS No. 153 is effective for periods beginning after June 15, 2005. The adoption of SFAS No. 153 is not expected to have a material effect on the Company's financial position or results of operations. In December 2004, the FASB staff issued FASB Staff Position ("FSP") FAS 109-1, "Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004" to provide guidance on the application of Statement 109 to the provision within the American Jobs Creations Act of 2004 (the "Act") that provides tax relief to U.S. domestic manufacturers. The FSP states that the manufacturers, deduction provided for under the Act should be accounted for as a special deduction in accordance with Statement 109 and not as a tax rate reduction. The FSP is effective upon issuance. The adoption of FAS 109-1 could have a material effect on the Company's results of operations or financial position. In December 2004, the FASB staff issued FSP No. FAS 109-2, "Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision Within the American Jobs Creation Act of 2004" to provide accounting and disclosure guidance for the repatriation provisions included in the Act. The Act introduced a special limited-time dividends received deduction on the repatriation of certain foreign earnings to a U.S. taxpayer as more fully described in Note 8 of Notes to Consolidated Financial Statements. The FSP is effective upon issuance. The adoption of FAS 109-2 could have a material effect on the Company's results of operations and financial position. In December 2004, the Financial Accounting Standard Board ("FASB") issued Statement on Financial Accounting Standards ("SFAS") No. 123(R), "Share-Based Payment" (revised), that will require compensation costs related to share-based payment transactions to be recognized in the financial statements. With limited exceptions, the amount of compensation cost will be measured based on the grant-date fair value of the equity or liability instruments issued. In addition, liability awards will be remeasured each reporting period. Compensation cost will be recognized over the period that an employee provides service in exchange for the reward. The statement also amends SFAS No. 95, "Statement of Cash Flows", to require that excess tax benefits be reported as a financing cash inflow rather than as a reduction of taxes paid. SFAS No. 123(R) is effective as to the Company as of the beginning of the first interim period that begins after June 15, 2005. The Company is currently evaluating its position and will make its determination to account for the compensation costs either prospectively or retroactively at the time of adoption. The adoption of SFAS 123(R) is expected to have a material effect on the Company's results of operations. Quantitative and Qualitative Disclosures About Market Risk Fair Value of Financial Instruments - The following disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments". The estimated fair values of financial instruments have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The Company has not entered into, and does not expect to enter into, financial instruments for trading or hedging purposes. The Company does not currently anticipate entering into interest rate swaps and/or similar instruments. The Company's carrying values of cash, marketable securities, accounts receivable, accounts payable and accrued expenses are a reasonable approximation of their fair value. ITEM 7. FINANCIAL STATEMENTS. The Company's Financial Statements and Notes to Financial Statements are attached hereto as Exhibit A and incorporated herein by reference. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. There have been no changes in or disagreements with the Company's independent auditors during the last two years. ITEM 8A. CONTROLS AND PROCEDURES. Evaluation of disclosure controls and procedures: Based on their evaluation as of the close of the fiscal year covered by this report, Peter F. Russo, our Chief Executive Officer, and Martin G. Chilek, our Chief Financial Officer, have concluded that the Company's disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in this Annual Report on Form 10-KSB. There have been no changes in the Company's internal controls or in other factors which could significantly affect internal controls subsequent to the date the Company carried out its evaluation. Limitations on the effectiveness of controls: A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected. ITEM 8B. OTHER INFORMATION. None PART III ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY. DIRECTORS AND EXECUTIVE OFFICERS As of the date of this report, the executive officers and director of Delta Mutual, Inc. were as follows: NAME AGE TITLE(S) - ---------- -------- ------------ Peter F. Russo 62 President, CEO, Secretary and Director Martin G. Chilek 54 Vice President, Chief Financial Officer and Assistant Secretary Jerome Kindrachuk 60 Vice President--International Peter F. Russo joined the Company on March 11, 2003 as President and a director, and was elected Chief Executive Officer in June 2003. Mr. Russo had been an independent consultant to several private businesses during the period from August 2001 until he joined the Company. In that capacity, he developed business and operating strategies and plans for a start-up, new concept modular housing company focused on the affordable housing market. In that assignment, he developed proposals for low-income housing projects under the federal Section 42 tax credit program in Philadelphia, Baltimore and Washington D.C. In another assignment, Mr. Russo was instrumental in structuring a new U.S. holding company with affiliated real estate service operations in Europe. From June 2000 to July 2001, Mr. Russo served as President and Chief Operating Officer for Bartram Healthcare Financial Services, Inc., a start-up healthcare services company providing financial systems and services. From January 1998 to June 2000, Mr. Russo was an independent consultant for projects that included the development of new market penetration strategies in various regions of the former Yugoslavia, that included securing a U.S. export grant and providing environmental technologies to Eastern European power generating stations. Martin G. Chilek joined the Company as Vice President and CFO in January 2004. Prior to joining the Company, from June 2003 to December 2003, he was an independent consultant providing transitional management, strategic planning and financial management services to privately held and public companies. During the past five years, Mr. Chilek also served as Vice President-Operations of MicroTech Leasing Corporation from October 2000 through May 2003. From October 1999 through October 2000, Mr. Chilek was employed by Acquisitions Management Services, Inc., a merger and acquisitions services company, as Director of Business Development. Mr. Chilek filed for personal bankruptcy in February 2000, and discharged in July 2000, as a protective measure due to stockholder suits following the bankruptcy of U.S. Physicians, Inc. in October 1998. Mr. Chilek was Senior Vice President-Administration of U.S. Physicians, Inc. at the time it filed its petition in bankruptcy. Jerome Kindrachuk joined the Company in July 2003 as Vice President-Finance and Administration and in January 2004 was appointed as Vice President- International and an officer of the Company. Prior to joining the Company, Mr. Kindrachuk served, from March 2002 to September 2002, as director of finance for CEVA International, Inc., a company that provided environmental services and technologies to countries in Central and Eastern Europe. From October 2002 to June 2003, Mr. Kindrachuk was a consultant to the Company for market penetration strategies in Eastern Europe. During the past five years, he also served as Chief Executive Officer of Winner Automotive Group from February 2000 to February 2002. Our directors are elected by the stockholders and our officers are appointed by our board of directors. Our officers hold office until their successors are elected and qualified. Vacancies in our board are filled by the board itself. There are currently two vacancies on our board of directors. We do not have an audit committee, although we intend to establish such a committee, with an independent "financial expert" member as defined in the rules of the Securities and Exchange Commission. There are no family relationships between any of our executive officers and/or directors. We have a corporate code of conduct in place, which provides for internal procedures concerning the reporting and disclosure of corporate matters that are material to our business and to our stockholders. Our corporate code of conduct includes a code of ethics for our officers and employees as to workplace conduct, dealings with customers, compliance with laws, improper payments, conflicts of interest, insider trading, company confidential information, and behavior with honesty and integrity. COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934 Number Transactions Known Failures Of late Not Timely To File a Name and principal position Reports Reported Required Form - --------------------------- ----------- ------------ -------------- Peter F. Russo, President 1 Martin G. Chilek, CFO 1 Jerome Kindrachuk, Vice President 1 ITEM 10. EXECUTIVE COMPENSATION
Annual Compensation Awards Payouts - ------------------------------------------------- -------------------------- --------------------- (a) (b) (c) (d) (e) (f) (g) (h) (i) Name Other Restricted Securities and Year Annual Stock Underlying LTIP All Other Principal Salary Bonus Comp. Awards Options/ Payouts Comp. Position (1) ($) ($) ($) ($) SARs(#) ($) ($) - ------------- ---- ------- ----- ------ ---------- ---------- ------ --------- Peter F. 2004 $57,588 $9,000 Russo 2003 $31,800 $6,000 $31,938 President (2) Martin G. Chilek 2004 $64,700 $16,000 Jerome Kindrachuk 2004 $42,738 $9,000 $13,612 Gary T. 2003 $20,000 $93,625 Robinson (2)
(1) Fiscal years ended December 31, 2003 and 2004. (2) The other compensation for Peter F. Russo was fees for consulting work completed prior to his employment. The restricted stock value for Gary T. Robinson was for compensation earned during his tenure as CEO. None of our officers or directors received any compensation for services from our date of inception (November 17, 1999) to December 31, 2002. EMPLOYMENT AGREEMENTS On March 11, 2003, we entered into a contract with Peter F. Russo to serve as President. It provides for three years' employment from March 11, 2003, at a salary of $10,000 per month through June 30, 2003, and $15,000 per month thereafter, payable in bi-monthly installments, plus benefits. An Amendment was made to the contract to reduce his compensation to $6,500 per month effective January 1, 2004. We also have an employment contract with Jerome Kindrachuk, effective July 2003 prior to Mr. Kindrachuk's appointment as an officer of the Company. It provides for three years' employment from July 1, 2003, at a salary of $10,000 per month, payable in bi-monthly installments, plus benefits. An amendment was made to the contract to reduce compensation to $6,000 per month effective January 1, 2004. All other officers are employed by us on an at will basis, and the terms and conditions of employment are subject to change. DIRECTORS' COMPENSATION We do not compensate directors in their capacity as such nor do we compensate our directors for attendance at meetings. We do reimburse our officers and directors for reasonable expenses incurred in the performance of their duties. COMPENSATION PLANS STOCK OPTION PLANS In December 2001, the Company's stockholders approved a stock option plan entitled the 2001 Employee Stock Option Plan (the "2001 Plan"), pursuant to which 2,000,000 shares of common stock were reserved for issuance, and in August 2004, our stockholders approved the 2004 Stock Option Plan (the "2004 Plan"), pursuant to which 10,000,000 shares of common stock were reserved for issuance. As of December 31, 2004, 613,000 shares of common stock remained available for issuance of options under the 2001 Plan; as of March 28, 2005, all shares under that Plan had been issued. The 2004 Plan authorizes the Board of Directors (the "Board"), or a committee comprised of non-employee directors ("Committee"), to grant, over a 10-year period, options to purchase up to 10,000,000 shares of the Company's common stock. Persons eligible to receive options under the Plan include key employees and directors who are also employees of the Company or any subsidiary, and consultants to the Company or any subsidiary, as determined by the Board or Committee. The persons to be granted options under the Plan and the number and purchase price of the shares represented by each option, the time or times at which the options may be exercised, and the terms and provisions of each option (which need not be uniform for all options) will be determined by the Board or Committee. The purchase price per share may not be less than 100% of the fair market value of the Company's stock at the time of grant. The purchase price may be paid in cash or common stock of the Company held for at least six months with a market value equal to that of the shares being acquired or, in the discretion of the board or committee, any combination of these. Options granted under the Plan may be in the form of "incentive stock options" which qualify as such under Section 422 of the Internal Revenue Code or non-qualified stock options which do not meet the criteria for incentive stock options under Section 422. The tax treatment afforded stock options qualifying as incentive stock options is generally more favorable to employees than that afforded to non-qualified stock options, in that the exercise of an incentive stock option does not require the optionee to recognize income for federal income tax purposes at the time of exercise. (The difference between the exercise price of the incentive stock option and the fair market value of the stock at the time of purchase is, however, an item of tax preference which may require payment of an alternative minimum tax.) Options granted under the Plan are, generally, transferable only by will or by the laws of descent and distribution, and may be exercised during the lifetime of the optionee only by the optionee or by his legal representative in the event of his disability. In its sole discretion, however, the Board or Committee may permit an optionee to make certain transfers of non-qualified stock options, provided that the transfers are to "family members" and are not for value, as defined in the General Instructions to Form S-8 under the Securities Act of 1933. The term of each option cannot be more than 10 years from the date of grant, and options can be exercised only during the participant's employment with the Company or one of its subsidiaries. If any option expires or is terminated prior to its exercise in full and prior to the termination of the Plan, the shares subject to such unexercised option will be available for the grant of new options under the Plan. Further, any shares used as full or partial payment by an optionee upon exercise of an option may subsequently be used by the Company to satisfy other options granted under the Plan, subject to the limitation on the total number of shares authorized to be issued under the Plan. The Plan permits an outstanding option to be exercised after termination of employment only to the extent that the option was exercisable on the date of termination but in no event beyond the original term of the option (i) within one year by the estate or rightful heir(s) of the optionee if the optionee's employment is terminated due to the optionee's death; (ii) within one year after the date of such termination if the termination is due to the optionee's Disability (as defined in the Plan); or (iii) within three months after the date of such termination if the termination was due to the optionee's Retirement (as defined in the Plan) or was for reasons other than death or Disability and other than "for cause" (as defined in the Plan). Upon termination of an optionee's employment "for cause," any unexercised options held by the optionee will be forfeited. Unexercised options will terminate in the event of the Company's dissolution, liquidation, or sale of all or substantially all of its assets. In the event of our merger with another corporation, the option would be assumed or an equivalent option substituted by the successor corporation or, if such successor corporation does not agree to assume the option or substitute an equivalent option, the Board can provide for the option holder to have the right to exercise the option as to all of the optioned shares, including shares as to which the option would not otherwise be exercisable. The number of shares subject to options and the option prices will be appropriately adjusted in the event of changes in our outstanding common stock by reason of stock dividends, recapitalizations, mergers, consolidations, stock splits and combinations of shares, and the like. The Board may at any time terminate or modify the Plan except, that without further approval of the stockholders, the Board may not make any changes to the Plan which would materially increase the number of shares that may be issued under the Plan, materially modify the eligibility requirements for participation in the Plan, or require stockholder approval under the Delaware General Corporation Law, the Exchange Act, or the Internal Revenue Code. The 2004 Plan gives the Board the power to issue a restricted stock award to an Employee representing shares of Common Stock that are issued subject to such restrictions on transfer and other incidents of ownership and such forfeiture conditions as the Board may determine ("Restricted Shares"). In connection with issuance of any Restricted Shares, the Board may (but shall not be obligated to) require the payment of a specified purchase price (which price may be less than Fair Market Value as defined in the Plan). We have not adopted any other deferred compensation, pension, profit sharing, stock option plan or programs for the benefit of our officers or employees. During the second quarter of 2003, the Company established a health insurance benefit plan that is offered to all employees. During the third quarter of 2004, the Company made a dental insurance plan available to all employees. Option/SAR Grants in Last Fiscal Year Individual Grants
- ---------------------------------------------------------------------------------------------------------- (a) (b) (c) (d) (e) Number of Percent of Exercise or Securities Total Base Price Expiration Name Underlying Options/SARSs ($/Sh) Date Options/SARS Granted to Granted Employee in Fiscal Year - ---------------------------------------------------------------------------------------------------------- Peter F. Russo (1) 2,500,000 38.5 $0.25 11/19/09 - ---------------------------------------------------------------------------------------------------------- Martin G. Chilek 1,750,000 26.9 $0.25 11/19/09 (2) - ---------------------------------------------------------------------------------------------------------- Jerome Kindrachuk 750,000 11.5 $0.25 11/19/09 (3) - ----------------------------------------------------------------------------------------------------------
(1) The options are exercisable as to 16 percent of the shares covered by each option immediately upon grant of the option; the option grant became exercisable as to an additional 16 percent on January 3, 2005; and becomes exercisable as to an additional 68 percent on January 3, 2006. (2) The options are exercisable as to 23 percent of the shares covered by each option immediately upon grant of the option; the option grant became exercisable as to an additional 23 percent on January 3, 2005; and becomes exercisable as to an additional 54 percent on January 3, 2006. (3) The options are exercisable as to 33 percent of the shares covered by each option immediately upon grant of the option; the option grant became exercisable as to an additional 33 percent on January 3, 2005; and becomes exercisable as to an additional 33 percent on January 3, 2006. The following table summarizes the number and value of unexercised options held by our executive officers as of December 31, 2004.
FISCAL YEAR-END OPTION VALUES - ---------------------------------------------------------------------------------------------------------------------- Number of Securities Value of Unexercised Underlying Unexercised in-the-Money Option/ Options/SARS At SARs at Fiscal Fiscal Year-End (#) Year-End ($) Shares Acquired on Exercisable/ Exercisable/ Name Exercise (#) Value Realized ($) Unexercisable Unexercisable - --------------------------- -------------------- --------------------- ------------------------ ---------------------- Peter F. Russo - - 2,500,000/0 1,200,000/0 400,000/2,100,000 192,000/1,008,000 Martin G. Chilek 1,750,000/0 840,000/0 400,000/1,350,000 192,000/648,000 Jerome Kindrachuk 750,000/0 360,000/0 250,000/500,000 120,000/240,000
The above value has been calculated based on closing price of the common stock as quoted on the OTC Bulletin Board on December 31, 2004. No officer or director exercised any options in the fiscal year ended December 31, 2004. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. The following table sets forth information, as of April 12, 2005, with respect to the beneficial ownership of the Company's Common Stock by each person known by the Company to be the beneficial owner of more than five percent (5%) of the outstanding Common Stock and by directors and officers of the Company, both individually and as a group:
Name and Address of Beneficial Owner Number of Shares Owned Percentage** Beneficially Peter F. Russo 900,000(1) 4.16 Martin G. Chilek 900,000(2) 4.16 Jerome A. Kindrachuk 600,000(3) 2.81 All Officers and Directors as a Group 2,400,000 10.46 T&T Asset Management 2,925,000(4) 13.21 J. Friedman & Sons 2,700,638(5) 11.82 United Charities of America 1,202,877(6) 5.63 Sophie Angelastri 1,840,751(7) 8.26 Nice Holdings, Ltd. 2,400,000 (8) 10.32 Neil Berman 6,255,120(9) 23.83 Ivano Angelastri 1,400,000(10) 6.71 The Divergence Fund, LP 1,700,000(11) 7.54
** Based on 20,849,113 shares outstanding on April 12, 2005. - ---------------- (1) In addition to 100,000 shares owned directly, Mr. Russo holds options expiring November 19, 2009 to purchase an aggregate of 2,500,000 shares of common stock at an exercise price of $.25 per share, of which options to purchase 800,000 shares are presently exercisable. (2) In addition to 100,000 shares owned directly, Mr. Chilek holds options expiring November 19, 2009 to purchase an aggregate of 1,750,000 shares of common stock at an exercise price of $.25 per share, of which options to purchase 800,000 shares are presently exercisable. (3) In addition to 100,000 shares owned directly, Mr. Kindrachuk holds options expiring November 19, 2009 to purchase an aggregate of 750,000 shares of common stock at an exercise price of $.25 per share, of which options to purchase 500,000 shares are presently exercisable. (4) In addition to 1,625,000 shares owned directly, T&T Asset Management holds notes convertible into 800,000 shares of common stock at a conversion price of $0.05 per share and warrants expiring March 31, 2006 to purchase 500,000 shares of common stock at an exercise price of $0.10 per share. (5) In addition to 700,638 shares owned directly, J.Friedman & Sons holds notes convertible into 1,000,000 shares of common stock at a conversion price of $0.05 per share and warrants expiring March 31, 2006 to purchase 1,000,000 shares of common stock at an exercise price of $0.10 per share. (6) In addition to 702,877 shares owned directly, United Charities of America holds warrants expiring March 31, 2006 to purchase 500,000 shares of common stock at an exercise price of $0.10 per share. (7) In addition to 403,951 shares owned directly, Ms. Angelastri holds notes convertible into 1,033,280 shares of common stock at a conversion price of $.125 per share and warrants expiring March 31, 2006 to purchase 400,000 shares of common stock at an exercise price of $0.10 per share. Ms. Angelastri disclaims any beneficial ownership of shares of common stock held by her husband Ivano Angelastri. (8) Nice Holdings, Ltd., holds notes convertible into 1,200,000 shares of common stock at a conversion price of $0.05 per share and warrants expiring March 31, 2006 to purchase 1,200,000 shares of common stock at an exercise price of $0.10 per share. (9) In addition to 855,200 shares owned directly, Neil Berman holds notes convertible into 1,549,920 shares of common stock at a conversion price of $0.125 per share, notes convertible into 3,620,000 shares at a conversion price of $0.05 per share, and warrants expiring March 31, 2006 to purchase 230,000 shares of common stock at an exercise price of $0.10 per share. (10) Mr. Angelastri disclaims any beneficial ownership of shares of common stock, convertible notes and warrants held by his wife Sophie Angelastri. (11) The Divergence Fund, LP holds notes convertible into 1,000,000 shares of common stock at a conversion price of $0.05 per share and warrants expiring March 31, 2006 to purchase 700,000 shares of common stock at an exercise price of $0.10 per share. Securities Authorized for Issuance under Equity Compensation Plans The following table sets forth information with respect to our common stock issued and available to be issued under outstanding options, warrants and rights as of December 31, 2004.
- ---------------------------------------------------------------------------------------------------------------------- (a) (b) (c) - ---------------------------------------------------------------------------------------------------------------------- Plan category Number of securities to be Weighted-average exercise Number of securities issued upon exercise of price of outstanding remaining available for outstanding options, options, warrants and future issuance under warrants and rights rights equity compensation plans (excluding securities reflected in column (a)) - ---------------------------------------------------------------------------------------------------------------------- Equity compensation plans 6,500,000 $0.25 4,113,000 approved by security holders - ---------------------------------------------------------------------------------------------------------------------- Equity compensation plans not approved by security holders - ---------------------------------------------------------------------------------------------------------------------- Total 6,500,000 4,113,000 - ----------------------------------------------------------------------------------------------------------------------
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. On March 6, 2003 the Company entered into a consulting agreement with M.U.R.G. LLC ("M.U.R.G."), a Florida-based real estate consulting firm. The consultant was to provide advisor services in connection with a proposed construction of approximately 500 homes in Puerto Rico by the Company. We advanced M.U.R.G. $100,000 against its future commission compensation and M.U.R.G. delivered to us its promissory note payable on demand with interest accruing at the rate of 5% per annum. Gary T. Robinson, Former Chief Executive Officer and Former Chairman of the Board, loaned the Company $100,000 that enabled us to make the advance to M.U.R.G. The project did not go forward and on June 16, 2003 Mr. Robinson agreed to assume the promissory note from M.U.R.G. and eliminate the loan amount due him from the Company. On March 11, 2003, we entered into a contract with Peter F. Russo to serve as President. It provides for three years' employment from March 11, 2003, at a salary of $10,000 per month through June 30, 2003, and $15,000 per month thereafter, payable in bi-monthly installments, plus benefits. On September 20, 2004 the contract was amended to adjust the salary to $6,500 per month effective January 1, 2004. Certain benefits were also eliminated effective the same dates. We also have an employment contract with Jerome Kindrachuk effective July 2003, prior to Mr. Kindrachuk's appointment as an officer of the Company. It provides for three years' employment from July 1, 2003, at a salary of $10,000 per month, payable in bi-monthly installments, plus benefits. On September 22, 2004 the contract was amended to adjust salary to $6,000 per month effective January 1, 2004. Certain benefits were also eliminated effective the same dates. During the first quarter of 2004, the Company paid consulting fees to Jerome Kindrachuk of $13,612 for services rendered prior to his employment. The following officers of the Company were issued shares of common stock under the 2001 Employee Stock Option Plan as follows:
- ------------------------------------------------------------------------------------------------------------- Name Date of Issuance Number of Shs. Per Share Valuation - ------------------------------------------------------------------------------------------------------------- Peter F. Russo December 10, 2004 50,000 $0.18 - ------------------------------------------------------------------------------------------------------------- Martin G. Chilek January 14, 2004 89,500 $0.078 December 10, 2004 50,000 $0.18 - ------------------------------------------------------------------------------------------------------------- Jerome Kindrachuk December 10, 2004 50,000 $0.18 - -------------------------------------------------------------------------------------------------------------
ITEM 13. EXHIBITS. Exhibit No. Description of Exhibits - ------------ --------------------------------------------------------------- 3.1 Articles of Incorporation of the Company, as currently in effect, incorporated herein by reference to Exhibit 3.1 to Amendment No. 1 to the Company's Registration Statement on Form 10-SB filed with the Commission on June 15, 2000. 3.1a Amendment to Certificate of Incorporation, filed September 1, 2004. Incorporated herein by reference to Exhibit 3.1a to the Company's Current Report on Form 8-K, filed with the Commission on September 3, 2004. 3.1b Form of Restatement of Certificate of Incorporation of Delta Mutual, Inc., as amended. Incorporated herein by reference to Exhibit 3.1b to the Company's Quarterly Report on Form 10-QSB, filed with the Commission on November 15, 2004. 3.2 By-Laws of the Company. Incorporated herein by reference to Exhibit 3.2 to Amendment No. 1 to the Company's Registration Statement on Form 10-SB filed with the Commission on June 15, 2000. 3.2a Amendment to Article III, Section I of the By-Laws. Incorporated herein by reference to the Company's quarterly report on Form 10-QSB, filed with the Commission on November 21, 2000. 4.1 Delta Mutual, Inc. 2001 Employee Stock Option Plan, incorporated herein by reference to Appendix B to the Company's definitive Information Statement pursuant to Section 14C of the Exchange Act, filed with the Commission on November 9, 2001. 4.2 Delta Mutual, Inc. 2001 Employee Stock Option Plan, as amended December 1, 2003. 4.2a Delta Mutual, Inc. 2004 Stock Option Plan. Incorporated herein by reference to Exhibit B to the Company's Definitive Proxy Statement, filed with the Commission on June 16, 2004. 4.3 Form of 6% Convertible Promissory Notes of the Company due 2006. Incorporated by reference to Exhibit 4.3 to the Company's Current Report on Form 8-K, filed with the Commission on September 24, 2004. 4.4 Form of Warrants to purchase shares of Common Stock, of the Company issued to the purchasers of the Company's 6% Convertible Promissory Notes. Incorporated by reference to Exhibit 4.4 to the Company's Current Report on Form 8-K, filed with the Commission on September 24, 2004. 4.5 4% Convertible Promissory Note of the Company due May 2006 issued in the principal amount of $129,160 on May 12, 2004. Incorporated herein by reference to Exhibit 4.5 to the Company's Quarterly Report on Form 10-QSB, filed with the Commission on November 15, 2004. 4.6 Convertible Promissory Note of the Company due May 2006 issued in the principal amount of $193,740 on May 12, 2004. Incorporated herein by reference to Exhibit 4.6 to the Company's Quarterly Report on Form 10-QSB, filed with the Commission on November 15, 2004. 4.7 4% Convertible Promissory Note "A" of the Company due December 2006 issued in the principal amount of $157,000 on July 1, 2004. Incorporated herein by reference to Exhibit 4.7 to the Company's Quarterly Report on Form 10-QSB, filed with the Commission on November 15, 2004. 4.8 4% Convertible Promissory Note "B" of the Company due January 2007 issued in the principal amount of $37,500 on July 16, 2004. Incorporated herein by reference to Exhibit 4.8 to the Company's Quarterly Report on Form 10-QSB, filed with the Commission on November 15, 2004. 4.9 6% Promissory note of the Company due December 2005 issued in the principal amount of $71,731.29 on March 22, 2005. Incorporated herein by reference to Exhibit 4.9 to the Company's current report on Form 8K filed with the Commission on March 25, 2005. 4.10 8% Promissory note of the Company due October 2, 2005 issued in the principal amount of $210,655.04 on April 5, 2004. Incorporated herein by reference to Exhibit 4.10 to the Company's current report on Form 8K filed with the Commission on April 11, 2005. 10.1 Agreement of Sale with Enterprises Solutions, Inc. dated May 11, 2001, and amendments. Incorporated herein by reference to Exhibit 10.2 to the Company's current report on Form 8-K, filed with the Commission on May 23, 2001. 10.2 Promissory note from Enterprises Solutions, Inc. dated October 31, 2001. Incorporated by reference to Exhibit 10.3 to the Company's annual report on Form 10-KSB, filed with the Commission on April 16, 2002. 10.3 Promissory Note to Rosanne Solomon dated November 27, 2001. Incorporated herein by reference to Exhibit 10.1 to Amendment No. 3 to the Company's registration statement on Form S-4,filed with the Commission on November 30, 2001. 10.4 License Agreement with Enterprises Solutions, Inc. dated December 11, 2001. Incorporated by reference to Exhibit 10.5 to the Company's annual report on Form 10-KSB, filed with the Commission on April 16, 2002. 10.5 Employment Agreement between Kenneth A. Martin and the Company. Incorporated by reference to Exhibit 10.6 to the Company's annual report on Form 10-KSB, filed with the Commission on April 16, 2002. 10.6 Agreement, dated January 13, 2003, between the Company and Kenneth A. Martin. Incorporated by reference to Exhibit 10.7 to the Company's registration statement on Form S-8, filed with the Commission on February 13, 2003. 10.7 Agreement, dated February 3, 2003, between the Company and Peter F. Russo. Incorporated by reference to Exhibit 10.8 to the Company's registration statement on Form S-8, filed with the Commission on February 13, 2003. 10.8 Agreement, dated February 4, 2003, between the Company and J. Dapray Muir. Incorporated by reference to Exhibit 10.9 to the Company's registration statement on Form S-8, filed with the Commission on February 13, 2003. 10.9 Executive Employment Agreement, effective March 11, 2003, by and between the Company and Peter F. Russo. Incorporated herein by reference to Exhibit 10.8 to the Company's Annual Report on Form 10-KSB, filed with the Commission on April 14, 2003. 10.10 Consulting Agreement, effective February 28, 2003, between M.U.R.G., LLC and Delta Mutual, Inc. Incorporated herein by reference to Exhibit 10.9 to the Company's Annual Report on Form 10-KSB, filed with the Commission on April 14, 2003. 10.11 Agreement, March 31, 2003, between the Company and Burrows Consulting Inc. Incorporated herein by reference to Exhibit 10.3 to the Company's current report on Form 8-K, filed with the Commission on April 25, 2003. 10.12 License Agreement with Joseph Friedman and Sons, International, Inc., dated April 2, 2003. Incorporated herein by reference to Exhibit 10.7 to the Company's Annual Report on Form 10-KSB, filed with the Commission on April 14, 2003. 10.13 Agreement, dated July 1, 2003, between the Company and Gary T. Robinson. Incorporated herein by reference to Exhibit 10.10 to the Company's registration statement on Form S-8, filed with the Commission on August 20, 2003. 10.14 Agreement, dated August 29, 2003, between the Company and Burrows Consulting Inc. Incorporated herein reference to Exhibit 10.10 to the Company's current report on Form 8-K, filed with the Commission on September 4, 2003. 10.15 Strategic Alliance Agreement, dated September 10, 2003, between Delta-Envirotech, Inc. and ZAFF International Ltd. Incorporated herein by reference to Exhibit 99.2 to the Company's current report on Form 8-K, filed with the Commission on January 22, 2004. 10.16 Agreement, dated January 14, 2004, by and between Delta Mutual, Inc. and Hi Tech Consulting and Construction, Inc. Incorporated herein by reference to Exhibit 10.16 to the Company's Annual Report on Form 10-KSB, filed with the Commission on April 6, 2004. 10.17 Agreement to Purchase Stock, dated January 14, 2004, between Delta Mutual, Inc. and Hi Tech Consulting and Construction, Inc., as sellers, and Ali Razmara, as purchaser. Incorporated herein by reference to Exhibit 10.17 to the Company's Annual Report on Form 10-KSB, filed with the Commission on April 6, 2004. 10.18 Consulting Agreement, dated as of March 21, 2004, between Delta Mutual, Inc. and Clark Street Capital. Incorporated herein by reference to Exhibit 10.18 to the Company's Quarterly Report on Form 10-QSB, filed May 19, 2004. 10.19 Consulting Services Agreement, dated as of April 16, 2004, between Delta Mutual, Inc. and Basic Investors, Inc. Incorporated herein by reference to Exhibit 10.19 to the Company's Quarterly Report on Form 10-QSB, filed May 19, 2004. 10.20 Memorandum of Understanding, dated as of March 17, 2004, by and between Delta-Envirotech, Inc., PT Faryan Nusantara and Crescent Aeronautical Technology. Incorporated herein by reference to Exhibit 10.20 to the Company's Quarterly Report on Form 10-QSB, filed May 19, 2004. 10.21 Agreement, dated April 5, 2004, Trans Indies Realty Investment Corporation and Delta Developers Corp. Incorporated herein by reference to Exhibit 10.21 to the Company's Quarterly Report on Form 10-QSB, filed August 12, 2004. 10.22 Term Sheet, dated May 12, 2004, among Delta Mutual, Inc., Neil Berman and Ivano Angelastri. Incorporated herein by reference to Exhibit 10.22 to the Company's Quarterly Report on Form 10-QSB, filed August 12, 2004. 10.23 Term Sheet, dated July 1, 2004, between Delta Mutual, Inc. and Neil Berman. Incorporated herein by reference to Exhibit 10.23 to the Company's Quarterly Report on Form 10-QSB, filed August 12, 2004. 10.24 Settlement Agreement and Mutual General Releases, dated November 26, 2004, between the Company and Joseph Friedman and Sons International, Inc. Incorporated herein by reference to Exhibit 10.24 to the Company's Current Report on Form 8-K, filed with the Commission on December 2, 2004. 10.25 Delta Mutual, Inc. Code of Conduct and Business Ethics, 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. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES. (1) Aggregate fees for the last two years: 2004 2003 ---- ---- $75,116 $52,855 (2) Audit related fees: 2004 2003 ---- ---- $72,704 $48,855 (3) Tax fees: 2004 2003 ---- ---- $5,000 $4,000 (4) All other fees: NA (5) Audit committee pre-approval processes, percentages of services approved by audit committee, percentage of hours spent on audit engagement by persons other than principal accountant's full time employees: NA SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the Company caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. DELTA MUTUAL, INC. Dated: April 14, 2005 By:/s/ Peter F. Russo ------------------------------ Peter F. Russo President, Chief Executive Officer and Director By:/s/ Martin G. Chilek ------------------------------ Martin G. Chilek Vice President and Chief Financial Officer Principal Financial Officer In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. SIGNATURE TITLE DATE - ----------------- ----------------- --------------- /s/ Peter F. Russo - --------------------- Peter F. Russo President April 14, 2005 And Director DELTA MUTUAL, INC. AND CONSOLIDATED SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS PAGE Accountant's Report F-1 Financial Statements: Consolidated Balance Sheet as of December 31, 2004 F-2 Consolidated Statement of Operations for the years ended December 31, 2004 and 2003 F-3 Consolidated Statement of Stockholders' Deficiency as of December 31, 2004 and 2003, Respectively F-4 Consolidated Statement of Cash Flows for the years ended December 31, 2004 and 2003. F-5 Notes to Consolidated Financial Statements F-6 [LETTERHEAD OF WIENER, GOODMAN & COMPANY, P.C.) REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Delta Mutual Inc. We have audited the accompanying consolidated balance sheets of Delta Mutual, Inc. and subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of operations, stockholders deficiency and cash flows for each of the two years in the period ended December 31, 2004. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Delta Mutual, Inc. and subsidiaries as of December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America. The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. Since a change in control, new Company management has embarked upon a new mission and strategic direction intending to establish a series of subsidiaries and joint ventures, primarily for the establishment of business operation focusing upon providing technologies and services in the environmental remediation industry and utilizing certain construction technologies to participate in selected housing development projects. As more fully explained in Note 1, to the financial statements the Company needs to obtain additional financing to fulfill its proposed activities and achieve a level of sales adequate to support its cost structure. These uncertainties raise substantial doubt about the Company's ability to continue as a going concern. Management's plans are also described in Note 1. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties should the Company be unable to continue as a going concern. /s/ WIENER, GOODMAN & COMPANY, P.C. - ----------------------------------- WIENER, GOODMAN & COMPANY, P.C. Eatontown, New Jersey March 30, 2005 F-1 DELTA MUTUAL INC., AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS December 31 --------------------------- 2004 2003 ------------ ------------ Current Assets: Cash $ 113,780 $ 14,057 Prepaid expenses 40 3,962 Refundable deposits 144,700 25,200 ------------ ------------ Total Current Assets 258,520 43,219 Property & Equipment - net 8,689 7,033 Investment in joint ventures 1 33,800 Capitalized construction costs 170,000 -- Other assets 4,234 650 ------------ ------------ Total Assets $ 441,444 $ 84,702 ============ ============ LIABILITIES AND STOCKHOLDERS' DEFICIENCY Current Liabilities: Accounts payable $ 202,929 $ 186,592 Accrued expenses 426,137 265,286 Loan due former officer/stockholder -- 56,364 Loan to related parties -- 122,000 Due to related parties -- 11,200 ------------ ------------ Total Current Liabilities 629,066 641,442 Long term convertible debt 891,400 -- ------------ ------------ Total Liabilities 1,520,466 641,442 ------------ ------------ Minority interest in consolidated subsidiaries 183,160 150 Stockholders' Deficiency: Common stock $0.0001 par value - Authorized 100,000,000 shares; 19,133,571 and 9,361,688 shares issued and outstanding, respectively 1,913 936 Additional paid-in-capital 4,446,004 1,231,574 Deficit accumulated during the development stage (5,710,099) (1,789,400) ------------ ------------ Total Stockholders' Deficiency (1,262,182) (556,890) ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 441,444 $ 84,702 ============ ============ See notes to consolidated financial statements F-2 DELTA MUTUAL, INC., AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Years Ended December 31, 2004 2003 --------------- --------------- Revenue $ -- $ -- --------------- --------------- Costs and Expenses General and administrative expenses 1,848,078 1,209,853 --------------- --------------- Loss from operations (1,848,078) (1,209,853) --------------- --------------- Minority interest share of loss of consolidated subsidiaries 101,644 -- Write down of joint venture (33,799) -- Interest element of warrant issue (2,112,500) -- Interest expense (27,966) (39,656) --------------- --------------- Loss before benefit from income taxes (3,920,699) (1,249,509) Benefit from income taxes -- -- --------------- --------------- Net loss $ (3,920,699) $ (1,249,509) =============== =============== Loss per common share - basic and diluted $ 0.28 $ 0.19 =============== =============== Weighted average number of common shares outstanding - basic and diluted 14,250,963 6,734,384 =============== =============== See notes to consolidated financial statements F-3 DELTA MUTUAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
Number of Common Paid in Total Common Stock Capital Shares Deficit Accumulated ------------- ------------- ------------- ------------- ------------- Balance, January 1, 2003 857,000 $ 56 $ 304,329 $ (539,891) $ (235,476) Issuance of common stock for interest 100,000 10 28,740 -- 28,750 expense (valued at $0.275-$0.30 per share) Issuance of common stock for services 950,000 95 244,499 -- 244,594 (valued at $0.035 - $0.50) Issuance of common stock in lieu of 280,000 28 93,597 -- 93,625 payment of officer loan (valued at $0.334375 per share) Sale of common stock (at $0.125 - $0.50) 450,000 45 112,455 112,500 Issuance of common stock for investment 50,000 5 7,495 -- 7,500 in joint venture (valued at $0.15 per share) Issuance of common stock for repayment 520,000 52 127,074 -- 127,126 of debt (valued at $0.10 - $0.69336) Stock split February 24, 2003 (five for 4,708,050 471 (471) -- -- one) Issuance of common stock for license 288,638 28 39,972 -- 40,000 agreement (valued at $0.138582 per share) Issuance of common stock for promissory 800,000 80 249,920 -- 250,000 note repayment (valued at $0.3125 per share) Issuance of common stock awards from the 358,000 36 23,964 -- 24,000 Company's stock option plan (valued at $0.067039 per share) Net loss -- -- -- (1,249,509) (1,249,509) ------------- ------------- ------------- ------------- ------------- Balance, December 31, 2003 9,361,688 936 1,231,574 (1,789,400) (556,890)
See notes to consolidate financial statements F-4 DELTA MUTUAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY (Continued)
Number of Common Paid in Total Common Shares Stock Capital Deficit Accumulated -------------- -------------- -------------- -------------- -------------- Issuance of common stock for 2,636,328 264 246,178 -- 246,442 repayment and conversion for debt and interest expense (valued at $0.05 - $0.137 per share) Issuance of common stock for 3,840,000 384 457,791 -- 458,175 services (valued at $0.05 - $0.30 per share) Sale of common stock (valued at 2,544,055 254 275,996 -- 276,250 $0.05 - $0.18 per share) Issuance of common stock for 412,000 41 69,999 -- 70,040 settlement Agreement (valued at $0.17 per share) Issuance of common stock awards 339,500 34 51,966 -- 52,000 from the Company's 2001 stock option plan (valued at $0.078 - $0.18 per share) Issuance of common stock purchase -- -- 2,112,500 -- 2,112,500 warrants in connection with the proceeds from borrowings (valued at $0.10 per share) Net loss -- -- -- (3,920,699) (3,920,699) -------------- -------------- -------------- -------------- -------------- Balance, December 31, 2004 19,133,571 $ 1,913 $ 4,446,004 $ (5,710,099) $ (1,262,182) ============== ============== ============== ============== ==============
See notes to consolidated financial statements F-5 DELTA MUTUAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31 -------------------------------- 2004 2003 -------------- -------------- Cash flows from operating activities: Net loss $ (3,920,699) $ (1,249,509) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 2,137 1,759 on-cash compensation, including settlement and common stock awards 528,215 337,344 Issuance of common stock awards 52,000 Minority interest share of losses of consolidated subsidiaries (101,644) -- Non-cash fair value of warrants 2,112,500 -- Bad debt 47,521 -- Write-down of joint venture 33,799 -- Changes in operating assets and liabilities (106,253) 429,666 -------------- -------------- Net cash used in operating activities (1,352,424) (480,740) -------------- -------------- Cash flows from investing activities: Purchase of fixed assets (3,793) (33,992) Advances to joint ventures -- (115,100) Advances to ESI -- -------------- -------------- Net cash used in Investing activities (3,793) (149,092) -------------- -------------- Cash flows from financing activities: Proceeds from sale of common stock 276,250 112,500 Proceeds from loans -- -- Repayment of loans -- -- Proceeds from minority interest 284,654 150 Proceeds from former officer and stockholder -- 515,383 Repayment to former officer and stockholder (56,364) (109,015) Proceeds from related parties -- 187,000 Repayment to related parties (10,000) (65,000) Proceeds from convertible debt 961,400 -- -------------- -------------- Net cash provided by financing activities 1,455,940 641,018 -------------- -------------- Net increase in cash 99,723 11,186 Cash - Beginning of year 14,057 2,871 -------------- -------------- Cash - End of year $ 113,780 $ 14,057 ============== ============== See notes to consolidated financial statements F-6 DELTA MUTUAL INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) Years Ended December 31, ----------------------------------- 2004 2003 --------------- --------------- Supplementary information: Cash paid during year for: Interest $ 12,328 $ =============== =============== Income taxes $ -- $ -- =============== =============== Changes in operating assets and liabilities consists of: (Increase) in loan receivable $ (51,221) $ -- (Increase) decrease in prepaid expenses 3,922 (3,962) (Increase) decrease in deposits (119,500) -- Increase in other assets (173,584) (650) Increase in accounts payable and accrued expenses 234,130 434,278 --------------- --------------- $ (106,253) $ 429,666 =============== =============== Non-cash financing activities: Issuance of common stock for promissory note $ -- $ 250,000 =============== =============== Offset of note receivable and convertible debt in connection with termination Agreement $ -- $ -- =============== =============== Forgiveness of debt to former Shareholders $ -- $ -- =============== =============== Offset of note receivable to liquidate loan to officer $ -- $ 350,000 =============== =============== Issuance of common stock for debt $ 46,442 $ 127,126 =============== =============== Issuance of common stock for investment in unconsolidated subsidiary $ -- 7,500 =============== =============== Issuance of common stock in lieu of payment of accrued expenses $ -- $ 93,625 =============== =============== See notes to consolidate financial statements F-7 DELTA MUTUAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The Company's financial statements for the year ended December 31, 2004 have been prepared on a going concern basis which contemplates the realization of assets and settlement of liabilities and commitments in the normal course of business. Management recognizes that the Company's continued existence is dependent upon its ability to obtain needed working capital through additional equity and/or debt financing and the commencement of its planned principal operations. As of December 31, 2004 operations had commenced and, accordingly, the Company is no longer considered a development stage enterprise. 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 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 to achieve a level of sales adequate to support its cost structure. Management is actively seeking additional capital to ensure the continuation of its development activities and complete the proposed joint ventures. However, there is no assurance that additional capital will be obtained and the joint ventures will be profitable. These uncertainties raise substantial doubt about the ability of the Company to continue as a going concern. The accompanying financial statements do not include any adjustments that might result from the outcome of uncertainties should the Company be unable to continue as a going concern. F-8 Business Plan Since the change in control, new Company management has embarked upon a new mission and strategic direction, through the establishment of joint ventures and a limited partnership. This structure is primarily for the establishment of business operations focused on providing construction and environmental technologies and services to specific geographic areas in Puerto Rico, the Middle East and the Far East. The Company, simultaneously, made a strategic decision to minimize its activities in Eastern Europe and to maintain a small passive investment in the area that can be expanded in the future should circumstances change. The Company has entered into strategic alliance agreements with several United States-based entities with technologies in the environmental technology field to support the Company's world wide activities. On March 18, 2003 the Company entered into a Letter of Intent with Hi Tech Consulting and Construction, Inc. to form a joint venture to provide environmental technology services for certain business sectors located in the Middle East and Africa. The joint venture agreement was finalized January 14, 2004, and the joint venture company, Delta-Envirotech, Inc., is based in the Commonwealth of Virginia and incorporated in the State of Delaware. Middle East On January 22, 2004, the Company announced a strategic alliance agreement between Delta-Envirotech, Inc. and ZAFF International, Ltd., a technology company located in Saudi Arabia. The strategic alliance states that the two companies will jointly pursue projects related to soil and water reclamation requirements in the Middle East. On December 1, 2004, the Company announced that ZAFF International, Ltd., Delta's strategic partner, received its operating license from the Saudi Arabia environmental authorities to employ all soil, refinery waste and waste water technologies held by Delta for environmental recovery projects. ZAFF International, Ltd. is one of the first companies to be granted a multi-technology environmental license in Saudi Arabia. Far East In April 2004, Delta-Envirotech executed an agreement with the Indonesian government's technology authority, LIPI. The agreement outlines a joint cooperation between Delta-Envirotech, Inc. and a local Indonesian technology company to commence energy recovery and waste processing operations in Indonesia. A local joint venture is being established to conduct the actual recovery and processing activities. Puerto Rico On January 20, 2004, the Company announced the formation of a joint venture project to develop government sponsored, Section 124 low income housing in the Commonwealth of Puerto Rico. The development, Brisas Del Atlantico, has been approved for development under Section 124 of the Housing Department, which provides for government subsidized low-income housing. The Company is the General Partner and majority owner of a limited partnership that is the majority shareholder of Delta Developers Corp., a Puerto Rico corporation, formed to manage the construction and related activities required to build approximately 270 low income homes under Section 124. The necessary building permits have been submitted for approval and a real estate agency has been hired to sell the homes planned for construction. Due to events related to the ballot recount in the Puerto Rico gubernatorial election held November 2, 2004, the election of a new governor was not certified until late December 2004. These events F-9 have delayed the Company's permit approval process. Currently, the Company expects the building permits to be approved and presale of the homes to begin in the third quarter of 2005. On December 9, 2004, the Company announced the formation of a second joint venture project to develop government sponsored Section 124 low income housing in the Commonwealth of Puerto Rico using the same construction as the first project. The Company is the majority owner of Delta Developers Guayanilla Corp., a Puerto Rico corporation. The Company plans to build approximately 300 low income houses under Section 124. The Company is currently dependent on equity investments and/or loans from private investors to pay its operating expenses. There are no assurances that such investors will continue to advance funds or invest in the Company's securities. In the event the Company is unable to obtain additional capital or funding it may be unable to pursue its business plans. Due to the fact that the company has limited operations at this time, it is anticipated that its cash requirements will be limited, and that all necessary capital, to the extent required, will be provided by investors. The Company anticipates that it will be required to raise capital in the amount of $3,000,000 in the next 12 months in order to continue to fund its limited operations and to finance its planned business operations. However there is no assurance that additional capital will be obtained and the joint ventures will be profitable. SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its majority - owned subsidiaries and joint ventures. The consolidated statements include 100 percent of the assets and liabilities of these subsidiaries and joint ventures and the ownership interests of minority participants are recorded as "Minority interests in consolidated subsidiaries". All intercompany transactions and balances have been eliminated. INVESTMENTS Long-term investments between 20% and 50% in associated companies are accounted for under the equity method and are included in Investment in Joint Ventures on the Company's balance sheet at December 31, 2004. Investments in associated companies where the Company has a controlling interest and exercises significant influence are consolidated with the Company's operations unless otherwise disclosed. USE OF ESTIMATES The preparation of consolidated financial statements in conformity with accounting principals generally accepted in the United States of America requires management to make estimates and assumptions that effect 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 efforts. F-10 LOSS PER SHARE Basic and diluted loss per 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 and common stock purchase warrants. As of December 31, 2004, there were 13,953,200 potential common shares related to convertible debt issued by the Company and 8,080,000 potential common shares related to common stock purchase warrants issued by the Company. As of December 31, 2003, there were no potential common shares. REVENUE RECOGNITION ON CONSTRUCTION CONTRACTS The Company will recognize revenue in accordance with the guidance contained in SEC Staff Accounting Bulletin No. 104 "Revenue Recognition Finance Statements" (SAB No. 104). Revenue and profits in construction contracts will be recorded under the percentage of completion method. Progress toward completion is measured using the cost to cost method. Under the cost to cost method, revenues and profits are recognized based on the ratio that costs incurred bear to total estimated costs. This method is subject to physical verification of actual progress towards completion. To date the Company has recognized no revenue as defined. EVALUATION OF LONG-LIVED ASSETS The Company reviews property and equipment for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable in accordance with guidance in SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets". If the carrying value of the long-lived asset exceeds the present value of the related estimated future cash flows, the asset would be adjusted to its fair market value and an impairment loss would be charged to operations in the period identified. DEPRECIATION AND AMORTIZATION Property and equipment are stated at cost. Depreciation is provided for by the straight-line method over the estimated useful lives of the related assets. STOCK OPTION PLAN The Company accounts for equity-based compensation issued to employees in accordance with Accounting Principles Board ("APB") Opinion No. 25 "Accounting for Stock Issued to Employees". APB No. 25 requires the use of intrinsic value method, which measures compensation cost as the excess, if any, of the quoted price of the stock at the measurement date over the amount the employee must pay to acquire the stock. The Company makes disclosures of pro forma net earnings and earnings per share as if the fair-market-value based method of accounting had been applied as required by SFAS No. 123 "Accounting for Stock-Based Compensation". F-11 In December 2002, the FASB issued SFAS No. 148 "Accounting for Stock-Based Compensation-Transition and Disclosure an amendment of FASB Statement No. 123". SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. It also requires disclosure in both annual and interim financial statements about the method of accounting for stock based employee compensation and the effect of the method used on reported results. The Company adopted the disclosure provisions of SFAS No. 148 beginning with the year ended December 31, 2002. The Company grants stock options with exercise prices at fair market value at the date of grant. The Company will continue to account for stock-based employee compensation under recognition and measurement principle of APB Opinion No. 25 and related interpretations through December 15, 2005. Thereafter, the Company will account for stock-based compensation under SFAS No. 123(R). The Company is currently evaluating its position and will make a determination to account for the compensation costs either prospectively or retroactively at the time of adoption. The Company has adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123). Had compensation cost for the Company's stock option plan been determined based on the fair market value at the grant date of awards in 2004 consistent with the provisions of SFAS No. 123, the Company's net loss and loss per share would have been reduced to the pro forma amounts included below: For the year ended December 31, -------------------------------- 2004 2003 -------------- -------------- Net loss-as reported $ (3,920,699) $ (1,249,509) Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of taxes 406,250 -- -------------- -------------- Net loss- pro forma $ (4,326,949) $ (1,249,509) ============== ============== Loss per common share basic and diluted- as reported $ (0.28) $ (0.19) Loss per common share basic and diluted - pro forma $ (0.30) $ (0.19) The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average-average assumptions used for grants in 2004: dividends yield of 0%, expected volatility of 116% and expected life of 10 years. 6,500,000 options were granted during the year ended December 31, 2004, and there were no option grants in 2003. F-12 The Company is also authorized to issue shares of stock to its employees from its 2001 Employee Stock Option Plan. The Company expenses the issuance of stock awards in accordance with SFAS No. 123. Shares issued from the Plan are expensed at the time of issuance, as the common stock issued has no restrictions to the employees. The Company issued stock awards to five employees totaling 339,500 shares from the 2001 Plan during 2004 and 358,000 shares issued to four employees during 2003. The shares issued were at fair market value as compensation to employees. The Company recorded compensation expense of $52,000 and $24,000 and is included in the Company's statement of operations for the year ended December 31, 2004 and 2003, respectively. F-13 STOCK-BASED COMPENSATION The Company issues shares of its common stock to employees and non-employees as stock-based compensation. The Company accounts for the services using the fair market value of the services rendered. For the years ended December 31, 2004 and 2003 the Company issued 3,840,000 and 1,230,000 common shares respectively, and recorded compensation expense of $458,175, and $244,594 respectively, in connection with the issuance of these shares. In 2004, the Company issued 412,000 common shares and recorded $70,040 in settlement expenses in connection with the termination of a license agreement. The Company also granted 8,880,000 warrants to the various lenders to acquire the Company's common stock during the year ended December 31, 2004. The warrants are exercisable at a price per share of $0.10, which was below the fair market value at the time of the grant. The warrants may be exercised any time after issuance and expire March 31, 2006. During the year ended December 31, 2004, 800,000 warrants were exercised. There were no warrants issued during the year ended December 31, 2003. The fair value of the 8,880,000 warrants amount to $2,112,500 and was charged to operations and is included in interest element of warrant issuance in accompanying statement of operations for the year ended December 31, 2004. INCOME TAXES The Company accounts for income taxes using an asset and liability approach under which deferred taxes are recognized by applying enacted tax rates applicable to future years to the differences between financial statement carrying amounts and the tax basis of reported assets and liabilities. The principal item giving rise to deferred taxes are future tax benefits of certain net operating loss carryforwards. FAIR VALUE OF FINANCIAL INSTRUMENTS For financial instruments including cash, accounts payable, accrued expenses, and convertible debt, it was assumed that the carrying amount approximated fair value because of the short maturities of such instruments. RECLASSIFICATIONS Certain reclassifications have been made to prior period amounts to conform to current year presentation. NEW FINANCIAL ACCOUNTING STANDARDS In December 2004, the Financial Accounting Standard Board ("FASB") issued Statement on Financial Accounting Standards ("SFAS") No. 123(R), "Share-Based Payment" (revised), that will require compensation costs related to share-based payment transactions to be recognized in the financial statements. With limited exceptions, the amount of compensation cost will be measured based on the grant-date fair value of the equity or liability instruments issued. In addition, liability awards will be remeasured each reporting period. Compensation cost will be recognized over the period that an employee provides service in exchange for the reward. The statement also amends SFAS No. 95, "Statement of Cash Flows", to require that excess tax benefits be reported as a financing cash inflow rather than as a reduction of taxes paid. SFAS No. 123(R) is effective as F-14 to the Company as of the beginning of the first interim period that begins after June 15, 2005. The Company is currently evaluating its position and will make its determination to account for the compensation costs either prospectively or retroactively at the time of adoption. The adoption of SFAS 123(R) is expected to have a material effect on the Company's results of operations. In December 2004, the FASB staff issued FASB Staff Position ("FSP") FAS 109-1, "Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004" to provide guidance on the application of Statement 109 to the provision within the American Jobs Creations Act of 2004 (the "Act") that provides tax relief to U.S. domestic manufacturers. The FSP states that the manufacturers, deduction provided for under the Act should be accounted for as a special deduction in accordance with Statement 109 and not as a tax rate reduction. The FSP is effective upon issuance. The adoption of FAS 109-1 could have a material effect on the Company's results of operations or financial position. In December 2004, the FASB staff issued FSP No. FAS 109-2, "Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision Within the American Jobs Creation Act of 2004" to provide accounting and disclosure guidance for the repatriation provisions included in the Act. The Act introduced a special limited-time dividends received deduction on the repatriation of certain foreign earnings to a U.S. taxpayer as more fully described in Note 8 of Notes to Consolidated Financial Statements. The FSP is effective upon issuance. The adoption of FAS 109-2 could have a material effect on the Company's results of operations and financial position. In December 2004, the FASB issued SFAS No. 153 an amendment of APB Opinion No. 29 "Exchanges of Nonmonetary Assets". SFAS No. 153 amends APB Opinion No. 29 by eliminating the exception under APB No. 29 for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS No. 153 is effective for periods beginning after June 15, 2005. The adoption of SFAS No. 153 is not expected to have a material effect on the Company's financial position or results of operations. In November, 2004 the FASB issued SFAS No. 151, an amendment to ARB No. 43 chapter 4 "Inventory Costs". SFAS No. 151 requires that abnormal costs of idle facility expenses, freight, handling costs and wasted material (spoilage) be recognized as current-period charges. SFAS No. 151 is effective for fiscal years beginning after June 15, 2005. Adoption of SFAS No. 151 is not expected to have a material impact on the Company's results of operations or financial position. F-15 In December 2003, the FASB issued SFAS No. 132(R), "Employer's Disclosure about Pensions and Other Postretirement Benefits" (revised). SFAS No. 132(R) retains disclosure requirements of the original SFAS No. 132(R) and requires additional disclosures relating to assets, obligations, cash flows, and net periodic benefit cost. SFAS No. 132(R) is effective for fiscal years ending after December 15, 2003, except that certain disclosures are effective for fiscal years ending after June 15, 2004. Interim period disclosures are effective for interim periods beginning after December 15, 2003. The adoption of SFAS No. 132(R) did not have a material effect on the Company's results of operations or financial position. In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity." SFAS No. 150 clarifies the accounting for certain financial instruments with characteristics of both liabilities and equity and requires that those instruments be classified as liabilities in statements of financial position. Previously, many of those financial instruments were classified as equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of the provisions of SFAS No. 150 did not have a material effect on the Company's financial position. In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement No. 133 on Derivative Instruments and Hedging Activities." This statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities." This Statement is effective for contracts entered into or modified after September 30, 2003, and for hedging relationships designated after September 30, 2003. Adoption of this statement did not have a material impact on the Company's results of operations or financial position. In January 2003, the FASB issued FASB Interpretation ("FIN") No. 46, "Consolidation of Variable Interest Entities." In December 2003, the FASB issued FIN No. 46(R) (revised) to address certain FIN No. 46 implementation issues. This interpretation requires that the assets, liabilities, and results of activities of a Variable Interest Entity ("VIE") be consolidated into the financial statements of the enterprise that has a controlling interest in the VIE. FIN No. 46(R) also requires additional disclosures by primary beneficiaries and other significant variable interest holders. For entities acquired or created before February 1, 2003, this interpretation is effective no later than the end of the first interim or reporting period ending after March 15, 2004, except for those VIE's that are considered to be special purpose entities, for which the effective date is no later than the end of the first interim or annual reporting period ending after December 15, 2003. For all entities that were acquired subsequent to January 31, 2003, this interpretation is effective as of the first interim or annual period ending after December 31, 2003. The adoption of FIN No. 46 did not have a material impact on the Company's results of operations or financial position. In November 2002, the FASB issued FIN No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others", and interpretation of FASB Statements No. 5, 57 and 107 and Rescission of FASB Interpretation No. 34. FIN No. 45 clarifies the requirements of SFAS No. 5, Accounting for Contingencies, relating to the guarantor's accounting for, and disclosure of, the issuance of certain types of guarantees. This interpretation clarifies that a guarantor is required to recognize, at the inception of certain types of guarantees, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and initial measurement provisions of F-16 this Interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantor's fiscal year-end. The disclosure requirements in this interpretation are effective for financial statements of interim or annual periods ending after December 15, 2002. The Company adopted FIN No. 45 on January 1, 2003. The adoption of FIN No. 45 did not have a material impact on the Company's results of operations or financial position. In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." This Statement requires recording costs associated with exit or disposal activities at their fair values when a liability has been incurred. Under previous guidance, certain exit costs were accrued upon management's commitment to an exit plan. The Company adopted SFAS No. 146 on January 1, 2003. The adoption of SFAS No. 146 did not have a material impact on the Company's result of operations or financial position. 2. REFUNDABLE DEPOSITS December 31, ------------------------------- 2004 2003 -------------- -------------- Deposits on land $ 60,700 $ 25,200 Other joint venture deposits 84,000 -- -------------- -------------- $ 144,700 $ 25,200 ============== ============== 3. PROPERTY AND EQUIPMENT December 31, ------------------------------- 2004 2003 -------------- -------------- Equipment $ 4,778 $ 985 Leasehold improvements 7,807 7,807 -------------- -------------- $ 12,585 $ 8,792 Less accumulated Depreciation (3,896) (1,759) -------------- -------------- $ 8,689 $ 7,033 ============== ============== Depreciation expense for the years ended December 31, 2004 and 2003 amounted to $2,137 and $1,759, respectively. F-17 4. DUE FROM CEVA INTERNATIONAL, INC. On June 17, 2003 the Company and Dr. Louis Rose entered into an agreement whereby Dr. Rose assigned all of his rights, title and interest in a promissory note from CEVA International, Inc. ("CEVA") in the amount of $250,000 to the Company in exchange for an aggregate of 800,000 shares of the Company's common stock. The note was guaranteed by Gary Robinson, formerly the Company's largest shareholder. CEVA did not pay the note and the Company exercised its right against the guarantor by reducing the amount owed on the revolving line of credit with Gary Robinson in the amount of $250,000. See Note 9 below. 5. INVESTMENT IN JOINT VENTURES a) In December 2003, the Company formed a joint venture to develop government sponsored, Section 124, low income housing in the commonwealth of Puerto Rico. The Company became the general partner and majority owner of a limited partnership, Delta Development Partners, LP, that holds the majority share of Delta Developers Corp, a Puerto Rico corporation, formed to manage the construction and related activities required to build approximately 270 low income homes under Section 124. The operations of the joint venture have been consolidated with the Company for the year ended December 31, 2004. During the year ended December 31, 2004, Neil Berman, an investor, purchased a 25% interest in Delta Development Partners, LP for $148,000. On October 6, 2004 the Company entered into a second joint venture agreement to develop government sponsored, Section 124 low income housing in the Commonwealth of Puerto Rico. The Company became the general partner and majority owner of a limited partnership, Delta Development Partners II, LP, that holds the majority share of Delta Developers Guayanilla Corp, a Puerto Rico corporation formed to manage the construction and related activities required to build approximately 300 low income houses under Section 124. The operations of the joint venture have been consolidated with the Company for the year ended December 31, 2004. During the period October 6, 2004 through December 31, 2004, Ebony Finance, Ltd. and T & T Asset Management, investors, purchased a 4% interest from the existing partners in Delta Development Partners II, LP for $40,000. b) On March 18, 2003, the Company entered into a letter of intent with Hi-Tech Consulting and Construction, Inc. ("Hi-Tech") to form a joint venture to provide environmental technology services primarily to markets in the Middle East and Africa. The joint venture company, named Delta-Envirotech, Inc., is based in Virginia and focuses on participating in foreign government sponsored pollution remediation projects. The joint venture agreement was concluded January 14, 2004 and Delta-Envirotech, Inc., a Delaware corporation, was formed. On January 14, 2004, Delta and Hi-Tech agreed to each sell 75 shares of the joint venture to Ali Razmara ("Razmara"), representing a ten (10%) percent interest, for $2. The transaction became effective July 14, 2004. On January 22, 2004, the Company announced the conclusion of a strategic alliance agreement between Delta-Envirotech, Inc. and ZAFF International, Ltd., an advanced technology company located in Saudi Arabia. The strategic alliance states that the two companies will jointly pursue projects related to soil and water reclamation requirements in the Middle East. F-18 The operations of the joint venture have been consolidated with the Company for the year ending December 31, 2004 as the Company maintains effective control over the operations. c) On May 1, 2003, the Company entered into a joint venture in Romania, forming a new Company, Delta TP Mediu, SRL. The joint venture, of which the Company owns 10%, was organized to primarily pursue the sourcing, treatment and processing of hydrocarbon based and other industrial residuals and, where possible, to create alternative fuels and raw materials for industrial use primarily in Romania. The Company invested $33,800 in the joint venture, consisting of $15,100 in cash, the issuance of 100,000 shares of common stock valued at $15,000 and a cash obligation of $11,200 to the joint venture which is included in the Due to Related Party amount on the Company's balance sheet at December 31, 2003. The Company made a strategic decision to minimize its activities in Eastern Europe and the investment has been written down to $1 and a charge was taken against operations in 2004. d) On April 25, 2003, the Company entered into a letter of intent with Ms. Jamie Burrows and Burrows Consulting, Inc., a Texas based corporation (collectively referred to as "Burrows") to form a joint venture company to be known as Delta Specialty Services based in Houston, Texas and was to engage in providing waste remediation technologies and services on a project basis to the United States Government, foreign governments and their respective departments, agencies, political sub-divisions as well as to private entities around the world. The funding commitments were not accomplished on the established timetable and the joint venture has not commenced operations and activities have ceased in this area. The Company expensed $75,000 that had been advanced to the joint venture and is included in the Company's statement of operations for the year ended December 31, 2003. No charges were incurred during 2004. 6. CONVERTIBLE DEBT a) On May 12, 2004, the Company issued two convertible notes in the principal amounts of $193,740 and $129,160, respectively, to a related party and the spouse of a related party. Each note is due May 12, 2006. Both notes bear interest of 4% per annum and are convertible into common stock at an initial conversion price of $0.125 per share. Interest expense for the year ended December 31, 2004 amounted to $6,617 and was included in accrued expenses on the Company's balance sheet at December 31, 2004. b) On July 1, 2004, the Company issued a convertible note to a related party for $157,000 due December 31, 2006. The note bears interest of 4% per annum and are convertible into common stock at an initial conversion price of $0.05 per share. On January 7, 2005, the Company issued 500,000 shares of common stock as partial repayment of $25,000 of the principal amount of the note. Interest expense for the year ended December 31, 2004 amounted to $3,165 and was included in accrued expenses on the Company's balance sheet at December 31, 2004. c) On July 16, 2004, the Company issued a convertible note to a related party for $37,500 due January 16, 2007. The note bears interest of 4% per annum and is convertible into common stock at an initial conversion price of $0.05 per share. Interest expense for the year ended December 31, 2004 amounted to $682 and was included in accrued expenses on the Company's balance sheet at December 31, 2004. d) On September 20, 2004, the Company issued a series of convertible notes to various lenders in the aggregate amount of $301,500 with a maturity date F-19 of September 16, 2006. Of the aggregate principal amount $71,500 was issued to three related parties. The notes bear interest of 6% per annum and are convertible into common stock at an initial conversion price of $0.05 per share. On November 19, 2004, the Company issued 400,000 shares of common stock to one of the lenders as repayment of the principal amount of a $20,000 convertible note issued by the Company on September 20, 2004. The Company paid the interest on the note of $198 by issuing the lender an additional 3,951 shares of common stock. Interest expense for the year ended December 31, 2004 amounted to $4,918 and $4,220 was included in the accrued expenses on the Company's balance sheet at December 31, 2004. e) On September 23 and September 27, 2004, the Company issued two convertible notes in the principal amounts of $10,000 and $20,000, respectively, to two related parties.. The notes are due September 22, 2006 and September 26, 2006, respectively. Each note bears interest of 6% per annum and is convertible into common stock at an initial conversion price of $0.05 per share. Interest expense for the year ended December 31, 2004 amounted to $475 and was included in accrued expenses on the Company's balance sheet at December 31, 2004. f) On October 19, 2004, the Company issued a convertible note to a related party for $25,000 due October 18, 2006. The note bears interest of 6% per annum and is convertible into common stock at an initial conversion price of $0.05 per share. On November 23, 2004, the Company repaid the principal amount of this note by issuing 500,000 shares of common stock. The Company paid the interest on the note of $144 by issuing the lender an additional 2,877 shares of common stock. g) On November 2 and November 5, 2004, the Company issued two convertible notes in the principal amounts of $12,500 and $25,000, respectively, to two lenders, one of whom was a related party. The notes are due November 1, 2006 and November 4, 2006 respectively. Each note bears interest of 6% per annum and is convertible into common stock at an initial conversion price of $0.05 per share. On November 8, 2004, the Company repaid the $25,000 note by issuing 500,000 shares of common stock with interest paid in cash. On January 3, 2005, the Company repaid the $12,500 note by issuing 250,000 shares of common stock. The Company paid the interest of $127 by issuing the lender an additional 2,542 shares of common stock. h) On November 26, 2004, the Company entered into a settlement agreement and mutual release with a stockholder. As part of the settlement amount the Company issued a convertible note for $50,000 due on November 24, 2006. The note bears interest of 6% per annum and is convertible into common stock at an initial conversion price of $0.05 per share. i) At December 31, 2004, the Company's outstanding convertible notes were convertible into 13,953,200 shares of common stock. The following table shows the maturities by year of the total long-term convertible debt obligations at December 31: 2005 $ -- 2006 853,900 2007 37,500 ------------ $ 891,400 ============ F-20 7. ACCRUED EXPENSES Accrued expenses consist of the following: Years Ended December 31, --------------------------- 2004 2003 ------------ ------------ Professional fees $ 50,000 $ 20,000 Consulting fees -- 61,500 Interest expense 16,077 10,598 Payroll expense 125,110 -- Payroll expense officers 214,149 158,224 Payroll tax expense 20,801 14,964 ------------ ------------ $ 426,137 $ 265,286 ============ ============ 8. LOAN RECEIVABLE - FORMER OFFICER/SHAREHOLDER During 2003, the Company entered into a revolving credit agreement with Gary Robinson ("Robinson"), the former Chairman and Chief Executive Officer of the Company, in the amount of $300,000. The credit agreement bears interest at 4.2%. Robinson advanced the Company $515,383 and the Company repaid Robinson $109,515 through December 31, 2004. In March 2003, the Company entered into a consulting agreement with M.U.R.G. and advanced M.U.R.G. $100,000 against future compensation in the form of a promissory note. The project did not go forward and on June 16, 2003, Robinson agreed to assume the promissory note from M.U.R.G. and reduce the amount due him. On March 4, 2004, the Company paid $121,508 to David Green ("Green"), which constituted full and complete repayment of a $100,000 loan made by Green to Robinson. The loan was secured by a pledge of the Company's common stock. The Company offset the payment to Green against the amount due Robinson. The Company recorded interest expense of $425 and $7,986 on the revolving line of credit for the years ended December 31, 2004 and 2003, respectively. After adjustments for expense reimbursements and interest due Robinson and offsets as noted above, Robinson owed the Company $51,221 as of December 31, 2004. The full amount of the receivable has been reserved as a potential bad debt. F-21 9. LOANS FROM RELATED PARTIES a) On January 7, 2003, the Company borrowed $15,000 from Michael Pisani ("Pisani") a stockholder of the Company. Pisani received 50,000 shares of common stock (valued at fair market value) which represented the payment of interest accruing on the unpaid principle balance through January 27, 2003, the maturity date. The Company recorded interest expense of $ 15,000 in 2003 for the issuance of the shares. The Company did not pay the outstanding balance on the maturity date and was required to pay monthly interest of one (1%) percent to Pisani. On April 7, 2003, the Company repaid Pisani $5,000 against the outstanding balance. The balance due Pisani at December 31, 2003 was $10,000. In May 2003, the note was amended. Subsequently, a dispute arose between the parties about the validity of the amendment. In March, 2004 the Company repaid the principal and interest due under the terms of the amended note. Pisani, through counsel, has informed the Company that, by accepting repayment, he does not prejudice his position regarding the validity of the original note. The Company is attempting to resolve this dispute. If the matter can not be resolved and Pisani prevails in a legal action against the Company, Pisani may be entitled to, in addition to the principal amount and interest that he has received from the Company, shares of common stock as additional interest. The Company recorded interest expense of $1,599 and $16,600 for the years ended December 31, 2004 and 2003, respectively, and $1,600 was included in the accrued expense on the Company's balance sheet at December 31, 2003. b) On May 15, 2003 the Company borrowed $12,000 from Michael Fasci, ("Fasci") a stockholder of the Company. Fasci received 50,000 common shares of common stock which represented the payment of interest through May 26, 2003, the maturity date. The Company recorded interest expense in the amount of $13,750 and $6,705 for the years ended December 31, 2004 and 2003, respectively. On February 27, 2004 the Company issued 140,000 shares of common stock (valued at fair market value) in repayment of the loan, interest, penalty and expenses amounting to $19,100. $840 was included in the accrued expense on the Company's balance sheet at December 31, 2003. c) On October 17, 2003 the company borrowed $60,000 from Mitchell Rosenthal, a shareholder of the Company, with interest at the rate of six percent (6%) per annum. The note was repaid in December 2003 through conversion of security that was posted against the loan by Gary T. Robinson on behalf of the Company. The Company recorded interest expense of $156 for the year ended December 31, 2003. d) On December 30, 2003 the Company borrowed $50,000 from Edward Tuccio, a shareholder of the Company. The note was due December 29, 2004 with interest at six percent (6%) per annum. The note was converted on February 11, 2004 into 500,000 shares of common stock (valued at fair market value). The Company recorded accrued interest expense of $168 for the year ended December 31, 2004 The Company did not expense any interest for the year ended December 31, 2003. F-22 e) On December 11, 2003 the Company borrowed $50,000 from Neil Jones, a shareholder of the Company. The note was due December 16, 2004 with interest at six percent (6%) per annum. The Company recorded interest expense of $112 and $63 for the year ended December 31, 2004 and 2003, respectively. Accrued interest is in the amount of $132 is included in the Company balance sheet at December 31, 2003. The note was converted into 500,000 shares of common stock on January 24, 2004. 10. MINORITY INTERESTS Minority interests primarily consist of ownership interest in Delta-Envirotech, Inc., Delta Development Partners, L.P., Delta Development Partners II, L.P., Delta Developers Corp. and Delta Developers Guayanilla, Corp. The income and losses from operations of these entities and their respective minority interests have been reflected in the Company's statement of operations for the twelve months ended December 31, 2004. There are losses for the minority interests in excess of the $101,644 attributed to the minority interests due to basis limitations. In future periods, the profits attributable to the minority interests will be first absorbed against any unused losses until the losses are fully absorbed. The amount on the Company's balance sheet represents the minority interests as of December 31, 2004. The following represents a schedule of minority interests as of December 31, 2004 2003 ------------ ------------ Delta Development Partners L.P. $ 143,010 $ -- Delta Development Partners II, L.P 40,000 -- Delta Developers Guayanilla, Corp. 150 -- Delta Developers Corp. -- 150 Delta-Envirotech, Inc. -- -- ------------ ------------ $ 183,160 $ 150 ============ ============ 11. STOCKHOLDER'S DEFICIENCY a. On January 12, 2003, the Company entered into an agreement with Kenneth Martin, the Company's former controlling shareholder, to compensate him for past services rendered to the Company in the amount of $12,454, of which was accrued at December 31, 2002. The Company issued 30,000 shares of common stock registered pursuant to a Form S-8 registration statement in full payment of the Company's debt. b. On February 4, 2003, the Company and J. Dapray Muir, Esq. ( the Company's previous attorney) entered into an agreement to compensate him for past services rendered to the Company in the amount of $34,669, all of which was accrued at December 31, 2002. The Company issued 50,000 shares of common stock, registered pursuant to a Form S-8 registration statement in full payment of the Company's debt. c. On February 24, 2003 the Board of Directors effected a forward stock split of five to one. All references to common stock after that date reflect the forward stock split. d. On February 3, 2003, the Company and Peter Russo, an executive of the Company, entered into an agreement to compensate him for past services rendered to the Company in the amount $20,000, all of which was accrued at December 31, 2002. The Company issued 40,000 shares of common stock registered pursuant to a Form S-8 registration statement in full payment of the Company's debt F-23 e. On February 10, 2003, the Company and Jerome Kindrachuk, an executive of the Company, entered into an agreement to compensate him for past services rendered to the Company in the amount of $20,000, all of which was accrued at December 31, 2002. The Company issued 200,000 shares of common stock in full payment of the Company's debt in February 2003. f. On April 29, 2003, the Company and Peter Russo, the CEO of the Company, entered into an agreement to compensate him in recognition of his commitment for services in the amount of $22,500. The Company issued 100,000 shares of common stock in full payment of this debt. g. On April 29, 2003, the Company and Jerry Kindrachuk, an executive of the Company, entered into an agreement to compensate him in recognition of his commitment for services in the amount of $22,500. The Company issued 100,000 shares of common stock in full payment of this debt. h. On April 29, 2003 the Company and Steven L. Gray, entered into an agreement to compensate him for past services rendered to the Company in the amount of $50,000. The Company issued 100,000 shares of common stock in full payment of this debt. i. On April 29, 2003, the Company and Kevin Forcier, entered into an agreement to compensate him for past services rendered to the Company in the amount of $10,000. The Company issued 20,000 shares of common stock in full payment of this debt. j. On April 29, 2003, the Company and T&T Asset Management of Zurich, Switzerland, entered into an agreement to compensate them for past services rendered in the amount of $50,000. The Company issued 240,000 shares of common stock in full payment of this debt. k. On June 30, and July 23, 2003, the Company and Michael Kahn, entered into an agreements to compensate him for past services rendered to the Company in the amount of $16,500 and $16,500 respectively. The Company issued 80,000 shares of common stock in full payment of this debt. l. On July 1, 2003, the Company entered into an agreement with Gary Robinson, a stockholder, former CEO and former chairman, to compensate him for past services rendered to the Company in the amount of $93,625, the fair value of the services. The Company issued 280,000 shares of common stock registered pursuant to a Form S-8 registration statement in full payment of the Company's debt. m. On August 8, 2003 the Company and Joseph Tomasek entered into an agreement to compensate him for past services rendered in the amount of $40,000. The Company issued 200,000 shares of common stock in full payment of this debt. n. On August 8, 2003, the Company and a private investor entered into an agreement for the purchase by the investor of 100,000 shares of common stock for $50,000. o. On August 11, 2003, the Company and Joy Miller entered into an agreement for compensation of services to the Company in the amount of $43,750. The Company issued 100,000 shares of common stock in full payment of this debt. F-25 p. On August 22, 2003, the Company and a private investor entered into an agreement for the purchase by the investor of 250,000 shares of common stock for $50,000. q. On October 21, 2003, the Company entered into agreements for compensation for services with Nela Pavaliou and Business Centres International, Inc. in the amount of $1,750 for each. The Company issued 50,000 shares of common stock in full payment of this debt. r. On November 15, 2003, the Company and Neil Berman entered into an agreement for the purchase by Mr. Berman of 100,000 shares of common stock for $12,500. On November 15 and December 15, 2003 the Company and Neil Berman entered into consulting agreements with compensation for consulting of $8,500 and $850 respectively. The Company issued 100,000 and 10,000 shares of common stock respectively in full payment of this debt. s. On January 14, 2004, the Company and David Razmara, entered into an agreement to compensate him for past services rendered to the Company in the amount of $4,125, all of which was accrued at December 31, 2003. The Company issued 50,000 shares of common stock in full payment of this debt. t. In February 2004, the Company sold to a private investor 300,000 shares of restricted common stock for $37,500, valued at $.125 per share, fair market value at the time of issuance. u. The Company and Citrus Land and Development Company entered into an agreement for services rendered to the Company in the amount of $25,000. In February 2004, the Company issued 355,000 shares of common stock in connection with this agreement. v. On March 31, 2004 the Company and MicroCap, Inc. entered into an agreement for services rendered to the Company in the amount of $9,000. The Company issued 30,000 shares of common stock in connection with this agreement. w. The Company and Kenneth Martin entered into an agreement to compensate him for past services in the amount of $50,000, all of which was accrued at December 31, 2003. In March 2004, the Company issued 200,000 shares of common stock in full payment of this debt. x. On March 31, 2004, pursuant to a joint venture agreement dated January 14, 2004, the Company issued 50,000 shares of common stock to David Razmara in consideration of services rendered to the joint venture in the amount of $4,125. y. On April 16, 2004, the Company and Burton Lasalle Capital Corporation, entered into an agreement for services rendered to the Company in the amount of $36,000. In April 2004 the Company issued 200,000 shares of common stock in connection with this agreement. z. On April 16, 2004, the Company and Basic Investors, Inc. entered into an agreement for services rendered to the Company in the amount of $72,000. In April 2004, the Company issued 400,000 shares of common stock in connection with this agreement. aa. On March 4, 2004, the Company and Charter Capital Resources, Inc. entered into an agreement for services rendered to the Company in the amount of $12,500. In May 2004, the Company issued 100,000 shares of common stock in connection with this agreement. F-26 bb. On March 21, 2004 the Company and Clark Street Capital, entered into an agreement for services rendered to the Company in the amount of $72,000. In June 2004, the Company issued 400,000 shares of common stock in connection with this agreement. cc. On April 5, 2004, the Company and Inna Turney, through her assignee Business Centres International, entered into an agreement for services rendered to the Company in the amount of $7,500. In April 2004, the Company issued 50,000 shares of common stock in full settlement of this debt. dd. On May 5, 2004, the Company issued to three employees an aggregate of 185,000 shares of common stock valued at $25,900 in consideration for their respective commitments as employees of the Company. ee. During the second quarter of 2004 the Company sold 840,000 shares of restricted common stock for $105,000 valued at $.125 per share, fair market value at the time of issuance. ff. In August 2004, pursuant to a placement agent agreement dated May 3, 2004, the Company issued 250,000 shares of common stock to T&T Asset Management of Zurich, Switzerland in consideration of past services rendered to the Company in the amount of $31,250, all of which was expensed at September 30, 2004. gg. On September 16, 2004, pursuant to a placement agent agreement dated September 1, 2004, the Company issued 125,000 shares of common stock to T&T Asset Management of Zurich, Switzerland in consideration of services rendered to the Company in the amount of $6,250. hh. On September 17, 2004, pursuant to an amended and restated consulting services agreement dated September 7, 2004, the Company issued 100,000 shares of common stock to Basic Investors, Inc. for past services rendered to the Company in the amount of $12,000 as full payment of the Company's debt, all of which was expensed at September 30, 2004. In return, Basic Investors returned to the Company 400,000 shares of common stock that was issued to Basic in April 2004 in consideration of services rendered to the Company in the amount of $72,000. ii. On September 10, 2004, the Company and B C N Investments, L.L.C. entered into an agreement for services rendered to the Company in the amount of $36,000 all of which was expensed at September 30, 2004. The Company issued 300,000 shares of common stock in connection with this agreement. jj. On September 20, 2004, the Company and Commonwealth Holdings, Inc. entered into an agreement for services rendered to the Company in the amount of $12,000 all of which was expensed at September 30, 2004. The Company issued 100,000 shares of common stock in connection with this agreement. kk. During the third quarter of 2004, the Company sold 350,000 shares of restricted common stock for $43,750 valued at $.125 per share, fair market value at the time of issuance. ll. On October 4, 2004, pursuant to an agreement dated May 3, 2004, the Company issued 750,000 shares of common stock to Ebony Finance Ltd. of Zurich, Switzerland in consideration of past services rendered to the Company in the amount of $37,500, all of which was expensed during the year ended December 31, 2004. F-27 mm. On October 22, 2004, the Company and VarGrowth Corp., Inc. entered into an agreement for services rendered to the Company in the amount of $35,375, all of which was expensed during the year ended December 31, 2004. The Company issued 250,000 shares of common stock in connection with this agreement. nn. On November 1, 2004, the Company and Consulting Medical Management entered into an agreement for services rendered to the Company in the amount of $31,250, all of which was expensed during the year ended December 31, 2004. The Company issued 250,000 shares of common stock in connection with this agreement. oo. On November 9, 2004, the Company and Michael Schantz entered into an agreement for services rendered to the Company in the amount of $25,000, all of which was expensed during the year ended December 31, 2004. The Company issued 250,000 shares of common stock in connection with this agreement. pp. On November 15, 2004, pursuant to a monthly retainer agreement dated August 15, 2004, the Company issued 45,000 shares of common stock to Focus Partners LLC in consideration of past services rendered to the Company in the amount of $5,400, all of which was expensed during the year ended December 31, 2004. qq. On November 16, 2004, pursuant to an advisory agreement dated June 7, 2004, the Company issued 250,000 shares of common stock to Constellation Capital Corp. in consideration of past services rendered to the Company in the amount of $37,500, all of which was expensed during the year ended December 31, 2004. rr. On November 26, 2004, pursuant to a settlement agreement and mutual general release, the Company issued 412,000 shares of common stock to Joseph Friedman and Sons International, Inc. ("Friedman"), a stockholder of the Company, in respect of the complete release provided by Friedman to the Company as contained in the settlement agreement. The consideration for the release was in the amount of $70,040, all of which was expensed during the year ended December 31, 2004. ss. In December 2004, the Company issued 800,000 shares of its common stock through the exercise of the Company's common stock warrants, held by four warrant holders, at an exercise price of $0.10 per share. tt. During the fourth quarter of 2004, the Company sold 54,055 shares of its restricted common stock for $10,000, valued at $0.185 per share, fair market value at the time of issuance. 12. INCOME TAXES The liability method, prescribed by SFAS No. 109, "Accounting for Income Taxes", is used by the Company in accounting for income taxes. Under this method, deferred tax assets and liabilities are based on differences between financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. During the year ended December 31, 2004, the Company recorded a deferred tax asset associated with its net operating loss ("NOL") carryforwards of approximately $5,120,000 that was fully offset by a valuation allowance due to the determination that it was more likely than not that the Company would be unable to utilize these benefits in the foreseeable future. The Company's NOL carryforward expires beginning in 2010 through 2017. There is no provision for income taxes for the years ended December 31, 2004 and 2003 as there was no taxable income in either year. The types of temporary differences between tax basis of assets and liabilities and their financial reporting amounts that give rise to the deferred tax liability and deferred tax asset and their approximate tax effects are as follows:
December 31, 2004 December 31, 2003 --------------------------------- --------------------------------- Temporary Tax Temporary Tax Difference Effect Difference Effect -------------- -------------- -------------- -------------- Gross deferred tax asset $ 5,120,000 $ 1,74000 $ 608,000 $ 207,000 resulting from net operating loss carryforward Valuation allowance (5,120,000) (1,740,000) (608,000) (207,000) -------------- -------------- -------------- -------------- Net deferred income tax asset $ -- $ -- $ -- $ -- ============== ============== ============== ==============
The reconciliation of the effective income tax rate to the federal statutory rate is as follows: For the Year Ended December 31, --------------------- 2004 2003 -------- -------- Federal income tax rate 34% 34% Valuation allowance on net operating loss carryforward (34)% (34)% Effective income tax rate 0% 0% ======== ======== 13. STOCK OPTION PLANS In December 2001, the Company's stockholders approved a stock option plan entitled the 2001 Employee Stock Option Plan (the "2001 Plan"), pursuant to which 2,000,000 shares of common stock were reserved for issuance. In August 2004, the Company's stockholders approved the 2004 Stock Option Plan (the "2004 Plan"), pursuant to which 10,000,000 shares of common stock were reserved for issuance. As of December 31, 2004, 613,000 shares of common stock remained available for issuance of options under the 2001 Plan and 3,500,000 shares of common stock remained available for issuance of options under the 2004 Plan. As of March 28, 2005, all shares under the 2001 Plan had been issued. A summary of the status of the Company's options and stock awards under the Plans as of December 31, 2004, and changes during the year then ended, is presented below:
2004 2003 ---------------- ---------------- Weighted- Weighted- Average Average Exercise Exercise Shares Price Shares Price ---------------- ---------------- ---------------- ---------------- Options out- standing, begin- ning of year -- $ -- -- $ -- Options granted 6,500,000 $ 0.25 -- $ -- Options exercised -- $ -- -- $ -- Stock awards granted 429,000 $ 0.1375 358,000 $ 0.067 Stock awards issued (429,000) $ 0.1375 (358,000) $ 0.067 Options cancelled/expired -- $ -- -- $ -- ---------------- ---------------- ---------------- ---------------- Options out- standing, end of year 6,500,000 $ 0.25 -- $ -- ================ ================ Options price range at end of year $ 0.25 Options price range for exercised shares -- Options available for grant at end of year 4,113,000 1,642,000 Weighted- average fair value of options granted during the year $ 0.25 $ --
The following table summarizes information about fixed price stock options outstanding December 31, 2004.
Weighted- Number Out- Average Weighted- Number Weighted- Range of standing at Remaining Average Exercisable at Average Exercise December 31, Contractual Exercise December 31, Exercise Prices 2004 Life Price 2004 Price ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- $0.25 6,500,000 9 $0.25 1,600,000 $0.25
A summary of the status of the Company's Stock Purchase Warrants as of December 31, 2004, and changes during the year is then presented below:
2004 2003 ------------------------------- ------------------------------- Weighted- Weighted- Average Average Exercise Exercise Shares Price Shares Price -------------- -------------- -------------- -------------- Warrants out- Standing, beginning of Year -- $ -- -- $ -- Warrants granted 8,880,000 $ 0.10 -- $ -- Warrants exercised (800,000) $ 0.10 -- $ -- Warrants cancelled/expired -- $ -- -- $ -- -------------- -------------- -------------- -------------- Warrants outstanding, end of year 8,080,000 $ 0.10 -- $ -- ============== ============== ============== ============== Warrant price range at end of year $ 0.10 $ -- Warrant price range for exercised shares $ 0.10 $ -- Weighted-average fair value of warrants granted below market value during the year $ 0.24 $ --
The following table summarizes information about fixed price warrants outstanding at December 31, 2004.
Weighted- Number Out- Average Weighted- Number Weighted- Range of standing at Remaining Average Exercisable at Average Exercise December 31, Contractual Exercise December 31, Exercise Prices 2004 Life Price 2004 Price ---------------- -------------- ------------- ---------- -------------- ---------- $0.10 8,080,000 2 $0.10 8,080,000 $0.10
14. COMMITMENTS AND CONTINGENCIES a. Executive Employment Agreements Effective March 11, 2003, the Company entered into an employment agreement with Peter Russo for three years with a renewal option upon mutual agreement. The agreement compensates Mr. Russo $10,800 per month. Additionally, Mr. Russo will receive an incentive of 1.5% of adjusted net profits beginning with the year 2003 and each fiscal year thereafter during the term of this agreement, payable in stock. For the year ended December 31, 2004 and 2003 no incentive payments were made or accrued as the Company recorded a loss each year. This agreement and Mr. Russo's employment may be terminated by the Company at its discretion at any time after the initial term, provided that the Mr. Russo be paid six months of his base compensation then in effect. Effective June 11, 2003, Mr. Russo was appointed president and chief executive officer of the Company and in recognition of his new responsibilities agreed to compensation of $15,000 per month effective July 1, 2003. On September 20, 2004, Mr. Russo's employment agreement was amended by mutual agreement, and his monthly salary was reduced to $6,500 effective January 1, 2004. In addition, he will be eligible for any incentive compensation program for senior executives that is established by the board of directors. During the years ending December 31, 2004 and 2003, Mr. Russo earned $78,000 and $120,000, respectively. At December 31, 2004 and 2003, the Company owed Mr. Russo $121,887 and $98,224, respectively, in accrued salary and the amounts are included in accrued expenses on the Company's balance sheet. Effective July 1, 2003 and prior to his appointment as a Company officer, the Company entered into an employment agreement with Jerome Kindrachuk, for three years with a renewal option upon mutual agreement. The agreement compensates Mr. Kindrachuk $10,000 per month. The agreement and Mr. Kindrachuk's employment may be terminated by the Company at its discretion at any time after the initial term, provided that Mr. Kindrachuk be paid six months of his base compensation then in effect. On September 22, 2004, Mr. Kindrachuk's employment agreement was amended by mutual agreement, and his monthly salary was reduced to $6,000 effective January 1, 2004. In addition, he will be eligible for any incentive compensation program for senior executives that is established by the board of directors. During the years ending December 31, 2004 and 2003, Mr. Kindrachuk earned compensation of $72,000 and $60,000, respectively. At December 31, 2004 and 2003, the Company owed Mr. Kindrachuk $92,262 and $60,000, respectively, in accrued salary and the amounts are included in accrued expenses on the Company's balance sheet. b. License Agreements In April 2003, the Company entered into a License Agreement (the "License Agreement") with Joseph Friedman and Sons International, Inc. ("Friedman") where the Company licensed certain environmental technologies to Friedman in the territory of the Former Soviet Union. The License Agreement was predicated upon technologies that were assigned to the Company under a separate agreement with the technology owner. Due to actions taken against the technology owner by his creditors during the latter part of 2003, the technology owner lost his ability to assign the technologies to the Company. Accordingly, the Company was unable to convey these rights to Friedman. The Company and Friedman executed an Addendum to the License Agreement (the "Addendum") in April 2003. The Addendum contemplated the formation of joint ventures between the Company and Friedman to provide environmental services in the license territory under contracts obtained by Friedman, with the Company owning not less than 60% of any joint venture established. In consideration of the potential benefit to the Company (as majority owner of the joint ventures), it issued Friedman 288,368 shares of common stock valued at $40,000, with certain anti-dilution provisions. The Company also granted Friedman the right to nominate a member to its board of directors. In November 2003, Friedman made a claim for additional shares of common stock, citing the anti-dilution language of the Addendum. Friedman also requested that its nominee be appointed to the Company's board of directors. In light of the events that effected the License Agreement, the Company notified Friedman on March 30, 2004, as provided in the License Agreement, terminating the License Agreement and the Addendum. The Company took the position that the termination of the Addendum eliminated Friedman's right to a board seat. Effective November 26, 2004, the Company entered into a settlement agreement and mutual general release with Friedman (reference note number 5) and as part of the settlement agreement the Company issued to Friedman a $50,000 principal amount 6% Convertible Promissory Note, due November 24, 2006, initially convertible into 1,000,000 shares of Common Stock together with Warrants to purchase an additional 1,000,000 shares of Common Stock and issued 412,000 shares of Common Stock (Reference "Recent Sales of Unregistered Securities") in settlement of any and all claims made for additional shares attributable to the anti-dilution language and to forego the requirement of appointing a nominee to the Board. During the year ended December 31, 2004, the Company expensed warrants of $349,400 and stock valued at $70,040, in connection with the terminated license agreement. c. Financing Agreement On July 8, 2003, the Company entered into an agreement with Rolan Jansen and Ivano Angelastri ("J&A") to introduce and arrange equity, debt or other financing agreements with strategic partners, for the Company, or its affiliates for a finders fee of 6.0% to Rolan Jansen and 2.0% to Ivano Angelastri of the gross proceeds of the equity financing. For the year ended December 31, 2003, no financing was introduced to the Company in connection with this agreement. d. Investor Relations Agreements On August 15, 2004 the Company entered into an agreement with Focus Partners LLC ("Focus") for a month-to-month retainer, as its investor relations and strategic communications consultant. Focus received a fee of $19,060 for 2004 and restricted Common Stock in the amount of 45,000 shares (valued at $5,400) for the year 2004. e. Leases The Company entered in to a lease March 1, 2003 for a business office space. The lease will require the Company to pay certain executory costs (such as insurance and maintenance). Future minimum lease payments for the operating lease is as follows: Year Ending December 31, ------------------- 2005 $ 7,800 2006 1,300 2007 -- ------------ $ 9,100 Rent expense was $7,800 and $6,662 for the years ended December 31, 2004 and 2003, respectively. In addition, the Company has a month-to-month lease on a business office in McLean, Virginia at a cost of $1,100 per month that began in November 2004. For the year 2004 the Company incurred expense of $2,200. 15. SUBSEQUENT EVENTS a. On March 22, 2005, the Company issued to a related party a 6% Promissory Note in the principal amount of $71,731.29, with the principal and interest due in three equal installments with the final installment due at maturity, on December 20, 2005. b. On April 5, 2005, the Company issued 8% Promissory Notes to private investors in the amount of $210,655.04, with the principal and interest due at maturity, on October 2, 2005. Exhibit 31.1 CERTIFICATION I, Peter F. Russo, President and Chief Executive Officer of Delta Mutual, Inc. (the "Company"), certify that: 1. I have reviewed this annual report on Form 10-KSB of Delta Mutual, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this annual report; 4. The Company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; (b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) disclosed in this report any change in the Company's intternal control over financial reporting that occurred during the Company's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting; and 5. The Company's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company's auditors and the audit committee of the Company's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company's ability trecord, process, summarize and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal control over financial reporting. Date: April 14, 2005 /s/ Peter Russo -------------------------------- Peter F. Russo President and Chief Executive Officer Exhibit 31.2 CERTIFICATION I, Martin G. Chilek, Chief Financial Officer of Delta Mutual, Inc. (the "Company"), certify that: 1. I have reviewed this annual report on Form 10-KSB of Delta Mutual, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this annual report; 4. The Company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the company and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; (b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) evaluated the effectiveness of the Company's disclosure controlseffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) disclosed in this report any change in the Company's internal control over financial reporting that occurred during the Company's most recent fiscal quarter (the Company's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting; and 5. The Company's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company's auditors and the audit committee of the Company's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company's ability to record, process, summarize and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal control over financial reporting. Date: April 14, 2005 /s/ Martin Chilek -------------------------------- Martin G. Chilek Chief Financial Officer Exhibit 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Delta Mutual, Inc. (the "Company") on Form 10-KSB for the year ended December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Peter F. Russo, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Peter Russo --------------------- Peter F. Russo President and Chief Executive Officer April 14, 2005 -----END PRIVACY-ENHANCED MESSAGE-----