FORM 10-QSB

                       SECURITIES AND EXCHANGE COMMISSION

                                WASHINGTON, D.C.

|X|   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934.

                 For the quarterly period ended March 31, 2006.

                                       OR

|_|   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934.

        For the transition period from ____________ to _________________

Commission File Number 000-30563

                               DELTA MUTUAL, INC.

             (Exact name of registrant as specified in its charter)

                  DELAWARE                                14-1818394

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

                 111 NORTH BRANCH STREET, SELLERSVILLE, PA 18960

                                 (215) 258-2800

             (Address and telephone number, including area code, of

                    registrant's principal executive office)

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

                               since last report)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

YES |X| NO |_|

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

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

At May 18, 2006, there were 40,819,132 shares of Common Stock, $.0001 par value,
outstanding.

<PAGE>

                               DELTA MUTUAL, INC.

                                      INDEX
                                                                            Page

Part I.  Financial Information                                                1

      Item 1. Financial Statements                                            1

Consolidated Balance Sheets as of March 31, 2006 (unaudited)                  2

Consolidated Statements of Operations for the Three Months
  Ended March 31, 2006 and 2005 (unaudited)                                   3

Consolidated Statements of Cash Flows for the Three Months
  Ended March 31, 2006 and 2005 (unaudited)                                 4-5

Notes to Unaudited Consolidated Financial Statements                          6

      Item 2. Management's Discussion and Analysis or Plan of Operation      18

      Item 3. Controls and Procedures                                        21

Part II. Other Information                                                   21

      Item 1. Legal Proceedings                                              21

      Item 6. Exhibits                                                       22

Signatures                                                                   22

                                       ii

<PAGE>

PART I. FINANCIAL INFORMATION


      Item 1. Financial Statements

            Certain information and footnote disclosures required under
accounting principles generally accepted in the United States of America
have been condensed or omitted from the following consolidated financial
statements pursuant to the rules and regulations of the Securities and
Exchange Commission. It is suggested that the following consolidated
financial statements be read in conjunction with the year-end consolidated
financial statements and notes thereto included in the Company's Annual
Report on Form 10-KSB for the year ended December 31, 2005.

            The results of operations for the three months ended March 31, 2006
and 2005 are not necessarily indicative of the results for the entire
fiscal year or for any other period.

                                        1

<PAGE>

                       DELTA MUTUAL INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

                                 ASSETS
                                                                      March 31,
                                                                    -----------
                                                                       2006
                                                                    -----------
                                                                    (Unaudited)
Current Assets:
     Cash                                                           $    10,431
     Accounts Receivable                                                185,082
     Prepaid expenses                                                   389,790
                                                                    -----------
           Total Current Assets                                         585,303

Property and equipment - net                                            451,038
Intangible asset                                                        138,829
Other assets                                                              1,401
                                                                    -----------
          TOTAL ASSETS                                              $ 1,176,571
                                                                    ===========
                    LIABILITIES AND STOCKHOLDERS' DEFICIENCY

Current Liabilities:
     Accounts payable                                               $   448,191
     Accrued expenses                                                   723,797
     Accretion of convertible debt                                      635,468
     Loans from stockholder                                                  --
     Notes payable                                                      210,655
                                                                    -----------
          Total Current Liabilities                                   2,018,111
                                                                    -----------

Minority interest in consolidated subsidiaries                          370,094
                                                                    -----------

Stockholders' Deficiency:
     Common stock $0.0001 par value - authorized
       100,000,000 shares;
       40,185,629 shares outstanding                                      4,019
     Additional paid-in-capital                                       5,917,287
     Accumulated deficit                                             (7,122,940)
     Subscription receivable                                            (10,000)
                                                                    -----------
          Total Stockholders' Deficiency                             (1,211,634)
                                                                    -----------
          TOTAL LIABILITIES AND
            STOCKHOLDERS'  DEFICIENCY                               $ 1,176,571
                                                                    ===========

See Notes to Unaudited Consolidated Financial Statements


                                       2
<PAGE>

                       DELTA MUTUAL INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)

                                                   Three Months Ended March 31,
                                                   ----------------------------
                                                       2006            2005
                                                   ------------    ------------

Revenue                                           $    160,722     $         --
                                                  ------------     ------------

Costs and Expenses
     Cost of sales                                      49,738               --
     General and administrative
     Expense                                           743,414          375,993
                                                  ------------     ------------
                                                       793,152          375,993
                                                  ------------     ------------

     Loss from operations                             (632,430)        (375,993)
                                                  ------------     ------------

     Accretion of
       Convertible debt                                (87,952)         (98,700)

     Interest expense                                  (11,939)         (11,584)
                                                  ------------     ------------
     Loss before minority interest                    (732,321)        (486,277

Minority interest share of (income)/loss
     of consolidated subsidiaries                      (70,379)         (48,343)

                                                  ------------     ------------
     Loss before benefit from income taxes            (802,700)        (534,620)
                                                  ------------     ------------

     Benefit from income taxes                              --               --
                                                  ------------     ------------

     Net loss                                     $   (802,700)        (534,620)
                                                  ============     ============

     Loss per common share -
        basic and diluted                         $      (0.02)    $      (0.03)
                                                  ============     ============

     Weighted average number of
        common shares outstanding-
        basic and diluted                           38,630,794       20,517,334
                                                  ============     ============


See Notes to Unaudited Consolidated Financial Statements


                                       3
<PAGE>

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

                                                             Three Months
                                                            Ended March 31,
                                                        -----------------------
                                                          2006          2005
                                                        ---------     ---------
Cash flows from operating activities:
     Net loss                                           $(802,700)    $(534,620)
     Adjustment to reconcile net loss to
     net cash used in operating activities:
     Depreciation                                          11,449         1,338
     Non-cash employee compensation                        61,300
     Non-cash compensation                                184,790        12,250
     Accretion  of convertible debt                        87,952        98,700
     Writedown/loss from joint ventures                        --            --
     Compensatory element of option issuance               64,145            --
     Minority interest in losses of consolidated
     subsidiaries                                          70,379        48,343
     Changes in operating assets
     and liabilities                                       91,969       160,670
                                                        ---------     ---------
Net cash used in operating activities:                   (292,016)     (152,019)
                                                        ---------     ---------

Cash flows from investing activities:

Net cash used in investing
activities                                                     --            --
                                                        ---------     ---------
Cash flows from financing activities:
     Proceeds from sale of common stock                   144,000        30,000
     Proceeds from exercise of warrants                    73,000
     Repayment of loans                                   (23,910)           --

     Payments to minority interests                                     (49,704)

     Proceeds from minority interest                       42,315            --
                                                        ---------     ---------
Net cash provided by
       financing activities                               235,405       101,731
                                                        ---------     ---------

Net decrease in cash                                      (56,611)      (99,992)
Cash - Beginning of period                                 67,042       113,780
                                                        ---------     ---------
Cash - End of period                                    $  10,431     $  13,788
                                                        =========     =========


See Notes to Unaudited Consolidated Financial Statements


                                       4
<PAGE>

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

                                                            Three Months
                                                           Ended March 31,
                                                      -------------------------
                                                        2006            2005
                                                      ---------       ---------
Supplementary information:
  Cash paid during year for:
     Interest                                         $   1,564       $      --
                                                      =========       =========
     Income taxes                                     $      --       $      --
                                                      =========       =========

Changes in operating assets and liabilities
 consists of:
  (Increase) in accounts receivable                   $(165,082)             --

  (Increase) in employee advances                        (1,000)
  (Increase) decrease in prepaid expenses                65,059         (78,462)

  (Increase) Decrease in deposits                       (24,500)         84,000
  (Increase) in other assets                                 --
  Increase in accounts payable
     and accrued expenses                               216,492         156,132
                                                      ---------       ---------
                                                      $  91,969       $ 160,670
                                                      =========       =========

Non-cash financing activities:
Issuance of common stock for debt                     $  15,000       $  37,500
                                                      =========       =========
Issuance of common stock in lieu
  of payment of accrued expenses                      $  15,000       $      --
                                                      =========       =========

Issuance of common stock for services                 $ 288,542       $      --
                                                      =========       =========


See Notes to Unaudited Consolidated Financial Statements


                                       5
<PAGE>

                       DELTA MUTUAL INC. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2006

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

Delta Mutual, Inc. and subsidiaries ("Delta" or the "Company") are engaged in
providing environmental and construction technologies and services to certain
geographic reporting segments in the Far East, the Middle East, the United
States and Puerto Rico.

BASIS OF PRESENTATION

The consolidated balance sheets as of March 31, 2006, and the consolidated
statements of operations and cash flows for the periods presented herein have
been prepared by Delta Mutual, Inc. (the "Company" or "Delta") and are
unaudited. In the opinion of management, all adjustments (consisting solely of
normal recurring adjustments) necessary to present fairly, the financial
position, results of operations and cash flows for all periods presented have
been made

The consolidated financial statements for the period ended March 31, 2006 have
been prepared on a going concern basis which contemplates the realization of
assets and settlement of liabilities and commitments in the normal course of
business. Management recognizes that the Company's continued existence is
dependent upon its ability to obtain needed working capital through additional
equity and/or debt financing and revenue to cover expenses as the Company
continues to incur losses.

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

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

Far East (Indonesia)

In Indonesia the Company formed a local joint venture company to commence energy
and waste recovery operations. The joint venture company, PT. Triyudha -
Envirotech, began operations on December 15, 2005, pursuant to a contract with
Pertamina. During the first quarter, the operation processed 1,625 metric tons
of oil sludge from designated oil sludge pools under the initial 3,000 metric
ton contract. The remaining 1,175 metric tons are expected to be processed
before the end of the second quarter.

Middle East

In January 2004, the Company's Delta-Envirotech subsidiary, entered into a
strategic alliance with ZAFF International, Ltd., a technology company in Saudi
Arabia, to pursue soil and water reclamation projects in Saudi Arabia and other
areas in the Middle East. In November, 2004, ZAFF International, Ltd. 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 projects in that country. In August 2005, Delta-Envirotech reached
a working agreement to provide a turn-key factory to manufacture insulating
concrete wall forming (ICF) products for the building industry. In August 2005,
an additional working agreement was reached with a private Saudi Arabia company,
on the structure of a proposed operation to recover silver from used x-ray film.
During the first quarter of 2006, a memorandum of understanding was signed that
provides for two additional ICF factories in the Middle East.


                                       6
<PAGE>

Also during the first quarter, Delta-Envirotech secured the Middle East
distribution rights for an organic emulsifier used in the petroleum industry.

United States

In August 2005, the Company acquired, through a wholly-owned subsidiary,
intellectual property and filed a patent application for a new insulating
concrete wall forming (ICF) system. In addition to the patent filing, the
Company engaged a technical consultant and a business development consultant to
further the design and development of the Company's ICF products. The mould that
is required to produce the new product is currently being fabricated

Puerto Rico

The plans to proceed to build low income homes under the Puerto Rico Section 124
low income housing program have been delayed as a result of the failure to date
to obtain required zoning approval for the initial project for approximately 270
homes in Aguadilla. After unsuccessful administrative appeals of the original
decision by the Planning Board of Puerto Rico, the property owners filed a
motion requesting a review of that decision by the Supreme Court of Puerto Rico.

In December 2004, the Company formed a second joint venture, and secured the
rights to a 40-acre tract to build approximately 300 homes as part of a 150-acre
development located in Guayanilla for a second Section 124 project. The master
plan for this entire project is currently being prepared by the project's
developer. The acreage included in this master plan may be affected by a
proposed zoning reclassification by the Planning Board of Puerto Rico.

SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

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

USE OF ESTIMATES

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


                                       7
<PAGE>

LOSS PER SHARE

Basic and diluted loss per common share is computed by dividing net loss by the
weighted average number of common shares outstanding during the year. Potential
common shares are excluded from the loss per share calculation because the
effect would be antidilutive. Potential common shares relate to the convertible
debt, stock options and common stock purchase warrants. As of March 31, 2006,
there were 9,003,200 potential common shares related to convertible debt,
8,778,000 potential common shares related to stock options and no potential
common shares related to common stock purchase warrants issued by the Company.
As of March 31, 2005 there were 13,203,200 potential common shares related to
convertible debt, 6,500,000 potential common shares related to stock options and
7,780,000 potential common shares related to common stock purchase warrants
issued by the Company.

REVENUE RECOGNITION

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

PREACQUISITION COSTS

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

EVALUATION OF LONG-LIVED ASSETS

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

DEPRECIATION AND AMORTIZATION

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

STOCK-BASED COMPENSATION

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


                                       8
<PAGE>

                                                   For the three months
                                                      ended March 31,
                                                   --------------------
                                                           2005
                                                         ---------

Net loss-as reported                                     $(534,620)

  Deduct:  Total stock-based
           employee compensation
           expense determined
           under the fair value
           based method for all
           awards, net of taxes                            101,563
                                                         ---------
Net loss-pro forma                                       $(636,183)
                                                         =========
Loss per common share
  basic and diluted -
  as reported                                            $   (0.03)

Loss per common share
  basic and diluted-
  pro forma                                              $   (0.03)

INCOME TAXES

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

FOREIGN CURRENCY TRANSLATION

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

INTANGIBLES

In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142 specifies the financial accounting and reporting for
acquired goodwill and other intangible assets. Goodwill and intangible assets
that have indefinite useful lives are not amortized but rather they are tested
at least annually for impairment unless certain impairment indications are
identified.

FAIR VALUE OF FINANCIAL INSTRUMENTS

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

RECLASSIFICATIONS

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


                                       9
<PAGE>

NEW FINANCIAL ACCOUNTING STANDARDS

In May 2005, the Financial Accounting Standards Board ("FASB") issued SFAS No.
154, "Accounting Changes and Error Correction," a replacement of APB Opinion No.
20 and FASB statement No. 3. This statement applies to all voluntary changes in
accounting principles. It also applies to changes required by an accounting
pronouncement in the unusual instance that the pronouncement does not include
specific transition provisions. This statement requires retrospective
application to prior periods' financial statements of changes in accounting
principle, unless it is impracticable to determine either the period-specific
effects or the cumulative effect of the change. The statement also carries
forward the guidance in APB Opinion No. 20 requiring justification of a change
in accounting principle on the basis of preferability. This statement is
effective for accounting changes and corrections made in fiscal years beginning
after December 31, 2005.

In December 2004, the FASB issued SFAS No. 153, an amendment of APB Opinion No.
29, "Exchange of Nonmonetary Assets". SFAS No. 153 amends APB Opinion 29 by
eliminating the exception under APB No. 29 for nonmonetary assets of similar
productive assets and replaces it with a general exception for exchanges on
nonmonetary assets that do not have commercial substance. A nonmonetary exchange
has commercial substance if the future cash flow of the entity are expected to
change significantly as a result of the exchange. SFAS No. 153 is effective for
fiscal years beginning after June 15, 2005. The adoption of SFAS No. 153 did not
have a materialeffect on the Company consolidated 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 had no
effect on the provision for income taxes during the three months ended March 31,
2006.

In December 2004, the FASB issued SFAS No. 123(R), "Share-Based Payment," 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
re-measured each reporting period. Compensation cost will be recognized over the
period that an employee provides service in exchange for the reward. SFAS No.
123(R) is effective as to the Company as of the beginning of the Company's 2006
fiscal year. The Company accounted for the stock-based compensation costs using
the modified prospective method at the time of adoption. The adoption of SFAS
123(R) resulted in incremental stock-based compensation expense of $146,250
during the three months ended March 31, 2006. The adoption at SFAS 123(R) did
not have a material effect on the consolidated balance sheets as of March 31,
2006 or the consolidated statements of cash flows for the three months ended
March 31, 2006.


                                       10
<PAGE>

2.  PROPERTY AND EQUIPMENT

                                                                  March 31, 2006
                                                                  --------------

Equipment                                                         $      460,978
Leasehold improvements                                                     7,807
                                                                  --------------
                                                                         468,785

Less accumulated
Depreciation                                                              17,747
                                                                  --------------

                                                                  $      451,038
                                                                  ==============

      Depreciation expense fore the three months ended March 31, 2006 and 2005,
      amounted to $9,660 and $629, respectively.

3. INTANGIBLE ASSETS

Intellectual property costs are intellectual property included in a patent
application. If the patent is not issued, the Company will write-off the
unamortized amounts immediately. Other intangibles are being amortized over 10
years. Amortization expense was $ 1,787, and $-0-, for the period ended March
31, 2006 and 2005, respectively. Other intangible assets consist of the
following:

                                                  March 31, 2006

                                        Gross Carrying        Accumulated
                                            Amount            Amortization
                                        ---------------      --------------
      Intellectual property costs       $       143,000      $        4,171
      Organization Costs                          2,834               2,834
                                        ---------------      --------------
                                        $       145,834      $        7,005
                                        ===============      ==============

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

                                          Estimated
                                         Year Ending          Amortization
                                         December 31,           Expense
                                        --------------       -------------
                                             2006            $      12,513
                                             2007                   14,300
                                             2008                   14,300
                                             2009                   14,300
                                             2010                   14,300

4.    INVESTMENT IN JOINT VENTURES

a)    In December 2003, the Company formed a joint venture project to develop
      government sponsored, Section 124, low income housing in the Commonwealth
      of Puerto Rico. The Company became the general partner and the 75%
      majority owner of a limited partnership, Delta Development Partners, LP,
      that holds the 85% majority share of Delta Developers Corp., a Puerto Rico
      corporation, formed to manage the construction and related activities
      required to build approximately 270 low income homes under Section 124.
      The operations of the joint venture have been consolidated with the
      Company for the three months ended March 31, 2006 and 2005, respectively.

      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 85% majority share of Delta Developers Guayanilla
      Corp., a Puerto Rico corporation formed to manage the construction and
      related activities required to build approximately 300 low income homes
      under Section 124. The operations of the joint venture have been
      consolidated with the Company since October 6, 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.

      See Note 1 to Unaudited Consolidated Financial Statements for information
      regarding accounting for minority interests.

b)    On January 14, 2004, the Company entered into a joint venture agreement
      forming Delta-Envirotech, Inc. for the purpose of providing environmental
      technologies and services to markets in the Middle East. The joint venture
      company is based in Virginia and focuses on participating in foreign
      government sponsored pollution remediation projects. Upon formation, David
      Razmara was named President and became an employee of Delta-Envirotech.


                                       11
<PAGE>

      On January 22, 2004, the Company announced the conclusion of a strategic
      alliance agreement Between Delta-Envirotech, Inc. and ZAFF International,
      Ltd., an advanced technology company located in Saudi Arabia. The
      strategic alliance states that the two companies will jointly pursue
      projects related to soil and water reclamation projects in the Middle
      East.

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

      The operations of the joint venture have been consolidated with the
      Company for the three months ended March 31, 2006 and 2005
      Delta-Envirotech, Inc. meets the definition of a Variable Interest Entity
      as defined in Financial Accounting Standards Board Interpretation No. 46
      (FIN 46), "Consolidation of Variable Interest Entities" requiring the
      primary beneficiaries of a variable interest entity to consolidate that
      entity. The primary beneficiary of a variable interest entity is the party
      that absorbs the majority of the expected losses of the entity or receives
      a majority of the entity's expected residual return, or both, as a result
      of ownership, contractual or other financial interest in the entity

      See Note 1 of Notes to Unaudited Consolidated Financial Statements for
      information regarding accounting for minority interests.

c)    Minority interests primarily consist of ownership interest in
      Delta-Envirotech, Inc.; Delta Development Partners, L.P.; Delta
      Development Partners II, L.P.; PT Triyudha - Envirotech; Delta Developers
      Corp. and Delta Developers Guayanilla Corp. The income and losses from
      operations of these entities and their respective minority interests have
      been reflected in the Company's statement of operations for the years
      ended December 31, 2005 and 2004. There are excess losses not absorbed by
      the minority interests due to limitations of their capital contributions.
      In future periods, the profits first attributable to the minority
      interests will be first absorbed against any unused losses until the
      losses are fully absorbed. The amount on the Company's balance sheets
      represents the minority interests as of March 31, 2006 and 2005.

      The following represents a schedule of minority interests as of March 31,

                                                     2006
                                                  -----------
      Delta Development Partners L.P.             $   145,200
      Delta Development Partners II, L.P.              39,845
      Delta Developers Guayanilla, Corp.                   --
      Delta-Envirotech, Inc.                               --
      PT Triyudha - Envirotech                        154,567
      Delta Developers Corp.                           30,482
                                                  -----------
                                                  $   370,094
                                                  ===========
5.    NOTES PAYABLE

      On April 5, 2005, the Company issued 8% term notes to private investors in
      the amount of $210,655, with the principal and interest due at maturity on
      October 2, 2005. The maturity dates of these notes, pursuant to note
      modification agreements, have been extended until June 2006. Interest
      expense for the three months ended March 31, 2006 amounted to $4,213. As
      of March 31, 2006, accrued interest of $8,368 is included in accrued
      interest expense on the Company's consolidated balance sheets.

6.    CONVERTIBLE DEBT

      During the year ended December 31, 2004, the Company issued convertible
      notes in the principal amounts of $961,400. The convertible notes bear
      interest at rates from 4% to 6% and mature at various dates between May
      12, 2006 and January 16, 2007. Theses notes are convertible into common
      stock at a conversion price of $0.05 to $0.125 per share. A portion of
      these convertible notes, in the principal amount of $440,000, have an
      initial conversion price of $0.05 per share subject to adjustment if the
      Company issues common stock at a price below $0.05 per share. On September
      16, 2004, the Company's board of directors resolved to prohibit the
      issuance of shares of common stock at a price below $0.05 per share for as
      long as any of the $440,000 convertible notes are outstanding.

      In connection with the issuance of the $440,000 convertible notes, the
      Company issued 8,880,000 common stock purchase warrants at an exercise
      price of $0.10 per share. The warrants expired March 31, 2006.


                                       12
<PAGE>

      The Company accounted for the warrants and the convertible debt with
      detachable warrants in accordance with Emerging Issues Task Force 00-27
      and 00-19 and SFAS No. 33. The Company performed calculations allocating
      the proceeds of convertible debt with detachable warrants to each
      respective security at their fair values. The Company used the conversion
      value of the convertible debt and calculated fair value of the warrants
      using the Black-Scholes valuation model for its estimate of fair value.
      The Company compared the allocated proceeds of the convertible debt to the
      difference between its conversion value and face amount. The calculated
      fair value of the convertible debt of $722,855 was recorded as the value
      of the Beneficial Conversion Feature and accordingly credited to
      Additional Paid-in Capital. The value of the warrants of $235,545 was
      recorded as a reduction of the convertible debt. The convertible debt was
      recorded at zero. The convertible debt will be accreted to its current
      face value of $643,900, after 2004 and 2005 conversions, under the
      interest method per APB No. 21 until it is either converted or matures. As
      of March 31, 2006, the accretion amounted to $635,468, of which $87,952 is
      current.

      During the year ended December 31, 2005 and 2004, the note holders
      converted $232,500 and $70,000 into 4,650,000 and 1,400,000 shares of
      common stock, respectively. During the three months ended March 31, 2006,
      a noteholder converted $15,000 principal amount into 300,000 shares of
      common stock. At March 31, 2006, the Company's outstanding convertible
      notes were convertible into 9,003,200 shares of common stock.

      The following table shows the maturities by year of total face amount of
      the long-term convertible debt obligations at March 31, 2006:

                                                    2006             $   621,400
                                                    2007                  22,500
                                                                     -----------

                                                                     $   643,900
                                                                     ===========

      For the three months ended March 31, 2006 and 2005, the Company recorded
      interest expense of $10,484 and $11,043, respectively. As of March 31,
      2006, accrued interest of $58,061 is included in accrued expenses on the
      Company's consolidated balance sheets.

7.    ACCRUED EXPENSES

            Accrued expenses consist of the following:
                                                                 Ended March 31,
                                                                            2006
                                                                 ---------------
Professional fees                                                $            --
Interest expense                                                          58,062
Payroll Expense                                                          272,320
Payroll expense officers                                                 205,698
Payroll tax expense                                                       29,556
Other accrued expenses                                                   158,161
                                                                 ---------------
                                                                 $       723,797
                                                                 ===============

8.    LOANS FROM RELATED PARTIES

      On March 22, 2005, the Company borrowed $71,731 from Neil Berman with
      interest at 6% per annum and the principal and interest due in three equal
      installments on June 21, September 19, and December 20, 2005. On May 6,
      2005, the Company paid the first installment consisting of $23,910
      principal and $1,105 interest. On September 19, 2005, the Company paid the
      second installment consisting of $23,910 principal and $1,029 interest.
      The note was amended on December 16, 2005 to extend the final installment
      payment until February 20, 2006. On February 3, 2006, the Company made the
      final payment consisting of $23,910 of principal and $1,563 of accrued
      interest. Interest expense for the three months ended March 31, 2006 and
      2005 amounted to $287 and $118, respectively.


                                       13
<PAGE>

9.    STOCKHOLDER'S DEFICIENCY

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

a)    For the three months ended March 31, 2006, the Company issued 300,000
      shares of common stock upon the partial conversion of a convertible note
      in the original principal amount of $37,500, valued at $0.05 per share.
      For the three months ended March 31, 2005, the Company issued 250,000
      shares of common stock for repayment of debt in the principal amount of
      $12,500, valued at $0.05 per share; issued 2,542 shares of common stock
      for payment of accrued interest in the amount of $127, valued at $0.05 per
      share; and issued 500,000 shares of common stock upon the partial
      conversion of a convertible note in the original principal amount of
      $157,000, valued at $0.05 per share.

b)    For the three months ended March 31, 2006, the Company issued 1,326,819
      shares of common stock for services valued at $288,542 at a price per
      share of $0.21 - $0.22. For the three months ended March 31, 2005, the
      Company issued 50,000 shares of common stock for services valued at
      $20,6225, at a price per share of $0.30 - $0.43.

c)    For the three months ended March 31, 2006, the Company sold 2,282,212
      shares of common stock and issued 55,545 shares of common stock as
      associated commissions for net proceeds of $132,000, valued at $0.05 -
      $0.12 per share

d)    For the three months ended March 31, 2006, the Company issued 730,000
      shares of common stock upon the exercise of the Company's common stock
      purchase warrants for $73,000, valued at $0.10 per share. For the three
      months ended March 31, 2005, the Company issued 300,000 shares of common
      stock upon the exercise of the Company's common stock purchase warrants
      for $30,000, valued at $0.10 per share.

e)    For the three months ended March 31, 2005, the Company issued, to five
      employees, 613,000 shares of common stock, in the aggregate, from the
      Company's 2001 Employee Stock Option Plan (the "Plan"), for $61,300,
      valued at $0.10 per share. There were no shares of common stock from the
      Plan issued during the three months ended March 31, 2006.

f)    For the three months ended March 31, 2006, the Company issued 225,000
      shares of common stock in settlement of a lawsuit for $42,750, valued at
      $0.19 per share, which expense was included in the Company's consolidated
      statements of operations for the year ended December 31, 2005.

10.   LEGAL PROCEEDINGS

      On February 27, 2006, the Company was served with a citation corporate
      filed in the District Court in Harris County, Texas, by Equisource
      Ventures. The complaint listed as defendants the Company and Burrows
      Consulting Group, Inc. (a Texas corporation). The suit alleged breach of
      contract, misrepresentation and unjust enrichment, and the plaintiff
      sought damages for unpaid consulting retainer fees and fees in the
      aggregate of $130,000, as well as exemplary damages, costs and attorneys'
      fees. After the Company initially filed a motion to dismiss the complaint
      based on lack of jurisdiction, the Court approved the plaintiff's motion
      to dismiss on April 19, 2006.

11.   BUSINESS SEGMENT INFORMATION

      The Company operates in four reportable segments. The segments are
      geographic and include the Far East (Indonesia), the Middle East, North
      America (United States) and Puerto Rico. The primary criteria by which
      financial performance is evaluated and resources allocated are revenues
      and operating income.


                                       14
<PAGE>

      The following is a summary of key financial data:

                                                   Three Months ended March 31
                                                      2006             2005
                                                  -----------------------------
Total Revenues:

       North America                              $         --               --
       Indonesia                                       160,722               --
       Middle East                                          --               --
       Puerto Rico                                          --               --
                                                  ------------     ------------
                                                  $    160,722               --
                                                  ============     ============
Profit (Loss) from Operations:

       North America                              $   (599,521)    $   (375,993)
       Indonesia                                       130,057               --
       Middle East                                     (84,484)              --
       Puerto Rico                                     (78,482)              --
                                                  ------------     ------------
                                                  $   (632,430)    $   (375,993)
                                                  ============     ============
 Depreciation and Amortization:

       North America                              $      1,787     $        629
       Indonesia                                         9,660               --
       Middle East                                          --               --
       Puerto Rico                                          --               --
                                                  ------------     ------------
                                                  $     11,447     $        629
                                                  ============     ============

12. SHARE BASED COMPENSATION

On January 1, 2006, the Company adopted SFAS No. 123(R) "Share-Based Payment,"
requiring the recognition of compensation expense in the Consolidated Statements
of Operations related to the fair value of its employee share-based options and
awards. SFAS No. 123(R) revises SFAS No. 123 "Accounting for Stock-Based
Compensation" and supercedes APB Opinion No. 25 "Accounting for Stock Issued to
Employees." SFAS No. 123(R) is supplemented by SEC Staff Accounting Bulletin
("SAB") No. 107 "Share-Baswed Payment". SAB No. 107 expresses the SEC staff's
views regarding the interaction between SFAS No. 123(R) and certain SEC rules
and regulations including the valuation of share-based payment arrangements.

The Company will recognize the cost of all employee stock options on a
straight-line attribution basis over their respective vesting periods, net of
estimated forfeitures. The Company has selected the modified prospective method
of transition; accordingly, prior periods have not been vested. Prior to
adopting SFAS No. 123(R), the Company applied APB Opinion No. 25, and related
interpretation in accounting for its stock-based compensation plans. All
employee stock options were granted at or above the grant date market price.
Accordingly, no compensation cost was recognized for fixed stock option grants.

On March 31, 2006, the Company had one share-based compensation plan, which is
described below. In the first quarter of 2006, the adoption of SFAS No. 123(R)
resulted in incremental stock-based compensation expense of $146,250. The
incremental stock-based compensation expense caused earnings before provision
for income taxes and net earnings to decrease by $146,250, and basic and diluted
earnings per common share to decrease by $-0- per share. In addition, in
connection with the adoption of SFAS No. 123(R), net cash provided by operating
activities decreased and net cash provided by financing activities increased in
the first quarter of 2006 by $107,105 related to excess tax benefits from stock
based payment arrangement.


                                       15
<PAGE>

Under the provisions of SFAS 123(R), the recognition of deferred compensation,
representing the amount of unrecognized restricted stock expense that is reduced
as expense is recognized, at the date restricted stock is granted, is not longer
required. Therefore, in the first quarter of 2006, the amount that had been in
"Deferred compensation" in the Consolidated Balance Sheets was reversed to zero.

Stock Option Plan

In December 2001, the Company's stockholders approved 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 March 31, 2005, all shares under the 2001 Plan had been issued,
and 1,222,000 shares of common stock remained available for issuance under the
2004 Plan.

The Company was also authorized to issue shares of stock to its employees from
its 2001 Employee Stock Option Plan (the "2001 Plan"). The Company expensed the
issuance of stock awards in accordance with SFAS No. 123. Shares issued from the
2001 Plan were expensed at the time of issuance, as common stock issued had no
restrictions to the employees. The Company issued no stock awards to employees
from the 2001 Plan during the three months ended March 31, 2006 and issued
613,000 shares to five employees during the similar period of 2005. The shares
issued were at fair market value as compensation to employees. The Company
recorded compensation expense of $-0- and $61,300 in the Company's consolidated
statements of operations for the three months ended March 31, 2006 and 2005,
respectively.

The Company issues shares of its common stock to employees and non-employees as
stock based compensation. The Company accounts for the services using the fair
market value of the services rendered. For the three months ended March 31,
2006, the Company issued 1,406,152 common shares, and recorded expense of
$250,000, of which $389,750 was included in prepaid expenses on the consolidated
balance sheets at March 31, 2006, in conjunction with the issuance of these
shares.

The Company did not issue any common stock warrants during the three months
ended March 31, 2006 and 2005, respectively.

On March 31,2006, 6,850,000 common stock warrants issued by the Company expired
according to their terms without being exercised.

The fair value of each option grant is estimated on the date of the grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 2005: dividends yield of 0%, expected volatility
of 116% and expected life of 10 years. During the quarter ended March 31, 2006,
the Company issued 778,000 stock options to five employees.

A summary of option activity under the 2004 Plan as of December 31, 2005 and
changes during the three months ended March 31, 2006 is presented below:

<TABLE>
<CAPTION>
                                                                      Weighted
                                                                       Average
                                                      Weighted        Remaining      Aggregate
                                                      Average        Contractual     Intrinsic
               Options                Shares       Exercise Price       Term           Value
               -------                ------       --------------    -----------     ---------
<S>                                  <C>                <C>              <C>
Outstanding at January 1, 2006       8,000,000          $ 0.25           3.9         $    --

Granted                                778,000            0.17           4.9              --
Exercised                                   --              --                            --
Forfeited or expired                        --              --                            --

Outstanding at March 31, 2006        8,778,000            0.24           4.0              --

Exercisable at March 31, 2006        7,500,000            0.25           3.9              --
</TABLE>

A summary of the status of the Company's non vested shares as of December 31,
2005 and changes during the three months ended March 31, 2006 is presented
below:

                                                         Weighted-Average
                                                            Grant-Date
       Nonvested Shares                    Shares           Fair Value
       ----------------                    ------        ----------------

Nonvested at December 31, 2005           1,000,000       $        0.20
Granted                                    778,000                0.17
Vested                                    (500,000)               0.25
Forfeited                                       --
Nonvested at March 31, 2006              1,278,000                0.25

At March 31, 2006 there was $2,196,250 of total unrecognized compensation cost
related to non vested share-based compensation arrangements granted under the
Plan. The cost is expected to be recognized over a weighted average period of 2
years. The total fair value of shares vested during the three months ended March
31, 2006 and 2005 was $125,000 and $-0-, respectively.


                                       16
<PAGE>

A summary of the warrant activity as of December 31, 2005 and changes during the
three months ended March 31, 2006 is presented below:

<TABLE>
<CAPTION>
                                                                      Weighted
                                                                       Average
                                                      Weighted        Remaining     Aggregate
                                                       Average       Contractual    Intrinsic
             Warrants                   Shares     Exercise Price       Term          Value
             --------                   ------     --------------    -----------    ---------
<S>                                   <C>             <C>                 <C>          <C>
Outstanding at January 1, 2006        7,580,000       $   0.10            .3        $  0.10
Granted                                      --             --            --             --

Exercised                              (730,000)          0.10            --           0.10
Forfeited or expired                  6,850,000           0.10                         0.10
Outstanding at March 31, 2006                --             --            --             --
Exercisable at March 31, 2006                --             --            --             --
</TABLE>

A summary of the Company's non-vested warrants as of December 31, 2005 and
changes during the three months ended March 31, 2006 is presented below:

                                                      Weighted-Average
                                                         Grant-Date
             Warrants                   Shares           Fair Value
             --------                   ------        ----------------

Nonvested at December 31, 2005              --        $         --
Granted                                     --                  --
Vested                                      --                  --
Forfeited                                   --                  --
Nonvested at March 31, 2006                 --                  --


13. COMMITMENTS AND CONTINGENCIES

Consulting Agreements

      On August 26, 2005, the Company entered into a consulting agreement with
      Juan B. Rodriguez Pagan ("Rodriguez") to provide certain services and
      assistance to the Company in developing its construction and building
      materials businesses. The Company agreed to pay Rodriguez 48 monthly
      payments of $6,000 over the four-year term of the agreement and issue him
      shares of common stock upon his execution of the agreement and at
      subsequent intervals during the term of the agreement. As of March 31,
      2006, the Company issued Rodriguez $500,000 of its common stock. In
      addition, Rodriguez is entitled to a commission of 5% of the sales of
      Delta Technologies, Inc. Either party may terminate the agreement upon
      written notice, however, if the Company terminates the agreement,
      Rodriguez is entitled to all of the remaining monthly payments he would
      have been entitled to receive during the term of the agreement.

      For the three months ended March 31, 2006, consulting fees of $18,000 and
      $47,250 of the stock value are included in the Company's consolidated
      statements of operations. The remainder of the stock value of $389,750 is
      included as a prepaid expense on the Company's consolidated balance
      sheets.

      On August 26, 2005, Delta Technologies, Inc., a wholly-owned subsidiary of
      the Company ("Technologies"), entered into a consulting agreement with
      Richard F. Straub, Jr. ("Straub") for a period of three years, to provide
      ongoing technical assistance and support in the production of
      Technologies' insulating concrete wall forming products. Technologies
      agreed to pay Straub $4,400 per month over the term of the agreement and
      issue him shares of common stock at subsequent intervals during the term
      of the agreement. As of March 31, 2006, no shares have been issued.
      Technologies can terminate the agreement at any time, but only for cause
      (defined, among other things, as a breach of the agreement by Straub). In
      the event of termination for cause, Technologies has no further liability
      to Straub.

      For the three months ended March 31, 2006, consulting fees of $13,200 and
      $29,167 of the stock value have been expensed and are included in accrued
      expenses on the Company's consolidated balance sheets.

14.   SUBSEQUENT EVENTS

a)    On April 4, 2006, the Company issued 133,333 shares of common stock to a
      consultant for services valued at $16,000, at a price per share of $0.12.

b)    On May 1, 2006, the Company issued 450,000 shares of common stock upon the
      conversion of a convertible note in the remaining principal amount of
      $22,500, valued at $0.05 per share and issued 50,170 shares of common
      stock for payment of accrued interest of $2,508, valued at $0.05 per
      share.

c)    On May 3, 2006, the Company issued a convertible promissory note to a
      shareholder in the principal amount of $16,000. The note bears interest at
      6% per annum. The principal amount and all accrued interest are due
      November 3, 2007 and may be repaid, including the accrued interest, by
      issuing the noteholder 290,667 shares of common stock.

c)    On May 17, 2006, the Company issued a 6% promissory note to a shareholder
      in the principal amount of $30,000 for net proceeds of $27,000 after
      paying an associated commission. The note bears interest of 6% per annum
      and the principal and accrued interest are due May 17, 2008.


                                       17
<PAGE>

ITEM 2. 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 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 three months ended March 31, 2006, we had revenue of $161,000 but
incurred a net loss of $802,700 because our revenue was not sufficient to offset
operating expenses. The loss in the first quarter was primarily attributable to
general and administrative expenses of approximately $743,000, including
consulting and professional fees in the approximate amount of $199,000, non-cash
compensation of $146,250 and compensatory element of warrants of $64,000. In
addition, we had accretion of convertible debt of approximately $88,000, and an
increase in cost of sales of about $50,000.

FIRST QUARTER

The Note 1 of the Notes to Unaudited Consolidated Financial Statements
accompanying this report states that substantial doubt has been raised about our
ability to continue as a going concern. Our present business operations do not
generate enough 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.

THREE MONTHS ENDED MARCH 31, 2006 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
2005.

The net loss increased from approximately $535,000 for the three months ended
March 31, 2005 to approximately $803,000 for the three months ended March 31,
2006.

The items of significant increase or decrease in the three months ended March
31, 2006 over the comparable period of the prior year were an increase in
general and administrative expense from approximately $376,000 in 2005 to
approximately $743,000 for the three months ended March 31, 2006; an increase in
cost of sales of approximately $50,000 and an increase in minority share of
income of consolidated subsidiaries from approximately $48,000 in 2005 to
approximately $70,000 for the three months ended March 31, 2006.

CRITICAL ACCOUNTING ISSUES


                                       18
<PAGE>

The Company's discussion and analysis of its financial condition and results of
operations are based upon the Company's financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of the financial statements requires
the Company to make estimates and judgments that affect the reported amount of
assets, liabilities, and expenses, and related disclosures of contingent assets
and liabilities. On an on-going basis, the Company evaluates its estimates,
including those related to intangible assets, operation of joint ventures,
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.

PLAN OF OPERATION

The Company has established a joint venture subsidiary and two limited
partnerships, primarily to establish business operations focused on providing
environmental and construction technologies and services in the Far East, the
Middle East, the United States and Puerto Rico.

Our environmental remediation operations are carried out through
Delta-Envirotech, Inc., a joint venture company formed in January 2004, with Hi
Tech Consulting and Construction, Inc., to provide environmental technology
services for certain business segments located in the Far East and the Middle
East. We have operating control of, and a forty-five percent ownership interest
in Delta-Envirotech.

Although we have entered into strategic alliance agreements with several United
States-based entities with technologies in the environmental technology field to
support the Company's worldwide activities and have these technologies
available, in the Far East we are currently utilizing in-country technology.

We intend to expand on our operations in the Far East. Additional capital is
required to pursue this expansion as well as our planned operations in Saudi
Arabia and the United States. Upon receipt of re-zoning approval, final
government agency endorsements and applicable building permits in Puerto Rico,
we believe that we will be in a position to finance the housing project there
through local institutions.

Far East (Indonesia)

In Indonesia we formed a local joint venture company to commence energy and
waste recovery operations. The joint venture company, PT. Triyudha-Envirotech,
began operations on December 15, 2005, pursuant to a contract with Pertamina.
During the first quarter, the operation processed 1,625 metric tons of oil
sludge from designated oil sludge pools under the initial 3,000 metric ton
contract. The remaining 1,175 metric tons are expected to be processed before
the end of the second quarter of 2006. Upon completion of the initial contact we
expect to be awarded a second contract.

Middle East

On January 22, 2004, we entered into a strategic alliance agreement between our
environmental remediation joint venture, Delta-Envirotech, Inc., and ZAFF
International, Ltd., to jointly pursue soil and water reclamation projects in
the Middle East. In November 2004, ZAFF International, Ltd. 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. In August, 2005, we reached a working agreement
to provide a turn-key factory to manufacture insulating concrete form (ICF)
products for the building industry in Saudi Arabia, and a working agreement on
our proposed operation to provide technology and equipment, on a turn-key basis,
to recover silver from used x-ray film. During the first quarter of 2006, a
memorandum of understanding was signed that provides for two additional ICF
factories in the Middle East.

Also during the first quarter, Delta-Envirotech secured the Middle East
distribution rights for an environmentally neutral, organic emulsifier used in
the petroleum industry. Subject to required environmental approvals, product
distribution is expected to begin in 2006.

United States


                                       19
<PAGE>

On August 26, 2005, we acquired, through a wholly-owned subsidiary, certain
intellectual property and filed a patent application for a new insulating
concrete wall forming (ICF) system. The innovative and patent pending design of
the system allows for integrated attachment strips molded into the inner and
outer surfaces and superior "R" Value of the block itself. In addition to the
patent filing, the Company engaged a technical consultant and a business
development consultant to further the design and development of the Company's
ICF products. The mould that is required to produce the new product is currently
being fabricated. We anticipate beginning production of the product later in
2006.

Puerto Rico

Our plans to proceed, through majority owned joint ventures in Puerto Rico, with
construction and related activities required to build low income homes in Puerto
Rico under the Section 124 low income housing program, have been delayed as a
result of the failure to date to obtain required zoning approval for our initial
project in Aguadilla. After unsuccessful administrative appeals of the original
decision of the Planning Board of Puerto Rico ("Planning Board"), the property
owners have filed a motion requesting a review of the decision by the Supreme
Court of Puerto Rico.

In December 2004, we formed a second majority owned joint venture to manage
construction and related activities required to build approximately 300
additional homes, and secured the rights to an additional 40 acre tract located
in Guayanilla for our second Section 124 project. This tract of land is part of
a 150 acre development that will also include other residential properties,
commercial/retail buildings and a hotel. The master plan for this entire project
is still under development by the project's developer. The acreage included in
this master plan may also be affected by an overall review now underway of the
zoning classifications in Puerto Rico by the Planning Board.

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 $1,500,000 in the next 12 months in
order to continue to fund our limited operations and to finance our planned
business operations.

LIQUIDITY

Although we have generated revenue from our current operations, we must rely
primarily on private placements of Company stock or debt to pay operating
expenses.

At March 31, 2006 we had a working capital deficit of $1,432,808. The increase
in our working capital deficit as compared with 2005 is a result of the net loss
incurred during the three months ended March 31, 2006, and increases in accounts
payable, accrued expenses, accretion of convertible debt and notes payable.
Since we have minimal sources of revenue, our working capital deficit will
continue to increase as we incur additional operating expenses. Presently,
although we have some revenue, we are dependent upon loans from private
investors and private placements of our stock for funding.

In the three month period ended March 31, 2006, to provide financing for our
activities, we raised $144,000 of equity capital, through the sale of 2,282,212
shares of common stock. In addition, we raised $73,000 through the exercise of
the Company's common stock purchase warrants.

ASSETS

At March 31, 2006, we had total assets of $1,176,571, compared to total assets
of $335,576 at March 31, 2005. The increase in current assets as of March 31,
2006 was due to an increase in accounts receivable and prepaid expenses and an
increase in fixed assets consisting of increases in property and equipment and
intangible assets.


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<PAGE>

Other Matters

Accounting Pronouncements

In May 2005, the Financial Accounting Standards Board ("FASB") issued Statement
on Financial Accounting Standards ("SFAS") No. 154, "Accounting Changes and
Error Correction" - a replacement of APB Opinion No. 20 and FASB statement No.
3. This statement applies to all voluntary changes in accounting principles. It
also applies to changes required by an accounting pronouncement in the unusual
instance that the pronouncement does not include specific transition provisions.
This statement requires retrospective application to prior periods' financial
statements of changes in accounting principle, unless it is impracticable to
determine either the period-specific effects or the cumulative effect of the
change. The statement also carries forward the guidance in APB Opinion No. 20
requiring justification of a change in accounting principle on the basis of
preferability. This statement is effective for accounting changes and
corrections made in fiscal years beginning after December 31, 2005.

In December 2004 the FASB issued SFAS No. 153, an amendment of APB Opinion No.
29, "Exchange of Nonmonetary Assets." SFAS No. 153 amends APB Opinion No.29 by
eliminating the exception under APB No. 29 for nonmonetary assets of similar
productive assets and replaces it with a general exception for exchanges on
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
fiscal years beginning after June 15, 2005. The adoption of SFAS No. 153 did not
have a material effect on the Company's consolidated 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 had no
effect on the provision for income taxes during the three months ended March 21,
2006.

In December 2004, the FASB issued SFAS No. 123(R), "Share-Based Payment," 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
re-measured each reporting period. Compensation cost will be recognized over the
period that an employee provides service in exchange for the reward. SFAS No.
123(R) is effective as to the Company as of the beginning of the Company's 2006
fiscal year. The Company accounted for the stock-based compensation costs using
the modified prospective method at the time of adoption. The adoption of SFAS
123(R) resulted in incremental stock-based compensation expense of $146,250
during the three months ended March 31, 2006. The adoption of SFAS 123 (R) did
not have a material effect on consolidated balance sheets as of March 31, 2006
or the consolidated statements of cash flows for the three months ended March
31, 2006.

FOREIGN CURRENCY TRANSLATION

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

GOODWILL AND OTHER INTANGIBLES

In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142 specifies the financial accounting and reporting for
acquired goodwill and other intangible assets. Goodwill and intangible assets
that have indefinite useful lives are not amortized but rather they are tested
at least annually for impairment unless certain impairment indications are
identified.


                                       21
<PAGE>

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 SFAS 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 3. Controls and Procedures

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

(b) Changes in internal controls over financial reporting.
During the Company's last fiscal quarter to which this report relates, we
expanded our disclosure controls and procedures in certain respects; such
expansion is reasonably likely to materially affect the Company's internal
controls over financial reporting. In the first quarter of fiscal 2006, we
initiated a review procedure that included discussion of the pertinent
accounting and disclosure issues by a group including the Chief Executive
Officer(and sole director), the Chief Financial Officer, outside counsel and the
Company's independent auditors. In addition, a further review of the final draft
of the audited financial statements for the year ended December 31, 2005, was
conducted by an outside concurring reviewer to assure proper accounting
procedures were being followed. The Company's internal controls and procedures
also have been, and will in the future continue to be, reviewed by the Company's
independent auditors in connection with their audit work.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On February 27, 2006, we were served with a citation corporate filed in the
District Court in Harris County, Texas, by Equisource Ventures. The complaint
listed as defendants the Company and Burrows Consulting Group, Inc. (a Texas
corporation). The suit alleged breach of contract, misrepresentation and unjust
enrichment, and the plaintiff sought damages for unpaid consulting retainer fees
and fees in the aggregate of $130,000, as well as exemplary damages, costs and
attorneys' fees. After we initially filed a motion to dismiss the complaint
based on lack of jurisdiction, the Court approved the plaintiff's motion to
dismiss the suit on April 19, 2006.

ITEM 6. Exhibits

31.1  Certification of Chief Executive Officer Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002, filed herewith.

31.2  Certification of Chief Financial Officer Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002, filed herewith.

32.1  Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section
      1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002, filed herewith.

32.2  Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section
      1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002, filed herewith.

                                   SIGNATURES

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

                                       DELTA MUTUAL, INC.

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

Dated: May 22, 2006


                                       22
<PAGE>

                                  EXHIBIT INDEX

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

31.2  Certification of Chief Financial Officer Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002, 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.