SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





FORM 10-K





x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the fiscal year ended: December 31, 2010


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 No. 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. EmployerIncorporation or organization)

Identification No.)





14362 N. Frank Lloyd Wright Blvd., Suite 1103, Scottsdale, AZ
85260(Address of principal executive offices)
(Zip Code)





Registrant’s Telephone Number, Including Area Code:  (480) 477-5808





Securities registered pursuant to Section 12(b) of the Act:  None





Securities registered pursuant to Section 12(g) of the Act:  Common Stock, $.0001 par value per share





Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes   ̈   No x





Indicate by checkmark if the registrant is not required to file reports to Section 13 or 15(d)Of the Act.   ̈ Yes  x No





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.  x  Yes   ̈  No





Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not 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-K or any amendment to this Form 10-K.  x





Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes o  No o





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





Large accelerated filer   ̈
Accelerated filer   ̈Non-accelerated filer     ̈
Smaller reporting company x(Do not check if a smaller reporting company)





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





The aggregate market value of the voting and non-voting common equity held by non-affiliates as of the last business day of the registrant’s most recently completed second fiscal quarter was $4,657,857.





Number of shares of Common Stock outstanding as of April 26,2011: 29,828,691.








TABLE OF CONTENTS





PART I
1Item 1. Business
1Item 1A. Risk Factors
12Item 1B. Unresolved Staff Comments
17Item 2. Properties
17Item 3. Legal Proceedings
18Item 4. [Removed and Reserved.]
18PART II
19Item 5. Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
19Item 6. Selected Financial Data
20Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
20Item 7A. Quantitative and Qualitative Disclosures About Market Risk
26Item 8. Financial Statements and Supplementary Data
28Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
54Item 9A. Controls and Procedures
55Item 9B. Other Information
55PART III
56Item 10. Directors, Executive Officers, and Corporate Governance
56Item 11. Executive Compensation
58Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
59Item 13. Certain Relationships and Related Transactions, and Director Independence
60Item 14.  Principal Accountant Fees and Services
62Item 15. Exhibits and Financial Statement Schedules
62


ii


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-K, 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 2011, and beyond, to differ materially from those expressed in any forward-looking statements made by or on our behalf.




Item 1. 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.




Background





We were incorporated under the name Delta Mutual, Inc. on November 17, 1999, in the State of Delaware with the purpose of providing mortgage services through the Internet. In 2003, we established business operations focused on providing environmental and construction technologies and services.  Our operations in the Far East (Indonesia) and our construction operations in Puerto Rico were discontinued in 2008. As of December 2009, although we continue to be involved in its operations, we have deconsolidated the operations of Delta-Envirotech, Inc. (“Envirotech”), involving environmental remediation and other projects in the Middle East, from the consolidated financial statements effective December 31, 2009.





Effective March 4, 2008, we entered into a Membership Interest Purchase Agreement, pursuant to which we acquired from  Egani, Inc. shares of Altony SA, an Uruguayan Sociedad Anonima (“Altony”), which owns 100% of the issued and outstanding membership interests in South American Hedge Fund LLC, a Delaware limited liability company (sometimes herein referred to as “SAHF”).  At the closing of the Agreement, we issued 13,000,000 (split-adjusted) shares of our common stock to Egani, Inc. which constituted, following such issuance, a majority of the outstanding shares of our common stock. Immediately following the closing of the Agreement, Altony became a wholly-owned subsidiary of the Company. For accounting purposes, the transaction was treated as a recapitalization of the Company, as of March 4, 2008, with Altony as the acquirer.





Through the Altony acquisition, we acquired the ownership of SAHF, which maintains its business office in Uruguay and engages in oil and gas exploration and development activities.


1





Our principal offices are located at 14362 N. Frank Lloyd Wright Blvd., #1103, Scottsdale, AZ 85260. Our telephone number is (480) 480-477-5807. Our common stock is quoted on the Over-the-Counter Electronic Bulletin Board under the symbol "DLTZ.OB".





General





We are a development stage independent oil and gas company engaged in oil and gas acquisition, exploitation, production and exploration activities primarily in Argentina.  In addition, we have ownership interests in certain mineral rights that are located in Argentina.  Our current investments in oil and gas properties were purchased by SAHF and contributed to the Company as part of the reverse merger transaction in March, 2008.





Specifically, we have focused, and plan to continue to focus, on the following investments in South America.





Our Oil and Gas Investments





Our main source of revenue will derive from the sale of the crude oil and natural gas produced from the oil and gas concessions in which we have made investments. In August 2007, SAHF signed agreements to purchase partial ownership interests in four oil and gas concessions in Northern Argentina. The joint venture owning these concessions then started the process to obtain the necessary government and environmental operating permits for the commercial exploitation of these concessions. While we are not the operators of these concessions, we expect to have representation on the operating committees that are responsible for managing the business affairs of these concessions.





At December 2010 the SAHF participation in the Argentina concessions are as follows:





Block

Province

Status

Delta %

Partner(s)Jollin

Salta

Testing

10% CO

JHP (China), MaxiTonono

Salta

testing

10% CO

JHP (China), MaxiTartagal

Salta

Seismic

9% CO

New Energy (HK), MaxiMorillo

Salta

Seismic

9% CO

New Energy (HK), MaxiGuemes

Salta

Drill Complete

20%

Ketsal





*CO means a carryover interest in the project.


** Of these five properties, SAHF and its joint venture partner have made initial investments in Guemes.


*** In the Jollin, Tonono and Tartagal, and Morillo concessions the carry over mode relieved SAHF from the payment of canon, or landlord, fees of any kind. In the exploratory area Guemes, proportional exploratory canons were paid as explained in the financials.


2




Business Strategy




The key elements of our business strategy are to:




·
Make accretive acquisitions of producing properties generally characterized by long-lived reserves with stable production and reserve development potential;




·
Add proved reserves and maximize cash flow and production through development projects and operational efficiencies; and




·
Engage in adjacent exploration drilling where evaluation of the property is positive.




Our investments have focused on concessions where there are shut-in, plugged and abandoned wells that have, in our assessment, a high probability of additional recovery of reserves through revitalization processes that are commonly used in the oil and gas industry. The revitalization processes are directed toward bringing wells back into production or to enhance production.











Jollin and Tonono Concessions





SAHF has a 10% ownership interest in the Jollin and Tonono oil and gas concessions located in Salta Province, Argentina. SAHF originally purchased an 18% carry-over interest in the Jollin and Tonono concessions on May 15, 2007, and subsequently increased its ownership to 23.5%, 9% of which was carry-over and 14.5% which was working.  SAHF in 2009 transferred 13.5% to Maxipetrol, under an arrangement where SAHF’s remaining 10% interest would be in a carry-over mode.


3





In December 2008, a reentry workover was made in the Jollin 2 well for 23 days until gas presence was detected in January 3, 2009 with a 170psi associated with the burning test. After several hours of test a strong presence of sand stopped the test. After 10 weeks of workover with two different rigs without a satisfactory performance of the well, a technical decision was taken to perform a 3D seismic job around the Jollin Block including the Jollin 2. After the conclusion of the 3D, estimated for second or third quarter 2011, a side track will be performed in the J2 or a bypass in the trouble stage in the vicinity of 2270 mt of the tubing.





SAHF received its foreign registration in Argentina and was admitted as a member of the joint venture on July 2, 2010. The Company will begin receiving revenue from the Jollin and Tonono blocks when the first well is approved for commercial production.





Tartagal and Morillo Concessions





SAHF had 9% ownership of the Tartagal Oriental (“Tartagal”) and Morillo oil and gas concessions located in Salta Province, Argentina, at December 31, 2010. Subsequent to year end, our ownership interest was increased to 18% in March 2011.





During 2007, SAHF had originally purchased an 18% ownership of these concessions During 2008, SAHF exchanged 50% of its ownership in this investment with a third party, where the acquirer agreed to assume 50% of SAHF’s obligations with respect to future development expenses.





In March 2009, a Hong Kong public company purchased 60% of the ownership in the Tartagal and Morillo oil and gas concessions, from the other majority owners, for total consideration of approximately $270 million. To date, the working interest owners have expended approximately $27 million on 2D and 3D seismic surveys and other geological studies. New Times Energy Corporation Limited, Hong Kong, the 60% owner and operator of the these  concessions, announced on January 26, 2011 the commencement of production on the CA x-1002 well in the Tartagal Oriental Block, at a tested rate of approximately 94 B/D, and announced further that a second workover on the CA x-1 well in the Tartagal Block is underway with results expected in the next quarter. The Company expects to begin receiving revenue from the Tartagal and Morillo blocks when the first well is approved for commercial production.





On May 11, 2011, SAHF received the Argentinian Salta Government’s approval for its 18% ownership share for the Tartagal and Morillo concessions. The Company plans to reclassify the $225,000 concession costs associated with this property to proved oil and gas properties based upon the reserve report received from the third party working interest owner of the joint venture.


4




Exploration Rights





(Guemes Block)


On February 6, 2008, SAHF purchased 40% of the oil and gas exploration rights to five geographically defined areas in the Salta Province of Northern Argentina for $697,000. Provided certain development activities are undertaken by owners, these exploration rights will remain in effect until the year 2010. The initial development costs and fees were paid by the majority owner and SAHF incurred no additional expenses related to this investment in 2008.





Exploratory drilling activities commenced in April 2010 on the Guemes Block and the first well was spud in September 2010. In July 2010, SAHF found positive traces of the presence of natural gas and hydrocarbons of low-density quality through its analysis of core samples. Well logging while drilling also confirmed the potential existence of formations with sufficient hydrocarbons to make the well economically productive. Production testing to verify the commercial sustainability of the well will commence , subject to the weather conditions following the winter season in Argentina.





Valle de Lerma Block





On April 29, 2011, SAHF was granted a Decree approving a Private Initiative Proposal to explore and eventually produce oil and natural gas in the Block known as “Valle de Lerma”. The Valle de Lerma concession is an area in the Salta province in the northwestern region of Argentina. It was formerly known as Coronel Moldes Block and was oil productive. A tender will follow based on the SAHF proposal. SAHF partnered the proposal with Grasta Refinery, a local mid-size gasoline refinery located in Buenos Aires, Argentina.





Terms of Carryover Arrangements





We entered into a carryover arrangement for Jollin and Tonono on September 25, 2009.  The Tartagal and Morillo interest was a carry-over interest from inception, May 15, 2007.





The carrying party for Jollin , Tonono , Tartagal and Morillo concessions is Oxipetrol-Petroleros de Occidente SA (Maxipetrol). Jollin and Tonono went into a carry-over mode after a buy-sell agreement with Maxipetrol on September 29, 2009.





Under the terms of the carry over, 50% of the production profits will be applied to the investment payment. The balance of the production profits (50%) will be distributed proportionally according to the percentage of each JV member. These terms apply for the Jollin, Tonono, Tartagal & Morillo concessions.




Admission of SAHF to Joint Ventures Operating Oil Concessions




SAHF received the approval for the Jollin Block and Tonono Block on July 2, 2010, 14 months after filing for such. The approval for the Tartagal and Morillo Blocks application was filed in August 2010 and approved May 11, 2011.


5





Prior to formal admittance into the joint ventures, SAHF’s 10% carry-over interest in the Jollin and Tonono Concessions and 9% carry-over interest in the Tartagal and Morillo Concessions were assigned to and held in Trust for SAHF by Maxipetrol for the sole use and benefit of SAHF, including any proceeds from the sale of hydrocarbons or property interests.  The Assignment Agreement does not affect the rights, privileges, obligations and liabilities of the parties to the agreement related to their respective interests in any way.  This is a common practice in Argentina due to the lengthy period required for obtaining government approvals.




The 2010 concessions payable for The Salta Province Exploration Rights Concession are past due and are being contested by the managing partner of the Joint Venture due to the changes in economic conditions since the concession interest was originally purchased by Ketsal, S.A. in 2005.  The 2010 concessions total approximately $1.1 million of which SAHF’s share is $220,000.  Prior to the drilling of the Guemes well, the managing partner began negotiating with the government of Argentina to have the concessions waived and agreement that the Government will not draw on the Performance Bond posted by Ketsal, in exchange for opening a well on Guemes and continued development activities in the province.  The managing partner has represented to the Company that it will be successful in its negotiations with the Government.  If not, SAHF will owe 20% of the past due concessions or $220,000.




Separately, the managing partner of the Joint Venture is negotiating a carryover arrangement with YPF (which is owned by Repsal) for the Guemes,  certain other blocks. The Joint Venture would sell 70% of its interest in the properties and retain a 30% carried interest and therefore, would not have to provide the liquidity to drill and develop these blocks.




When the results of these two transactions are known, SAHF will register to become an official member of the new remaining joint venture.




Development Schedule for Our Oil and Gas Investments




In December 2008, a well located in the Tonono Concession received government approval to begin commercial production of oil. When the test re-entry well at this location was completed in the fourth quarter of 2008, it initially produced between 10-15 cubic meters of oil per day, the equivalent of 90-101 barrels of oil.




The same well also contains natural gas. A natural gas pipeline connecting the Jollin Concession to a nearby refinery is in the pre-construction phase. It is expected to become operational in 2011 or 2012. Upon completion, it will permit the joint venture to commence deriving additional revenue from natural gas sales. The gas pipeline construction is delayed until the 3-D seismic conclusion will be delivered to substantiate critical design factors as the total expected delivery volume.




Deliveries of crude oil are expected to commence from the Tartagal and Morillo concessions during the second quarter of 2011.  Deliveries of crude oil are expected third quarter 2011, or later in 2011, from the Guemes Block.




The main costs associated with our oil and gas investments are related to oil and gas property acquisition, drilling costs, initial well revitalization, gas pipeline construction and ongoing operating expenses. The revitalization of wells allows short-term cash increases while holding the lease for additional future development.


6


Commitment to Technology





In each of our core operating areas, we have accumulated detailed geologic and geophysical knowledge and have developed significant technical and operational expertise.  This data is analyzed with advanced geophysical and geological computer resources dedicated to the accurate and efficient characterization of the subsurface oil and gas reservoirs that comprise our asset base. This commitment to technology has increased the productivity and efficiency of our field operations and development activities.





Lithium Project





On March 1, 2010, we signed a purchase option agreement with Minera Jujuy from the Jujuy Province, Argentina related to the acquisition of approximate 143,000 hectares with 29 mines located in the Northwest part of Argentina, south of the border with Bolivia, with high lithium and borates brines concentration. Currently, we are performing sampling and geological conclusions with a local geological company in order to determine value to the property.





For a one-time payment of $30,000, SAHF purchased control of 51% of the Project Delta-Guayatayoc, pursuant to a partnership agreement with Oscar Chedrese and Servicios Mineros SA, which property is held a concession for a period of 20 years that provides for the following rights: to explore, evaluate, develop, produce and arrange mineral resources on the property. Final approval for the 20-year concession for the property is expected in the second quarter 2011 after local holiday season.  Subject to the terms and conditions of this agreement, SAHF is appointed as Chief Operating Officer (COO) of the project and will be exclusively in charge and will direct all joint operations. The project involves the exploration and eventual exploitation of 29 mines in one block of a salt plateau located in Jujuy Province, Argentina.   None of the 29 mines is being actively mined. The condition to retain the claims is payment of the annual fee renewal on July 2011, of similar amount as in 2010 and the approval of the Operation Plan and Environmental Impact Report before any major drilling. The total extension of the block is approximately 143,000 hectares.





Prior to beginning field operations, SAHF must file a Drilling Plan and conduct an Environmental Impact Study.  There is no deadline for the commencement of drilling. SAHF has already taken samples from three different locations in the property. The restricted availability of rig equipment for the 2011 drill season (March-November) from third parties required SAHF to postpone the drilling program to early 2012.


7









Each of the black dots represents a mine location.




Development Activities




Development projects on the concessions in which we have investments include accessing additional productive formations in existing well bores, formation stimulation, infill drilling on closer well spacing, and retrofitting or reworking existing wells.





Customers





Petroleum and natural gas in the Northwest Basin of Argentina for new production blocks are traded freely and on a case by case basis. There are no long term contracts due to the supply deficit in this area. The buyers are the local refineries, and deliveries are made by pipelines or by truck in remote sites. Refineries pay for the transportation cost. At present SAHF does not have a contract with any customer and, if current circumstances continue to prevail, SAHF will entertain the daily spot offers to maximize profit.


8





Title to Properties





We believe we have satisfactory title in all of our producing properties; and we investigate title and title opinions from counsel only when we acquire producing properties or before commencement of drilling operations. All of The Company is currently evaluating the progress of new technology for thin-film solar flat panels to store the energy from sunlight to decide if transfer to the South American Market would be appropriate for inclusion in the Company’s business plan. Other technologies, such as geothermal technology as a potential energy project, already in operation in the Argentina area, are also being evaluated our current properties have been acquired directly from the government. As all of our current property titles are issued by the Argentine government (Department of Energy), we believe that we are in full compliance with the clear title requirements of each of our properties.





Competition





Our ability to acquire additional prospects and to find and develop reserves in the future will depend on our ability to evaluate and select suitable properties and to consummate transactions in a highly competitive environment.  Also, there is substantial competition for capital available for investment in the oil and gas industry.





Middle East




Envirotech holds the exclusive Middle East distribution rights to a gas-imaging product, which detects and visualizes harmful gasses produced by oilfield and refinery operations. This product was field tested by ARAMCO, the Saudi government oil company, during the third quarter of 2009. ARAMCO is currently evaluating whether or not to purchase this technology and may elect to purchase it from a competitor.





During the second half of 2007, Envirotech, as a distributor, introduced an organic supplement, designed to increase crop yield, to one of the major farming operators in Saudi Arabia. During the third and fourth quarters of 2008, the farm operator purchased sample quantities of the organic supplement for crop testing. Envirotech received commission revenue of $43,000 associated with these purchases. Subsequent purchases in commercial quantities will depend upon the evaluation of the crop yield.





Alternative Energy Technologies





The Company is currently evaluating the progress of new technology for thin-film solar flat panels to store the energy from sunlight to decide if transfer to the South American Market would be appropriate for inclusion in the Company’s business plan. Other technologies, such as geothermal technology as a potential energy project, already in operation in the Argentina area, are also being evaluated


9





Governmental Regulation





The key points of the statutory and regulatory regime in respect of oil and gas operations in Argentina are as follows:





The Company’s operations in Argentina are subject to various laws, taxes and regulations governing the oil and gas industry. Taxes generally include income taxes, value added taxes, export taxes, and other production taxes such as provincial production taxes and turnover taxes. Labor laws and provincial environmental regulations are also in place.





Our right to conduct E&P activities in Argentina is derived from participation in concessions and exploration permits granted by the Argentine federal government and provincial governments that control sub-surface minerals.  In general, provincial governments have had full jurisdiction over concession contracts since early 2007, when the Argentine federal government transferred to the provincial governments full ownership and administration rights over all hydrocarbon deposits located within the respective territories of the provinces, including all exploration permits and exploitation concessions originally granted by the federal government.





A concession granted by the government gives the concession holders, or the joint venture partners, ownership of hydrocarbons at the moment they are produced through the wellhead. Under this arrangement, the concession holders have the right to freely sell produced hydrocarbons, and have authority over operations including exploration and development plans. The concessions have a term of 25 years which can be extended for 10 years with the consent of the government. Throughout the term of their concessions, the partners are subject to provincial production taxes, turnover taxes, and federal income taxes. These tax rates are fixed by law and are currently 12 to 18.5%, two percent, and 35 percent, respectively. Subsequent to the transfer of ownership and administrative rights over hydrocarbon deposits to the provinces, provincial governments have sometimes required higher provincial production tax rates in blocks awarded by the provinces or in concessions that have been granted the 10 year extension.




In Argentina, material mining regulations are promulgated by the Federal Congress and have been contained since 1884 by the Mining Code. On the other hand, original domain of mining natural resources belongs to the provinces. Thus, provinces (i) appoint concession authorities and (ii) provide procedural mining regulations that individuals and legal entities must follow in order to be awarded mining rights and property. Exploration concessions granted are subject to specific terms, but resulting exploitation concessions––provided that certain requirements are met–– are perpetual.




Mining prospecting and exploration rights are easements which title can be granted to individuals or legal entities through administrative or judicial concessions ("exploration concessions"). Any mineral discovery made either by the concessionaire or third parties, provided they take place in the area and term of the concession, grants the concessionaire the right to turn such discovery into a mine.




The term of exploration concessions depends on the size of the granted concession area. The basic 500 hectares concession lasts for 150 days and each surface unit added to such basic concession increases the term in 50 additional days. Therefore, the largest possible concession will last for a 1,100 days term. In addition, there is an area limit of 200,000 hectares per area and a maximum of 20 areas that can be owned by a single entity.


10


SAHF received on April 29, 2011 its producing license for oil and gas. Our partners in the joint ventures that SAHF, LLC is involved in have all the other required licenses and permits to commercially produce oil and gas.





In the lithium (North Guayatayoc) and Coltan (Cachi) properties, licenses have not yet been pursued because SAHF is still exploring several options such as: mining and exploiting the property, and/or selling a portion of it. Once management has made a decision, the appropriate licenses will be acquired by either SAHF or its partners in the respective joint ventures.





The main effects of government regulations on the Company are that it will take a longer amount of time for properties to start producing commercially and that it will cost more money. The longer time frame from acquisition of the property to their commercial production stage can be attributed to the higher amount of time and focus that has to be put on paperwork and legal work. Because all of our contracts and corporate documents are written in English in the U.S, they need to be translated and notarized with an apostille to be valid in Argentina, which can cause delays in the applications for permits and licenses in Argentina. The higher expected cost can be attributed to the legal fees incurred to comply with the government regulations, along with the royalties, canons, and landowner fees that are particular to each concession.





Research and Development





We do not anticipate performing any significant product research and development under our plan of operation.





Employees




Currently, we  have four employees: Dr. Daniel R. Peralta, President and CEO, and Malcolm W. Sherman, Executive Vice President, and two SAHF employees, a field operations manager and a general manager.





Available Information





We maintain a website at the address www.deltamutual.com.  We are not including the information contained on our website as part of, or incorporating it by reference into, this report.  We make available free of charge (other than an investor’s own Internet access charges) through our website our Annual Report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and amendments to these reports, as soon as reasonably practicable after we electronically file such material with, or furnish such material to, the Securities and Exchange Commission.


11




Item 1A. Risk Factors.





Our oil and gas investments made by our subsidiary South American Hedge Fund may not be profitable.





The success of our investments in Argentina will depend to a great extent on the operations, financial condition and management of the oil and gas concession and exploration rights in which we have investments. Their success may depend upon management of the operations in which the investments were made and numerous other factors beyond our control.





Drilling for and producing oil and natural gas are high risk activities with many uncertainties.





Our future success will depend on the success of our development, exploitation, production and exploration activities.  Our oil and natural gas exploration and production activities are subject to numerous risks beyond our control, including the risk that drilling will not result in commercially viable oil or natural gas production.  Our decisions to purchase, explore, develop or otherwise exploit prospects or properties will depend in part on the evaluation of data obtained through geophysical and geological analyses, production data and engineering studies, the results of which are often inconclusive or subject to varying interpretations.  Our cost of drilling, completing and operating wells is often uncertain before drilling commences.  Overruns in budgeted expenditures are common risks that can make a particular project uneconomical.  Further, many factors may curtail, delay or cancel drilling, including the following:





•
delays imposed by or resulting from compliance with regulatory requirements;





•
pressure or irregularities in geological formations;





•
shortages of or delays in obtaining qualified personnel or equipment, including drilling rigs and CO2;





•
equipment failures or accidents; and





•
adverse weather conditions, such as freezing temperatures, hurricanes and storms.





The presence of one or a combination of these factors at our properties could adversely affect our business, financial condition or results of operations.


12





Prospects that we decide to drill may not yield oil or gas in commercially viable quantities.





A prospect is a property on which we have identified what our geoscientists believe, based on available seismic and geological information, to be indications of oil or gas.  Our prospects are in various stages of evaluation, ranging from a prospect which is ready to drill to a prospect that will require substantial additional seismic data processing and interpretation.  There is no way to predict in advance of drilling and testing whether any particular prospect will yield oil or gas in sufficient quantities to recover drilling or completion costs or to be economically viable.  The use of seismic data and other technologies and the study of producing fields in the same area will not enable us to know conclusively prior to drilling whether oil or gas will be present or, if present, whether oil or gas will be present in commercial quantities.  In addition, because of the wide variance that results from different equipment used to test the wells, initial flowrates may not be indicative of sufficient oil or gas quantities in a particular field.  The analogies we draw from available data from other wells, from more fully explored prospects, or from producing fields may not be applicable to our drilling prospects.  We may terminate our drilling program for a prospect if results do not merit further investment.





The global recession and tight financial markets may have impacts on our business and financial condition that we currently cannot predict.





The current global recession and tight credit financial markets may have an impact on our business and our financial condition, and we may face challenges if conditions in the financial markets do not improve.  Our ability to access the capital markets may be restricted at a time when we would like, or need, to raise financing, which could have an impact on our flexibility to react to changing economic and business conditions.  The economic situation could have an impact on our lenders or customers, causing them to fail to meet their obligations to us.  Additionally, market conditions could have an impact on our commodity hedging arrangements if our counterparties are unable to perform their obligations or seek bankruptcy protection.





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





Exploration, development, production and sale of oil and natural gas are subject to extensive federal and state regulation in Argentina.  We may be required to make large expenditures to comply with governmental regulations.  Matters subject to regulation include:





.
the exploitation of our oil and gas concessions as governed by the terms of the concession agreements;


.
royalties, canons and landlord fees;


.
production permits;


·
discharge permits for drilling operations;


·
drilling bonds;


·
reports concerning operations;


·
the spacing of wells;


·
unitization and pooling of properties; and


·
taxation.





Under these laws, we could be liable for personal injuries, property damage and other damages.  Failure to comply with these laws also may result in the suspension or termination of our operations and subject us to administrative, civil and criminal penalties.  Moreover, these laws could change in ways that could substantially increase our costs.  Any such liabilities, penalties, suspensions, terminations or regulatory changes could materially adversely affect our financial condition and results of operations.


13





Our operations may incur substantial liabilities to comply with environmental laws and regulations.





Our oil and gas operations are subject to stringent federal and state laws and regulations relating to the release or disposal of materials into the environment or otherwise relating to environmental protection.  These laws and regulations may require the acquisition of a permit before drilling commences; restrict the types, quantities, and concentration of materials that can be released into the environment in connection with drilling and production activities; limit or prohibit drilling activities on certain lands lying within wilderness, wetlands, and other protected areas; and impose substantial liabilities for pollution resulting from our operations.  Failure to comply with these laws and regulations may result in the assessment of administrative, civil, and criminal penalties, incurrence of investigatory or remedial obligations, or the imposition of injunctive relief.





Market conditions or operational impediments may hinder our access to oil and gas markets or delay our production.





In connection with our continued development of oil and gas properties, we may be disproportionately exposed to the impact of delays or interruptions of production from wells in these properties, caused by transportation capacity constraints, curtailment of production or the interruption of transporting oil and gas volumes produced.  In addition, market conditions or a lack of satisfactory oil and gas transportation arrangements may hinder our access to oil and gas markets or delay our production.  The availability of a ready market for our oil and natural gas production depends on a number of factors, including the demand for and supply of oil and natural gas and the proximity of reserves to pipelines and terminal facilities.  Our ability to market our production depends substantially on the availability and capacity of gathering systems, pipelines and processing facilities owned and operated by third-parties.  Additionally, entering into arrangements for these services exposes us to the risk that third parties will default on their obligations under such arrangements.  Our failure to obtain such services on acceptable terms or the default by a third party on their obligation to provide such services could materially harm our business.  We may be required to shut in wells for a lack of a market or because access to gas pipelines, gathering systems or processing facilities may be limited or unavailable.  If that were to occur, then we would be unable to realize revenue from those wells until production arrangements were made to deliver the production to market.





Crude oil and natural gas prices are volatile and a substantial reduction in these prices could adversely affect our results and the price of our common stock.





Our revenues, operating results and future rate of growth depend highly upon the prices we receive from crude oil and natural gas produced by the concession in which we have investments. Historically, the markets for crude oil and natural gas have been volatile and are likely to continue to be volatile in the future. The markets and prices for crude oil and natural gas depend on factors beyond our control. These factors include demand for crude oil and natural gas, which fluctuates with changes in market and economic conditions, and other factors, including:


14





•
worldwide and domestic supplies of crude oil and natural gas;


•
actions taken by foreign oil and gas producing nations;


•
political conditions and events (including instability or armed conflict) in crude oil or natural gas producing regions;


•
the level of global crude oil and natural gas inventories;


•
the price and level of foreign imports;


•
the price and availability of alternative fuels;


•
the availability of pipeline capacity and infrastructure;


•
the availability of crude oil transportation and refining capacity;


•
weather conditions;


•
domestic and foreign governmental regulations and taxes; and


•
the overall economic environment.




Significant declines in crude oil and natural gas prices for an extended period may have the following effects on our business:




•
limiting our financial condition, liquidity, and ability to finance planned capital expenditures and results of operations;


•
reducing the amount of crude oil and natural gas that can be produced economically;


•
causing us to delay or postpone some of our capital projects;


•
reducing our revenues, operating income and cash flows;


•
reducing the carrying value of our investments in crude oil and natural gas properties; or


•
limiting our access to sources of capital, such as equity and long-term debt.





The current recession could have a material adverse impact on our financial position, results of operations and cash flows.





The oil and gas industry is cyclical in nature and tends to reflect general economic conditions. The U.S. and other world economies are in a recession, which could last well into 2010 and beyond. The recession may lead to significant fluctuations in demand and pricing for crude oil and natural gas production, such as the decline in commodity prices which occurred during 2008 and into 2009. If commodity prices decline, there could be additional impairments of our investment assets or an impairment of goodwill.




Our business involves many operating risks that may result in substantial losses for which insurance may be unavailable or inadequate.




Our oil and gas investments are subject to hazards and risks inherent in operating and restoring oil and gas wells, such as fires, natural disasters, explosions, casing collapses, surface cratering, pipeline ruptures or cement failures, and environmental hazards such as natural gas leaks, oil spills and discharges of toxic gases. Any of these risks can cause substantial losses resulting from injury or loss of life, damage to or destruction of property, natural resources and equipment, pollution and other environmental damages, regulatory investigations and penalties, suspension of our operations and repair and remediation costs. In addition, our liability for environmental hazards may include conditions created by the previous owners of properties in which we have investments or purchase or lease.


15




We do not believe that insurance coverage for all environmental damages that could occur is available at a reasonable cost. Losses could occur for uninsurable or uninsured risks. The occurrence of an event that is not fully covered by insurance could harm our financial condition and results of operations.




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




We have investments in the competitive area of oil and gas exploration and production. Many competitors are large, well-established companies that have larger operating staffs and significantly greater capital resources.




Competition for experienced personnel may negatively impact our operations.




Our future profitability will depend on our ability to attract and retain qualified personnel. The loss of any key executives or other key personnel could have a material adverse effect on investments results and revenues. In particular, the loss of the services of our President, Dr. Daniel Peralta, could adversely affect our South American oil and gas investment results.




International operations expose us to political, economic and currency risks.





With regard to our investments in oil and gas concessions located outside of the United States, we are subject to the risks of doing business abroad, including,


·
Currency fluctuations;


·
Changes in tariffs and taxes; and


·
Political and economic instability.





Changes in currency exchange rates may affect the relative costs of operations in Argentina, and may affect the cost of certain items required in oil and gas processing, thus possibly adversely affecting our profitability.





There are inherent risks for the foreseeable future of conducting business internationally. Language barriers, foreign laws and tariff and taxation issues all have a potential negative effect on our ability to transact business. Changes in tariffs or taxes applicable to our investments in foreign operations may adversely affect our profitability. Political instability may increase the difficulties and costs of doing business. We may be subject to the jurisdiction of the government and/or private litigants in foreign countries where we transact business, and may be forced to expend funds to contest legal matters in those countries in disputes with those governments or with customers or suppliers.





We do not expect to pay dividends.




We have never paid dividends on our common stock. Management anticipates that any earnings generated will be used to finance our current and planned business operations. For the foreseeable future, we do not expect to pay cash dividends to holders of our common stock.


16




Item 1B. Unresolved Staff Comments.





Not applicable.




Item 2. Properties.





As of December 31, 2010, our principal assets included Partial Rights Ownership in five oil and gas properties.





Developed and Undeveloped Acreage





The following table summarizes our estimated gross and net developed and undeveloped acreage by concession at December 31, 2010.   Net acreage represents our percentage ownership of gross acreage.  The following table does not include acreage in which our interest is limited to royalty and overriding royalty interests.





Block

Province

Status

Delta %

Partner(s)Jollin

Salta

Testing

10% CO

JHP (China), MaxiTonono

Salta

testing

10% CO

JHP (China), MaxiTartagal

Salta

Seismic

9% CO

New Energy (HK), MaxiMorillo

Salta

Seismic

9% CO

New Energy (HK), MaxiGuemes

Salta

Drill Complete

20%

Ketsal





*CO means a carried interest in the project.


** Of these five properties, SAHF and its joint venture partner have made initial investments in Guemes.


*** In the Jollin, Tonono, Tartagal, Morillo and Coltan concession the carry over mode relieved SAHF from the payment of canon, or landlord, fees of any kind. In the exploratory areas , Guemes, Rosario, Cobres, Valles and Union, proportional exploratory canons were paid as explained in the financials. Surface canon were not paid due to the lack of surface operations in 2010 in those blocks, with the exception of Guemes where an old YPF road, built by the former National Company of Argentina and now owned by Repsol of Spain) was used to access the drilling site.





Executive Offices





In November 2010, we extended for one year our lease for our principal office in Scottsdale, Arizona, at a monthly rental of $1276.88. We anticipate that our current office space will accommodate our operations for the foreseeable future.


17




Item 3. Legal Proceedings.





Former Employee Wage Claims


On September 16, 2008, the Company was notified of a complaint filed with the Pennsylvania Department of Labor & Industry by its former President and CEO alleging non-payment of wages in the amount of $53,271. In October 2008, the Company entered into a repayment agreement with this former employee. As of the date of this report, the Company has not made any payments pursuant to this agreement. The Company has also been notified by letter dated October 9, 2009 of a complaint filed with the Pennsylvania Department of Labor & Industry by its former Chief Financial Officer alleging non-payment of wages in the amount of $131,250. The Company has responded to the Department of Labor & Industry that the wages owed this former officer are substantially less than alleged in this claim and are vigorously contesting the claim as of the date of this filing. The Company is awaiting a response from the Department of Labor and Industry and this matter is disclosed in the contingent liabilities footnote to the consolidated financial statements.





Legal Fee Collection Claim





Delta Technologies, Inc., a wholly-owned subsidiary of the Company and a discontinued operation (“Delta Technologies”), has been notified by a collection agency on behalf of Wolf Block LLP (“Wolf Block”), a law firm that had provided intellectually property legal services to Delta Technologies, that it had been retained in an attempt to collect a past due amount of approximately $41,000. The Company is in discussions with the collection agency and believes that the resolution of this matter will have no material effect on the Company or its operations.




Item 4. [Removed and Reserved.]


18


PART II




Item 5. Market for Registrant's Common Equity, Related Shareholder Matters and 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. Prices commencing January 1, 2009 reflect the 1-for-10 reverse stock split effective July 6, 2009.




High


Low2009:
1st Quarter


0.60



0.302nd Quarter


0.90



0.213rd Quarter


0.39



0.054th Quarter


0.52



0.062010:
1st Quarter


0.49



0.152nd Quarter


0.49



0.233rd Quarter


0.43



0.234th Quarter


0.70



0.432011
1st Quarter


0.67



0.30





During the last two fiscal years, no cash dividends have been declared on Delta's common stock and Company management does not anticipate that dividends will be paid in the foreseeable future. The payment of dividends is within the discretion of the board of directors and will depend on the Company's earnings, capital requirements, financial condition, and other relevant factors. There are no restrictions that currently limit the Company's ability to pay dividends on its common stock other than those generally imposed by applicable state law.





As of April 25, 2011, there were approximately 98 record holders of our common stock.





Unregistered Sales of Equity Securities





The following table sets forth the unreported sales of unregistered securities by the Company in the year ended December 31, 2010.





Date

Title and Amount(1)

Purchaser

Principal

Underwriter

Total

Offering Price/

Underwriting

DiscountsOctober 13, 2010

51,283 shares of common stock.

Private Investor.

NA

$0.389 per share/NAOctober 13, 2010

38,462 shares of common stock.

Private Investor.

NA

$0.389 per share/NADecember 7, 2010

6,674 shares of common stock.

Consultant

NA

$0.4615 per share/NADecember 7, 2010

80,000 shares of common stock.

Private Investor.

NA

$0.4615 per share/NADecember 29, 2010

138,888 shares of common stock issued in exercise of warrant.

Private Investor.

NA

$0.18 per share/NA


(1) The issuances to lenders, consultants and investors are viewed by the Company as exempt from registration under the Securities Act of 1933, as amended (“Securities Act”), alternatively, as transactions either not involving any public offering, or as exempt under the provisions of Regulation D, Regulation S or Rule 701 promulgated by the SEC under the Securities Act.


19





The Company has no equity compensation plans in effect, or any securities outstanding under equity compensation plans, as of the date of this report.





Item 6. Selected Financial Data.





Not applicable.




Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.





The following discussion of our consolidated financial condition and results of operations should be read in conjunction with the consolidated financial statements and notes thereto and the other financial information included elsewhere in this report.





Certain statements contained in this report, including, without limitation, statements containing the words "believes," "anticipates," "expects" and words of similar import, constitute "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including our ability to create, sustain, manage or forecast our growth; our ability to attract and retain key personnel; changes in our business strategy or development plans; competition; business disruptions; adverse publicity; and international, national and local general economic and market conditions.




GENERAL




On March 4, 2008, we entered into a Membership Interest Purchase Agreement (the “Agreement”) with Egani, Inc., an Arizona corporation (“Egani”). Pursuant to the Agreement, we acquired from Egani 100% of the shares of stock held by Egani in Altony S.A., an Uruguay Sociedad Anonima, (“Altony”) which owns 100% of the issued and outstanding membership interests in South American Hedge Fund LLC, a Delaware limited liability company (sometimes herein referred to as “SAHF”). At the closing of the Agreement, we issued 13,000,000 shares of our Common stock to Egani for the purchase of Altony which constituted, following such issuance, a majority of the outstanding shares of our common stock. Immediately following the closing of the Agreement, Altony became a wholly owned subsidiary of the Company. For accounting purposes, the transaction was treated as a recapitalization of the Company with Altony as the acquirer.


20





Overview





We are a development stage independent oil and gas company engaged in oil and gas acquisition, exploitation, production and exploration activities primarily in Argentina.  In addition, we have ownership interests in certain mineral rights that are located in Argentina.  Our current investments in oil and gas properties were purchased by SAHF and contributed to the Company as part of the reverse merger transaction in March, 2008.  Subsequently, SAHF sold working interests rights in two of its oil and gas interests to carrying parties to fund the drilling and development activities for the properties.  These properties are expected to reach the time of payout in the second half of 2011.  The Company retained its working interest in the third oil and gas property (Salta Province) and sold equity in a series of private placement transactions to fund the initial drilling and development second half of 2010.





We intend to use the proceeds from the production revenues from existing properties to seek property acquisitions that complement and geographically diversify our core investments in energy related properties.  Our goal is to generate meaningful growth in shareholder value through the discovery and development of proved oil and gas reserves or other mineral, and we have focused on concessions where there are shut-in, plugged or abandoned wells that have, in our assessment, a high probability of additional recovery of reserves through the revitalization of the wells using standard oil and gas industry practices to bring back wells into production or to enhance production. In addition, our growth plan is centered upon the pursuit of energy related development projects that we believe will generate attractive rates of return while maintaining a balanced portfolio of lower risk, long-lived oil and gas properties that provide stable cash flows.





As of April 29, 2011, we have approximately $252,880 in cash.  We believe that this cash will provide us with the necessary liquidity during the remainder of our pre-revenue stage.  However, in the event that the revenues are delayed, we believe that the value of the reserves underlying our oil and gas investments is sufficient to allow us to generate additional liquidity through the sale of equity or borrowings, or through the sale of portions of our carried interests in the properties.





GOING CONCERN





The consolidated financial statements for the period ended December 31, 2010 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. The Company has a past history of recurring losses from operations and has an accumulated deficit in the development stage of approximately $184,000 and working capital deficiency of approximately $1,106,000 as of December 31, 2010.  Successful business operations and its transition to attaining profitability is dependent upon obtaining additional financing and achieving a level of revenue adequate to support its cost structure. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Successful business operations and its transition to attaining profitability is dependent upon obtaining additional financing and achieving a level of revenue adequate to support its cost structure. There can be no assurances that there will be adequate financing available to the Company, if the Company requires financing. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. This basis of accounting contemplates the recovery of the Company’s assets and the satisfaction of liabilities in the normal course of business. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.


21





The Company will require additional funding to execute its future strategic business plan. Successful business operations and its transition to attaining profitability is dependent upon obtaining additional financing and achieving a level of revenue adequate to support its cost structure.





The Company's business is subject to the risks of its oil and gas investments in South America. 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 operations of the oil and gas concession in Argentina. There is no assurance that the Company will ultimately achieve a profitable level of operations.





EXPLORATION AND DEVELOPMENT ACTIVITY





Our future oil and gas production, and therefore our success, is highly dependent upon our ability to find, acquire and develop additional reserves that are profitable to produce. The rate of production from our oil and gas properties and our proved reserves will decline as our reserves are produced unless we acquire additional properties containing proved reserves, conduct successful development and exploration activities or, through engineering studies, identify additional behind-pipe zones or secondary recovery reserves. We cannot assure you that our exploration and development activities will result in increases in our proved reserves. If our proved reserves decline in the future, our production may also decline and, consequently, our cash flow from operations and the amount that we are able to borrow under our credit facility will also decline. In addition, the vast majority of our estimated proved reserves at December 31, 2010 were undeveloped. By their nature, estimates of undeveloped reserves are less certain. Recovery of such reserves will require significant capital expenditures and successful drilling operations. We may be unable to acquire or develop additional reserves, in which case our results of operations and financial condition could be adversely affected.





Jollin and Tonono Oil and Gas Concessions


The Company, through SAHF, has a 10% interest concession in the carryover mode ("no cost obligations to SAHF") in the Jollin and Tonono oil and gas concessions located in Northern Argentina.


22


During the year ended December 31, 2008, the third party owners of the Jollin and Tonono concessions formed an Argentine-registered joint venture and paid, in the aggregate, approximately $848,000 of development costs, all of which were capitalized. Since SAHF was not registered as a foreign company in Argentina, it could not become a member of the joint venture in 2008. The third party owners of these concessions have agreed that, upon admission of SAHF as a member of the joint venture, SAHF will retain its ownership. However, in exchange for this agreement, SAHF’s weighted average pro-rata portion of the 2008 aggregate development cost, of approximately $223,024, all of which was included in accounts payable in SAHF’s consolidated balance sheet at December 31, 2008, was to be repaid to the other members from its pro-rata share of the future earnings of the concession. On September 25, 2009, SAHF sold 13.5% of its ownership interest in the Jollin and Tonono oil and gas concession to Maxi-Petroleros De Occidente S.A. ("Maxipetrol") for $206,832. Maxipetrol, prior to the sale, owned 48% of the Jollin and Tonono oil and gas concession. In connection with the sale, Maxipetrol assumed full responsibility to develop the oil and gas concession until production is achieved in the blocks. This obligation includes all future and former costs incurred for the Jollin and Tonono oil and gas concession, until such time as the well is producing. All prior unpaid costs accrued by SAHF, were assumed by Maxipetrol. The Company recorded a $157,939 loss on the disposition of its 13.5% investment to Maxipetrol and the loss is included in its statement of operations for the year ended December 31, 2009. In addition, as of December 31, 2009, the Company recorded a reversal of $223,024 to adjust balances in investments and accounts payable as a result of the forgiveness of the aggregate development cost payable. During the three months ending December 31, 2010 SAHF paid $139,762 in additional canons to maintain its ownership interest in the concession.





SAHF received its foreign registration in Argentina and was admitted as a member of the joint venture on July 2, 2010. Accordingly, the Company has reclassified its concession costs in the amount of $688,475 associated with this property to proved oil and gas properties as of December 31, 2010 based upon the reserve report received from the third party working interest owner of the joint venture. The Company will begin receiving revenue from the Jollin and Tonono blocks when the first well is approved for commercial production.





Salta Province Exploration Rights


During 2008, SAHF purchased 40% of the oil and gas exploration rights to five geographically defined areas in the Salta Province of Northern Argentina from Ketsal, SA (“Ketsal”) for $697,000 cash. In 2009, SAHF assigned 50% of its rights to a third party. As of December 31, 2010, SAHF owns 20% of the rights to this oil and gas concession. The Company expects that in 2010, substantially all of the exploration costs required to retain the exploration rights will be borne by Ketsal, the majority owner.





SAHF is responsible for managing the drilling activities in the Salta Province and bears its pro-rata share of the costs. Exploratory drilling activities commenced in April 2010 on the Guemes Block and the first well was spud in September 2010. SAHF paid $106,672 for additional concession fees to become an exploration company in Argentina and incurred $179,806 in exploratory drilling costs during the nine months ended September 30, 2010 that were capitalized as work-in-progress under the full cost method of accounting. In July 2010, SAHF found positive traces of the presence of natural gas and hydrocarbons of low-density quality through its analysis of core samples. Well logging while drilling also confirmed the potential existence of formations with sufficient hydrocarbons to make the well economically productive. Production testing to verify the commercial sustainability of the well will commence, subject to weather conditions following the winter season in Argentina.





On April 29, 2011, SAHF was granted a Decree approving a Private Initiative Proposal to explore and eventually produce oil and natural gas in the Block known as “Valle de Lerma”. The Valle de Lerma concession is an area in the Salta province in the northwestern region of Argentina. It was formerly known as Coronel Moldes Block and was oil productive. A tender will follow based on the SAHF proposal. SAHF partnered the proposal with Grasta Refinery, a local mid-size gasoline refinery located in Buenos Aires, Argentina.


23





Tartagal and Morillo


As of December 31, 2010, the Company, through SAHF, retained 9% of the total concession in the carryover mode ("no cost obligations to SAHF") in the Tartagal and Morillo oil and gas concessions located in Northern Argentina. SAHF’s participation was increased to 18% in March 2011, through the purchase of an additional 9% interest in the concession from Ambika S.A. In March 2009, a Hong Kong public company purchased 60% of the ownership in the Tartagal and Morillo oil and gas concessions, from the other majority owners, for total consideration of approximately $270 million. To date, the working interest owners have expended approximately $27 million on 2D and 3D seismic surveys and other geological studies. The Company expects to begin receiving revenue from the Tartagal and Morillo blocks when the first well is approved for commercial production.





On May 11, 2011, SAHF received the Argentinian Salta Government’s approval for its 18% ownership share for the Tartagal and Morillo concessions. The Company will reclassify the $225,000 concession costs associated with this property to proved oil and gas properties based upon the reserve report received from the third party working interest owner of the joint venture.





Lithium Production Properties





On March 1, 2010, we signed a purchase option agreement with Minera Jujuy from the Jujuy Province, Argentina related to the acquisition of approximate 143,000 hectares with 29 mines located in the Northwest part of Argentina, south of the border with Bolivia, with high lithium and borates brines concentration. Currently, we are performing sampling and geological conclusions with a local geological company in order to determine value to the property. For a one-time payment of $30,000, SAHF purchased control of 51% of the Project Delta-Guayatayoc, pursuant to a partnership agreement with Oscar Chedrese and Servicios Mineros SA, which property is held a concession for a period of 20 years.





RESULTS OF OPERATIONS





YEAR ENDED DECEMBER 31, 2010 COMPARED TO THE YEAR ENDED DECEMBER 31, 2009





During the year ended December 31, 2010, we incurred a net loss of $873,481 compared to net income of $736,850 for the year ended December 31, 2009. The decrease in our net income for the year ended December 31, 2010 over the comparable period of the prior year is primarily due to a $330,660 increase in general and administrative expenses, a $5,455 foreign exchange loss on the Company’s US dollar denominated advances to SAHF, and a $70,226 increase in interest expense.  Furthermore, in 2009 theCompany had a gain of approximately $882,000 on the deconsolidation of Envirotech and other income of approximately $582,000, consisting of write-down of payroll and consulting accruals and settled accounts payable originating several years ago and considered no longer payable.


24





LIQUIDITY





At December 31, 2010, we had a working capital deficit of approximately $1,116,000, compared with a working capital deficit of approximately $1,065,000 million at December 31, 2009.





At December 31, 2010, we had total assets of approximately $2,293,000 compared to total assets of approximately $1,750,000 at December 31, 2009. Cash increased approximately $107,000 for the year ended December 31, 2010. Net cash used in operating activities in 2010 was approximately $478,000, as compared with approximately $359,000 in 2009; net cash used in investing activities was approximately $635,000 in 2010, as compared with cash generated of approximately $151,000 in 2009. Cash used in operations activities was offset by net cash provided from financing activities of approximately $1,219,000 in 2010 compared to $approximately $296,000 in 2009.





Estimated 2011 Capital Requirements





In the case of the Jollin and Tonono and Tartagal and Morillo oil and gas properties, we have carried interests; therefore, no further capital expenditures are required on our part.  For the exploration rights in Salta Province, we have completed the drilling and development of one well in Guemes that is expected to begin producing once the rainy season in Argentina is over.  We have sufficient funds for our portion (20%) of the costs of installation of the battery storage facility to complete the Guemes production and storage facilities.   In the event our revenue expectations for 2011 are not met, we are not required to make any additional capital investment to protect our assets.





USE OF ESTIMATES





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 oil and gas properties, 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. In the opinion of management, all normal recurring adjustments considered necessary for a fair presentation have been included in these financial statements. Certain amounts for prior periods have been reclassified to conform to the current presentation.





Management believes that it is reasonably possible that the following material estimates affecting the financial statements could happen in the coming year:





·
Proved oil and gas reserves;


·
Expected future cash flow from proved oil and gas properties;


·
Future exploration and development costs; and


·
Future dismantlement and restoration costs.


25





NEW FINANCIAL ACCOUNTING STANDARDS





For a summary of new financial accounting standards applicable to the Company, please refer to the accompanying notes to the financial statements.





Critical Accounting Policies





The Securities and Exchange Commission recently issued “Financial Reporting Release No. 60 Cautionary Advice About Critical Accounting Policies” (“FRR 60”), suggesting companies provide additional disclosures, discussion and commentary on their accounting policies considered most critical to its business and financial reporting requirements. FRR 60 considers an accounting policy to be critical if it is important to the Company’s financial condition and results of operations, and requires significant judgment and estimates on the part of management in the application of the policy. For a summary of the Company’s significant accounting policies, including the critical accounting policies discussed below, please refer to the accompanying notes to the financial statements. Foreign currency risk - 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. The functional currency in South America is the U.S. dollar. Translation adjustments are recorded in Cumulative Other Comprehensive Income.





The Company assesses potential impairment of its long-lived assets, which include its property and equipment, investments, and its identifiable intangibles such as deferred charges under the guidance of SFAS 144 “Accounting for the Impairment or Disposal of Long-Lived Assets.” The Company must continually determine if a permanent impairment of its long-lived assets has occurred and write down the assets to their fair values and charge current operations for the measured impairment.





Investments in non-consolidated affiliates – These investments consist of the Company’s ownership interests in oil and gas development and exploration rights in Argentina, net of impairment losses if any.





We evaluate these investments for impairment when indicators of potential impairment are present. Indicators of impairment include, but are not limited to, levels of oil and gas reserves, availability of pipeline (or other transportation) capacity and infrastructure and management of the operations in which the investments were made.




Item 7A. Quantitative and Qualitative Disclosures About Market Risk.





Interest Rate Risk - Interest rate risk refers to fluctuations in the value of a security resulting from changes in the general level of interest rates. Investments that are classified as cash and cash equivalents have original maturities of three months or less. Our interest income is sensitive to changes in the general level of U.S. interest rates.





We do not have significant short-term investments, and due to their short-term nature, we believe that there is not a material risk exposure.




Credit Risk - Our accounts receivable are subject, in the normal course of business, to collection risks. We regularly assess these risks and have established policies and business practices to protect against the adverse effects of collection risks. As a result we do not anticipate any material losses in this area.


26





Commodity Price Risk – We are exposed to market risks related to price volatility of crude oil and natural gas. The prices of crude oil and natural gas affect our revenues, since sales of crude oil and natural gas from our South American investments comprise nearly all of the components of our revenue.  A decline in crude oil and natural gas prices will likely reduce our revenues, unless there are offsetting production increases. We do not use derivative commodity instruments for trading purposes.





The prices of the commodities that the Company produces are unsettled at this time.  At times the prices seem to be drift down and then either increase or stabilize for a few days.  Current price movement seems to be slightly up but with the prices of the traditionally marketed products (gasoline, diesel, and natural gas as feed stocks for various industries, power generation, and heating) are not showing material increases.  Although prices are difficult to predict in the current environment, the Company maintains the expectation that demand for crude oil and natural gas will continue to increase for the foreseeable future due to the underling factors that oil and natural gas based commodities are both sources of raw energy and are fuels that are easily portable.





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


27




Item 8. Financial Statements and Supplementary Data.


28





DELTA MUTUAL, INC. AND SUBSIDIARIES





INDEX TO FINANCIAL STATEMENTS





PageReports of Independent Registered Public Accounting Firms
30Consolidated balance sheets as of December 31, 2010 and 2009
34Consolidated statements of operations for the years ended December 31, 2010 and 2009 and for the period from inception of development stage (January 1, 2009) to December 31, 2009
35Consolidated statement of stockholders’ equity from inception of development stage (January 1, 2009) to December 31, 2010
36Consolidated statements of cash flows for the years ended December 31, 2010 and 2009, and for the period from inception of development stage (January 1, 2009) to December 31, 2009
37Notes to consolidated financial statements
38


29




Madsen & Associates, CPA


684 East Vine Street


Murray, UT 84107





Report of Independent Registered Public Accounting Firm





To the Board of Directors of


Delta Mutual, Inc. and Subsidiaries





We have audited the accompanying consolidated balance sheet of Delta Mutual, Inc. and Subdiaries (collectively, the “Company”) (a development stage company) as of December 31, 2010 and the related consolidated statements of operations, equity, comprehensive income (loss) and cash flows for the year then ended and for the period January 1, 2009 (inception of the development stage) to December 31, 2010. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.





We also audited the adjustments described in Note 2 that were applied to restate the consolidated financial statements as of and for the year ended December 31, 2009. In our opinion, such adjustments are appropriate and have been properly applied. We were not engaged to audit, review, or apply any procedures to the December 31, 2009 financial statements other than with respect to the adjustments, and, accordingly, we do not express an opinion or any other form of assurance on the December 31, 2009 financial statements taken as a whole. The December 31, 2009 financial statements were audited by another auditor whose opinion is dated April 15, 2010, except for Note 2 as to which the date is July 19, 2010. The predecessor auditor reported on such financial statements before the restatement.





We conducted our audit 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. The Company is not required to have, nor were we engaged to perform, an audit of its internal controls over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also 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 audit provides a reasonable basis for our opinion.





In our opinion, the consolidated financial statements as of and for the year ended December 31, 2010, referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2010, and the consolidated results of its operations and its cash flows for the year then ended and for the period January 1, 2009 (inception of the development stage) to December 31, 2010, in conformity with accounting principles generally accepted in the United States of America.


30





The accompanying consolidated financial statements referred to above have been prepared assuming the Company will continue as a going concern. As more fully described in Note 1, the Company has an accumulated deficit of $4,566,559 and working capital deficiency of $1,116,116 as of December 31, 2010. Additionally, the Company is not generating cash flows to meet its working capital requirements. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans as to these matters are described in Note 1. The consolidated statements do not include any adjustments that might result from the outcome of this uncertainty.





/s/ Madsen & Associates, CPA





Murray, Utah


May 16, 2011


31









REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To the Stockholders and Board of Directors of Delta Mutual, Inc. and Subsidiaries:





We have audited the accompanying restated consolidated balance sheet of Delta Mutual, Inc. and Subsidiaries (the “Company”), as of December 31, 2009, and the restated related consolidated statement of operations, changes in consolidated stockholders’ equity (deficit) and consolidated cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audit.





We also audited the adjustments described in Note 2 that were applied to restate the consolidated financial statements as of and for the year ended December 31, 2008. In our opinion, such adjustments are appropriate and have been properly applied. We were not engaged to audit, review, or apply any procedures to the December 31, 2008 consolidated financial statements other than with respect to the adjustments, and, accordingly, we do not express an opinion or any other form of assurance on the December 31, 2008 financial statements taken as a whole. The consolidated financial statements of Delta Mutual, Inc. and Subsidiaries for the year ended December 31, 2008, were audited by other auditors whose report thereon, dated April 13, 2009, expressed an unqualified opinion with an emphasis of matter as to going concern. The predecessor auditor reported on such financial statements before the restatement.





We conducted our audit 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 audit provided a reasonable basis for our opinion.





In our opinion, the restated consolidated financial statements as of and for the year ended December 31, 2009, referred to above present fairly, in all material respects, the restated consolidated financial position of Delta Mutual, Inc. and Subsidiaries as of December 31, 2009, and the restated consolidated results of its operations and its cash flows for the year ended December 31, 2009 in conformity with accounting principles generally accepted in the United States of America.


32





As discussed in Note 2 to the consolidated financial statements, the Company restated its financial statements as of and for the year ended December 31, 2008 presented on a comparative basis. The restatement relates to an increase of approximately 309,000 shares outstanding (par value, $0.0001) which is attributable to the net impact of the reverse merger in 2008 and, accordingly, $30 was reclassified from additional paid in capital to common stock. The Company has reflected the impact of these adjustments and the increase in shares outstanding in its consolidated financial statements for the year ending December 31, 2008.





The accompanying restated consolidated financial statements referred to above have been prepared assuming that the Company will continue as a going concern.  As more fully described in Note 1, the Company has an accumulated deficit of $3,596,337 and working capital deficiency of $967,042 as of December 31, 2009. Additionally, the Company is not generating sufficient cash flows to meet its regular working capital requirements. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.  Management’s plans as to these matters are also described in Note 1.  The restated consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.





/s/Jewett, Schwartz, Wolfe & Associates





Hollywood, Florida





April 15, 2010, except for Note 2 as to which the date is July 19, 2010.





200 South Park Road, Suite 150  •  Hollywood, Florida 33021  •  Main 954.922.5885  •  Fax 954.922.5957  •  www.jsw-cpa.com


Member - American Institute of Certified Public Accountants • Florida Institute of Certified Public Accountants


Private Companies Practice Section of the AICPA • Registered with the Public Company Accounting Oversight Board of the SEC


33


DELTA MUTUAL, INC. AND SUBSIDIARIES


(DEVELOPMENT STAGE COMPANY)


CONSOLIDATED BALANCE SHEETS





December 31,2010


2009(As Restated)ASSETSCurrent Assets:Cash

$
209,004


$
102,008Advances and other receivables


7,753



137,776Total current assets


216,757



239,784Investment in mineral properties


98,269



-Investments in unproved oil and gas properties


1,972,050



1,470,713Other assets


6,368



39,508TOTAL ASSETS

$
2,293,444


$
1,750,005LIABILITIES AND STOCKHOLDERS' EQUITYCurrent Liabilities:Accounts payable

$
109,960


$
134,192Accrued expenses


414,548



364,770Notes payable


808,365



805,605Total current liabilities


1,332,873



1,304,567Commitments and ContingenciesStockholders' Equity:Preferred stock $0.0001 par value-authorized 10,000,000 shares; no shares issued and outstanding at December 31, 2010 and 2009, respectively


-



-Common stock $0.0001 par value - authorized 250,000,000 shares; 28,647,687 and 24,211,475 shares issued and outstanding at December 31, 2010 and 2009, respectively


2,864



2,421Additional paid-in capital


5,560,099



4,137,095Earnings (deficit) accumulated during the development stage


(136,631
)


736,850Accumulated Deficit


(4,430,928
)


(4,430,928
)Accumulated other comprehensive loss


(34,833
)


-Total stockholders' equity


960,571



445,438TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$
2,293,444


$
1,750,005





The accompanying notes are an integral part of the consolidated financial statements


34





For the periodfrom January 1,2009 (inception ofthe developmentYears Ending December 31,


stage) to2010


2009


December 31, 2010(As Restated)Costs and expenses:General, and administrative

$
824,570


$
493,904


$
1,318,474Loss on sale of investments


-



157,939



157,939824,570



651,843



1,476,413Loss from operations


(824,570
)


(651,843
)


(1,476,413
)Foreign exchange loss


(5,445
)


-



(5,445
)Interest income






37,696



37,696Interest expense


(43,466
)


(113,712
)


(157,178
)Other income






582,441



582,441Gain on deconsolidation of variable interest entity






882,268



882,268Net other income (expense)


(48,911
)


1,388,693



1,339,782Income (loss) before income taxes


(873,481
)


736,850



(136,631
)Provision for income taxes


-



-Net earnings (loss)

$
(873,481
)

$
736,850


$
(136,631
)Net earnings (loss) per common share:Basic and Diluted

$
(0.03
)

$
0.03Weighted average common shares - basic and diluted


27,124,031



22,779,263





The accompanying notes are an integral part of the consolidated financial statements


35





(DEVELOPMENT STAGE COMPANY)


CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY


From Inception of Development Stage (January 1, 2009) to December 31, 2010





Accumulated





AccumulatedNumber of








Earnings (Deficit)





OtherCommon


Common


Paid in


During the


Accumulated


ComprehensiveShares


Stock


Capital


Development Stage


Deficit


Income


TotalBalance as of inception date of development stage, January 1, 2009, as restated (See Note 2)


22,493,955


$
2,249


$
3,782,767


$
-


$
(4,430,928
)

$
-


$
(645,912
)Issuance of common stock for services (valued at $0.60 per share)


200,000



20



119,980















120,000Issuance of common stock toward debt conversion (valued at $0.58 per share)


60,000



6



34,994















35,000Issuance of common stock for services (valued at $0.40 per share)


28,572



3



9,997















10,000Issuance of common stock for services (valued at $0.15 per share)


130,000



13



19,487















19,500Sales of common stock (valued at $0.06 to $0.23 per share)


1,298,748



130



169,870















170,000Net income














736,850







-



736,850Comprehensive income (loss)Balance December 31, 2009, as restated


24,211,275



2,421



4,137,095



736,850



(4,430,928
)


-



445,438Issuance of common stock for services valued at $0.28 to $0.42 per share


667,355



67



234,713















234,780Sales of common stock valued at $0.15 to $0.50 per share


3,769,057



376



1,188,291















1,188,667Net loss














(873,481
)










(873,481
)Foreign currency adjustment - comprehensive loss






















(34,833
)


(34,833
)Balance December 31, 2010


28,647,687


$
2,864


$
5,560,099


$
(136,631
)

$
(4,430,928
)

$
(34,833
)

$
960,571





The accompanying notes are an integral part of the consolidated financial statements.


36


For the period fromJanuary 1, 2009(inception of theYears ending December 31,


development stage) to2010


2009


December 31, 2010(As Restated)Cash flows from Operating Activities:Net earnings (loss)

$
(873,481
)

$
736,850


$
(136,631
)Adjustments to reconcile net earnings (loss) to net cash used in operating activities:Depreciation, depletion and amortization


-



804



804Issuance of common stock for services


179,004



149,500



328,504Loss on sale of investments


-



157,939



157,939Changes in operating assets and liabilities


190,978



(1,404,071
)


(1,213,093
)Net cash used in operating activities


(503,499
)


(358,978
)


(862,477
)Cash flows from investing activities:Oil and gas properties exploration and development costs


(536,934
)


(55,460
)


(592,394
)Proceeds from sales of investments


-



206,832



206,832Investment in mineral properties


(42,050
)


-



(42,050
)Net cash provided by (used in) investing activities


(578,984
)


151,372



(427,612
)Cash flows from financing activities:Proceeds from loans


-



90,657



90,657Proceeds from sales of common stock


1,188,667



205,000



1,393,667Net cash provided by financing activities


1,188,667



295,657



1,484,324Effect of Exchange Rates on Cash


811







811Net increase in cash

$
106,996


$
88,051


$
195,047Cash - Beginning of period


102,008



13,957



13,957Cash - End of period

$
209,004


$
102,008


$
209,004





The accompanying notes are an integral part of the consolidated financial statements.


37





DELTA MUTUAL INC. AND SUBSIDIARIES


(DEVELOPMENT STAGE COMPANY)


CONSOLIDATED STATEMENTS OF CASH FLOWS





For the period fromJanuary 1, 2009(inception of theYears ending December 31,


developmentstage) to2010


2009


December 31, 2010Changes in operating assets and liabilities consists of:(Increase) decrease in advances and other receivables

$
129,850


$
-


$
129,850(Increase) decrease in other assets


33,140



(176,634
)


(143,494
)Increase (decrease) in accounts payable and accrued expenses


25,228



(1,227,437
)


(1,202,209
)Increase (decrease) in notes payable


2,760







2,760Changes in assets and liabilities

$
190,978


$
(1,404,071
)

$
(1,213,093
)Supplemental disclosure of cash flow information:Cash paid for interest

$
-


$
-


$
-Cash paid for income taxes

$
-


$
-


$
-Supplementary information:Non cash financing and investing activities:Issuance of common stock for mineral property

$
55,776


$
-


$
55,776Issuance of common stock for services

$
179,004


$
149,500


$
328,504Issuance of common stock for debt

$
-


$
35,000


$
35,000





The accompanying notes are an integral part of the consolidated financial statements.


38





DELTA MUTUAL INC. AND SUBSIDIARIES


(DEVELOPMENT STAGE COMPANY)


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)





For the periodfrom January 1,2009 (inception ofYears Ending December 31,


the development2009


stage) to2010


(As Restated)


December 31, 2010Net earnings (loss)

$
(873,481
)

$
736,850


$
(136,631
)Other comprehensive income (loss):Foreign currency translation adjustment


(34,833
)


-



(34,833
)Net change in other comprehensive income (loss)


(34,833
)


-



(34,833
)Comprehensive income (loss)

$
(908,315
)

$
736,850


$
(171,465
)





The accompanying notes are an integral part of the consolidated financial statements


39


DELTA MUTUAL, INC. AND SUBSIDIARIES


(DEVELOPMENT STAGE COMPANY)


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


As of and for the Years Ended December 31, 2010 and 2009





1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





ORGANIZATION





Delta Mutual, Inc.  was incorporated in Delaware on November 17, 1999. Effective March 4, 2008, Delta entered into a Membership Interest Purchase Agreement, pursuant to which Delta acquired, from  Egani, Inc. shares of Altony SA, an Uruguayan Sociedad Anonima (“Altony”), which owned 100% of the issued and outstanding membership interests in South American Hedge Fund LLC, a Delaware limited liability company  (“SAHF”).  At the closing of the Agreement, Delta issued 130,000,000 shares of common stock to Egani, Inc., which constituted, following such issuance, a majority of the outstanding shares of the common stock. Immediately following the closing of the Agreement, Altony became a wholly-owned subsidiary of the Company. For accounting purposes, the transaction was treated as a recapitalization of the Company, as of March 4, 2008, with Altony as the acquirer.  Altony SA closed its business operations and was subsequently dissolved.





The primary focus of the Company’s business is its SAHF subsidiary, which has investments in oil and gas concessions in Argentina and focuses on the energy sector, including the development and supply of energy and alternative energy sources in Latin America and North America.





As of December 31, 2008, Delta terminated all of the construction technology activities that were carried out by Delta Technologies, Inc. (a wholly owned subsidiary).





Effective January 1, 2009, the Company had ceased all operations other than the investments of its SAHF subsidiary and became a development stage corporation, as defined in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 915 “Development Stage Entities”.  The Company has no revenue to date, continues to raise capital and there is no assurance that ultimately the Company will achieve a profitable level of operations.





Delta Mutual, Inc. and the above subsidiaries are collectively referred to as “the Company”.  All significant intercompany balances and transactions have been eliminated in consolidation.





GOING CONCERN





The consolidated financial statements for the period ended December 31, 2010 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. The Company has a past history of recurring losses from operations and has an accumulated deficit in the development stage of approximately $136,000 and working capital deficiency of approximately $1,116,000 as of December 31, 2010 and has an accumulated deficit of approximately $4.4 million.  Additionally, the Company may require additional funding to execute its future strategic business plan. Successful business operations and its transition to attaining profitability is dependent upon obtaining additional financing and achieving a level of revenue adequate to support its cost structure.





The Company's business is subject to the risks of its oil and gas investments in South America. 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 operations of the oil and gas concessions in Argentina. There is no assurance that the Company will ultimately achieve a profitable level of operations.


40


DELTA MUTUAL, INC. AND SUBSIDIARIES
 (DEVELOPMENT STAGE COMPANY)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 As of and for the Years Ended December 31, 2010 and 2009





PRINCIPLES OF CONSOLIDATION





The Company's financial statements include the accounts of all majority-owned subsidiaries where its ownership is more than 50 percent of the common stock.  All substantial intercompany transactions and balances have been eliminated.





USE OF ESTIMATES





The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities known to exist as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of the Company’s consolidated financial statements; accordingly, it is possible that the actual results could differ from these estimates and assumptions and could have a material effect on the reported amounts of the Company’s consolidated financial position and results of operations.





OIL AND GAS PROPERTIES





The Company follows the full cost method of accounting for oil and gas properties.  Under this method, all direct costs and certain indirect costs associated with acquisition of properties and successful as well as unsuccessful exploration and development activities are capitalized. Depreciation, depletion, and amortization of capitalized oil and gas properties and estimated future development costs, excluding unproved properties, are based on the unit-of-production method based on proved reserves.  Net capitalized costs of oil and gas properties, less related deferred taxes, are limited to the lower of unamortized cost or the cost ceiling, defined as the sum of the present value of estimated future net revenues from proved reserves based on un-escalated prices discounted at 10 percent, plus the cost of properties not being amortized, if any, plus the lower of cost or estimated fair value of unproved properties included in the costs being amortized, if any, less related income taxes. Costs in excess of the present value of estimated future net revenues as discussed above are charged to proved property impairment expense.  No gain or loss is recognized upon sale or disposition of oil and gas properties, except in unusual circumstances. We apply the full cost ceiling test on a quarterly basis on the date of the latest balance sheet presented.





The Company’s accounts for the investments in oil and gas properties using the equity method of accounting.





As of December 31, 2010, the Company has not recorded any depletion or impairment, if any, of its oil and gas properties, pending a complete report on reserve studies and analysis of proved and unproved oil and gas reserves.





FAIR VALUE OF FINANCIAL INSTRUMENTS





Cash, advances and other receivables, accounts payable and accrued expenses, and notes payable as reflected in the consolidated financial statements, approximates fair value.  Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.




41





DELTA MUTUAL, INC. AND SUBSIDIARIES


(DEVELOPMENT STAGE COMPANY)


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


As of and for the Years Ended December 31, 2010 and 2009




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.  All of the Company’s property and equipment is fully depreciated.





INCOME TAXES





The Company accounts for income taxes in accordance with the liability method. Under the liability method, deferred assets and liabilities are recognized based upon anticipated future tax consequences attributable to differences between financial statement carrying amounts of assets and liabilities and their respective tax bases. The Company establishes a valuation allowance to the extent that it is more likely than not that deferred tax assets will not be utilized against future taxable income.





UNCERTAIN TAX POSITIONS





In July 2006, the FASB issued guidance codified in ASC Topic 740-10-25 “Accounting for Uncertainty in Income Taxes”. ASC Topic 740-10-25 supersedes guidance codified in ASC Topic 450, “Accounting for Contingencies”, as it relates to income tax liabilities and lowers the minimum threshold a tax position is required to meet before being recognized in the financial statements from “probable” to “more likely than not” (i.e., a likelihood of occurrence greater than fifty percent). Under ASC Topic 740-10-25, the recognition threshold is met when an entity concludes that a tax position, based solely on its technical merits, is more likely than not to be sustained upon examination by the relevant taxing authority. Those tax positions failing to qualify for initial recognition are recognized in the first interim period in which they meet the more likely than not standard, or are resolved through negotiation or litigation with the taxing authority, or upon expiration of the statute of limitations. De-recognition of a tax position that was previously recognized occurs when an entity subsequently determines that a tax position no longer meets the more likely than not threshold of being sustained.





The Company is subject to ongoing tax exposures, examinations and assessments in various jurisdictions. Accordingly, the Company may incur additional tax expense based upon the outcomes of such matters. In addition, when applicable, the Company will adjust tax expense to reflect the Company’s ongoing assessments of such matters, which require judgment and can materially increase or decrease its effective rate as well as impact operating results.





Under ASC Topic 740-10-25, only the portion of the liability that is expected to be paid within one year is classified as a current liability. As a result, liabilities expected to be resolved without the payment of cash (e.g. resolution due to the expiration of the statute of limitations) or are not expected to be paid within one year are not classified as current. The Company has recently adopted a policy of recording estimated interest and penalties as income tax expense and tax credits as a reduction in income tax expense.





Management believes that the Company does not have any significant uncertain tax positions for the years ended December 31, 2010 and 2009, respectively, and considering its loss making history since inception. The Company has not made any provision for federal and state income tax liabilities that may result from this uncertainty as of December 31, 2010 and 2009, respectively. Management believes that this will not have a material adverse impact on the Company’s consolidated financial position, its results of operations and its cash flows.





The number of years with open tax audits varies depending on the tax jurisdiction. The Company’s major taxing jurisdictions include the United States (including applicable states).





LEGAL COSTS AND CONTINGENCIES





In the normal course of business, the Company incurs costs to hire and retain external legal counsel to advise it on regulatory, litigation and other matters. The Company expenses these costs as the related services are received.


42





DELTA MUTUAL, INC. AND SUBSIDIARIES


(DEVELOPMENT STAGE COMPANY)


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


As of and for the Years Ended December 31, 2010 and 2009





If a loss is considered probable and the amount can be reasonably estimated, the Company recognizes an expense for the estimated loss. If the Company has the potential to recover a portion of the estimated loss from a third party, the Company makes a separate assessment of recoverability and reduces the estimated loss if recovery is also deemed probable.





EARNINGS (LOSS) PER SHARE





Basic and diluted net earnings (loss) per common share are presented in accordance with Accounting Standard Codifications (ASC) Topic 260, “Earning per Share”, for all periods presented. Stock subscriptions, options and warrants have been excluded from the calculation of the diluted earnings (loss) per share for the periods presented in the statements of operations, because all such securities were anti-dilutive. The net earnings (loss) per share is calculated by dividing the net earnings (loss) by the weighted average number of shares outstanding during the periods.





FOREIGN CURRENCY TRANSLATION





In 2010, 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. The functional currency in South America is the Argentine Peso. Translation adjustments are recorded in Accumulated Other Comprehensive Income.





OTHER CRITICAL ACCOUNTING POLICIES





The Securities and Exchange Commission ("SEC") recently issued “Financial Reporting Release No. 60 Cautionary Advice About Critical Accounting Policies” (“FRR 60”), suggesting companies provide additional disclosures, discussion and commentary on their accounting policies considered most critical to its business and financial reporting requirements. FRR 60 considers an accounting policy to be critical if it is important to the Company’s financial condition and results of operations, and requires significant judgment and estimates on the part of management in the application of the policy. For a summary of the Company’s significant accounting policies, including the critical accounting policies, please refer to the accompanying notes to the financial statements.





STOCK-BASED COMPENSATION





The Company accounts for stock-based compensation to non-employees under ASC 718, "Compensation-Stock Compensation" ("ASC 718").  The compensation cost of the awards is based on the grant date fair-value of these awards as calculated for recognition under ASC 718.





For the years ended December 31, 2010 and 2009, the Company issued 534,555 and 358,572 shares and recorded compensation expense of $179,004 and $149,500, respectively.





RECENT ACCOUNTING PRONOUNCEMENTS





In January 2010, the FASB issued Accounting Standards Update (“ASU”) 2010-06 which is intended to improve disclosures about fair value measurements. The guidance requires entities to disclose significant transfers in and out of fair value hierarchy levels, the reasons for the transfers and to present information about purchases, sales, issuances and settlements separately in the reconciliation of fair value measurements using significant unobservable inputs (Level 3). Additionally, the guidance clarifies that a reporting entity should provide fair value measurements for each class of assets and liabilities and disclose the inputs and valuation techniques used for fair value measurements using significant other observable inputs (Level 2) and significant unobservable inputs (Level 3). The Company has applied the new disclosure requirements as of January 1, 2010, except for the disclosures about purchases, sales, issuances and settlements in the Level 3 reconciliation, which will be effective for interim and annual periods beginning after December 15, 2010. The adoption of this guidance has not had and is not expected to have a material impact on the Company’s consolidated financial statements.


43




DELTA MUTUAL, INC. AND SUBSIDIARIES
 (DEVELOPMENT STAGE COMPANY)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 As of and for the Years Ended December 31, 2010 and 2009


In February 2010, the FASB issued ASU 2010-09, which requires that an SEC filer, as defined, evaluate subsequent events through the date that the financial statements are issued. The update also removed the requirement for an SEC filer to disclose the date through which subsequent events have been evaluated in originally issued and revised financial statements. The adoption of this guidance on January 1, 2010 did not have a material effect on the Company’s consolidated financial statements.





In April 2010, the FASB Emerging Issues Task Force (“EITF”) issued an amendment to previously issued guidance regarding the classification of a share-based payment award as either equity or a liability. The amendments clarify that a share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trades should not be considered to contain a condition that is not a market, performance or service condition. Therefore, such an award should not be classified as a liability if it otherwise qualifies as equity.  This guidance is effective for fiscal years and interim periods within those fiscal years beginning on or after December 15, 2010. Earlier application is permitted. This guidance should be applied by recording a cumulative-effect adjustment to the opening balance of retained earnings and the cumulative-effect adjustment should be calculated for all awards outstanding as of the beginning of the fiscal year in which it is initially applied, as if the guidance had been applied consistently since the inception of the award. The cumulative-effect adjustment should be presented separately. The Company is currently evaluating the impact of this guidance on its operating results, financial position and cash flows.





In January 2009, the SEC issued revisions to the natural gas and oil reporting disclosures, “Modernization of Oil and Gas Reporting, Final Rule” (the “Final Rule”). In addition to changing the definition and disclosure requirements for natural gas and oil reserves, the Final Rule changed the requirements for determining quantities of natural gas and oil reserves. The Final Rule also changed certain accounting requirements under the full cost method of accounting for natural gas and oil activities. The amendments are designed to modernize the requirements for the determination of natural gas and oil reserves, aligning them with current practices and updating them for changes in technology. The Final Rule was effective for annual reports on Form10-K for fiscal years ending on or after December 31, 2009.  In addition, in January 2010, the FASB issued an accounting standards update relating to standards for extractive oil and gas activities. The accounting standards update amends existing standards to align the proved reserves calculation and disclosure requirements under US GAAP with the requirements in the SEC rules. The new standards were to be applied prospectively as a change in estimates. In April 2010, the FASB issued a further accounting standards update regarding extractive oil and gas industries to incorporate in accounting standards the revisions to Rule 4-10 of the SEC’s Regulation S-X. The amendment primarily consists of the addition and deletion of definitions of terms related to fossil fuel exploration and production arising from technology changes over the past several decades. The accounting guidance in Rule 4-10 did not change. The Company is in the process of determining the impact of this guidance on its consolidated financial position and results of operations.





2.  RESTATED CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2009





During the year ending December 31, 2010, the Company determined that interest expense on its notes payable for prior years has been understated due to an error by $97,741, which resulted in a reduction of net earnings from $834,591 to $736,850, as restated.  The Company also determined that is was a development stage company as of January 1, 2009 and has reclassified the earnings (losses) accumulated during the period from inception to December 31, 2010 to a separate line in the equity statement.  Furthermore, the Company has reclassified $35,000 from the conversion of a note payable out of cash flow from operations in 2009 and into cash flow from financing activities.





The following represents the restated consolidated financial statements as of December 31, 2009 and adjustments related to the consolidated financial statements.





44




DELTA MUTUAL, INC. AND SUBSIDIARIES
 (DEVELOPMENT STAGE COMPANY)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 As of and for the Years Ended December 31, 2010 and 2009


CONSOLIDATED BALANCE SHEET





December 31,





December 31,2009


Adjustment


2009(As Reported)





(As Restated)ASSETSCurrent Assets:Cash

$
102,008





$
102,008Advances and other receivables


137,776






137,776Total current assets


239,784






239,784Investment in mineral properties


-






-Investments in unproved oil and gas properties


1,470,713






1,470,713Other assets


39,508






39,508TOTAL ASSETS

$
1,750,005


$
-


$
1,750,005LIABILITIES AND STOCKHOLDERS' EQUITYCurrent Liabilities:Accounts payable

$
134,192






$
134,192Accrued expenses


267,029



97,741



364,770Notes payable


805,605







805,605Total current liabilities


1,206,826



97,741



1,304,567Commitments and ContingenciesStockholders' Equity:Preferred stock $0.0001 par value


-







-Common stock $0.0001 par value


2,421



-



2,421Additional paid-in capital


4,137,095



-



4,137,095Earnings (deficit) accumulated during the development stage


-



736,850



736,850Accumulated Deficit


(3,596,337
)


(834,591
)


(4,430,928
)Accumulated other comprehensive loss


-







-Total stockholders' equity


543,179



(97,741
)


445,438TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$
1,750,005


$
-


$
1,750,005


45




DELTA MUTUAL, INC. AND SUBSIDIARIES
 (DEVELOPMENT STAGE COMPANY)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 As of and for the Years Ended December 31, 2010 and 2009


CONSOLIDATED STATEMENT OF OPERATIONS





Years Ending December 31,2009


Adjustments


2009(As Reported)





(As Restated)Costs and expenses:General, and administrative

$
493,904


$
-


$
493,904Loss on sale of investments


157,939



-



157,939651,843



-



651,843Loss from operations


(651,843
)






(651,843
)Foreign exchange lossInterest income


37,696







37,696Interest expense


(15,971
)


(97,741
)


(113,712
)Other income


582,441







582,441Gain on deconsolidation of variable interest entity


882,268







882,268Net other income (expense)


1,486,434



(97,741
)


1,388,693Income (loss) before income taxes


834,591



(97,741
)


736,850Provision for income taxes


-







-Net earnings (loss)

$
834,591


$
(97,741
)

$
736,850Net earnings (loss) per common share:Basic and Diluted

$
0.04


$
(0.00
)

$
0.03Weighted average common shares - basic and diluted


22,779,263



-



22,779,263


46




DELTA MUTUAL, INC. AND SUBSIDIARIES
 (DEVELOPMENT STAGE COMPANY)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 As of and for the Years Ended December 31, 2010 and 2009


CONSOLIDATED STATEMENTS OF CASH FLOWS





Years ending December 31,2009


Adjustments


2009(As Reported)





(As Restated)Cash flows from Operating Activities:Net earnings (loss)

$
834,591


$
(97,741
)

$
736,850Adjustments to reconcile net earnings (loss) to net cash used in operating activities:Depreciation, depletion and amortization


804



-



804Issuance of common stock for services


184,500



(35,000
)


149,500Loss on sale of investments


157,939



-



157,939Changes in operating assets and liabilities


(1,501,812
)


97,741



(1,404,071
)Net cash used in operating activities


(323,978
)


(35,000
)


(358,978
)Cash flows from investing activities:Oil and gas properties exploration and development costs


(55,460
)


-



(55,460
)Proceeds from sales of investments


206,832



-



206,832Net cash provided by (used in) investing activities


151,372



-



151,372Cash flows from financing activities:Proceeds from loans


90,657



-



90,657Proceeds from sales of common stock


170,000



35,000



205,000Net cash provided by financing activities


260,657



35,000



295,657Net increase in cash

$
88,051






$
88,051Cash - Beginning of period


13,957







13,957Cash - End of period

$
102,008






$
102,008Changes in operating assets and liabilities consists of:(Increase) decrease in other assets


(176,634
)


-



(176,634
)Increase (decrease) in accounts payable and accrued expenses


(1,325,178
)


97,741



(1,227,437
)Changes in assets and liabilities

$
(1,501,812
)

$
97,741


$
(1,404,071
)Supplemental disclosure of cash flow information:Cash paid for interest

$
-






$
-Cash paid for income taxes

$
-






$
-Supplementary information:Non cash financing and investing activities:Issuance of common stock for mineral property









$
-Issuance of common stock for debt

$
-


$
35,000


$
35,000





3.  VARIABLE INTEREST ENTITY





FASB ASC 810 “Consolidation” required the consolidation of a variable interest entity (VIE) if the Company is deemed to be the primary beneficiary of the VIE. FASB ASC 810 requires an entity to assess its equity investments and certain other contractual interests to determine whether they are VIEs. As defined in FASB ASC 810, variable interests are contractual, ownership or other interests in an entity that change with changes in entity’s net asset value. Variable interests in an entity may arise from financial instruments, service contracts, guarantees, leases or other arrangements with the VIE. An entity that will absorb a majority of the VIE’s expected losses or expected residual returns, as defined in FASB ASC 810, is considered the primary beneficiary of the VIE. The primary beneficiary should include the VIE’s assets, liabilities and results of operations in its consolidated financial statements until a reconsideration event, as defined in FASB ASC 810, occurs to require deconsolidation of the VIE. At the deconsolidation date, the assets and liabilities of the VIE are removed from the consolidated financial statements and any assets and liabilities of the Company that were eliminated in consolidation are restored. The gain recognized from deconsolidating the VIE is recorded in the consolidated statements of operations as gain on deconsolidation of the VIE.





As of December 31, 2009, management determined that Delta-Envirotech, Inc. is not considered a variable interest entity (VIE) for the year ending December 31, 2009 and, accordingly, it has been deconsolidated from the accompanying consolidated financial statements effective December 31, 2009. As of December 31, 2009, majority stockholders of Envirotech are exercising significant influence over operating and financing policies of Envirotech, as well as managing its business activities and, therefore, Envirotech is no longer considered the VIE. As a result of this deconsolidation, the Company has removed the assets and liabilities of the VIE from the consolidated financial statements and any assets and liabilities of Envirotech that were eliminated in consolidation are restored at fair value.


47




DELTA MUTUAL, INC. AND SUBSIDIARIES
 (DEVELOPMENT STAGE COMPANY)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 As of and for the Years Ended December 31, 2010 and 2009


Prior to December 31, 2009, the Company was deemed to be the primary beneficiary of Envirotech due to relatively significant financial support provided to this entity in terms of investment of $375,000 (which represents 45% ownership of the Company) and notes receivable of $810,867. However, due to significant losses of Envirotech and its deconsolidation as of December 31, 2009, the Company’s entire investment and notes receivable in the aggregate of approximately $1,186,000 as of December 31, 2009, were reduced to zero in order to account for restored assets at fair value. Furthermore, as of December 31, 2009, the Company was no longer liable for Envirotech’s unpaid liabilities totaling approximately $882,000, which had previously been recognized as expense by the Company and were reversed upon deconsolidation of the entity and reported as a gain upon deconsolidation of approximately $882,000, recorded as a separate line item in the accompanying consolidated financial statements.





The Company is carrying the investment in Envirotech at cost because the Company has not been able to receive reliable information in connection with this investment.





4. INVESTMENT IN UNPROVED OIL AND GAS PROPERTIES





As of December 31, 2010, the Company has a 10% ownership interest in the Jollin and Tonono oil and gas concessions located in Salta Province, Argentina. SAHF originally purchased an 18% carry-over interest in the Jollin and Tonono concessions on May 15, 2007, and subsequently increased its ownership to 23.5%, 9% of which was carry-over and 14.5% of which was working.  SAHF in 2009 transferred 13.5% to Maxipetrol, under an arrangement where SAHF’s remaining 10% interest would be in a carry-over mode. In exchange, Maxipetrol agreed to refund the Company $500,000 of the Company’s share of costs related to the area.  The refund was used in part to repay outstanding amounts payable to Maxipetrol for prior drilling costs in the amount of $294,000, which were reversed as of December 31, 2009, and the remaining $206,000 was received in cash. The book value of Company’s share that was returned was $158,000 higher than the total consideration received and, accordingly, a loss was recognized in 2009.





SAHF received its foreign registration in Argentina and was admitted as a member of the joint venture on July 2, 2010. The Company will begin receiving revenue from the Jollin and Tonono blocks when the first well is approved for commercial production.





During the year ending December 31, 2010 the Company paid $139,762 in additional canons (concession maintenance payments) to maintain its ownership interest in the concession.





At December 31, 2010, the Company had a 9% ownership interest in the Tartagal and Morillo oil and gas concessions located in Salta Province, Argentina. Subsequent to year-end, our ownership interest was increased to 18% in March 2011.  During 2007, SAHF had originally purchased an 18% ownership of these concessions During 2008, SAHF exchanged 50% of its ownership in this investment with a third party, where the acquirer agreed to assume 50% of SAHF’s obligations with respect to future development expenses.





On March 28, 2011, the third party agreed to the transfer its 9% carried interest in the Tartagal and Morillo concession back to the Company, in exchange for 200,000 shares of the Company’s common stock, with a fair value of $90,000, and a percentage of proceeds in the event of an unexpected sale of the concession in excess of over $6 million, which brought the Company’s total interest in the Tartagal and Morillo concession to 18%.  The Company was admitted to the joint venture for these blocks on May 11, 2011.  The Company will reclassify the $225,000 concession costs associated with this property to proved oil and gas properties based upon the reserve report received from the third party working interest owner of the joint venture.





The Company’s share of the development costs will be repaid from 50% of its share of the future production profits.




As of December 31, 2010, the Company owns 20% of the oil and gas exploration rights to five blocks in the Salta Province of Northern Argentina.  This interest is held in escrow by the managing partner until SAHF is officially admitted into the joint venture of the exploration rights concession.




48




DELTA MUTUAL, INC. AND SUBSIDIARIES
 (DEVELOPMENT STAGE COMPANY)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 As of and for the Years Ended December 31, 2010 and 2009


The ownership interests in The Salta Province Exploration Rights Concession are:




·
Consortium Ketsal Kilwa – 60% (managing partner)




·
Ambika S.A. – 20%




·
SAHF – 20%




During the second quarter 2010, the Joint Venture began drilling the first well on the Guemes block of The Salta Province Exploration Rights Concession.  SAHF acted as the project manager for this drilling project, but did not charge the joint venture a management fee.  Production testing to verify the commercial sustainability of the well is estimated to commence second quarter 2011.




The 2010 concessions, totaling approximately $1.1 million, of which SAHF’s share is approximately $220,000, payable for The Salta Province Exploration Rights Concession are past due and are being contested with the Government by the Joint Venture.




The Company evaluated these investments for impairment and concluded that, except as described above, no loss in value occurred as of December 31, 2010. The following table summarizes the Company’s investments in these unproved oil and gas properties.




Concession


ExplorationInvestments


Rights


TotalAt January 1, 2009


1,083,024



697,000



1,780,024Additional investments in 2009 for well overhaul costs, canons and insurance


349,000



—



349,000Adjustment of additional investment made during 2009 and 2008


(293,540
)


—



(293,540
)Disposition of investment, net


(364,771
)


—



(364,771
)At December 31, 2009


773,713



697,000



1,470,713Additional investments in canons


139,762



-



139,762Drilling and development costs


-



397,172



397,172Translation gain (loss)


(19,955
)


(15,642
)


(35,597
)At December 31, 2010

$
893,520


$
1,078,530


$
1,972,050





5.  FAIR VALUE OF FINANCIAL INSTRUMENTS





The Company adopted FASB ASC 820, Fair Value Measurements and Disclosures (“ASC 820”) on January 1, 2008, for all financial assets and liabilities that are recognized or disclosed at fair value in the condensed consolidated financial statements on a recurring basis or on a nonrecurring basis during the reporting period. While the Company adopted the provisions of ASC 820 for nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis, no such assets or liabilities existed at the balance sheet date. As permitted by ASC 820, the Company delayed implementation of this standard for all nonfinancial assets and liabilities recognized or disclosed at fair value in the financial statements on a nonrecurring basis and adopted these provisions effective January 1, 2009.





The fair value is an exit price, representing the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability.  ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value.  These tiers include:


49




DELTA MUTUAL, INC. AND SUBSIDIARIES
 (DEVELOPMENT STAGE COMPANY)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 As of and for the Years Ended December 31, 2010 and 2009


Level 1 - Observable inputs such as quoted market prices in active markets.


Level 2 - Inputs other then quoted prices in active markets that are either directly or indirectly observable.


Level 3 -
Unobservable inputs about which little or no market data exists, therefore requiring an entity to develop its own assumptions.





As of December 31, 2010, the Company held certain financial assets that are measured at fair value on a recurring basis.  These consisted of cash and cash equivalents and unproved oil and gas properties.  The fair value of the cash and cash equivalents is determined based on quoted market prices in public markets and is categorized as Level 1.  The investment in unproved oil and gas companies is determined by the Company to develop its own assumptions and is categorized as Level 3.  The Company does not have any financial assets measured at fair value on a recurring basis as Level 2 and there were no transfers in or out of Level 2 or Level 3 during the year ended December 31, 2010.





The following table sets forth by level, within the fair value hierarchy, the Company’s financial assets accounted for at fair value on a recurring basis as of December 31, 2010 and 2009.





Total


Quoted Prices in

Active Markets for

Identical Assets

(Level 1)


Significant Other

Observable Inputs

(Level 2)


Significant

Unobservable

Inputs (Level 3)December 31, 2010Cash and cash equivalents

$
209,004


$
209,004


$
-


$
-Unproved Oil and Gas Properties


1,972,050



-



-



1,972,050Investment in mineral properties


98,269











98,269Total

$
2,279,323


$
209,004


$
-


$
2,070,319December 31, 2009Cash and cash equivalents

$
102,008


$
102,008


$
-


$
-Unproved Oil and Gas Properties


1,470,713



-



-



1,470,713Total

$
1,572,712


$
102,008


$
-


$
1,470,713





There were no changes to the Company’s valuation techniques used to measure asset fair values on a recurring or nonrecurring basis during the year December 31, 2010 and the Company did not have any financial liabilities as of December 31, 2010. The Company has other financial instruments, such as advances and other receivables, accounts payable and other liabilities, notes payable and other assets, which have been excluded from the tables above. Due to the short-term nature of these instruments, the carrying value of advances and other receivables, accounts payable and other liabilities, notes payable and other assets approximate their fair values.





6. NOTES PAYABLE





December 31,2010


2009Notes payable to three investors, interest at 8%, due August 10, 2011

$
150,655


$
150,655Note payable to third party, interest at 6%, due August 10, 2011


15,000



15,000Note payable to third party interest at 6%, due September 20, 2007


60,000



60,000Notes payable to stockholders and related parties, interest at 6%, due June 20, 2012


388,970



401,210Notes payable to third party, interest at 6%, due August 10, 2011


193,740



178,740$
808,365


$
805,605




50




DELTA MUTUAL, INC. AND SUBSIDIARIES
 (DEVELOPMENT STAGE COMPANY)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 As of and for the Years Ended December 31, 2010 and 2009


The Company included accrued interest payable on the aforesaid notes in accrued expenses for the years ending December 31, 2010 and 2009, respectively.  Interest expense for the years ended December 31, 2010 and 2009 was $43,466 and $113,712, respectively.





7. ACCRUED EXPENSES





December

31, 20102010


2009Accrued compensation

$
141,806


$
131,806Accrued interest


141,207



97,741Accrued expenses


131,534



135,223Accrued Expenses

$
414,548-


$
364,770-





8. INCOME TAXES





The Company has not made provision for income taxes in the years ended December 31, 2010 and 2009, respectively, since the Company has the benefit of net operating losses carried forward in these periods.





Deferred income tax assets consist of:


December

31, 2010


December

31, 2009Net operating loss carry-forwards

$
1,772,000


$
1,440,700Less valuation allowance


(1,772,000
)


(1,440,700
)Deferred income tax assets, net

$
-


$
-





Due to uncertainties surrounding the Company’s ability to generate future taxable income to realize these assets, a full valuation has been established to offset the net deferred income tax asset. Based on management’s assessment, utilizing an effective combined tax rate for federal and state taxes of approximately 39%, the Company has determined it to be more likely than not that a deferred income tax asset of approximately $1,772,000 and $1,440,700 attributable to the future utilization of the approximately $4,544,000 and $3,694,000 in eligible net operating loss carryforwards as of December 31, 2010 and 2009, respectively, will not be realized. The Company will continue to review this valuation allowance and make adjustments as appropriate. The net operating loss carryforwards will begin to expire in varying amounts from year 2019 to 2029.





The Company is subject to taxation in the United States and certain state jurisdictions. The Company’s tax years for 2002 and forward are subject to examination by the United States and applicable state tax authorities due to the carry forward of unutilized net operating losses.




51


DELTA MUTUAL, INC. AND SUBSIDIARIES
 (DEVELOPMENT STAGE COMPANY)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 As of and for the Years Ended December 31, 2010 and 2009




9. OTHER INCOME





During the year ended December 31, 2010, the Company incurred foreign exchange losses of approximately $41,000 on its US dollar denominated note receivable from SAHF. During the year ended December 31, 2009, the Company determined and analyzed that certain balances in accounts payable and accrued expenses were very old and no longer considered payable under any contractual obligations amounted to approximately $582,000. For the year ended December 31, 2009, the Company included $582,000 as other income in the accompanying statements of operations.





10.   STOCKHOLDERS' EQUITY





In April 2009, the Company’s board of directors and stockholders approved amendments to the Certificate of Incorporation to: (1) effect a 1 for 10 reverse split of all the outstanding common stock; and (2) authorize a new class of 10,000,000 shares of preferred stock, par value $0.0001 per share, and to authorize the board of directors to issue one or more series of the preferred stock with such designations, rights, preferences and restrictions as determined by majority vote of the directors, which amendments became effective on July 6, 2009, when the Financial Industry Regulatory Authority made the reverse split effective for trading purposes. See accompanying Consolidated Statements of Operations for the impact on the Company's loss per share amounts as a result of the reverse stock split.  By reason of the reverse split, the number of outstanding shares of our common stock was reduced from 227,225,270 to 22,722,527.





All share and per share data (except par value) have been adjusted to reflect the effect of the stock split for all periods presented.





As of December 31, 2010, the board of directors had not authorized the issuance of any series of preferred stock.





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





11. COMMITMENTS AND CONTINGENCIES





POLITICAL RISK





The Company is exposed in the inherent risks for the foreseeable future of conducting business internationally. Language barriers, foreign laws and tariffs and taxation issues all have a potential effect on the Company’s ability to transact business. Political instability may increase the difficulties and costs of doing business. Accordingly, events resulting from changes in the political climate could have a material effect on the Company.





OPERATING LEASES





The renewal of the Company’s lease for its principal office space in Arizona on a month-to-month basis became effective in November 2010 at a monthly rental of $1,277. Future minimum lease payments under operating leases for the year ending December 31, 2011 approximate $16,000. The Company recorded lease rental expenses in the amount of $18,157 and $30,577for the years ending December 31, 2010 and 2009, respectively, in the accompanying consolidated statements of operations.





EMPLOYMENT AGREEMENTS





On April 26, 2010, the Company’s Board of Directors approved five-year term executive employment agreements (“Employment Agreements”) between the Company and Dr. Daniel R. Peralta, the Company’s Chairman and Chief Executive Officer, and Malcolm W. Sherman, the Company’s Executive Vice President, effective March 22, 2010 and March 23, 2010, respectively.  Dr. Peralta’s Employment Agreement provides for a fixed annual salary of $500,000; Mr. Sherman’s Employment Agreement provides for a fixed annual salary of $350,000. Under the Employment Agreements, both executives are eligible for participation in a bonus pool with other senior executives, the quarterly bonus amounts being based on financial performance comparisons with prior fiscal quarters, beginning with the quarterly reports of the Company for the year 2006 and each subsequent year during the respective terms of each of the Employment Agreements. Such bonuses will be pooled with those of other senior executives and be computed based on a total bonus pool equal to 15% of the net profits of the Company as set forth in the Company’s SEC filings.


52




DELTA MUTUAL, INC. AND SUBSIDIARIES
 (DEVELOPMENT STAGE COMPANY)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 As of and for the Years Ended December 31, 2010 and 2009


The Company’s Board of Directors, with the agreement of the two executives, conditioned approval of the Employment Agreements on limitation of the salary of Dr. Peralta to $200,000, and the salary of Mr. Sherman to $150,000, until the cash flow of the Company was sufficient to pay the salaries specified in the Employment Agreements and meet other operating obligations of the Company.  Further, there would be no accruals of unpaid salaries under this agreement with the two executives.





LEGAL PROCEEDINGS





Former Employee Wage Claims


On September 16, 2008, the Company was notified of a complaint filed with the Pennsylvania Department of Labor & Industry by its former President and CEO alleging non-payment of wages in the amount of $53,271. The Company also received notice of a similar complaint filed by a former employee alleging non-payment of wages in the amount of $17,782. In October 2008, the Company entered into repayment agreements with both of the former employees. As of the date of this report, the Company has not made any payments to these two former employees pursuant to these agreements. In addition, the employee that alleged non-payment of wages in the amount of $17,782 has obtained a default judgment against the Company, entered on January 8, 2010 in the Court of Common Pleas of Bucks County, Pennsylvania, Civil Division, in the amount of $29,626 as to this wage claim. As of December 31, 2010, the Company has recorded an accrued liability of $17,782 in the accompanying consolidated financial statements. Delta believes that a portion of the claim is without merit, and is vigorously contesting the claim as of the date of this filing.





The Company has been notified by letter dated October 9, 2009 of a complaint filed with the Pennsylvania Department of Labor & Industry by its former Chief Financial Officer alleging non-payment of wages in the amount of $131,250. The Company has responded to the Department of Labor & Industry that the wages owed this former officer are substantially less than alleged in this claim and are vigorously contesting the claim as of the date of this filing. As of the date of filing, the Company is awaiting a response from the Department of Labor and Industry.





12. SUBSEQUENT EVENTS





On May 11, 2011, the Company, through its wholly-owned subsidiary, SAHF, was awarded the Argentinean Salta Government’s Approval for the ownership of the 18% of the Exploration, Exploitation, and title of the Oil & Gas Exploration Blocks named “Tartagal Oriental” and “Morillo” Areas.





On April 29, 2011, SAHF was granted a Decree approving a Private Initiative Proposal to explore and eventually produce oil and natural gas in the Block known as “Valle de Lerma” in the Salta province in the northwestern region of Argentina. SAHF partnered the Proposal with a local refinery. A mandatory tender will follow.


53




Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.




Engagement of RBSM LLP





On February 16, 2011, Jewett, Schwartz, Wolfe & Associates (“JSW”) advised the Company that its audit practice was acquired by RBSM LLP, an independent registered public accounting firm. As a result, JSW resigned as the Company’s independent registered public accounting firm and the Company’s Board of Directors on February 22, 2011, approved the engagement of the acquiring entity, RBSM LLP, as the Company’s independent registered public accounting firm.





From the date that JSW were engaged (December 30, 2009) to the present time, or any other period of time, the reports of JSW on the Company's financial statements did not contain an adverse opinion or disclaimer of opinion, or were qualified or modified as to uncertainty, audit scope or accounting principles, except that the report of JSW as to the Company’s financial statements for the year ended December 31, 2009, was modified for uncertainty due to the substantial doubt about the Company’s ability to continue as a going concern.





During the Company's two most recent fiscal years ended December 31, 2008 and 2009, and any subsequent interim period through February 16, 2011, there were no disagreements with JSW on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of JSW, would have caused it to make reference to the subject matter of the disagreement in connection with its reports. There were no reportable events as defined in Item 304(a)(1)(v) of Regulation S-K during the Company’s two most recent fiscal years ended December 31, 2008 and 2009, and any subsequent interim period though February 16, 2011.





On February 22, 2011, the Company engaged RBSM LLP as its independent registered public accounting firm. During the two most recent fiscal years and the interim periods preceding the engagement, the Company has not consulted RBSM LLP regarding any of the matters set forth in Item 304(a)(2)(i) or (ii) of Regulation S-K.





Engagement of Madsen & Associates CPA’s, Inc.





On May 6, 2011, the Company terminated the engagement of RBSM LLP, which had been engaged February 22, 2011, as its independent registered public accounting firm.  The Company’s Board of Directors on May 9, 2011, approved the engagement of Madsen & Associates CPA’s, Inc. as the Company’s independent registered public accounting firm to audit the Company’s financial statements for the year ended December 31, 2010.




From February 22, 2011, the date of the engagement of RBSM LLP to May 6, 2011, the date of termination of that firm’s engagement on May 6, 2011, there were no disagreements with RBSM LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of RBSM LLP, would have caused it to make reference to the subject matter of the disagreement in connection with its reports. There were no reportable events as defined in Item 304(a)(1)(v) of Regulation S-K during the period of the Company’s engagement of RBSM LLP as its independent registered public accounting firm.




During the two most recent fiscal years and the interim periods preceding the engagement, the Company has not consulted Madsen & Associates CPA’s, Inc. regarding any of the matters set forth in Item 304(a)(2)(i) or (ii) of Regulation S-K.




54


Item 9A. Controls and Procedures.




As supervised by our board of directors and our chief executive and principal financial officers, management has established a system of disclosure controls and procedures and has evaluated the effectiveness of that system.  The system and its evaluation are reported on in the below Management's Annual Report on Internal Control over Financial Reporting.  Our chief executive and financial officer have concluded that our disclosure controls and procedures (as defined in the 1934 Securities Exchange Act Rule 13a-15(e)) as of December 31, 2010, are effective, based on the evaluation of these controls and procedures required by paragraph (b) of Rule 13a-15.





Management's Annual Report on Internal Control over Financial Reporting





Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Securities Exchange Act of 1934 (the "Exchange Act").  Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.





Management assessed the effectiveness of internal control over financial reporting as of December 31, 2010. We carried out this assessment using the criteria of the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework. Management concluded in this assessment that as of December 31, 2010, our internal control over financial reporting is effective.





This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting.  Management's report was not subject to attestation by our registered public accounting firm, pursuant to rules of the Securities and Exchange Commission that permit us to provide only management's report in this annual report.





There have been no significant changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth quarter of 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.




Item 9B. Other Information.





None.




55


PART III




Item 10. Directors, Executive Officers, and Corporate Governance.




DIRECTORS AND EXECUTIVE OFFICERS




As of the date of this report, the executive officers and directors of Delta Mutual, Inc. were as follows:





NAME

AGE

TITLE(S)Daniel R. Peralta

57

President, CEO and DirectorMalcolm W. Sherman

75

Executive Vice President and Director





Daniel R. Peralta joined the Company on January 20, 2009 as President and CEO and a director. Dr. Peralta also controls and is the President and a director of Egani, Inc., a financial and international business consulting firm, and a controlling stockholder of the Company. He has since 1998 served as President and a director of Egani S.A., Scottsdale, Arizona, an affiliated company that is engaged in the investment business. From early 2005 to late 2008, Dr. Peralta served as president of Microbial Enhancement Oil Recovery Latin, Inc., Scottsdale, Arizona, a well restoration company. Since July of 2008, Dr. Peralta has served as an advisor to the Company’s wholly owned subsidiary, South American Hedge Fund, for its oil and gas activities in Argentina. He has also served in various advisory capacities to the Argentine government and as a board member of the Central Bank of Argentina from 1994 to 1998. From 1991 to 1994, Dr. Peralta served as an advisor to the Bicameral Commission for the State Advisor of the Budget and Expenditures Commission of the Argentina National Congress. He participated in a number of Argentine government missions, including the Official Missions to Kuwait in 1991 and 1992, and to Peru and Chile in 1991 and 1992. He is the author of a number of publications on finance and economic development in South America, including “Comercio Exterior y su Balance par alas Economia Regionales” (1990), and “Comercio Exterior en la Argentina” (1988). Dr. Peralta received a doctoral degree in business administration from the University of Belgrano (Buenos Aires, Argentina) in 1988, and a bachelor’s degree in aeronautical engineering form the National Technology University, Buenos Aires, Argentina in 1982. The Company believes that Dr. Peralta’s governmental and banking sector experience and exposure to the oil industry in Argentina and oil production related technologies are of great benefit to Mr. Peralta in executing his management responsibilities for the Company, given its energy-related operations in Argentina.




56


Malcolm W. Sherman was appointed to fill a vacancy on our board of directors on July 11, 2008. He was appointed Executive Vice President on July 28, 2008. Mr. Sherman from 2005 to the present has served as President and a director of Security Systems International, Inc., a company that provides security systems for government building, industrial facilities, oil refineries and other facilities in the Middle East. From May 2000 to July 2005, Mr. Sherman served as director of marketing for Hyzoom Commercial Co. Ltdl, a division of ZAFF International, Ltd., in Riyadh, Saudi Arabia, as well as director marketing for ZAFF International, a Saudi Arabian technology company specializing in security systems for industrial facilities for industrial and oil and gas facilities, and managed four of this company’s divisional offices in the Middle East. During his career, Mr. Sherman also served as a director of two public companies. He was a member of the founding team of Taser International, Inc. in 1993, and served on its board from 1993 to 1999. He also served as executive vice president and director of Ronco, Inc. from 1982 to 1993. Mr. Sherman received a B.S. degree in business administration from the University of Miami in 1959. The Company believes that Mr. Sherman’s experience and exposure to the oil industry security and management issues in the Middle East will benefit the Company and other members of its management in the Company’s energy-related operations in Argentina.





AUDIT COMMITTEE





Our board of directors currently serves as our audit committee. The audit committee is responsible for recommending independent auditors and reviewing management actions in matters relating to audit functions. The committee reviews, with independent auditors, the scope and results of its audit engagement, the system of internal controls and procedures and reviews the effectiveness of procedures intended to prevent violations of laws.





The audit committee, consistent with the Sarbanes-Oxley Act of 2002 and the rules adopted thereunder, meets with management and the auditors prior to filing of officers’ certifications with the SEC to receive information concerning, among other things, significant deficiencies in the design or operation of internal controls.





CODE OF CONDUCT




We have a corporate code of conduct and a corporate disclosure policy in place, which provide for internal procedures concerning the reporting and disclosure of corporate matters that are material to our business and to our stockholders. Our corporate code of conduct includes a code of ethics for our officers and employees as to workplace conduct, dealings with customers, compliance with laws, improper payments, conflicts of interest, insider trading, company confidential information, and behavior with honesty and integrity. Our corporate disclosure policy includes guidelines for publicly disseminating financial and other material developments to the investing public. A copy of this code of conduct is published on our website www.deltamutual.com. We intend to disclose any future amendments to, or waivers from, certain provisions of our Code of Conduct on this website within five business days following the date of such amendment or waiver.


COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934




We believe that during 2010, all of our officers and directors complied with the reporting requirements of Section 16(a).




57




Item 11. Executive Compensation.





Compensation paid by the Company and its subsidiaries to the Company’s Executive Officers (the “Named Executives”).




SUMMARY COMPENSATION TABLE





Name and

Principal

Position

Year

Salary

($)


Bonus

($)


Stock

Awards

($)


Option

Awards

($)


Non-Equity

Incentive

Plan

Compensation

($)


Change in

Pension

Value and

Nonquali-

fied

Deferred

Compensation

Earnings

($)

All

Other

Compen-

sation

Total

($)Daniel Peralta,
Chief Executive Officer (1)

2009

$
-0-























$
-0-2010

$
138,461























$
138,461Peter F. Russo,
President and CEO (2)

2008

$
8,125























$
8,125Martin G. Chilek,
Chief Financial Officer

2008

$
39,704























$
39,7042009Malcolm W. Sherman,
Executive Vice President (4)

2008

$
-0-























$
-0-2009

$
-0-























$
-0-2010

$
103,845























$
103,845Michael Gilburd,
Interim Chief Financial Officer (5)

2009
























$10,000

$
10,0002010
























$20,000

$
20,000




58





(1)
Mr. Peralta was appointed Chief Executive Officer on January 20, 2009.





(2)
Mr. Russo resigned as President and a director effective July 25, 2008.While he served as a director of the Company he received no additional compensation for serving in that capacity.





(3)
Mr. Chilek resigned as Chief Financial Officer on August 12, 2009.





(4)
Mr. Sherman served without compensation as an executive officer and director of the Company in 2008.





(5)
Pursuant to the Agreement between the Company and Valucorp, Mr. Gilburd was appointed Interim Chief Financial Officer, effective November 1, 2009, in which position he served until April 30, 2010.





EXECUTIVE COMPENSATION NARRATIVE





Any compensation arrangements to which Dr. Peralta and Mr. Sherman may be parties in their capacity as executive officers of the Company have not yet been established by the Board of Directors.





OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END





There were no outstanding option and stock awards at December 31, 2009 to the Company’s Named Executives.





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.





STOCK INCENTIVE OR OPTION PLANS





In October 2009, we terminated our 2004 Stock Option Plan, pursuant to which 900,000 shares remained available for the grant of options.





OTHER PLANS




We have not adopted any other deferred compensation, pension, profit sharing, stock option plan or programs for the benefit of our officers or employees. During 2008, the Company suspended the health and dental insurance benefit plans that were available to all full time employees.





Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.





The following table sets forth information, as of April 25, 2011, 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:


59





Name and Address of Beneficial Owner

Number of Shares Owned Beneficially


Percentage**Daniel R. Peralta (1)


13,000,001



43.58
%Malcolm W. Sherman (2)


1,000,000



3.35
%All Officers and Directors as a Group (2 persons)


14,000,000



46.93
%





** Based on 29,828,691 shares outstanding on April 26, 2011.





(1) Dr. Peralta is the beneficial owner of 13,000,000 shares owned directly by Egani, Inc., which is owned by Daniel R. Peralta and Laura Monica Gallo, husband and wife, each of whom owns 50% of the outstanding equity interests of Egani, Inc. Dr. Peralta is the President and controls the operations of Egani, Inc. The address of Egani, Inc. is 8260 East Raintree Drive, Scottsdale, AZ 85206. Dr. Peralta disclaims beneficial ownership of the shares held by his son. Dr. Peralta’s address is c/o Delta Mutual, Inc., 14362 N. Frank Lloyd Wright Blvd., Suite 1103, Scottsdale, AZ 85260.





(2) Mr. Sherman owns beneficially 1,000,000 shares owned by Security Systems International, Inc. of which Mr. Sherman is the president and a director and the majority stockholder. The address of Security Systems International, Inc. is 9034 East Caribbean Lane, Scottsdale, AZ 85260. Mr. Sherman’s address is c/o Delta Mutual, Inc. 14362 N. Frank Lloyd Wright Blvd., Suite 1103, Scottsdale, AZ 85260.





Item 13. Certain Relationships and Related Transactions, and Director Independence.





Effective March 4, 2008, we entered into a Membership Interest Purchase Agreement (the “Agreement”) with Egani, Inc., an Arizona corporation, (“Egani”), providing for the acquisition by the Company from Egani 100% of the shares of stock held by it in Altony SA, an Uruguay Sociedad Anonima (“Altony”), which owns 100% of the issued and outstanding membership interests in South American Hedge Fund LLC, a Delaware limited liability company (“SAHF”). In connection with the Agreement, we issued 13,000,000 shares of our common stock to Egani, and also issued 1,000,000 shares to Security Systems International, Inc.(“SSI”), owned by Malcolm Sherman, our Executive Vice President and director, pursuant to a Consulting Services Agreement, dated September 10, 2007, between the Company and SSI. At the Closing of the purchase of all of the shares of stock of Altony on March 4, 2008, we issued to Egani 13,000,000 shares of our common stock, which constitutes following such issuance a majority of our outstanding shares of common stock. The stockholders of Egani are Daniel R. Peralta and Monica Laura Gallo, husband and wife, each a beneficial owner of 6,500,000 million shares of our common stock. The consideration furnished by Egani was comprised of all of the outstanding shares of stock of Altony SA and 100% of the membership interests in South American Hedge Fund LLC, valued at $2,600,000 based on the market value of 13,000,000 shares of our common stock on March 4, 2008, that we issued to acquire these assets. The sources of funds used by the beneficial owners of Egani to acquire control of the Company were personal funds.


60





During 2008 and 2009, Egani made loans to the Company as set forth below:





Date of Note

Principal

Amount


Interest

Rate

Maturity DateMarch 6, 2008

$
21,000



6
%
June 20, 2012April 28, 2008


9,550



6
%
June 20, 2012September 18, 2008


13,350



6
%
June 20, 2012October 9, 2009


30,950



6
%
June 20, 2012Total

$
74,850





On October 3 and November 20, 2008, the Company issued to Santiago Peralta, the son of Daniel Peralta, demand 6% promissory notes in the respective principal amounts of $10,000 and $14,000, representing amounts loaned to the Company by Mr. Peralta on these dates.  Mr. Peralta has extended the maturity date on this loan to June 20, 2012.





During 2008, SSI made loans to the Company as set forth in the table below:





Date of Note

Principal

Amount


Interest

Rate

Maturity DateMarch 6, 2008

$
100,000



6
%
June 20, 2012April 15, 2008


20,000



6
%
June 20, 2012May 14, 2008


16,900



6
%
June 20, 2012July 7, 2008


22,413



6
%
June 20, 2012September 19, 2008


16,650



6
%
June 20, 2012October 22, 2008


28,500



6
%
June 20, 2012December 15, 2008


8,190



6
%
June 20, 2012Total

$
212,653





During 2009, SSI made loans to the Company as set forth in the table below:





Date of Note

Principal

Amount


Interest

Rate

Maturity DateJanuary 22, 2009

$
7,686



6
%
June 20, 201215,950



6
%
June 20, 20125,000



6
%
June 20, 20125,000



6
%
June 20, 20128,577



6
%
June 20, 201219,767



6
%
June 20, 201215,487



6
%
June 20, 2012Total

$
77,467




61


On November 28, 2009, Daniel Peralta, Santiago Peralta and Malcolm Sherman extended the due dates on all loans by them to the Company to June 20, 2012.





Item 14.  Principal Accountant Fees and Services




(1) Aggregate fees for the last two years:


2009


2010$
24,000


$
20,000(2) Audit related fees:

2009


2010$
24,000


$
20,000(3) Tax fees:2008


2007$
-0-


$
-0-




(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




Item 15. Exhibits and Financial Statement Schedules.


(a)(3) Exhibits


Exhibit No.

Description of Exhibits3.1

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.




62





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, 2000.3.1c

Certificate of Amendment to Certificate of Incorporation, filed June 26,2007. Incorporated herein by reference to, Exhibit 3.1c to the Company's quarterly report on Form 10- QSB, filed with the Commission on August 10, 2007.3.1d

Form of Restatement of Certificate of Incorporation of Delta Mutual, Inc., as amended. Incorporated herein by reference to Exhibit 3.1d to the Company's quarterly report on Form 10- QSB, filed with the Commission on August 10, 2007.3.1e

Certificate of Amendment to Certificate of Incorporation, filed May 13, 2009. Incorporated herein by reference to Exhibit 3.1e to the Company’s Quarterly Report on Form 10-Q, filed with the Commission on August 6, 2009.3.1f

Form of Restatement of Certificate of Incorporation of the Company, as amended. Incorporated herein by reference to Exhibit 3.1f to the Company’s Quarterly Report on Form 10-Q, filed with the Commission on August 6, 2009.4.2a

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, 2004.4.6

4% Convertible Promissory Note of the Company due May 2006 issued in the principal amount of $193,740 on May 12, 2004. Incorporated herein by reference to Exhibit 4.6 to the Company's Quarterly Report on Form 10-QSB, filed with the Commission on November 15, 2004.4.6a

Amendment, dated as of May 2, 2006, to 4% Convertible Promissory Note in the principal amount of $193,740. Incorporated herein by reference to Exhibit 4.6a to the Company’s Annual Report on Form 10-KSB, filed with the Commission on April 2, 2007.4.6b

Amendment, dated as of July 6, 2006, to 4% Convertible Promissory Note in the principal amount of $193,740. Incorporated herein by reference to Exhibit 4.6b to the Company’s Annual Report on Form 10-KSB, filed with the Commission on April 2, 2007.




63





4.6c

Amendment, dated as of September 8, 2006, to 4% Convertible Promissory Note in the principal amount of $193,740. Incorporated herein by reference to Exhibit 4.6c to the Company’s Annual Report on Form 10-KSB, filed with the Commission on April 2, 2007.4.6d

Amendment, dated as of November 21, 2006, to 4% Convertible Promissory Note in the principal amount of $193,740. Incorporated herein by reference to Exhibit 4.6d to the Company’s Annual Report on Form 10-KSB, filed with the Commission on April 2, 2007.4.6e

Amendment, dated April 4, 2007, to 4% Convertible Promissory Note in the Principal Amount of $193,740. Incorporated herein by reference to Exhibit 4.6e to the Company's quarterly report on Form 10-QSB, filed with the Commission on August 10, 2007.4.6f

Amendment, dated September 7, 2007 to Convertible Promissory Note in the principal amount of $193,740. Incorporated herein by reference to Exhibit 4.6f to the Company's quarterly report on Form 10-QSB, filed with the Commission on November 9, 2007.10.15

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, 2004.10.26

Executive Employment Agreement, dated May 23, 2005, between Delta Mutual, Inc. and Martin G. Chilek. Incorporated herein by reference to Exhibit 10.26 to the Company's Current Report on Form 8-K, filed with the Commission on May 25, 2005.10.33e

Form of Amended and Restated 8% Term Notes issued March 6, 2008 by Delta Mutual, Inc. in the aggregate principal amount of $150,655. Incorporated herein by reference to Exhibit 10.33e to the Company’s Annual Report on Form 10-KSB, filed with the Commission on April 15, 2008.10.35

Membership Interest Purchase Agreement, dated March 4, 2008, between Delta Mutual, Inc. and Egani, Inc. Incorporated herein by reference to Exhibit 10.35 to the Company’s Current Report on Form 8-K, filed with the Commission on March 11, 2008.10.36

Consulting Services Agreement, dated September 10, 2007, between Delta Mutual, Inc. and Security Systems International, Inc. Incorporated herein by reference to Exhibit 10.36 to the Company’s Current Report on Form 8-K, filed with the Commission on March 11, 2008.10.37

Form of 6% promissory notes issued March 6, 2008 by the Company in the aggregate principal amount of $121,000. Incorporated herein by reference to Exhibit 10.37 to the Company’s Current Report on Form 8-K, filed with the Commission on March 11, 2008.10.37a

Amendment, dated September 2, 2008,to 6% Promissory Note in the principal amount of $21,000. Incorporated herein by reference to Exhibit 10.37a to the Company’s Quarterly Report on Form 10-Q, filed with the Commission on November 18, 2008.




64





10.37b

Amendment, dated as of September 18, 2008, to 6% Promissory Note in the principal amount of $100,000. Incorporated herein by reference to Exhibit 10.37b to the Company’s Quarterly Report on Form 10-Q, filed with the Commission on November 18, 2008.10.38

6% Promissory Note of the Company issued in the principal amount of $20,000 on April 15, 2008. Incorporated herein by reference to Exhibit 10.38 to the Company’s Quarterly Report on Form 10-Q, filed with the Commission on July 3, 2008.10.38a

Amendment, dated as of October 8, 2008, to 6% Promissory Note in the principal amount of $20,000. Incorporated herein by reference to Exhibit 10.38a to the Company’s Quarterly Report on Form 10-Q, filed with the Commission on November 18, 2008.10.39

6% Promissory Note of the Company issued in the principal amount of $9,550 on April 28, 2008. Incorporated herein by reference to Exhibit 10.39 to the Company’s Quarterly Report on Form 10-Q, filed with the Commission on July 3, 2008.10.39a

Amendment, dated as of October 10, 2008, to 6% Promissory Note in the principal amount of $9,550. Incorporated herein by reference to Exhibit 10.39a to the Company’s Quarterly Report on Form 10-Q, filed with the Commission on November 18, 2008.10.40

6 % Promissory Note of the Company issued in the principal amount of $16,900 on May 14, 2008. Incorporated herein by reference to Exhibit 10.40 to the Company’s Quarterly Report on Form 10-Q, filed with the Commission on July 3, 2008.10.40a

Amendment, dated as of November 4, 2008, to 6% Promissory Note in the principal amount of $16,900. Incorporated herein by reference to Exhibit 10.40a to the Company’s Quarterly Report on Form 10-Q, filed with the Commission on November 18, 2008.10.42

6% Promissory Note of the Company issued in the principal amount of $22,413 on July 7, 2008. Incorporated herein by reference to Exhibit 10.42 to the Company’s Quarterly Report on Form 10-Q, filed with the Commission on November 18, 2008.10.43

6% Promissory Note of the Company issued in the principal amount of $13,350 on September 18,2008. Incorporated herein by reference to Exhibit 10.43 to the Company’s Quarterly Report on Form 10-Q, filed with the Commission on November 18, 2008.10.44

6% Promissory Note of the Company issued in the principal amount of $16,650 on September 19,2008. Incorporated herein by reference to Exhibit 10.44 to the Company’s Quarterly Report on Form 10-Q, filed with the Commission on November 18, 2008.




65





10.45

6% Promissory Note of the Company issued in the principal amount of $10,000 on October 3, 2008. Incorporated herein by reference to Exhibit 10.45 to the Company’s Quarterly Report on Form 10-Q, filed with the Commission on November 18, 2008.10.46

6% Promissory Note of the Company issued in the principal amount of $28,500 on October 22, 2008. Incorporated herein by reference to Exhibit 10.46 to the Company’s Quarterly Report on Form 10-Q, filed with the Commission on November 18, 2008.10.47

6% Promissory Note dated as of November 20, 2008 by Delta Mutual, Inc. to Santiago Peralta in the principal amount of $14,000. Incorporated herein by reference to Exhibit 10.47 to the Company’s Annual Report on Form 10-K, filed with the Commission on April 14, 2009.10.48

Amendment dated as of November 24, 2008 to 6% promissory notes issued to Egani, Inc. in the aggregate principal amount of $43,900. Incorporated herein by reference to Exhibit 10.48 to the Company’s Annual Report on Form 10-K, filed with the Commission on April 14, 2009.10.48a

Second Amendment, dated as of April 16, 2009, to 6% promissory notes issued to Egani, Inc. Incorporated herein by reference to Exhibit 10.48a to the Company’s Quarterly Report on Form 10-Q, filed with the Commission on May 20, 2009.10.49

Amendment dated as of December 14, 2008 to 6% promissory notes issued to Security Systems International, Inc. in the aggregate principal amount of $136,900. Incorporated herein by reference to Exhibit 10.49 to the Company’s Annual Report on Form 10-K, filed with the Commission on April 14, 2009.10.49a

Second Amendment, dated as of April 16, 2009, to 6% promissory notes issued to Security Systems International, Inc. Incorporated herein by reference to Exhibit 10.49a to the Company’s Quarterly Report on Form 10-Q, filed with the Commission on May 20, 2009.10.50

6% Promissory Note dated as of December 15, 2008 to Security Systems International, Inc. in the principal amount of $8,190. Incorporated herein by reference to Exhibit 10.50 to the Company’s Annual Report on Form 10-K, filed with the Commission on April 14, 2009.10.51

6% Promissory Note dated as of January 22, 2009 to Security Systems International, Inc. in the principal amount of $7,686. Incorporated herein by reference to Exhibit 10.51 to the Company’s Annual Report on Form 10-K, filed with the Commission on April 14, 2009.10.52

6% Promissory Note dated as of February 10, 2009 to Security Systems International, Inc. in the principal amount of $15,950. Incorporated herein by reference to Exhibit 10.52 to the Company’s Annual Report on Form 10-K, filed with the Commission on April 14, 2009.10.53

6% Promissory Note dated as of February 18, 2009 to Security Systems International, Inc. in the principal amount of $5,000. Incorporated herein by reference to Exhibit 10.53 to the Company’s Annual Report on Form 10-K, filed with the Commission on April 14, 2009.




66





10.54

6% Promissory Note dated as of February 19, 2009 to Malcolm W. Sherman in the principal amount of $5,000. Incorporated herein by reference to Exhibit 10.54 to the Company’s Annual Report on Form 10-K, filed with the Commission on April 14, 2009.10.55

6% Promissory Note dated as of March 20, 2009 to Security Systems International, Inc. in the principal amount of $19,767. Incorporated herein by reference to Exhibit 10.55 to the Company’s Annual Report on Form 10-K, filed with the Commission on April 14, 2009.10.56

6% Promissory Note dated as of March 25, 2009 to Security Systems International, LLC in the principal amount of $8,577. Incorporated herein by reference to Exhibit 10.56 to the Company’s Annual Report on Form 10-K, filed with the Commission on April 14, 2009.10.57

6% Promissory Note dated as of April 2, 2009 to Security Systems International, LLC in the principal amount of $14,987. Incorporated herein by reference to Exhibit 10.57 to the Company’s Annual Report on Form 10-K, filed with the Commission on April 14, 2009.10.57a

Amended and Restated 6% Promissory Noted dated as of April 15, 2009 to Security Systems International LLC. Incorporated herein by reference to Exhibit 10.57a to the Company’s Quarterly Report on Form 10-Q, filed with the Commission on August 6, 2009.10.58

Agreement, dated as of November 1, 2009, between the Company and Valucorp. Incorporated herein by reference to Exhibit 10.58 to the Company’s Annual Report on Form 10-K, filed with the Commission on April 15, 2010.10.59

Note Extension Agreement, dated December 31, 2009, between the Company and Neil Berman, the Anthony Panariello Trust, the Danielle Panariello Trust and the Michaela Panariello Trust. Incorporated herein by reference to Exhibit 10.59 to the Company’s Annual Report on Form 10-K, filed with the Commission on April 15, 2010.10.60

Partnership Agreement on Kaia Mining Properties, dated March 12, 2010, by and among Southamerican Hedge Fund, Oscar Daniel Chedrese and Servicios Mineros SA, filed herewith.14.

Delta Mutual, Inc. Code of Conduct and Business Ethics. Incorporated herein by reference to Exhibit 10.25 to the Company’s Annual Report on Form 10-KSB, filed with the Commission on April 14, 2005.31

Certification of Chief Executive Officer and Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.32

Certification of Chief Executive Officer and Principal 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.




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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: May 16, 2011By:/s/ Daniel R. PeraltaDaniel R. PeraltaPresident, Chief Executive Officerand Principal Financial andAccounting Officer




Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities indicated, on May 16, 2011.




/s/ Daniel R. PeraltaDaniel R. Peralta, President, Chief Executive Officer and Director/s/ Malcolm W. ShermanMalcolm W. ShermanExecutive Vice President and Director


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