FORM 10-QSB
 
SECURITIES AND EXCHANGE COMMISSION
 
WASHINGTON, D.C.
 
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2007  
 
OR
 
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ____________ to _________________
 
Commission File Number 000-30563
 
DELTA MUTUAL, INC.
 
(Exact name of registrant as specified in its charter)
 
DELAWARE
 
14-1818394
     
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
 
111 NORTH BRANCH STREET, SELLERSVILLE, PA 18960
 
(215) 258-2800
 
(Address and telephone number, including area code, of
registrant's principal executive office)
 
(Former name, former address and former fiscal year, if changed
since last report)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
YES x NO o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   o Yes x NO

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
 
At November 9, 2007, there were 78,882,953 shares of Common Stock, $.0001 par value, outstanding.
 

 
DELTA MUTUAL, INC.
 
INDEX
 
     
Page
 
         
Part I. Financial Information
   
1
 
         
Item 1. Financial Statements
   
1
 
 
   
 
 
Consolidated Balance Sheet as of September 30, 2007 (unaudited)
   
2
 
 
       
Consolidated Statements of Operations for the Three and Nine Months Ended
       
September 30, 2007 and 2006 (unaudited)
   
3
 
 
       
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2007
       
and 2006 (unaudited)
   
4-5
 
 
       
Notes to Unaudited Consolidated Financial Statements
   
6
 
 
       
Item 2. Management's Discussion and Analysis or Plan of Operation
   
17 
 
 
       
Item 3. Controls and Procedures
   
21 
 
 
       
Part II. Other Information
   
22 
 
 
       
Item 5. Other Information
   
22 
 
 
       
Item 6. Exhibits
   
22 
 
 
       
Signatures
   
22 
 
 
 
PART I. FINANCIAL INFORMATION
 
Item 1. Financial Statements
 
Certain information and footnote disclosures required under accounting principles generally accepted in the United States of America have been condensed or omitted from the following consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission. It is suggested that the following consolidated financial statements be read in conjunction with the year-end consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-KSB for the year ended December 31, 2006.
 
The results of operations for the three and nine months ended September 30, 2007 and 2006 are not necessarily indicative of the results for the entire fiscal year or for any other period.
 
Page 1

DELTA MUTUAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
 
ASSETS
     
   
September 30,
 
   
2007
 
       
Current Assets:
       
Cash
 
$
166,506
 
Prepaid expenses
   
1,914
 
Total Current Assets
   
168,420
 
         
Property and equipment - net
   
404,331
 
Intangible asset
   
128,104
 
Other assets
   
650
 
         
TOTAL ASSETS
 
$
701,505
 
         
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
       
Current Liabilities:
       
Accounts payable
 
$
217,377
 
Accrued expenses
   
1,073,754
 
Convertible debt
   
679,340
 
Notes payable
   
240,655
 
         
TOTAL LIABILITIES
   
2,211,126
 
         
Minority interest in consolidated subsidiaries
   
63,845
 
         
Stockholders' Deficiency:
       
Common stock $0.0001 par value - authorized
       
250,000,000 shares; 73,272,286
       
outstanding
   
7,327
 
Additional paid-in-captial
   
8,887,142
 
Accumulated deficit
   
(10,467,935
)
Total Stockholders' Deficiency
   
(1,573,466
)
         
TOTAL LIABILITIES AND
       
STOCKHOLDERS' DEFICIENCY
 
$
701,505
 
 
See Notes to Unaudited Consolidated Financial Statements
       
 
Page 2
 
DELTA MUTUAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 
   
Nine Months Ended September 30,
 
Three Months Ended September 30,
 
   
2007
 
2006
 
2007
 
2006
 
                   
Revenue
 
$
-
 
$
279,870
 
$
-
 
$
19,166
 
                           
Costs and Expenses
                         
Cost of Sales
   
-
   
112,549
   
-
   
33,117
 
                           
General and administrative
                         
expenses
   
1,761,240
   
1,825,636
   
485,763
   
461,934
 
     
1,761,240
   
1,938,185
   
485,763
   
495,051
 
                           
Loss from operations
   
(1,761,240
)
 
(1,658,315
)
 
(485,763
)
 
(475,885
)
                           
Accretion of convertible debt
   
-
   
(169,773
)
 
-
   
(23,022
)
                           
Interest expense
   
(34,782
)
 
(33,461
)
 
(8,318
)
 
(9,918
)
                           
Loss before minority interest
   
(1,796,022
)
 
(1,861,549
)
 
(494,081
)
 
(508,825
)
                           
Minority interest share of (income)
                         
loss of consolidated subsidiaries
   
190,591
   
(114,563
)
 
238,416
   
(22,504
)
                           
Loss before benefit from income taxes
   
(1,605,431
)
 
(1,976,112
)
 
(255,665
)
 
(531,329
)
                           
Benefit from income taxes
   
-
   
-
   
-
   
-
 
                           
Net loss
 
$
(1,605,431
)
$
(1,976,112
)
$
(255,665
)
$
(531,329
)
                           
Loss per common share-
                         
basic and diluted
 
$
(0.03
)
$
(0.04
)
$
(0.01
)
$
(0.01
)
                           
Weighted average number of
                         
common shares outstanding-
                         
basic and diluted
   
62,514,044
   
50,436,864
   
62,989,677
   
54,324,578
 
 
See Notes to Unaudited Consolidated Financial Statements
 
Page 3
 
DELTA MUTUAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 
   
Nine Months Ended September 30,
 
   
2007
 
2006
 
Cash flows from operating
         
activities:
         
           
Net loss
 
$
(1,605,431
)
$
(1,976,112
)
Adjustments to reconcile net loss to
             
net cash used in operating activities:
             
Depreciation and amortization
   
39,113
   
35,862
 
Non-cash compensation
   
13,880
   
262,012
 
Accretion of convertible debt
   
-
   
169,773
 
Compensatory element of option
             
issuance
   
590,235
   
697,655
 
Minority interest in (income) losses of
             
consolidated subsidiaries
   
(190,591
)
 
114,563
 
Changes in operating assets
             
and liabilities
   
507,767
   
(154,384
)
Net cash used in operating activities
   
(645,027
)
 
(850,631
)
               
Cash flows from investing activities:
             
Deposit on land
   
(25,000
)
 
-
 
Purchase of fixed assets
   
-
   
(60,658
)
Refund of land deposit
   
35,500
   
-
 
Net cash provided by (used in)
             
investing activities
   
10,500
   
(60,658
)
               
Cash flows from financing activities:
             
Proceeds from sale of common stock
             
and deferred stock purchase
   
10,000
   
799,000
 
Proceeds from exercise of warrants
   
-
   
73,000
 
Proceeds from loans
   
-
   
30,000
 
Proceeds from borrowings
   
-
   
16,000
 
Proceeds from convertible debt
             
financing
   
567,000
   
-
 
Repayment of loan
   
-
   
(23,910
)
Payments to minority interests
   
(60,376
)
 
(6,514
)
Proceeds from minority interest
   
73,262
   
82,893
 
               
Net cash provided by
             
financing activities
   
589,886
   
970,469
 
               
Net increase (decrease) in cash
   
(44,641
)
 
59,180
 
Cash - Beginning of period
   
211,147
   
67,042
 
Cash - End of period
 
$
166,506
 
$
126,222
 
 
See Notes to Unaudited Consolidated Financial Statements
 
Page 4
 
DELTA MUTUAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
(UNAUDITED)
 
   
Nine Months Ended September 30,
 
   
2007
 
2006
 
Supplementary information:
         
Cash paid during year for:
         
Interest
 
$
-
 
$
1,564
 
Income taxes
 
$
-
 
$
-
 
               
Changes in operating assets and
             
liabilities consists of:
             
(Increase) in accounts receivable
   
-
   
(280,317
)
(Increase) decrease in prepaid expenses
   
248,040
   
17,809
 
(Increase) decrease in deposits
   
-
   
-
 
(Increase) decrease in other assets
   
750
   
-
 
Increase in accounts payable
         
and accrued expenses
   
258,977
   
108,124
 
   
$
507,767
 
$
(154,384
)
Non-cash financing activities:
             
               
Issuance of common stock for debt
 
$
550,000
 
$
357,074
 
               
Issuance of convertible notes for
             
deferred stock purchase
 
$
292,600
 
$
-
 
               
Issuance of common stock in lieu of
             
payment of accrued expenses
 
$
13,880
 
$
-
 
               
Issuance of common stock for services
 
$
-
 
$
400,391
 
               
Issuance of common stock
             
for settlement
 
$
-
 
$
42,750
 

See Notes to Unaudited Consolidated Financial Statements
 
Page 5
 
DELTA MUTUAL INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
  September 30, 2007

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

Delta Mutual, Inc. and subsidiaries ("Delta" or the "Company") are engaged in providing environmental and construction technologies and services to certain geographic reporting segments in the Far East, the Middle East and the United States. The Company had formerly operated in a fourth reportable segment, Puerto Rico. As of the close of the quarterly reporting period ended September 30, 2007, the Company discontinued all operations in Puerto Rico. See Note 4 and Note 11 to the unaudited consolidated financial statements for further information regarding these discontinued operations.

The Company’s environmental activities are conducted by its joint venture subsidiary Delta-Envirotech, Inc. (“Envirotech”) headquartered in Virginia. Envirotech has established a strategic alliance with ZAFF International, Ltd., a technology company in Saudi Arabia, to pursue environmental and other projects in Saudi Arabia and other areas of the Middle East. Envirotech also formed a local joint venture company in Indonesia, PT Triyudha-Envirotech, to perform energy and waste recovery operations in that country.

The Company’s construction technology activities are conducted through its wholly owned U.S., subsidiary, Delta Technologies, Inc (“Technologies”). Technologies acquired the intellectual property rights and filed a patent for a new insulating concrete wall forming (ICF) system known as Delta Wall .

BASIS OF PRESENTATION

The consolidated balance sheet as of September 30, 2007, and the consolidated statements of operations and cash flows for the periods presented herein have been prepared by the Company and are unaudited. In the opinion of management, all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly, the financial position, results of operations and cash flows for all periods presented have been made.

The consolidated financial statements for the period ended September 30, 2007 have been prepared on a going concern basis, which contemplates the realization of assets and settlement of liabilities and commitments in the normal course of business. Management recognizes that the Company's continued existence is dependent upon its ability to obtain needed working capital through additional equity and/or debt financing and revenue to cover expenses as the Company continues to incur losses.

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

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

Page 6
 
SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

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

USE OF ESTIMATES

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

CONCENTRATION OF CREDIT RISK

Financial instruments which potentially subject the Company to concentration of credit risk consist principally of accounts receivable. The Company grants credit to customers based on   the customer’s financial condition, without requiring collateral. Exposure to losses on the receivables is principally dependent on each customer’s financial condition. The Company controls its exposure to credit risk through credit approvals.

LOSS PER SHARE

Basic and diluted loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding during the year. Potential common shares are excluded from the loss per share calculation because the effect would be antidilutive. Potential common shares relate to the convertible debt and stock options. As of September 30, 2007, there were 10,008,587 potential common shares related to convertible debt and 7,978,000 potential common shares related to stock options. As of September 30, 2006, there were 4,816,587 potential common shares related to convertible debt and 8,778,000 potential common shares related to stock options.
 
REVENUE RECOGNITION

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

PREACQUISITION COSTS  

The Company accounts for costs incurred prior to the date of acquisition of a parcel of real property as preacquisition costs. Preacquisition costs are capitalized if the property was acquired or the acquisition of the property is probable. Capitalized preacquisition costs in excess of recoverable amounts are charged to expense.
 
Page 7
 
EVALUATION OF LONG-LIVED ASSETS

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

DEPRECIATION AND AMORTIZATION

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

STOCK-BASED COMPENSATION

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

INCOME TAXES

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

FOREIGN CURRENCY TRANSLATION

The functional currency for some foreign operations is the local currency. Assets and liabilities of foreign operations are translated at balance sheet date rates of exchange and income, expense and cash flow items are translated at the average exchange rate for the period. Translation adjustments in future periods will be recorded in Accumulated Other Comprehensive Income. The translation gains or losses were not material for the nine and three months ended September 30, 2007 and 2006.
 
INTANGIBLES

In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 specifies the financial accounting and reporting for acquired goodwill and other intangible assets. Goodwill and intangible assets that have indefinite useful lives are not amortized but rather they are tested at least annually for impairment unless certain impairment indications are identified.
 
Page 8
 
FAIR VALUE OF FINANCIAL INSTRUMENTS

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

RECLASSIFICATIONS

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

NEW FINANCIAL ACCOUNTING STANDARDS

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements," which enhances existing guidance for measuring assets and liabilities using fair value. This Statement provides a single definition of fair value, together with a framework for measuring it, and requires additional disclosure about the use of fair value to measure assets and liabilities. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company does not believe that SFAS No. 157 will have a material impact on its   consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159 (“SFAS No. 159”) “The Fair Value Option for Financial Assets and Financial Liabilities," providing companies with an option to report selected financial assets and liabilities at fair value. The Standard’s objective is to reduce both complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. It also requires entities to display the fair value of those assets and liabilities for which the company has chosen to use fair value on the face of the balance sheet. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact of the adoption of this Statement on its consolidated financial statements.
 
2. PROPERTY AND EQUIPMENT
 
   
September 30, 2007
 
       
       
Equipment
 
$
480,035
 
Leasehold improvements
   
7,807
 
     
487,842
 
         
Less accumulated
       
Depreciation
   
83,511
 
         
   
$
404,331
 
 

Depreciation expensive for the nine and three months ended September 30, 2007 and 2006, amounted to $33,750 and $11,209; and $30,499 and $11,178, respectively.
 
3. INTANGIBLE ASSETS

Intellectual property costs are intellectual property included in a patent application. If the patent is not issued, the Company will write-off the
unamortized amounts immediately. Other intangibles are being amortized over 20 years. Amortization expense was $5,363 and $1,787; and $5,363 and $1,788 for the nine and three months ended September 30, 2007 and 2006, respectively.
 
Page 9
 
Other intangible assets consist of the following:
 
   
September 30, 2007
 
           
 
 
Gross Carrying
 
Accumulated
 
 
 
Amount
 
Amortization
 
           
Intellectual property costs
 
$
143,000
 
$
14,896
 
 
 
$
143,000
 
$
14,896
 
 
Estimated amortization expense for intangible assets for the next five years is as follows:
 
 
 
Estimated
 
Year Ending
 
Amortization
 
December 31,
 
Expense
 
2007
 
$
1,787
 
2008
   
7,150
 
2009
   
7,150
 
2010
   
7,150
 
2011
   
7,150
 

2007 represents amortization from October 1, through December 31, 2007.
 
4.
INVESTMENT IN JOINT VENTURES

a.
In December 2003, the Company formed a joint venture project to develop Section 124, low income housing in the Commonwealth of Puerto Rico. The Company became the general partner and majority owner of a limited partnership, Delta Development Partners, LP, that holds the 85% majority share of Delta Developers Corp., a Puerto Rico corporation, formed to manage the construction and related activities required to build approximately 270 low income homes under Section 124. During the year ended December 31, 2006, the activities associated with this joint venture were discontinued. The operations of the joint venture have been consolidated with the Company for the nine and three months ended September 30, 2007 and 2006, respectively.
 
 
In October 2004, the Company formed a second joint venture to develop Section 124 low income housing in Puerto Rico. The Company became the general partner and majority owner of a limited partnership, Delta Development Partners II, LP, that holds the 85% majority share of Delta Developers Guayanilla Corp., a Puerto Rico corporation formed to manage the construction and related activities required to build approximately 300 low income homes under Section 124. During the first quarter of 2007, the activities associated with this joint venture were discontinued and the land option deposit was returned to the Company.The operations of the joint venture have been consolidated with the Company for the nine and three months ended September 30, 2007 and 2006, respectively.
 
In November 2006, The Company formed a new joint venture to develop Section 124 housing in Puerto Rico. The Company became the general partner and minority owner of a limited partnership, Delta TA, LP, formed to manage the construction and related activities to build approximately 330 residential units under Section 124. As of the quarter ended September 30, 2007, the activities associated with this partnership have been discontinued. The operations of this partnership have been consolidated with the Company since November 2006.
 
Page 10
 
b.
In January 2004, the Company entered into a joint venture agreement with Hi Tech Consulting and Construction, Inc. (”Hi Tech”) forming Delta-Envirotech, Inc. for the purpose of providing environmental technologies and services to markets in the Middle East. The joint venture company is based in Virginia and focuses on participating in foreign government sponsored pollution remediation and other projects.

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

 
The operations of the joint venture have been consolidated with the Company for the nine and three months ended September 30, 2007 and 2006. Delta-Envirotech, Inc. meets the definition of a Variable Interest Entity as defined in Financial Accounting Standards Board Interpretation No. 46 (“FIN 46”), "Consolidation of Variable Interest Entities" requiring the primary beneficiaries of a variable interest entity to consolidate that entity. The primary beneficiary of a variable interest entity is the party that absorbs the majority of the expected losses of the entity or receives a majority of the entity's expected residual return, or both, as a result of ownership, contractual or other financial interest in the entity.
 
c.
Minority interests primarily consist of ownership interest in Delta Development Partners, LP; Delta Development Partners II, LP; Delta TA, LP; Delta Developers Corp.; Delta Developers Guayanilla Corp.; Delta-Envirotech, Inc. and PT Triyudha-Envirotech.
 
 
The income and losses from operations of these entities and their respective minority interests have been reflected in the Company's consolidated statements of operations for the nine and three months ended September 30, 2007 and 2006. There are excess losses not absorbed by the minority interests due to limitations of their capital contributions. In future periods, the profits first attributable to the minority interests will be first absorbed against any unused losses until the losses are fully absorbed. The amount on the Company's consolidated balance sheet represents the minority interests as of September 30, 2007.
 
 
As of September 30, 2007, excess losses of $163,719 have been attributed to the minority interest holders of Delta Development Partners, LP; Delta Development Partners II, LP and Delta TA, LP.
 
 
The following represents a schedule of minority interests as of September 30,
 
 
 
2007
 
Delta Development Partners LP
 
$
--
 
Delta Development Partners II, LP
   
--
 
Delta TA, LP
   
63,845
 
Delta Developers Corp
   
. --
 
Delta Developers Guayanilla Corp.
   
--
 
Delta-Envirotech, Inc.
   
--
 
PT Triyudha - Envirotech
   
--
 
 
 
$
63,845
 
 
5. NOTES PAYABLE

In April 2005, the Company issued 8% term notes to private investors in the amount of $210,655, with the principal and interest due at maturity on October 2, 2005. Pursuant to note modification agreements, the maturity dates of these notes were extended and in June 2006, became payable on written demand by the lenders. Interest expense for the nine and three months ended September 30, 2007 and 2006 amounted to $12,639 and $4,213; and $12,639 and $4,213, respectively. As of September 30, 2007 accrued interest of $33,647 is included in accrued interest expense on the Company's consolidated balance sheet.
 
Page 11
 
6. CONVERTIBLE DEBT
 
In September 2004, the Company issued a 6% convertible note to an investor in the principal amount of $60,000, convertible into common stock at $0.05 per share. In September 2006, this note became payable upon written demand by the lender.
 
In May 2004, The Company issued to two related parties, two 4% convertible notes, in the aggregate principal amount of $322,900, convertible into common stock at $0.125 per share. By subsequent amendments, the maturity dates of these notes have been extended until December 1, 2007 and February 28, 2008. In 2006, one of the noteholders converted $29,160 of the principal amount into shares of common stock. At September 30, 2007, the principal amount of these two notes was $293,740.

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

During the first quarter of 2007, the Company issued a convertible note to a related party in the principal amount of $17,000, and a convertible note to an investor in the principal amount of $266,000. Both notes bear interest of 6% per annum and are convertible into common stock at an initial conversion price of $0.05 per share, the fair value at the date of issuance. The notes mature in April 2008. In conjunction with the issuance of these two notes, the Company reclassified $266,000 recorded as deferred stock purchase, on its consolidated balance sheet as of December 31, 2006, to convertible notes at March 31, 2007. On October 30, 2007, the holder of the $266,000 note converted the principal amount of the note into 5,320,000 shares of common stock and waived all accrued interest.
 
In April 2007, the Company issued a convertible note to a related party in the principal amount of $26,600 bearing interest of 6% per annum and convertible into common stock at the initial conversion price of $0.05 per share, the fair value at the date of issuance. The note matures in April 2008.

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

The following table shows the maturities by year of total face amount of the convertible debt obligations at September 30, 2007:
 
2007
 
$
269,740
 
2008
   
409,600
 
 
   
679,340
 
 
Page 12
 
For the nine and three months ended September 30, 2007 and 2006, the Company recorded interest expense of $34,782 and $8,318; and $33,461 and $9,918, respectively. In March 2007, the Company paid $13,880 of accrued interest to a convertible noteholder by issuing 111,040 shares of common stock. As of September 30, 2007, accrued interest of $48,061 is included in accrued expenses on the Company's consolidated balance sheet.
 
7. ACCRUED EXPENSES

Accrued expenses consist of the following:

 
 
September 30,
 
 
 
2007
 
       
Professional fees
 
$
9,605
 
Interest expense
   
84,180
 
Payroll expense
   
434,320
 
Payroll expense officers
   
117,436
 
Payroll tax expense
   
37,902
 
Other accrued expenses
   
390,311
 
 
 
$
1,073,754
 
 
8. LOANS FROM RELATED PARTIES
 
On May 17, 2006, the Company borrowed $30,000 from a shareholder of the Company, at interest of 6% per annum with the principal and interest due on May 17, 2008. Interest expense for the nine and three months ended September 30, 2007 and 2006 amounted to $1,350 and $450; and $672 and $450, respectively. The balance due to the shareholder is included in Notes Payable on the Company's consolidated balance sheet at September 30, 2007. Accrued interest of $2,472 is included in accrued expenses on the Company’s consolidated balance sheet at September 30, 2007.

9. OTHER RELATED PARTY TRANSACTIONS

The Company's Envirotech subsidiary pays monthly office rent to David Razmara, the president of Envirotech and a shareholder of the Company, in the current amount of $2,000. The rent expense for the nine and three months ended September 30, 2007 and 2006 amounted to $18,000 and $6,000; and $9,000 and $3,000, respectively.
 
10. STOCKHOLDERS' DEFICIENCY

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

For the nine months ended September 30, 2007, the Company issued 111,040 shares of common stock in payment of accrued interest valued at $0.125 per share; and issued 11,000,000 shares of common stock upon conversion of the principal amount of a convertible note, valued at $0.05 per share.

11. DISCONTINUED OPERATIONS

During the three months ended September 30, 2007, the Company adopted a formal plan to discontinue all its operations in Puerto Rico. As a result of the Company’s decision, the operations of Delta Development Partners, LP; Delta Developers Corp.; Delta Development Partners II, LP; Delta Developers Guayanilla Corp., and Delta TA, LP have been classified as discontinued operations. For the nine and three months ended September 30, 2007 and 2006, the assets and liabilities, results of operations, and cash flows of these discontinued operations have been included with the operations of the Company in its unaudited consolidated financial statements due to the immaterial nature of the transactions.
 
Page 13
 
12. BUSINESS SEGMENT INFORMATION

The Company's reporting business segments are geographic and include the Far East (Indonesia), the Middle East, North America (United States) and Puerto Rico. The primary criteria by which financial performance is evaluated and resources allocated are revenue and operating income.

The following is a summary of key financial data:

 
 
Nine Months
 
Nine Months
 
 
 
ended September 30,
 
ended September 30,
 
 
 
2007
 
2006
 
2007
 
2006
 
                   
Total Revenue:
                 
                   
North America
 
$
--
   
--
 
$
--
 
$
--
 
Indonesia
   
--
 
$
279,870
   
--
   
19,166
 
Middle East
   
--
   
-- --
   
--
       
Puerto Rico
   
--
   
--
   
--
   
--
 
 
 
$
--
 
$
279,870
 
$
--
 
$
19,166
 
                           
                           
                           
Operating Loss:
                         
                           
North America
 
$
(1,673,279
)
$
(1,670,309
)
$
(451,278
)
$
(592,998
)
Indonesia
   
(27,963
)
 
65,453
   
(9,988
)
 
(9,866
)
Middle East
   
(15,000
)
 
(44,100
)
 
(5,000
)
 
(14,700
)
Puerto Rico
   
(44,998
)
 
(9,359
)
 
(19,497
)
 
141,679
 
 
 
$
(1,761,240
)
$
(1,658,315
)
$
(485,763
)
$
(475,885
)
 
13. SHARE BASED COMPENSATION

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

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

At September 30, 2007, the Company had one share-based compensation plan, which is described below. During the nine and three months ended September 30, 2007 and 2006, the aggregate pretax compensation expense recognized in net loss for stock based compensation amounted to $590,235 and $196,745; and $438,750 and $146,250, respectively.
 
Page 14
 
The Company also issues shares of its common stock to non-employees as stock based compensation. The Company accounts for the services using the fair market value of the services rendered. For the nine and three months ended September 30, 2007, the Company did not issue any shares of common stock to non-employees for services rendered. During the nine and three months ended September 30, 2006, the Company issued 2,051,730 and 561,5781 shares; and recorded expense of $400,341 and $92,500, respectively,

Stock Option Plan

In December 2001, the Company's stockholders approved a stock option plan entitled the 2001 Employee Stock Option Plan (the "2001 Plan"), pursuant to which 2,000,000 shares of common stock were reserved for issuance. In August 2004, the Company's stockholders approved the 2004 Stock Option Plan (the 2004 Plan"), pursuant to which 10,000,000 shares of common stock were reserved for issuance. As of September 30, 2007, all shares under the 2001 Plan had been issued, and 2,022,000 shares of common stock remained available for issuance under the 2004 Plan.

The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 2006: dividends yield of 0%, expected volatility of 116% and expected life of 5 years.

During the nine and three months ended September 30, 2007, the Company did not issue any stock options. During the nine and three months ended September 30, 2006, the Company issued 8,756,000 and 7,978,000 stock options to five employees; and recorded an expense of $697,655 and $250,220, respectively.

A summary of option activity under the 2004 Plan as of December 31, 2006 and changes during the nine months ended September 30, 2007 is presented below:
 
           
Weighted
     
     
Average
   
   
Weighted
 
Remaining
 
Aggregate
 
   
Average
 
Contractual
 
Intrinsic
 
Options
 
Shares
 
Exercise Price
 
Term
 
Value
 
     
     
Outstanding at January 1, 2007:
   
7,978,000
 
$
0.11
             
Granted
   
--
   
--
             
Exercised
   
--
   
--
             
Forfeited, expired or cancelled:
   
--
   
--
             
Outstanding at Sept. 30, 2007
   
7,978,000
 
$
0.11
   
3.8
 
$
(478,680
)
                           
Exercisable at Sept. 30, 2007
   
7,978,000
 
$
0.11
   
3.8
   
--
 
 
A summary of the status of the Company's nonvested options as of December 31, 2006 and changes during the nine months ended September 30, 2007 is presented below:
 
       
Weighted-Average
 
       
Grant-Date
 
Nonvested Options
 
Options
 
Fair Value
 
       
 
 
Nonvested at January 1, 2007:
   
4,069,060
 
$
0.11
 
Granted
   
--
   
--
 
Vested
   
(4,069,060
)
 
0.11
 
Forfeited, expired or cancelled:
   
--
   
--
 
Nonvested at Sept. 30, 2007
   
--
 
$
--
 
 
Page 15
 
At September 30, 2007, there was $1,606,015 of total unrecognized compensation cost related to share-based compensation arrangements granted under the 2004 Plan. The cost is expected to be recognized over a weighted average period of 3.8 years.

14. COMMITMENTS AND CONTINGENCIES

Consulting Agreements

In August 2005, the Company entered into a consulting agreement with Juan B. Rodriguez Pagan ("Rodriguez") to provide certain services and assistance to the Company in developing its construction and building materials businesses. By written notice, the Company terminated this agreement effective June 2, 2007, and informed Rodriguez that the reason for termination was because he had violated certain provisions of the agreement. In conjunction with the termination, the Company recorded a one-time charge of $248,000.
 
For the nine months ended September 30, 2007, consulting fees of $74,667 are included in accrued expenses on the Company's consolidated balance sheet. For the nine and three months ended September 30, 2007 and 2006, the Company expensed $248,000 and $-0-; and $141,750 and $47,250, respectively, in consulting fees in conjunction with the issuance of common stock to Rodriguez.
 
In August 2005, Delta Technologies, Inc., a wholly-owned subsidiary of the Company , entered into a consulting agreement with Richard F. Straub, Jr. ("Straub") for a period of three years, to provide ongoing technical assistance and support in the production of insulating concrete wall forming products.

For the nine and three months ended September 30, 2007 and 2006, consulting fees of $39,600 and $13,200; and $39,600 and $13,200, respectively have been expensed. For the nine months ended September 30, 2007, $54,167 of the stock value associated with the issuance of shares to Straub, is included in accrued expenses on the Company's consolidated statements of operations and consolidated balance sheet, respectively.
 
15.
INCOME TAXES

The Company adopted the provisions of Financial Accounting Standards Board Interpretation No. 48 “Accounting for Uncertainties in Income Taxes,” (“FIN 48”) on January 1, 2007. As a result of the implementation of FIN 48, the Company recognized no adjustments in the net liability for unrecognized income tax benefits.
 
Page 16

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
 
The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and notes thereto and other financial information included elsewhere in this report.
 
Certain statements contained in this report, including, without limitation, statements containing the words "believes," "anticipates," "expects" and words of similar import, constitute "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including our ability to create, sustain, manage or forecast our growth; our ability to attract and retain key personnel; changes in our business strategy or development plans; competition; business disruptions; adverse publicity; and international, national and local general economic and market conditions.
 
GENERAL
 
We were incorporated in the State of Delaware on November 17, 1999 and will require additional capital to execute our current and planned business operations.

RESULTS OF OPERATIONS
 
During the nine months ended September 30, 2007, we incurred a net loss of $1,605,431, because we had no revenue to offset operating expenses. Our ability to continue as a going concern is dependent upon our ability to obtain funds to meet our obligations on a timely basis, obtain additional financing or refinancing as may be required, and ultimately to attain profitability. There are no assurances that we will be able to obtain any additional financing or, if we are able to obtain additional financing, that such financing will be on terms favorable to us. The inability to obtain additional financing when needed would have a material adverse effect on our operating results.
 
Page 17
 
THREE MONTHS ENDED SEPTEMBER 30, 2007 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2006.

The net loss decreased by approximately $275,000 from $531,329 for the three months ended September 30, 2006 to $255,665 for the three months ended September 30, 2007.

General and administrative expenses for the three months ended September 30, 2007 were $485,763 compared to $461,934 in the comparable period in the prior year. This increase was primarily due to a commission expense of $25,000 in conjunction with a debt financing. The item of significance that decreased our quarterly net loss was an increase in the consolidated operating loss attributed to the minority owners of our discontinued subsidiaries of approximately $164,000.

NINE MONTHS ENDED SEPTEMBER 30, 2007 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2006.

The net loss decreased by approximately $371,000 from $1,976,112 for the nine months ended September 30, 2006 to $1,605,431 for the nine months ended September 30, 2007.

General and admistrative expenses for the nine months ended September 30, 2007 decreased approximately $65,000 from the comparable period in 2006. The other items of significant decrease in the nine months ended September 30, 2007 over the comparable period of the prior year were a decrease in accretion of convertible debt of approximately $170,000 and the increase in our consolidated operating loss attributed to the minority owners of our discontinued operations of approximately $305,000.

PLAN OF OPERATION

The Company has established a wholly-owned subsidiary and a joint venture subsidiary, primarily to establish business operations focused on providing environmental and construction technologies and services in the Far East, the Middle East and the United States. As of the close of the quarterly period ended September 30, 2007, we have terminated all operations in Puerto Rico because the limited partner in our Tao Alta low-income housing project elected not to proceed with the project redesigned for moderate income housing.

Our environmental remediation operations are carried out through Delta-Envirotech, Inc., a joint venture company formed in January 2004, with Hi Tech Consulting and Construction, Inc., to provide environmental technology and other services for certain business segments located in the Far East and the Middle East. We have operating control of, and a forty-five percent ownership interest in, Delta-Envirotech. We have entered into strategic alliance agreements with several United States-based entities with technologies and products in the environmental field to support the Company's worldwide activities.

Our construction technology activities are carried out by Delta Technologies, Inc. (our wholly owned subsidiary) and focused on the United States construction industry but are equally well suited for use internationally.

Far East (Indonesia)

In Indonesia, we formed a local joint venture company to commence energy and waste recovery operations. The joint venture company, PT Triyudha-Envirotech, began operations in December 2005, pursuant to a contract with Pertamina, the government owned oil company. The initial contract that required us to process 3,000 metric tons of oil sludge was successfully completed in October 2006. In January 2007, we began negotiating a second contract to process an unlimited amount of oil sludge over a 12-month period at the same refinery. We have experienced unexpected delays in the negotiations. If they can be concluded before year-end, processing should begin in the first quarter of 2008.

Middle East

In 2004, we entered into a strategic alliance agreement between our environmental remediation joint venture, Delta-Envirotech, Inc. ("Envirotech"), and ZAFF International, Ltd., to jointly pursue environmental and other projects in the Middle East.

In August 2005, we reached a working agreement to provide equipment to manufacture insulating concrete form (ICF) products for the building industry in Saudi Arabia. In September 2006, Envirotech received a letter of intent from a purchaser.

On March 8, 2007, Envirotech received the purchase agreement to supply the equipment and services for the factory in Saudi Arabia. This is our first contract in Saudi Arabia and our largest to date, valued at $3,369,000.
 
Page 18
 
The equipment specified in the agreement consists of several ICF technologies including the machinery that produces our Delta Wall system. The agreement requires payment by letter of credit in four installments. Due to delays by the purchaser, we currently anticipate that the letter of credit will be opened during the fourth quarter of 2007 and that the final payment will be received in the third quarter of 2008.

During July and August 2006, we announced that Envirotech expanded its product line by securing the master distribution rights for the Middle East for environmentally friendly organic emulsifiers (designed for use in combination with a centrifuge) used to clean oil wells and oil storage tanks, as well as a gas-imaging product used in oilfield and refining operations. The emulsifiers did not perform to the satisfaction of ARAMCO and all remaining testing has been stopped.

The gas-imaging product has been approved for testing at an ARAMCO designated site, pending availability of the equipment from the manufacturer.

Over the past 12 months, Envirotech has been working with the operators of oil sludge processing facilities in Bahrain and Kuwait to improve the processing technology currently in use. The operators have agreed to evaluate new processing equipment provided through Envirotech. A demonstration unit was shipped during the third quarter that is scheduled for evaluation on site, by the respective operators, during the fourth quarter.

Saudi Arabia has a network of farms that produce fruit, grains and cattle feed. During the second half of 2007, Envirotech introduced an organic supplement, designed to increase crop yield, to one of the major farming operations. The farm operator has indicated a willingness to purchase the product, after it receives government approval, which is expected during the fourth quarter.

United States

In August 2005, Delta Technologies, Inc. acquired certain intellectual property and filed a patent application for a new insulating concrete wall forming (ICF) system, now known as Delta Wall.

Production of the Delta Wall blocks began in September 2006. An independent testing laboratory was hired in January 2007 to evaluate the blocks for the purpose of applying for International Commercial Code (ICC) approval. The testing laboratory has issued its interim report. The data in the interim report provided the information necessary to begin the required engineering studies. We are in the process of evaluating proposals from structural engineering firms.

Strategic Acquisition

Our Board of directors has determined that our business model should be re-evaluated to include a strategic acquisition of another business through a business combination. Our new management plans are to restructure the Company by making a strategic acquisition, with the goal of making Delta Mutual, Inc. a leading technology company in those markets in which we currently operate as well as in those planned for future expansion. With the assistance of one consultant, we are focusing our efforts on identifying a business to acquire. As of this date, we have not entered into any agreements related to any such acquisitions.

We anticipate the search for a complementary business combination will be complex and extremely risky. Due to the general economic conditions and shortages of available capital, we believe that there may be some firms seeking the perceived benefits of a publicly traded reporting company. Such perceived benefits may include, among other things, facilitating or improving the terms on which additional equity financing may be sought, providing liquidity for incentive stock options or similar benefits to key employees, and providing liquidity (subject to restrictions of applicable statutes) for all shareholders. Potentially, available business opportunities may occur in different industries and at various stages of development, all of which will make the task of comparative investigation and analysis of such business opportunities extremely difficult and complex.

We will rely upon the efforts of our officers, directors and our consultant, in implementing and evaluating candidates. We do not anticipate hiring any other outside consultants or advisors, except for counsel and accountants. As of the date of this report, we do not have any other contracts or agreements with any outside consultants and none are contemplated.

Page 19
 
FUNDING

We are currently dependent on equity investments or borrowing from private investors to pay our operating expenses. There are no assurances that such investors will continue to advance funds or invest in the Company's securities. In the event we are unable to obtain additional capital or funding we may be unable to pursue our business plans. We anticipate that we will be required to raise capital in an amount up to $500,000 during the next six months in order to continue to fund our current activities and to carry out our new strategic plans.

LIQUIDITY

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

At September 30, 2007 we had a working capital deficit of approximately $2,000,000, an increase of approximately $1,000,000 in our working capital deficit compared with the close of the third quarter of 2006. This increase for the period ended September 30, 2007 is a result of a decrease in accounts receivable and prepaid expenses and an increase in accrued expenses, accounts payable and convertible debt. Since we have limited sources of revenue, we expect a working capital deficit until our revenue is sufficient to cover our operating expenses.

In the nine months ended September 30, 2007, we reclassified $266,000 of stock purchase deposits to convertible debt, borrowed $43,600 from a stockholder of the Company and borrowed $550,000 from an investor, pursuant to the terms of a convertible promissory note dated May 1, 2007.
 
ASSETS

At September 30, 2007, we had total assets of $701,505, compared to total assets of $1,324,842 at September 30, 2006. The decrease in total assets as of September 30, 2007 was due to decreases in accounts receivable of approximately $300,000; prepaid expenses of approximately $295,000; and fixed assets of approximately $62,000, partially offset by a modest increase in cash.
 
CRITICAL ACCOUNTING ISSUES

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

Other Matters

Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements," which enhances existing guidance for measuring assets and liabilities using fair value. This Standard provides a single definition of fair value, together with a framework for measuring it, and requires additional disclosure about the use of fair value to measure assets and liabilities. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company does not believe that SFAS No. 157 will have a material impact on its consolidated financial statements.
 
Page 20
 
In February 2007, the FASB issued SFAS No. 159 "The Fair Value Option for Financial Assets and Financial Liabilities," providing companies with an option to report selected financial assets and liabilities at fair value. The Standard's objective is to reduce both complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. It also requires entities to display the fair value of those assets and liabilities for which the Company has chosen to use fair value on the face of the balance sheet. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact of the adoption of this Statement on its consolidated financial statements.

FOREIGN CURRENCY TRANSLATION

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

GOODWILL AND OTHER INTANGIBLES

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

Quantitative and Qualitative Disclosures About Market Risk

Fair Value of Financial Instruments - The following disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments". The estimated fair values of financial instruments have been determined by the Company using available market information and appropriate valuation methodologies.

However, considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange.

The Company has not entered into, and does not expect to enter into, financial instruments for trading or hedging purposes. The Company does not currently anticipate entering into interest rate swaps and/or similar instruments. The Company's carrying values of cash, marketable securities, accounts receivable, accounts payable and accrued expenses are a reasonable approximation of their fair value.
 
ITEM 3. CONTROLS AND PROCEEDURES
 
a.   Disclosure controls and procedures.

As of the end of the Company's most recently completed fiscal quarter (the fourth fiscal quarter in the case of an annual report) covered by this report, the Company carried out an evaluation, with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company's disclosure controls and procedures pursuant to Securities Exchange Act Rule 13a-15. Based upon that evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms.
 
Page 21
 
b.   Changes in internal controls over financial reporting.

There have been no changes in the Company's internal controls over financial reporting that occurred during the Company's last fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
 
 
PART II - OTHER INFORMATION
 
ITEM 5. OTHER INFORMATION

None.
 
ITEM 6. EXHIBITS
 
4.6f
Amendment, dated September 7, 2007, to Convertible Promissory Note in the principal amount of $193,740.
 
31.1
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
31.2
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
32.1
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
32.2
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
SIGNATURES
 
In accordance with the requirements of the Exchange Act, the Company has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
     
  DELTA MUTUAL, INC.
 
  		 
  		 
 
  By:   /s/ Peter F. Russo
 
Peter F. Russo
President and Chief Executive Officer
   
Dated: November 9, 2007

 
EXHIBIT INDEX

 
4.6f
Amendment, dated September 7, 2007, to Convertible Promissory Note in the principal amount of $193,740.

31.1
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
31.2
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
32.1
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
32.2
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
Page 22
 
Exhibit 4.6f

SIXTH AMENDMENT TO
4% CONVERTIBLE PROMISSORY NOTE

 
FIFTH AMENDMENT, dated as of September 7, 2007, TO 4% CONVERTIBLE PROMISSORY NOTE, dated May 12, 2004, made by and between Delta Mutual, Inc., a Delaware corporation, with its principal offices located at 111 North Branch Street, Sellersville, PA 18960 (the “Borrower”) and Neil Berman, an individual, with the mailing address of 21346 St. Andrews Boulevard, # 421, Boca Raton, FL 33433 (the “Holder”). Capitalized terms used herein and not otherwise defined herein shall have the meaning assigned to such term in the Original Note.

WHEREAS, the Borrower and the Holder are parties to that certain 4% Convertible Promissory Note, dated May 12, 2004, as amended, (the “Original Note”) pursuant to which the Borrower has borrowed the amount of $193,740 from the Holder;

WHEREAS, the Original Note provides that the Maturity Date shall be September 10, 2007; and

WHEREAS, the Borrower and the Holder have agreed to extend the Maturity Date and to amend Section 1.6 of the Original Note in order to provide the Borrower with additional time to secure financing; and

WHEREAS, in accordance with the terms and conditions of the Original Note, the Borrower and the Holder hereby approve the amendment of the Original Note as set forth herein.

NOW, THEREFORE, in consideration of the foregoing and the mutual covenants contained herein, the parties agree as follows:

1.   By their respective execution of this AMENDMENT, the Borrower and the Holder agree that Section 1.6 of the Original Note is hereby amended to read in its entirety as follows: “Maturity Date” shall mean December 1, 2007.

2.   Except as expressly provided herein, the Original Note shall continue in full force and effect.

3.   This SIXTH AMENDMENT supercedes any and all prior written or oral agreements with respect to the Original Note, and may be executed by facsimile and in counterparts, which, taken together, shall be deemed an original and shall constitute a single AMENDMENT.


IN WITNESS WHEREOF, the Borrower and the Holder have executed this Sixth Amendment as of the date first written above.

DELTA MUTUAL INC.
   
NEIL BERMAN
(BORROWER)
   
 (HOLDER)
       
       
By: /s/ Peter F. Russo     By: /s/ Neil Berman
Peter F. Russo
President & CEO
   
Neil Berman
       
 
 
 
Exhibit 31.1
 
CERTIFICATION
 
I, Peter F. Russo, Chief Executive Officer of Delta Mutual, Inc. (the "Company"), certify that:
 
1.
I have reviewed this quarterly report on Form 10-QSB of Delta Mutual, Inc.;
 
2.
Based on my knowledge, this report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;
 
4.
The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the small business issuer and have:
 
            (a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
            (b)
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
            (c)
evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
            (d)
disclosed in this report any change in the small business issuer’s internal control over financial reporting that occurred during the Company's most recent fiscal quarter (the Company's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and
 
5.
The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions):
 
           (a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and
 
            (b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting.
 
     
Date: November 9, 2007 By:   /s/ Peter F. Russo
 
Peter F. Russo
Chief Executive Officer
 

Exhibit 31.2
 
CERTIFICATION
 
I, Martin G. Chilek, Chief Financial Officer of Delta Mutual, Inc. (the "Company"), certify that:
 
1.
I have reviewed this quarterly report on Form 10-QSB of Delta Mutual, Inc.;
 
2.
Based on my knowledge, this report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;
 
4.
The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the small business issuer and have:
 
           (a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made knownto us by others within those entities, particularly during the period in which this report is being prepared;
 
           (b)
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
           (c)
evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
           (d)
disclosed in this report any change in the small business issuer’s internal control over financial reporting that occurred during the Company's most recent fiscal quarter (the Company's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and
 
5.
The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): 
 
           (a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and
 
           (b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting.
 
     
Date: November 9, 2007 By:   /s/ Martin G. Chilek
 
Martin G. Chilek
Chief Financial Officer
 
 

Exhibit 32.1
 
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
In connection with the Quarterly Report of Delta Mutual, Inc. (the "Company") on Form 10-QSB for the quarter ended September 30, 2007 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Peter F. Russo, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
 
     
  By:   /s/ Peter F. Russo
 
Peter F. Russo
President and Chief Executive Officer
 
November 9, 2007
 
 
Exhibit 32.2
 
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
In connection with the Quarterly Report of Delta Mutual, Inc. (the "Company") on Form 10-QSB for the quarter ended September 30, 2007 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Martin G. Chilek, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
 
     
  By:   /s/ Martin G. Chilek
 
Martin G. Chilek
Chief Financial Officer
 
November 9, 2007