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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.
______________________________________

FORM 10-Q

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

For the quarterly period ended September 30, 2009

OR

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

For the transition period from ____________ to _________________

Commission File Number 000-30563

DELTA MUTUAL, INC.

(Exact name of registrant as specified in its charter)

DELAWARE
 
14-1818394
     
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
  
Identification No.)

14301 North 87th Street, #130, Scottsdale, AZ
 
 85260
 
(Address of Principal Executive Offices)
  
(Zip Code)
 

(480) 221-1989

(Registrant’s Telephone Number, Including Area Code)
 

(Former Name, Former Address and Former Fiscal Year, if changed since last report)

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

Indicate by check mark whether the registrant 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 ¨             No ¨

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 number of shares outstanding the issuer's common stock, par value $.0001 per share, was 24,307,597 as of November 10, 2009.

 
 

 

DELTA MUTUAL, INC.

INDEX

   
Page
     
Part I.  Financial Information
   
     
Item 1. Financial Statements
   
     
Consolidated Balance Sheets as of September 30, 2009 and as of December 31, 2008 (unaudited)
 
1
     
Consolidated Statements of Operations for the Nine and Three Months Ended September 30, 2009 and 2008 (unaudited)
 
2
     
Consolidated Statements of Stockholders’ Equity (Deficiency) as of September 30, 2009 (unaudited)
 
3
     
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2009 and 2008 (unaudited)
 
4
     
   Notes to Unaudited Consolidated Financial Statements
 
6
     
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
 
23
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk
 
27
     
Item 4T.Controls and Procedures.
 
27
     
Part II. Other Information
   
     
Item 1.  Legal Proceedings.
 
28
     
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.
 
28
     
Item 6.  Exhibits.
 
28
     
Signatures
  
29

 
 

 

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-K for the year ended December 31, 2008.

The results of operations for the nine and three months ended September 30, 2009 and 2008 are not necessarily indicative of the results for the entire fiscal year or for any other period.

 
 

 
 
DELTA MUTUAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

   
September 30,
   
December 31,
 
   
2009
   
2008
 
             
ASSETS
           
             
Current Assets:
           
Cash
  $ 16,099     $ 13,957  
                 
Property and equipment - net
    295       804  
Investments in non-consolidated affiliates
    1,385,713       1,780,024  
Other assets
    6,368       650  
                 
TOTAL ASSETS
  $ 1,408,475     $ 1,795,435  
                 
LIABILITIES AND DEFICIENCY
               
                 
Current Liabilities:
               
Accounts payable
  $ 162,304     $ 363,004  
Accrued expenses
    1,525,245       1,363,395  
Convertible debt
    253,740       253,740  
Notes payable
    582,611       461,208  
Total current liabilities
    2,523,900       2,441,347  
                 
Deficiency:
               
Delta Mutual Inc. and Subsidiaries Stockholders' Deficiency:
               
Preferred stock $0.0001 par value-authorized
               
10,000,000 shares; no shares issued and outstanding
               
at September 30, 2009 and December 31, 2008, respectively
               
Common stock $0.0001 par value - authorized
               
250,000,000 shares; 22,418,249 and 221,849,158 shares
               
issued and outstanding at September 30, 2009 and
               
December 31, 2008, respectively
    2,242       22,185  
Additional paid-in-capital
    4,502,009       3,762,831  
Deficit
    (5,619,676 )     (4,430,928 )
Total Delta Mutual Inc. and Subsidiaries Stockholders' Deficiency
    (1,115,425 )     (645,912 )
                 
Noncontrolling interest
    -       -  
Total Deficiency
    (1,115,425 )     (645,912 )
                 
TOTAL LIABILITIES AND DEFICIENCY
  $ 1,408,475     $ 1,795,435  

See Notes to Unaudited Consolidated Financial Statements

1


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

   
Nine Months Ended September 30,
   
Three Months Ended September 30,
 
   
2009
   
2008
   
2009
   
2008
 
Revenue:
                       
Sales commissions
  $ 14,458     $ 22,008     $ 14,458     $ 22,008  
                                 
Costs and expenses:
                               
General and administrative
                               
expenses
    1,007,303       1,153,228       272,360       155,096  
Impairment of fixed asset
    -       138,127       -       138,127  
Loss on sale of investments
    157,939               157,939          
Loss on intellectual property
    -       122,742       -       -  
      1,165,242       1,414,097       430,299       293,223  
                                 
Loss from continuing operations operations
    (1,150,784 )     (1,392,089 )     (415,841 )     (271,215 )
                                 
Interest expense
    (31,512 )     15,935       (10,770 )     (8,325 )
                                 
Loss from continuing operations before provision
                               
for income taxes
    (1,182,296 )     (1,376,154 )     (426,611 )     (279,540 )
                                 
Provision for income taxes
    -       -       -       -  
                                 
Net loss from continuing operations
    (1,182,296 )     (1,376,154 )     (426,611 )     (279,540 )
                                 
Discontinued operations
                               
Gain (loss) of disposal fo Far East operations
                               
and South American Hedge Fund operations,
                               
and United States construction technology
                               
activities
    (6,452 )     (2,046,563 )     -       (12,345 )
                                 
Net loss
    (1,188,748 )     (3,422,717 )     (426,611 )     (291,885 )
                                 
Less: Net income attributable to noncontrolling
                               
interest
    -       -       -       -  
                                 
Net loss attributable to Delta Mutual Inc.
                               
and Subsidiaries
  $ (1,188,748 )   $ (3,422,717 )   $ (426,611 )   $ (291,885 )
                                 
Loss per common share - basic and diluted
                               
Loss from continuing operations attributable to
                               
Delta Mutual Inc. and Subsidiaries
                               
common shareholders
  $ (0.05 )   $ (0.06 )   $ (0.02 )   $ (0.01 )
                                 
Loss from discontinued operations attributable
                               
to Delta Mutual Inc. and Subsidiaries
                               
common shareholders
  $ (0.00 )   $ (0.09 )   $ (0.00 )   $ (0.00 )
                                 
Weighted average common shares - basic
                               
and diluted
    22,304,452       22,069,376       22,398,322       22,184,916  
                                 
Amounts attributable to Delta Mutual Inc. and
                               
subsidiaries common shareholders:
                               
Net loss
  $ (1,188,748 )   $ (3,422,717 )   $ (426,611 )   $ (291,885 )

See Notes to Unaudited Consolidated Financial Statements

2


DELTA MUTUAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
(Unaudited)

   
Number of
                     
Deferred
             
   
Common
   
Common
   
Paid in
   
Retained Earnings
   
Stock
   
Noncontrolling
       
   
Shares
   
Stock
   
Capital
   
(Deficit)
   
Purchase
   
Interest
   
Total
 
                                           
Balance, January 1, 2009
    221,849,158       22,185       3,762,831       (4,430,928 )     -       -       (645,912 )
                                                         
Effect of reverse split 1:10
    (199,664,243 )     (19,966 )     19,966                               -  
                                                         
Contribution from stockholder
    -       -       (1,000 )     -       -       -       (1,000 )
                                                         
Issuance of common stock for services
    200,000       20       119,980       -       -       -       120,000  
(valued at $0.60 per share)
                                                       
                                                         
Sale of common stock
                                                       
(valued at $0.29 - $0.30 per share)
    33,334       3       9,997       -       -       -       -  
                                                         
Stock based compensation expense
    -       -       590,235       -       -       -       590,235  
                                                         
Net loss
    -       -       -       (1,188,748 )     -       -       (1,188,748 )
                                                         
Balance, September 30, 2009
  $ 22,418,249     $ 2,242     $ 4,502,009     $ (5,619,676 )   $ -     $ -     $ (1,125,425 )

See Notes to Unaudited Consolidated Financial Statements

3


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

   
Nine Months Ended September 30,
 
   
2009
   
2008
 
Cash flows from operating
           
activities:
           
             
Net loss
  $ (1,188,748 )   $ (3,422,717 )
Adjustments to reconcile net loss to
               
net cash used in operating activities:
               
Depreciation and amortization
    509       25,377  
Non-cash compensation
    120,000       245,548  
Impairment of fixed asset
    -       138,127  
Loss on sale of investments
    157,939       -  
Loss on intellectual property
            122,742  
Noncontrolling interest in income (loss) of
               
consolidated subsidiaries
    -       (5,131 )
Compensatory element of option
               
issuance
    590,235       590,236  
Changes in operating assets
               
and liabilities
    (15,044 )     (200,243 )
                 
Net cash used in operating activities
    (335,109 )     (2,506,061 )
                 
Cash flows from investing activities:
               
Increase in investments
    -       -  
Proceeds from sales of investments
    206,848       2,988,785  
                 
Net cash provided by (used in)
               
investing activities
    206,848       2,988,785  
                 
Cash flows from financing activities:
               
Proceeds from loans
    321,403       219,863  
Proceeds from sale of common stock
    10,000       -  
Repayment of loan
    (200,000 )     (60,000 )
Contribution from stockholder
    (1,000 )     -  
Proceeds from minority interest
    -       5,862  
                 
Net cash provided by
               
financing activities
    130,403       165,725  
                 
Net decrease in cash
    2,142       648,449  
Cash - Beginning of period
    13,957       57,633  
Cash - End of period
  $ 16,099     $ 706,082  

See Notes to Unaudited Consolidated Financial Statements

4


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

   
Nine Months Ended September 30,
 
   
2009
   
2008
 
Supplementary information:
           
Changes in operating assets and
           
liabilities consists of:
           
(Increase) decrease in other prepaid expenses
  $ (5,718 )   $ 1,914  
Increase (decrease) in accounts payable
               
and accrued expenses
    (9,326 )     (202,157 )
    $ (15,044 )   $ (200,243 )
                 
Issuance of common stock for debt
  $ -     $ 143,600  
                 
Issuance of common stock for in lieu of
               
payment of accrued expenses
  $ -     $ 7,048  
                 
Issuance of common stock for services
  $ 120,000     $ 238,500  

See Notes to Unaudited Consolidated Financial Statements

5

 
DELTA MUTUAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The consolidated balance sheets as of September 30, 2009 and the consolidated statements of operations, stockholders’ deficiency and cash flows for the periods presented herein have been prepared by Delta Mutual, Inc. and Subsidiaries (the “Company” or “Delta”) and are unaudited. In the opinion of management, all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly, the financial position, results of operations, changes in stockholders’ deficiency and cash flows for all periods presented have been made. The information for the consolidated balance sheet as of December 31, 2008 was derived from audited financial statements.

Organization

Delta Mutual, Inc. and subsidiaries (“Delta” or the “Company”) was incorporated in Delaware on November 17, 1999. Since 2003, the principal business activities of the Company were focused on providing environmental and construction technologies and services to certain geographic reporting segments in the Far East, Middle East and the United States. During the year ended December 31, 2008, the Company discontinued all its operations in the Far East (Indonesia) and discontinued its construction technology activities that were conducted through its wholly owned U.S. subsidiary, Delta Technologies, Inc. See Notes 1, 4, 5 and 7 for further information regarding these discontinued operations.

On March 4, 2008, the Company entered into a Membership Interest Purchase Agreement (the “Agreement”) with Egani, Inc., an Arizona corporation (“Egani”). Pursuant to the Agreement, the Company acquired from Egani all of the issued and outstanding shares of stock of Altony S.A., an Uruguay Sociedad Anonima (“Altony”), which owns 100% of the issued and outstanding membership interests in South American Hedge Fund LLC, a Delaware limited liability company (“SAHF”). At the closing of the Agreement, the Company issued 13,000,000 shares of its common stock to Egani for the purchase of all of the outstanding shares of stock in Altony which constituted, following such issuance, a majority of the outstanding shares of the Company’s common stock.

Immediately following the closing of the Agreement, Altony became a wholly owned subsidiary of the Company. For accounting purposes only, the transaction was treated as a recapitalization of the Company, as of March 4, 208, with Altony as the acquirer. The financial statements prior to March 4, 2008 are those of Altony and reflect the assets and liabilities of Altony at historical carrying amounts. The financial statements show a retroactive restatement of Altony’s historical stockholders’ equity to reflect the equivalent number of shares issued to Egani.

The principal business activity of Altony is the ownership and management of its SAHF subsidiary. During the year ended December 31, 2008, SAHF shifted its focus from investments in securities of Latin American entities to investments in oil and gas concessions and exploration rights in Argentina and intends to continue its focus on the energy sector, including the development and supply of energy and alternate energy sources in Latin America and North America.

In 2007, SAHF acquired ownership interests in four oil and gas concessions in Argentina. The majority owners of these concessions have established joint ventures, registered in Argentina, that are in the process of obtaining the necessary government and environmental permits to begin operations at these concessions. SAHF will become a member of the joint ventures in 2009, when it receives its foreign registration in Argentina. In the first quarter of 2008, SAHF agreed to exchange half of the ownership interests it held in the concessions to a third party, that agreed to assume 50% of the SHAF’s subsequent development costs related to these four concessions. As of December 31, 2008, the Company’s ownership interests in these concessions ranged from nine to 23.5 percent.  In September 2009, SAHF sold 13.5% of one of the concessions reducing their ownership to 10%.

In 2008, SAHF acquired 40% of the rights to explore for oil and gas in five geographic areas located in the Salta Province of Northern Argentina.  In 2009, SAHF assigned 50% of its rights to a third party.  As of September 30, 2009, SAHF owns 20% of the rights to this oil and gas concession.

 
6

 

DELTA MUTUAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

Following the acquisition of Altony, the Company continued to pursue selected business opportunities in the Middle East that are conducted by its joint venture subsidiary Delta-Envirotech, Inc. (“Envirotech”), headquartered in Virginia.

BASIS OF PRESENTATION

The consolidated financial statements for the period ended September 30, 2009 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 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 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 oil and gas revenue adequate to support its cost structure. Management is actively seeking additional capital to ensure the continuation of its current activities and complete its proposed activities. However, there is no assurance that additional capital will be obtained or that the Company’s investments will be profitable. These uncertainties raise substantial doubt about the ability of the Company to continue as a going concern. The accompanying financial statements do not include any adjustments that might result from the outcome of these uncertainties should the Company be unable to continue as a going concern.
On April 22, 2009, the Company's Board of Directors declared a one-for-ten reverse stock split of its common stock.  All share and per share amounts have been restated to reflect the reverse stock split except for shareholders' deficiency.  See Note 11, "Stockholders' Equity", for further information.

Net loss per common share for the nine and three months ended September 30, 2008 have been revised.  See note 12, "Net Loss per Common Share", for further discussion.

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. The consolidated financial statements also include the accounts of any Variable Interest Entities ("VIEs") where the Company is deemed to be the primary beneficiary, regardless of its ownership percentage. All significant intercompany balances and transactions with consolidated subsidiaries are eliminated in the consolidated financial statements.

USE OF ESTIMATES

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

 
7

 

DELTA MUTUAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per common share are computed by dividing net earnings by the weighted average number of common shares outstanding during the year. Diluted earnings (loss) per share are computed by dividing net earnings (loss) by the weighted average number of common shares and potential common shares outstanding during the period. As the Company experienced a loss during the nine months ended September 30, 2009, 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, 2009 and 2008, there were 274,992 potential common shares, respectively, related to convertible debt and 150,000 and 699,800 common shares, respectively, related to stock options.

REVENUE RECOGNITION

The Company recognized revenue from the results of its investment portfolio as the difference between proceeds from the sale of securities and their acquisition cost, less commissions paid to the firm that conducts the securities transactions. The Company was in the business of trading securities and gains and losses from the sale of securities are included in the Company’s consolidated statements of operations.

EVALUATION OF LONG-LIVED ASSETS

The Company reviews property and equipment, finite-lived intangible assets and investments in non-consolidated affiliates for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable in accordance with guidance in Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 360-15-35, "Impairment or Disposal of Long-Lived Assets" ("ASC 360-15-35"). If the carrying value of the long-lived asset exceeds the present value of the related estimated future cash flows, the asset would be adjusted to its fair value and an impairment loss would be charged to operations in the period identified.

DEPRECIATION AND AMORTIZATION

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

INVESTMENTS

At acquisition, marketable debt and equity securities are designated as trading securities which are carried at estimated fair value with unrealized gains and losses reflected in results of operations.

EQUITY METHOD INVESTMENTS

The Company accounts for non-marketable investments using the equity method of accounting if the investment gives it the ability to exercise significant influence over, but not control of, an investee. Significant influence generally exists if there is an ownership interest representing between 20% and 50% of the voting stock of the investee. Under the equity method of accounting, investments are stated at initial cost and are adjusted for additional investments and their proportionate share of earnings or losses and distributions. The Company records its share of the investee’s earnings or losses in earnings (losses) from unconsolidated entities, net of income taxes, in its consolidated statement of operations. Equity investments of less than 20% are stated at cost. The cost is not adjusted for its proportionate share of earnings or losses. The Company evaluates its equity method investments for impairment when events or changes in circumstances indicate, in management’s judgment, that the carrying value of such investments may have experienced an other-than-temporary decline in value. When evidence of loss in value has occurred, the Company compares fair value of the investment to its carrying value to determine whether impairment has occurred. If the estimated fair value is less than the carrying value and management considers the decline to be other than temporary, the excess of the carrying value over the estimated fair value is recognized as impairment in the consolidated financial statements.

 
8

 

DELTA MUTUAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

STOCK-BASED COMPENSATION

The Company has a stock-based compensation plan under which stock options are granted to employees. The Company accounts for stock-based compensation under FASB ASC 718, "Compensation-Stock Compensation" ("ASC 718").

INCOME TAXES

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

FOREIGN CURRENCY TRANSLATION

The functional currency for some foreign operations is the local currency. Assets and liabilities of foreign operations are translated at balance sheet date rates of exchange and income, expense and cash flow items are translated at the average exchange rate for the period. The functional currency in South America is the U.S. dollar. Translation adjustments are recorded in Cumulative Other Comprehensive Income. The translation gains or losses were not material for the nine and three months ended September 30, 2009 and 2008, and there were no adjustments to Cumulative Other Comprehensive Income.

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 he 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.

DISCONTINUED OPERATIONS

During the quarter ended June 30, 2008, the Company discontinued all its operations in the Far East (Indonesia). During the quarter ended December 31, 2008, the Company discontinued all of its construction technology activities that were carried out by its wholly owned subsidiary, Delta Technologies, Inc. and the trading of securities by its South American Hedge Fund subsidiary. These discontinued operations resulted in a gain (loss) of $(6,452) and $(2,046,563) and $0 and $(12,345), respectively, for the nine and three months ended September 30, 2009 and 2008, respectively.

 
9

 

DELTA MUTUAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

Summarized statement of loss for discontinued operations is as follows:

   
Nine Months Ended Sept. 30,
   
Three Months Ended Sept. 30,
 
   
2009
   
2008
   
2009
   
2008
 
                         
Net sales
  $     $     $     $  
                                 
Impairment
                       
                                 
Provision for income taxes
                       
                                 
Loss from operations, net of taxes
    (6,452 )     (2,046,563 )           (12,345 )
                                 
Gain on disposition of minority interest
                       
                                 
Provision for income taxes
                       
                                 
Loss from discontinued operations, net of taxes
  $ (6,452 )   $ (2,046,563 )   $     $ (12,345 )

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:  Level 1, defined as observable inputs such as quoted market prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs about which little or no market data exists, therefore requiring an entity to develop its own assumptions.

As of September 30, 2009, the Company held certain financial assets that are measured at fair value on a recurring basis.  These consisted of cash and cash equivalents and investments in non-consolidated affiliates.  The fair values 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 non-consolidated affiliates 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 nine months ended September 30, 2009.
 
 
10

 

DELTA MUTUAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

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 September 30, 2009.

   
Total
   
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
   
Significant Other
Observable Inputs
(Level 2)
   
Significant
Unobservable
Inputs (Level 3)
 
                         
Cash and cash equivalents
  $ 16,099     $ 16,099     $ -     $ -  
Non-consolidated affiliates
    1,385,713       -       -       1,385,713  
Total
  $ 1,401,812     $ 16,099     $ -     $ 1,385,713  

The Company had no financial assets accounted for on a non-recurring basis as of September 30, 2009.

There were no changes to the Company’s valuation techniques used to measure asset fair values on a recurring or nonrecurring basis during the nine months ended September 30, 2009 and the Company did not have any financial liabilities as of September 30, 2009. The Company has other financial instruments, such as receivables, accounts payable and other liabilities, notes payable and customer deposits, which have been excluded from the tables above. Due to the short-term nature of these instruments, the carrying value of receivables, accounts payable and other liabilities, notes payable and customer deposits approximate their fair values.
 
NEW FINANCIAL ACCOUNTING STANDARDS
 
During the second quarter of 2009, the Company implemented additional interim disclosures about fair value of financial instruments, as required by FASB ASC Paragraph 825-10-65-1. Prior to implementation, disclosures about fair values of financial instruments were only required to be disclosed annually. As the required modifications only related to additional disclosures of fair values of financial instruments in interim financial statements, the adoption did not affect the Company’s financial position or results of operations.
 
Beginning in the second quarter of 2009, the Company must disclose the date through which subsequent events have been evaluated, in accordance with the requirements in FASB ASC Paragraph 855-10-50-1. With regards to the condensed consolidated financial statements and notes to those financial statements contained in this Form 10-Q, the Company has evaluated all subsequent events through November 13, 2009 (the date the Company’s financial statement are issued).
 
In September 2009, the FASB implemented certain modifications to FASB ASC Topic 860, Transfers and Servicing, as a means to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets, the effects of a transfer on its financial position, financial performance, and cash flows, and a transferor’s continuing involvement, if any, in transferred financial assets. These modifications must be applied as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009. The Company does not expect the adoption of this standard to have an impact on the Company’s results of operations, financial condition or cash flows.

 
11

 

DELTA MUTUAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

During the third quarter of 2009, the Company adopted the FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles in accordance with FASB ASC Topic 105, “Generally Accepted Accounting Principles” (the “Codification”).  The Codification has become the source of authoritative U.S. generally accepted accounting principles (GAAP) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. Effective with the Company’s adoption on July 1, 2009, the Codification has superseded all prior non-SEC accounting and reporting standards. All other non-grandfathered non-SEC accounting literature not included in the Codification has become non-authoritative. As the adoption of the Codification only affected how specific references to GAAP literature have been disclosed in the notes to the Company’s condensed consolidated financial statements, it did not result in any impact on the Company’s results of operations, financial condition or cash flows.

Updates to the FASB Codification Applicable to the Company

The FASB has published FASB Accounting Standards Update No. 2009-12, Fair Value Measurements and Disclosures (Topic 820)—Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). This Update amends Subtopic 820-10, Fair Value Measurements and Disclosures—Overall, to permit a reporting entity to measure the fair value of certain investments on the basis of the net asset value per share of the investment (or its equivalent). This Update also requires new disclosures, by major category of investments, about the attributes of investments included within the scope of this amendment to the Codification. The guidance in this Update is effective for interim and annual periods ending after December 15, 2009. The Company does not expect the adoption of this standard to have an impact on the Company’s results of operations, financial condition or cash flows.

2. ACQUISITION

Effective March 4, 2008, the Company entered into a Membership Interest Purchase Agreement, pursuant to which the Company acquired from Egani, Inc. all the shares of stock 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 referred to as “SAHF”). At the closing of the Agreement, the Company issued 13,000,000 shares of its common stock to Egani, Inc. which constituted, following such issuance, a majority of the outstanding shares of its 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.

The acquired assets and liabilities assumed of Delta Mutual from the reverse acquisition are as follows:

Cash
  $ 57,623  
Prepaid expenses
    1,914  
Property and equipment
    462,842  
Accumulated depreciation
    (94,719 )
Intangible asset-net
    126,317  
Other assets
    650  
Accounts payable
    (173,370 )
Accrued expenses
    (1,225,674 )
Convertible debt
    (397,340 )
Notes payable
    (240,655 )
Minority interests
    (225,797 )
Common stock
    (7,888 )
Deficit
    1,716,087  
    $ -0-  

 
12

 

DELTA MUTUAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
 
3. INVESTMENTS

Trading securities are comprised of public and private securities of Latin American entities. For the nine and three months ended September 30, 2009 and 2008, the Company incurred realized gains (losses) of $-0- and $(2,051,672), respectively, and $-0- and $19,503, respectively. There were no investments in trading securities as of September 30, 2009 and December 31, 2008.
 
4. PROPERTY AND EQUIPMENT

   
September 30,
   
December 31,
 
   
2009
   
2008
 
             
Equipment
  $ 6,277     $ 6,277  
                 
Leasehold improvements
    7,807       7,807  
      14,084       14,084  
Less accumulated depreciation
    13,789       13,280  
                 
    $ 295     $ 804  

During 2008, the Company discontinued its operations in the Far East (Indonesia) and discontinued its construction technology activities. During the third and fourth quarters of 2008, the Company wrote off $268,127, the value of the equipment that was used in its Indonesian operations. During the fourth quarter of 2008, the Company wrote off $77,125, the value of the manufacturing equipment that was used to produce its insulating concrete form (ICF) building product.
 
Depreciation expense for the nine and three months ended September 30, 2009 and 2008 amounted to $509 and $21,802, respectively, and $170 and $265, respectively.
 
5. INTANGIBLE ASSETS
 
Intangible assets consisted of intellectual property from a patent application. The Company elected not to pursue the patent application and recorded an impairment charge of $122,742 of the unamortized amounts during the quarter ended June 30, 2008. For the nine and three months ended September 30, 2009 and 2008, amortization expense was $-0- and $3,575, respectively, and $-0- and $-0-, respectively. There were no intangible assets as of September 30, 2009 and December 31, 2008.
 
6. INVESTMENT IN NONCONSOLIDATED AFFILIATES
 
As of September 30, 2009 the Company has a 10% ownership interest in the Jollin and Tonono oil and gas concessions located in Northern Argentina. During 2007, the Company purchased a 47% ownership of these concessions and paid the purchase price by issuing a non-interest bearing note in the principal amount of $1,820,000 to Oxipetrol-Petroleros de Occidente S.A. (Oxipetrol), one of the other owners, with a maturity date of July 2008. The Company’s purchase price was based upon the price tendered by the original purchasers of the concessions that was and accepted by the Argentine government, who formerly owned these properties. The government uses a number of factors In determining the selling prices for oil and gas concession in Argentina, including the location and size of the concession and the current market prices of crude oil and natural gas. Prior to the maturity date, the Company and Oxipetrol mutually agreed to reduce the principal amount of the Company’s note primarily because of changes in oil and gas prices. Based upon the purchase price reduction, the Company repaid Oxipetrol $1,270,000 at the maturity date. Based on these circumstances, the Company recorded a one time, retroactive adjustment, reducing the value of this investment by $550,000 at December 31, 2008.

 
13

 

DELTA MUTUAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

During 2008, the Company exchanged 50% of its ownership in this investment with a third party for no cash consideration, however, the acquirer contractually agreed to assume 50% of the Company’s obligations with respect to future development expenses. The Company recorded a $635,000 loss on disposition of this investment in its consolidated statement of operations.

During the year ended December 31, 2008, majority owners of the Jollin and Tonono concessions formed an Argentine-registered joint venture and paid, in the aggregate, approximately $848,00 of development costs, all of which were capitalized. Since the Company was not registered as a foreign company in Argentina, it could not become a member of the joint venture in 2008. The other owners of these concessions have agreed that, upon admission of the Company as a member of the joint venture, the Company will retain its 23.5% ownership. However, the Company’s weighted average pro-rata portion of the 2008 aggregate development cost, of approximately $223,024, all of which is included in accounts payable in the Company’s consolidated balance sheet at December 31, 2008, will be repaid to the other members from its pro-rata share of the future earnings. The Company has applied for foreign registration in Argentina and was admitted as a member of the joint venture in September 2009.

On September 25, 2009, the Company sold 13.5% of its ownership interest in Jollin and Tonono 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 will assume full responsibility to develop the oil and gas concession until production is achieved in the blocks.  This obligation includes all costs of the full amount attached to the concession contract with the government.  Any prior unpaid costs accrued by the Company, will also be assumed by Maxipetrol.  The Company through SAHF will retain 10% of the total concession in the carryover mode ("no cost obligations to SAHF") and will begin receiving revenue from Jollin and Tonono blocks when the first well will be approved for commercial exploration.  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 nine months ended September 30, 2009.
 
 
14

 

DELTA MUTUAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

During 2008, the Company purchased 40% of the oil and gas exploration rights to five geographically defined areas in the Salta Province of Northern Argentina from Kestal, SA, a company that acquired 100% of these explorations rights from the government of Argentina in 2007. Kestal retained a 60% interest. The price Kestal paid to acquire these rights from the government was determined by the process described above.  In 2009, SAHF assigned 50% of its rights to a third party.  As of September 30, 2009, SAHF owns 20% of the rights to this oil and gas concession.  The Company paid the $697,000 purchase price in cash and incurred no additional costs or expenses related to this investment in 2008. The Company expects that in 2009 and 2010, substantially all of the exploration costs required to retain these exploration rights will be borne by the majority owner.

The Company has 9% ownership of the Tartagal and Morillo oil and gas concessions located in Northern Argentina. During 2007, the Company purchased an 18% ownership of these concessions and paid the purchase price by issuing a non-interest bearing note in the principal amount of $480,000 to Oxipetrol, one of the other owners, with a maturity date of July 2008. The purchase price for this investment was based on the original price paid to the Argentine government to acquire these concessions, following the process described above. Prior to the maturity date, the Company and Oxipetrol mutually agreed to reduce the principal amount of the Company’s note primarily because of changes in oil and gas prices. Based upon the purchase price reduction, the Company repaid Oxipetrol $450,000 at the maturity date. Based on these circumstances, the Company recorded a one time, retroactive adjustment reducing the value of this investment by $30,000 at December 31, 2008.

During 2008, the Company exchanged 50% of its ownership in this investment with a third party for no cash consideration, however, the acquirer contractually agreed to assume 50% of the Company’s obligations with respect to future development expenses. The Company recorded a $225,000 loss on disposition of this investment in its consolidated financial statements.

In March 2009, a Hong Kong public company purchased 60% of the ownership in the Tartagal and Morillo Concessions, from the other majority owners, for total consideration of approximately $270 million. These funds will be used for development and operating expenses in 2009 and beyond.  The Company through SAHF will retain 9% of the total concession in the carryover mode ("no cost obligations to SAHF") and will begin receiving revenue from Tartagal and Morillo blocks when the first well will be approved for commercial exploration.

 
15

 

DELTA MUTUAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

The Company evaluated these investments for impairment and concluded that, except as described above, no loss in value occurred as of September 30, 2009. The following table summarizes the Company’s investments in these nonconsolidated affiliates.

   
Concession
   
Exploration
       
   
Investments
   
Rights
   
Total
 
                   
At December 31, 2007
  $ 2,300,000     $     $ 2,300,000  
                         
Adjustment of purchase price
    (580,000 )           (580,000 )
                         
Disposition of investment, net
    (860,000 )           (860,000 )
                         
Additional investment in 2008
    223,024       697,000       920,024  
                         
Equity in net earnings (loss)
                 
                         
At December 31, 2008
    1,083,024       697,000       1,780,024  
                         
Additional investments in 2009
    264,000             264,000  
                         
Adjustment of additional investment during 2009 and 2008
    (293,524 )           (293,524 )
                         
Disposition of investment, net
    (364,787 )           (364,787 )
                         
At September 30, 2009
  $ 688,713     $ 697,000     $ 1,385,713  

7. NONCONTROLLING INTEREST

During 2008, the Company discontinued its operations in the Far East (Indonesia) and the operations of its Puerto Rico real estate development partnerships. For the year ended December 31, 2008, the Company wrote off all balances in connection with these joint ventures and recorded a gain on the disposal of the discontinued operations of approximately $230,057, which was included in discontinued operations on the Company’s consolidated statements of operations for the year ended December 31, 2008.

The Company continues to maintain a 45% interest in Delta-Envirotech, Inc. which meets the definition of a Variable Interest Entity as defined in FASB ASC 810-20, ("Consolidation Control of Partnerships and Similar Entities") ("ASC 810-20") requiring the beneficiaries of a variable interest entity to consolidate the 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.
Effective January 1, 2009, the Company completed its implementation of SFAS No. 160,FASB ASC 810, ("Consolidations") ("ASC 810").

 
16

 

DELTA MUTUAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

8. SHORT-TERM DEBT

   
September 30,
   
December 31,
 
   
2009
   
2008
 
Notes payable to three investors,
           
interest at 8%, due November 6,
           
2008 (1)
  $ 150,655     $ 150,655  
                 
Note payable to third party, interest
               
at 6%, due April 2009 (1)
    30,000       30,000  
                 
Notes payable to stockholders and related
               
parties, interest at 6%, due on demand
    379,934       280,553  
                 
Note payable to stockholder,
               
non-interest bearing, payable on demand
    22,022        
    $ 582,611     $ 461,208  

(1) The Company did not repay these notes at the maturity dates. The Company is currently negotiating amended terms with the noteholders. If the Company and the noteholders can not agree upon an amendment to the note, including an extension of the maturity dates, the Company may receive a notice of default. If the Company receives a notice of default and fails to repay the notes, the lenders could initiate legal proceedings and obtain a judgment against the Company.

Interest expense for the nine and three months ended September 30, 2009 and 2008 amounted to $25,699 and $(23,664), respectively, and $8,833 and $6,386, respectively. Accrued interest at September 30, 2009 and December 31, 2008 amounted to $50,069 and $24,370, respectively, and is included in accrued expenses on the Company’s consolidated balance sheets.

9. CONVERTIBLE DEBT

In connection with the March 4, 2008 merger, the Company assumed convertible debt obligations of $397,340. A note in the principal amount of $193,740 was not repaid at its maturity date. The Company is currently negotiating amended terms with the noteholder. If the Company and the noteholder can not agree upon an amendment to the note, including an extension of the maturity date, the Company may receive a notice of default. If the Company receives a notice of default and fails to repay the note, the lender could initiate legal proceedings and obtain a judgment against the Company.

In April 2008, the Company issued 230,058 shares of common stock in payment of the aggregate principal amount of $143,600 of convertible notes and issued 11,564 shares of common stock in payment of the accrued interest of $7,048.

At September 30, 2009, the Company's outstanding convertible notes were convertible into 274,992 shares of common stock.

The following table shows the maturities by year of total face amount of the convertible debt obligations at September 30, 2009:

2009
  $ 253,740  
    $ 253,740  
 
17

 
DELTA MUTUAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

For the nine and three months ended June 30, 2009 and 2008, the Company recorded interest expense of $5,812 and $7,728, respectively, and $1,937 and $1,938, respectively. As of September 30, 2009 and December 31, 2008, accrued interest of $48,087 and $40,337, respectively, is included in accrued expenses on the Company's consolidated balance sheets.

10. ACCRUED EXPENSES

Accrued expenses consist of the following:

   
September 30,
   
December 31,
 
   
2009
   
2008
 
Professional fees
  $ 11,000     $ 33,000  
Interest expense
    98,156       66,664  
Payroll expense
    758,250       644,508  
Payroll expense-officers
    59,471       50,296  
Payroll tax expense
    56,669       45,481  
Accrued consulting fees
    419,867       419,877  
Other accrued expenses
    121,832       103,589  
    $ 1,525,245     $ 1,363,395  

During the year ended December 31, 2008, pursuant to a written agreement with the former president of the Company, $117,436 of his accrued salary was eliminated.

Accrued consulting fees as of September 30, 2009 and December 31, 2008 include $218,667 pursuant to a consulting agreement that had been terminated for cause by the Company.

Included in payroll expenses is approximately $672,000 of accrued expenses which is the responsibility of the company's subsidiary, Delta Envirotech.  The parent company, Delta Mutual Inc., has no obligation if any of the accrued compensation is not paid.

11.   STOCKHOLDERS' EQUITY
 
On April 22, 2009, the Company’s board of directors 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. Thereafter on April 23, 2009, the Company received written consent from stockholders of the Company holding a majority of the outstanding shares of common stock approving the Amendments. The effective date of the Amendments is the date the reverse stock split is made effective for trading purposes by the Financial Industry Regulatory Authority (FINRA). FINRA approved the reverse split for trading purposes effective July 6, 2009. See Note 12, "Net Loss per Common Share", for the impact on the Company's loss per share amounts as a result of the reverse stock split.  The reverse stock split resulted in a reduction of 199,664,243 shares of common stock and was accounted for by the transfer of $19,966 from common stock to additional paid-in capital, which is the amount equal to the par value of the reduced number of shares to effect the reverse stock split.
 
All share and per share data (except par value) have been adjusted to reflect the effect of the stock split for all periods presented except for stockholders' deficiency. As a result, there is no overall financial effect of the reverse split, however, the number of outstanding employee stock options has been reduced from 3,500,000 to 350,000 and the exercise price for the respective options has increased by a factor of 10.
 
18

 
DELTA MUTUAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
 
As of September 30, 2009, 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.

For the nine months ended September 30, 2009 and 2008, the Company issued 200,000 and 10,550,000 shares of common stock, respectively, valued at $0.60 and $0.20 - $0.70 per share, respectively, for services valued at $120,000 and $238,500, respectively.

For the three months ended September 30, 2009 and 2008, the Company issued -0- and -0- shares, respectively, valued at $0.60 and $0.70 per share, respectively, for services valued at, and $-0- and $-0-, respectively.

For the nine months ended September 30, 2009 and 2008, the Company issued –0- and 2,300,571 shares of common stock, respectively, for the repayment of $-0- and $143,600 principal amount of convertible notes, respectively and issued –0- and 115,634 shares, respectively, as payment of $-0- and $7,048, respectively, of accrued interest. The shares were valued at $0.50 - $0.70 per share.

For the three months ended September 30, 2009 and 2008, the Company issued –0- and -0- shares of common stock, respectively, for the repayment of $-0- principal amount of convertible notes, respectively, and issued –0- and -0- shares, respectively, as payment of $-0- and -0-, respectively, of accrued interest. The shares were valued at $0.50 - $0.70 per share.

During the second quarter of 2009, the Company received $10,000 pursuant to subscription agreements to purchase 33,334 shares of common stock. On August24, 2009, the Company issued these shares.

12.
Loss Per Common Share

The following table sets forth the reconciliation and diluted net loss per common share computation for the nine and three months ended September 30, 2008.

   
Nine Months
   
Three Months
 
   
Ended
   
Ended
 
   
September 30, 2008
   
September 30, 2008
 
Continuing operations
           
Basic and diluted EPS:
           
Net loss ascribed to common shareholders - basic and diluted
  $ (1,376,154 )   $ (279,540 )
Weighted shares outstanding - basic and diluted
    22,069,376       22,186,916  
Basic and diluted net loss per common share
  $ (0.06 )   $ (0.01 )
                 
Discontinued operations
               
Basic and diluted EPS:
               
Net loss ascribed to common shareholders - basic and diluted
  $ (2,046,563 )   $ (12,345 )
Weighted shares outstanding - basic and diluted
    22,069,376       22,186,916  
Basic and diluted net loss per common share
  $ (0.09 )   $ (0.00 )
 
Net loss for the nine and three months ended September 30, 2008 has been revised.  The revision was immaterial to the Company's consolidated results of operations and financial position.  See below for further discussion.  All share and per share amounts have been restated to reflect the one for ten reverse stock split as discussed in Note 11.

 
19

 

DELTA MUTUAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

The amounts previously reported, as revised to reflect the one for ten reverse stock split in 2008, were as follows:

   
Nine Months
   
Three Months
 
   
Ended
   
Ended
 
   
September 30, 2008
   
September 30, 2008
 
Continuing operations:
           
Basic and diluted loss per common share
  $ (0.02 )   $ (0.00 )
                 
Discontinued operations:
               
Basic and diluted loss per common share
  $ (0.00 )   $ (0.00 )
 
13.   BUSINESS SEGMENT INFORMATION

The Company’s reporting business segments are geographic and include   North America (United States) and South America. 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 Ended
   
Three months Ended
 
   
September 30,
   
September 30,
 
   
2009
   
2008
   
2009
   
2008
 
Total Revenue:
                       
North America
  $ 14,458     $ 22,008     $ 14,458     $ 22,008  
South America
                       
    $ 14,458     $ 22,008     $ 14,458     $ 22,208  
                                 
Income (Loss) from
                               
Continuing Operations:
                               
                                 
North America
  $ (992,845 )   $ (1,414,097 )   $ (272,360 )   $ (293,223 )
South America
    (157,939 )           (157,939 )      
    $ (1,150,784 )   $ (1,414,097 )   $ (430,299 )   $ (293,223 )

14.   INCOME TAXES

The Company adopted the provisions of FASB ASC 740, "Income Taxes", ("ASC 740") on January 1, 2007. As a result of the implementation of ASC 740, the Company recognized no adjustment in the net liability for unrecognized income tax benefits.

15. SHARE BASED COMPENSATION

The Company records compensation expense in its consolidated statements of operations related to employee stock-based options and awards in accordance with ASC 718.

The Company recognizes the cost of all employee stock options on a straight-line attribution basis over their respective contractual terms, net of estimated forfeitures. The Company has selected the modified prospective method of transition.

 
20

 

DELTA MUTUAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

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 months ended September 30, 2009 and 2008, the Company issued and 200,000 and 1,055,000 shares, respectively, and recorded compensation expense of $120,000 and $238,500, respectively, in conjunction with the issuance of these shares. For the three months ended September 30, 2009 and 2008, the Company issued -0- and -0- shares, respectively, and recorded compensation expense of $-0- and -0-, respectively, in conjunction with the issuance of these shares.

Stock Option Plan

In conjunction with the March 4, 2008 merger, the Company assumed the obligation of 797,800 outstanding stock options at their fair value. As of September 30, 2009, 650,000 shares of common stock remain available for issuance under the stock option plan.

A summary of the option activity under the Company’s stock option plan as of December 31, 2008 and changes during the nine months ended September 30, 2009, is presented below.

Options
 
Shares
   
Weighted-Average
Exercise Share Price
   
Weighted-
Average
Remaining
Contractual
Term
   
Aggregate
Intrinsic
Value
 
                         
Outstanding at January 1, 2009
    350,000     $ 1.10              
Options granted
    -     $ -              
Options exercised
    -     $ -              
Options cancelled/expired
    (200,000 )   $ 1.10              
                             
Outstanding at September 30, 2009
    150,000     $ 1.10       1.9     $ (245,000 )
                                 
Exercisable at September 30, 2009
    150,000     $ 1.10       1.9        
 
Stock compensation expense applicable to stock options for the nine and three months ended September 30, 2009 and 2008 was approximately $590,235 and $196,745, respectively. The aggregate intrinsic value of options outstanding as of September 30, 2009 was $(245,000).

All of the Company’s outstanding options were exercisable as of September 30, 2009.  At September 30 2009, there was $228,800 of total unrecognized compensation cost related to share-based compensation arrangements granted under the stock option plan. The cost is expected to be recognized over a weighted average period of 1.9 years.

16. COMMITMENTS AND CONTINGENCIES

Consulting Agreements

The Company had a consulting agreement that expired during the year ended December 31, 2008. As of September 30, 2009 and December 31, 2008, consulting fees of $201,200 associated with this agreement are included in accrued expenses on the Company's consolidated balance sheets.

 
21

 

DELTA MUTUAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

17. LEGAL PROCEEDINGS

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. The Company has not made any payments to these two former employees pursuant to the agreements. The Company believes the resolution of this matter will not have a material effect on the Company or its operations.

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. 

One June 3, 2009, Delta Technologies, Inc., a wholly-owned subsidiary of the Company and a discontinued operation (“Delta Technologies”), was notified by a law firm engaged by 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. If Delta Technologies does not make payment arrangements or cannot otherwise resolve this matter, Wolf Block has authorized a lawsuit to be filed against Delta Technologies and/or the Company. Delta Technologies has contacted the law firm retained by Wolf Block to dispute the amount of the past due legal services provided by Wolf Block, and is attempting to establish the correct amount past due prior to making repayment arrangements, if any. The Company believes that the resolution of this matter will have no material effect on the Company or its operations.

 
22

 

ITEM 2. 
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
The following discussion of our financial condition and results of operations  should be read in conjunction with the financial statements and notes thereto  and other financial information included elsewhere in this report.

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

GENERAL

We were incorporated in the State of Delaware on November 17, 1999. In 2003, we established business operations focused on providing environmental and construction technologies and services in the Far East, the Middle East, and the United States. As of December 31, 2008, the construction technology activities and our business in the Far East (Indonesia) were discontinued.

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.

The Company’s principal business at this time is conducted by our subsidiary, South American Hedge Fund, which has investments in oil and gas concessions in Argentina and intends to focus its investments in the energy sector, including development of energy producing investments and alternative energy production in Latin America and North America. Following the acquisition of SAHF, management has continued to pursue selected business opportunities in the Middle East These activities are conducted by our joint venture subsidiary, Delta-Envirotech, Inc. (“Envirotech”). We have operating control of Envirotech and hold a 45% percent ownership interest.

Reverse Stock Split

Effective July 6, 2009, we effected a 1:10 reverse split (the “Reverse Split”) of our outstanding common stock, pursuant to a definitive information statement filed with the Securities and Exchange Commission. Following effectiveness of the Reverse Split, each ten (10) shares of our common stock outstanding immediately prior to the effective date was automatically converted into one (1) share of our common stock. By reason of the Reverse Split, the number of outstanding shares of our common stock was reduced from 223,849,158 shares to 22,384,916 shares.

RESULTS OF OPERATIONS

During the nine months ended September 30, 2009, we incurred a net loss of $1,188,748 primarily due to a loss from continuing operations of $1,150,784. Our ability to continue as a going concern is dependent upon our ability to obtain funds to meet our obligations on a timely basis, obtain additional financing or refinancing as may be required, and ultimately to attain profitability. There are no assurances that we will be able to obtain additional financing or that such financing will be on terms favorable to us. The inability to obtain additional financing when needed would have a material adverse effect on our operating results.

 
23

 
  
NINE MONTHS ENDED SEPTEMBER 30, 2009 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2008

During the nine months ended September 30, 2009, we incurred a net loss from continuing operations of $1,182,296 compared to $1,376,154 for the nine months ended September 30, 2008. The decrease in our loss from continuing operations for the nine months ended September 30, 2009 over the comparable period of the prior year was primarily due to a decrease in general and administrative expenses of approximately $145,000 and the elimination of a loss on intellectual property that occurred during the prior year period of approximately $138,000.

Our net loss for the nine months ended September 30, 2009 was $1,188,748 compared to a net loss of  $3,422,717 for the comparable prior year period. The net loss for the nine months ended September 30, 2008 included a loss from discontinued operations of $2,046,563 primarily associated with the liquidation of the investment portfolio.
 
THREE MONTHS ENDED SEPTEMBER 30, 2009 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2008

During the three months ended September 30, 2009, we incurred a net loss from continuing operations of $426,611 compared to $279,540 for the three months ended September 30, 2008. The increase in our loss from continuing operations for the three months ended September 30, 2009 over the comparable period of the prior year was primarily due an increase in general and administrative expenses from approximately $155,096 in 2008 to approximately $272,360 in 2009, offset by an impairment charge of $138,127 in 2008 and a loss on sale of investments of $157,939 in 2009.

Our net loss for the three months ended September 30, 2009 was $426,611 compared to a net loss of $291,885 for the comparable prior year period. The net loss for the three months ended September 30, 2009 included a loss on sale of investments of approximately $157,939, and the comparable period in 2008 included an impairment charge of $138,127.
 
PLAN OF OPERATION

The primary focus of the Company’s business is its South American Hedge Fund subsidiary that has investments in oil and gas exploration and production in Argentina and will continue to focus on the energy sector, including the development and supply of energy and alternative energy sources in Latin America and North America. As of December 31, 2008, the securities trading activities of South American Hedge Fund were accounted for as discontinued operations.

Oil and Gas Investments

Our main source of revenue will derive from the sale of crude oil and natural gas produced form the four oil and gas concessions in which we have made investments. 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. Our ownership interests in these concessions range from nine to 20%.

Jollin and Tonono Concessions

In 2008, the majority owners of these concessions formed an Argentine-registered joint venture to operate these concessions. Since SAHF was not registered in Argentina, it could not become an official member of the joint venture. The other owners of the joint venture have agreed that SAHF will be admitted as a member of the joint venture, upon the registration of SAHF as a foreign company in Argentina. SAHF applied for foreign registration and was approved in September 2009.

A well located in the Tonono Concession became operational for the commercial production of oil in the first quarter of 2009. Delivery of the commercial production is currently expected by the end of the fourth quarter.  A well located in the Jollin Concession contains commercial quantities of natural gas. A natural gas pipeline connecting the Jollin Concession to a major distribution pipeline is in the pre-construction phase. The connecting pipeline when completed will be owned by the joint venture. It is expected to be completed during the second quarter of 2010. Upon completion, it will permit the joint venture to commence deriving additional revenue from the sale of natural gas.

Tartagal and Morillo Concess