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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.

FORM 10-Q

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

For the quarterly period ended September 30, 2011

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.)

14362 N. Frank Lloyd Wright Blvd., Suite 2105, Scottsdale,
 
85260
(Address of Principal Executive Offices)
 
(Zip Code)

(480) 477-5809
(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 x              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 31,007,082 as of November 9, 2011. 

 
 

 
 
DELTA MUTUAL, INC.
 
INDEX
 
 
Page
   
Part I.  Financial Information
3
   
Item 1. Financial Statements.
3
   
Consolidated Balance Sheets as of September 30, 2011 (unaudited) and December 31, 2010 (unaudited)
4
   
Consolidated Statements of Operations for the Three and Nine months Ended September 30, 2011 and 2010 (unaudited) and for the period January 1, 2009 (inception of the development stage) through September 30, 2011
5
   
Consolidated Statements of Cash Flows for the Nine months Ended September 30, 2011 and 2010 (unaudited) and for the period January 1, 2009 (inception of the development stage) through September 30, 2011
6
 
 
Notes to Unaudited Consolidated Financial Statements
8-12
   
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
13
   
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
17
   
Item 4T.Controls and Procedures.
17
   
Part II. Other Information
18
   
Item 1.  Legal Proceedings.
18
   
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
18
   
Item 6.  Exhibits.
19
   
Signatures
19

 
 

 
 
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, 2010.

The results of operations for the three and Nine months ended September 30, 2011 and 2010 are not necessarily indicative of the results for the entire fiscal year or for any other period.

 
3

 
 
DELTA MUTUAL, INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(Unaudited)

   
September 30,
   
December 31,
 
   
2011
   
2010
 
ASSETS
           
             
Current Assets:
           
Cash
  $ 86,437     $ 209,004  
Advances and other receivables
    7,320       7,753  
Total current assets
    93,757       216,757  
                 
Investment in mineral properties
    169,797       98,269  
Investments in unproved oil and gas properties
    2,096,337       1,972,050  
Oil field equipment
    40,855          
Other assets
    6,368       6,368  
                 
TOTAL ASSETS
  $ 2,407,114     $ 2,293,444  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
                 
Current Liabilities:
               
Accounts payable
  $ 98,769     $ 109,960  
Accrued expenses
    351,792       414,548  
Notes payable
    808,365       808,365  
Total current liabilities
    1,258,926       1,332,873  
                 
Commitments and Contingencies
               
                 
Stockholders' Equity:
               
Preferred stock $0.0001 par value-authorized 10,000,000 shares; no shares issued and outstanding at September 30, 2011 and December 31, 2010, respectively
    -       -  
Common stock $0.0001 par value - authorized 250,000,000 shares; 30,975,208 and 28,647,687 shares issued and outstanding at September 30, 2011 and December 31, 2010, respectively
    3,097       2,864  
Additional paid-in capital
    6,258,934       5,560,099  
Deficit accumulated during the development stage
    (551,606 )     (136,631 )
Accumulated deficit
    (4,430,928 )     (4,430,928 )
Accumulated other comprehensive loss
    (131,309 )     (34,833 )
Total stockholders' equity
    1,148,188       960,571  
                 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
  $ 2,407,114     $ 2,293,444  

The accompanying notes are an integral part of the unaudited consolidated financial statements
 
 
4

 
DELTA MUTUAL INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)

   
Three months ending September 30,
   
Nine months ending September 30,
   
For the period from January 1,
2009 (inception of the 
development stage) to
 
   
2011
   
2010
   
2011
   
2010
   
September 30, 2011
 
                               
COSTS AND EXPENSES:
                             
General, and administrative
  $ 161,438     $ 98,364     $ 452,091     $ 554,604     $ 1,770,565  
Loss on sale of investments
    -       -                       157,939  
      161,438       98,364       452,091       554,604       1,928,504  
Loss from operations
    (161,438 )     (98,364 )     (452,091 )     (554,604 )     (1,928,504 )
                                         
OTHER INCOME (EXPENSE):
                                       
Foreign exchange gain (loss)
    924       (25,025 )     4,360       (29,838 )     8,541  
Interest income
    -       -                       37,696  
Interest expense
    (11,010 )     (11,582 )     (33,030 )     (34,745 )     (190,208 )
Reversal of contested severance and other liabilities
            -       65,786       -       638,601  
Gain on deconsolidation of variable interest entity
    -       -               -       882,268  
Net other income (expense)
    (10,086 )     (36,607 )     37,116       (64,583 )     1,376,898  
Loss before income taxes
    (171,523 )     (134,971 )     (414,974 )     (619,187 )     (551,606 )
                                         
Provision for income taxes
    -       -       -       -       -  
                                         
Net loss
  $ (171,523 )   $ (134,971 )   $ (414,974 )   $ (619,187 )   $ (551,606 )
                                         
Net loss per common share:
                                       
Basic and Diluted
  $ (0.01 )   $ (0.00 )   $ (0.01 )   $ (0.02 )        
                                         
Weighted average common shares - basic and diluted
    30,843,069       27,880,617       29,995,097       26,680,950          

The accompanying notes are an integral part of the unaudited consolidated financial statements
 
 
5

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

   
 
Nine months ending September 30,
   
For the period from
January 1, 2009
 (inception of the
 development stage) to
 
   
 
2011
   
2010
   
September 30, 2011
 
   
                 
Cash flows from Operating Activities:
                 
Net earnings (loss)
  $ (414,974 )   $ (619,187 )   $ (551,606 )
Adjustments to reconcile net earnings (loss) to net cash used in operating activities:
                       
Depreciation, depletion and amortization
    -       -       804  
Issuance of common stock for services
    3,080       109,550       331,584  
Loss on sale of investments
    -       -       157,939  
Changes in operating assets and liabilities
    (73,153 )     139,597       (1,286,245 )
Net cash used in operating activities
    (485,047 )     (370,040 )     (1,347,524 )
Cash flows from investing activities:
                       
Oil and gas properties exploration and development costs
    (176,344 )     (473,722 )     (768,737 )
Oil field equipment purchases
    (42,972 )             (42,972 )
Proceeds from sales of investments
    -       -       206,832  
Investment in mineral properties
    (79,491 )     (30,000 )     (121,541 )
Net cash provided by (used in) investing activities
    (298,807 )     (503,722 )     (726,418 )
   
                       
Cash flows from financing activities:
                       
Proceeds from loans
    -       -       90,657  
Proceeds from sales of common stock
    629,988       1,095,667       2,023,655  
Increase in notes payable
    -       -       -  
Net cash provided by financing activities
    629,988       1,095,667       2,114,312  
Effect of Exchange Rates on Cash
    31,299       14,330       32,110  
Net increase (decrease) in cash
    (122,567 )     236,235       72,480  
Cash - Beginning of period
    209,004       102,008       13,957  
Cash - End of period
  $ 86,437     $ 338,243     $ 86,437  
   
                       
Changes in operating assets and liabilities consists of:
                       
(Increase) decrease in advances and other receivables
  $ -     $ 130,121     $ 129,850  
(Increase) decrease in  other assets
    -       33,140       (143,494 )
Increase (decrease) in accounts payable and accrued expenses
    (73,153 )     (23,664 )     (1,275,361 )
Increase (decrease) in notes payable
    -       -       2,760  
Changes in assets and liabilities
  $ (73,153 )   $ 139,597     $ (1,286,245 )
   
                       
Supplemental disclosure of cash flow information:
                       
Cash paid for interest
  $ -     $ -     $ -  
Cash paid for income taxes
  $ -     $ -     $ -  
   
                       
Supplementary information:
                       
Non cash financing and investing activities:
                       
Issuance of common stock for mineral property
  $ 16,000     $ -     $ 71,776  
Issuance of  common stock for unproved oil and gas properties
  $ 50,000     $ -     $ 50,000  
Issuance of common stock for services
  $ 3,080     $ 109,550     $ 331,584  
Issuance of common stock for debt
  $ -     $ -     $ 35,000  
 
The accompanying notes are an integral part of the unaudited consolidated financial statements.
 
 
6

 
 
DELTA MUTUAL INC. AND SUBSIDIARIES
(DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)

   
Nine months ending September 30,
   
For the period from January 1, 2009
 (inception of the development stage) 
to
 
   
2011
   
2010
   
Septmeber 30, 2011
 
                   
Net earnings (loss)
  $ (414,974 )   $ (619,187 )   $ (551,606 )
Other comprehensive income (loss):
                       
Foreign currency translation adjustment
  $ (96,476 )     -       (131,309 )
Net change in other comprehensive income (loss)
    (96,476 )     -       (131,309 )
Comprehensive income (loss)
  $ (511,450 )   $ (619,187 )   $ (682,915 )

The accompanying notes are an integral part of the unaudited consolidated financial statements
 
 
7

 
 
DELTA MUTUAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Nine months Ended September 30, 2011 and 2010
 
1. BASIS OF PRESENTATION

The accounting policies followed by Delta Mutual, Inc. and its subsidiaries (“Delta” or the “Company”) are set forth in the notes to the Company’s audited consolidated financial statements in the Annual Report on Form 10-K filed for the year ended December 31, 2010.  Such policies have been continued without change and all material items included in those notes have not changed except as a result of normal transactions in the interim, or as disclosed within this report.  Although management believes the unaudited interim related disclosures in these consolidated financial statements are adequate to make the information presented not misleading, certain information and footnote disclosures normally included in annual audited consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The unaudited condensed consolidated financial statements included herein should be read in conjunction with the consolidated audited financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, filed with the Securities and Exchange Commission on May 16, 2011.

In the opinion of management, all adjustments, including normal recurring adjustments necessary to present fairly the financial position of the Company with respect to the interim financial statements and the results of operations for the interim period ended September 30, 2011, have been included.

The results of operations and the cash flows for the periods ended September 30, 2011 are not necessarily indicative of the results to be expected for the full year.

ORGANIZATION

Delta Mutual, Inc.  was incorporated in Delaware on November 17, 1999. Effective March 4, 2008, Delta entered into a Membership Interest Purchase Agreement, pursuant to which Delta acquired, from Egani, Inc. shares of Altony SA, an Uruguayan Sociedad Anonima (“Altony”), which owned 100% of the issued and outstanding membership interests in South American Hydrocarbon Fluids LLC, a Delaware limited liability company  (the name of which was changed to its present name on November 4, 2011 from South American Hedge Fund LLC, “SAHF”).  At the closing of the Agreement, Delta issued 130,000,000 shares of common stock to Egani, Inc., which constituted, following such issuance, a majority of the outstanding shares of the common stock. Immediately following the closing of the Agreement, Altony became a wholly-owned subsidiary of the Company. For accounting purposes, the transaction was treated as a recapitalization of the Company, as of March 4, 2008, with Altony as the acquirer.  Altony SA closed its business operations and was subsequently dissolved.

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

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

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

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

The consolidated financial statements for the period ended September 30, 2011 have been prepared on a going concern basis which contemplates the realization of assets and settlement of liabilities and commitments in the normal course of business. The Company has a past history of recurring losses from operations and has an accumulated deficit in the development stage of approximately $552,000, a working capital deficiency of approximately $1.2 million and an accumulated deficiency of approximately $4.4 million as of September 30, 2011.  Additionally, the Company will require additional funding to execute its future strategic business plan. Successful business operations and its transition to attaining profitability are dependent upon obtaining additional financing and achieving a level of revenue adequate to support its cost structure.  These factors raise substantial doubt about the Company’s ability to continue as a going concern.
 
 
8

 

The Company's business is subject to the risks of its oil and gas investments in South America. The likelihood of success of the Company must be considered in light of the expenses, difficulties, delays and unanticipated challenges encountered in connection with the operations of the oil and gas concession in Argentina. There is no assurance that the Company will ultimately achieve a profitable level of operations.
 
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company’s significant accounting policies are summarized in Note 1 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.  There were no significant changes to these accounting policies during the three and nine months ended September 30, 2011 and the Company does not expect that the adoption of other recent accounting pronouncements will hava a material impact on its financial statements. 

2. INVESTMENT IN UNPROVED OIL AND GAS PROPERTIES
 
As of September 30, 2011, the Company has a 10% ownership interest in the Jollin and Tonono oil and gas concessions located in Salta Province, Argentina. SAHF originally purchased an 18% carry-over interest in the Jollin and Tonono concessions on May 15, 2007, and subsequently increased its ownership to 23.5%, 9% of which was carry-over and 14.5% of which was working.  SAHF in 2009 transferred 13.5% to Maxipetrol, under an arrangement where SAHF’s remaining 10% interest would be in a carry-over mode. In exchange, Maxipetrol agreed to refund the Company $500,000 of the Company’s share of costs related to the area.  The refund was used in part to repay outstanding amounts payable to Maxipetrol for prior drilling costs in the amount of $294,000, which were reversed as of December 31, 2009, and the remaining $206,000 was received in cash. The book value of Company’s share that was returned was $158,000 higher than the total consideration received and, accordingly, a loss was recognized in 2009.

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

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

At September 30, 2011, the Company had an 18% ownership interest in the Tartagal and Morillo oil and gas concessions located in Salta Province, Argentina.  During 2007, SAHF had originally purchased an 18% ownership of these concessions During 2008, SAHF exchanged 50% of its ownership in this investment with a third party, where the acquirer agreed to assume 50% of SAHF’s obligations with respect to future development expenses.

On March 28, 2011, the third party agreed to the transfer its 9% carried interest in the Tartagal and Morillo concession back to the Company, in exchange for 200,000 shares of the Company’s common stock, with a fair value of $50,000, and a percentage of proceeds in the event of an unexpected sale of the concession in excess of over $6 million, which brought the Company’s total interest in the Tartagal and Morillo concession to 18%.  The Company was admitted to the joint venture for these blocks on May 11, 2011.  
 
The Company’s share of the development costs will be repaid from 50% of its share of the future production profits.

As of September 30, 2011, the Company owns 20% of the oil and gas exploration right to five blocks in the Salta Province of Northern Argentina.  This interest is being held in escrow by the managing partner until SAHF is officially admitted into the joint venture of the exploration rights concession.

The ownership interests in The Salta Province Exploration Rights Concession are:
 
 
·
Consortium Ketsal Kilwa – 60% (managing partner)
 
 
·
Ambika S.A. – 20%
 
 
·
SAHF – 20%
 
During the second quarter of 2010, the Joint Venture began drilling the first well on the Guemes block of The Salta Province Exploration Rights Concession.  SAHF acted as the project manager for this drilling project, but did not charge the joint venture a management fee.  Production testing to verify the commercial sustainability of the well is estimated to commence in the first quarter of 2012. The 2010 concessions, totaling approximately $1.1 million, of which SAHF’s share is approximately $220,000, payable for The Salta Province Exploration Rights Concession are past due and are being contested with the Government by the Joint Venture.
 
 
9

 
 
On August 10, 2011, the Company’s tender offer, made through our wholly-owned subsidiary, SAHF, for the ownership right to explore, and eventually, produce oil and natural gas in the block known as “Valle de Lerma”, was declared the winning bid by the Salta provincial government. SAHF made the offer in a joint venture agreement with Grasta SA, a local mid-size gasoline refinery located in Buenos Aires, Argentina. The Valle de Lerma block is located in the province of Salta in the northwestern region of Argentina and has an area of 5259 km2. On October 25, 2011 SAHF was awarded an Exploration and Exploitation Oil & Gas Block License by the Government of Salta, Argentina, and will file an environmental impact study and proceed to reentry and work-over of the wells. SAHF holds a majority of the license interest and is the responsible operator. The license allows SAHF 20 years to explore and produce hydrocarbons with a renewal option of ten more years.

3.  FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company utilizes the accounting guidance for fair value measurements and disclosures 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.

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 - Observable inputs such as quoted market prices in active markets.
Level 2 - Inputs other then quoted prices in active markets that are either directly or indirectly observable.
Level 3 - Unobservable inputs about which little or no market data exists, therefore requiring an entity to develop its own assumptions.

As of September 30, 2011, the Company held certain financial assets that are measured at fair value on a recurring basis.  These consisted of cash and cash equivalents, investments in mineral properties and unproved oil and gas properties.  The fair value of the cash and cash equivalents is determined based on quoted market prices in public markets and is categorized as Level 1.  The investment in unproved oil and gas companies and investment in mineral properties are determined by the Company, which develops its own assumptions and are 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 quarter ended September 30, 2011.
 
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, 2011.
 
   
Total
   
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
   
Significant Other
Observable Inputs
(Level 2)
   
Significant
Unobservable
Inputs (Level 3)
 
September 30, 2011
                       
Cash and cash equivalents
 
$
86,437
   
$
86,437
   
$
-
   
$
-
 
Investment in mineral properties
   
169,797
                     
169,797
 
Unproved oil and gas properties
   
2,096,337
     
-
     
-
     
2,096,337
 
                                 
Total
 
$
2,353,571
   
$
86,437
   
$
-
   
$
2,266,134
 
                                 
December 31, 2010
                               
Cash and cash equivalents
 
$
209,004
   
$
209,004
   
$
-
   
$
-
 
Investment in mineral properties
   
98,269
                     
98,269
 
Unproved oil and gas properties
   
1,972,050
     
-
     
-
     
1,972,050
 
                                 
Total
 
$
2,270,323
   
$
209,004
   
$
-
   
$
2,070,319
 
 
 
10

 
 
There were no changes to the Company’s valuation techniques used to measure asset fair values on a recurring or nonrecurring basis during the quarter September 30, 2011 and the Company did not have any financial liabilities as of September 30, 2011. The Company has other financial instruments, such as advances and other receivables, accounts payable and other liabilities, notes payable and other assets, which have been excluded from the tables above. Due to the short-term nature of these instruments, the carrying value of advances and other receivables, accounts payable and other liabilities, notes payable and other assets approximate their fair values.
 
4. NOTES PAYABLE
 
   
September 30,
   
December 31,
 
   
2011
   
2010
 
Notes payable to three investors, interest at 8%, due August 10, 2011
  $ 150,655     $ 150,655  
                 
Note payable to third party, interest at 6%, due August 10, 2011
    15,000       15,000  
Note payable to third party interest at 6%, due September 20, 2007
    60,000       60,000  
Notes payable to stockholders and related parties, interest at 6%, due September 20, 2012
    388,970       388,970  
                 
Notes payable to third party, interest at 4%, due August 10, 2011
    193,740       193,740  
    $ 808,365     $ 808,365  
 
For the three and nine months ended September 30, 2011 and 2010, the Company recorded interest expense of $11,010 and $11,582, and $33,030, and $34,745, respectively.  The Company is in process of renegotiating the notes payable that are past due.
 
5. INCOME TAXES
 
The Company has not made provision for income taxes in the three or nine month periods ended September 30, 2011 and 2010 since the Company has the benefit of net operating losses carried forward in these periods.
 
Due to uncertainties surrounding the Company’s ability to generate future taxable income to realize deferred income tax assets arising as a result of net operating losses carried forward, the Company recorded a deferred tax asset but fully offset the deferred tax asset by a valuation allowance as of September 30, 2011 or December 31, 2010. The net operating losses carry forwards will begin to expire in varying amounts from year 2019 to 2029, subject to its eligibility as determined by the respective tax regulatory authorities.
 
The Company is subject to taxation in the United States and certain state jurisdictions. The Company’s tax years for 2002 and forward are subject to examination by the United States and applicable state tax authorities due to the carry forward of unutilized net operating losses.
 
6. ACCRUED EXPENSES

Accrued expenses consist of the following:
   
September
30, 2011
   
December 31, 2010
 
Accrued compensation
 
$
46,020
   
$
141,806
 
Interest expense
   
174,238
     
141,208
 
Other accrued expenses
   
131,534
     
131,534
 
Total
 
$
351,792
   
$
414,548
 
 
 
11

 
 
7.   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, July 6, 2009, was the date the reverse stock split was made effective for trading purposes by the Financial Industry Regulatory Authority.  All share and per share data (except par value) have been adjusted to reflect the effect of the stock split for all periods presented.
 
As of September 30, 2011, 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, 2011 the Company issued 40,000 shares of common stock valued at $0.40 per share for investment in mineral properties valued at $16,000, 200,000 shares of common stock valued at $0.25 per share the reversion of 9% interest investment in Tartagal and Morillo unproved oil and gas properties and 10,267 shares at $0.30 per share for legal services valued at $3,080.  For the nine months ended September 30, 2010 the Company issued 534,555 shares of common stock valued at approximately $0.28 for services valued at $149,838.

During the nine months ended September 30, 2011 the Company sold 2,077,254 shares of common stock valued at $0.20 to $0.50 per share for $629,988.  During the nine months ended September 30, 2010 the Company sold 3,449,563 shares of common stock valued $0.15 to $0.46 per share for $1,095,667.

8. COMMITMENTS AND CONTINGENCIES

POLITICAL RISK

The Company is exposed in the inherent risks for the foreseeable future of conducting business internationally. Language barriers, foreign laws and tariffs and taxation issues all have a potential effect on the Company’s ability to transact business. Political instability may increase the difficulties and costs of doing business. Accordingly, events resulting from changes in the political climate could have a material effect on the Company.
 
LEGAL PROCEEDINGS
 
Legal Fee Collection Claim
Delta Technologies, Inc., a wholly-owned subsidiary of the Company and a discontinued operation (“Delta Technologies”), has been notified by a collection agency on behalf of Wolf Block LLP, a law firm that had provided intellectually property legal services to Delta Technologies, that it had been retained in an attempt to collect a past due amount of approximately $41,000. The Company has been in discussions with the collection agency and believes that the resolution of this matter will have no material effect on the Company or its operations. 
 
 
12

 
 
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

Certain statements contained in this report, including, without limitation, statements containing the words "believes," "anticipates," "expects" and words of similar import, constitute "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including our ability to create, sustain, manage or forecast our growth; our ability to attract and retain key personnel; changes in our business strategy or development plans; competition; business disruptions; adverse publicity; and international, national andGENERAL
 
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 Hydrocarbon Fluids LLC, a Delaware limited liability company (formerly South American Hedge Fund LLC, the name of which was changed to its present name on November 4, 2011, 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.

Overview

We are a development stage independent oil and gas company engaged in oil and gas acquisition, exploitation, production and exploration activities primarily in Argentina. In addition, we have ownership interests in certain mineral rights that are located in Argentina. Our current investments in oil and gas properties were purchased by SAHF and contributed to the Company as part of the reverse merger transaction in March 2008. Subsequently, SAHF sold working interests rights in two of its oil and gas interests to carrying parties to fund the drilling and development activities for the properties. These properties are expected to reach the time of payout in the second half of 2011. The Company retained its working interest in the third oil and gas property (Salta Province) and sold equity in a series of private placement transactions to fund the initial drilling and development second half of 2010.
 
We intend to use the proceeds from the production revenues from existing properties to seek property acquisitions that complement and geographically diversify our core investments in energy related properties. Our goal is to generate meaningful growth in shareholder value through the discovery and development of proved oil and gas reserves or other mineral, and we have focused on concessions where there are shut-in, plugged or abandoned wells that have, in our assessment, a high probability of additional recovery of reserves through the revitalization of the wells using standard oil and gas industry practices to bring back wells into production or to enhance production. In addition, our growth plan is centered upon the pursuit of energy related development projects that we believe will generate attractive rates of return while maintaining a balanced portfolio of lower risk, long-lived oil and gas properties that provide stable cash flows.

As of September 30, 2011, we had approximately $86,000 in cash. In the event that the revenues are delayed, we believe that the value of the reserves underlying our oil and gas investments is sufficient to allow us to generate additional liquidity through the sale of equity or borrowings, or through the sale of portions of our carried interests in the properties.
 
GOING CONCERN

The unaudited consolidated financial statements for the three-month periods ended September 30, 2011 and 2010 have been prepared on a going concern basis, which contemplates the realization of assets and settlement of liabilities and commitments in the normal course of business. The Company has a past history of recurring losses from operations and has an accumulated deficit in the development stage of approximately $552,000, a working capital deficiency of approximately $1.2 million and an accumulated deficiency of approximately $4.4 million as of September 30, 2011.   Successful business operations and our transition to attaining profitability is dependent upon obtaining additional financing and achieving a level of revenue adequate to support its cost structure. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Successful business operations and its transition to attaining profitability is dependent upon obtaining additional financing and achieving a level of revenue adequate to support its cost structure. There can be no assurances that there will be adequate financing available to the Company, if the Company requires financing. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. This basis of accounting contemplates the recovery of the Company’s assets and the satisfaction of liabilities in the normal course of business. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

 
13

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

The Company's business is subject to the risks of its oil and gas investments in South America. The likelihood of success of the Company must be considered in light of the expenses, difficulties, delays and unanticipated challenges encountered in connection with the operations of the oil and gas concession in Argentina. There is no assurance that the Company will ultimately achieve a profitable level of operations.

EXPLORATION AND DEVELOPMENT ACTIVITY

Our future oil and gas production, and therefore our success, is highly dependent upon our ability to find, acquire and develop additional reserves that are profitable to produce. The rate of production from our oil and gas properties and our proved reserves will decline as our reserves are produced unless we acquire additional properties containing proved reserves, conduct successful development and exploration activities or, through engineering studies, identify additional behind-pipe zones or secondary recovery reserves. We cannot assure you that our exploration and development activities will result in increases in our proved reserves. If our proved reserves decline in the future, our production may also decline and, consequently, our cash flow from operations and the amount that we are able to borrow under our credit facility will also decline. In addition, the vast majority of our estimated proved reserves at September 30, 2011 were undeveloped. By their nature, estimates of undeveloped reserves are less certain. Recovery of such reserves will require significant capital expenditures and successful drilling operations. We may be unable to acquire or develop additional reserves, in which case our results of operations and financial condition could be adversely affected.

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

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

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

Salta Province Exploration Rights
During 2008, SAHF purchased 40% of the oil and gas exploration rights to five geographically defined areas in the Salta Province of Northern Argentina from Ketsal, SA (“Ketsal”) for $697,000 cash. In 2009, SAHF assigned 50% of its rights to a third party. As of December 31, 2010, SAHF owns 20% of the rights to this oil and gas concession.

 
14

 

SAHF is responsible for managing the drilling activities in the Salta Province and bears its pro-rata share of the costs. Exploratory drilling activities commenced in April 2010 on the Guemes Block and the first well was spud in September 2010. SAHF paid $106,672 for additional concession fees to become an exploration company in Argentina and incurred $179,806 in exploratory drilling costs during the nine months ended September 30, 2010 that were capitalized as work-in-progress under the full cost method of accounting. In July 2010, SAHF found positive traces of the presence of natural gas and hydrocarbons of low-density quality through its analysis of core samples. Well logging while drilling also confirmed the potential existence of formations with sufficient hydrocarbons to make the well economically productive. Production testing to verify the commercial sustainability of the well is expected to commence in the first quarter of 2012.

Tartagal and Morillo

As of September 30, 2011, the Company, through SAHF, retained 9% of the total concession in the carryover mode ("no cost obligations to SAHF") in the Tartagal and Morillo oil and gas concessions located in Northern Argentina. SAHF’s participation was increased from 9% to 18% in March 2011, through the purchase of an additional 9% interest in the concession from Ambika S.A. In March 2009, a Hong Kong public company purchased 60% of the ownership in the Tartagal and Morillo oil and gas concessions, from the other majority owners, for total consideration of approximately $270 million. To date, the working interest owners have expended approximately $27 million on 2D and 3D seismic surveys and other geological studies. The Company expects to begin receiving revenue from the Tartagal and Morillo blocks when the first well is approved for commercial production.

On May 11, 2011, SAHF received the Argentinian Salta Government’s approval for its 18% ownership share for the Tartagal and Morillo concessions. The Company will reclassify approximately $265,000 of costs associated with this property to proved oil and gas properties upon receipt of the reserve report from the third party working interest owner of the joint venture.

Valle de Lerma

On August 10, 2011, the Company’s tender offer, made through our wholly-owned subsidiary, SAHF, for the ownership right to explore, and eventually, produce oil and natural gas in the block known as “Valle de Lerma” was declared the winning bid by the Salta provincial government. SAHF made the offer in a joint venture agreement with Grasta SA, a local mid-size gasoline refinery located in Buenos Aires, Argentina. The Valle de Lerma block is located in the province of Salta in the northwestern region of Argentina and has an area of 5259 km2. On October 25, 2011 SAHF was awarded an Exploration and Exploitation Oil & Gas Block License by the Government of Salta, Argentina, and will file an environmental impact study and proceed to reentry and work-over of the wells. SAHF holds a majority of the license interest and is the responsible operator. The license allows SAHF 20 years to explore and produce hydrocarbons with a renewal option of ten more years.

The Valle de Lerma block has been explored in the past by YPF and several seismic 2D lines were extensively performed to research the area. Two Exploratory Wells were drilled in December 1990 and November 1994 by a private Company; both indicated hydrocarbon traces or presence. In the second well, named "La Troja" (total depth of 1433 mbbp), an oil production of 28 API density was tested at 1277 mbbp for a test time of 19 hs. For strategic reasons, the wells were capped.
 
The Company and its partner, Grasta Petroleum will develop the block exploration starting with 2D Seismic interpretation with Nexus LLC; geological model application and Hydrocarbon Micro seepage Survey with Geo Microbial Technologies Argentina (Guemes Method), and La Troja well work over with a local Rig Co; the target will be the Cretaceous zone, both in old and new wells.  The exploration terms are four years for the first period, three years for the second and two years for the last period.

Lithium Production Properties

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

RESULTS OF OPERATIONS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2011 COMPARED TO THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010

During the three-month period ended September 30, 2011, we incurred a net loss of $172,000, compared to a net loss of $135,000 for the three-month period ended September 30, 2010. The increase in our net loss for the three-month ended September 30, 2011 over the comparable period of the prior year is due to a $63,000 increase in general and administrative expense. In addition, during the three months ended September 30, 2011 the Company recorded a $924 foreign exchange gain on the its US dollar denominated advances to SAHF compared to a $25,000 loss in 2010.

 
15

 

During the nine month period ended September 30, 2011, we incurred a net loss of $415,000, compared to a net loss of $619,000 for the comparable period last year. The decrease in our net loss for the nine months ended September 30, 2011 over the comparable period of the prior year is due to a $103,000 decrease in general and administrative expense and the settlement and reversal of contested severance liabilities of $66,000 in 2011. In addition, during the nine months ended September 30, 2011 the Company recorded a $4,360 foreign exchange gain on the its US dollar denominated advances to SAHF compared to a $29,800 loss in 2010.

LIQUIDITY

At September 30, 2011, we had a working capital deficit of approximately $1.2 million, compared to a working capital deficit of approximately $1.1 million at December 31, 2010.

At September 30, 2011, we had total assets of approximately $2,407,000 compared to total assets of approximately $2,293,000 at December 31, 2010. Cash decreased to $86,000 during the nine months ended September 30, 2011 from $209,000 as of December 31, 2010. Net cash used in operating activities in the nine months ended September 30, 2011 was $485,000, compared to $370,000 in the comparable period in 2010; net cash used in investing activities was $299,000 in 2011, as compared with $504,000 in 2010. Cash used in operations activities and investing activities in the nine months ended September 30, 2011 and 2010 was offset by net cash provided from financing activities of $630,000 and $1,096,000, respectively.

Estimated 2012 Capital Requirements

In the case of the Jollin and Tonono and Tartagal and Morillo oil and gas properties, we have carryover interests; therefore, no further immediate capital expenditures are required on our part. For the exploration rights in Salta Province, we have completed the drilling and development of one well in Guemes. We have sufficient funds for our portion (20%) of the costs of installation of the battery storage facility to complete the Guemes production and storage facilities. In the event our revenue expectations for 2012 are not met, we believe we have access to sufficient capital for required capital investments in our existing properties.

USE OF ESTIMATES

The preparation of the financial statements requires the Company to make estimates and judgments that affect the reported amount of assets, liabilities, and expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to oil and gas properties, intangible assets, income taxes and contingencies and litigation. The Company bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. In the opinion of management, all normal recurring adjustments considered necessary for a fair presentation have been included in these financial statements. Certain amounts for prior periods have been reclassified to conform to the current presentation.

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

 
 ·
Proved oil and gas reserves;
 
 ·
Expected future cash flow from proved oil and gas properties;
 
 ·
Future exploration and development costs; and
 
 ·
Future dismantlement and restoration costs.

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

 
16

 

Critical Accounting Policies

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

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

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

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

Item 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

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

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

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

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

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

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

Item 4T. – CONTROLS AND PROCEDURES

Evaluation of Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Securities Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our chief executive and financial officer, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and management necessarily was required to apply its judgment in evaluating the cost- benefit relationship of possible controls and procedures.

 
17

 

As of September 30, 2011, an evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, our Chief Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective.

Changes in Internal Controls

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.
 
Limitations on the Effectiveness of Controls

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. The Company's disclosure controls and procedures are designed to provide reasonable assurance of achieving its objectives. The Company's chief executive officer and principal financial officer concluded that the Company's disclosure controls and procedures are effective at that reasonable assurance level.

PART II—OTHER INFORMATION

ITEM 1.          LEGAL PROCEEDINGS.

Legal Fee Collection Claim

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

ITEM 2.       UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

The following table sets forth the sales of unregistered securities since the Company’s last report filed under this item.

Principal
Date
 
Total Offering Price/
Title and Amount(1)
 
Purchaser
 
Underwriter
 
Underwriting Discounts
July 1, 2011
 
76,000 shares of common stock.
 
Private investor.
 
NA
 
$0.23 per share/NA
July 1, 2011
 
30,000 shares of common stock.
 
Private investor.
 
NA
 
$0.20 per share/NA
July 8, 2011
 
65,250 shares of common stock.
 
Private investor.
 
NA
 
$0.23 per share/NA
August 12, 2011
 
300,000 shares of common stock.
 
Private investor.
 
NA
 
$0.32 per share/NA
October 7, 2011
 
31,818 shares of common stock.
 
Private investor.
 
NA
 
$0.23 per share/NA

(1) The issuances to employees, consultants and investors are viewed by the Company as exempt from registration under the Securities Act of 1933, as amended (“Securities Act”), alternatively, as transactions either not involving any public offering, or as exempt under the provisions of Regulation D, Regulation S or Rule 701 promulgated by the SEC under the Securities Act.
.
 
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ITEM 6.  EXHIBITS.

31
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.
   
32
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.

Copies of the following documents are included as exhibits to this report pursuant to Item 601 of Regulation S-K.
 
SEC Ref.
No.
Title of Document
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
XBRL Taxonomy Label Linkbase Document
101.PRE
XBRL Taxonomy Presentation Linkbase Document

The XBRL related information in Exhibits 101 to this Quarterly Report on Form 10-Q shall not be deemed “filed” or a part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, and is not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of those sections.

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/ Daniel R. Peralta
 
   
Daniel R. Peralta
   
President, Chief Executive Officer and Principal Financial Officer

Dated: November 14, 2011

EXHIBIT INDEX

31
Certification of Chief Executive Officer and Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
32
Certification of Chief Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SEC Ref.
No.
Title of Document
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
XBRL Taxonomy Label Linkbase Document
101.PRE
XBRL Taxonomy Presentation Linkbase Document

 
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