FORM 10-QSB

                       SECURITIES AND EXCHANGE COMMISSION
                                WASHINGTON, D.C.

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

               For the quarterly period ended September 30, 2006.

                                       OR

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

        For the transition period from ____________ to _________________

                        Commission File Number 000-30563

                               DELTA MUTUAL, INC.
                               ------------------
             (Exact name of registrant as specified in its charter)


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

                 111 NORTH BRANCH STREET, SELLERSVILLE, PA 18960
                                 (215) 258-2800
                 -----------------------------------------------
             (Address and telephone number, including area code, of
                    registrant's principal executive office)


                 -----------------------------------------------
         (Former name, former address and former fiscal year, if changed
                               since last report)

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

YES |X| NO |_|

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

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

At November 7, 2006, there were 60,706,246 shares of Common Stock, $.0001 par
value, outstanding.


--------------------------------------------------------------------------------

<PAGE>







                               DELTA MUTUAL, INC.

                                      INDEX



                                                                            Page

Part I.  Financial Information                                              1

      Item 1. Financial Statements                                          1

Consolidated Balance Sheets as of September 30, 2006 (unaudited)            2

Consolidated Statements of Operations for the Three and Nine Months Ended
September 30, 2006 and 2005 (unaudited)                                     3

Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 2006 and 2005 (unaudited)                                   4-5

Notes to Unaudited Consolidated Financial Statements                        6

      Item 2. Management's Discussion and Analysis or Plan of Operation    21

      Item 3. Controls and Procedures                                      27

Part II. Other Information                                                 27

      Item 5. Other Information                                            27

      Item 6. Exhibits                                                     27

Signatures                                                                 28


--------------------------------------------------------------------------------

<PAGE>




PART I. FINANCIAL INFORMATION


Item 1. Financial Statements

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

      The results of operations for the nine months ended September 30, 2006 and
2005 are not necessarily indicative of the results for the entire fiscal year or
for any other period.




                                       1
<PAGE>

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

                                  ASSETS
                                                                   September 30,
                                                                   -------------
                                                                        2006
                                                                    -----------


Current Assets:
   Cash                                                             $   126,222
   Accounts receivable                                                  300,317
   Prepaid expenses                                                     295,290
                                                                    -----------
     Total Current Assets                                               721,829

Property and equipment - net                                            466,358
Intangible asset                                                        135,254
Other assets                                                              1,401
                                                                    -----------

        TOTAL ASSETS                                                $ 1,324,842
                                                                    ===========



                  LIABILITIES AND STOCKHOLDERS' DEFICIENCY

Current Liabilities:
   Accounts payable                                                 $   157,257
   Accrued expenses                                                     856,363
   Accretion of convertible debt                                        354,127
   Notes payable                                                        300,655
                                                                    -----------

   TOTAL LIABILITIES                                                  1,668,402
                                                                    -----------

Minority interest in consolidated subsidiaries                          448,342
                                                                    -----------

Stockholders' Deficiency:
   Common stock $0.0001 par value - authorized
       100,000,000 shares; 56,661,246
       outstanding                                                        5,666
    Additional paid-in-capital                                        7,344,283
    Accumulated deficit                                              (8,296,351)
    Deferred stock purchase                                             164,500
   Subscription receivable                                              (10,000)
                                                                    -----------
          Total Stockholders' Deficiency                               (791,902)
                                                                    -----------

     TOTAL LIABILITIES AND
     STOCKHOLDERS' DEFICIENCY                                       $ 1,324,842
                                                                    ===========

See Notes to unaudited Consolidated Financial Statements


                                       2
<PAGE>

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




<TABLE>
<CAPTION>

                                              Nine Months                  Three Months
                                            Ended September 30,         Ended September 30,
                                      ---------------------------   ---------------------------
                                          2006           2005           2006           2005
                                      ------------   ------------   ------------   ------------

<S>                                   <C>            <C>            <C>            <C>
Revenue                               $    279,870   $         --   $     19,166   $         --
                                      ------------   ------------   ------------   ------------

Costs and Expenses
   Cost of Sales                           112,549             --         33,117             --

   General and administrative
     expenses                            1,825,636      2,116,772        461,934      1,219,030
                                      ------------   ------------   ------------   ------------
                                         1,938,185      2,116,772        495,051      1,219,030
                                      ------------   ------------   ------------   ------------

Loss from operations                    (1,658,315)    (2,116,772)      (475,885)    (1,219,030)

Accretion of convertible debt             (169,773)      (316,705)       (23,022)      (112,992)

Interest expense                           (33,461)      (118,766)        (9,918)        (8,410)
                                      ------------   ------------   ------------   ------------

Loss before minority interest           (1,861,549)    (2,552,243)      (508,825)    (1,340,432)

Minority interest share of (income)
   loss of consolidated subsidiaries      (114,563)       (77,348)       (22,504)        (2,659)

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

Net loss                              $ (1,976,112)  $ (2,629,591)  $   (531,329)  $ (1,343,091)
                                      ============   ============   ============   ============

   Loss per common share-
     basic and diluted                $      (0.04)  $      (0.11)  $      (0.01)  $      (0.05)
                                      ============   ============   ============   ============

   Weighted average number of
     common shares outstanding-
     basic and diluted                  50,436,864     23,685,509     54,324,578     25,037,746
                                      ============   ============   ============   ============
</TABLE>


See Notes to unaudited Consolidated Financial Statements


                                       3
<PAGE>


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


                                                             Nine Months
                                                         Ended September 30,
                                                      -------------------------
                                                         2006           2005
                                                      -----------   -----------
Cash flows from operating activities:

Net loss                                              $(1,976,112)  $(2,629,591)
Adjustments to reconcile net loss to
   net cash used in operating activities:
   Depreciation and amortization                           35,862         4,742
   Non-cash employee compensation                              --        61,300
   Non-cash compensation                                  262,012       925,082
   Accretion of convertible debt                          169,773       316,705
   Compensatory element of option
     issuance                                             697,655            --
   Minority interest in income of
    consolidated subsidiaries                             114,563        77,348
   Changes in operating assets
    and liabilities                                      (154,384)      477,983
                                                      -----------   -----------
Net cash used in operating activities                    (850,631)     (766,431)
                                                      -----------   -----------

Cash flows from investing activities:
   Purchase of fixed assets                               (60,658)     (331,500)
                                                      -----------   -----------

Cash flows from financing activities:
   Proceeds from sale of common stock
      and deferred stock purchase                         799,000       856,000
   Proceeds from exercise of warrants                      73,000        40,000
   Proceeds from loans                                     30,000       282,385
   Repayment of loan                                      (23,910)      (47,820)
   Proceeds from convertible debt                          16,000            --
   Payments to minority interests                          (6,514)      (81,704)
   Proceeds from minority interest                         82,893            --
                                                      -----------   -----------

   Net cash provided by
     financing activities                                 970,469     1,048,861
                                                      -----------   -----------

   Net increase (decrease) in cash                         59,180       (49,070)
   Cash - Beginning of period                              67,042       113,780
                                                      -----------   -----------
   Cash - End of period                               $   126,222   $    64,710
                                                      ===========   ===========

See Notes to unaudited Consolidated Financial Statements


                                       4
<PAGE>


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



                                                               Nine Months
                                                            Ended September 30,
                                                          ----------------------
                                                             2006        2005
                                                          ---------   ----------
Supplementary information:
  Cash paid during year for:
     Interest                                             $   1,564   $  10,445
                                                          =========   =========
     Income taxes                                         $      --   $      --
                                                          =========   =========

Changes in operating assets and liabilities consists of:
 (Increase) in accounts receivable                         (280,317)         --
 (Increase) decrease  in prepaid expenses                    17,809     (26,556)
 (Increase) decrease  in deposits                                --      79,834
 (Increase)  in other assets                                     --        (852)
  Increase in accounts payable
     and accrued expenses                                   108,124     425,557
                                                          ---------   ---------
                                                          $(154,384)  $ 477,983
                                                          =========   =========
Non-cash financing activities:

Issuance of common stock for debt                         $ 357,074   $ 192,500
                                                          =========   =========

Issuance of common stock for settlement                   $  42,750   $      --
                                                          =========   =========

Issuance of common stock for services                     $ 400,391   $      --
                                                          =========   =========

Issuance of common stock for intellectual
     property rights                                      $      --   $  93,000
                                                          =========   =========



See Notes to unaudited Consolidated Financial Statements


                                       5
<PAGE>



                       DELTA MUTUAL INC. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2006

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

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

BASIS OF PRESENTATION

The consolidated balance sheets as of September 30, 2006, and the consolidated
statements of operations and cash flows for the periods presented herein have
been prepared by the Company and are unaudited. In the opinion of management,
all adjustments(consisting solely of normal recurring adjustments) necessary to
present fairly, the financial position, results of operations and cash flows for
all periods presented have been made.

The consolidated financial statements for the period ended September 30, 2006
have been prepared on a going concern basis which contemplates the realization
of assets and settlement of liabilities and commitments in the normal course of
business. Management recognizes that the Company's continued existence is
dependent upon its ability to obtain needed working capital through additional
equity and/or debt financing and revenue to cover expenses as the Company
continues to incur losses.

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

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

Far East (Indonesia)

In Indonesia, the Company formed a local joint venture company to commence
energy and waste recovery operations. The joint venture company, PT. Triyudha -
Envirotech, began operations on December 15, 2005, pursuant to a contract with
Pertamina. During the third quarter, the operation processed the final 190
metric tons of oil sludge from designated sludge pools under the initial 3,000
metric ton contract. We expect to be awarded a second contract before year-end
and begin processing operations in 2007.


                                       6
<PAGE>




Middle East

In January 2004, the Company's Delta-Envirotech subsidiary, entered into a
strategic alliance with ZAFF International, Ltd., a technology company in Saudi
Arabia, to pursue soil and water reclamation projects in Saudi Arabia and other
areas in the Middle East. In November, 2004, ZAFF International, Ltd. received
its operating license from the Saudi Arabia environmental authorities to employ
all soil, refinery waste and waste water technologies held by Delta for
environmental projects in that country.

In August 2005, Delta-Envirotech reached a working agreement to provide a
turn-key factory to manufacture insulating concrete wall forming (ICF) products
for the building industry. During the first quarter of 2006, a memorandum of
understanding was signed that provides for two additional ICF factories in the
Middle East. A detailed proposal for the first factory was submitted and a
letter of intent issued by a potential purchaser in August 2006. The potential
purchaser has applied for the required permits prior to issuing a final purchase
order.

In August 2005, an additional working agreement was reached with a private Saudi
Arabia company, on the structure of a proposed operation to recover silver from
used x-ray film. During the second quarter of 2006, a letter of intent was
signed to supply the equipment to the Saudi Gulf Environmental Protection
Company (SEPCO) subject to environmental authority approval. An equipment
inspection in the US, as part of the environmental authority approval process,
is pending.

During the first quarter of 2006, Delta-Envirotech secured the Middle East
distribution rights for an organic emulsifier used in the petroleum industry.
Testing of these products, for environmental approval and performance
validation, is expected to take place during the fourth quarter of 2006.

In August 2006, Delta-Envirotech expanded it scope of products and services in
the Middle East by securing the exclusive rights to a gas imaging product that
detects harmful gasses produced by oilfield and refinery operations.

United States

In August 2005, the Company acquired, through a wholly-owned subsidiary,
intellectual property and filed a patent application for a new insulating
concrete wall forming (ICF) system. In addition to the patent filing, the
Company engaged a technical consultant and a business development consultant to
further the design and development of the Company's ICF products. The mold
required to produce the new product was completed in July and production began
in August 2006. Production samples are currently undergoing testing for
adherence to design specifications.

Puerto Rico

The initial project for approximately 270 homes in Aguadilla was not approved
and the property owners are evaluating alternative courses of action on this
project.

In December 2004, the Company formed a second joint venture, and secured the
rights to a 40-acre tract to build approximately 300 homes as part of a 150-acre
development located in Guayanilla for a second Section 124 project. The master
plan for this entire project has been submitted to the Planning Board by the
project's developer.

                                       7
<PAGE>





The Company is also actively seeking a suitable parcel of land for a new low
income housing project that is already zoned for residential housing and
approved for the Section 124 program.


SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

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

USE OF ESTIMATES

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

LOSS PER SHARE

Basic and diluted loss per common share is computed by dividing net loss by the
weighted average number of common shares outstanding during the year. Potential
common shares are excluded from the loss per share calculation because the
effect would be antidilutive. Potential common shares relate to the convertible
debt, stock options and common stock purchase warrants. As of September 30,
2006, there were 3,616,587 potential common shares related to convertible debt,
8,778,000 potential common shares related to stock options and no potential
common shares related to common stock purchase warrants issued by the Company.
As of September 30, 2005 there were 10,103,200 potential common shares related
to convertible debt; 6,500,000 potential common shares related to stock options
and 7,580,000 potential common shares related to common stock purchase warrants
issued by the Company.

REVENUE RECOGNITION

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


                                       8
<PAGE>




EVALUATION OF LONG-LIVED ASSETS

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

DEPRECIATION AND AMORTIZATION

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

STOCK-BASED COMPENSATION

The Company has a stock-based compensation plan under which stock options and
stock awards are granted to employees. Effective January 1, 2006, the Company
accounts for stock based compensation under Statement of Financial Accounting
Standards ("SFAS") No. 123(R), "Share-Based Payment." The Company adopted SFAS
123(R) using the modified prospective method. Under modified prospective
application, this SFAS applies to new awards and to awards for which the
requisite service has not been rendered that are outstanding as of the required
effective date shall be recognized as the requisite service is rendered on or
after the required effective date. The compensation cost for the portion of
awards shall be based on the grant-date fair value of those awards as calculated
for either recognition or pro forma disclosures under SFAS 123. Changes to the
grant-date fair value of equity awards granted before the required effective
date of this Statement are precluded. The compensation cost for those earlier
awards shall be attributed to periods beginning on or after the required
effective date of this SFAS using the attribution method that was used under
SFAS 123, except that the method of recognizing forfeitures only as they occur
shall not be continued. Prior to January 1, 2006, the Company accounted for
stock option grants issued to employees in accordance with Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees," along with the
disclosure requirements of SFAS No. 123, "Accounting for Stock-Based
Compensation," and for periods prior to January 1, 2006, the Company made
disclosure of pro forma net earnings and earnings per share as if the
fair-value-based method of accounting had been applied as required by SFAS
No.123.

Prior to January 1, 2006, the Company adopted the disclosure provisions of SFAS
No. 123. Had compensation cost for the Company's stock option plan been
determined based on the fair value at the grant date for awards for the nine and
three months ended September 30, 2005, consistent with the provisions of SFAS
No. 123, the Company's net loss and net loss per share would have been increased
to the pro forma amounts indicated below:


                                       9
<PAGE>





                                   For the nine months For the three months
                                   ended September 30, ended September 30,
                                  -------------------- --------------------
                                         2005                  2005
                                  -------------------   -------------------

Net loss-as reported              $        (2,629,591)  $        (1,343,091)

  Deduct:  Total stock-based
           employee compensation
           expense determined
           under the fair value
           based method for all
           awards, net of taxes             1,441,500               480,500
                                  -------------------   -------------------
Net loss-pro forma                $        (4,071,091)  $        (1,823,591)
                                  ===================   ===================
Loss per common share
  basic and diluted -
  as reported                     $             (0.11)  $             (0.05)

Loss per common share
  basic and diluted-
  pro forma                       $             (0.17)  $             (0.07)



INCOME TAXES

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

FOREIGN CURRENCY TRANSLATION

The functional currency for some foreign operations is the local currency.
Assets and liabilities of foreign operations are translated at balance sheet
date rates of exchange and income, expense and cash flow items are translated at
the average exchange rate for the period. Translation adjustments in future
periods will be recorded in Accumulated Other Comprehensive Income. The
translation gains or losses were not material for the nine months and three
months ended September 30, 2006 and 2005.

INTANGIBLES

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

FAIR VALUE OF FINANCIAL INSTRUMENTS

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

RECLASSIFICATIONS

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

NEW FINANCIAL ACCOUNTING STANDARDS


In September 2006, the SEC issued Staff Accounting Bulletin ("SAB") No. 108,
"Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements," which provides interpretive
guidance on the consideration of the effects of prior year misstatements in
quantifying current year misstatements for the purpose of a materiality
assessment. The SEC staff believes that registrants must quantify errors using
both a balance sheet and income statement approach and evaluate whether either
approach results in quantifying a misstatement that, when all relevant
quantitative and qualitative factors are considered, is material. SAB No. 108 is
effective for annual financial statements covering the first fiscal year ending
after November 15, 2006, with earlier application encouraged for any interim
period of the first fiscal year ending after November 15, 2006, filed after the
publication of SAB No. 108 (September 13, 2006). The Company is currently
evaluating the impact that SAB No. 108 could have on its results of operations
or financial condition.


                                       10
<PAGE>





In September 2006, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 158, "Employers' Accounting for Defined Benefit Pension and Other Post
Retirement Plans," an amendment of FASB Statements No. 87, 88, 106 and 132(R).
FASB 158 will require employers to recognize their defined benefit plans'
overfunded or underfunded status in their balance sheets, require employers to
measure plan assets and plan obligations as of the balance sheet date,
immediately recognize any remaining transition obligation currently being
deferred, and recognize actuarial gains and losses through other comprehensive
income. The statement is effective for fiscal years ending after December 15,
2006. The Company is evaluating SFAS No. 158 and has not determined the impact
it will have on its consolidated financial statements as of and for the year
ended December 31, 2006.


In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements,"
which enhances existing guidance for measuring assets and liabilities using fair
value. The new Statement provides a single definition of fair value, together
with a framework for measuring it, and requires additional disclosure about the
use of fair value to measure assets and liabilities. SFAS No. 157 also
emphasizes that fair value is a market-based measurement, not an entity-specific
measurement, and sets out a fair value hierarchy with the highest priority being
quoted prices in active markets. Under SFAS No. 157, fair value measurements are
disclosed by level within that hierarchy. While SFAS No. 157 does not add any
new fair value measurements, it does change current practice. SFAS No. 157 is
effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. The Company
does not believe that SFAS No. 157 will have a material impact on its financial
statements.

In July 2006, the FASB issued Interpretation No. 48 "Accounting for Uncertainty
in Income Taxes" ("FIN 48"). The interpretation Requires a two step approach for
recognizing and measuring tax benefits based on a recognition threshold of "more
likely than not." FIN 48 also requires explicit disclosures about Uncertainties
in tax positions including a detailed rollforward of tax benefits that do not
qualify for financial statement recognition. The adoption of FIN 48 is effective
for fiscal years beginning after December 15, 2006, The implementation of FIN 48
could have a material effect on the consolidated balance sheets and results of
operations but the effect of such implementation is not determinable at this
time.

In December 2004, the FASB issued SFAS No. 153, an amendment of APB Opinion No.
29, "Exchange of Nonmonetary Assets". SFAS No. 153 amends APB Opinion 29 by
eliminating the exception under APB No. 29 for nonmonetary assets of similar
productive assets and replaces it with a general exception for exchanges on
nonmonetary assets that do not have commercial substance. A nonmonetary exchange
has commercial substance if the future cash flow of the entity is expected to
change significantly as a result of the exchange. SFAS No. 153 is effective for
fiscal years beginning after June 15, 2005. The adoption of SFAS No. 153 did not
have a material effect on the Company consolidated financial position or results
of operations.

In December 2004, the FASB issued SFAS No. 123(R), "Share-Based Payment," that
required compensation costs related to share-based payment transactions to be
recognized in the financial statements. With limited exceptions, the amount of
compensation cost will be measured based on the grant-date fair value of the
equity or liability instruments issued. In addition, liability awards will be
re-measured each reporting period. Compensation cost will be recognized over the
period that an employee provides service in exchange for the reward. SFAS No.
123(R) is effective as to the Company as of the beginning of the Company's 2006
fiscal year. The Company accounted for the stock-based compensation costs using
the modified prospective method at the time of adoption. The adoption of SFAS
123(R) resulted in incremental stock-based compensation expense of $438,750
during the nine months ended September 30, 2006. The adoption of SFAS 123(R) did
have a material effect on the consolidated balance sheets as of September 30,
2006 and the consolidated statements of cash flows for the nine months ended
September 30, 2006.


                                       11
<PAGE>





2. PROPERTY AND EQUIPMENT

                       September 30, 2006
                       ------------------

Equipment               $     497,135
Leasehold improvements          7,807
                        -------------
                              504,942

Less accumulated
Depreciation                   38,584
                        -------------

                        $     466,358
                        =============

Depreciation expense for the nine months and three months ended September 30,
2006 and 2005, amounted to $30,499 and $11,178; and $2,019 and $760,
respectively.

3. INTANGIBLE ASSETS

Intellectual property costs are intellectual property included in a patent
application. If the patent is not issued, the Company will write-off the
unamortized amounts immediately. Other intangibles are being amortized over 20
years. Amortization expense was $5,363 and $1,788; and $2,722 and $1,304 for the
nine months and three months ended September 30, 2006 and 2005, respectively.
Other intangible assets consist of the following:


                                                September 30, 2006

                                        Gross Carrying        Accumulated
                                            Amount            Amortization
                                        ---------------      --------------
      Intellectual property costs       $       143,000      $        7,746
      Organization Costs                          2,834               2,834
                                        ---------------      --------------
                                        $       145,834      $       10,580
                                        ===============      ==============



                                       12
<PAGE>


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


                                          Estimated
                                         Year Ending          Amortization
                                         December 31,           Expense
                                        --------------       -------------
                                             2006            $      1,787
                                             2007                   7,150
                                             2008                   7,150
                                             2009                   7,150
                                             2010                   7,150

2006 represents amortization from October 1, 2006 through December 31, 2006.

4.    INVESTMENT IN JOINT VENTURES

a)    In December 2003, the Company formed a joint venture project to develop
      government sponsored, Section 124, low income housing in the Commonwealth
      of Puerto Rico. The Company became the general partner and the 75%
      majority owner of a limited partnership, Delta Development Partners, LP,
      that holds the 85% majority share of Delta Developers Corp., a Puerto Rico
      corporation, formed to manage the construction and related activities
      required to build approximately 270 low income homes under Section 124.
      The operations of the joint venture have been consolidated with the
      Company for the nine months ended September 30, 2006 and 2005,
      respectively.

      During the year ended December 31, 2004, Neil Berman, an investor,
      purchased a 25% interest in Delta Development Partners, LP for $148,000.

      On October 6, 2004, the Company entered into a second joint venture
      agreement to develop government sponsored, Section 124 low income housing
      in the Commonwealth of Puerto Rico. The Company became the general partner
      and majority owner of a limited partnership, Delta Development Partners
      II, LP, that holds the 85% majority share of Delta Developers Guayanilla
      Corp., a Puerto Rico corporation formed to manage the construction and
      related activities required to build approximately 300 low income homes
      under Section 124. The operations of the joint venture have been
      consolidated with the Company since October 6, 2004.

      During the period October 6, 2004 through December 31, 2004, Ebony
      Finance, Ltd. and T & T Asset Management, investors, purchased a 4%
      interest from the existing partners in Delta Development Partners II, LP
      for $40,000.

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

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

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

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


                                       13
<PAGE>





      The operations of the joint venture have been consolidated with the
      Company for the nine months ended September 30, 2006 and 2005.
      Delta-Envirotech, Inc. meets the definition of a Variable Interest Entity
      as defined in Financial Accounting Standards Board Interpretation No. 46
      (FIN 46),"Consolidation of Variable Interest Entities" requiring the
      primary beneficiaries of a variable interest entity to consolidate that
      entity. The primary beneficiary of a variable interest entity is the party
      that absorbs the majority of the expected losses of the entity or receives
      a majority of the entity's expected residual return, or both, as a result
      of ownership, contractual or other financial interest in the entity.

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

c)    Minority interests primarily consist of ownership interest in
      Delta-Envirotech, Inc.; Delta Development Partners, L.P.; Delta
      Development Partners II, L.P.; PT Triyudha - Envirotech; Delta Developers
      Corp. and Delta Developers Guayanilla Corp. The income and losses from
      operations of these entities and their respective minority interests have
      been reflected in the Company's statement of operations for the nine
      months ended September 30, 2006 and 2005. There are excess losses not
      absorbed by the minority interests due to limitations of their capital
      contributions. In future periods, the profits first attributable to the
      minority interests will be first absorbed against any unused losses until
      the losses are fully absorbed. The amount on the Company's balance sheets
      represents the minority interests as of September 30, 2006.

      The following represents a schedule of minority interests as of September
      30,

                                                      2006
                                                   -----------
       Delta Development Partners L.P.             $   145,146
       Delta Development Partners II, L.P.              39,741
       Delta Developers Guayanilla, Corp.                   --
       Delta-Envirotech, Inc.                               --
       PT Triyudha - Envirotech                        205,870
       Delta Developers Corp.                           57,585
                                                  ------------
                                                  $    448,342
                                                  ============

5. NOTES PAYABLE

On April 5, 2005, the Company issued 8% term notes to private investors in the
amount of $210,655, with the principal and interest due at maturity on October
2, 2005. Pursuant to note modification agreements, the maturity dates of these
notes was extended to September 2006. In September 2006, by further amendment,
these notes became payable on written demand by the lenders. Interest expense
for the nine months and three months ended September 30, 2006 and 2005 amounted
to $12,639 and $4,213; and $8,311 and $4,341, respectively. As of September 30,
2006 and 2005, accrued interest of $16,795 and $-0- is included in accrued
interest expense on the Company's consolidated balance sheets.


                                       14
<PAGE>

6. CONVERTIBLE DEBT

      During the year ended December 31, 2004, the Company issued convertible
      notes in the principal amounts of $961,400. The convertible notes had
      interest rates from 4% to 6% and matured at various dates between May 12,
      2006 and January 16, 2007. Theses notes are convertible into common stock
      at a conversion price of $0.05 to $0.125 per share. The maturity dates of
      two notes that originally matured in May 2006 have been extended until
      November 2006. The note with the maturity date of January 17, 2006, was
      converted into shares of common stock in the second quarter of 2006. A
      portion of these convertible notes, in the principal amount of $444,000,
      have an initial conversion price of $0.05 per share subject to adjustment
      if the Company issues common stock at a price below $0.05 per share. On
      September 16, 2004, the Company's board of directors resolved to prohibit
      the issuance of shares of common stock at a price below $0.05 per share
      for as long as any of the $444,000 convertible notes are outstanding.

      In connection with the issuance of the $444,000 convertible notes, the
      Company issued 8,880,000 common stock purchase warrants at an exercise
      price of $0.10 per share. The warrants expired March 31, 2006.

      The Company accounted for the warrants and the convertible debt with
      detachable warrants in accordance with Emerging Issues Task Force 00-27
      and 00-19 and SFAS No. 33. The Company performed calculations allocating
      the proceeds of convertible debt with detachable warrants to each
      respective security at their fair values. The Company used the conversion
      value of the convertible debt and calculated fair value of the warrants
      using the Black-Scholes valuation model for its estimate of fair value.
      The Company compared the allocated proceeds of the convertible debt to the
      difference between its conversion value and face amount. The calculated
      fair value of the convertible debt of $722,855 was recorded as the value
      of the Beneficial Conversion Feature and accordingly credited to
      Additional Paid-in Capital. The value of the warrants of $235,545 was
      recorded as a reduction of the convertible debt. The convertible debt was
      recorded at zero. The convertible debt will be accreted to its current
      face value of $359,740, after 2004 and 2005 conversions, under the
      interest method per APB No. 21 until it is either converted or matures. As
      of September 30 2006, the accretion amounted to $354,127, all of which is
      current.

      During the year ended December 31, 2005 and 2004, the note holders
      converted $232,500 and $70,000 into 4,650,000 and 1,400,000 shares of
      common stock, respectively. During the nine months ended September 30,
      2006, the noteholders converted an additional $255,160 principal amount
      into 4,753,280 shares of common stock. As of September 30, 2006, one of
      convertible notes in the principal amount of $60,000, became payable on
      demand because it was not converted on or before the maturity date. At
      September 30, 2006, the Company's outstanding convertible notes were
      convertible into 3,616,587 shares of common stock.

      On May 3, 2006, the Company issued a convertible note to a related party
      in the principal amount of $16,000. The note bears interest at 6% per
      annum and matures on November 3, 2007. The note is convertible into common
      stock at a conversion price of $0.06 per share.

      The following table shows the maturities by year of total face amount of
      the long-term convertible debt obligations at September 30, 2006:


                                          2006             $  343,740
                                          2007                 16,000
                                                           -----------
                                                              359,740
                                                           ===========


      For the nine months and the three months ended September 30, 2006 and
      2005, the Company recorded interest expense of $20,220 and $5,488; and
      $30,135 and $9,701, respectively. As of September 30, 2006 and 2005,
      accrued interest of $42,396 and $37,446, respectively, is included in
      accrued expenses on the Company's consolidated balance sheets.


                                       15
<PAGE>





7. ACCRUED EXPENSES

      Accrued expenses consist of the following:

                         September 30
                            2006
                          --------
Professional fees         $ 80,167
Interest expense            59,863
Payroll Expense            241,320
Payroll expense officers   303,511
Payroll tax expense         34,820
Other accrued expenses     136,682
                          --------
                          $856,363
                          ========

8. LOANS FROM RELATED PARTIES

      On March 22, 2005, the Company borrowed $71,731 from a shareholder of the
      Company, with interest at 6% per annum and the principal and interest due
      in three equal installments on June 21, September 19, and December 20,
      2005. On May 6, 2005, the Company paid the first installment consisting of
      $23,910 principal and $1,105 interest. On September 19, 2005, the Company
      paid the second installment consisting of $23,910 principal and $1,029
      interest. The note was amended on December 16, 2005 to extend the final
      installment payment until February 20, 2006. On February 3, 2006, the
      Company made the final payment consisting of $23,910 of principal and
      $1,563 of accrued interest. Interest expense for the nine months and the
      three months ended September 30, 2006 and 2005 amounted to $2,264 and
      $1,073; and $349 and $-0-, respectively.

      On May 17, 2006, the Company borrowed $30,000 from a shareholder of the
      Company, at interest of 6% per annum with the principal and interest due
      on May 17, 2008. Interest expense for the nine months ended September 30,
      2006 amounted to $672. The balance due to the shareholder is included in
      Notes Payable on the Company's consolidated balance sheets at September
      30, 2006.

9. RELATED PARTY TRANSACTIONS

a)    The Company's subsidiary, Delta-Envirotech, Inc. ("Envirotech") pays
      monthly office rent to David Razmara, the president of Envirotech and a
      shareholder of the Company, in the amount of $1,000. The rent expense for
      the nine months ended September 30, 2006 and 2005 amounted to $9,000 and
      $-0-, respectively.

b)    As of September 30, 2006, Delta Developers Corp., a majority-owned
      subsidiary of the Company, eliminated $203,000 of management fees payable
      to a related party, because the Company's initial low income housing
      project in Puerto Rico had been disapproved.

10. STOCKHOLDERS' DEFICIENCY

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

a)    For the nine months ended September 30, 2006, the Company issued 4,753,280
      shares of common stock upon the conversion of convertible notes in the
      original principal amount of $337,203, valued at $0.05 - $0.125 per share,
      and issued 397,426 shares of common stock for payment of accrued interest
      in the amount of $19,871, valued at $0.05 per share. For the nine months
      ended September 30, 2005, the Company issued 4,520,000 shares of common
      stock upon the conversion of convertible notes in the principal amount of
      $226,000 valued at $0.05 per share, and 175,354 shares of common stock
      for payment of accrued interest in the amount of $8,767, also valued at
      $0.05 per share; and issued 233,280 shares of common stock upon the
      partial conversion of a convertible note in the principal amount of
      $29,160 valued at $0.125 per share.


                                       16
<PAGE>





b)    For the nine months ended September 30, 2006, the Company issued 2,051,730
      shares of common stock for services valued at $400,391 at a price per
      share of $0.08 - $0.38. For the nine months ended September 30, 2005, the
      Company issued 2,496,674 shares of common stock for services valued at
      $1,009,315, at prices per share of $0.30 - $0.66.

c)    For the nine months ended September 30, 2006, the Company sold 13,126,667
      shares of common stock and issued 55,545 shares of common stock as
      associated commissions for net proceeds of $634,500, valued at $0.05 -
      $0.12 per share. For the nine months ended September 30, 2005, the Company
      sold 2,853,334 shares of common stock for net proceeds of $726,635, valued
      at $0.30 per share.

d)    For the nine months ended September 30, 2006, the Company issued 730,000
      shares of common stock upon the exercise of the Company's common stock
      purchase warrants at a conversion price of $73,000, valued at $0.10 per
      share. For the nine months ended September 30, 2005, the Company issued
      500,000 shares of common stock upon the exercise of the Company's common
      stock purchase warrants at a conversion price of $50,000, valued at $0.10
      per share.

e)    For the nine months ended September 30, 2005, the Company issued, to five
      employees, 613,000 shares of common stock, in the aggregate, from the
      Company's 2001 Employee Stock Option Plan (the " 2001 Plan"), for $61,300,
      valued at $0.10 per share. There were no shares of common stock from the
      2001 Plan issued during the nine months ended September 30, 2006.

f)    For the nine months ended September 30, 2006, the Company issued 225,000
      shares of common stock in settlement of a lawsuit for $42,750, valued at
      $0.19 per share, which expense was included in the Company's consolidated
      statements of operations for the year ended December 31, 2005.

11.   BUSINESS SEGMENT INFORMATION

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


      The following is a summary of key financial data:

                                  Nine Months             Three Months
                              ended September 30        ended September 30
                              2006          2005         2006        2005
                           -----------------------   ------------------------

Total Revenue:

            North America     $    --           --       $    --           --
            Indonesia         279,870           --        19,166           --
            Middle East            --           --            --           --
            Puerto Rico            --           --            --           --
                          -----------  -----------   -----------   ----------
                             $279,870           --      $ 19,166           --
                          ===========  ===========   ===========   ==========


                                       17
<PAGE>




Income (loss) from Operations:

           North America  $(1,670,309)  $(2,116,772)  $  (592,998)  $(1,219,030)
           Indonesia           65,453            --        (9,866)           --
           Middle East        (44,100)           --       (14,700)           --
           Puerto Rico         (9,359)           --       141,679            --
                          -----------   -----------   -----------   -----------
                          $(1,658,315) $(2,116,772) $ (475,885)     $(1,219,030)
                          ===========   ===========   ===========   ===========


12. SHARE BASED COMPENSATION

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

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

On September 30, 2006, the Company had one share-based compensation plan, which
is described below. During the first nine months of 2006, the adoption of SFAS
No.123(R) resulted in incremental stock-based compensation expense of $438,750.
The incremental stock-based compensation expense caused earnings before
provision for income taxes and net earnings to decrease by $438,750, and basic
and diluted earnings per common share to decrease by $0.01 per share.

Under the provisions of SFAS 123(R), the recognition of deferred compensation,
representing the amount of unrecognized restricted stock expense that is reduced
as expense is recognized, at the date restricted stock is granted, is not longer
required. Therefore, in the quarter ended March 31, 2006, the amount that had
been in "Deferred compensation" in the consolidated balance sheets was reversed
to zero.

Stock Option Plan

In December 2001, the Company's stockholders approved a stock option plan
entitled the 2001 Employee Stock Option Plan (the "2001 Plan"), pursuant to
which 2,000,000 shares of common stock were reserved for issuance. In August
2004, the Company's stockholders approved the 2004 Stock Option Plan (the "2004
Plan"), pursuant to which 10,000,000 shares of common stock were reserved for
issuance. As of September 30, 2006, all shares under the 2001 Plan had been
issued, and 1,222,000 shares of common stock remained available for issuance
under the 2004 Plan.

The Company was also authorized to issue shares of stock to its employees from
its 2001 Employee Stock Option Plan (the "2001 Plan"). The Company expensed the
issuance of stock awards in accordance with SFAS No. 123. Shares issued from the
2001 Plan were expensed at the time of issuance, as common stock issued had no
restrictions to the employees. The Company issued no stock awards to employees
from the 2001 Plan during the nine months ended September 30, 2006 and issued
613,000 shares to five employees during the similar period of 2005. The shares
issued were at fair market value as compensation to employees. The Company
recorded compensation expense of $-0- and $61,300 in the Company's consolidated
statements of operations for the nine months ended September 30, 2006 and 2005,
respectively.


                                       18
<PAGE>

The Company issues shares of its common stock to employees and non-employees as
stock based compensation. The Company accounts for the services using the fair
market value of the services rendered. For the nine months ended September 30,
2006, the Company issued 2,051,730 common shares, and recorded expense of
$400,391, of which $250,000 was included in prepaid expenses on the consolidated
balance sheets at September 30, 2006, in conjunction with the issuance of these
shares.

On February 17, 2006, the Company issued 778,000 stock options to five
employees. The Company recorded an expense of $447,435 which is included in the
consolidated statements of operations for the nine months ended September 30,
2006.

On July 3, 2006, the Company cancelled options to purchase a total of 7,978,000
shares of common stock granted in November 2004, December 2005 and February 2006
to four employees and an employee of a subsidiary from the Company's 2004 Plan.
Exercise prices for these options ranged from $0.17 to $0.25 per share. On July
3, 2006, the Company replaced these cancelled options by granting 7,978,000 new
stock options with an exercise price of $0.11 per share. In accordance with SFAS
No. 123(R), the Company incurred a quarterly non-cash charge of approximately
$44,000 beginning with the third quarter of 2006,that will extend over the
five-year period of the option grants. This non-cash charge represents the
incremental compensation cost associated with the issuance of the new stock
option grants.

The fair value of each option grant is estimated on the date of the grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 2006: dividends yield of 0%, expected volatility
of 116% and expected life of 10 years.


A summary of option activity under the 2004 Plan as of December 31, 2005 and
changes during the nine months ended September 30, 2006 is presented below:

<TABLE>
<CAPTION>
                                                                                Weighted
                                                                                 Average
                                                               Weighted         Remaining      Aggregate
                                                               Average         Contractual     Intrinsic
             Options                            Shares       Exercise Price        Term          Value
             -------                           ----------     ----------        ----------     ----------

<S>                                            <C>            <C>               <C>            <C>
Outstanding at January 1, 2006:                 8,000,000     $     0.25                --     $       --

Granted                                         8,756,000           0.12                --             --
Exercised                                              --             --                --             --
Forfeited, expired or cancelled:               (7,978,000)          0.24                --             --
                                               ----------
Outstanding at Sept 30, 2006                    8,778,000           0.12               4.3      1,120,920
Exercisable at Sept 30, 2006                    4,683,940           0.13               4.5        549,252
</TABLE>




A summary of the status of the Company's non vested options as of December 31,
2005 and changes during the nine months ended September 30, 2006 is presented
below:


                                       19
<PAGE>





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

Nonvested at December 31, 2005:             1,000,000      $           0.25
Granted                                     4,847,060                  0.12
Vested                                       (525,000)                 0.25
Forfeited, expired or cancelled:           (1,228,000)                   --
                                           -----------     ----------------
Nonvested at September 30, 2006             4,094,060                  0.11


At September 30, 2006 there was $2,196,250 of total unrecognized compensation
cost related to non vested share-based compensation arrangements granted under
the 2004 Plan. The cost is expected to be recognized over a weighted average
period of 2 years. The total fair value of shares vested during the nine months
ended September 30, 2006 and 2005 was $125,000 and $-0-, respectively.

A summary of the warrant activity as of December 31, 2005 and changes during the
nine months ended September 30, 2006 is presented below:

                                                         Weighted
                                                          Average
                                            Weighted     Remaining    Aggregate
                                             Average    Contractual   Intrinsic
             Warrants        Shares     Exercise Price     Term         Value
             --------     -----------   --------------  -----------  -----------

Outstanding at
January 1, 2006             7,580,000     $      0.10           --   $       --
Granted                            --              --           --           --

Exercised                    (730,000)           0.10           --       47,400
Forfeited or expired       (6,850,000)           0.10           --           --
                          ------------
Outstanding at
 Sept 30, 2006                     --              --           --           --
                          ------------

Exercisable at
 Sept 30, 2006                     --              --           --           --
                          ------------

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



13. COMMITMENTS AND CONTINGENCIES

      Consulting Agreements

      On August 26, 2005, the Company entered into a consulting agreement with
      Juan B. Rodriguez Pagan ("Rodriguez") to provide certain services and
      assistance to the Company in developing its construction and building
      materials businesses. The Company agreed to pay Rodriguez 48 monthly
      payments of $6,000 over the four-year term of the agreement and issue him
      shares of common stock upon his execution of the agreement and at
      subsequent intervals during the term of the agreement. As of September 30,
      2006, the Company issued Rodriguez $516,000 of its common stock. In
      addition, Rodriguez is entitled to a commission of 5% of the sales of
      Delta Technologies, Inc. Either party may terminate the agreement upon
      written notice, however, if the Company terminates the agreement,
      Rodriguez is entitled to all of the remaining monthly payments he would
      have been entitled to receive during the term of the agreement.


                                       20
<PAGE>





      For the nine months ended September 30, 2006, consulting fees of $30,000
      are included in accrued expenses on the Company's consolidated statements
      of operations. For the nine months ended September 30, 2006, the Company
      expensed $141,750 in consulting fees in conjunction with the issuance of
      common stock to Rodriguez. The remainder of the stock value of $295,250 is
      included as a prepaid expense on the Company's consolidated balance
      sheets.


      On August 26, 2005, Delta Technologies, Inc., a wholly-owned subsidiary of
      the Company ("Technologies"), entered into a consulting agreement with
      Richard F. Straub, Jr. ("Straub") for a period of three years, to provide
      ongoing technical assistance and support in the production of
      Technologies' insulating concrete wall forming products. Technologies
      agreed to pay Straub $4,400 per month over the term of the agreement and
      issue him shares of common stock at subsequent intervals during the term
      of the agreement. As of September 30, 2006, 131,578 shares with a value of
      $50,000 have been issued. Technologies can terminate the agreement at any
      time, but only for cause (defined, among other things, as a breach of the
      agreement by Straub). In the event of termination for cause, Technologies
      has no further liability to Straub.

      For the nine months ended September 30, 2006, consulting fees of $39,600
      have been expensed and $4,167 of the stock value is included in accrued
      expenses on the Company's consolidated statement of operations.

14.   SUBSEQUENT EVENTS

a)    In October 2006, the Company issued 45,000 shares of common stock to a
      consultant for consulting services performed in the previous quarter and
      valued, in the aggregate, at $12,000 or $0.27 per share.

b)    At September 30, 2006, the Company's Consolidated Balance Sheets reflected
      $164,500 classified as "Deferred stock purchases." On October 30, 2006,
      the Company sold 4,000,000 shares of common stock to two stockholders for
      net proceeds of $180,000, after paying associated commissions, and the
      entire amount classified as deferred stock purchases was applied to the
      gross purchase price of the shares sold.


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

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

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


                                       21
<PAGE>



GENERAL

We were incorporated in the State of Delaware on November 17, 1999 and will
require additional capital to execute our planned business operations.

RESULTS OF OPERATIONS

During the nine months ended September 30, 2006, we had revenue of $279,870 but
incurred a net loss of $1,976,112 because our revenue was not sufficient to
offset operating expenses. The loss in the first nine months was primarily
attributable to general and administrative expenses of approximately $1,826,000,
including consulting and professional fees of approximately $586,000, non-cash
compensation of $262,000 and compensatory element of stock options of $698,000.
In addition, we had accretion of convertible debt of approximately $170,000, and
an increase in cost of sales of about $113,000.

THIRD QUARTER

The Note 1 of the Notes to Unaudited Consolidated Financial Statements
accompanying this report states that substantial doubt has been raised about our
ability to continue as a going concern. Our present business operations do not
generate enough revenue with which to cover our expenses. We will have to raise
capital through the placement of our securities in order to remain viable. We
are continuing to incur management and administrative costs, professional fees
and other expenses. If we are unable to raise capital we will be unable to fund
our plan of operations. Because we will continue to incur net losses, we may
have to cease operations entirely. This factor, among others, raises substantial
doubt about our ability to continue as a going concern.

Our ability to continue as a going concern is dependent upon our ability to
obtain funds to meet our obligations on a timely basis, obtain additional
financing or refinancing as may be required, and ultimately to attain
profitability. There are no assurances that we will be able to obtain any
additional financing or, if we are able to obtain additional financing, that
such financing will be on terms favorable to us. The inability to obtain
additional financing when needed would have a material adverse effect on our
operating results.

NINE MONTHS ENDED SEPTEMBER 30, 2006 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER
30, 2005.

The net loss decreased from approximately $2,692,591 for the nine months ended
September 30, 2005 to approximately $1,976,000 for the nine months ended
September 30, 2006.

The items of significant increase or decrease in the nine months ended September
30, 2006 over the comparable period of the prior year were an increase in cost
of sales of approximately $113,000; a decrease in general and administrative
expense from approximately $2,117,000 in 2005 to approximately $1,826,000; a
decrease in accretion of convertible debt from approximately $317,000 to
$170,000; a decrease in interest expense from approximately $119,000 to $33,000
for the nine months ended September 30, 2006; and an increase in the minority
share of income of consolidated subsidiaries from approximately $77,000 in 2005
to approximately $115,000 for the nine months ended September 30, 2006.

CRITICAL ACCOUNTING ISSUES

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


                                       22
<PAGE>




PLAN OF OPERATION

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

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

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

We intend to continue our operations in the Far East. Additional capital is
required to continue these operations as well as our planned operations in Saudi
Arabia and the United States. Our first low-income housing project in Puerto
Rico was rejected for re-zoning and cannot go forward as submitted. While the
property owners are currently evaluating alternative courses of action with
respect to this project, we are seeking a suitable parcel of land for a new, low
income housing project.

Far East (Indonesia)

In Indonesia, we formed a local joint venture company to commence energy and
waste recovery operations. The joint venture company, PT. Triyudha-Envirotech,
began operations on December 15, 2005, pursuant to a contract with Pertamina.
During the third quarter, the operation processed the remaining 190 metric tons
of oil sludge from designated sludge pools under the initial 3,000 metric ton
contract. We expect to be awarded a second contract before year-end and begin
processing operations in 2007.

Middle East

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

During July 2006, representatives of one of the potential purchasers of a
turn-key ICF factory conducted a site visit to similar factory in Kuwait.
Subsequently, a detailed proposal was prepared and submitted to the potential
purchaser by Envirotech. This resulted in a Letter of Intent from the potential
purchaser issued on September 27, 2006. The purchaser is in the process of
obtaining the required permits prior to issuing the final purchase order.

On July 18, the Company announced that Envirotech has expanded its product line
by securing the master distribution rights for the Middle East, among other
areas, for environmentally friendly organic emulsifiers used in oil tank
cleaning and to enhance oil well production. Testing of these products is
currently scheduled to take place during the fourth quarter of 2006 for the
purpose of receiving environmental approvals and to validate the product
performance.


                                       23
<PAGE>




During the second quarter of 2006, a Letter of Intent was signed to supply
equipment to the Saudi Gulf Environmental Protection Company (SEPCO)to recover
silver from used x-ray film, subject to approval from the Saudi environmental
authority (PME). PME was scheduled to inspect this equipment in the US in late
August 2006 for the purpose of issuing its approval. The inspection visit has
been delayed due to the availability of the inspectors.

In August 2006, we announced that Envirotech expanded it product and service
offerings by securing the exclusive Middle East distribution rights for an
infrared gas imaging product that detects and visualizes harmful gasses produced
by oilfield and refinery operations.

United States

On August 26, 2005, we acquired, through a wholly-owned subsidiary, certain
intellectual property and filed a patent application for a new insulating
concrete wall forming (ICF) system. The innovative and patent pending design of
the system allows for integrated attachment strips molded into the inner and
outer surfaces and superior "R" Value of the block itself. In addition to the
patent filing, the Company engaged a technical consultant and a business
development consultant to further the design and development of the Company's
ICF products. The mold that is required to produce the new product was completed
in July 2006. Initial production began on September 15, 2006. These first
production blocks are currently undergoing internal inspection and testing to
ensure adherence to design specifications.

Puerto Rico

We plan to pursue low income housing development in Puerto Rico. Our initial
project for approximately 270 homes on a 36 acre tract in Aguadilla was rejected
by the Planning Board. Subsequent appeals to change the zoning of the land were
also unsuccessful. In July 2006, we were notified that the Supreme Court of
Puerto Rico denied a motion by the property owners to review the previous
decisions. As submitted, this project, known as " Brisas del Atlantico," can not
proceed. The property owners are currently evaluating whether or not to submit a
new project on this property, possibly including some non-Section 124 housing,
as well as other possible courses of action. Because this initial project was
not approved, we eliminated $203,000 of management fees associated with this
project, payable to a related party, as of September 30, 2006.

Our second majority owned joint venture was established to build approximately
300 Section 124 homes on a 40 acre tract located in Guayanilla. This tract of
land is part of a 150 acre development that will also include other residential
properties, commercial/retail buildings and a hotel. The project's developer has
submitted the master plan to the Planning Board for its initial evaluation and
comments.

In addition, we are actively seeking a suitable parcel of land for a new low
income housing development that is already approved for Section 124 housing and
zoned for residential housing.

FUNDING

We are currently dependent on equity investments or borrowing from private
investors to pay our operating expenses. There are no assurances that such
investors will continue to advance funds or invest in the Company's securities.
In the event we are unable to obtain additional capital or funding we may be
unable to pursue our business plans. We anticipate that we will be required to
raise capital in the approximate amount of $1,000,000 in the next nine months in
order to continue to fund our initial operations and to finance our planned
business operations.

LIQUIDITY

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


                                       24
<PAGE>




At September 30, 2006, we had a working capital deficit of $946,573 compared
with $1,133,016 at September 30, 2005. The decrease in our working capital
deficit is a result of an increase of approximately $566,000 in current assets
primarily comprised of increases in cash and prepaid expenses at September 30,
2006 compared to the prior year period, and an increase of approximately
$300,000 in accounts receivable. The increase in current assets was offset by
increases in accrued expenses and notes payable compared to the prior year
period and the accretion of convertible debt. Since we have limited sources of
revenue, our working capital deficit will continue until we have sufficient
revenue to reduce our accounts payable and accrued expenses. Presently, although
we have some revenue, we are dependent upon private placements of our stock and
loans from private investors for funding.

In the nine month period ended September 30, 2006, we raised $634,500 of equity
capital through the sale of 13,126,667 shares of common stock. In addition, we
raised $73,000 through the exercise of our common stock warrants and borrowed
$46,000 from two shareholders, to provide financing for our activities. In
October 2006, we sold 4,000,000 shares of common stock for $180,000, of which
$164,500 had been received and recorded as a deferred stock purchase as of
September 30, 2006.

ASSETS

At September 30, 2006, we had total assets of $1,324,842, compared to total
assets of $759,708 at September 30, 2005. Current assets, as of September 30,
2006, increased to approximately $722,000 due to increases in cash, accounts
receivable and prepaid expenses. Fixed assets, compared to the prior year
period, decreased by approximately $157,000 resulting from an increase in fixed
assets offset by a subsequent write off of capitalized construction costs.

CRITICAL ACCOUNTING ISSUES

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

Other Matters


Accounting Pronouncements


In September 2006, the SEC issued Staff Accounting Bulletin ("SAB") No. 108,
"Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements," which provides interpretive
guidance on the consideration of the effects of prior year misstatements in
quantifying current year misstatements for the purpose of a materiality
assessment. The SEC staff believes that registrants must quantify errors using
both a balance sheet and income statement approach and evaluate whether either
approach results in quantifying a misstatement that, when all relevant
quantitative and qualitative factors are considered, is material. SAB No. 108 is
effective for annual financial statements covering the first fiscal year ending
after November 15, 2006, with earlier application encouraged for any interim
period of the first fiscal year ending after November 15, 2006, filed after the
publication of SAB No. 108 (September 13, 2006). The Company is currently
evaluating the impact that SAB No. 108 could have on its results of operations
or financial condition.


In September 2006, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 158, "Employers' Accounting for Defined Benefit Pension and Other Post
Retirement Plans," an amendment of FASB Statements No. 87, 88, 106 and 132(R).
FASB 158 will require employers to recognize their defined benefit plans'
overfunded or underfunded status in their balance sheets, require employers to
measure plan assets and plan obligations as of the balance sheet date,
immediately recognize any remaining transition obligation currently being
deferred, and recognize actuarial gains and losses through other comprehensive
income. The statement is effective for fiscal years ending after December 15,
2006. The Company is evaluating SFAS No. 158 and has not determined the impact
it will have on its consolidated financial statements as of and for the year
ended December 31, 2006.



                                       25
<PAGE>



In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements,"
which enhances existing guidance for measuring assets and liabilities using fair
value. The new Statement provides a single definition of fair value, together
with a framework for measuring it, and requires additional disclosure about the
use of fair value to measure assets and liabilities. SFAS No. 157 also
emphasizes that fair value is a market-based measurement, not an entity-specific
measurement, and sets out a fair value hierarchy with the highest priority being
quoted prices in active markets. Under SFAS No. 157, fair value measurements are
disclosed by level within that hierarchy. While SFAS No. 157 does not add any
new fair value measurements, it does change current practice. SFAS No. 157 is
effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. The Company
does not believe that SFAS No. 157 will have a material impact on its financial
statements.


In July 2006, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" ("FIN 48").
The interpretation requires a two step approach for recognizing and measuring
tax benefits based on a recognition threshold of "more likely than not." FIN 48
also requires explicit disclosures about uncertainties in tax positions
including a detailed rollforward of tax benefits that do not qualify for
financial statement recognition. The adoption of FIN 48 is effective for fiscal
years beginning after December 15, 2006, The implementation of FIN 48 could have
a material effect on the consolidated balance sheets and results of operations
but the effect of such implementation is not determinable at this time.

In December 2004 the FASB issued SFAS No. 153, an amendment of APB Opinion No.
29, "Exchange of Nonmonetary Assets." SFAS No. 153 amends APB Opinion No.29 by
eliminating the exception under APB No. 29 for nonmonetary assets of similar
productive assets and replaces it with a general exception for exchanges on
nonmonetary assets that do not have commercial substance. A nonmonetary exchange
has commercial substance if the future cash flows of the entity are expected to
change significantly as a result of the exchange. SFAS no. 153 is effective for
fiscal years beginning after June 15, 2005. The adoption of SFAS No. 153 did not
have a material effect on the Company's consolidated financial position or
results of operations.

In December 2004, the FASB issued SFAS No. 123(R), "Share-Based Payment," that
required compensation costs related to share-based payment transactions to be
recognized in the financial statements. With limited exceptions, the amount of
compensation cost will be measured based on the grant-date fair value of the
equity or liability instruments issued. In addition, liability awards will be
re-measured each reporting period. Compensation cost will be recognized over the
period that an employee provides service in exchange for the reward. SFAS No.
123(R) is effective as to the Company as of the beginning of the Company's 2006
fiscal year. The Company accounted for the stock-based compensation costs using
the modified prospective method at the time of adoption. The adoption of SFAS
123(R) resulted in incremental stock-based compensation expense of $292,500
during the nine months ended September 30, 2006. The adoption of SFAS 123(R) did
have a material effect on the consolidated balance sheets as of September 30,
2006 and the consolidated statements of cash flows for the nine months ended
September 30, 2006.

FOREIGN CURRENCY TRANSLATION

The functional currency for some foreign operations is the local currency.
Assets and liabilities of foreign operations are translated at balance sheet
date rates of exchange and income, expense and cash flow items are translated at
the average exchange rate for the period. Translation adjustments in future
periods will be recorded in Accumulated Other Comprehensive Income. The
translation gains or losses were not material for the nine months and the three
months ended September 30, 2006 and 2005.


                                       26
<PAGE>




INTANGIBLES

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

Quantitative and Qualitative Disclosures About Market Risk

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

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

The Company has not entered into, and does not expect to enter into, financial
instruments for trading or hedging purposes. The Company does not currently
anticipate entering into interest rate swaps and/or similar instruments.

The Company's carrying values of cash, marketable securities, accounts
receivable, accounts payable and accrued expenses are a reasonable approximation
of their fair value.


Item 3. Controls and Procedures

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

(b) Changes in internal controls over financial reporting. During the Company's
first quarter of fiscal 2006, we expanded our disclosure controls and procedures
in certain respects; such expansion is reasonably likely to materially affect
the Company's internal controls over financial reporting. In the first quarter
of fiscal 2006, we initiated a review procedure that included discussion of the
pertinent accounting and disclosure issues by a group including the Chief
Executive Officer(and sole director), the Chief Financial Officer, outside
counsel and the Company's independent auditors. The Company's internal controls
and procedures also have been, and will in the future continue to be, reviewed
by the Company's independent auditors in connect with their audit work.



PART II - OTHER INFORMATION

ITEM 5. Other Information




ITEM 6. Exhibits

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


                                       27
<PAGE>




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

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

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




                                   SIGNATURES

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

                                       DELTA MUTUAL, INC.

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

Dated:  November 10, 2006


                                       28
<PAGE>






                                  EXHIBIT INDEX


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

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

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

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


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