EARTH LIFE SCIENCES INC - Quarter Report: 2009 March (Form 10-Q)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2009

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT
For the transition period from _________ to __________________

001-31444
(Commission File Number)

ALTUS EXPLORATIONS, INC.
(Exact name of registrant as specified in its charter)

Issuer’s telephone number, including area code:   (713) 703-8666

Former name, former address and former fiscal year, if changed since last report:   N/A

Check whether the registrant (1) filed all reports required to be filed by sections 13 or 15(d) of the Exchange Act during the past 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 [   ]

Check whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. Large accelerated filer [   ] Accelerated filer [   ] Non-accelerated filed [   ] Smaller reporting company [X]

Check whether the registrant is a shell company, as defined in Rule 12b-2 of the Exchange Act.   Yes [X]    No [   ]

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: As of March 31, 2009 the registrant’s outstanding common stock consisted of 2,328,633 shares.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ALTUS EXPLORATIONS, INC.

(A Development Stage Company)

FINANCIAL STATEMENTS

March 31, 2009

(Unaudited)

ALTUS EXPLORATIONS, INC.
(A Development Stage Company)
BALANCE SHEETS
(Unaudited)

The accompanying notes are an integral part of these financial statements

ALTUS EXPLORATIONS, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(Unaudited)

The accompanying notes are an integral part of these financial statements

ALTUS EXPLORATIONS, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(Unaudited)

The accompanying notes are an integral part of these financial statements

NOTE 1 - BASIS OF PRESENTATION

Nature of Business

Altus Explorations, Inc. (“the Company”) was incorporated in Nevada on November 2, 2001. The Company is engaged in the acquisition and exploration for oil and natural gas. The Company does not currently hold an interest in any oil and gas properties and as of January 1, 2007 commenced reporting as a development stage company as defined by Statement of Financial Accounting Standards (“SFAS”) No. 7, “Development Stage Enterprises.”

The foregoing unaudited interim financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q as promulgated by the Securities and Exchange Commission. Accordingly, these financial statements do not include all of the disclosures required by generally accepted accounting principles for complete financial statements. Except as disclosed herein, these unaudited interim financial statements should be read in conjunction with the audited financial statements for the period ended December 31, 2008 included in the Form 10-K. In the opinion of management, the unaudited interim financial statements furnished herein include all adjustments, all of which are of a normal recurring nature, necessary for a fair statement of the results for the interim period presented. The results of operations for such periods are not necessarily indicative of the results expected for a full year or for any future period.

Going concern

These financial statements have been prepared on a going concern basis, which implies the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The Company is unlikely to pay dividends or generate significant earnings in the immediate or foreseeable future. The continuation of the Company as a going concern and the ability of the Company to emerge from the development stage are dependent upon its successful efforts to raise additional equity financing to continue operations and generate sustainable significant revenue. There is no guarantee that the Company will be able to raise adequate equity financings or generate profitable operations. As at March 31, 2009, the Company has incurred losses of $6,270,419 since inception and had a working capital deficiency of $240,649. These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern.

Management of the Company has undertaken steps as part of a plan with the goal of sustaining Company operations for the next twelve months and beyond. These steps include: (a) continuing efforts to raise additional capital and/or other forms of financing; and (b) controlling overhead and expenses. There can be no assurance that any of these efforts will be successful.

NOTE 2 – DUE TO RELATED PARTIES

At March 31, 2009, the Company had received advances from a company controlled by a significant shareholder totalling $66,200 (2008 - $66,200). The advances are secured by a general security interest in the assets of the Company and carry an interest rate of 12% per annum. During the quarter ended March 31, 2009, the Company incurred $1,959 (2008 – $1,975) in accrued interest on this balance. The total outstanding principal balance of $66,200 (2008 - $66,200) has been included in the convertible loans balance at year end (Note 3). Accrued interest of $23,988 has been included in accounts payable and accrued liabilities at year end.

At March 31, 2009, the Company had accounts payable of $35,072 (2008 - $35,072) owing to a company controlled by a significant shareholder. The balance has been included in accounts payable and accrued liabilities at year end. This amount is unsecured, non interest bearing and has not set terms for repayment.

All related party transactions are measured at the exchange amount which is determined by management to approximate their fair value.

NOTE 3 – CONVERTIBLE LOANS

At March 31, 2009, the Company had received advances from certain shareholders totaling $88,750 (2008 -$88,750), of which $66,200 (2008 - $66,200) was received from a company controlled by a significant shareholder. On March 8, 2007, the Company entered into Convertible Loan Agreements (the “Loans”) with the shareholders whose Loans matured on December 31, 2007 and required payment of all outstanding principal and interest in full on January 2, 2008.

The Loans interest rates are 12% per annum payable in arrears upon the maturity of the Loans. The Company accrued interest of $2,626 (2008 - $2,648) on the loans during the three months ended March 31, 2009.

The Loans are convertible at the shareholders’ option into common stock at the lower of ten day average common share price immediately preceding the date of the Loans or the ten day average common share price immediately preceding the date that a Lender provides Notice of Conversion to the Company, but in no circumstance at a conversion rate of less than $0.001 per common share. The Loans are secured by the assets of the Company, and provide that in the occurrence of certain events the Loans’ maturities are accelerated. The Company may prepay the Loans at anytime without penalty or bonus.

The ten day average share price immediately preceding the date of the loan was equal to the share price on the agreement date. The conversion feature had no intrinsic value and accordingly no beneficial conversion feature was recorded.

As at March 31, 2009, the Company has not repaid the Loans, nor have the shareholders’ provided a Notice of Conversion to the Company. The Company is currently in negotiations with the shareholders to settle the Loans.

NOTE 4 – COMMON STOCK

The Company entered into a subscription agreement for the issuance of 2,000,000 common shares at a price of $0.005 per share in December 2007 and received $10,000 in advance. During the year ended December 31, 2008, the Company received an additional $10,000 in advance for the issuance of an additional 2,000,000 common shares at a price of $0.005 per share. These shares have not been issued.

Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operation

Results of Operations

Three Months Ended March 31, 2009 and 2008

Our net loss for the three months ended March 31, 2009 totaled $6,409. This compares with our net loss of $14,330 for the three months ended March 31, 2008. General and administrative expenses for the three months ended December 31, 2009 and 2008 were $3,667 and $11,333, respectively. The decrease in general and administrative expenses from 2008 to 2009 is mainly due to the constraints of available funds. The general and administrative in the three months ended March 31, 2009 consists of rent $3,584 (2008 - $4,529), bank charges $83 (2008 - $180), professional fees nil (2008 - $3,641), office fees nil (2008 - $2,983),

We incurred interest expense during the three months ended March 31, 2009 of $2,626 compared to $2,648 for the same period in 2008. The interest expense was incurred due to advances made by certain shareholders in the amount of $88,750. The Company entered into Convertible Loan Agreements (the “Loans”) with these shareholders whose Loans matured on December 31, 2007 and required payment of all outstanding principal and interest in full on January 2, 2008. Interest rates are 12% per annum payable in arrears upon the maturity of the Loans. The shareholders agreed to forego interest that accrued during 2006, and provided for interest on the outstanding Loan balances to commence January 1, 2007. The Company accrued interest total of $23,988 on the Loans as at March 31, 2009. As of March 31, 2009 and the date of this report, the Company has not repaid the Loans, nor have the shareholders’ provided a Notice of Conversion to the Company. The Company is in negotiations with the shareholders to settle the Loans.

The Company had no revenues for the quarter ended March 31, 2009.

January 1, 2007 to March 31, 2009

The company currently holds no producing assets and has no revenues.

The net loss for the period from January 1, 2007 to March 31, 2009 being the development stage totaled $115,254. Of the net loss 78% or $89,943 is attributed to general and administrative expenses. We incurred $23,988 or 21% of the total net loss due to interest expense on convertible loans made to certain shareholders. Amortization costs for the period were $1,074 or less than 1% of net loss.

Liquidity and Capital Resources

Natural gas and oil exploration, drilling and development activities requires substantial capital resources, and we historically have not been able to secure sufficient financing to act on oil and gas investment opportunities as they are identified. If we are unsuccessful in obtaining financing and fail to achieve and sustain a profitable level of operations, we may be unable to fully implement our business plans or continue operations. Future financing through equity, debt or other sources could result in the dilution of Company equity, increase our liabilities, and/or restrict the future availability and use of cash resources. Additionally, there can be no assurance that adequate financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, we will be unable to execute our business plans, and will be required to scale back the pace and magnitude of our oil and gas prospects drilling and development initiatives. We also may not be able to meet our vendor and service provider obligations as they become due. In such event, we will be forced to cease our operations.

Future Operations

Cash Requirements

During the twelve month period ending December 31, 2009, we project cash requirements of approximately $100,000 as we continue to restructure our activities. Our requirements are comprised of $35,000 for general and administrative costs primarily related to professional fees associated with being a public company; and $65,000 for our screening of potential oil and gas projects and sourcing of financing to fund economically viable projects identified in connection with our screening process.

There are no assurances, however, that we will be able to raise sufficient financing to meet our needs in the future. In the event that we are unable to raise additional financing, and fail to generate significant operating cash flow, we will be required to modify our exploration and development plan accordingly. Should we raise funds through equity financing, debt financing, or other sources, it could result in dilution in the equity ownership of our shares. There is still no assurance that we will be able to maintain operations at a level sufficient for an investor to obtain a return on his investment. Further, until we are able to raise additional capital, we expect to continue to be unprofitable.

Over the next twelve months we intend to use all available funds to continue the exploration and development of oil and gas opportunities, and our estimated funding needs for the next twelve months are summarized below:

Estimated Funding Required During the Twelve Month Period Ending December 31, 2009

Product Research and Development

Our business plan is focused on the exploration and development of oil and gas interests.

We do not anticipate that we will expend any significant funds on research and development over the next twelve months ending December 31, 2009.

Purchase of Significant Equipment

We do not intend to purchase any significant equipment over the next twelve months ending December 31, 2009.

Employees

Currently we have no full-time or part-time employees. We utilize short term contractors as necessary. Our directors and officers provide services on a month to month basis pursuant to oral arrangements, but have not signed employment or consulting agreements with us. We do not expect any material changes in the number of employees over the next 12 month period. We may enter formal written service agreements with our directors and officers in the future. We expect to continue to outsource contract employment as needed. Depending on the level of success of our exploration and development initiatives, we may retain full- or part-time employees in the future.

Going Concern

The accompanying financial statements have been prepared assuming we will continue as a going concern. We incurred a net loss of $6,409 for the quarter ended March 31, 2009 and a net loss of $14,330 for the same period in 2008.

The Company’ primary source of operating funds during 2008 has been advances from shareholders. The Company does not currently hold an interest in any oil and gas properties.

There are no assurances that we will be able, over the next twelve months, to either (1) achieve a level of revenues adequate to generate sufficient cash flow from operations; or (2) obtain additional financing through either private placement, public offerings, bank financing or shareholder advances necessary to support Altus' working capital requirements. To the extent that funds generated from operations and any private placements, public offerings or bank financing are insufficient, the Company will have to raise additional working capital. No assurance can be given that additional financing will be available, or if available, will be on terms acceptable to Altus. If adequate working capital is not available, Altus may be required to cease its operations.

The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence. These conditions raise substantial doubt about our ability to continue as a going concern. There are no definitive agreements or arrangements for future funding.

APPLICATION OF CRITICAL ACCOUNTING POLICIES

Our financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles in the United States. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management's application of accounting policies. We believe that understanding the basis and nature of the estimates and assumptions involved with the following aspects of our consolidated financial statements is critical to an understanding of our balance sheet, the statements of operations and stockholders' equity, and the cash flows statements included elsewhere in this filing.

Item 4(T).   Controls and Procedures

The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as required by Sarbanes-Oxley (SOX) Section 404 A. The Company's internal control over financial reporting is a process designed under the supervision of the Company's Principal Executive Officer who is also our Principal Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company's financial statements for external purposes in accordance with U.S. generally accepted accounting principles.

As of March 31, 2009, management assessed the effectiveness of the Company's internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") and SEC guidance on conducting such assessments. Based on that evaluation, they concluded that, during the period covered by this report, such internal controls and procedures were not effective to detect the inappropriate application of US GAAP rules as more fully described below. This was due to deficiencies that existed in the design or operation of our internal control over financial reporting that adversely affected our internal controls and that may be considered to be material weaknesses.

The matters involving internal controls and procedures that the Company's management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: (1) inadequate segregation of duties consistent with control objectives; (2) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements; and (3) ineffective controls over period end financial disclosure and reporting processes. The aforementioned material weaknesses were identified by the Company's Principal Financial Officer in connection with the audit of our financial statements as of December 31, 2008 and communicated the matters to our management.

Management believes that the material weaknesses set forth in items (1), (2) and (3) above did not have an effect on the Company's financial results.

We are committed to improving our financial organization. As part of this commitment, we will i) create a position to segregate duties consistent with control objectives and will increase our personnel resources and technical accounting expertise within the accounting function when funds are available to the Company ii) preparing and implement sufficient written policies and checklists which will set forth procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements.

Management believes that preparing and implementing sufficient written policies and checklists will remedy the following material weaknesses (i) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements; and (ii) ineffective controls over period end financial close and reporting processes. Further, management believes that the hiring of additional personnel who have the technical expertise and knowledge will result proper segregation of duties and provide more checks and balances within the department. Additional personnel will also provide the cross training needed to support the Company if personnel turn over issues within the department occur.

We will continue to monitor and evaluate the effectiveness of our internal controls and procedures and our internal controls over financial reporting on an ongoing basis and are committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow. This annual report does not include an attestation report of the Company's registered accounting firm regarding internal control over financial reporting.

Management's report is not subject to attestation by the Company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission.

PART II – OTHER INFORMATION

Item 6.   Exhibits

SIGNATURES

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