**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

**FORM 10-KSB**

(Mark One)

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

For the fiscal year ended  **December 31, 2004**
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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | ] | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from [  

] to [  

]

 
Commission file number  **0-31444**

**Altus Explorations, Inc.******

(Name of small business issuer in its charter)

 

**Nevada******

 

**98-0361119******

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

**Suite 100 - 8900 Germantown Road****Olive Branch, Mississippi******

 

**38654******

(Address of principal executive offices)

 

(Zip Code)

Issuer’s telephone number  **662.893.7376**

Securities registered pursuant to Section 12(b) of the Act:

Title of each class**Nil**

 

Name of each exchange on which registered**Nil**

Securities registered pursuant to Section 12(g) of the Act:

**Common Shares, par value $0.001******

(Title of class)****

Check whether the issuer (1) filed all reports required to be filed by Section 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 if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [   ]

State issuer’s revenues for its most recent fiscal year. $25,510

 

 

 

 

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked prices of such common equity, as of a specified date within 60 days. 

27,366,888 shares at $.76(1) per share = $20,798,835.

(1) based on the average bid ask price as of April 1, 2005.

State the number of shares outstanding of each of the issuer’s classes of equity stock, as of the latest practicable date.

**42,594,326 common shares issued and outstanding as of March 30, 2005.**

Transitional Small Business Disclosure Format (Check one):   Yes [   ];   No x

 

 

 

 

**Glossary of Oil and Gas Terms**

 

The following are abbreviations and definitions of certain terms commonly used in the oil and gas industry and this information statement: 

 

***Bbl.***  One stock tank barrel, or 42 U.S. gallons liquid volume, used in reference to oil or other liquid hydrocarbons.  

***Bcf.***  One billion cubic feet of gas.******

***BOE.***  One stock tank barrel equivalent of oil, calculated by converting gas volumes to equivalent oil barrels at a ratio of 6 Mcf to 1 Bbl of oil. 

***“Carried” Working interest.***  A working interest in an oil and gas lease that gives the owner of the interest the right to drill for and produce oil and gas on the leased acreage and, but does not require the owner to pay a share of the costs of drilling. The owner’s share of drilling costs is “carried” by another party. A “carried” working interest owner generally is required to pay its proportionate share of production costs. 

***Developed acreage.***  The number of acres which are allocated or assignable to producing wells or wells capable of production. 

***Development well.***  A well drilled within the proved area of an oil or gas reservoir to the depth of a stratigraphic horizon known to be productive. 

***Differential.***  An adjustment to the price of oil or natural gas from an established spot market price or index to reflect differences in the location of the oil or natural gas. Also commonly referred to as location basis.

***Exploratory well.***  A well drilled to find and produce oil or gas in an unproved area, to find a new reservoir in a field previously found to be productive of oil or gas in another reservoir, or to extend a known reservoir. 

***Farm-In / Farm-Out.***  An agreement between a participant who brings a property into the venture and another participant who agrees to spend an agreed amount to explore and develop the property and has no right of reimbursement but may gain a vested interest in the venture. A “Farm-In” describes the position of the participant who agrees to spend the agreed-upon sum of money to gain a vested interest in the venture.  A “Farm-Out” describes the position of the participant who brings a property into the venture and grants a interest in the venture to the participant who spends an agreed-sum of money to earn its interest in the venture. 

***Gas.***  Natural gas.******

 
***Gross acres.***  The total acres in which a person or entity has a working interest.******

 
***Gross oil and gas wells.***  The total wells in which a person or entity owns a working interest.******

***Infill drilling.***  A drilling operation in which one or more development wells is drilled within the proven boundaries of a field. 

***MBbl.***  One thousand barrels of oil or other liquid hydrocarbons.******

***MBOE.***  One thousand BOE.******

 
***Mcf.***  One thousand cubic feet of gas.******

 
***Midstream.***  The portion of the oil and gas industry focused on marketing, gathering, transporting and storing oil. 

***MMBbl.***  *One million barrels of oil or other liquid hydrocarbons.*******

 
***MMBOE.***  One million BOE.******

 
***MMcf.***  One million cubic feet of gas.******

 
***Net acres.***  Gross acres multiplied by the percentage working interest.******

 

 

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***Net oil and gas wells***.   Gross wells multiplied by the percentage working interest.******

 
***Net production.***  Production that is owned, less royalties and production due others.******

***Net revenue interest.***  Our share of revenues after satisfaction of all royalty and other non-cost-bearing interests. 

***NYMEX.***  New York Mercantile Exchange.******

 
***Oil.***  Crude oil, condensate and natural gas liquids.******

***Operator.***  The individual or company responsible for the exploration and/or exploitation and/or production of an oil or gas well or lease. 

***PV-10.***  The pre-tax present value, discounted at 10% per year, of estimated future net revenues from the production of proved reserves, computed by applying sales prices in effect as of the dates of such estimates and held constant throughout the productive life of the reserves (except for consideration of price changes to the extent provided by contractual arrangements), and deducting the estimated future costs to be incurred in developing, producing and abandoning the proved reserves (computed based on current costs and assuming continuation of existing economic conditions). 

***Proved developed reserves.***  Proved developed oil and gas reserves are reserves that can be expected to be recovered through existing wells with existing equipment and operating methods. Additional oil and gas expected to be obtained through the application of fluid injection or other improved recovery techniques for supplementing the natural forces and mechanisms of primary recovery should be included as “proved developed reserves” only after testing by a pilot project or after the operation of an installed program has confirmed through production response that increased recovery will be achieved. 

***Proved reserves.***  Per Article 4-10(a)(2) of Regulation S-X, the SEC defines proved oil and gas reserves as the estimated quantities of crude oil, natural gas, and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions, i.e., prices and costs as of the date the estimate is made. Prices include consideration of changes in existing prices provided only by contractual arrangements, but not on escalations based upon future conditions.  

Reservoirs are considered proved if economic productivity is supported by either actual production or conclusive formation test. The area of a reservoir considered proved includes: (i) that portion delineated by drilling and defined by gas-oil and/or oil-water contacts, if any; and (ii) the immediately adjoining portions not yet drilled, but which can be reasonably judged as economically productive on the basis of available geological and engineering data. In the absence of information on fluid contacts, the lowest known structural occurrence of hydrocarbons controls the lower proved limit of the reservoir. 

Reserves which can be produced economically through application of improved recovery techniques (such as fluid injection) are included in the “proved” classification when successful testing by a pilot project, or the operation of an installed program in the reservoir, provides support for the engineering analysis on which the project or program was based. 

Estimates of proved reserves do not include: (i) oil that may become available from known reservoirs but is classified separately as “indicated additional reserves” (ii) crude oil, natural gas, and natural gas liquids, the recovery of which is subject to reasonable doubt because of uncertainty as to geology, reservoir characteristics, or economic factors; (iii) crude oil, natural gas, and natural gas liquids, that may occur in undrilled prospects; and (iv) crude oil, natural gas, and natural gas liquids, that may be recovered from oil shales, coal, gilsonite and other such sources. 

***Proved reserve additions.***  The sum of additions to proved reserves from extensions, discoveries, improved recovery, acquisitions and revisions of previous estimates. 

***Proved undeveloped reserves.***  Proved undeveloped oil and gas reserves are reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion. Reserves on undrilled acreage shall be limited to those drilling units offsetting productive units that are reasonably certain of production when drilled. Proved reserves for other undrilled units can be claimed only where it can be demonstrated with certainty that there is continuity of production from the existing productive formation. Under no circumstances should estimates for proved 

 

 

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undeveloped reserves be attributable to any acreage for which an application of fluid injection or other improved recovery technique is contemplated, unless such techniques have been proved effective by actual tests in the area and in the same reservoir. 

***Reserve life.***  A measure of the productive life of an oil and gas property or a group of properties, expressed in years. Reserve life is calculated by dividing proved reserve volumes at year-end by production for that year. 

***Reserve replacement cost.***  The cost per BOE of reserves added during a period calculated by using a fraction, the numerator of which equals the costs incurred for the relevant property acquisition, exploration, exploitation and development and the denominator of which equals changes in proved reserves due to revisions of previous estimates, extensions, discoveries, improved recovery and other additions and purchases of reserves in-place. 

***Reserve replacement ratio.***  The proved reserve additions for the period divided by the production for the period. 

***Royalty.***  An interest in an oil and gas lease that gives the owner of the interest the right to receive a portion of the production from the leased acreage (or of the proceeds of the sale thereof), but generally does not require the owner to pay any portion of the costs of drilling or operating the wells on the leased acreage. Royalties may be either landowner’s royalties, which are reserved by the owner of the leased acreage at the time the lease is granted, or overriding royalties, which are usually reserved by an owner of the leasehold in connection with a transfer to a subsequent owner.  

***Standardized measure.***  The present value, discounted at 10% per year, of estimated future net revenues from the production of proved reserves, computed by applying sales prices in effect as of the dates of such estimates and held constant throughout the productive life of the reserves (except for consideration of price changes to the extent provided by contractual arrangements), and deducting the estimated future costs to be incurred in developing, producing and abandoning the proved reserves (computed based on current costs and assuming continuation of existing economic conditions). Future income taxes are calculated by applying the statutory federal and state income tax rate to pre-tax future net cash flows, net of the tax basis of the properties involved and utilization of available tax carryforwards related to oil and gas operations. 

***Undeveloped acreage.***  Acreage held under lease, permit, contract or option that is not in a spacing unit for a producing well. 

***Upstream.***  The portion of the oil and gas industry focused on acquiring, exploiting, developing, exploring for and producing oil and gas. 

***Waterflood.***  A secondary recovery operation in which water is injected into the producing formation to maintain reservoir pressure and force oil toward and into the producing wells. 

***Working interest.***  An interest in an oil and gas lease that gives the owner of the interest the right to drill for and produce oil and gas on the leased acreage and requires the owner to pay a share of the costs of drilling and production operations.  

 

 

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**PART I**

**Item 1.**

**Description of Business.**

This annual report contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled “Risk Factors”, that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levelsof activity, performance or achievements expressed or implied by these forward-looking statements.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

Our financial statements are stated in United States Dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles. 

In this annual report, unless otherwise specified, all dollar amounts are expressed in United States dollars. All references to “CDN$” refer to Canadian dollars and all references to “common shares” refer to the common shares in our capital stock.

As used in this annual report, the terms “we”, “us”, “our”, and “Altus” mean Altus Explorations Inc., unless otherwise indicated.

*Our Current Business*

We are an independent resource company primarily engaged in the exploration and development of natural gas and oil reserves in the United States. Our current core area of attention is the exploration and development of the following prospect opportunities:

**•**

Development of proved undeveloped natural gas reserves in Freestone County, Texas;

 
**•**

The Phase II drilling and development of the Kansas Lake Creek Prospect acreage located in Southeast Kansas; and

**•**

Participation in the development of lease acreage located in Wharton County, Texas.

 
Our ability to progress the exploration and development of oil and natural gas opportunities is heavily dependent on our ability to secure financing sufficient to allow us to fund our initiatives, to meet operating and working capital requirements, and to act on future opportunities as they arise. 

Our current oil and gas initiatives include the exploration and development of the following prospect opportunities:

*Freestone County, Texas*

During the year 2003, we acquired a 10% non-operating working interest in the T.E. Lane gas unit located in Freestone County, Texas. The T.E. Lane unit commenced gas production in January 2004 from the Bossier formation and was drilled to a depth of approximately 15,400 feet.  In March 2004, we increased our non-operating working interest in the producing T.E. Lane gas unit to 20% through an acquisition from CodeAmerica Investments (“CodeAmerica”), a company owned by our President Milton Cox. The acquisition was valued at $316,000 and we funded it through the issuance of 304,960 common shares to CodeAmerica. Our proportionate share of gross production from the T.E. Lane unit for the year 2004 was 7,613 Mcf, which generated revenues totalling $25,510 for 

 

 

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the year.  Our consulting reservoir engineer estimates total gross proved recoverable reserves for the T.E. Lane unit of approximately 1.3 Bcf. The production is subject to a 28% royalty burden. 

Additionally, in March 2004 we acquired from CodeAmerica its 100% undivided working interest in reserves directly offsetting the producing T.E. Lane unit, pursuant to the Lease Purchase and Sale Agreement with CodeAmerica. As these acquired reserves directly offset existing production, these natural gas reserves are categorized as proved undeveloped reserves (PUD). The reserves were acquired at an arms length basis based on their fair market value determined through projected future discounted cash flow analyses with inclusion of projected future capital expenditure requirements to drill and complete four direct offset wells to the T.E. Lane gas unit. The total acquisition value was $3,871,000 and was funded through the issuance of 3,735,766 common shares to CodeAmerica in March 2004.  

During late 2004, an updated reserve analysis was prepared and our consulting engineer concluded that proved recoverable reserves from the Cotton Valley Sands and Bossier Sands formations are in the range of 3 – 5 Bcf for each of four offset wells to be drilled in the acquired undeveloped offsetting acreage to the T.E. Lane gas unit. The estimated gross aggregate recoverable reserves associated with our 100% working interest in the acreage is estimated to be approximately 12-20 Bcf for the four offset wells. The production is subject to a 28% royalty burden. 

We are actively pursuing financing to fund the drilling of the four offset wells in the acquired acreage. Total gross capital investment to drill and complete the four offset wells is approximately $12.5 million.  

*Southeast Kansas Lake Creek Prospects*

During the year 2003 we entered into a development agreement to acquire and develop certain prospect acreage located within the Cherokee basin of Southeast Kansas. In July 2004, we entered into a Lake Creek Farmout Agreement with Orbit Energy, LLC to farmout the Lake Creek Prospect acreage to Orbit. The Farmout Agreement provides for us to receive from Orbit  $10,000 per well drilled in the Lake Creek Prospect acreage together with a 25% “carried” working interest in each well drilled.  The Lake Creek No. 1 well was completed and commenced commercial production on January 18, 2005, with gross daily production levels of approximately 18-20 barrels crude oil and 100 Mcf natural gas per day.

In December 2004 we amended the Lake Creek Farmout Agreement with Orbit to provide Altus the right to continue to participate in the drilling and development of prospect acreage located outside the original Lake Creek Prospect Acreage with a working interest up to 25%, of which 10% is to be “carried” by Orbit. The Lake Creek No. 2, 3 and 4 wells were drilled during the 1st quarter 2005. The Lake Creek No. 3 well was completed in February 2005 with gross initial flow rates of approximately 130 Mcf natural gas production per day. The Lake Creek No. 2 well was connected to the gas sales line in March 2005 and the installation of crude oil related production equipment has been completed and we are in the process of testing the No. 2 sustainable crude oil flow rates. The completion of the Lake Creek No. 4 well was delayed due to wet weather, and is nowscheduled for early May 2005.. 

We entered into the Second Amendment to the Lake Creek Farmout Agreement with Orbit on January 19, 2005. The Second Amendment provides Altus the right to continue to participate in Phase II of the drilling and development program of acreage outside the original Lake Creek Prospect Acreage. Current Phase II plans are to drill 10-15 wells over the next twelve months.  Pursuant to the Second Amendment, Altus has the right to participate with a working interest up to 25%, for which it would be responsible for its proportionate share of capital expenditures attributable to its working interest in the wells. The operator is in the process of preparing well locations for drilling, and expects to spud a minimum of three wells during the second quarter 2005. 

*Wharton County, Texas*

 

In July 2004 we announced that Altus had entered into a Letter of Intent with CodeAmerica to purchase certain lease acreage located in Wharton County, Texas. The Letter of Intent provided us the right to participate in the drilling and development of two initial wells located in Wharton County, Texas with a non-operating working interest of 10%. The Letter of Intent was contingent on the execution of a final purchase / sale agreement and for us to remit payment to CodeAmerica for the lease acreage.  

 

 

 

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Project developers are in the process of finalizing financing to effect the drilling and completion of the Wharton County acreage.  As consideration for our initial participation in Wharton County Prospect, we expect to secure a nominal royalty interest in revenues derived from the first four wells drilled. This will allow us to participate in the drilling and development of Wharton County, without having to fund a working interest owner’s proportionate share of capital investment cash calls made by the operator. Current estimates of gross recoverable reserves per well are approximately 3.2 Bcf.

 

Production from the adjacent Southwest Bonus Field started in August 1998 with successful drilling and completion of the Trans Texas Obenhaus lease. Through March 2004 the Southwest Bonus Field total production of natural gas and condensate has been approximately 96 Bcf and 2.8 million barrels, respectively. 

*Cook-inlet Basin North Alexander Prospects, Alaska* 

In October 2003 we signed a non-binding letter of intent with a company to acquire its interests in certain oil and gas leases that comprise approximately 17,122 acres identified as the Alexander Creek Prospects located onshore within the upper Cook-Inlet Basin, Alaska.  The letter of intent provided that we would pay the lease holder approximately $1.3 million to acquire a 100% working interest in the leases. An initial test well was originally anticipated to be drilled during early 2005 to a minimum depth of 10,000 feet to test the Sterling, Beluga and Tyonek formations.    

Geological and geophysical studies made suggest that additional seismic data should be shot prior to the spudding of an initial test well. Our continuing pursuit of this relatively high-risk capital intensive prospect has been assigned a very low priority.      

*Identification and Evaluation of Oil and Gas Opportunities*

We are actively pursuing oil and gas development / exploration / exploitation prospects and infrastructure investments that may-be of strategic and/or synergistic interest to us, together with seeking financing to fund the associated capital investment requirements. We believe that the U.S. oil and gas industry continues to offer sound investments that would allow us to produce stable returns on our investments, and allow us to continue to build our inventory of oil and gas prospects and expand our producing reserve base.  

*Our British Columbia Property*

Early in Altus’ formation, we acquired certain mineral claims located in British Columbia, Canada. The title to the property is not registered in our name but is registered in the name of Mr. Blake Becher, a free miner and prospector in British Columbia who conveyed title to the claims to us by an unrecorded deed, dated December 13, 2002. Each of the nine claims encompasses 62.5 acres and the claims are more particularly described by the tenure numbers 398933 to 398941 inclusive. The claims are located approximately 82 miles west of Nanaimo, British Columbia, Canada, and approximately 10 miles north from the town of Ucluelet on Vancouver Island. The property is within the Alberni Mining Division.  It is our intent to not to expand further resource or capital funds in connection with these mineral claims.

***United States Natural Gas and Oil Industry***

The natural gas and oil industry in the United States is highly competitive, experiences significant commodity price volatility and is subject to substantial local, state and federal regulations concerning matters such as permitting, drilling and environmental requirements. We are primarily targeting the exploration, exploitation, development and production of natural gas reserves to meet the U.S. consumers’ robust appetite for energy.

Several natural gas forecasts project continuing declining levels of domestic natural gas production and reserves in the lower 48 states while demand for natural gas is forecast to continue to grow. The growth in demand is heavily driven by increasing levels of gas-fired power generation to meet conversion of existing power generation facilities to a cleaner burning fuel source, and by new generation facility construction that are primarily natural gas-fired electric generation units. 

 

 

 

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Studies indicate that insufficient natural gas reserve development in the U.S., combined with steep production decline rates of existing proved developed reserves have created natural gas consumers and market concerns over the adequacy and reliability of natural gas in the U.S., particularly during peak consumption periods. The United States Department of Energy, Energy Information Agency, projects that substantial increases in the imports of natural gas into the U.S. primarily in the form of liquefied natural gas (“LNG”) will be required to supplement the growing gap between demand for natural gas and available domestic supplies to meet that demand within the U.S. 

Although there is a role for LNG to supplement domestic gas supply shortfalls in the U.S., due to commercial and operational conditions and characteristics of LNG, we do not believe that LNG imports can adequately offset and compensate for declining natural gas reserve levels in the U.S. Additionally, we do not believe that imports can replace the compelling need to continue natural gas domestic reserve exploration and development. This area of reserve exploration and development is our principal strategic target area. 

The U.S. oil industry is heavily dominated by major integrated oil and gas companies and numerous independent oil companies. Many of these companies possess and employ financial and human resources substantially greater than ours. Prices for oil production and production levels are subject to wide fluctuations and depend on numerous factors beyond a companies control including economic conditions, foreign imports and political condition in the U.S. and in oil producing rich countries, actions of OPEC, and governmental and legislative regulation and policies. 

***Competition***

The oil and gas industry is intensely competitive. We compete with numerous individuals and companies, including many major oil and gas companies, which have substantially greater technical, financial and operational resources and staffs. Accordingly, there is a high degree of competition for desirable oil and gas leases, suitable properties for drilling operations and necessary drilling equipment, as well as for access to funds. We cannot predict if the necessary funds can be raised or that any projected work will be completed. Our budget anticipates our acquisition of additional acreage. This acreage may not become available or if it is available for leasing, that we may not be successful in acquiring the leases. There are other competitors that have operations in same areas and the presence of these competitors could adversely affect our ability to acquire additional leases.

***Market Prices of Oil and Natural Gas***

The market prices of oil and natural gas have historically fluctuated widely and are affected by numerous global factors beyond our control. A decline in such market prices may have an adverse effect on revenues we receive from the sale of oil and gas. A decline in prices will also reduce our exploration efforts and make it more difficult to raise capital. Decreases in natural gas and oil prices could have an adverse effect on the carrying value of our proved reserves and our revenues, profitability and cash flow. 

As we build our sustained commodity production levels, we will evaluate and anticipate that we may use various over-the-counter and publicly traded derivative instruments to hedge a portion of our exposure to price fluctuations. 

***Government Regulations and Supervision***

Our oil and gas operations are subject to various United States federal, state and local governmental regulations. Matters subject to regulation include discharge permits for drilling operations, drilling and abandonment bonds, reports concerning operations, the spacing of wells, and pooling of properties and taxation. From time to time, regulatory agencies have imposed price controls and limitations on production by restricting the rate of flow of oil and gas wells below actual production capacity in order to conserve supplies of oil and gas. The production, handling, storage, transportation and disposal of oil and gas, by-products thereof, and other substances and materials produced or used in connection with oil and gas operations are also subject to regulation under federal, state, provincial and local laws and regulations relating primarily to the protection of human health and the environment. To date,expenditures related to complying with these laws, and for remediation of existing environmental contamination, have not been significant in relation to the results of operations of our company. The requirements imposed by such laws and regulations are frequently changed and subject to interpretation, and we are unable to predict the ultimate cost of compliance with these requirements or their effect on our operations.

 

 

 

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***Product Research and Development***

Our business plan is focused on the long-term exploration and development of our recently acquired oil and gas interests, as well as the exploration and development of our mineral properties. We do not anticipate that we will expend any significant funds on product research over the twelve months.

***Employees***

Currently there are no full time or part-time employees of our company (other than our directors and officers who, at present, 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 (although we may enter into employment or consulting agreements with our officers or directors). We do and will continue to outsource contract employment as needed. 

However, if we are successful in our initial and any subsequent drilling programs we may retain additional employees as it becomes economically warranted to do so. 

***Purchase or Sale of Equipment***

We do not intend to purchase any significant equipment over the twelve months.

**RISK FACTORS**

Much of the information included in this quarterly report includes or is based upon estimates, projections or other “forward-looking statements”. Such forward-looking statements include any projections or estimates made by us and our management in connection with our business operations. While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions, or other future performance suggested herein. We undertake no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of such statements.

Such estimates, projections or other “forward-looking statements” involve various risks and uncertainties as outlined below. We caution readers of this quarterly report that important factors in some cases have affected and, in the future, could materially affect actual results and cause actual results to differ materially from the results expressed in any such estimates, projections or other “forward-looking statements”. In evaluating us, our business and any investment in our business, readers should carefully consider the following factors.

***We have limited operating history and losses that we expect to continue into the future.***

We have not yet realized any significant revenues. We have limited operating history upon which an evaluation of our future success or failure can be made. Our net loss since inception is $(683,642). Our ability to achieve and maintain profitability and positive cash flow is dependent upon the following:

**•**

Our ability to locate a profitable resource property;

**•**

Our ability to generate revenues; and

 
**•**

Our ability to reduce exploration costs.

 
Based upon current plans, we expect to incur operating losses in future periods. This will happen because there are expenses associated with exploration of our oil and gas interests. We may not be successful in generating revenues in the future. Failure to generate revenues will cause us to go out of business. 

***If we do not raise enough money for exploration, we will have to delay exploration or go out of business.***

We are in the very early exploration stage and we need additional financing before we are able to continue our exploration efforts. We are working to arrange financing, but we may be unable to raise financing. If we are not able to raise any financing we will have to delay our exploration or go out of business.

 

 

 

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***We may not have access to all of the supplies and materials we need to begin exploration that could cause us to delay or suspend operations.***

Competition and unforeseen limited sources of supplies and equipment in the energy industry could result in occasional spot shortages of supplies or the lack of availability of required equipment, such as drilling rigs. 

***We do not have enough money to complete the explorations proposed in properties and consequently may have to cease or suspend our operations unless we are able to raise additional financing.***

We do not have enough money to commence first stages of the exploration and development of all of our prospects. We will require additional funding to complete subsequent phases of exploration and development. Because we are conducting exploration on undeveloped projects, we do not know how much we will have to spend to find out if there is oil and gas on our property. It could cost as little as $1,000,000 and as much as $10,000,000 to find out. If it turns out that we are not able to raise enough money to complete our exploration program, we will try to raise additional funds from a public offering, a private placement or loans. At the present time, we are pursuing initiatives to raise additional money, but there are no assurances that we would be able to raise additional money in the future. If we need additional money and cannot raise it, we will have to suspend or cease operations.

***We have a limited operating history and if we are not successful in continuing to grow our business, then we may have to scale back or even cease our ongoing business operations.***

We have no history of substantial revenues from operations and hold primarily interests in undeveloped reserves and exploration prospects. We have yet to generate positive earnings and there can be no assurance that we will ever operate profitably. Our company has a limited operating history and must be considered in the development stage. Our success is significantly dependent on a successful acquisition, drilling, completion and production program. Our company’s operations will be subject to all the risks inherent in the establishment of a developing enterprise and the uncertainties arising from the absence of a significant operating history. We may be unable to locate recoverable reserves or operate on a profitable basis. We are in the development stage and potential investors should be aware of the difficulties normally encountered by enterprises in the development stage. If our business plan is notsuccessful, and we are not able to operate profitably, investors may lose some or all of their investment in our company.

***Because of the early stage of development and the nature of our business, our securities are considered highly speculative.***

Our securities must be considered highly speculative, generally because of the nature of our business and the early stage of our development. We are engaged in the business of exploring and, if warranted, developing commercial reserves of oil and gas. Our properties are in the exploration stage only and are without known reserves of oil and gas. Accordingly, we have not generated any revenues nor have we realized a profit from our operations to date and there is little likelihood that we will generate any revenues or realize any profits in the short term. Any profitability in the future from our business will be dependent upon locating and developing economic reserves of oil and gas, which itself is subject to numerous risk factors as set forth herein. Since we have not generated any revenues, we will have to raise additional monies through the sale of our equity securities or debt in order to continue ourbusiness operations.

***As our properties are in the exploration and development stage there can be no assurance that we will establish commercial discoveries on our properties.***

Exploration for technically and commercially recoverable reserves of oil and gas is subject to a number of risk factors. Few properties that are explored are ultimately developed into producing oil and/or gas wells. Even if reserves located are technically recoverable, they may not be commercially recoverable in the existing market.

***The potential profitability of oil and gas ventures depends upon factors beyond the control of our company***

The potential profitability of oil and gas properties is dependent upon many factors beyond our control. For instance, world prices and markets for oil and gas are unpredictable, highly volatile, potentially subject to governmental fixing, pegging, controls, or any combination of these and other factors, and respond to changes in domestic, 

 

 

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international, political, social, and economic environments. Additionally, due to worldwide economic uncertainty, the availability and cost of funds for production and other expenses have become increasingly difficult, if not impossible, to project. These changes and events may materially affect our financial performance.

Adverse weather conditions can also hinder drilling operations. A productive well may become uneconomic in the event water or other deleterious substances are encountered which impair or prevent the production of oil and/or gas from the well. In addition, production from any well may be unmarketable if it is impregnated with water or other deleterious substances. The marketability of oil and gas which may be acquired or discovered will be affected by numerous factors beyond our control. These factors include the proximity and capacity of oil and gas pipelines and processing equipment, market fluctuations of prices, taxes, royalties, land tenure, allowable production and environmental protection. These factors cannot be accurately predicted and the combination of these factors may result in our company not receiving an adequate return on invested capital.

***Competition in the oil and gas industry is highly competitive and there is no assurance that we will be successful in acquiring the leases.***

The oil and gas industry is intensely competitive. We compete with numerous individuals and companies, including many major oil and gas companies, which have substantially greater technical, financial and operational resources and staffs. Accordingly, there is a high degree of competition for desirable oil and gas leases, suitable properties for drilling operations and necessary drilling equipment, as well as for access to funds. We cannot predict if the necessary funds can be raised or that any projected work will be completed. Our budget anticipates our acquisition of additional acreage. This acreage may not become available or if it is available for leasing, that we may not be successful in acquiring the leases. There are other competitors that have operations in same areas and the presence of these competitors could adversely affect our ability to acquire additional leases. 

***The marketability of natural resources will be affected by numerous factors beyond our control which may result in us not receiving an adequate return on invested capital to be profitable or viable.***

The marketability of natural resources which may be acquired or discovered by us will be affected by numerous factors beyond our control. These factors include market fluctuations in oil and gas pricing and demand, the proximity and capacity of natural resource markets and processing equipment, governmental regulations, land tenure, land use, regulation concerning the importing and exporting of oil and gas and environmental protection regulations. The exact effect of these factors cannot be accurately predicted, but the combination of these factors may result in us not receiving an adequate return on invested capital to be profitable or viable.

***Oil and gas operations are subject to comprehensive regulation which may cause substantial delays or require capital outlays in excess of those anticipated causing an adverse effect on our company.***

Oil and gas operations are subject to federal, state, and local laws relating to the protection of the environment, including laws regulating removal of natural resources from the ground and the discharge of materials into the environment. Oil and gas operations are also subject to federal, state, and local laws and regulations which seek to maintain health and safety standards by regulating the design and use of drilling methods and equipment. Various permits from government bodies are required for drilling operations to be conducted; no assurance can be given that such permits will be received. Environmental standards imposed by federal, provincial, or local authorities may be changed and any such changes may have material adverse effects on our activities. Moreover, compliance with such laws may cause substantial delays or require capital outlays in excess of those anticipated, thus causing an adverseeffect on us. Additionally, we may be subject to liability for pollution or other environmental damages which it may elect not to insure against due to prohibitive premium costs and other reasons. To date we have not been required to spend any material amount on compliance with environmental regulations. However, we may be required to do so in future and this may affect our ability to expand or maintain our operations.

***Exploration and production activities are subject to certain environmental regulations which may prevent or delay the commencement or continuance of our operations.***

In general, our exploration and production activities are subject to certain federal, state and local laws and regulations relating to environmental quality and pollution control. Such laws and regulations increase the costs of 

 

 

13

 

 

these activities and may prevent or delay the commencement or continuance of a given operation. Compliance with these laws and regulations has not had a material effect on our operations or financial condition to date. Specifically, we are subject to legislation regarding emissions into the environment, water discharges and storage and disposition of hazardous wastes. In addition, legislation has been enacted which requires well and facility sites to be abandoned and reclaimed to the satisfaction of state authorities. However, such laws and regulations are frequently changed and we are unable to predict the ultimate cost of compliance. Generally, environmental requirements do not appear to affect us any differently or to any greater or lesser extent than other companies in the industry.

We believe that our operations comply, in all material respects, with all applicable environmental regulations.

Our operating partners maintain insurance coverage customary to the industry; however, we are not fully insured against all possible environmental risks.

***Exploratory drilling involves many risks and we may become liable for pollution or other liabilities which may have an adverse effect on our financial position.***

Drilling operations generally involve a high degree of risk. Hazards such as unusual or unexpected geological formations, power outages, labor disruptions, blow-outs, sour gas leakage, fire, inability to obtain suitable or adequate machinery, equipment or labour, and other risks are involved. We may become subject to liability for pollution or hazards against which it cannot adequately insure or which it may elect not to insure. Incurring any such liability may have a material adverse effect on our financial position and operations.

***Any change to government regulation/administrative practices may have a negative impact on our ability to operate and our profitability.***

The laws, regulations, policies or current administrative practices of any government body, organization or regulatory agency in the United States or any other jurisdiction, may be changed, applied or interpreted in a manner which will fundamentally alter the ability of our company to carry on our business.

The actions, policies or regulations, or changes thereto, of any government body or regulatory agency, or other special interest groups, may have a detrimental effect on us. Any or all of these situations may have a negative impact on our ability to operate and/or our profitably.

***We do not own any resource properties. We hold working and revenue interests in various oil and gas leases, and have entered into a letter of intent to acquire certain working interests. We own 9 mineral claims***

We do not own any resource properties. We hold working and royalty interests in oil and gas leases in Texas and Kansas. We have working interests in various oil and gas leases, however, unless we are able to pay our proportionate share of costs associated with our working interests, our interest in the leases may be diluted or we may lose our interests entirely.

We own nine mineral claims in British Columbia. Title to our mineral claims is not registered in our name but is registered in the name of Mr. Blake Becher, a free miner and prospector in British Columbia who conveyed title to the claims to us by an unrecorded deed, dated December 13, 2002.

***Because the SEC imposes additional sales practice requirements on brokers who deal in our shares that are penny stocks, some brokers may be unwilling to trade them. This means that you may have difficulty in reselling your shares and may cause the price of the shares to decline.***

Our shares qualify as penny stocks and are covered by Section 15(g) of the Securities Exchange Act of 1934, which imposes additional sales practice requirements on broker/dealers who sell our securities in this offering or in the aftermarket. In particular, prior to selling a penny stock, broker/dealers must give the prospective customer a risk disclosure document that: contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading; contains a description of the broker/dealers’ duties to the customer and of the rights and remedies available to the customer with respect to violations of such duties or other requirements of Federal securities laws; contains a brief, clear, narrative description of a dealer market, including “bid” and “ask” 

 

 

14

 

 

prices for penny stocks and the significance of the spread between the bid and ask prices; contains the toll free telephone number for inquiries on disciplinary actions established pursuant to section 15(A)(i); defines significant terms used in the disclosure document or in the conduct of trading in penny stocks; and contains such other information, and is in such form (including language, type size, and format), as the SEC requires by rule or regulation. Further, for sales of our securities, the broker/dealer must make a special suitability determination and receive from you a written agreement before making a sale to you. Because of the imposition of the foregoing additional sales practices, it is possible that brokers will not want to make a market in our shares. This could prevent you from reselling your shares and may cause the price of the shares to decline. 

***Our officers and directors beneficially own a total of 15,227,438 shares of our company. They may sell some of their shares in the future, which could cause the price of our common stock to fall, which will reduce the value of your shares.***

Our officers and directors beneficially own a total of 15,227,438 shares of stock, which is 35.75% of the issued and outstanding number of shares. Subject to all holding periods under applicable securities laws, they will likely sell a portion or all of their stock in the future. If they do sell their stock into the market, the sales may cause the market price of the stock to drop.

***Trading of our stock may be restricted by the SEC’s Penny Stock Regulations which may limit a stockholder’s ability to buy and sell our stock.***

The U.S. Securities and Exchange Commission has adopted regulations which generally define “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and “accredited investors”. The term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in aform prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s writtenagreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of, our common stock.

***We do not expect to declare or pay any dividends.***

We have not declared or paid any dividends on our common stock since our inception, and we do not anticipate paying any such dividends for the foreseeable future.

***Anti-Takeover Provisions***

We do not currently have a shareholder rights plan or any anti-takeover provisions in our By-laws. Without any anti-takeover provisions, there is no deterrent for a take-over of our company, which may result in a change in our management and directors.

 

 

 

15

 

 

***Our By-laws contain provisions indemnifying our officers and directors against all costs, charges and expenses incurred by them.***

Our By-laws contain provisions with respect to the indemnification of our officers and directors against all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment, actually and reasonably incurred by him, including an amount paid to settle an action or satisfy a judgment in a civil, criminal or administrative action or proceeding to which he is made a party by reason of his being or having been one of our directors or officers.

**Item 2.**

**Description of Property.**

From our inception to October, 2003, our principal offices were located at 1208 - 1030 West Georgia Street, Vancouver, British Columbia V6E 4Y3 and our telephone number was 604.662.7900. We leased that office space from Alpha Beta Developments Inc. on a month to month basis and our monthly rental was $500 Canadian dollars. As of October 2003, we moved our principal offices to Suite 100, 8900 Germantown Road, Olive Branch, Mississippi 38654. Our telephone number is 662-893-7376. We lease our office space from McDowell & Son on a month to month basis and pay our proportionate share of monthly rent totaling $1,600. During the fiscal year ending December 31, 2004, we paid $19,200 for rent.

The properties in which we hold our interests have one productive natural gas well at the date hereof.

***Our Texas Property***

As of December 31, 2004 we hold a 10% working interest in the T.E. Lane Gas Unit, and working interests in ten leases covering approximately 526.1 gross acres in Freestone County, Texas. The leases are more particularly described as Texas State lease numbers FRTX0001-00 to 01; FRTX0003-00 to 04; and FRTX0004-00 to 01.

***Our Kansas Properties***

We hold a working interest in leases covering approximately 3,000 acres in the Chatauqua and Elk Counties of Kansas. The property is more particularly described by the following townships and ranges:

T31S; R9E (All) - T32S; R8E (Sec.’s 1-2-3-10-11-12-13-14-15-22-23-24-34-35 & 36) - T32S; R9E (All) - T32S; R10E (All) - T33S; R8E (Sec.’s 1-2-3-10-11-12-13-14-15-22-23-24-25-26-27-34-35 & 36) - T33S; R9E (All) - T34S; R8E (Sec.’s 1-2-3-4-9-10-11-12-13-14-15-16-21-22-23-24-25-26-27-28-33-34-35 & 36) - T34S; R9E (All) - T35S; R8E (Sec.’s 1-2-3-10-11-12-13-14 & 15) and T35S; R9E (Sec.’s 1 through 13 inclusive). 

***Our British Columbia Property***

We own nine mineral claims in British Columbia, Canada. Title to the property is not registered in our name but is registered in the name of Mr. Blake Becher, a free miner and prospector in British Columbia who conveyed title to the claims to us by an unrecorded deed, dated December 13, 2002. Each of the nine claims encompasses 62.5 acres and the claims are more particularly described by the tenure numbers 398933 to 398941 inclusive. The claims are located approximately 82 miles west of Nanaimo, British Columbia, Canada, and approximately 10 miles north from the town of Ucluelet on Vancouver Island. The property is within the Alberni Mining Division.

**Item 3.**

**Legal Proceedings.**

We know of no material, active or pending legal proceedings against us, nor are we involved as a plaintiff in any material proceedings or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered beneficial shareholder are an adverse party or has a material interest adverse to us.

**Item 4.**

**Submissions of Matters to a Vote of Security Holders.**

None.

 

 

 

16

 

 

**PART II**

**Item 5.**

**Market for Common Equity and Related Stockholder Matters.**

On January 13, 2003, our common stock received approval for quotation on the National Association of Securities Dealers Inc.’s Over-the-Counter Bulletin Board under the name “Altus Explorations, Inc.” and under the symbol “ATUX”. The following table reflects the high and low bid information for our common stock for each fiscal quarter during the fiscal years ended December 31, 2004 and 2003. The bid information was obtained from Yahoo! Finance and reflects inter-dealer prices, without retail mark-up, markdown or commission, and may not necessarily represent actual transactions.

 

**Quarter Ended**(1)

**High**(2)

**Low**(2)

March 31, 2003

0.01

0.01

June 30, 2003

0.02

0.02

September 30, 2003

0.02

0.02

December 31, 2003

2.00

0.00

March 31, 2004

3.60

0.80

June 30, 2004

1.60

0.79

September 30, 2004

0.97

0.41

December 31, 2004

0.50

0.19

(1) Our common stock received approval for quotation on January 13, 2003. The first trade occurred December 10, 2003. 

(2) On November 6, 2003, we affected an 8 for 1 forward split of our common stock and on February 24, 2004 we effected a 4 for 1 forward split, as a result all stock prices have been adjusted on a post-split basis.

On March 24, 2005, the closing price for the common stock as reported by the quotation service operated by the OTC Bulletin Board was $.91.

As of January 1, 2005, there were 48 holders of record of our common stock. As of such date, 42,594,326 common shares were issued and outstanding.

Our common shares are issued in registered form. The Nevada Agency and Trust Company, 50 Liberty Street, Suite 880, Reno, Nevada 89501 (Telephone: 775.322.0626; Facsimile: 775.322.5623 is the registrar and transfer agent for our common shares. We have no other exchangeable securities.

*Dividend Policy*

We have not paid any cash dividends on our common stock and have no present intention of paying any dividends on the shares of our common stock. Our current policy is to retain earnings, if any, for use in our operations and in the development of our business. Our future dividend policy will be determined from time to time by our board of directors.

 

 

 

17

 

 

*Recent Sales of Unregistered Securities*

We did not issue any shares that were not registered under the Securities Act of 1933 during the three month period ended December 31, 2004.

**Item 6.**

**Management Discussion and Analysis and Plan of Operation.**

***Results of Operations.***

For the year ending December 31, 2004 we posted losses of $465,253 as compared to losses of $182,128 for the year ended December 31, 2003. Inception through December 31, 2004 losses total $683,642. General and administrative expenses are the principal component of our losses since inception.

***Financial Condition, Liquidity and Capital Resources***

At December 31, 2004, we had cash of $4,500, and working capital of $(329,183). At December 31, 2003 we had working capital of $486,738 comprised primarily of a $500,000 subscription receivable associated with the October 2003 private placement, for which the funds were received in early February 2004.  

In addition to the above referenced amounts, at December 31, 2004 we had investments in primarily proven producing and proved undeveloped natural gas reserves totalling $4,926,813. At December 31, 2003 our investments in oil and gas reserves totalled $360,650. At December 31, 2002 our total assets were $34,970 comprised entirely of cash. 

As of December 31, 2004, our total liabilities were $333,683 comprised primarily of a convertible loan payable to Excalibur Investment Corp. totalling $250,000 plus accrued interest of $7,055.  Additionally, we had account payables to related parties and advances from shareholders totalling $64,370. Account payables due third parties totalled $12,258 at December 31, 2004. This compares to our total liabilities of $44,425 at December 31, 2003.

In January 2004, the T.E. Lane gas unit commenced commercial production. Our net share of revenues from the unit for the year ending December 31, 2004 totalled $25,510. This compares to the prior year in which we had no revenues since inception.

The continuation of our natural gas and oil exploration, drilling and development activities requires substantial capital resources, and we are currently working to obtain sufficient additional financing to fully effect and implement our reserve exploration and development initiatives. If we are unsuccessful in obtaining financing and/or fail to achieve and/or sustain a profitable level of operations, we may be unable to fully implement our business plans. 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 scale down or perhaps even cease our operations.

We have no long-term debt, and the present time do not regard long-term borrowing as the optimal and most effective source of financing for the Company at its current stage of development.

*Cash Requirements*

During the twelve month period ending December 31, 2005, we project total cash requirements of approximately $8.3 million to be expended primarily in connection with our drilling and continued development of our oil and gas interests located in Texas, and our participation in Phase II of the Kansas drilling and development program.  Our 

 

 

18

 

 

cash requirements include amounts necessary to sustain our operations and amounts to be directed to the continued identification and evaluation of oil and gas exploration and development prospects and opportunities.  

With regard to our Freestone County Texas reserves, it is our desire to drill and complete all four 15,000 foot offset wells to the T.E. Lane No. 1 gas unit. This would allow us to develop the proved undeveloped reserves associated with the lease acreage and allow it to test favourable looking formations while in route to the targeted lower Bossier formation. Capital expenditure funding requirements to drill two T.E. Lane gas unit offset wells over the next twelve month period are estimated to be approximately $6.5 million.  

Pursuant to our Second Amended Lake Creek Farmout Agreement with Orbit, it is our desire to participate in the drilling of at least 10 wells with a 10% non-operating working interest in each well. Our capital investment requirements is approximately $75,000 per well, and our participation in 10 wells will require approximately $750,000 over the next twelve months. 

On an annualized basis, we estimate that we will expend approximately $300,000 on operating, general and administrative expenses, and estimate working capital requirements of $200,000. 

Based on the plan of operation, our current available cash will not be sufficient to fund its capital expenditure, operating and working capital requirements for the year 2005. We are actively pursuing the raising of debt or equity financing through private placement(s) sufficient to sustain the continuing evaluation and development of our oil and natural gas reserve opportunities into the year 2005.  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 reserve drilling and development plan accordingly.  We may raise funds through equity financing, debt financing, or other sources, which 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, we may 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, 2005

Operating, General and Administrative

$

300,000

 

 

 

 

Exploration, Drilling and Development Expenditures

 

 

 

Freestone County, Drill & Complete Two PUD Offset Wells  

$

6,500,000

 

Kansas Lake Creek Prospect Phase II Participation 

$

750,000

 

Other Exploration and Development Prospects

$

500,000

 

 

$

7,750,000

 

 

 

 

Working Capital

$

200,000

**Total**

**$**

**8,250,000******

 

 

 

19

 

 

*Product Research and Development*

Our business plan is focused on the exploration and development of our 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, 2005.

*Purchase of Significant Equipment*

We do not intend to purchase any significant equipment over the next twelve months ending December 31, 2005.

*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*

Due to our being a development stage company, the lack of revenues and the substantial capital funding requirements necessary to continue our exploration, drilling and development activities, our independent auditor’s report on our audited financial statements, in this Form 10-KSB for the fiscal year ended December 31, 2004, contains a going concern qualifier.  The qualifier explanatory paragraph contained in their audit report should be read in connection with our management’s discussion of our financial condition, liquidity and capital resources presented herein. 

While we intend to raise additional financing to fund our capital expenditure and working capital needs into year 2005 through private placements, public offerings and/or bank financing. While we have had dialog and discussions with specific potential investors; no definitive written agreements have yet been reached.

*Recently Issued Accounting Standards*

In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities, and subsequently revised the Interpretation in December 2003 (FIN 46R). This Interpretation of Accounting Research Bulletin No. 51, Consolidated Financial Statements, addresses consolidation by business enterprises of variable interest entities, which have certain characteristics. As revised, FIN 46R is now generally effective for financial statements for interim or annual periods ending on or after March 15, 2004. We have not identified any variable interest entities. In the event a variable interest entity is identified, we do not expect the requirements of FIN 46R to have a material impact on our consolidated financial statements.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. An issuer is required to classify a financial instrument that is within the scope of this statement as a liability (or an asset in some circumstances). SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. We adopted the standard on July 1, 2003, and the adoption did not have a material impact on our consolidated financial statements.

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 

 

 

20

 

 

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 7.**

**Financial Statements.**

Our financial statements are stated in United States Dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles.

The Independent Auditor’s Report of Lopez Blevins Bork & Associates, LLP for the audited financial statements for the years ended December 31, 2004 and 2003 is included herein immediately preceding the audited financial statements. 

***Altus Explorations, Inc. (audited):***

Independent Auditor’s Report, dated March 21, 2005

Consolidated Balance Sheets as at December 31, 2004 and 2003

Consolidated Statements of Operations for the year ended December 31, 2004, December 31, 2003 and for the period from November 2, 2001 (incorporation) to December 31, 2004

Consolidated Statements of Changes in Stockholders’ Equity for the year ended December 31, 2004, December 31, 2003 and for the period from November 2, 2001 (incorporation) to December 31, 2004

Consolidated Statements of Cash Flows for the year ended December 31, 2004, December 31, 2003 and for the period from November 2, 2001 (incorporation) to December 31, 2004

Notes to the Consolidated Financial Statements

 

 

 

 

 

**INDEPENDENT AUDITORS’ REPORT**

 

To the Board of Directors 

  Altus Explorations, Inc.

  (A Development Stage Company)

  Olive Brach, Mississippi

 

We have audited the accompanying balance sheet of Altus Explorations, Inc. as of December 31, 2004 and 2003, and the related statements of operations, stockholders’ equity, and cash flows for each of the two years then ended and for the period from November 2, 2001 (Inception) through December 31, 2003. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Altus Explorations, Inc. as of December 31, 2004, and the results of its operations and its cash flows for each of the two years then ended and for the period from November 2, 2001 (Inception) through December 31, 2004, in conformity with accounting principles generally accepted in the United States of America. 

 

As discussed in Note 2 to the financial statements, Altus’ recurring losses from operations and the need to raise additional financing in order to fund its oil and gas exploration and development activity and satisfy vendors and other creditor obligations, raise substantial doubt about its ability to continue as a going concern. (Management’s plans as to these matters are also described in Note 2). The 2004 financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Lopez, Blevins, Bork & Associates, LLP

Houston, Texas

 

March 21, 2005

 

 

 

 

**ALTUS EXPLORATIONS, INC.**

**(A DEVELOPMENT STAGE COMPANY)**

**BALANCE SHEET**

**December 31, 2004**

 

 

 

 

**December 31,**

 

 

 

**2004**

 

**2003**

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Cash

 

$

4,500

 

$

31,163

 

 

 

 

 

 

 

 

 

Oil and natural gas properties, full cost method

 

 

 

 

 

 

 

Subject to amortization, net

 

 

4,926,813

 

 

— 

 

Not subject to amortization

 

 

—

 

 

360,650

 

 

 

 

 

 

 

 

 

Other property and equipment, net

 

 

8,997

 

 

3,203

 

 

 

 

 

 

 

 

 

 

 

$

4,940,310

 

$

395,016

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

12,258

 

$

28,270

 

Accounts payable - related party

 

 

26,520

 

 

12,905

 

Accrued interest

 

 

7,055

 

 

—

 

Convertible loan

 

 

250,000

 

 

—

 

Advances from shareholders

 

 

37,850

 

 

3,250

 

Total current liabilities

 

 

333,683

 

 

44,425

 

 

 

 

 

 

 

 

 

Commitments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY:

 

 

 

 

 

 

 

Common stock, $.001 par value, 800,000,000 sharesauthorized, 42,594,326 shares, and 38,553,600 issued andoutstanding at December 31, 2003 and 2002, respectively

 

 

42,595

 

 

38,5554

 

Additional paid in capital

 

 

5,247,674

 

 

1,030,426

 

Subscription receivable

 

 

—

 

 

(500,000

)

Deficit accumulated during the development stage

 

 

(683,642

)

 

(218,389

)

Total stockholders’ equity

 

 

4,606,627

 

 

350,591

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

4,940,310

 

$

395,016

 

 

*See accompanying summary of accounting policies*

*and notes to financial statements*

 

 

 

 

**ALTUS EXPLORATIONS, INC.**

**(A DEVELOPMENT STAGE COMPANY)**

**STATEMENTS OF OPERATIONS**

**Years Ended December 31, 2004 and 2003**

**and Period from November 2, 2001 (Inception) through December 31, 2004**

 

 

 

 

 

**Years Ended****December 31,**

 

 

 

**Inception through December 31,**

 

 

 

**2004**

 

 

 

**2003**

 

 

 

**2004**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

25,510

 

 

 

$

— 

 

 

 

$

25,510

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lease operating

 

 

20,048

 

 

 

 

— 

 

 

 

 

20,048

 

General and administrative

 

 

421,755

 

 

 

 

180,303

 

 

 

 

637,918

 

Depreciation and depletion

 

 

14,065

 

 

 

 

1,574

 

 

 

 

15,639

 

Interest

 

 

34,895

 

 

 

 

251

 

 

 

 

35,547

 

 

 

 

490,763

 

 

 

 

182,128

 

 

 

 

709,152

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(465,253

)

 

 

$

(182,128

)

 

 

$

(683,642

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(0.00

)

 

 

$

(0.00

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

 

41,600,705

 

 

 

 

137,762,367

 

 

 

 

 

 

 

*See accompanying summary of accounting policies*

*and notes to financial statements*

 

 

 

 

 

**ALTUS EXPLORATIONS, INC.**

**(A DEVELOPMENT STAGE COMPANY)**

**STATEMENTS OF STOCKHOLDERS’ EQUITY**

**Period From November 2, 2001 (Inception) through December 31, 2004**

 

 

Common Stock

 

Additional paid in capital

 

Deficit accumulated during the development stage

 

SubscriptionReceivable

 

Total

 

Shares

 

Amount

 

Issuance of common  stock to founders  for cash

160,000,000

 

$   160,000

 

$    (155,000)

 

$          -

 

$       (3,000)

 

$           2,000

Net loss

-

 

 -

 

 -

 

 (2,014)

 

  -

 

 (2,014)

Balance,  December 31, 2001

160,000,000

 

160,000

 

 (155,000)

 

(2,014)

 

(3,000)

 

(14)

Issuance of common   stock for cash

20,153,600

 

20,154

 

42,826

 

-

 

-

 

62,980

Expenses paid by   shareholder

-

 

-

 

1,000

 

-

 

-

 

1,000

Net loss

  -

 

 -

 

   -

 

  (34,247)

 

  -

 

  (34,247)

Balance,  December 31, 2002

180,153,600

 

180,154

 

(111,174)

 

(36,261)

 

(3,000)

 

29,719

Shares returned by officers

(145,600,000)

 

(145,600)

 

145,600

 

-

 

-

 

-

Proceeds from subscription receivable

-

 

-

 

-

 

-

 

3,000

 

3,000

Issuance of common stock for cash

4,000,000

 

4,000

 

996,000

 

-

 

(500,000)

 

500,000

Net loss

-

 

 -

 

  -

 

 (182,128)

 

    -

 

 (182,128)

Balance,   December 31, 2003

38,553,600

 

38,554

 

1,030,426

 

(218,389)

 

(500,000)

 

350,591

Proceeds from subscription receivable

-

 

-

 

-

 

-

 

500,000

 

500,000

Issuance of common stock for oil and gas properties

4,040,726

 

4,041

 

4,182,959

 

-

 

-

 

4,187,000

Beneficial conversion from convertible debt

-

 

-

 

27,777

 

-

 

-

 

27,777

Stock option intrinsic value amortization 

-

 

-

 

6,512

 

-

 

-

 

6,512

Net loss

 -

 

 -

 

   -

 

 (465,253)

 

   -

 

 (465,253)

Balance,   December 31, 2004

$  42,594,326

 

$     42,595

 

$    5,247,674

 

$     (683,642)

 

$            -

 

$     4,606,627

 

*See accompanying summary of accounting policies and notes to financial statements*

 

 

 

 

 

**ALTUS EXPLORATIONS, INC.**

**(A DEVELOPMENT STAGE COMPANY)**

**STATEMENTS OF CASH FLOWS**

**Years Ended December 31, 2004 and 2003**

**and Period from November 2, 2001 (Inception) through December 31, 2004**

 

 

 

**Years Ended****December 31,**

 

 

 

**Inception****through****December 31,**

 

 

 

**2004**

 

 

 

**2003**

 

 

 

**2004**

 

CASH FLOWS FROM OPERATING  ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(465,253

)

 

 

$

(182,128

)

 

 

$

(683,642

)

Adjustments to reconcile net deficit to  cash used by operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses paid by shareholder

 

 

—

 

 

 

 

—

 

 

 

 

1,000

 

Beneficial conversion from convertible debt

 

 

27,776

 

 

 

 

—

 

 

 

 

27,776

 

Depreciation, depletion and amortization

 

 

14,065

 

 

 

 

1,573

 

 

 

 

15,640

 

Stock option intrinsic value amortization

 

 

6,512

 

 

 

 

—

 

 

 

 

6,512

 

Net change in:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other assets

 

 

— 

 

 

 

 

—

 

 

 

 

—

 

Accounts payable & accrued expenses

 

 

(16,010 

)

 

 

 

25,020

 

 

 

 

12,258

 

Accounts payable - related party

 

 

13,615

 

 

 

 

12,905

 

 

 

 

26,520

 

Accrued interest

 

 

7,055

 

 

 

 

—

 

 

 

 

7,055

 

CASH FLOWS USED IN OPERATING  ACTIVITIES

 

 

(412,240

)

 

 

 

(142,630

)

 

 

 

(586,881

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM IN INVESTING  ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(9,050

)

 

 

 

(4,776

)

 

 

 

(13,826

)

Investment in oil and gas properties

 

 

(389,973

)

 

 

 

(360,650

)

 

 

 

(750,623

)

CASH FLOWS USED IN INVESTING  ACTIVITIES

 

 

(399,023

)

 

 

 

(365,426

)

 

 

 

(764,449

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING  ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proceed from the sale of common stock

 

 

500,000

 

 

 

 

503,000

 

 

 

 

1,067,981

 

Proceed from issuance convertible loan

 

 

250,000

 

 

 

 

—

 

 

 

 

250,000

 

Proceed from subscription receivable

 

 

—

 

 

 

 

—

 

 

 

 

—

 

Payment on note payable - shareholder

 

 

—

 

 

 

 

(2,001

)

 

 

 

(2,001

)

Proceeds from note payable - shareholder

 

 

34,600

 

 

 

 

3,250

 

 

 

 

39,850

 

CASH FLOWS PROVIDED BY FINANCING  ACTIVITIES

 

 

784,600

 

 

 

 

504,249

 

 

 

 

1,355,830

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH

 

 

(26,663

)

 

 

 

(3,807

)

 

 

 

4,500

 

Cash, beginning of period

 

 

31,163

 

 

 

 

34,970

 

 

 

 

—

 

Cash, end of period

 

$

4,500

 

 

 

$

31,163

 

 

 

$

4,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental Non-cash Disclosures:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock for working interests in oil and gas properties

 

$

4,187,000

 

 

 

$

—

 

 

 

$

4,187,000

 

See accompanying summary of accounting policies and notes to financial statements

 

 

 

 

 

**ALTUS EXPLORATIONS, INC.**

**(A DEVELOPMENT STAGE COMPANY)**

**NOTES TO FINANCIAL STATEMENTS**

**NOTE 1 - SUMMARY OF ACCOUNTING POLICIES**

 

Nature of business. Altus Explorations, Inc. (“Altus”) was incorporated in Nevada on November 2, 2001, to engage in the acquisition and exploration of mining properties. In August 2003, Altus decided to focus their efforts on the oil and gas resource exploration and development sector.

 

Environmental Requirements 

 

At the report date environmental requirements related to the mineral leases acquired are unknown and therefore any estimate of any future cost cannot be made.

 

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the balance sheet. Actual results could differ from those estimates.

Cash and Cash Equivalents

Cash and cash equivalents include cash and all highly liquid financial instruments with purchased maturities of three months or less.

 

Property and Equipment.

 

Property and equipment is valued at cost. Additions are capitalized and maintenance and repairs are charged to expense as incurred. Gains and losses on dispositions of equipment are reflected in operations. Depreciation is provided using the straight-line method over the estimated useful lives of the assets, which are three years for computers and seven years for furniture.

 

Impairment of Long-Lived Assets. 

 

Altus reviews the carrying value of its long-lived assets annually or whenever events or changes in circumstances indicate that the historical cost-carrying value of an asset may no longer be appropriate. Altus assesses recoverability of the carrying value of the asset by estimating the future net cash flows expected to result from the asset, including eventual disposition. If the future net cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset’s carrying value and fair value. 

Income Taxes

Income taxes are computed using the asset and liability method. Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the currently enacted tax rates and laws. A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be realized.

 

 

 

 

Basic and Diluted Loss Per Share

Basic and diluted earnings per share. Basic earnings per share equals net earnings divided by weighted average shares outstanding during the year. Diluted earnings per share include the impact of common stock equivalents using the treasury stock method when the effect is dilutive. There were no dilutive securities during the periods presented.

Oil and Gas Properties

Altus follows the full cost method of accounting for its oil and gas properties. Under this method, all productive and nonproductive exploration and development costs incurred for the purpose of finding oil and gas reserves are capitalized. Such capitalized costs include lease acquisition, geological and geophysical work, delay rentals, drilling, completing and equipping oil and gas wells, together with internal costs directly attributable to property acquisition, exploration and development activities. 

The costs of the Company’s oil and gas properties, including the estimated future costs to develop proved reserves, are depreciated using a composite units-of-production rate based on estimates of proved reserves. Investments in unproved properties and major development projects are not amortized until proved reserves associated with the projects can be determined or until impairment occurs. If the results of an assessment indicate that the properties are impaired, then the amount of the impairment is added to the capitalized costs to be amortized. Net capitalized costs are limited to a capitalization ceiling, calculated on a quarterly basis as the aggregate of the present value, discounted at 10%, of estimated future net revenues from proved reserves, based on current economic and operating conditions, plus the lower of cost or fair market value of unproved properties, less related income tax effects.

Sales of proved and unproved properties are accounted for as adjustments of capitalized costs with no gain or loss recognized, unless such adjustments would significantly alter the relationship between capitalized costs and proved oil and gas reserves.

In July 2003, an issue was brought before the Financial Accounting Standards Board (FASB) regarding whether or not contract-based oil and gas mineral rights held by lease or contract (“mineral rights”) should be recorded or disclosed as intangible assets. The issue presents a view that these mineral rights are intangible assets as defined in Statement of Financial Accounting Standards (SFAS) No. 141, “Business Combinations,” and, therefore, should be classified separately on the balance sheet as intangible assets. SFAS No. 141 and SFAS No. 142, “Goodwill and Other Intangible Assets,” became effective for transactions subsequent to June 30, 2001, with the disclosure requirements of SFAS No. 142 required as of January 1, 2002. SFAS No. 141 requires that all business combinations initiated after June 30, 2001 be accounted for using the purchase method and that intangible assetsbe disaggregated and reported separately from goodwill. SFAS No. 142 established new accounting guidelines for both finite lived intangible assets and indefinite lived intangible assets. Under the statement, intangible assets should be separately reported on the face of the balance sheet and accompanied by disclosure in the notes to financial statements. SFAS No. 142 does not apply to accounting utilized by the oil and gas industry as prescribed by SFAS No. 19, and is silent about whether or not its disclosure provisions apply to oil and gas companies. The Emerging Issues Task Force (EITF) has added the treatment of oil and gas mineral rights to an upcoming agenda, which may result in a change in how Altus classifies these assets.

Should such a change be required, the amounts related to business combinations and major asset purchases that would be classified as “intangible undeveloped mineral interest” are immaterial as of December 31, 2004. The amounts related to business combinations and major asset purchases that would be classified as “intangible developed mineral interest” are also immaterial as of December 31, 2004. 

Revenue Recognition

 

 

 

 

 

Revenues from the sale of oil and gas production are recognized upon passage of title, net of royalty interests. When sold production differs from Altus’ entitled share of production, a producer imbalance occurs between the interest owners. Should a situation ever arise wherein Altus’ imbalance due other interest owners exceeds its remaining share of reserves for a given property, Altus would record a liability for such. At December 31, 2004, Altus had no producer or transportation imbalances.

Impairment of Assets

Management reviews assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Management assesses impairment by comparing the carrying amount to individual cash flows. If deemed impaired, measurement and recording of an impairment loss is based on the fair value of the assets.

 

Stock-Based Compensation

 

Altus accounts for stock-based compensation for employees and non-employee members of our board of directors in accordance with Accounting Principles Board, or APB, Opinion No. 25, “Accounting for Stock Issued to Employees.” Under APB Opinion No. 25, compensation expense is based on the intrinsic value on the measurement date, calculated as the difference between the fair value of our common stock and the relevant exercise price. We account for stock-based compensation for non-employees, who are not members of our board of directors, at fair value using a Black-Scholes option-pricing model in accordance with the provisions of SFAS No. 123, “Accounting for Stock-Based Compensation” and other applicable accounting principles.  

 

In January 2004 the Board of Directors approved the “2004 Stock Option Plan” and reserved 5,483,040 shares of Altus’ common stock for issuance in the form of incentive and/or non-qualified stock options to employees, consultants, officers and directors of Altus.  On November 19, 2004 Altus issued incentive non-qualified stock options to consultants, contract labours, officers and Board members for Altus common shares totalling 4,325,000 shares.  The options vest over a four-year period; are exercisable for a period of 10 years; have an exercise price of $.425 per share; and provide for certain vesting acceleration for selected participants upon the achievement of established performance criteria. 

 

In November 2004 options totalling 800,000 shares were issued to Altus consultants and contract labours. The options were valued at $228,720 using the Black-Scholes option pricing model. The fair value of the options is being amortized over the four-year vesting period as compensation expense.  Altus’ common stock options issued to Altus’ officers and directors in November 2004 totalled 3,525,000 common shares. The options provide for vesting acceleration should the Altus common stock close price exceed $1.01 for ten consecutive trading days as reported on the NASDAQ OTCBB.

 

The following table illustrated the effect on net income and earnings per share if Altus had applied the fiar value recognition provisions of FASB Statement No. 123, *Accounting for Stock-Based Compensation*, to stock-based employee compensation.

 

 

 

 

 

 

 

Year Ended December 31,

 

2004

2003

Net loss, as reported

$ (465,253)

$ (182,128)

Add:  Stock based intrinsic value included in report loss

6,512 

- 

Less:  Total stock-based employee compensation expense determined under the fair value based method for all awards

 (28,991)

- 

Pro-forma net loss

$ (493,947)   

$ (182,128)

Basis and diluted net loss per share   As reported   Pro-forma 

(0.00)(0.00)

(0.00)(0.00)

 

The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions: dividend yield $0, expected volatility of 117%, risk-free interest rate of 1.5%, and expected lives of 10 years.

Recent Accounting Pronouncements

In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities, and subsequently revised the Interpretation in December 2003 (FIN 46R). This Interpretation of Accounting Research Bulletin No. 51, Consolidated Financial Statements, addresses consolidation by business enterprises of variable interest entities, which have certain characteristics. As revised, FIN 46R is now generally effective for financial statements for interim or annual periods ending on or after March 15, 2004. We have not identified any variable interest entities. In the event a variable interest entity is identified, we do not expect the requirements of FIN 46R to have a material impact on our consolidated financial statements.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. An issuer is required to classify a financial instrument that is within the scope of this statement as a liability (or an asset in some circumstances). SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. We adopted the standard on July 1, 2003, and the adoption did not have a material impact on our consolidated financial statements.

 

In December 2004, the FASB, issued a revision to SFAS 123, also known as SFAS 123R, that amends existing accounting pronouncements for share-based payment transactions in which an enterprise receives employee and certain non-employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments. SFAS 123R eliminates the ability to account for share-based compensation transactions using APB 25 and generally requires such transactions be accounted for using a fair-value-based method. SFAS 123R’s effective date would be applicable for awards that are granted, modified, become vested, or settled in cash in interim or annual periods beginning after June 15, 2005. SFAS 123R includes three transition methods: one that providesfor prospective application and two that provide for retrospective application. The Company intends to adopt SFAS 123R prospectively commencing in the third quarter of the fiscal year ending December 31, 2005.

 

 

 

 

 

NOTE 2 - GOING CONCERN

 

Altus’ financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. Altus has incurred net losses of $465,253 and $182,128 for the years ended December 31, 2004 and 2003. This condition raises substantial doubt about Altus’ ability to continue as a going concern. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of these uncertainties.

 

Altus is working to secure additional financing to fund its oil and gas exploration and development activities and to meet its obligations and working capital requirements over the next twelve months.

 

There are no assurances that Altus will be able 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 and/or bank financing necessary to support Altus’ working capital requirements. To the extent that funds generated from operations and any private placements, public offerings and/or bank financing are insufficient, Altus 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 curtail its operations. 

 

NOTE 3 - PROPERTY

 

Property consisted of the following as of December 31, 2004:

 

Computers and furniture

3-5 years

$13,826

Less: accumulated depreciation

 

(4,829)

Net book value

 

$8,997

 

Depreciation expense totalled $3,254 and $1,573 for the years ended December 31, 2004 and December 31, 2003, respectively.

 

NOTE 4 – INCOME TAXES

 

The Company follows Statement of Financial Accounting Standards Number 109 (SFAS 109), “Accounting for Income Taxes.” Deferred income taxes reflect the net effect of (a) temporary difference between carrying amounts of assets and liabilities for financial purposes and the amounts used for income tax reporting purposes, and (b) net operating loss carryforwards. No net provision for refundable Federal income tax has been made in the accompanying statement of loss because no recoverable taxes were paid previously. Similarly, no deferred tax asset attributable to the net operating loss carryforward has been recognized, as it is not deemed likely to be realized.

 

The provision for refundable Federal income tax consists of the following:

 

 

 

December 31,2004

Refundable Federal income tax attributable to:

 

 

Current Operations

$

208,000

Less, Change in valuation allowance

 

(208,000)

Net refundable amount

$

-

 

 

 

 

 

 

The cumulative tax effect at the expected rate of 34% of significant items comprising our net deferred tax amount is as follows:

 

 

 

December 31,2004

Deferred tax asset attributable to:

 

 

Net operating loss carryover

$

232,000

Less, Change in valuation allowance

 

(232,000)

Net deferred tax asset

$

-

 

At December 31, 2004, we had an unused net operating loss carryover approximating $683,000 that is available to offset future taxable income; it expires beginning in 2021.

 

NOTE 5 - RELATED PARTY TRANSACTIONS

 

*CodeAmerica Loan Agreement*

 

Effective January 1, 2005, Altus entered into a Loan Agreement with CodeAmerica Investments LLC (“CodeAmerica”), a company owned by our President, Milton Cox, for CodeAmerica to advance funds to Altus to meet its operating and working capital requirements. The loan provides for an interest rate of 10% per annum. The Loan Agreement provides that the loan will be due within five days of demand for payment by CodeAmerica. 

 

Altus has outstanding loans due to shareholders of $37,850 and $3,250 at December 31, 2004 and 2003, respectively.  Additionally, at December 31, 2004 and 2003, Altus has amounts due to related parties totalling $26,520 and $12,905, respectively primarily associated with services performed for Altus and amounts paid on the behalf of Altus in the ordinary course of business of operating an oil and gas company. 

 

Altus has month-to-month service agreements with related parties. Currently, two directors each receive $6,000 per month and one director receives $4,000 per month for services performed on behalf of Altus.

 

*Oil and Gas Property Purchase*

In October 2003, Altus acquired a 10% working interest in the T.E. Lane gas unit located in Freestone County, Texas from CodeAmerica for a price of $200,000.  

On March 31, 2004, Altus entered into a Lease Purchase and Sale Agreement (the “Agreement”) with CodeAmerica to purchase CodeAmerica’s undivided working interests in certain oil and gas leases located in Freestone County, Texas for $4,187,000. Prior to the Agreement Altus held a 10% undivided working interest in the T.E. Lane gas unit proved developed reserves and in the offsetting acreage proved undeveloped reserves.  With the March 2004 acquisition, Altus increased its undivided working interest in the T.E. Lane gas unit to 20%, and its interest in the offsetting proved undeveloped acreage to 100%.  The existing and acquired acreage are subject to a 28% royalty on production revenues.   

The March 2004 reserve acquisitions from CodeAmerica were made at an arms length basis based on the fair market value of the proved producing and the offsetting proved undeveloped reserves that were acquired by Altus. The fair market values were established based on projected future discounted cash flow analyses that included consideration of:  a) future development costs to drill and complete the reserves, b) independent reserve estimation, production rates and associated decline curves prepared by a consulting engineer, c) forward NYMEX price strips for natural gas, d) historical location basis for Freestone County relative to the Henry Hub, and e) estimated future operating costs.

 

 

 

 

 

The proved producing reserve interest acquired was based on a 10-percent discounted value calculation while the proved undeveloped reserve interests were based on a 16-percent discounted future cash flow analysis.  In connection with the acquisition, Altus issued a total of 4,040,726 common shares to CodeAmerica. The total number common shares issued for the acquisition were based on the weighted average closing stock price for the ten days prior to consummation of the acquisition.

 

 

 

 

NOTE 6 - OIL AND GAS INVESTMENTS

 

Altus follows the full cost method of accounting for its oil and gas properties. Under this method, all productive and nonproductive exploration and development costs incurred for the purpose of finding oil and gas reserves are capitalized. Investments in oil and gas properties consist of the following:

 

 

 

December 31,2004

December 31,2003

 

 

 

Oil and gas properties:

 

 

 

Proved

 

$   4,907,157

$   250,000

Unproved

 

30,466

110,650

 

 

4,937,623

360,650

Less: accumulated depreciation, depletion   and amortization

 

10,810

-

 

 

$   4,926,813

$   360,650

 

 

NOTE 7 - ACQUISITIONS OF OIL AND GAS PROPERTIES

 

Freestone County, Texas

In October 2003, Altus acquired a 10% working interest  in the T.E. Lane gas unit located in Freestone County, Texas from CodeAmerica Investments, L.L.C. (“CodeAmerica”), a company owned by the Director, CEO and President of Altus, for a price of $200,000. In March 2004, Altus increased its working interest in the T.E. Lane gas unit to 20% and acquired a 100% working interest in offsetting acreage to the producing T.E. Lane gas unit. The purchase was made from CodeAmerica for $4,187,000 and was funded through the issuance of 4,040,726 common shares to CodeAmerica. All interests are subject to royalties of 28% of production revenue.

 

NOTE 8 - COMMITMENTS

 

Altus entered into an oral month to month agreement with a related party for office space in Mississippi. Altus has agreed to pay $1,600 per month for the space.

 

NOTE 9 - COMMON STOCK AND WARRANTS

On March 31, 2004 Altus entered into a Lease Purchase and Sale Agreement with CodeAmerica to purchase CodeAmerica’s undivided working interests in certain oil and gas leases located in Freestone County, Texas for approximately $4.2 million. In connection with the acquisition, the Company issued 4,040,726 common shares to CodeAmerica,.  

 

On February 10, 2004 Altus approved a 4 for 1 stock split. The financial statements and footnotes have both been adjusted to show this split as well as the after mentioned split. The articles of incorporation were also amended to bring the authorized shares from 200,000,000 to 800,000,000. All share and per share amounts have been restated to reflect the retroactive effect of the stock split.

 

On October 23, 2003 Altus approved an 8 for 1 stock split. The articles of incorporation were also amended to bring the authorized shares from 25,000,000 to 200,000,000.

 

On October 29, 2003 Altus signed an agreement to issue 4,000,000 shares of common stock along with 4,000,000 stock warrants for $1,000,000. $500,000 was paid up front while the second $500,000 was paid 

 

 

 

 

in February 2004. The stock warrants have an exercise price of $0.375 and expire one year from the agreement date or October 29, 2004. As of December 31, 2003 none of the stock warrants were exercised.

 

On August 14, 2003, Altus’ directors returned 145,600,000 in order to make the company more attractive for prospective financing or other transactions. The 145,600,000 common shares were cancelled. Our directors still hold an aggregate of 12,200,000 common shares, which now equals approximately 31.6% of our issued and outstanding shares.

 

In September 2002, Altus sold 20,153,600 shares of its common stock for total net proceeds of $62,980.

 

At inception, Altus issued 160,000,000 shares of stock to its two founding shareholders for cash.

 

 

 

 

 

SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES

(UNAUDITED)

 

The standardized measure of discounted future net cash flows is computed by applying year-end prices of oil and gas to the estimated future production of proved oil and gas reserves, less estimated future expenditures (based on year-end costs) to be incurred in developing and producing the proved reserves, less estimated future income tax expenses (based on year-end statutory tax rates) to be incurred on pretax net cash flows less tax basis of the properties and available credits, and assuming continuation of existing economic conditions. The estimated future net cash flows are then discounted using a rate of 10 percent per year to reflect the estimated timing of the future cash flows.

 

Proved Developed and Undeveloped Gas Reserves, at year end (net): 

 

 

For the Years Ended December 31,

 

 

2004**(Mcf)******

 

2003**(Mcf)******

Beginning of year

 

130,000

 

-

Purchases of minerals in place

 

8,732,039 

 

130,000 

Improved recovery

 

-

 

-

Production

 

(7,613)

 

-

Revision of previous estimates

 

(30,348)

 

-

 

 

 

 

 

End of Year

 

8,824,078

 

130,000

 

 

 

 

 

Proved Developed Reserves at End of Year

 

184,078

 

130,000

 

Standardized Measure of Discounted Future Net Cash Flows:

 

December 31,

 

2004

 

2003

Future cash inflows

$     36,172,013

 

$     532,160

Future production and development costs

(14,511,092)

 

(156,555)

Future income taxes

(6,559,664)

 

-

Future net cash flows

15,101,257

 

375,605

10% annual discount for estimated timing of cash flows

(3,065,110)

 

 (63,438)

 

 

 

 

Standardized Measure of Discounted Future Net Cash Flows

$    12,036,147

 

$    312,167

 

Changes in Standardized Measure of Discounted Future Net Cash Flows:

 

For the Years Ended December 31,

 

2004

 

2003

Beginning of the year

$     312,167

 

$                  -

Purchase of mineral in place

4,187,000

 

262,167

Extensions, discoveries and improved recovery, less related costs

1,212,334

 

-

Development costs incurred during the year

389,973

 

50,000

Sales of oil and gas produced, net of production costs

(5,462)

 

-

Accretion of discount

-

 

-

Net changes in prices and production costs

-

 

-

Net change in estimated future development costs

12,500,000

 

-

Revision of previous quantity estimates

-

 

-

Revision in estimated timing of cash flows

-

 

-

Net change in income taxes

(6,559,664)

 

-

 

 

 

 

End of the Year

$  12,036,147

 

$  312,167

 

 

28

 

 

 

**Item 8.**

**Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.**

Malone & Bailey, PLLC (the “Former Accountant”) was dismissed on August 20, 2004 as our independent auditors. Malone & Bailey’s audit reports as of December 31, 2003 and 2002 and for each of the two years then ended on our financial statements did not contain an adverse opinion or disclaimer of opinion, or qualification or modification as to uncertainty, audit scope, or accounting principles, except with respect to our ability to continue as a going concern.

During the two most recent fiscal years ended December 31, 2003 and 2002 and in the subsequent interim periods through the date of dismissal, there were no disagreements with Malone & Bailey, PLLC on any matters of accounting principles or practices, financial statement disclosure, or auditing scope and procedures which, if not resolved to the satisfaction of Malone & Bailey PLLC would have caused Malone & Bailey, PLLC to make reference to the matter in their report. Malone & Bailey, PLLC to furnish us with a letter addressed to the Commission stating whether it agrees with the above statements. A copy of that letter, dated August 20, 2004 was filed as Exhibit 16 to our Form 8-K filed on August 20, 2004. Lopez, Blevins, Bork & Associates, L.L.P. was engaged on August 20, 2004 as our principal accountant to audit our financial statements. The decision to change accountants was approvedby the Board of Directors.

During the years ended December 31, 2004 and 2003 and subsequent to December 31, 2004 through the date hereof, neither Altus nor anyone on our behalf consulted with Lopez, Blevins, Bork & Associates, L.L.P. regarding either the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our consolidated financial statements, nor has Lopez, Blevins, Bork & Associates, L.L.P. provided to us a written report or oral advice regarding such principles or audit opinion or any matter that was the subject of a disagreement or reportable events set forth in Item 304(a)(iv) of Regulation S-B with our former accountant.

**Item 8A.**

**Controls and Procedures.**

As required by Rule 13a-15 under the Exchange Act, as of the end of the period covered by this report, being December 31, 2004, we have carried out an evaluation of the effectiveness of the design and operation of our company’s disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of our management, including our president and chief executive officer. Based upon that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective as of the end of the period covered by this report. There have been no significant changes in our internal controls over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect our internal controls over financial reporting.**

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our company’s reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our president and chief executive officer as appropriate, to allow timely decisions regarding required disclosure.

**Item 8B.**

**Other Information**

None.

 

 

29

 

 

**PART III**

**Item 9.**

**Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act.**

*Directors and Executive Officers, Promoters and Control Persons*

As at April 14, 2005, our directors and executive officers, their ages, positions held, and duration of such, are as follows:

 

**Name**

**Position Held with our Company**

**Age**

**Date First****Elected or Appointed**

Milton Cox

Director, CEO and President

57

October 1, 2003

Bassam Nastat

Director

36

November 22, 2003

Don Sytsma

Director, CFO, Secretary and Treasurer

47

November 22, 2003

Andy Kim

Director

41

February 20, 2004

*Business Experience*

The following is a brief account of the education and business experience during at least the past five years of each director, executive officer and key employee, indicating the principal occupation during that period, and the name and principal business of the organization in which such occupation and employment were carried out.

**Milton Cox**

Mr. Cox became a director, our CEO and President on October 1, 2003.

Mr. Cox holds an MBA in Finance from the University of Mississippi. From 1982 to the present Mr. Cox has been the President and CEO of National Diamond Corporation of Memphis, Tennessee, a company with interests in the mining, cutting and distribution of cut and polished diamonds worldwide. In addition, Mr. Cox is also presently the President and CEO of CodeAmerica Investments, LLC, an oil and gas exploration company. 

**Bassam Nastat**

Mr. Nastat became a director on November 22, 2003.

Since 2000, Mr. Nastat has been the vice-president of project development and finance of CodeAmerica Investments, LLC., Olive Branch. Mr. Nastat works with CodeAmerica Investments to liase with their investor base and develops financing strategies to take advantage of exploration opportunities in Texas, Wyoming and Alaska. Mr. Nastat also prepares and presents proposals to industry partners and private investor for development of oil and gas properties.

From 1997 to 2000, Mr. Nastat was a financial consultant in the Private Client Group of Merrill Lynch, Toronto, Ontario. Mr. Nastat enrolled in the Midland Walwyn Financial (currently, Merrill Lynch) advisor program and became a broker at their Mississauga Carriage House Branch. From 1996 to 1997, Mr. Nastat worked in the International Settlements Department of Midland Walwyn (currently, Merrill Lynch) in Toronto, Ontario. Mr. Nastat was responsible for reconciliation of the Midland Walwyn’s US and European transactions that were cleared through the firm’s International Settlement Department.

 

 

30

 

 

**Don Sytsma**

Mr. Sytsma became a director, our CFO and Treasurer on November 22, 2003 and our Secretary on November 30, 2004.

Since 1996, Mr. Sytsma has provided business consulting and advisory services to clients located in the United States and clients in Europe, Russia, Australia and Latin and South America. In 1996, Mr. Sytsma was a director with Harrington and Hrehor Energy Consulting based in Houston. In 1999, he became president and principal of H&H Energy, Inc., and in 2001 he became Vice President of R.J. Rudden Associates. 

Mr. Sytsma currently serves as president of DLS Energy Associates, LLC,. He also serves on the North American Energy Standards Board Executive Committee and Co-Chairs an Industry Sub-Committee responsible for developing common standards and model business practices for the U.S. natural gas and power markets.

**Andy Kim**

Mr. Kim became a director on February 20, 2004.

Mr. Kim has been a Vice President, Investment Advisor with CIBC with Wood Gundy since, January, 2002. Prior to this he was with Merrill Lynch Canada, as a Vice President, Financial Consultant from June 2000. He was also with Midland Walwyn as a Financial Advisor from 1994 to 2000. All of these changes resulted from the companies being bought out and taken over. For all intents and purposes Mr. Kim has been with the same firm since 1994. 

Mr. Kim holds a Bachelor of Arts, Honours Degree from the University of Toronto in Commerce and Economics and is a fully licensed Registered Representative. Mr. Kim has also completed the Officers and Directors exam through the Canadian Securities Institute and has a Certified Investment Management designation.

*Committees of the Board*

Currently our company has the following committees:

**•**

Audit Committee;

 
**•**

Nominating and Corporate Governance Committee; and

**•**

Compensation Committee.

 
Our Audit Committee is currently made up of Bassam Nastat, Andy Kim and Don Sytsma. The Audit Committee is governed by the Audit Committee Charter adopted by the board of directors on February 27, 2004.

Our Nominating and Corporate Governance Committee is currently made up of Andy Kim and Milton Cox. The Nominating and Corporate Governance Committee is governed by the Nominating and Corporate Governance Committee Charter adopted by the board of directors on February 27, 2004.

Our Compensation Committee is currently made up of Andy Kim and Milton Cox. The Compensation Committee is governed by the Compensation Committee Charter adopted by the board of directors on February 27, 2004.

*Family Relationships*

There are no family relationships between any of our directors or executive officers. 

*Involvement in Certain Legal Proceedings*

Other than as discussed below, none of our directors, executive officers, promoters or control persons has been involved in any of the following events during the past five years:

 

 

31

 

 

1. any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;

2. any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offences);

3. being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or

4. being found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.

*Audit Committee Financial Expert*

Our Board of Directors has determined that it does not have a member of its audit committee that qualifies as an “audit committee financial expert” as defined in Item 401(e) of Regulation S-B, and is “independent” as the term is used in Tem 7(d)(3)(iv) of Schedule 14A under the Securities Exchange Act of 1934, as amended.

We believe that the members of our Board of Directors are collectively capable of analyzing and evaluating our financial statements and understanding internal controls and procedures for financial reporting. In addition, we believe that retaining an independent director who would qualify as an “audit committee financial expert” would be overly costly and burdensome and is not warranted in our circumstances given the early stages of our development and the fact that we have not generated significant revenues to date.

*Section 16(a) Beneficial Ownership Compliance*

Section 16(a) of the Securities Exchange Act requires our executive officers and directors, and persons who own more than 10% of our common stock, to file reports regarding ownership of, and transactions in, our securities with the Securities and Exchange Commission and to provide us with copies of those filings. Based solely on our review of the copies of such forms received by us, or written representations from certain reporting persons, we believe that during fiscal year ended December 31, 2004, all filing requirements applicable to its officers, directors and greater than ten percent beneficial owners were complied with.

*Code of Ethics*

Effective February 27, 2004, our company’s board of directors adopted a Code of Business Conduct and Ethics that applies to, among other persons, members of our Board of Directors, our company’s officers including our president (being our principal executive officer) and our company’s chief financial officer (being our principal financial and accounting officer), contractors, consultants and advisors. As adopted, our Code of Business Conduct and Ethics sets forth written standards that are designed to deter wrongdoing and to promote:

(1) honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;

(2) full, fair, accurate, timely, and understandable disclosure in reports and documents that we file with, or submit to, the Securities and Exchange Commission and in other public communications made by us;

(3) compliance with applicable governmental laws, rules and regulations;

(4) the prompt internal reporting of violations of the Code of Business Conduct and Ethics to an appropriate person or persons identified in the Code of Business Conduct and Ethics; and

(5) accountability for adherence to the Code of Business Conduct and Ethics.

 

 

32

 

 

Our Code of Business Conduct and Ethics requires, among other things, that all of our company’s personnel shall be accorded full access to our president and secretary with respect to any matter which may arise relating to the Code of Business Conduct and Ethics. Further, all of our company’s personnel are to be accorded full access to our company’s board of directors if any such matter involves an alleged breach of the Code of Business Conduct and Ethics by our Company officers.

In addition, our Code of Business Conduct and Ethics emphasizes that all employees, and particularly managers and/or supervisors, have a responsibility for maintaining financial integrity within our company, consistent with generally accepted accounting principles, and federal, provincial and state securities laws. Any employee who becomes aware of any incidents involving financial or accounting manipulation or other irregularities, whether by witnessing the incident or being told of it, must report it to his or her immediate supervisor or to our company’s president or secretary. If the incident involves an alleged breach of the Code of Business Conduct and Ethics by the president or secretary, the incident must be reported to any member of our board of directors. Any failure to report such inappropriate or irregular conduct of others is to be treated as a severe disciplinary matter. It is against ourcompany policy to retaliate against any individual who reports in good faith the violation or potential violation of our company’s Code of Business Conduct and Ethics by another.

Our Code of Business Conduct and Ethics is filed herewith with the Securities and Exchange Commission as Exhibit 14.1 to this annual report. We will provide a copy of the Code of Business Conduct and Ethics to any person without charge, upon request. Requests can be sent to: Altus Explorations, Inc., Suite 100, 8900 Germantown Road, Olive Branch, Mississippi 38654.

**Item 10.**

**Executive Compensation.**

The following table summarizes the compensation of key executives during the last three complete fiscal years. No other officers or directors received annual compensation in excess of $100,000 during the last three complete fiscal years.

 

SUMMARY COMPENSATION TABLE

 

 

Annual Compensation

Long Term Compensation (1)

 

 

 

 

 

 

Awards

Payouts

 

Name and PrincipalPosition

Year

Salary

Bonus

OtherAnnualCompen-sation (1)

SecuritiesUnderlyingOptions/SARsGranted

RestrictedShares orRestrictedShareUnits

LTIPPayouts

All OtherCompen-sation

Milton Cox(2)President, CEO andDirector)

200420032002

$72,000$18,000$Nil

NilNilNil

NilNilNil

1,175,000(3)NilNil

NilNilNil

NilNilNil

NilNilNil

Donald Sytsma(4)Chief Financial Officer, Secretary and Director

200420032002

$20,000$Nil$Nil

$Nil$Nil$Nil

NilNilNil

1,175,000(5)NilNil

NilNilNil

NilNilNil

NilNilNil

(1)     The value of perquisites and other personal benefits, securities and property for the Named Executive Officers that do not exceed the lesser of $50,000 or 10% of the total of the annual salary and bonus is not reported herein.

(2)

Milton Cox became our President and CEO on October 1, 2003.

(3)     Milton Cox was granted stock options to purchase up to 1,175,000 common shares of our company on November 19, 2004. The options are exercisable at a price of $0.425 per share until November 19, 2014. These options vest over 4 years beginning on November 19, 2005, with a total of 293,750 options vesting each year. The options provide for acceleration of vesting should certain performance targets be achieved.

 

 

33

 

 

(4)     Donald Sytsma became our CFO on November 22, 2003 and our Secretary on November 30, 2004. 

(5)     Donald Sytsma was granted stock options to purchase up to 1,175,000 common shares of our company on November 19, 2004. The options are exercisable at a price of $0.425 per share until November 19, 2014. These options vest over 4 years beginning on November 19, 2005, with a total of 293,750 options vesting each year. The options provide for acceleration of vesting should certain performance targets be achieved.

*Employment/Consulting Agreements*

We have oral month-to-month service agreements with some of our directors and officers. Currently two of our directors each receive $6,000 per month, and one officer receives $4,000 per month for services provided on our behalf.

*Long-Term Incentive Plans*

There are no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officers, except that our directors and executive officers may receive stock options at the discretion of our board of directors. We do not have any material bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to our directors or executive officers, except that stock options may be granted at the discretion of our board of directors.

We have no plans or arrangements in respect of remuneration received or that may be received by our executive officers to compensate such officers in the event of termination of employment (as a result of resignation, retirement, change of control) or a change of responsibilities following a change of control, where the value of such compensation exceeds $60,000 per executive officer.

*Stock Option Plan*

On January 28, 2004 we established a stock option plan pursuant to which 5,483,040 common shares were reserved for issuance. 

Stock options become exercisable at dates determined by the Board of Directors at the time of granting the option and have initial terms of ten years.

*Stock Options/SAR Grants*

During the year ended December 31, 2004, we granted the following stock options to our directors and executive officers: 

Options/SAR Grants in Last Fiscal Year 

Name

Number ofSecuritiesUnderlyingOptions/SARsGranted(#)

% of TotalOptions/SARsGranted toEmployeesin FiscalYear(1)

ExercisePrice($/Share)

Expiration Date

Milton Cox

1,175,000

27.17%

$0.425

November 19, 2014

Donald Sytsma

1,175,000

27.17%

$0.425

November 19, 2014

Bassam Nastat

1,175,000

27.17%

$0.425

November 19, 2014

(1) The denominator (of 4,325,000) was arrived at by calculating the net total number of new options awarded to directors, officers, employee and consultants during the year ended December 31, 2004. There were 800,000 stock options granted to non-employees during the year ended December 31, 2004.

 

 

34

 

 

There were no stock options exercised during the year ended December 31, 2004.

*Directors Compensation*

We reimburse our directors for expenses incurred in connection with attending board meetings but did not pay director’s fees or other cash compensation for services rendered as a director in the year ended December 31, 2004.

We have no present formal plan for compensating our directors for their service in their capacity as directors, although in the future, such directors are expected to receive compensation and options to purchase shares of common stock as awarded by our board of directors or (as to future options) a compensation committee which may be established in the future. Directors are entitled to reimbursement for reasonable travel and other out-of-pocket expenses incurred in connection with attendance at meetings of our board of directors. The board of directors may award special remuneration to any director undertaking any special services on behalf of our company other than services ordinarily required of a director. Other than indicated in this annual report, no director received and/or accrued any compensation for his or her services as a director, including committee participation and/or special assignments.

*Report on Executive Compensation*

Our compensation program for our executive officers is administered and reviewed by our board of directors. Historically, executive compensation consists of a combination of base salary and bonuses. Individual compensation levels are designed to reflect individual responsibilities, performance and experience, as well as the performance of our company. The determination of discretionary bonuses is based on various factors, including implementation of our business plan, acquisition of assets, development of corporate opportunities and completion of financing.

**Item 11.**         **Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.**

*Beneficial Ownership*

The following table sets forth, as of March 31, 2005, certain information with respect to the beneficial ownership of our common shares by each shareholder known to us to be the beneficial owner of 5% of our common shares, and by each of our officers and directors. Each person has sole voting and investment power with respect to the common shares, except as otherwise indicated. Beneficial ownership consists of a direct interest in the common shares, except as otherwise indicated. 

 

Name  and Address ofBeneficial Owner

Amount  and Nature ofBeneficial Ownership

Percentageof Class(1)

Milton Cox7227 Winchester Road, #258Memphis, TN 38118USA

9,227,438(2)

21.66%

Bassam Nastat5831 Winch StreetBurnaby, BC V5B 2J4Canada

5,200,000

12.21%

Donald Sytsma3107 GreenbriarHouston, TX 77098USA

800,000

1.88%

Andy Kim1408 Stonecutter DriveOakville, ON L6M 3C3Canada

Nil

Nil

 

 

 

35

 

 

 

Sterling Management of Belize5 Park AvenueOrange Walk TownBelize City, Belize

4,000,000

9.39%

Directors and Officers(as a group)

15,227,438

35.75%

 

(1)         Based on 42,594,326 shares outstanding as of March 31, 2005 and, as to a specific person, shares issuable pursuant to the conversion or exercise, as the case may be, of currently exercisable or convertible debentures, share purchase warrants and stock options.

(2)         Of these shares, 3,227,438 are owned by CodeAmerica Investments, LLC, a company wholly owned by Mr. Cox.

 

*Changes in Control*

We are unaware of any contract or other arrangement the operation of which may at a subsequent date result in a change in control of our company.

**Item 12.**

**Certain Relationships and Related Transactions.**

Other than as described under the heading “Executive Compensation”, or as set forth below, there are no material transactions with any of our directors, officers or control person that have occurred during the last fiscal year.

Effective January 1, 2005 we entered into a Loan Agreement with CodeAmerica to advance funds to us to meet out operating and working capital requirements. The loan provides for an interest rate of 10% per annum, and is due within five days of demand for payment by CodeAmerica.

We have oral month-to-month service agreements with some of our directors and officers. Currently two of our directors each receive $6,000 per month, and one officer receives $4,000 per month for services provided on our behalf.

None of our directors, executive officers, future directors, 5% shareholders, or any members of the immediate families of the foregoing persons have been indebted to us during the last fiscal year or the current fiscal year in an amount exceeding $60,000.

**Item 13.**

**Exhibits.**

*Exhibits required by Item 601 of Regulation S-B*

**(3)**

**Articles of Incorporation and Bylaws**

3.1    Articles of Incorporation (incorporated by reference to our SB2 Registration Statement filed January 29, 2002).

3.2

Bylaws (incorporated by reference to our SB2 Registration Statement filed January 29, 2002).

3.3    Certificate of Forward Stock Split filed with Nevada Secretary of State on November 6, 2003. (incorporated by reference from our Annual Report on Form 10-KSB, filed on April 13, 2004)

3.4    Certificate of Change Pursuant to NRS 78.209 filed with the Nevada Secretary of State on February 2, 2004. (incorporated by reference from our Annual Report on Form 10-KSB, filed on April 13, 2004)

 

 

36

 

 

 

**(10)**

**Material Contracts**

10.1  Harrison 1 Claim dated August 6, 2001 (incorporated by reference from our Registration Statement on Form SB-2, filed on January 29, 2002).

10.2  Harrison 2 Claim dated August 6, 2001 (incorporated by reference from our Registration Statement on Form SB-2, filed on January 29, 2002).

10.3  Harrison 3 Claim dated August 6, 2001 (incorporated by reference from our Registration Statement on Form SB-2, filed on January 29, 2002).

10.4  Harrison 4 Claim dated August 6, 2001 (incorporated by reference from our Registration Statement on Form SB-2, filed on January 29, 2002).

10.5  Harrison 5 Claim dated August 6, 2001 (incorporated by reference from our Registration Statement on Form SB-2, filed on January 29, 2002).

10.6  Harrison 6 Claim dated August 6, 2001 (incorporated by reference from our Registration Statement on Form SB-2, filed on January 29, 2002).

10.7  Harrison 7 Claim dated August 6, 2001 (incorporated by reference from our Registration Statement on Form SB-2, filed on January 29, 2002).

10.8  Harrison 8 Claim dated August 6, 2001 (incorporated by reference from our Registration Statement on Form SB-2, filed on January 29, 2002).

10.9  Warranty Deed dated November 27, 2001 (incorporated by reference from our Registration Statement on Form SB-2, filed on January 29, 2002).

10.10               Letter of Intent between Orbit Energy, LLC and Altus Explorations Inc. dated October 22, 2003 (incorporated by reference from our Current Report on Form 8-K, filed on November  6, 2003 and amended on November 26, 2003).

10.11               Letter of Intent between B.B.I. Inc./Escopeta Oil Company, L.L.C. and Altus Explorations Inc. dated October 22, 2003 (incorporated by reference from our Current Report on Form 8-K, filed on November  6, 2003 and amended on November 26, 2003).

10.12               Assignment of Bill and Sale between CodeAmerica Investments, LLC and Altus Explorations Inc. dated October 22, 2003 (incorporated by reference from our Current Report on Form 8-K, filed on November  6, 2003 and amended on November 26, 2003).

10.13               Exploration Agreement between Escopeta Oil Company, L.L.C and Altus Explorations Inc. dated November 12, 2003 (incorporated by reference from our Annual Report on Form 10-KSB, filed on April 13, 2004).

10.14               2004 Stock Option Plan (incorporated by reference from our Registration Statement of Form S-8, filed on February 27, 2004)

10.15               Lease Purchase and Sale Agreement between CodeAmerica Investments, LLC and Altus Explorations Inc. dated March 31, 2004. (incorporated by reference from our Current Report on Form 8-K, filed on April 13, 2004)

10.16               Convertible Loan Agreement between Excalibur Investment Corp. and Altus Explorations Inc. dated September 20, 2004. (incorporated by reference from our Current Report on Form 8-K, filed on September 29, 2004)

 

 

37

 

 

10.17               Cancellation of Release Agreement between Altus Explorations Inc. and Escopeta Oil Company, LLC dated November 1, 2004. (incorporated by reference from our Quaterly Report on Form 10-QSB, filed on November 16, 2004)

10.18               Amendment to the Lake Creek Prospect Farmout Agreement with Orbit Energy LLC. (incorporated by reference from our Current Report on Form 8-K, filed on December 23, 2004)

**(14)**

**Code of Ethics**

14.1  Code of Business Conduct and Ethics (incorporated by reference from our Annual Report on Form 10-KSB, filed on April 13, 2004)

**(31)**

**Section 302 Certifications**

 
31.1

Certification of Milton Cox

 
31.2

Certification of Don Sytsma

 
**(32)**

**Section 906 Certification**

 
32.1

Certification of Milton Cox

 
32.2

Certification of Don Sytsma

 
**Item 14.**

**Principal Accountant Fees and Services**

*Audit Fees*

The aggregate fees billed by Lopez, Blevins, Bork & Associates, L.L.P for professional services rendered for the audit of our annual financial statements included in our Annual Report on Form 10-KSB for the fiscal year ended December 31, 2004 were estimated to be $12,500.

The aggregate fees billed by Malone & Bailey, PLLC for professional services rendered for the audit of our annual financial statements included in our Annual Report on Form 10-KSB for the fiscal year ended December 31, 2003 were $10,395.

*Audit Related Fees*

For the fiscal year ended December 31, 2004, the aggregate fees billed for assurance and related services by Lopez, Blevins, Bork & Associates, L.L.P relating to the performance of the audit of our financial statements which are not reported under the caption “Audit Fees” above, was $0.

For the fiscal year ended December 31, 2003, the aggregate fees billed for assurance and related services by Malone & Bailey, PLLC relating to the performance of the audit of our financial statements which are not reported under the caption “Audit Fees” above, was $0.

*Tax Fees*

For the fiscal year ended December 31, 2004, the aggregate fees billed by Lopez, Blevins, Bork & Associates, L.L.P for other non-audit professional services, other than those services listed above, totalled $0.

For the fiscal year ended December 31, 2003, the aggregate fees billed by Malone & Bailey, PLLC for other non-audit professional services, other than those services listed above, totalled $0. 

We do not use Lopez, Blevins, Bork & Associates, L.L.P for financial information system design and implementation. These services, which include designing or implementing a system that aggregates source data underlying the financial statements or generates information that is significant to our financial statements, are 

 

 

38

 

 

provided internally or by other service providers. We do not engage Lopez, Blevins, Bork & Associates, L.L.P to provide compliance outsourcing services.

Effective May 6, 2003, the Securities and Exchange Commission adopted rules that require that before Lopez, Blevins, Bork & Associates, L.L.P is engaged by us to render any auditing or permitted non-audit related service, the engagement be: 

**•**

approved by our audit committee (which consists of entire Board of Directors); or

 
**•**

entered into pursuant to pre-approval policies and procedures established by the audit committee, provided the policies and procedures are detailed as to the particular service, the audit committee is informed of each service, and such policies and procedures do not include delegation of the audit committee’s responsibilities to management.

The audit committee pre-approves all services provided by our independent auditors. The pre-approval process has just been implemented in response to the new rules, and therefore, the audit committee does not have records of what percentage of the above fees were pre-approved. However, all of the above services and fees were reviewed and approved by the audit committee either before or after the respective services were rendered.

The audit committee has considered the nature and amount of fees billed by Lopez, Blevins, Bork & Associates, L.L.P and believes that the provision of services for activities unrelated to the audit is compatible with maintaining Lopez, Blevins, Bork & Associates, L.L.P’s independence.

 

 

39

 

 

**SIGNATURES**

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

**ALTUS EXPLORATIONS INC.**

 

By: /s/ Milton Cox

Milton Cox, President, Chief Executive Officer and Director

Date: April 15, 2005

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. 

By: /s/ Milton Cox

Milton Cox, President, Chief Executive Officer and Director

(Principal Executive Officer)

 

 

By: /s/ Don Sytsma

Don Sytsma, Chief Financial Officer, Treasurer and Director

(Principal Financial Officer and Principal Accounting Officer)

 

 

By: /s/ Andy Kim

Andy Kim, Director

 

 

By: /s/ Bassam Nastat

Bassam Nastat, Director

Date: April 15, 2005

 

 

 

 

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