Scout Exploration (SCXN) 10-Q 2009 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

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

For the quarterly period ended  December 31, 2008

o     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE EXCHANGE ACT

Commission File Number 0 - 52280

SCOUT EXPLORATION, INC.

(Exact name of registrant as specified in its charter)

Nevada	98-0504670
(State or other jurisdiction of incorporation)	(IRS Employer Identification No.)

15707 Rockfield Blvd., Suite 101, Irvine, California 92618

(Address of principal executive offices)

(949) 265-7717

(Registrant’s telephone number)

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

Yes  x    No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer," "accelerated filer,” and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	x
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o    No x

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after distribution of securities under a plan confirmed by a court.Yes   No 

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer’s classes of common equity as of the latest practicable date: As of February 9, 2009, there were 8,847,000 shares of common stock, par value $0.001, outstanding.

PART I - FINANCIAL INFORMATION

Item 1       Financial Statements

Scout Exploration, Inc.

Interim Consolidated Financial Statements

(Unaudited)

(presented in US dollars)

December 31, 2008

F-1

1

INDEX

Interim Consolidated Balance Sheets	F-3
Interim Consolidated Statements of Stockholders’ Equity	F-4
Interim Consolidated Statements of Operations	F-5
Interim Consolidated Schedules of Administrative Expenses	F-6
Interim Consolidated Statements of Cash Flows	F-7
Notes to the Interim Consolidated Financial Statements	F-8

F-2

2

Scout Exploration, Inc.
Interim Consolidated Balance Sheets
(Unaudited) (Presented in US Dollars)
	December 31, 2008 (Unaudited)			September 30, 2008
Assets
Current
Cash	$	76,685		$	131,100
Receivables		37,692			57,015
Prepaid expenses		2,774			7,468
		117,151			195,583
Resource properties (Note 4)		783,401			932,900
Equipment (Note 5)		12,844			15,959
	$	913,396		$	1,144,442
Liabilities
Current
Accounts payable and accrued liabilities	$	201,072		$	264,563
Debenture payable - current portion (Note 3)		110,835			122,000
Income taxes payable		3,346			5,782
		315,253			392,345
Debenture payable (Note 3)		176,515			208,225
Deferred income taxes		176,944			211,797
Asset retirement obligations (Note 6)		24,674			28,355
		693,386			840,722
Stockholders' Equity
Preferred stock
Authorized: 1,000,000 shares with par value of $0.01
Issued: Nil (2007 - Nil)		-			-
Common stock
Authorized: 50,000,000 shares with par value of $0.001
Issued: 8,847,000 (September 30, 2008 - 8,847,000)		8,847			8,847
Subscriptions received in advance		4,100			4,100
Subscriptions receivable		(23,000	)		(23,000	)
Additional paid in capital		981,953			981,953
Accumulated deficit		(677,408	)		(645,722	)
Accumulated other comprehensive loss		(74,482	)		(22,458	)
		220,010			303,720
	$	913,396		$	1,144,442

Going Concern (Note 1)

Commitments (Note 12)

Approved by the Directors:

____________________________ Director

____________________________ Director

The accompanying notes are an integral part of the interim consolidated financial statements.

F-3

3

Scout Exploration, Inc.
Interim Consolidated Statements of Stockholders' Equity
(Unaudited) (Presented in US Dollars)
																				Accumulated
	Shares of					Additional			Subscriptions											other				Total
	common		Capital			paid-in			received			Subscriptions				Accumulated				comprehensive				Stockholders'
	stock		stock			capital			in advance			receivable				Deficit				loss				Equity
Balance September 30, 2006		5,900,000		$	5,900		$	141,100		$	100		$	-			$	(145,025	)		$	-			$	2,075
Issuance of common stock for cash and subscription receivable		1,400,000			1,400			208,600			-			(75,000	)			-				-				135,000
Net loss		-			-			-			-			-				(131,869	)			-				(131,869	)
Balance September 30, 2007		7,300,000			7,300			349,700			100			(75,000	)			(276,894	)			-				5,206
Cash received for subscriptions receivable		-			-			-			-			75,000				-				-				75,000
Issuance of common stock for for consulting services		150,000			150			74,850			-			-				-				-				75,000
Issuance of common stock for cash		1,397,000			1,397			557,403			4,000			(23,000	)			-				-				539,800
Net loss		-			-			-			-			-				(368,828	)			-				(368,828	)
Foreign currency translation		-			-			-			-			-				-				(22,458	)			(22,458	)
Balance September 30, 2008		8,847,000			8,847			981,953			4,100			(23,000	)			(645,722	)			(22,458	)			303,720
Net loss		-			-			-			-			-				(31,686	)			-				(31,686	)
Foreign currency translation		-			-			-			-			-				-				(52,024	)			(52,024	)
Balance December 31, 2008		8,847,000		$	8,847		$	981,953		$	4,100		$	(23,000	)		$	(677,408	)		$	(74,482	)		$	220,010

The accompanying notes are an integral part of the interim consolidated financial statements.

F-4

4

Scout Exploration, Inc.
Interim Consolidated Statements of Operations
(Unaudited) (Presented in US Dollars)
For the Three Months Ended December 31	2008			2007
Revenues - petroleum and natural gas	$	59,469		$	-
Operating expenses
Lease and royalties		27,356			-
Depletion and accretion		28,514			-
Depreciation		1,047			-
		56,917			-
Operating margin		2,552			-
Administrative expenses - schedule		41,628			33,412
Loss before income taxes		(39,076	)		(33,412	)
Income taxes expense (recovery)
Current		-			-
Deferred		(7,390	)		-
		(7,390	)		-
Net loss		(31,686	)		(33,412	)
Other comprehensive income (loss)
Foreign currency translation		(52,024	)		-
Comprehensive loss	$	(83,710	)	$	(33,412	)
Basic and diluted loss per share	$	(0.00	)	$	(0.00	)
Basic and diluted weighted average shares outstanding		8,847,000			7,300,000

The accompanying notes are an integral part of the interim consolidated financial statements.

F-5

5

Scout Exploration, Inc.
Interim Consolidated Schedules of Administrative Expenses
(Unaudited) (Presented in US Dollars)
For the Three Months Ended December 31	2008			2007
Accounting and audit	$	16,540		$	8,418
Bank charges and interest		5,166			140
Consulting fees		2,475			-
Directors’ fees		6,000			6,000
Filing fees, dues and subscriptions		156			1,910
Foreign exchange (gain) loss		(3,593	)		4,726
Legal		180			576
Office and administration		11,996			8,071
Promotion and travel		2,108			2,971
Transfer agent		600			600
	$	41,628		$	33,412

The accompanying notes are an integral part of the interim consolidated financial statements.

F-6

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Scout Exploration, Inc.
Interim Consolidated Statements of Cash Flows
(Unaudited) (Presented in US Dollars)
For the Three Months Ended December 31	2008			2007
Cash flows from operating activities
Net loss	$	(31,686	)	$	(33,412	)
Adjustments to reconcile net loss to net cash used in operating activities
Foreign exchange		-			4,726
Depletion and accretion		28,514			-
Depreciation		1,047			-
Deferred income taxes		(7,390	)		-
Changes in operating assets and liabilities
Accounts receivable		11,979			-
Prepaid expenses		4,280
Accounts payable and accrued liabilities		(46,618	)		5,114
Income taxes payable		(1,693	)		-
		(41,567	)		(23,572	)
Cash flows from investing activities		-			-
Cash flows from financing activities
Proceeds from Issuance of common stock		-			60,000
Effect of exchange rate changes on cash		(12,848	)		(2,808	)
Net increase in cash		(54,415	)		33,620
Cash at beginning of the period		131,100			45,649
Cash at end of the period	$	76,685		$	79,269
Supplemental disclosure with respect to cash flows (Note 9)

The accompanying notes are an integral part of the interim consolidated financial statements.

F-7

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Scout Exploration, Inc.

Notes to the Interim Consolidated Financial Statements

(Unaudited) (Presented in US dollars)

December 31, 2008

1.   Nature of operations and going concern

Scout Exploration, Inc. (the “Company”) was incorporated in the State of Nevada on February 1, 1999.  The Company was initially engaged in the business of designing, developing and marketing educational products for children, adults, business people, as well as new language learners.  On April 10, 2006 the Company changed its name from Virtual Curricula Corp. to Scout Exploration, Inc.  The Company is now in the business of the exploration, development and exploitation of mineral and oil and gas resources properties.

As of December 31, 2008, we had cash on hand of $76,685 and negative working capital of $198,102.  We do not anticipate present oil and gas revenues will be sufficient to pay ongoing general and administrative expenses for the next year nor pay the debenture payments of $110,835, nor the $20,000 payment due to the vendor of the Wheaton River mineral property in September 2009. We will need to obtain additional financing in order to continue our plan of operations.

We believe that debt financing will not be a feasible alternative, as we do not have sufficient unencumbered tangible assets to secure any debt financing. We anticipate that additional financing will be equity financing from the sale of our common stock. However, we do not have any financing arranged and nor can we provide investors with any assurance that we will be able to raise sufficient funding from such potential equity financings.  In the absence of such financing, we will not be able to continue exploration or development of our mineral claims and oil and gas property interests and our business plan will then fail. Even if we are successful in obtaining equity financing to fund possible in field drilling of the oil and gas properties, as well as other operational costs and short term debt obligations, there is no assurance of success from such drilling activities.  There is a significant risk any future in field drilling of our oil and gas properties may not be successful and that we may not be able to meet other obligations. In the event we are not able to obtain additional financing, we will be forced to abandon our mineral claims and may lose our oil and gas properties, should we default on the terms of the secured debenture issued as part of the acquisition terms.

Should such a situation arise, we may consider entering into a joint venture arrangement to provide the required funding to meet the debt obligations and possibly continue development of the oil and gas properties. We have not undertaken any efforts to locate a joint venture partner. Even if we elect to pursue a joint venture partner, there is no assurance that any other party would want to enter into a joint venture agreement with us. If we enter into a joint venture agreement, we would likely have to assign a percentage of our interest in the oil and gas properties to our joint venture partner.

The Company’s continuing operations, as intended, are dependent on management’s ability to raise required funding through future equity issuances, asset sales or a combination thereof, which is not assured. These consolidated financial statements have been prepared on a going concern basis, which assumes the realization of assets and liquidation of liabilities in the normal course of business. These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary, should the Company be unable to continue as a going concern.

F-8

8

Scout Exploration, Inc.

Notes to the Interim Consolidated Financial Statements

(Unaudited) (Presented in US dollars)

December 31, 2008

2.   Basis of presentation

The interim financial statements presented herein have been prepared by the Company in accordance with the accounting policies in its audited financial statements for the year ended September 30, 2008, except as noted below, and should be read in conjunction with the notes thereto.

In the opinion of management, all adjustments (consisting only of normal recurring adjustments) which are necessary to provide a fair presentation of operating results for the interim period presented have been made. The results of operations for the period presented is not necessarily indicative of the results to be expected for the year.

Interim financial data presented herein are unaudited, except for the balance sheet at September 30, 2008, which has been derived from the audited consolidated financial statements at that date.

Recently adopted accounting pronouncements

Effective October 1, 2008, the Company adopted Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. The adoption of SFAS 157 has not had any impact on the Company’s financial position, results of operations, or cash flows.

Effective October 1, 2008, the Company adopted Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”).  SFAS 159 permits entities to choose to measure many financial instruments, and certain other items, at fair value. The adoption of SFAS 159 has not had any impact on the Company’s financial position, results of operations, or cash flows.

3.   Share purchase agreement

On June 18, 2008, the Company entered into a Share Purchase Agreement with Brian Mahood, defined therein as the “Vendor”, whereby the Vendor agreed to sell 100% of the issued and outstanding Class A Voting Shares of Kerrisdale Resources Ltd. (“KRL”), an Alberta corporation, to the Company (the “Agreement”). The effective date of the Agreement is January 1, 2008 and it had a Closing Date of June 18, 2008.

The Purchase Price for the Shares was $760,849 ($775,000 CDN) (the “Purchase Price”) comprised of $24,543 ($25,000 CDN) paid in cash to the Vendor at the time of signing the January 28, 2008 Letter of Intent, $392,696 ($400,000 CDN) paid to the Vendor on Closing Date of June 18, 2008, and the issuance of a $343,610 ($350,000 CDN) debenture (“Debenture”) to the Vendor with a maturity date of December 31, 2010. The Debenture is secured by a first charge on all of KRL’s assets.

The Purchase Price of $760,849 ($775,000 CDN) represents the fair value of the acquired oil and gas assets. The fair value of the net assets acquired was:

Current assets	$	144,816
Proved petroleum and natural gas properties		997,964
Tangible production equipment		18,618
Liabilities assumed		(400,549	)
Net Assets Acquired	$	760,849

F-9

9

Scout Exploration, Inc.

Notes to the Interim Consolidated Financial Statements

(Unaudited) (Presented in US dollars)

December 31, 2008

3. �� Share purchase agreement (continued)

The Debenture bears interest at 6.75% per annum, effective from January 1, 2008.  Under the original terms of the Agreement, interest was payable on July 1, 2008 (paid) for the period January 1, 2008 to June 30, 2008, on October 1, 2008 (paid) and January 1, 2009 (paid), and thereafter quarterly until the Debenture is fully paid; subsequently modified (see below) such that effective January 1, 2009 and thereafter accrued interest is payable monthly commencing on February 1, 2009 until the Debenture is fully paid.

The original terms of the Debenture required a principal payment on January 2, 2009, of either $125,000 CDN plus the quarterly interest otherwise due for the quarter ended December 31, 2008, or the prepayment of $350,000 CDN Debenture total plus the quarterly interest otherwise due for the quarter ended December 31, 2008 together with an additional interest payment calculated as the amount that accrued on the Debenture balance for the two (2) quarters ending December 31, 2008.   Subsequent to December 31, 2008 the Vendor and the Company agreed to modify the terms of the Debenture such that effective January 1, 2009, accrued interest is payable monthly as detailed above, and to replace the principal payment due on January 2, 2009 for $125,000 CDN with the following payments:

Date	Amount ($ CDN)		Amount ($US)
January 14, 2009 (paid subsequently)	$	25,000	$	20,525
March 31, 2009		50,000		41,050
June 30, 2009		50,000		41,050
Current portion		125,000		102,625
Remaining original payments
January 2, 2010		125,000		102,625
January 2, 2011		100,000		82,100
Total debenture payable December 31, 2008		350,000		287,350
Additional fee payable under modified terms		10,000		8,210
Total Debenture payable subsequent	$	360,000	$	295,560

In addition, terms of the Debenture require a principal payment on January 2, 2010, at the Company’s sole and exclusive option, of either $125,000 CDN plus the monthly interest otherwise due for the month of December 2009, or the prepayment of the then remaining principal balance plus the monthly interest otherwise due for the month of December 2009 together with an additional interest payment calculated as the amount that accrued on the Debenture balance for the six (6) months ending December 31, 2009.

As security for the Principal Amount of the Debenture, KRL and the Vendor entered into a General Security Agreement, the effective date of which is January 1, 2008 (the “Security Agreement”). Pursuant to the provisions of the Security Agreement, KRL granted to the Vendor a continuing security interest in and to all (i) personal property of KRL including goods, chattel paper, securities, documents of title, instruments, money, intangibles; (ii) real property of KRL including all charges on KRL land or interests in land and petroleum and natural gas leases; and (iii) parts, accessories, attachments, equipment, additions, accretions thereto and property thereof, together with any equipment or accessories placed upon repairs made to the foregoing during the term of the Security Agreement.

F-10

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Scout Exploration, Inc.

Notes to the Interim Consolidated Financial Statements

(Unaudited) (Presented in US dollars)

December 31, 2008

4.   Resource properties

Petroleum and Natural Gas Properties

Pursuant to the terms of the purchase agreement as more fully described in Note 3, the Company has varying working interests, from 6% to 100%, in thirteen (13) oil and gas wells located in Alberta. The cost of these producing wells is recorded at the apportioned purchase price paid by the Company as more fully described in Note 3.

Mineral Property: AAV 1-9 Claims

On March 4, 2006 the Company signed a letter of agreement with a non-arms length private Canadian Corporation for a 100% interest in and to the Wheaton River AAV 1-9 Claims situated in the Whitehorse Mining District of the Yukon Territory, Canada. Terms of the purchase require a cash payment of $5,000 by March 31, 2006 (paid) and $20,000 on or before September 30, 2006 (subsequently deferred to September 30, 2009), and the issuance of 500,000 common shares of the Company (issued at fair value of $0.05 per common share). The Vendor will retain 3% net smelter royalty, up to 2% of which can be re-purchased for $2,000,000. All costs associated with Exploration Mineral projects are expensed when incurred.

5.   Equipment

	As at December 31, 2008
	Cost		Accumulated Amortization		Net Book Value
Tangible production equipment	$	15,569	$	2,725	$	12,844

6.   Asset retirement obligations

The total future asset retirement obligation was estimated based on the Company’s net ownership interest in all oil and gas properties, the estimated cost to abandon and reclaim the properties, and the estimated timing of the cost to be incurred in future periods. The total undiscounted amount of the estimated future cash flows required to settle the retirement obligation is approximately $49,424 which will be incurred during the years 2012 through 2034. A credit adjusted risk free rate of 6.5 percent was used to calculate the fair value of the asset retirement obligation.

F-11

11

Scout Exploration, Inc.

Notes to the Interim Consolidated Financial Statements

(Unaudited) (Presented in US dollars)

December 31, 2008

7.   Related party transactions

a) During the period ended December 31, 2008, directors’ fees of $6,000 (2007 - $6,000) were paid or accrued to two Directors of the Company.

b) During the period ended December 31, 2008, office and administration fees and management fees of $10,725 (2007 - $7,200) were paid to corporations controlled by a Director of the Company.

c) At December 31, 2008, $37,392 (2007 - $23,370) owed to Directors and corporations controlled by a Director of the Company was included in accounts payable. The balance is due on demand, has no specific terms of repayments, is non-interest bearing and is unsecured, and accordingly fair value cannot be reliably determined.

The above transactions occurred in the normal course of operations and were measured at the exchange value which represented the consideration established and agreed to by the related parties.

8.   Share purchase warrants

As of December 31, 2008, 1,397,000 (September 30, 2008 – 1,397,000) share purchase warrants are outstanding, with an exercise price of $0.75 per share and which expire on May 20, 2009.

9.   Supplemental disclosure with respect to cash flows

Supplemental cash flow information for the three months ended December 31 is as follows:

	2008		2007
Interest paid	$	5,053	$	-
Income taxes paid	$	2,346	$	-

10.   Segmented disclosure

The Company has two operating segments, both located in Canada: an inactive mineral exploration project in the Yukon Territory and recently acquired oil and gas production and development in Alberta. All plant and equipment assets of the Company are located in Canada.

F-12

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Scout Exploration, Inc.

Notes to the Interim Consolidated Financial Statements

(Unaudited) (Presented in US dollars)

December 31, 2008

11.   Financial instruments and risk management

a) Fair value

The Company’s financial instruments include cash, receivables, accounts payable, accrued liabilities and debenture payable. Unless otherwise noted, it is management’s opinion that the Company is not exposed to significant interest, currency or credit risks arising from these financial instruments. The fair value of these financial instruments approximates their carrying values, unless otherwise noted.

b) Foreign exchange risk

The Company expects to raise equity predominantly in United States dollars. The Company is conducting business in Canada where financial transactions are based on the Canadian dollar. As such, the Company is subject to risks due to fluctuations in the exchange rates for the U.S. and Canadian dollar. The Company does not enter into derivative financial instruments to mitigate its exposure to foreign currency risk.

At December 31, 2008 the Company had the following financial assets and liabilities denominated in Canadian dollars:

	CDN Dollars
Cash	$	86,347
Receivables	$	45,910
Accounts payable and accrued liabilities	$	190,416
Debenture payable	$	360,000

At December 31, 2008 CDN dollar amounts were converted at a rate of $0.821 Canadian dollars to $1.00 US dollar.

12.   Commitments

On June 18, 2008, and as amended January 7, 2009, the Company entered into a Management Agreement with Kerrisdale Consulting Inc. (“KCI”) with an effective date of January 1, 2008 whereby KCI would provide ongoing senior and geological and management operations services to the Company for a monthly fee of $1,000 CDN per month, terminating on December 31, 2009.

In addition, pursuant to the provisions of the Agreement (see Note 3), the Company agreed to pay KCI $500 CDN per month for a period of two years commencing January 1, 2008, as rent pursuant to a sublease by the Company of office space located in Calgary, Alberta, Canada.

F-13

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

Cautionary Note Regarding Forward Looking Statements

This report contains forward-looking statements that involve risks and uncertainties, including statements regarding our capital needs, business plans and expectations. Such forward-looking statements involve risks and uncertainties regarding the market price of precious and base metals, oil and gas, availability of funds, government regulations, operating costs, exploration costs, outcomes of exploration programs and other factors. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. Forward-looking statements can be identified by terminology such as “may”, “will”, “should”, “expect”, “plan”, “intend”, “anticipate”, “believe”, “estimate”, “predict”, “potential” or “continue”, the negative of such terms or other comparable terminology. Our actual results may differ materially. In evaluating these statements, you should consider various factors. These factors may cause actual results to differ materially from any forward-looking statement. While these forward-looking statements are made in good faith and reflect our current judgment regarding our business plans, actual results from our operations will almost always vary, sometimes materially, from any future performance suggested herein.

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

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

As used in this quarterly report, the terms “we”, “us”, “our”, the “Company” and “Scout” mean Scout Exploration, Inc. and its subsidiaries, unless the context clearly requires otherwise.

Current Business

We are a junior oil and gas producing company.  Over the next year our plan of operations is to complete the following objectives, subject to our obtaining the necessary funding for the continued exploration and possible further development of our resource properties, both mineral and oil and gas:

·   For the foreseeable future, we plan to defer any further exploration work programs on the Wheaton River Property.

·   We expect the acquisition of Kerrisdale to generate approximately $12,000 in monthly net income after taxes.

·   We plan to evaluate the potential of completing in field drilling to hopefully expand our proven oil and gas reserves. Completion of any further drilling will be dependent on favorable engineering recommendations for the commencement of any in field drilling and our ability to raise additional funds. There is no assurance that we will be able to obtain such funds, nor is there any assurance that any in field drilling will, upon completion, result in any additional proven oil and gas reserves.

·   We anticipate spending approximately $17,000 monthly in ongoing general and administrative expenses over the next year. These expenses will consist primarily of management remuneration, travel and promotion costs, professional fees for audit and legal work relating to our regulatory filings, transfer agent fees, annual mineral claim fees and general office expenses.

·   We owe the vendor of the Wheaton River property an additional $20,000, which is due and payable on or before September 30, 2009.

Results of operations

Revenues for the three months ended December 31, 2008 were $59,469 as compared to $Nil for the three months ended December 31, 2007.  Prior to the acquisition of our subsidiary, Kerrisdale Resources Ltd. (“Kerrisdale”), which closed on June 18, 2008, we had no source of revenues.

14

Administrative expenses for the three months ended December 31, 2008 were $41,628 as compared to $33,412 for the three months ended December 31, 2007.  The increase is a result of increased accounting and audit fees associated with our acquisition of Kerrisdale.

Liquidity and Capital Resources

As of December 31, 2008, we had cash on hand of $76,685 and negative working capital of $198,102, after including $110,835 debenture principal payments which are due and payable within one year (of which $28,000 (CDN$35,000) has been paid subsequent to December 31, 2008).

We do not anticipate present oil and gas revenues will be sufficient to pay ongoing general and administrative expenses for the next year nor pay the debenture payments of $110,835, nor the $20,000 payment due to the vendor of the Wheaton River mineral property in September 2009. We will need to obtain additional financing in order to continue our plan of operations.

We believe that debt financing will not be a feasible alternative, as we do not have sufficient unencumbered tangible assets to secure any debt financing. We anticipate that additional financing will be equity financing from the sale of our common stock. However, we do not have any financing arranged and nor can we provide investors with any assurance that we will be able to raise sufficient funding from such potential equity financings.  In the absence of such financing, we will not be able to continue exploration or development of our mineral claims and oil and gas property interests and our business plan will then fail. Even if we are successful in obtaining equity financing to fund possible in field drilling of its oil and gas properties, as well as other operational costs and short term debt obligations, there is no assurance of success from such drilling activities.  There is a significant risk any future in field drilling of our oil and gas properties may not be successful and that we may not be able to meet our other obligations. In the event we do not continue to obtain additional financing, we will be forced to abandon our mineral claims and may lose our oil and gas properties, should we default on the terms of the secured debenture issued as part of the acquisition terms.

Should such a situation arise, we may consider entering into a joint venture arrangement to provide the required funding to meet our debt obligations and possibly continue our development of our oil and gas properties. We have not undertaken any efforts to locate a joint venture partner. Even if we elect to pursue a joint venture partner, there is no assurance that any other party would want to enter into a joint venture agreement with us. If we enter into a joint venture agreement, we would likely have to assign a percentage of our interest in the oil and gas properties to our joint venture partner.

Future Financing

We anticipate we will continue to rely on equity sales of our common stock to finance our business operations. Issuances of additional shares will result in dilution to our existing shareholders. There is no assurance that we will achieve any additional sales of our equity securities or arrange for debt or other financing to fund our planned exploration or development activities.

Item 3       Quantitative and Qualitative Disclosures about Market Risk

Not applicable

Item 4       Controls and Procedures

Management’s Report on Internal Control over Financial Reporting

As of December 31, 2008 management assessed the effectiveness of our internal control over financial reporting.  Based on that evaluation, they concluded that, during the period covered by this report, such internal controls and procedures were not effective to detect the inappropriate application of US GAAP rules as more fully described below.  This was due to deficiencies that existed in the design or operation of our internal controls over financial reporting that adversely affected our internal controls and that may be considered to be material weaknesses.

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The matters involving internal controls and procedures that our management considered to be material weaknesses were: lack of a functioning audit committee due to a lack of a majority of independent members and a lack of a majority of outside directors on our board of directors; and inadequate segregation of duties consistent with control objectives.

In an effort to remediate the identified material weaknesses and other deficiencies and enhance our internal controls, we have initiated, or plan to initiate, the following series of measures:

We will increase our personnel resources and technical accounting expertise within the accounting function to address the lack of segregation of duties when funds are available to us.  And, we plan to appoint one or more outside directors to our board of directors who shall be appointed to an audit committee resulting in a fully functioning audit committee who will undertake the oversight in the establishment and monitoring of required internal controls and procedures such as reviewing and approving estimates and assumptions made by management when funds are available to us.

The remediation efforts set out above are largely dependent upon our company securing additional financing to cover the costs of implementing the changes required. If we are unsuccessful in securing such funds, remediation efforts may be adversely affected in a material manner.

Changes in Internal Control over Financial Reporting

During the quarter ended December 31, 2008, there were no changes in our internal control over financial reporting or in other factors that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1       Legal Proceedings.

None.

Item 2       Unregistered Sales of Equity Securities.

None.

Item 3       Defaults upon Senior Securities.

None.

Item 4       Submission of Matters to a Vote of Security Holders.

None.

Item 5       Other Information.

None.

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Item 6       Exhibits.

Exhibit 31.1	Certification of C.E.O. Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 31.2	Certification of Principal Accounting Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.1	Certifications of C.E.O. and Principal Accounting Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

SIGNATURES

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

Date:  February 17, 2009

SCOUT EXPLORATION, INC.,

a Nevada corporation

By: /s/ John Roozendaal                                     

Name: John Roozendaal

Title: President and Chief Executive Officer

By: /s/ Jason Walsh                                            

Name: Jason Walsh

Title: Treasurer and Principal Accounting Officer

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