UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549




FORM 10-K




x   Annual Report under Section 13 or 15(d) of the Securities Exchange Act of 1934




For the fiscal period ended: September 30, 2009




o   Transition Report under Section 13 or 15(d) of the Exchange Act of 1934




For the transition period from _____________ to ______________




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 or organization)

(I.R.S. Employer Identification Number)





609-475 Howe Street, Vancouver, BC V6C 2B3(Address of principal executive offices)





(604) 682-1643(Issuer’s telephone number)








Securities registered pursuant to Section 12(b) of the Exchange Act: None




Securities registered pursuant to Section 12(g) of the Exchange Act: Common Stock, par value $.001 per share




Indicate by checkmark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.


Yes o   No x




Indicate by checkmark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.


Yes o   No x




Indicate by checkmark whether the registrant has (1) 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 o   No x




Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).


Yes o   No o




Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not 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-K or any amendment to this Form 10-K.   x
















Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.




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





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


Yes o   No x




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 last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed fiscal quarter: $783,700 based on the last sale price of our common stock of $0.10 on August 2, 2012.




APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY


PROCEEDINGS DURING THE PAST FIVE YEARS:




Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.


Yes o   No o N/A




(APPLICABLE ONLY TO CORPORATE REGISTRANTS)




Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. 13,947,000 shares of Common Stock, par value $.001, as of August 8, 2012




DOCUMENTS INCORPORATED BY REFERENCE




List hereunder the following documents if incorporated by reference and the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) any annual report to security holders; (2) any proxy or information statement; and (3) any prospectus filed pursuant to Rule 424(b) or (c) of the Securities Act of 1933. The listed documents should be clearly described for identification purposes (e.g., annual report to security holders for fiscal year ended December 24, 1980).


Not Applicable
























PART I




Item 1. Business




General




We were incorporated in the State of Nevada on February 1, 1999 as “Virtual Curricula Corp.”  On April 10, 2006, we changed our name to “Scout Exploration, Inc.”  We were originally engaged in the business of developing interactive educational products for children, adults, business people and new language learners.  On March 4, 2006, we abandoned that business to pursue the business of mineral exploration.




On March 4, 2006, we entered into a mineral property purchase agreement with Iscis Holdings Ltd., whereby they sold to us 100% right, title and interest in the mineral title “AAV 1-9 Claims” (also known as the “Wheaton River Property”) in the Whitehorse Mining District of the Yukon Territory.  For the foreseeable future, we plan to defer any further exploration work programs on Wheaton River Property.




Our principal executive office is located at 609-475 Howe Street, Vancouver, BC V6C 2B3. Our phone number is (949) 265-7717.  Our Internet address is http://www.scoutexploration.com. Information on our website is not, however, part of this report.




Purchase of Kerrisdale Resources Ltd.




On June 18, 2008, and subsequently amended, the Company entered into a Share Purchase Agreement with Brian Mahood, (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”) with an effective date of January 1, 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 by KRL of a $343,610 ($350,000 CDN) debenture (the “Debenture”) to the Vendor with a maturity date of December 31, 2010, bearing interest at 6.75%. The Debenture was secured by a first charge on all of KRL’s assets. The agreement was subsequently amended such that the Debenture was increased to $360,000 CDN, of which $28,109 ($35,000 CDN) has been paid subsequent to June 30, 2008.




Subsequent to June 30, 2008, the Vendor notified the Company that in the Vendor’s opinion, the Company was in default of the Agreement, and demanded payment of $325,000.00 CDN plus interest and legal fees and expenses. Due to declines in the market price of petroleum and natural gas that have occurred since the acquisition of KRL, the cash flow from operations of KRL has not been sufficient to meet the payments required under the Agreement.




As a result of these factors, pursuant to a Settlement, Share Sale and Release Agreement, the Company agreed to sell 100% of its interest in KRL back to the Vendor for consideration of $1 and release both parties from all obligations under the original and amended share purchase agreements, with an effective date of April 1, 2009 and a closing date of June 30, 2009.






1







On September 14, 2011 and as amended on July 31, 2012, we entered into a letter of intent with IDS Offshore Inc. (“IDS”) pursuant to which we may acquire the exclusive rights to certain intellectual property and patents surrounding the rapid oil boom project held and developed by IDS (the “Project”), for total cash consideration of $4,265,000 payable at various dates over a 3 year period commencing on July 31, 2012, and issuance of 5,000,000 common shares of the Company on signing the amended letter of intent (issued), and a total 7,500,000 common shares of the Company upon completion of various phases of the Project.




Employees




We have no employees, other than our executive officers, as of the time of this report. We intend to retain geologists and consultants on a contract basis to conduct the work programs on our properties to carry out our plan of operations.




Competition




We are a junior company. We compete with other companies for financing and for the acquisition of new projects. Many of the companies with whom we compete have greater financial and technical resources than those available to us. Accordingly, these competitors may be able to spend greater amounts on acquisitions of projects of merit. This competition could result in competitors having projects of greater quality and interest to prospective investors who may finance additional development. This competition could adversely impact on our ability to achieve the financing necessary for us to conduct further development of our projects.




We also compete with other junior companies for financing from a limited number of investors that are prepared to make investments in junior companies. The presence of competing junior companies may impact on our ability to raise additional capital in order to fund our projects.




Governmental Regulations




Mineral resource exploration operations are subject to various federal, provincial and local governmental regulations. Matters subject to regulation include discharge permits for drilling operations, drilling and abandonment bonds and taxation. 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.




Patents and Trademarks




We do not own, either legally or beneficially, any patents or trademarks.




Item 2. Properties




Our executive offices are located at 609-475 Howe Street, Vancouver, BC V6C 2B3. We also have 9 mineral claims in the Yukon Territory.




Item 3. Legal Proceedings




We are not, and have not been during the period covered by this report, a party to any legal proceedings.






2







Item 4. (Removed and Reserved)




PART II




Item 5. Market for Common Equity and related Stockholder Matters




Market Information




We are a reporting company with the SEC. We participate in the Over-the-Counter Bulletin Board Quotation Service maintained by the Financial Industry Regulatory Authority (“FINRA”) (“OTCBB”). The OTCBB is an electronic quotation medium for securities traded outside of the Nasdaq Stock Market, and prices for our common stock are published on the OTC Bulletin Board under the trading symbol “SCXN.OB.” The OTCBB market is extremely limited and the prices quoted are not a reliable indication of the value of our common stock.




The first trade of our common stock on the Bulletin Board occurred on December 6, 2006.  The following table sets forth the quarterly high and low closing sale prices for our common stock for the periods indicated below, based upon quotations between dealers, without adjustments for stock splits, dividends, retail mark-ups, mark-downs or commissions and, therefore, may not represent actual transactions:




Quarter Ending

High


LowJune 30, 2011

$
0.24


$
0.02March 31, 2011

$
0.23


$
0.06December 31, 2010

$
0.06


$
0.01September 30, 2010

$
0.01


$
0.01June 30, 2010

$
0.02


$
0.01March 31, 2010

$
0.09


$
0.02December 31, 2009

$
0.11


$
0.04September 30, 2009

$
0.25


$
0.04June 30, 2009

$
0.25


$
0.07March 31, 2009

$
0.11


$
0.04December 31, 2008

$
0.20


$
0.10September 30, 2008

$
0.58


$
0.20June 30, 2008

$
0.59


$
0.40March 31, 2008

$
0.60


$
0.32December 31, 2007

$
0.51


$
0.31September 30, 2007

$
0.58


$
0.23June 30, 2007

$
0.72


$
0.35March 31, 2007

$
0.91


$
0.11December 31, 2006

$
0.25


$
0.02




Holders of Our Common Stock




As of the date of this report, we have approximately 66 registered shareholders.






3







Dividends




There are no restrictions in our Articles of Incorporation or bylaws that prevent us from declaring dividends. The Nevada Revised Statutes, however, do prohibit us from declaring dividends when, after giving effect to the distribution of the dividend:




●
We would not be able to pay our debts as they become due in the usual course of business; or


●
Our total assets would be less than the sum of our total liabilities plus the amount that would be needed to satisfy the rights of shareholders who have preferential rights superior to those receiving the distribution.





As of the date of this report, we have not declared any dividends, and we do not plan to declare any dividends in the foreseeable future.




Securities Authorized for Issuance under Equity Compensation Plans




Our 2007 Stock Option and Incentive Plan was approved by the unanimous written consent of our Board of Directors and by the written consent of a majority of our shareholders on July 23, 2007.  One million (1,000,000) shares of our common stock are reserved for issuance pursuant to that plan.  No options have been issued under the plan as of the date of this report.




Recent Sales of Unregistered Securities




On April 1, 2008, our Board of Directors approved a private placement of up to 2,000,000 units, with each unit consisting of one share of our common stock at a purchase price of $0.40 per share and one warrant entitling the holder thereof the right to purchase one additional share of our common stock at a purchase price of $0.75 per share, at any time up to one year from the closing date of the private placement. During May 2008, we completed the sale of 1,349,500 units and raised net proceeds of $538,451.




We used most of the proceeds from the private placement offering to fund the acquisition of Kerrisdale with $392,696 ($400,000 CDN ) in cash, with an additional $343,610 ($350,000 CDN) evidenced by and secured by the Security Agreement. Pursuant to the provisions of the Security Agreement, the secured amount is due and payable in installments during the period January 2, 2009, through January 3, 2011. The amount secured by the Security Agreement accrues interest at 6.75% per annum, and interest is payable quarterly commencing June 30, 2008. All required interest payments are current. The balance of the proceeds from the private placement was used to fund ongoing general and administrative expenses and to supplement working capital.






4








Item 6. Selected Financial Data




Not Applicable.




Item 7. 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.




General




The following discussion and analysis should be read in conjunction with our financial statements (and notes related thereto) appearing elsewhere in this report.




Plan of Operations




Over the next year our plan of operations is to secure financing for the Company to carry out its obligations under the letter of intent with IDS, and to sign a definitive formal agreement with IDS.




As of September 30, 2009, we had cash on hand of $Nil and negative working capital of $231,774.




On April 1, 2008, our Board of Directors approved a private placement of up to 2,000,000 Units, with each Unit consisting of one share of our common stock at a purchase price of $0.40 per share and one warrant entitling the holder thereof the right to purchase one additional share of our common stock at a purchase price of $0.75 per share, at any time up to one year from the closing date of the private placement.. During May 2008, we completed the sale of 1,397,000 Units and raised aggregate proceeds of $558,800, of which $23,000 was receivable from subscribers as of September 30, 2008.  In addition, we received $4,000 in subscriptions received in advance for 10,000 units which have not been issued as of September 30, 2008.




We used most of the proceeds from the private placement offering to fund the acquisition of Kerrisdale Resources Ltd. with $ 392,696 ($400,000 CDN ) in cash, with an additional $343,610 ($350,000 CDN) evidenced by and secured by a General Security Agreement by and among Kerrisdale Resources Ltd. (“KRL”) and the vendor of KRL, Mr. Brian Mahood. The balance of the proceeds from the private placement was used to fund ongoing general and administrative expenses and to supplement working capital.






5







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 our business plan will then fail. Even if we are successful in obtaining equity financing to fund exploration of our mineral claims and acquisition of additional mineral properties as well as other operational costs, there is no assurance of success from such exploration activities. In the event we do not continue to obtain additional financing, we will be forced to abandon our mineral claims.




Going Concern




We have not attained profitable operations and are dependant upon obtaining financing to pursue any extensive exploration activities or acquisitions. For these reasons, our auditors stated in their report that they are concerned that we will not be able to continue as a going concern.




Future Financing




We anticipate continuing to rely on sales of our common stock to finance our business operations. Issuances of additional shares of our common stock 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 activities.




Results of Operations




General and administrative expenses have decreased from $395,618 for the year ended September 30, 2008 to $167,156 for the year ended September 30, 2009, mainly due to non-recurring consulting fees, audit and accounting fees, and travel expenses incurred in the year ended September 30, 2008 in connection with our acquisition of KRL.




Our loss for the year ended September 30, 2009 was $167,156 as compared to $792,378 for the year ended September 30, 2008. The decrease was due to reduced general and administrative expenses as discussed above, and a one time loss on impairment of investment in the amount of $396,760 reported in the year ended September 30, 2008 arising from our acquisition of KRL.




Off-Balance Sheet Arrangements.  We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.




Item 8. Financial Statements




See Index to Financial Statements immediately following the signature page of this report.






6








Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure




There have been no disagreements with our accountants since our formation required to be disclosed pursuant to Item 304(b) of Regulation S-B.




Item 9A. Controls and Procedures




Disclosure Controls and Procedures




As required by Rule 13a-15 of the Exchange Act, our principal executive officer and principal financial officer evaluated our company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this report. Based on this evaluation, these officers concluded that as of the end of the period covered by this report, these disclosure controls and procedures were not effective to ensure that the information required to be disclosed by our company in reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities Exchange Commission and include controls and procedures designed to ensure that such information is accumulated and communicated to our company's management, including our company's principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. The conclusion that our disclosure controls and procedures were not effective was due to the presence of the following material weaknesses in internal control over financial reporting which are indicative of many small companies with small staff: (i) inadequate segregation of duties and effective risk assessment; and (ii) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both US GAAP and SEC guidelines. Management anticipates that such disclosure controls and procedures will not be effective until the material weaknesses are remediated.




We plan to take steps to enhance and improve the design of our internal controls over financial reporting. During the period covered by this quarterly report on Form 10-Q, we have not been able to remediate the material weaknesses identified above. To remediate such weaknesses, we plan to implement the following changes during our fiscal year ending September 30, 2011: (i) appoint additional qualified personnel to address inadequate segregation of duties and ineffective risk management; and (ii) adopt sufficient written policies and procedures for accounting and financial reporting. The remediation efforts set out above are largely dependent upon our 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.




Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake.




Changes in Internal Control over Financial Reporting




During the year ended September 30, 2009, 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.






7







Item 9B. Other Information




None.




PART III




Item 10. Directors, Executive Officers and Corporate Governance




The following table sets forth certain information regarding our executive officers and directors as of August 8, 2012:




NAME OF DIRECTOR
AGE
TERM SERVED
POSITIONS WITH COMPANYJohn Roozendaal
44
Since December 13, 2007
President and DirectorJason Walsh
41
Since March 3, 2006
Secretary, Treasurer and DirectorRene Lange
41
Since July 31, 2012
Director




On December 13, 2007, our Board of Directors increased the number of its members to three.  On that same date, Kathleen Scalzo resigned as our President and Treasurer and as a director.  Our remaining director at that time, Shane Ivancoe, appointed Jason Walsh and John Roozendaal as directors to fill the vacancies on the Board of Directors and, also, appointed John Roozendaal as our President and Jason Walsh as our Treasurer. Rene Lange was appointed as a director on July 31, 2012.




All our directors hold office until the next annual meeting of our stockholders or until their successors are elected and qualified.  Executive officers hold offices until their successors are elected and qualified, subject to earlier removal by the Board of Directors.




Set forth below is a biographical description of each director and executive officer based upon information supplied by him:




Biographical Information




John Roozendaal has served as our President and as one of our directors since December 13, 2007.  Mr. Roozendaal has been involved with the mineral exploration industry for over 15 years, focusing on precious, base and specialty metal exploration projects in North America. Mr. Roozendaal is the President and a director of VMS Ventures Inc. and Harvest Gold Corp., and a director of Thelon Capital Ltd., which are all publicly traded companies on the TSX Venture exchange.  Mr. Roozendaal helped found VMS Ventures in 1996, and Harvest Gold was spun off from VMS Ventures in 2005.  He became a director of Thelon Capital Ltd.in October 2005.  Mr. Roozendaal holds a Bachelor of Science degree in Geology received from Brandon University in 1996.




Jason Walsh has served as our Secretary since March 3, 2006.  He has served as our Treasurer and as one of our directors since December 13, 2007.  Since April 15, 2003, he has also served as the President and a director of Thelon Capital Ltd.(TSX Venture: THV).  He has also served as an officer of International Ranger Corp. (Pink Sheets: IRNG) since February 19, 2006.  From October 1997 to April 2003, he served as a registered representative with Global Securities in Vancouver, British Columbia.






8







Rene Lange has served as a director since July 31, 2012. Mr. Lange is a graduate of Ocean and Naval Architectural Engineering, Memorial University of Newfoundland. In 2008 Mr. Lange founded IDS Offshore Inc., an engineering design company focused on projects in the marine sector.




Significant Employees




We have no significant employees, other than the officers and directors described above.




Committees of the Board of Directors  We presently do not have an audit committee, compensation committee, nominating committee, an executive committee of our Board of Directors, stock plan committee or any other committees.




Audit Committee Financial Expert  We have no financial expert on our Board of Directors. We believe the cost related to retaining a financial expert at this time is prohibitive.




Section 16(a) Compliance.  Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors, executive officers and holders of more than 10% of our common stock to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in ownership of our common stock.  It appears that Kathleen Scalzo, Shane Ivancoe, Jason Walsh, Kassel Enterprises Inc. and Iscis Holdings Ltd. filed Form 3s during the year ended September 30, 2007, that were properly filed during the year ended September 30, 2006.  It also appears that Shane Ivancoe, one of our directors, filed one Form 4 regarding one transaction on February 13, 2007, which was not timely filed.




The Company has not yet adopted a written Code of Ethics, but management intends to do so in the next year.




Item 11. Executive Compensation




We paid Jason Walsh, our Secretary and Treasurer and one of our directors, $12,000 in the year ended September 30, 2009, as a director’s fee.  We also paid a company controlled by Jason Walsh office and administration fees of $58,894 in the in the year ended September 30, 2009.  We paid Shane Ivancoe, one of our former directors, $12,000 in the year ended September 30, 2009 as a director’s fee.




Stock Option Grants




We have not granted any stock options to our executive officers since our inception.




Consulting Agreements




We are a party to an agreement for services with Bua Group Holdings Ltd. dated October 1, 2006.  Pursuant to this agreement, we are obligated to pay Bua Group Holdings Cdn$1,000 per month for services and Cdn$1,400 per month for expenses.  The principals of Bua Group Holdings are Jason Walsh, our Secretary and Treasurer and one of our directors, and Ralf Hillebrand.




Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters




The following table provides the names and addresses of each person known to us to own more than 5% of our outstanding stock as of August 8, 2012, and by the officers and directors, individually or as a group. Except as otherwise indicated, all shares are owned directly.






9









Title of Class
Name and Address of

Beneficial Owner
Amount and Nature

of Beneficial Ownership
Percent of Class$0.001 Par Value Common Stock
John Roozendaal

President and Director

c/o Scout Exploration, Inc.

609-475 Howe Street

Vancouver, BC V6C 2B3
60,000(1)
0.4%$0.001 Par Value Common Stock
Rene Lange

Director

c/o Scout Exploration, Inc.

609-475 Howe Street

Vancouver, BC V6C 2B3
5,000,000(2)
35.9%$0.001 Par Value Common Stock
All officers and directors as a group
5,060,000
36.3%$0.001 Par Value Common Stock
Shane Ivancoe

Former Director

c/o Scout Exploration, Inc.

609-475 Howe Street

Vancouver, BC V6C 2B3
850,000
6.1%


(1)
These shares are held by 667981 BC Ltd., a company controlled by Mr. Roozendaal.(2)
These shares are held by IDS Offshore Inc., a company controlled by Mr. Lange.





The percentage of class is based upon 13,947,000 shares of our common stock and no shares of our preferred stock issued and outstanding as of the date of this report.




Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. In accordance with Securities and Exchange Commission rules, shares of our common stock which may be acquired upon exercise of stock options or warrants which are currently exercisable or which become exercisable within 60 days of the date of the table are deemed beneficially owned by the optionees. Subject to community property laws, where applicable, the persons or entities named in the table above have sole voting and investment power with respect to all shares of our common stock indicated as beneficially owned by them.




Item 13. Certain Relationships and Related Transactions




Except as described below, none of the following parties has, in the last two years, had any material interest, direct or indirect, in any transaction with us or in any presently proposed transaction that has or will materially affect us:






10






●
Any of our directors or officers;


●
Any person proposed as a nominee for election as a director;


●
Any person who beneficially owns, directly or indirectly, shares carrying more than 10% of the voting rights attached to our outstanding shares of common stock; or


●
Any member of the immediate family of any of the above person.





Office Space Arrangement




We paid Jason Walsh, our Secretary and Treasurer and one of our directors, office and administration fees of $36,730 in the in the year ended September 30, 2009.




Agreement with Iscis Holdings Ltd.




On March 4, 2006, we entered into a mineral property purchase agreement with Iscis Holdings Ltd., whereby it sold to us 100% right, title and interest in the mineral title “AAV 1-9 Claims” in the Whitehorse Mining District of the Yukon Territory.Iscis Holdings Ltd. is owned by Ivan Walsh, who is one of our shareholders and the brother of Jason Walsh, our Secretary and Treasurer and one of our directors.  Iscis Holdings Ltd. also beneficially owns over 10% of our common stock.




As a part of our purchase agreement with Iscis Holdings Ltd., we entered into a net smelter return royalty agreement. The terms of this agreement specify that Iscis Holdings Ltd. is entitled to a royalty payment equal to 3% of the net smelter returns.




Agreement with Bua Group Holdings Ltd.




We are a party to an agreement for services with Bua Group Holdings Ltd. dated October 1, 2006.  Pursuant to this agreement, we are obligated to pay Bua Group Holdings Cdn$1,000 per month for services and Cdn$1,400 per month for expenses.  The principals of Bua Group Holdings are Jason Walsh, our Secretary and Treasurer and one of our directors, and Ralf Hillebrand.




Director Independence




We participate in the Over-the-Counter Bulletin Board Quotation Service maintained by FINRA.  As such, we are not currently subject to corporate governance standards of listed companies, which require, among other things, that the majority of our Board of Directors be independent.




Since we are not currently subject to corporate governance standards relating to the independence of our directors, we choose to define an “independent” director in accord with the NASDAQ Global Market’s requirements for independent directors (NASDAQ Marketplace Rule 4200). The NASDAQ independence definition includes a series of objective tests, such as that the director is not our and has not engaged in various types of business dealings with us.




We presently do not have an audit committee, compensation committee, nominating committee, an executive committee of our Board of Directors, stock plan committee or any other committees.




Item 14. Principal Accountant Fees and Services




The following is a summary of the aggregate fees billed to us by our principal accountant, MacKay LLP, for professional services rendered for the fiscal years ended September 30, 2009 and 2008.






11







1.    Audit Fees. Consists of fees billed for professional services rendered for the audits of our financial statements for the fiscal years ended September 30, 2009 and 2008, and for review of the financial statements included in our Quarterly Reports on Form 10-Q for those fiscal years. Fees billed in 2008 were $24,309. Fees billed in 2009 are $49,441.




2.    Audit-Related Fees. Consists of fees billed for services rendered to us for audit-related services, which generally include fees for audit and review services in connection with a proposed spin-off transaction, separate audits of employee benefit and pension plans, and ad hoc fees for consultation on financial accounting and reporting standards.  Fees billed: None.




3.    Tax Fees. Consists of fees billed for services rendered to us for tax services, which generally include fees for corporate tax planning, consultation and compliance.  Fees billed in 2008 were $1,487. Fees billed in 2009 are $Nil.




4.    All Other Fees. Consists of fees billed for all other services rendered to us, which generally include fees for consultation regarding computer system controls and human capital consultations. Fees Billed: None.




Pre-Approval of Services of Principal Accounting Firm




We do not have an audit committee, and the tasks generally undertaken by an audit committee are undertaken by our Board of Directors.  Our board’s policy is to pre-approve all audit and permissible non-audit services provided by our principal accounting firm.  These services may include audit services, audit-related services, tax services and other permissible non-audit services. Any service incorporated within the independent auditor's engagement letter, which is approved by our Board of Directors, is deemed pre-approved. Any service identified as to type and estimated fee in the independent auditor's written annual service plan, which is approved by our Board of Directors, is deemed pre-approved up to the dollar amount provided in such annual service plan.




During the year, the principal accounting firm may also provide additional accounting research and consultation services required by, and incident to, the audit of our financial statements and related reporting compliance. These additional audit-related services are pre-approved up to the amount approved in the annual service plan approved by our Board of Directors. Our Board of Directors may, also, pre-approve services on a case-by-case basis during the year.




The approval by our Board of Directors of proposed services and fees are noted in the meeting minutes of our Board of Directors and/or by signature of the appropriate members of our Board of Directors on the engagement letter. Our principal accounting firm and management are periodically requested to summarize the principal accounting firm services and fees paid to date, and management is required to report whether the principal accounting firm's services and fees have been pre-approved in accordance with the required pre-approval process of our Board of Directors.










12







Item 15. Exhibits




The following documents have been filed as a part of this annual report:




Exhibit No.3.1
* Articles of Incorporation (Charter Document)3.2
* Certificate of Amendment3.3
* Bylaws10.1
* Iscis Holdings Ltd. Mineral Property Purchase Agreement10.2
** Contract for services with Bua Group Holdings Ltd. dated October 1, 2006.10.3
*** Share Purchase Agreement with Brian Mahood and Kerrisdale Resources Ltd.10.4
*** Management Agreement with Kerrisdale Consulting Inc.10.5
*** General Security Agreement by and among Kerrisdale Resources Ltd. and Brian Mahood.31.1
Rule 13A-14(A) Certification, CEO31.2
Rule 13A-14(A) Certification, CFO32.1
Certification Pursuant to 18 U.S.C. SECTION 1350, as adopted pursuant to SECTION 906 of the Sarbanes-Oxley Act of 2002, CEO32.2
Certification Pursuant to 18 U.S.C. SECTION 1350, as adopted pursuant to SECTION 906 of the Sarbanes-Oxley Act of 2002, CFO





* Previously filed with the Securities and Exchange Commission on August 10, 2006 as exhibits to our Registration Statement on Form SB-2.


** Previously filed with the Securities and Exchange Commission on February 13, 2007 as an exhibit to our Quarterly Report on Form 10-QSB.


*** Previously filed with the Securities and Exchange Commission on August 21, 2008 as an exhibit to our Quarterly Report on Form 10-Q.































13








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.




SCOUT EXPLORATION, INC.




Dated: August 30, 2012




By: /s/ John Roozendaal


Name:  John Roozendaal


Title: President and Chief Executive Officer




By: /s/ Jason Walsh


Name:  Jason Walsh


Treasurer and Principal Accounting Officer




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.




Dated: August 30, 2012




By: /s/ John Roozendaal


Name:  John Roozendaal


Title: President and Chief Executive Officer


Director




By: /s/ Jason Walsh


Name:  Jason Walsh


Title: Secretary, Treasurer and Principal Accounting Officer


Director




By: /s/ Rene Lange


Name:  Rene Lange


Title: Director







14
  
 
 
 Scout Exploration, Inc.
 (an Exploration Stage Enterprise)
 
 Financial Statements
 (presented in US dollars)
 
 September 30, 2009 and 2008
             
 
 
 
 
 
  F - 1
 
 
 INDEX
   Report of Independent Registered Public Accounting Firm
F-3Balance Sheets
F-4Statements of Stockholders’ Equity (Deficit)
F-5Statements of Operations
F-6Statements of Cash Flows
F-7Notes to the Financial Statements
F-8
 
                   F - 2
 
 
 Report of Independent Registered Public Accounting Firm
 
 To the Shareholders of
 Scout Exploration, Inc.
   We have audited the balance sheets of Scout Exploration, Inc. as at September 30, 2009 and 2008, and the statement of operations, stockholders’ equity (deficit), and cash flows for the years then ended, and for the period from incorporation on February 1, 1999 to September 30, 2009.  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 an audit to obtain reasonable assurance whether the financial statements are free of material misstatements.  The Company has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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, these financial statements present fairly, in all material respects, the financial position of the Company as at September 30, 2009 and 2008, and the results of its operations and its cash flows for the years then ended, and for the period from incorporation on February 1, 1999 to September 30, 2009 in conformity with U.S. generally accepted accounting principles.
 
 The accompanying financial statements referred to above have been prepared assuming that the Company will continue as a going concern.  As discussed in Note 1 to financial statements, the Company is in the exploration stage, and has no permanently established source of revenue and is dependent on its ability to raise capital from shareholders or other sources to sustain operations.  These factors, along with other matters as set forth in Note 1, raise substantial doubt that the Company will be able to continue as a going concern.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
 
  “MacKay LLP”Vancouver, Canada.August 17, 2012
Chartered Accountants
  F - 3






Scout Exploration,Inc.(an Exploration Stage Enterprise)Balance Sheets(Presented in US Dollars)As at September 30

2009


2008AssetsCurrentCash

$
-


$
31,560Prepaid expenses


-



4,280$
-


$
35,840LiabilitiesCurrentBank indebtedness

$
282


$
-Accounts payable and accrued liabilities (note 5)


209,864



133,212Due to related parties (note 5)


21,628



-231,774



133,212Stockholders' DeficitPreferred stockAuthorized: 1,000,000 shares with par value of $0.01Issued: Nil (2008 - Nil)


-



-Common stockAuthorized: 50,000,000 shares with par value of $0.001Issued: 8,947,000 (2008 - 8,847,000)


8,947



8,847Subscriptions received in advance


4,100



4,100Subscriptions receivable


(5,246
)


(23,000
)Additional paid in capital


996,853



981,953Deficit accumulated during the exploration stage


(1,236,428
)


(1,069,272
)(231,774
)


(97,372
)$
-


$
35,840








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


F - 4






Scout Exploration, Inc.(an Exploration Stage Enterprise)Statement of Stockholders' Equity (Deficit)(Presented in US Dollars)From Incorporation on February 1, 1999 to September 30, 2009DeficitShares of





Additional


Subscriptions





accumulatedcommon


Capital


paid-in


received


Subscriptions


during thestock


stock


capital


in advance


receivable


exploration stage


TotalBalance February 1, 1999


-


$
-


$
-


$
-


$
-


$
-


$
-Subscriptions received in advance


-



-



-



37,100



-



-



37,100Net loss for the period


-



-



-



-



-



(32,002
)


(32,002
)Balance September 30, 1999


-



-



-



37,100



-



(32,002
)


5,098Net loss for the year


-



-



-



-



-



(3,829
)


(3,829
)Balance September 30, 2000


-



-



-



37,100



-



(35,831
)


1,269Shares issued for cash


3,700,000



3,700



33,300



(37,000
)


-



-



-Net loss for the year


-



-



-



-



-



(3,754
)


(3,754
)Balance September 30, 2001


3,700,000



3,700



33,300



100



-



(39,585
)


(2,485
)Net loss for the year


-



-



-



-



-



(3,216
)


(3,216
)Balance September 30, 2002


3,700,000



3,700



33,300



100



-



(42,801
)


(5,701
)Net loss for the year


-



-



-



-



-



(3,120
)


(3,120
)Balance September 30, 2003


3,700,000



3,700



33,300



100



-



(45,921
)


(8,821
)Net loss for the year


-



-



-



-



-



(3,127
)


(3,127
)Balance September 30, 2004


3,700,000



3,700



33,300



100



-



(49,048
)


(11,948
)Net loss for the year


-



-



-



-



-



(10,776
)


(10,776
)Balance September 30, 2005


3,700,000



3,700



33,300



100



-



(59,824
)


(22,724
)Shares issued for cash


1,700,000



1,700



83,300



-



-



-



85,000Shares issued for mineral property


500,000



500



24,500



-



-



-



25,000Net loss for the year


-



-



-



-



-



(85,201
)


(85,201
)Balance September 30, 2006


5,900,000



5,900



141,100



100



-



(145,025
)


2,075Shares issued for cash and subscription receivable


1,400,000



1,400



208,600



-



(75,000
)


-



135,000Net loss


-



-



-



-



-



(131,869
)


(131,869
)Balance September 30, 2007


7,300,000



7,300



349,700



100



(75,000
)


(276,894
)


5,206Cash received for subscriptions receivable


-



-



-



-



75,000



-



75,000Shares issued for consulting services


150,000



150



74,850



-



-



-



75,000Shares issued for cash


1,397,000



1,397



557,403



4,000



(23,000
)


-



539,800Net loss


-



-



-



-



-



(792,378
)


(792,378
)Balance September 30, 2008


8,847,000



8,847



981,953



4,100



(23,000
)


(1,069,272
)


(97,372
)Cash received for subscriptions receivable


-



-



-



-



17,754



-



17,754Shares issued for consulting services


100,000



100



14,900



-



-



-



15,000Net loss


-



-



-



-



-



(167,156
)


(167,156
)Balance September 30, 2009


8,947,000


$
8,947


$
996,853


$
4,100


$
(5,246
)

$
(1,236,428
)

$
(231,774
)






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


F - 5






Scout Exploration, Inc.(an Exploration Stage Enterprise)Statements of Operations(Presented in US Dollars)Cumulative from inception through

September 30


Year Ended

September 302009


2009


2008Administrative expensesAccounting and audit

$
176,406


$
36,292


$
90,473Bank charges and interest


9,663



6,708



703Consulting fees


117,983



15,869



100,829Directors’ fees (note 5)


74,000



24,000



24,000Filing fees, dues and subscriptions


16,710



6,145



4,151Foreign exchange loss


17,505



8,279



9,226Legal


136,911



28,692



50,857Magazine rights


5,100



-



-Management fees (note 5)


35,575



-



-Office and administration (note 5)


144,235



36,730



67,486Promotion and travel


57,144



2,041



42,758Transfer agent


17,576



2,400



5,135808,808



167,156



395,618Resource property expensesAcquisition costs


30,000



-



-Exploration costs


860



-



-30,860



-



-Loss from impairment of investment (note 3)


396,760



-



396,760Loss and comprehensive loss

$
(1,236,428
)

$
(167,156
)

$
(792,378
)Basic and diluted loss per share





$
(0.02
)

$
(0.10
)Basic and diluted weighted average sharesoutstanding



8,925,356



7,882,243




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




F - 6






Scout Exploration,Inc.(an Exploration Stage Enterprise)Statements of Cash Flows(Presented in US Dollars)Cumulative from inception through

September 30


Year Ended

September 302009


2009


2008Cash flows from operating activitiesNet loss

$
(1,236,428
)

$
(167,156
)

$
(792,378
)Adjustments to reconcile net loss to net cash used inoperating activitiesConsulting services settled by issuance of common stock


115,100



15,000



75,000Loss from impairment of investment


396,760



-



396,760Expenses paid by subsidiary and forgiven


20,480



-



20,480Unrealized foreign exchange


11,592



7,639



3,953Changes in operating assets and liabilitiesPrepaid expenses


-



4,280



-Accounts payable and accrued liabilities


202,400



69,188



88,489(490,096
)


(71,049
)


(207,696
)Cash flows from investing activitiesAcquisition of investment


(417,240
)


-



(417,240
)Cash flows from financing activitiesProceeds from issuance of common stock


889,554



17,754



614,800Advances from related parties


21,628



21,628



-Bank indebtedness


282



282



-911,464



39,664



614,800Effect of exchange rate changes on cash


(4,128
)


(175
)


(3,953
)Decrease in cash


-



(31,560
)


(14,089
)Cash at beginning of the year


-



31,560



45,649Cash at end of the year

$
-


$
-


$
31,560Supplemental disclosure with respect to cash flowsInterest paid

$
-


$
-


$
-Income taxes paid

$
-


$
-


$
-






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




F - 7




Scout Exploration, Inc.
 (a Development Stage Enterprise)
 Notes to the Financial Statements
 (Presented in US dollars)
 
 September 30, 2009 and 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. On April 10, 2006 the Company changed its name from Virtual Curricula Corp. to Scout Exploration, Inc.




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 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.




At September 30, 2009, the Company had suffered losses from exploration stage activities to date, and has a working capital deficit of $231,774. Although management is currently attempting to implement its business plan, and is seeking additional sources of equity or debt financing, there is no assurance these activities will be successful. These factors raise substantial doubt about the ability of the Company to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this


uncertainty.




2.
Significant accounting policies




(a) Management estimates




The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Such estimates primarily relate to unsettled transactions and events as of the date of the financial statements; accordingly, actual results may differ from estimated amounts.




(b) Exploration stage company




The Company is considered to be in the exploration stage.




(c) Cash and cash equivalents




Cash is comprised of cash on hand and demand deposits. The Company considers highly liquid investments that are readily convertible to known amounts of cash on demand to be cash equivalents.







F - 8




Scout Exploration, Inc.
 (a Development Stage Enterprise)
 Notes to the Financial Statements
 (Presented in US dollars)
 
 September 30, 2009 and 2008
  2.
Significant accounting policies (continued)





(d) Mineral properties - exploration




The Company expenses all costs related to investments in mineral property interests. Such costs include mineral property acquisition costs and exploration, development and related administrative expenditures, net of any recoveries.




From time to time, the Company may acquire or dispose of a mineral property interest pursuant to the terms of an option agreement. Where the options are exercisable entirely at the discretion of the Company or the optionee, the amounts payable or receivable are not recorded. Option payments are recorded as property expenses or recoveries when the payments are made or received.




Although the Company has taken steps to verify the title to mineral properties in which it has an interest, in accordance with industry norms for the current stage of exploration of such properties, these procedures do not guarantee the Company’s title. Property title may be subject to unregistered prior agreements or transfers and title may be affected by undetected defects.




(e) Income taxes




Income taxes are determined using the liability method in accordance with ASC 740 “Income Taxes”. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes that date of enactment. In addition, a valuation allowance is established to reduce any deferred tax asset for which it is determined that it is more likely than not that some portion of the deferred tax asset will not be realized.




The Company accounts for uncertain income tax positions by recognizing in the financial statements, the impact of a tax position, if that position is more likely than not of being sustained on examination by taxation authorities, based on the technical merits of the position.




(f) Valuation of equity units issued in private placements




The Company has adopted a residual value method with respect to the measurement of shares and warrants issued as private placement units. The residual value method first allocates value to the more easily measurable component based on fair value and then the residual value, if any, to the less easily measurable component.








F - 9




Scout Exploration, Inc.
 (a Development Stage Enterprise)
 Notes to the Financial Statements
 (Presented in US dollars)
 
 September 30, 2009 and 2008


2.
Significant accounting policies (continued)


(g) Stock based compensation




The Company records compensation expense in the financial statements for share based payments using the fair value method in accordance with ASC 718 “Stock Compensation”. The fair value of share-based compensation to employees will be determined using the Black-Scholes option valuation model at the time of grant. Fair value for common shares issued for goods or services rendered by non-employees are measured based on the fair value of the goods and services received. Share-based compensation is expensed with a corresponding increase to share capital. Upon the exercise of the stock options, the consideration paid is recorded as an increase in share capital.




There were no options granted during the year ended September 30, 2009, nor since inception.




(h) Foreign currency transactions




The Company’s functional and reporting currency is the U.S. Dollar. All transaction initiated in foreign currencies are translated into U.S. dollars as follows:




i) monetary assets and liabilities at the rate of exchange in effect at the balance sheet date;




ii) non-monetary assets and liabilities at historical rates; and




iii) revenue and expense items at the average rate of exchange prevailing during the period.




(i) Loss per share




Diluted loss per share is computed after giving effect to all dilutive potential common shares that are outstanding during the period. Dilutive potential common shares consist of incremental shares issuable upon the exercise of stock options and warrants, contingent stock, and conversion of debentures.




(j) Recently issued accounting standards




Accounting Standards Update (“ASU”) ASU No. 2009-05 (ASC Topic 820), which amends Fair Value Measurements and Disclosures – Overall, ASU No. 2009-13 (ASC Topic 605), Multiple-Deliverable Revenue Arrangements,  ASU No. 2009-14 (ASC Topic 985), Certain Revenue Arrangements that include Software Elements, and various other ASU’s No. 2009-2 through ASU No. 2010-11 which contain technical corrections to existing guidance or affect guidance to specialized industries or entities were recently issued.  These updates have no current applicability to the Company or their effect on the financial statements would not have been significant.






F - 10




Scout Exploration, Inc.
 (a Development Stage Enterprise)
 Notes to the Financial Statements
 (Presented in US dollars)
 
 September 30, 2009 and 2008




3.
Share purchase agreement




On June 18, 2008, and subsequently amended, the Company entered into a Share Purchase Agreement with Brian Mahood, (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”) with an effective date of January 1, 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 by KRL of a $343,610 ($350,000 CDN) debenture (the “Debenture”) to the Vendor with a maturity date of December 31, 2010, bearing interest at 6.75%. The Debenture was secured by a first charge on all of KRL’s assets. The agreement was subsequently amended such that the Debenture was increased to $360,000 CDN, of which $28,109 ($35,000 CDN) has been paid subsequent to June 30, 2008.




Subsequently, the Vendor notified the Company that in the Vendor’s opinion, the Company was in default of the Agreement, and demanded payment of $325,000 CDN plus interest and legal fees and expenses. Due to declines in the market price of petroleum and natural gas that have occurred since the acquisition of KRL, the cash flow from operations of KRL has not been sufficient to meet the payments required under the Agreement.




As a result of these factors, pursuant to a Settlement, Share Sale and Release Agreement, the Company agreed to sell 100% of its interest in KRL back to the Vendor for consideration of $1 and release both parties from all obligations under the original and amended share purchase agreements, with an effective date of April 1, 2009 and a closing date of June 30, 2009.  The Company recorded a loss on investment of $396,760 during fiscal 2008.




4.
Resource properties




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 until such time as the Company is able to secure financing), 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.




5.
Related party transactions




a)
During the year ended September 30, 2009, directors’ fees of $24,000 (2008 - $24,000) were paid or accrued to two Directors of the Company.




b)
During the year ended September 30, 2009, office and administration fees and management fees of $36,386 (2008 - $58,894) were charged by corporations controlled by a Director of the Company.







F - 11




Scout Exploration, Inc.
 (a Development Stage Enterprise)
 Notes to the Financial Statements
 (Presented in US dollars)
 
 September 30, 2009 and 2008


5.
Related party transactions(continued)




c)
At September 30, 2009, $64,630 (2008 - $36,771) 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.




d)
During the year ended September 30, 2009, directors of the Company advanced a total of $21,628 in short term loans to the Company. The advances are due on demand, have no specific terms of repayment, are non-interest bearing and 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.




6.
Capital stock




a)
During the year ended September 30, 2007, the Company issued 1,400,000 common shares for exercise of warrants at a price of $0.15 per share for gross proceeds of $210,000, of which $75,000 was collected during the year ended September 30, 2008.




b)
The Company entered into a consulting agreement on March 10, 2008, expiring on March 10, 2009. Pursuant to the agreement, the Company issued 150,000 shares on signing the agreement (issued during March 2008 at a fair value of $0.50 per share), and the additional 150,000 shares would be issued if the agreement was extended for an additional six months, and would also grant options to purchase 100,000 common shares at $0.40 per share expiring March 10, 2009, such options to be valued at the date of grant. In July 2008, the Company cancelled the March 2008 consulting agreement and resolved to rescind the 150,000 common shares issued at $0.50 for consulting services due to the non performance of such services by the contractors. The Company will not be issuing any additional common shares nor will any options be granted to the contractor. As of September 30, 2009 the 150,000 shares remain outstanding.
  c)
On May 20, 2008, the Company issued 1,397,000 units of a private placement offering at $0.40 per unit, with each unit comprising one common share at a par value of $0.001 per common share and additional paid in capital of $0.399 per common share and one share purchase warrant, entitling the holder thereof to purchase, at any time prior to May 20, 2009, for each one warrant held, one common share of the Company at a price of $0.75 per common share. Aggregate proceeds of $558,800 were raised from the Unit Offering, of which $5,246 is receivable from subscribers as of September 30, 2009. In addition, the Company received $4,000 in subscriptions received in advance for 10,000 units which have not been issued as of September 30, 2009.



The fair value of the common shares issued in the private placement was determined to be the more easily measurable component and therefore were valued at their fair value, as determined by the closing quoted bid price on the announcement date.  Since the fair value of the common shares was in excess of the price per unit, no value has been assigned to the warrants.
   F - 12
  Scout Exploration, Inc.
 (a Development Stage Enterprise)
 Notes to the Financial Statements
 (Presented in US dollars)
 
 September 30, 2009 and 2008
  6.
Capital stock (continued)
 d)
On December 19, 2008, the Company issued 100,000 common shares as consideration for consulting services.


7.
Share purchase warrants




On May 20, 2009 1,397,000 share purchase warrants expired without having been exercised. As of September 30, 2009, Nil (2008 – 1,397,000) share purchase warrants are outstanding.




8.
Financial instruments and risk management




a)
Fair value




The Company’s financial instruments include cash and accounts payable and accrued liabilities. 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.




9.
Income taxes




The Company has available losses and unclaimed start up costs of approximately $1,221,000 for US income tax purposes, which may be carried forward to reduce taxable income in future years.




Deferred tax benefits related to the start up costs have not been recorded due to uncertainty regarding their utilization.




10.
Subsequent events




On September 14, 2011 and as amended on July 31, 2012, the Company entered into a letter of intent with IDS Offshore Inc. (“IDS”) pursuant to which the Company may acquire the exclusive rights to certain intellectual property and patents surrounding the rapid oil boom project held and developed by IDS (the “Project”), for total cash consideration of $4,265,000 payable at various dates over a 3 year period commencing on July 31, 2012, and issuance of 5,000,000 common shares of the Company on signing the amended letter of intent (issued), and a total 7,500,000 common shares of the Company upon completion of various phases of the Project.





In accordance with ASC 855 Company management reviewed all material events through filing of these financial statements and there are no additional material subsequent events to report.










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