SAUER ENERGY, INC. - FORM 10-Q

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EX-31.1 - CERTIFICATION - SAUER ENERGY, INC.	ex311.htm
EX-32.1 - CERTIFICATION - SAUER ENERGY, INC.	ex321.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 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 February 28, 2011

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from __________ to __________

000-53598
Commission File Number

SAUER ENERGY, INC.
(Name of small business issuer in its charter)

Nevada	26-3261559
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

2326 Teller Road, Newbury Park, California 91320
(Address of principal executive offices)

800-829-8748
(Registrant’s telephone number, including area code)
Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No 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 filer. 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 o Non-accelerated Filer o Smaller reporting company x 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 State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 73,013,000 shares of common stock, par value $0.0001 per share, as of April 12, 2011.

SAUER ENRGY, INC.

REPORT ON FORM 10-Q

TABLE OF CONTENTS

		Page
	PART I – Financial Information
Item 1.	Financial Statements	2
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4
Item 4T.	Controls and Procedures	4

	PART II – Other Information
Item 1.	Legal Proceedings	7
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	7
Item 3.	Defaults Upon Senior Securities	7
Item 4.	(Removed and Reserved)	8
Item 5.	Other Information	8
Item 6.	Exhibits	8
	Signatures	8

PART I

ITEM 1. FINANCIAL STATEMENTS

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Article 210 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. All such adjustments are of a normal recurring nature. Operating results for the three and six month periods ended February 28, 2011, are not necessarily indicative of the results that may be expected for the fiscal year ending August 31, 2011. For further information, these consolidated financial statements should be read in conjunction with the financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended August 31, 2010.

	Page

Unaudited Consolidated Financial Statements

Consolidated Balance Sheets	F-1

Consolidated Statements of Operations	F-2

Consolidated Statements of Cash Flows	F-3

Notes to Unaudited Consolidated Financial Statements	F-4 to F-9

Sauer Energy, Inc. (A Development Stage Enterprise) Consolidated Balance Sheets
	February 28, 2011 (Unaudited)		August 31, 2010 (Audited)
Assets
Current assets
Cash	$	731	$	44,311
Prepaid expense		3,225		10,000
Total current assets		3,956		54,311

Furniture and equipment		12,691		-
Total assets	$	16,647	$	54,311


Liabilities and Stockholders’ Deficit
Current liabilities
Accounts payable and accrued expenses	$	4,053	$	5,555
Loan payable		100,022		89,022
Shareholders’ loan		53,306		63,140
Total current liabilities		157,381		157,717

Stockholders' Deficit
Common stock, $0.0001 par value, 200,000,000 shares authorized, 73,013,000 and 71,500,000 shares issued and outstanding on February 28, 2010 and August 31, 2010.		7,301		7,150
Additional paid-in capital		905,549		162,550
Deficit accumulated during the exploration stage		(1,053,584)		(273,106)
Total stockholders' deficit		(140,734)		(103,406)
Total Liabilities and Stockholders' Deficit	$	16,647	$	54,311

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

F-1

Sauer Energy, Inc. (A Development Stage Enterprise) Consolidated Statements of Operations For the six months ended February 28, 2011 and 2009 and for the period from Inception (August 7, 2008) to February 28, 2011 (Unaudited)
									Inception
									(August 7, 2008)
	Three months ended February 28,				Six months ended February 28,				Through
		2011		2010	2011		2010		February 28, 2011
Revenues	$		$		$	-	$	-	$	-

General and administrative expense:
Professional fees		6,990		-		32,813		-		36,843
Consulting fees		386,206		-		397,688		-		427,697
Investor relations		198,216		-		198,216				198,216
Director fees		48,000		-		48,000		-		48,000
Research and development expense		13,044				46,609		-		147,262
Occupancy costs		8,923		2,100		15,223		2,100		34,847
Other general and administrative expenses		12,450		291		41,929		1,037		160,719
Total operating expenses		673,879		2,391		780,478		3,137		1,053,584
(Loss) from operations		(673,879)		(2,391)		(780,478)		(3,137)

Other income (expense):		-		-		-		-		-
(Loss) before taxes		(673,879)		(2,391)		(780,478)		(3,137)		(1,053,584)

Provision (credit) for taxes on income		-				-		-		-
Net (Loss)	$	(673,879)	$	(2,391)	$	(780,478)	$	(3,137)	$	(1,053,584)

Basic earnings (loss) per common share	$	(0.009)	$	(0.00)	$	(0.011)	$	(0.00)

Weighted average number of common shares outstanding		72,965,013		138,937,175		72,520,137		138,937,175

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

F-2

Sauer Energy, Inc. (A Development Stage Enterprise) Consolidated Statements of Cash Flows For the six months ended February 28, 2011 and 2010 and for the period from Inception (August 7, 2008) to February 28, 2011 (Unaudited)
					Inception
	Six months ended				(August 7,2008)
	February 28,				Through
	2011		2010		February 28, 2010

Cash flows from operating activities:
Net (loss)	$	(780,478)	$	(3,137)	$	(1,053,584)
Adjustments to reconcile net (loss) to net cash provided (used) by development stage activities:
Director fees issued by shares		48,000		-		48,000
Consulting fees issued by shares		380,000		-		380,000
Investor relation fees issued by shares		180,000		-		180,000
Changes in operating assets and liabilities
Prepaid expense		6,775		-		(3,225)
Accounts payable and accrued expenses		(1,502)		-		4,053
Net cash flows used by operating activities		(167,205)		(3,137)		(444,756)

Cash flows from investing activities:
Purchase of furniture and equipment		(12,691)		-		(12,691)
Net cash flows used in investing activities		(12,691)		-		(12,691)

Cash flows from financing activities:
Proceeds from loan		11,000		-		100,022
Proceeds from shareholders’ loan		16,300		3,131		79,440
Repayment on shareholders’ loan		(26,134)		-		(26,134)
Proceeds from issuance of common stock, net of costs		135,150		-		304,850
Net cash flows provided by financing activities		136,316		3,131		458,178

Net increase in cash and cash equivalents		(43,580)		(6)		731
Cash and cash equivalents, beginning of period		44,311		819		-
Cash and cash equivalents, end of period	$	731	$	813	$	731

Supplemental disclosure of cash flow information:
Cash paid for interest	$	-	$	-	$	-
Cash paid for income taxes	$	-	$	-	$	-

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

F-3

Sauer Energy, Inc.

(A Development Stage Enterprise)

Notes to the Consolidated Financial Statements

(Unaudited – Prepared by Management)

Note 1 - Organization and Summary of Significant Accounting Policies:

Following is a summary of our organization and significant accounting policies:

Organization and nature of business – Sauer Energy, Inc. (formerly: BCO Hydrocarbon Ltd.) (identified in these footnotes as “we” or the “Company”) was incorporated in the State of Nevada, United States of America on August 19, 2008. It was a natural resource exploration stage company holding an option on a 50% working interest in certain oil and gas leases in Canada.

Sauer Energy Inc. (the “Old Sauer”) was incorporated in California on August 7, 2008. The Company is a development stage company engaged in the design and manufacture of vertical axis wind turbine (VAWT) systems.

On July 25, 2010, the Company, Malcolm Albery, its president and sole director (“MA”) and Dieter Sauer, Jr. (“DS”) completed a closing (the “Closing”) under an Agreement and Plan of Reorganization, dated as of June 23, 2010 (the “Agreement”). The Agreement provided: (a) for the purchase by DS of all of the 39,812,500 shares of the Company owned by MA for $55,200; (b) the contribution by DS of all of the shares of Old Sauer, a California corporation (“SEI”) to the Company; (c) the assignment of certain patent rights related to wind turbine technology held by DS to the Company; and (d) the election of DS to the Company’s board of directors. In connection with the Closing, Mr. Sauer was elected President and CEO of the Company and two former shareholders of the Company agreed to (i) indemnify the Company against any claims resulting from breaches of representations and warranties by the Company in the Agreement; (ii) to acquire and cause to be returned for cancellation an aggregate of 67,437,500 shares of the Company’s common Stock, including all of the shares owned by former officer and director Daniel Brooks and; (3) assume all of the Company’s obligations in connection with certain oil and gas leases in Canada.

The agreement was executed on July 25, 2010 per Note 4 and above. Sauer Energy, Inc. became a wholly-owned subsidiary of the Company. On August 29, Malcolm Albery resigned as President and was replaced by Dieter Sauer. In the following month, the Company changed its name from BCO Hydrocarbon Ltd. to Sauer Energy, Inc.

The Company’s fiscal year-end is August 31.

Basis of consolidation - The consolidated financial statements for 2011 and 2010 include the Company and its wholly-owned subsidiary. All significant inter-company accounts and transactions have been eliminated.

Basis of presentation - The accounting and reporting policies of the Company conform to U.S. generally accepted accounting principles applicable to development stage enterprises.

Use of estimates - The preparation of financial statements in conformity with generally accepted accounting principles 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 amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and cash equivalents - For purposes of the statement of cash flows, we consider all cash in banks, money market funds, and certificates of deposit with a maturity of less than three months to be cash equivalents.

F-4

Sauer Energy, Inc.

(A Development Stage Enterprise)

Notes to the Consolidated Financial Statements

(Unaudited – Prepared by Management)

Note 1 - Organization and Summary of Significant Accounting Policies (continued):

Fair Value of Financial Instruments - The Financial Accounting Standards Board issued ASC (Accounting Standards Codification) 820-10 (SFAS No. 157), “Fair Value Measurements and Disclosures" for financial assets and liabilities. ASC 820-10 provides a framework for measuring fair value and requires expanded disclosures regarding fair value measurements. FASB ASC 820- 10 defines fair value as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. FASB ASC 820-10 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs, where available. The following summarizes the three levels of inputs required by the standard that the Company uses to measure fair value:

- Level 1: Quoted prices in active markets for identical assets or liabilities.

- Level 2: Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities.

- Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The carrying amounts of the Company’s financial instruments as of August 31, 2010, reflect

- Cash: Level One measurement based on bank reporting.

- Loans from Officers and related parties: Level 2 based on promissory notes.

Federal income taxes -The Company utilizes FASB ACS 740, “Income Taxes”, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

Advertising and Marketing Costs - The Company expenses costs of advertising and marketing as incurred. Advertising and marketing expenses for the three month period ended February 28, 2011 and 2010 was $ 10,166 and $0 respectively.

Basic and Diluted Earnings Per Share - Net loss per share is calculated in accordance with FASB ASC 260, Earnings Per Share, for the period presented. Basic net loss per share is based upon the weighted average number of common shares outstanding. Diluted net loss per share is based on the assumption that all dilutive convertible shares and stock options were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. The Company had no potentially dilutive securities outstanding as of February 28, 2011 and 2010.

F-5

Sauer Energy, Inc.

(A Development Stage Enterprise)

Notes to the Consolidated Financial Statements

(Unaudited – Prepared by Management)

Note 1 - Organization and summary of significant accounting policies (continued):

Development Stage Company - The Company is considered a development stage company, with no operating revenues during the periods presented, as defined by FASB Accounting Standards Codification ASC 915. ACS 915 requires companies to report their operations, shareholders’ deficit and cash flows since inception through the date that revenues are generated from management’s intended operations, among other things. Management has defined inception as August 7, 2008. Since inception, the Company has incurred an operating loss of $1,053,584. The Company’s working capital has been generated through advances from the principal of the Company and solicitation of subscriptions. Management has provided financial data since August 7, 2008 in the financial statements, as a means to provide readers of the Company’s financial information to be able to make informed investment decisions.

Note 2 – Recent accounting pronouncements:

In April 2010, the FASB issued ASU No. 2010-18 regarding improving comparability by eliminating diversity in practice about the treatment of modifications of loans accounted for within pools under Subtopic 310-30 – Receivable – Loans and Debt Securities Acquired with Deteriorated Credit Quality (“Subtopic 310-30”). Furthermore, the amendments clarify guidance about maintaining the integrity of a pool as the unit of accounting for acquired loans with credit deterioration. Loans accounted for individually under Subtopic 310-30 continue to be subject to the troubled debt restructuring accounting provisions within Subtopic 310-40, Receivables—Troubled Debt Restructurings by Creditors. The amendments in this Update are effective for modifications of loans accounted for within pools under Subtopic 310-30 occurring in the first interim or annual period ending on or after July 15, 2010. The amendments are to be applied prospectively. Early adoption is permitted. We are currently evaluating the impact of this ASU; however, we do not expect the adoption of this ASU to have a material impact on our financial statements.

In February 2010, the FASB issued ASU No. 2010-09 regarding subsequent events and amendments to certain recognition and disclosure requirements. Under this ASU, a public company that is a SEC filer, as defined, is not required to disclose the date through which subsequent events have been evaluated. This ASU is effective upon the issuance of this ASU. The adoption of this ASU did not have a material impact on our financial statements.

In January 2010, the FASB issued ASU No. 2010-06 regarding fair value measurements and disclosures and improvement in the disclosure about fair value measurements. This ASU requires additional disclosures regarding significant transfers in and out of Levels 1 and 2 of fair value measurements, including a description of the reasons for the transfers. Further, this ASU requires additional disclosures for the activity in Level 3 fair value measurements, requiring presentation of information about purchases, sales, issuances, and settlements in the reconciliation for fair value measurements. This ASU is effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. We are currently evaluating the impact of this ASU; however, we do not expect the adoption of this ASU to have a material impact on our financial statements.

In October 2009, the FASB issued an amendment to the accounting standards related to certain revenue arrangements that include software elements. This standard clarifies the existing accounting guidance such that tangible products that contain both software and non-software components that function together to deliver the product’s essential functionality, shall be excluded from the scope of the software revenue recognition accounting standards. Accordingly, sales of these products may fall within the scope of other revenue recognition standards or may now be within the scope of this standard and may require an allocation of the arrangement consideration for each element of the arrangement. The ASC was effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. We are currently evaluating the impact of this ASU; however, we do not expect the adoption of this ASU to have a material impact on our financial statements.

F-6

Sauer Energy, Inc.

(A Development Stage Enterprise)

Notes to the Consolidated Financial Statements

(Unaudited – Prepared by Management)

Note 3 – Going Concern

The Company's financial statements are prepared using the generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, the Company has accumulated a deficit of $1,053,584 as of February 28, 2011, and its total liabilities exceed its total assets by $140,734.

In view of the matters described above, recoverability of a major portion of the recorded asset amounts shown in the accompanying balance sheets is dependent upon continued operations of the Company, which in turn is dependent upon the Company’s ability to raise additional capital, obtain financing and to succeed in its future operations. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

Management plans to raise additional capital through the sale of stock to pursue business development activities.

Note 4 - Loans payable:

During the six month period ended February 28, 2011, the company’s investors advanced $11,000 to the Company. This amount is unsecured, payable on demand and accrues no interest.

As at February 28, 2011, loan payables of $100,022 are unsecured, payable on demand and accrue no interest. There is reasonable possibility that the Company will issue shares of common stock in settlement of this debt.

Note 5 – Related party transactions:

During the six month period ended February 28, 2011, the Company’s president and shareholder, Dieter Sauer advanced $6,300 to the Company and was repaid a total of $26,134 against his shareholders’ loan. The balance of the loan was $53,306 at February 28, 2011, and $63,140 at August 31, 2010, respectively. The loan carries no interest, is unsecured and is payable upon demand.

During the six month period ended February 28, 2011, a Company shareholder advanced $10,000 to the Company. The balance of the loan was $10,000 at February 28, 2011. The loan carries no interest, is unsecured and is payable upon demand.

During the six month period ended February 28, 2011, the Company issued 40,000 shares to the Directors of the Company. The fair value of the common stock on the day it was issued was $1.20 per share. Based on the fair value at the date of the issuance $48,000 was charged to director fees.

Note 6 – Commitments and contingencies:

In February, 2010, the Company’s subsidiary leased office and laboratory space in Newbury Park, California for five years for monthly rental payments of $2,100 per month.

Lease Commitments – following five years:

2011	$	12,600
2012		25,200
2013		25,200
2014		25,200
2015		2,100
	$	90,300

F-7

Sauer Energy, Inc.

(A Development Stage Enterprise)

Notes to the Consolidated Financial Statements

(Unaudited – Prepared by Management)

Note 7 – Common stock:

Starting on July 21, 2010, the Company entered into a series of private placement agreements with various investors. The arrangement involved issuing 800,000 units of securities at $0.25 per unit for a total amount of $200,000. Each unit consisted of one (1) share of common stock, par value $0.0001 per share and one (1) common stock purchase warrant expiring July 31, 2012 with an exercise price of $0.50 each. The Company was oversubscribed and accepted additional private placement funds. As of November 30, 2010, the Company issued 938,000 units of the securities in consideration of funds received of $234,500.

Starting on January 1, 2011, the Company entered into a series of private placement agreements with various investors. The arrangement involved issuing 666,667 units of securities at $0.30 per unit for a total amount of $200,000. Each unit consisted of one (1) share of common stock, par value $0.0001 per share and one (1) common stock purchase warrant expiring July 31, 2013 with an exercise price of $0.60 each. As of February 28, 2011, the Company issued 192,833 units of the securities in consideration of funds received of $57,850.

As of February 28, 2011, 1,035,500 shares were issued pursuant to the private placement agreements. 95,333 shares are not issued through the date that the financial statements were issued.

During the six months period ended February 28, 2011, the Company issued a total of 287,500 shares of common stock to certain consultants as compensation for services. The range of fair value of the stock was $1.20 ~ $1.55. Based on the fair value of the common stock on the day of issuance, $380,000 was charged to consulting expenses.

During the six months period ended February 28, 2011, the Company issued 150,000 shares of common stock to an investor relations firm for services to be provided. The fair value of the common stock on the day it was issued was $1.20 per share. Based on the fair value of the stock on the day of issuance, $180,000 was charged to investor relations expenses.

During the six month period ended February 28, 2011, the Company issued 40,000 shares of common stock as directors fees to certain directors of the Company. The fair value of the common stock on the day it was issued was $1.20 per share. Based on the fair value of the common stock on the date of issuance, $48,000 was charged to director fees.

As of February 28, 2011, the Company was authorized to issue 200,000,000 shares of par value $0.0001 common stock, of which 73,013,000 shares of common stock are issued and outstanding.

Note 8 – Warrants

During the six months period ended February 28, 2011, the Company entered into two series of private placement agreements with various investors. (Refer: Note - Common stock)

The first agreement called for the issuance of 938,000 Units of securities at $0.25 per unit for total cash proceeds of $234,500. Each unit consisted of one (1) share of common stock, par value $0.0001 per share and one (1) common stock purchase warrant expiring July 31, 2012 with an exercise price of $0.50.

The second agreement called for the issuance of 666,667 Units of securities at $0.30 per unit for total cash proceeds of $200,000. Each unit consisted of one (1) share of common stock, par value $0.0001 per share and one (1) common stock purchase warrant expiring July 31, 2013 with an exercise price of $0.60.

F-8

Sauer Energy, Inc.

(A Development Stage Enterprise)

Notes to the Consolidated Financial Statements

(Unaudited – Prepared by Management)

Note 8 – Warrants (continued):

The following table is a summary of information about the warrants outstanding at February 28, 2011.

Shares Underlying Warrants Outstanding
Range of Exercise Price	Shares Underlying Warrants Outstanding		Weighted Average Remaining Contractual Life	Weighted Average Exercise Price
$0.50 ~ $0.60		1,130,833	1.59 years	$	0.52

The following table is a summary of activity of outstanding stock warrants:

	Number of Shares		Weighted Average Exercise Price
Balance, August 31, 2010		-0-	$	-0-
Warrants expired		-0-		-0-
Warrants cancelled		-0-		-0-
Warrants Granted		1,130,833		0.52
Warrants exercised		-0-		-0-
Balance, February 28, 2011		1,130,833	$	0.52

Note 9 – Subsequent Events

The Company has evaluated subsequent events from the balance sheet date through the date that the financial statements were issued and determined that there are no other items that require disclosure except that the Company has sold 1,327,800 units each comprised of one share of common stock and one common stock purchase warrant exercisable at $0.60 at $0.30 per unit for proceeds of $442,600.

F-9

Item 2 – Management’s Discussion and Analysis or Plan of Operation

Overview

We caution you that reliance on any forward-looking statement involves risks and uncertainties, and that although we believe the assumptions on which our forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and as a result, the forward-looking statements based on those assumptions could be incorrect. In light of these and other uncertainties, you should not conclude that we will necessarily achieve any plans and objectives or projected financial results referred to in any of the forward-looking statements. We do not undertake to release the results of any revisions of these forward-looking statements to reflect future events or circumstances. Some of the factors that may cause actual results, developments and business decisions to differ materially from those contemplated by such forward-looking statements include the following:

RESULTS OF OPERATIONS

We did not have material operations prior to the current year so any year to year comparison is not meaningful.

LIQUIDITY AND CAPITAL RESOURCES

Net cash flows used in operating activities for the six months ended February 28, 2011 was $167,205 which was offset by net proceeds of $136,316 provided from financing activities, principally the sale of stock and warrants.

We had limited cash resources of $731 at February 28, 2011 and intend to rely on the sale of stock in private placements to increase liquidity. If we are unable to raise cash through the sale of our stock, we may be required to severely restrict our operations. During the period March 1, 2011 to April 12, 2011 we have realized $442,600 from the sale of our securities in a private placement.

Critical Accounting Policies

Financial Reporting Release No. 60 of the SEC encourages all companies to include a discussion of critical accounting policies or methods used in the preparation of the financial statements. There are no current revenue generating activities that give rise to significant assumptions or estimates. Our financial statements filed as part of our November 30, 2010 Annual Report on Form 10-K include a summary of the significant accounting policies and methods used in the preparation of our financial statements.

Off-Balance Sheet Arrangements

We have never entered into any off-balance sheet financing arrangements and have not formed any special purpose entities. We have not guaranteed any debt or commitments of other entities or entered into any options on non-financial assets.

Item 3. - Quantitative and Qualitative Disclosures About Market Risk

The information called for by this item is not required as we are a smaller reporting company.

Item 4T. - Controls and Procedures

Disclosure Controls and Procedures

Regulations under the Securities Exchange Act of 1934 (the “Exchange Act”) require public companies to maintain “disclosure controls and procedures,” which are defined as controls and other procedures that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

We conducted an evaluation, with the participation of our Chief Executive Officer who is also our principal financial officer, of the effectiveness of our disclosure controls and procedures as of November 30, 2010. Based on that evaluation, our Chief Executive Officer has concluded that as of November 30, 2010, our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses described below.

In light of the material weaknesses described below, we performed additional analysis and other post-closing procedures to ensure our financial statements were prepared in accordance with generally accepted accounting principles. Accordingly, we believe that the financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.

A material weakness is a control deficiency (within the meaning of the Public Company Accounting Oversight Board (PCAOB) Auditing Standard No. 2) or combination of control deficiencies that result in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. Management has identified the following two material weaknesses which have caused management to conclude that, as of November 30, 2010, our disclosure controls and procedures were not effective at the reasonable assurance level:

1. We do not have written documentation of our internal control policies and procedures. Written documentation of key internal controls over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act which is applicable to us for the year ending August 31, 2010 and the quarter ended November 30, 2010. Management evaluated the impact of our failure to have written documentation of our internal controls and procedures on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.

2. We do not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. Management evaluated the impact of our failure to have segregation of duties on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.

To address these material weaknesses, management performed additional analyses and other procedures to ensure that the financial statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented.

Management's Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, the issuer’s principal executive and principal financial officers and effected by the issuer’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America and includes those policies and procedures that:

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the issuer;

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the issuer; and

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the issuer’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

As of the end of our most recent fiscal quarter, management assessed the effectiveness of our internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") and SEC guidance on conducting such assessments. Based on that evaluation, they concluded that, as of November 30, 2010, such internal control over financial reporting was not effective. This was due to deficiencies that existed in the design or operation of our internal control over financial reporting that adversely affected our internal controls and that may be considered to be material weaknesses.

The matters involving internal control over financial reporting that our management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: (1) 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, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures; and (2) inadequate segregation of duties consistent with control objectives of having segregation of the initiation of transactions, the recording of transactions and the custody of assets. The aforementioned material weaknesses were identified by our Chief Executive Officer in connection with the review of our financial statements as of November 30, 2010.

Management believes that the material weaknesses set forth in items (1) and (2) above did not have an effect on our financial results. However, management believes that the lack of a functioning audit committee and the lack of a majority of outside directors on our board of directors results in ineffective oversight in the establishment and monitoring of required internal controls and procedures, which could result in a material misstatement in our financial statements in future periods.

This annual report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only the management's report in this annual report.

Management's Remediation Initiatives

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 when funds are available to us. First, we will create a position to segregate duties consistent with control objectives of having separate individuals perform (i) the initiation

of transactions, (ii) the recording of transactions and (iii) the custody of assets. Second, we will create a senior position to focus on financial reporting and standardizing and documenting our accounting procedures with the goal of increasing the effectiveness of the internal controls in preventing and detecting misstatements of accounting information. Third, 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. Although there is substantial uncertainty in any such estimate, we anticipate the costs of implementing these remediation initiatives will be approximately $150,000 to $150,000 a year in increased salaries, legal and accounting expenses.

Management believes that the appointment of one or more outside directors, who shall be appointed to a fully functioning audit committee, will remedy the lack of a functioning audit committee and a lack of a majority of outside directors on our Board.

We anticipate that these initiatives will be at least partially, if not fully, implemented by August 31, 2011.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15 (f) under the Exchange Act) during the quarter ended November 30, 20100 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

The Company is not currently a party to any legal proceedings.

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds

During the quarter ended February 28, 2011, we realized $57,850 from the sale of 192,833 units in a private placement. Each unit consist of one share of common stock and one common stock purchase warrant with an exercise price of $0.60 and an expiration date of July 31, 2012. The sales were exempt from regulation by reason of Regulation D under the Securities Act of 1933, specifically Rule 506 there under. Each of the purchasers represented that they were and accredited investor and each certificate issued in the private placement has an appropriate restrictive legend and our transfer agent maintains stop transfer instructions with respect thereto. All sales were affected by our officer and we did not pay any commissions with respect thereto.

Item 3 – Defaults Upon Senior Securities

None.

Item 4 – REMOVED AND RESERVED

Item 5 – Other Information

None.

Item 6 – Exhibits

The following documents are filed as part of this Report.

Exhibit Number	Exhibit Description
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended. *
32.1	Certificate (Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002) of Principal Financial Officer. *

* Filed herewith

SIGNATURE

In accordance with the requirements of the Securities Exchange Act of 1934, as amended, the registrant caused this Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.

	SAUER ENERGY, INC.

Date: April 13, 2011	By:	/s/Dieter R. Sauer, Jr.
		Name: Dieter R. Sauer, Jr.

Attached files

SAUER ENERGY, INC. Reports

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