UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


WASHINGTON,
      D.C. 20549





**FORM
      10-KSB**





[X]
            ANNUAL
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934For
                the fiscal year endedJune
                30, 2005[  
                ]
            TRANSITION
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACTFor
                the transition period from _________ to ________Commission
                file number000-49698




**Axial
                  Vector Engine Corporation**(Name
                  of small business issuer in its charter)**Nevada**
              **20-3362479**(State
                  or other jurisdiction of incorporation or organization)
              (I.R.S.
                  Employer Identification No.)**One
                  World Trade Center**
                **121
                  S.W. Salmon Street, Suite 1100**
                **Portland,
                  Oregon**
              **97204**(Address
                  of principal executive offices)
              (Zip
                  Code)Issuer’s
                  telephone number:503-471-1348
  Securities
                  registered under Section 12(b) of the Exchange Act:Title
                  of each class
              Name
                  of each exchange on which registeredNone
              Not
                  ApplicableSecurities
                  registered under Section 12(g) of the Exchange Act:Common
                  Stock, par value $0.001(Title
                  of class)


Check
        whether the Issuer (1) filed all reports required to be filed by Section
        13 or
        15(d) of the Securities Exchange Act during the past 12 months (or for such
        shorter period that the registrant was required to file such reports), and
        (2)
        has been subject to such filing requirements for the past 90 days.
 Yes
        [X]
        No [ ]
 
 Check
        if
        disclosure of delinquent filers in response to Item 405 of Regulation S-B
        is not
        contained in this form, and no disclosure will be contained, to the best
        of
        registrant’s knowledge, in definitive proxy or information statements
        incorporated by reference in Part III of this Form 10-KSB or any amendment
        to
        this Form 10-KSB [ ]
 
 Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act). [ ] Yes [X] No
 
 State
        issuer’s revenue for its most recent fiscal year. **$0**
 
 State
        the
        aggregate market value of the voting and non-voting common equity held by
        non-affiliates computed by reference to the average bid and asked price of
        such
        common equity, as of a specified date within the past 60 days.
 **$58,371,069
        as of September 29, 2005**
 
 State
        the
        number of shares outstanding of each of the issuer’s classes of common equity,
        as of the latest practicable date. **34,653,780
        Common Shares as of September 7, 2005**
 
 Transitional
        Small Business Disclosure Format (Check One): Yes [ ] No
        [X]




Table
          of Contents







**TABLE
      OF CONTENTS**





PagePART
                IItem
                1:
            Description
                of Business
            2Item
                2:
            Description
                of Property
            4Item
                3:
            Legal
                Proceedings
            5Item
                4:
            Submission
                of Matters to a Vote of Security
                Holders
            6PART
                IIItem
                5:
            Market
                for Common Equity and Related Stockholder Matters
            7Item
                6:
            Plan
                of Operation
            12Item
                7:
            Financial
                Statements
            17Item
                8:
            Changes
                In and Disagreements With Accountants on Accounting
                and Financial Disclosure
            18Item
                8A:
            Controls
                and Procedures
            18Item
                8B:
            Other
                Information
            19PART
                IIIItem
                9:
            Directors,
                Executive Officers, Promoters and Control
                Persons; Compliance With Section 16(a) of the Exchange
                Act
            19Item
                10:
            Executive
                Compensation
            21Item
                11:
            Security
                Ownership of Certain Beneficial Owners and
                Management and Related Stockholder Matters
            23Item
                12:
            Certain
                Relationships and Related
                Transactions
            24Item
                13:
            Exhibits
            24Item
                14:
            Principal
                Accountant Fees and Services
            25







1
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          of Contents





**** **PART
      I**


**Item
      1:****Description
      of Business**




**Overview**





We
      were
      incorporated in the state of Nevada on May 10, 2001.




On
      June
      30, 2003, we acquired the operating assets of Dyna-Cam Engine Corp.
      ("Dyna-Cam").  Dyna-Cam was a development stage company that possessed
      the
      intellectual property rights for a unique, axial cam-drive, free piston,
      internal combustion engine.  We acquired the assets of Dyna-Cam with
      the
      intention to further develop, produce, and sell this engine primarily for
      aircraft and marine applications. As a result of insufficient capital, we never
      were able to commence operations.




On
      January 6, 2005, prior management resigned and appointed new management. On
      this
      date, Dr. Raymond Brouzes became our chief executive officer and was appointed
      as a member of our board of directors. Samuel J. Higgins became our secretary
      and treasurer and was appointed as a member of our board of directors. Benjamin
      Langford was also appointed to serve as members of our board of directors.




Following
      this change in management, we abandoned our plans to utilize the engine as
      designed by Dyna-Cam Engine Corp. We identified an engine with technologies
      that
      incorporate significantly enhanced performance characteristics and new design
      features that make pursuing the development, manufacture, and sale of this
      engine more advantageous. This engine was designed utilizing the concepts of
      the
      original Axial Vector engine. Our efforts currently have been devoted to further
      developing and testing the performance of this engine.




On
      May
      20, 2005, our shareholders approved a change in our name to Axial Vector Engine
      Corporation in order to more closely reflect the business direction of our
      company.




**Status
      of Product Development for Engine with Axial Vector Design**




On
      August
      24, 2004, we entered into a License Agreement (“Agreement”) with Adaptive
      Propulsion Systems, LLC (“Adaptive”) to assist us with the testing of our engine
      that uses the Axial Vector design and in-house trails. Adaptive volunteered
      to
      upgrade the engine from a "mechanical" engine to a "digital" engine with a
      number of significant changes in design and materials.  We will own
      the
      rights to all new technologies and patentable ideas that result from any
      upgrades undertaken by Adaptive.  Adaptive is currently in the final
      phase
      of technological improvements.  Adaptive's progress through this testing
      phase has been swift and field trials are scheduled for the first quarter of
      2006.  In mid-January we anticipate that we will also commence the MTF
      dynamometer testing. The planned MTF dynamometer testing will consist of running
      the engine for 60 days and taking measurements of engine components to estimate
      the wear at various time intervals. This testing will provide us with an
      accurate gauge of the endurance of the engine and its specific components.
      Based
      upon the results of the MTF dynamometer testing, further modifications may
      be
      required.




We
      now
      anticipate that all testing and modifications will be competed prior to the
      end
      of the next fiscal year on June 30, 2006 and manufacturing will have commenced
      by this time.







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**Status
      of Product Development for Generators that Utilize our Axial Vector
      Engine**




On
      January 13, 2005, we entered into a Contract for the Production of Generator
      Systems with Adaptive to assist us in the design, development, and manufacture
      power generators for a family of seven generators ranging
      from 7.5 kilowatt to 1 megawatt contingent upon our ability to secure financing. We secured financing and
      satisfied the contingency in this agreement. We intend to build several models
      of generators that utilize our Axial Vector engine. We are seeking to build
      a
      generator with a high power density Axial Flux design that has one-third of
      the
      volume and half the weight of the average generator. We anticipate that these
      generators will be utilized for a wide variety of applications including
      military, commercial, and residential uses.




The
      development process for these power generators commenced in the last quarter
      of
      the fiscal year ended June 30, 2005. We anticipate that Adaptive will be able
      to
      comply with the terms of this agreement and complete the development of our
      initial power generator product line within the next 300 days. We anticipate
      that Adaptive will be able to fulfill its obligations under the agreement within
      the contemplated time frame.  Based upon design changes made to our
      family
      of generators at our request, our management anticipates that we may grant
      Adaptive an extension to fulfill its obligations under the agreement in light
      of
      these changes.




**Employees**




We
      have 2
      full-time employees in addition to our officers, Dr. Raymond Brouzes and Samuel
      J. Higgins.




**Patents,
      Licenses, Trademarks, Franchises, Concessions, Royalty Agreements, or Labor
      Contracts**





Trademarks





We
      currently have trademark applications pending with the United States Patent
      and
      Trademark Office and the Canadian Intellectual Property Office for protection
      of
      the mark “AV” and “AVE.”





Patents





The
      company has holds two issued patents and has various patent applications pending
      which cover one or more aspects of the current version of the axial vector
      engine or predecessor models.





Licenses





In
      a
      Joint Venture Agreement entered into with Adaptive on August 24, 2004, we
      granted Adaptive the exclusive right to sell the Axial Vector engine to the
      United States military and all militaries of NATO countries. This Agreement
      was
      later amended to include the military




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          of Contents




of
      the
      United Arab Emirates. 
 In
        a
        Contract for the Production of Generator Systems entered into with Adaptive
        on
        January 13, 2005, we granted Adaptive the exclusive right to sell the family
        of
        generators that utilize our Axial Vector
  On
        September 10, 2005, we entered into a memorandum of understanding (“MOU”) with
        Kirloskar Oil Engines Limited (“KOEL”), an Indian based manufacturer and
        engineering company. We are working toward the execution of a definite agreement
        with KOEL where we would grant KOEL the exclusive right to utilize our
        technology for non-automotive applications including tractor engines, loader
        engines, fork lift truck engines, and other farm and forestry applications.
        The
        execution of a definitive agreement is contingent upon completion of the
        parties
        due diligence which is anticipated to be occur in January 2006. Pursuant
        to the
        terms of the MOU, KOEL placed $1,000,000 into a segregated account which
        it
        controls and we have granted them a right of first refusal with respect to
        the
        right to utilize our technology for non-automotive applications including
        tractor engines, loader engines, fork lift truck engines, and other farm
        and
        forestry applications should the parties fail to executive a definitive
        agreement.





**Research
      and Development**





We
      incurred research and development expenditures in the amount of approximately
      $1,600,000 for the fiscal year ended June 30, 2005.  These
      expenditures were paid to Adaptive to conduct research and development for
      a
      family of generators that utilize our Axial Vector engine.  We did not
      incur any research and development expenditures for the fiscal year
      ended June 30, 2004.





**Existing
      and Probable Governmental Regulation**




We
      are
      not subject to any significant or material federal or state government
      regulation in connection with the research, development, and licensing of
      engines that use the Axial Vector design.





**Compliance
      with Environmental Laws**





We
      did
      not incur any costs in connection with the compliance with any federal, state,
      or local environmental laws.





**Competition**





There
      is
      significant competition in the engine and generator manufacturing industry.
      Our
      management in unaware of any current engine and generator manufactures that
      incorporates the axial vector design into its engines or generators.





**Item
      2:****Description
      of Property**




Currently,
      we do not own any real estate. We are leasing our executive offices at One
      World
      Trade Center, 121 S.W. Salmon Street, Suite 1100, Portland, Oregon, 97204.








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          of Contents





**Item
      3:****Legal
      Proceedings**





In
      October 2004, we filed a complaint against Patricia Wilks and Dennis Palmer
      in
      the United States District Court, Central District of California.  We
      later
      amended our complaint to include Dyna-Cam Engine Corporation as a defendant.
      Our
      original complaint stated five causes of action for declaratory judgment
      regarding intellectual property rights, common law misrepresentation,
      intentional interference with contractual relations and unfair competition,
      seeking relief declaratory and injunctive relief, damages, costs and attorneys’
      fees.  We amended our complaint to include a total of seventeen causes
      of
      action. Additional causes of action included violations of the trade secrets
      act, negligent interference with contractual and prospective business
      relationships, breach of covenant of good faith and fair dealing, and unjust
      enrichment. The defendants answered by generally denied our substantive
      allegations and have counterclaimed for fraud and breach of contract, seeking
      compensatory, special and punitive damages.  We have generally denied
      these
      allegations.  The issues in dispute include the enforceability of, and
      the
      rights and obligations of the parties pursuant to, written agreements that
      resulted in the transfer of certain assets and intellectual property to us,
      including the Dyna-Cam engine.  Defendants have sought to avoid the
      operation of those agreements by alleging both that they were fraudulently
      induced into executing the agreements and that we have breached the terms
      thereof.  The case is in discovery.  We intend to aggressively
      pursue
      our claims and defend the Defendants’ counterclaims. The defendant’s responsive
      pleading to our amended complaint is currently due.





On
      April
      29, 2005, three (3) former employees filed a lawsuit against us in New York
      Supreme Court, County of Suffolk, Riverhead. The former employees collectively
      are seeking compensation and liquidated damages in the amount of approximately
      $22,907,500 based upon a cause of action for breach of employment agreements.
      The plaintiffs are alleging that they were fired without cause in order to
      avoid
      the payment of stock options set forth in their employment agreements. No trial
      date has been set. We believe the lawsuit is without merit and we are
      aggressively defending this case.





In
      May
      2005, we filed suit against Transporter, Inc. and its principals, Daniel Werner
      and Craig Della Penna. The suit seeks to rescind an August 2004 agreement under
      which we acquired the exclusive rights to certain video conference technology
      owned by Transporter, Inc. We contend that Mr. Della Penna and Mr. Werner
      intentionally misrepresented the status and capabilities of the technology
      being
      acquired under the agreement. Shortly after the suit was filed, Mr. Della Penna
      and Mr. Werner placed Transporter into chapter 7 bankruptcy proceedings in
      the
      U.S. Bankruptcy Court for the District of Oregon, Case No. 05-36661-elp7. We
      are
      currently seeking relief from stay in the Transporter bankruptcy case and are
      also exploring settlement options with the trustee appointed to oversee
      Transporter’s liquidation under bankruptcy code. Our action against Transporter,
      Inc., Della Penna, and Werner was originally filed in the United States District
      Court for the District of Nevada. Venue has been transferred to the United
      States District Court for the District of Oregon and the action is currently
      pending there as Case No. 05-CV01469-AS. Answers to our complaint are currently
      due from Mr. Della Penna and Mr. Werner.








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On
      May
      26, 2005, Focus Partners filed suit against us in the Supreme Court of the
      State
      of New York, New York County, alleging that it was due additional monies
      pursuant to a penalty provisions that existed in an agreement between the
      parties. We paid Focus Partners the appropriate consideration due under the
      agreement in question. Our position is that the penalty provision in the
      agreement was waived by Focus Partners.





**Item
      4:****Submission
      of Matters to a Vote of Security Holders**





During
      the fourth quarter of the reporting period, we held our annual meeting of
      shareholders. The matters voted upon at the meeting were as
      follows:





·
            To
                consider and act upon a proposal to amend theour
                Articles of Incorporation to change the name of the corporate entity
                to
                Axial Vector Engine Corporation;





·
            To
                confirm the appointment of Bagell, Josephs & Company, L.L.C. as our
                auditors;





·
            To
                ratify our 2005 stock option plan; and





·
            To
                elect three directors for a term expiring at the next annual meeting
                of
                shareholders, or until their successors are duly elected or
                qualified





The
      total
      number of shares of common stock outstanding at the record date, March 31,
      2005,
      was 28,862,942 shares. The number of votes represented at this meeting was
      23,802,388 shares, or approximately 82% of shares eligible to vote.





The
      amendment to the Articles of Incorporation to change the name of the corporate
      entity to Axial Vector Engine Corporation was approved and the results were
      as
      follows:





Votes
                for
            Votes
                Against
            Abstentions23,800,388
            0
            2,000




The
      shareholders confirmed the appointment of Bagell, Josephs & Company, L.L.C.
      as our auditors and the results were as follows:


Votes
                for
            Votes
                Against
            Abstentions23,802,388
            0
            0





The
      shareholders ratified our 2005 stock option plan and the results were as
      follows:




Votes
                for
            Votes
                Against
            Abstentions23,800,363
            0
            2,025





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All
      of
      the nominees for director recommended by the board of directors were elected
      and
      the results
      of the voting were as follows:




Name
            Votes
                for
            Votes
                Against
            AbstentionsDr.
                Raymond Brouzes
            23,800,378
            0
            2,010Samuel
                J. Higgins
            23,800,378
            0
            2,010Benjamin
                Langford
            23,800,378
            0
            2,010







**PART
      II**





**Item
      5:****Market
      for Common Equity and Related Stockholder Matters**





**Market
      Information**





Our
      common stock is currently quoted on the OTC Bulletin Board (“OTCBB”), which is
      sponsored by the NASD. The OTCBB is a network of security dealers who buy and
      sell stock. The dealers are connected by a computer network that provides
      information on current "bids" and "asks", as well as volume information. Our
      shares are quoted on the OTCBB under the symbol “AXVC.”





The
      following table sets forth the range of high and low bid quotations for our
      common stock for each of the periods indicated as reported by the OTCBB. These
      quotations reflect inter-dealer prices, without retail mark-up, mark-down or
      commission and may not necessarily represent actual transactions.





Fiscal
                Year Ending June 30, 2005Quarter
                Ended
            
            High
                $
            
            Low
                $June
                30, 2005
            
            6.62
            
            1.80March
                31, 2005
            
            2.35
            
            0.65December
                31, 2004
            
            5.00
            
            0.60September
                30, 2004
            
            6.25
            
            0.11Fiscal
                Year Ended June 30, 2004Quarter
                Ended
            
            High
                $
            
            Low
                $June
                30, 2004
            
            0.28
            
            0.13March
                31, 2004
            
            0.85
            
            0.17December
                31, 2003
            
            1.25
            
            0.365September
                30, 2003
            
            2.53
            
            0.25





On
      September 29, 2005, the last sales price of our common stock was
      $3.88.





**Penny
      Stock**





The
      SEC
      has adopted rules that regulate broker-dealer practices in connection with
      transactions in penny stocks. Penny stocks are generally equity securities
      with
      a market price of less than $5.00, other than securities registered on certain
      national securities exchanges or quoted on the NASDAQ system, provided that
      current price and volume information with respect to transactions in such
      securities is provided by the exchange or system. The penny stock rules





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require
      a
      broker-dealer, prior to a transaction in a penny stock, to deliver a
      standardized risk disclosure document prepared by the SEC, that: (a) contains
      a
      description of the nature and level of risk in the market for penny stocks
      in
      both public offerings and secondary trading; (b) contains a description of
      the
      broker's or dealer's duties to the customer and of the rights and remedies
      available to the customer with respect to a violation of such duties or other
      requirements of the securities laws; (c) contains a brief, clear, narrative
      description of a dealer market, including bid and ask prices for penny stocks
      and the significance of the spread between the bid and ask price; (d) contains
      a
      toll-free telephone number for inquiries on disciplinary actions; (e) defines
      significant terms in the disclosure document or in the conduct of trading in
      penny stocks; and (f) contains such other information and is in such form,
      including language, type, size and format, as the SEC shall require by rule
      or
      regulation.





The
      broker-dealer also must provide, prior to effecting any transaction in a penny
      stock, the customer with (a) bid and offer quotations for the penny stock;
      (b)
      the compensation of the broker-dealer and its salesperson in the transaction;
      (c) the number of shares to which such bid and ask prices apply, or other
      comparable information relating to the depth and liquidity of the market for
      such stock; and (d) a monthly account statement showing the market value of
      each
      penny stock held in the customer's account.





In
      addition, the penny stock rules require that prior to a transaction in a penny
      stock not otherwise exempt from those rules; the broker-dealer must make a
      special written determination that the penny stock is a suitable investment
      for
      the purchaser and receive the purchaser's written acknowledgment of the receipt
      of a risk disclosure statement, a written agreement as to transactions involving
      penny stocks, and a signed and dated copy of a written suitability
      statement.





These
      disclosure requirements may have the effect of reducing the trading activity
      for
      our common stock. Therefore, stockholders may have difficulty selling our
      securities.





**Holders
      of Our Common Stock**





As
      of
      September 7, 2005, we had approximately one hundred seventy five (175) holders
      of record of our common stock and several other stockholders hold shares in
      street name.





**Dividends**





There
      are
      no restrictions in our articles of incorporation or bylaws that
      restrict us from
      declaring dividends. The Nevada Revised Statutes, however, do prohibit us from
      declaring dividends where, after giving effect to the distribution of the
      dividend:





1.
            We
                would not be able to pay our debts as they become due in the usual
                course
                of business; or





2.
            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.





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We
      have
      not declared any dividends, and we do not plan to declare any dividends in
      the
      foreseeable future.





**Recent
      Sales of Unregistered Securities**




The
      information set forth below relates to our issuances of equity securities
      without registration under the Securities Act of 1933 during the fiscal year
      ended June 30, 2005.




On
      August
      24, 2004, we issued 25,000,000 shares of our common stock to International
      Equity Partners, SA as part of the consideration paid for the assignment of
      all
      rights, title, and interest in an Exclusive Purchase Agreement between
      International Equity Partners, SA and Transporter Inc. These shares were issued
      pursuant to Section 4(2) of the Securities Act of 1933, as amended. We did
      not
      engage in any general solicitation or advertising. International Equity
      Partners, SA was given adequate information about us to make an informed
      investment decision. We issued the stock certificates and affixed the
      appropriate legends to the restricted stock.




On
      September 17, 2004, we issued a total of 1,000,000 shares of our common stock
      to
      Craig Della Penna and Daniel H. Werner as part of the consideration paid for
      the
      acquisition of all of the issued and outstanding shares of Transporter, Inc.
      pursuant to the terms of an Exclusive Purchase Agreement entered into on August
      24, 2004. These shares were issued pursuant to Section 4(2) of the Securities
      Act. Each purchaser represented his or her intention to acquire the securities
      for investment only and not with a view toward distribution. Each investor
      was
      given adequate information about us to make an informed investment decision.
      We
      did not engage in any general solicitation or advertising. We issued the stock
      certificates and affixed the appropriate legends to the restricted
      stock.




On
      November 8, 2004, we issued 157,788 shares of our common stock to one (1)
      investor at the price of $0.50 per share. We received proceeds of $78,894 and
      no
      commissions were paid on the issuance of these shares. These shares were issued
      pursuant to Section 4(2) of the Securities Act. The purchaser represented his
      intention to acquire the securities for investment only and not with a view
      toward distribution. The investor was given adequate information about us to
      make an informed investment decision. We did not engage in any general
      solicitation or advertising. We issued the stock certificates and affixed the
      appropriate legends to the restricted stock.




On
      February 28, 2005, we issued 100,000 shares of common stock at the price of
      $0.001 per share to one (1) investor. We received proceeds of $100 and
      no
      commissions were paid on the issuance of these shares. These shares were issued
      pursuant to Section 4(2) of the Securities Act. The purchaser represented his
      intention to acquire the securities for investment only and not with a view
      toward distribution. The investor was given adequate information about us to
      make an informed investment decision. We did not engage in any general
      solicitation or advertising. We issued the stock certificates and affixed the
      appropriate legends to the restricted stock.




On
      April
      6, 2005, we issued a total of 1,125,811 shares of our common stock to eight
      (8)
      investors at the price of $0.50 per share. We received proceeds of $562,901
      and
      no commissions were paid on the issuance of these shares. These shares were
      issued pursuant to Section 4(2) of the Securities Act. Each purchaser
      represented his or her intention to acquire the securities for





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investment
      only and not with a view toward distribution. Each investor was given adequate
      information about us to make an informed investment decision. We did not engage
      in any general solicitation or advertising. We issued the stock certificates
      and
      affixed the appropriate legends to the restricted stock.




In
      April
      2005, we issued 50,000 shares of our common stock to a consultant for services
      rendered to the company. These shares were issued pursuant to Section 4(2)
      of
      the Securities Act. We did not engage in any general solicitation or
      advertising. We issued the stock certificates and affixed the appropriate
      legends to the restricted stock.




On
      April
      15, 2005, we issued 600,000 shares of our common stock to our Chief Executive
      Officer, Chief Financial Officer, and member of our board of directors, Dr.
      Raymond Brouzes, as compensation for services rendered to the company. These
      shares were issued pursuant to Section 4(2) of the Securities Act. We did not
      engage in any general solicitation or advertising. We issued the stock
      certificates and affixed the appropriate legends to the restricted
      stock.




On
      April
      15, 2005, we issued 20,000 shares of restricted common stock to Focus Partners,
      LLC pursuant to a settlement agreement resolving claims made by Focus Partners,
      LLC. These shares were issued pursuant to Section 4(2) of the Securities Act.
      We
      did not engage in any general solicitation or advertising. We issued the stock
      certificates and affixed the appropriate legends to the restricted
      stock.




On
      April
      17, 2005, we issued 1,465,000 shares of common stock to Arube Holdings Inc.
      upon
      the execution of a management consulting contract. These shares were issued
      pursuant to Section 4(2) of the Securities Act of 1933, as amended. We did
      not
      engage in any general solicitation or advertising. The Arube Holdings Inc.
      was
      given adequate access to sufficient information about us.




On
      April
      20, 2005, we completed an offering of 1,800,000 Units at the price of $0.50
      per
      Unit to one investor.  Each Unit consists of one (1) share of common
      stock,
      par value $0.001, and one (1) Warrant (the "Warrant") to purchase one (1) share
      of common stock, exercisable for two (2) years from the closing of the
      offering.  The exercise price for the Warrant is priced at $3.00 per
      share.  The total amount we received from this offering was $900,000. 
      Assuming that all of the warrants are exercised by the investor, the gross
      proceeds received from the warrants will equal $5,400,000. This issuance was
      exempt pursuant to Regulation S of the Securities Act.  The purchaser
      represented to us that he was a non-US person as defined in Regulation S. 
      We did not engage in a distribution of this offering in the United States. 
      The purchaser represented his intention to acquire the securities for investment
      only and not with a view toward distribution.  We requested our stock
      transfer agent to affix appropriate restrictive legend to the stock certificate
      issued to each purchaser in accordance with Regulation S.  The investor
      was
      given adequate access to sufficient information about us to make an informed
      investment decision.  These securities were not sold through an underwriter
      and accordingly, there were no underwriting discounts or commissions
      involved.  No registration rights were granted to the
      purchaser.







10
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On
      April
      25, 2005, we completed a Financing Agreement in the amount of $4,000,000 with
      Alliance Capital Management. Under the terms of this agreement, we will receive
      $400,000 dollars each month for ten months commencing in May of 2005. The
      monthly payments are convertible in common stock and the amount of shares issued
      is determined based on 75% of the previous ten day trading average of the
      company prior to the issuance. Pursuant to the terms of the Financing Agreement
      described above, we issued the following shares of common stock to Alliance
      Capital Management: (a) 200,000 shares on April 25, 2005; (b) 173,724 shares
      on
      June 8, 2005; (c) 149,254 shares on July 28, 2005; (d) 201,005 shares on August
      9, 2005; and (e) 189,983 shares in September 2005. These issuances are exempt
      pursuant to Regulation S of the Securities Act.  The purchaser represented
      to us that he was a non-US person as defined in Regulation S.  We did
      not
      engage in a distribution of this offering in the United States.  The
      purchaser represented his intention to acquire the securities
      for investment only and not with a view toward distribution. 
      We
      requested that our stock transfer agent affix the appropriate restrictive legend
      to the stock certificate issued in accordance with Regulation S.  The
      investor was given adequate access to sufficient information about us to make
      an
      informed investment decision.  These securities were not sold through
      an
      underwriter and accordingly, there were no underwriting discounts or commissions
      involved.  No registration rights were granted to the
      purchaser.






In
      June
      2005, we issued 90,000 shares of our common stock to a consultant for services
      rendered to the company. These shares were issued pursuant to Section 4(2)
      of
      the Securities Act. We did not engage in any general solicitation or
      advertising. We issued the stock certificates and affixed the appropriate
      legends to the restricted stock.







**Equity
      Compensation Plans as of June 30, 2005**


A
            B
            C**Plan
                Category**
            **Number
                of securities to be issued upon exercise of outstanding options,
                warrants
                and rights**
            **Weighted-average
                exercise price of outstanding options, warrants and
                right**
            Number
                of securities remaining available for future issuance under equity
                compensation plans (excluding securities reflected in column
                (A))Equity
                compensation plans
              approved
                by security
              holders
            4,244,874
            $1.53
            4,044,874Equity
                compensation plans
              not
                approved by security
              holders
            2,000,000
            $1.52
            2,000,000Total
            6,244,874
            $1.53
            6,044,874








11
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The
      table
      set forth above provides information about our equity compensation plans under
      which shares of common stock may be issued upon the exercise of options as
      of
      June 30, 2005. Our shareholders ratified our 2005 stock option plan at our
      annual shareholder meeting on May 20, 2005. The material portions of the 2005
      stock option plan were disclosed in the definitive proxy statement mailing
      to
      our shareholders on May 9, 2005.





Our
      April
      14, 2005, our board of directors authorized the issuance of options to purchase
      1,000,000 shares of our common stock at the price of $1.52 per share with an
      expiration date of April 14, 2010 to Dr. Raymond Brouzes, our CEO, CFO, and
      member of our board of directors.





Our
      April
      14, 2005, our board of directors authorized the issuance of options to purchase
      1,000,000 shares of our common stock at the price of $1.52 per share with an
      expiration date of April 14, 2010 to Mr. Samuel Higgins, a member of our board
      of directors.





Our
      shareholders did not approve these individual compensation arrangements for
      Dr.
      Brouzes or Mr. Higgins.





**Item
      6:****Plan
      of Operation**





**Forward-Looking
      Statements**




Historical
      results and trends should not be taken as indicative of future operations.
      Management’s statements contained in this report that are not historical facts
      are forward-looking statements within the meaning of Section 27A of
      the
      Securities Act of 1933, as amended, and Section 21E of the Securities and
      Exchange Act of 1934 (the “Exchange Act”), as amended. Actual results may differ
      materially from those included in the forward-looking statements. The Company
      intends such forward-looking statements to be covered by the safe-harbor
      provisions for forward-looking statements contained in the Private Securities
      Litigation Reform Act of 1995, and is including this statement for purposes
      of
      complying with those safe-harbor provisions. Forward-looking statements, which
      are based on certain assumptions and describe future plans, strategies and
      expectations of the Company, are generally identifiable by use of the
      words “believe,”“expect,”“intend,”“anticipate,”“estimate,”“project,”“prospects,”
      or similar expressions. The Company’s ability to predict results or the actual
      effect of future plans or strategies is inherently uncertain. Factors which
      could have a material adverse affect on the operations and future prospects
      of
      the Company on a consolidated basis include, but are not limited to: changes
      in
      economic conditions, legislative/regulatory changes, availability of capital,
      interest rates, competition, significant restructuring activities in calendar
      2004 and thereafter, and generally accepted accounting principles. These risks
      and uncertainties should be considered in evaluating forward-looking statements
      and undue reliance should not be placed on such statements. Further information
      concerning the Company and its business, including additional factors that
      could
      materially affect the Company’s financial results, is included herein and in the
      Company’s other filings with the SEC.








12
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          of Contents







**Summary
      of Product Research and Development**




**Internal
      Combustion Engine**




Joint
      Venture Agreement with Adaptive Propulsion Systems, LLC




To
      assist
      us with the testing of the engine and in-house trails, we entered into a License
      Agreement (“Agreement”) with Adaptive Propulsion Systems, LLC (“Adaptive”).
      Adaptive is a subsidiary of Tactronics, Inc. Under the terms of the Agreement,
      Adaptive can utilize its expertise to modify the engine; however, we will have
      all rights to any patentable technology that emerges. The term of this agreement
      is 20 years unless revised by joint agreement of the parties.




Once
      the
      testing process is complete and the product is available for sale, Adaptive
      will
      provide all of the capital and labor required to build military grade engines
      using our Axial Vector design. The Agreement grants Adaptive the exclusive
      right
      to sell the Axial Vector internal combustion engine to the United States
      military and all militaries of NATO countries. The Agreement was later amended
      to expand the exclusive right granted to Adaptive to include the military of
      the
      United Arab Emirates. Adaptive will be obligated to pay us a royalty of 20%
      of
      the gross sales. For all commercial non-military sales of internal combustion
      engines we make utilizing the Axial Vector design, we will pay Adaptive a
      royalty of 5% of gross sales.




During
      the testing with Adaptive, significant results affecting the design and
      composition of the Axial Vector engine emerged. Through this testing, we were
      able to construct the engine with different alloys that reduced the weight
      of
      our 205 horsepower Axial Vector engine from 98 lbs. to 65 lbs. Another
      significant breakthrough during our testing revealed that the Axial Vector
      engine was capable of maintaining its performance level while adjusting to
      various fuels and a different mixture of fuels. The
      design of the Axial Vector engine offers significantly reduced weight, size,
      emissions and maintenance while gaining vast increases in horsepower, torque
      and
      fuel economy.




During
      the last quarter of the fiscal year, Adaptive conducted an engine endurance
      evaluation using digital simulation with the assistance of a software product.
      This particular testing is useful in estimating the Mean Time to Failure (“MTF”)
      of our engine utilizing the axial vector design. Further
      testing on our Axial Vector design still remains. We anticipate that by
      mid-January all of our engine components will be fully operational and the
      engine will be operating consistently at the targeted performance level. In
      mid-January we anticipate that we will commence the MTF dynamometer testing.
      The
      planned MTF dynamometer testing will consist of running the engine for 60 days
      and taking measurements of engine components to estimate the wear at various
      time intervals. This testing will provide us with an accurate gauge of the
      endurance of the engine and its specific components. Based upon the results
      of
      the MTF dynamometer testing, further modifications may be required.




We
      now
      anticipate that all testing and modifications will be competed prior to the
      end
      of the next fiscal year on June 30, 2006 and manufacturing will have commenced
      by this time.




In
      the
      event that the Axial Vector engine proves suitable for military and commercial
      use, we plan over the next twelve months to license our Axial Vector engine
      for
      a wide variety of applications presently performed by the conventional internal
      combustion engine. Specifically,







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we
      intend
      to license the manufacturing rights to our technology for specific applications
      in defined geographical areas.




**Power
      Generators**




Power
      Generation Agreement




We
      intend
      to build several models of generators that utilize our Axial Vector engine.
      We
      are seeking to build a generator with a high power density Axial Flux design
      that has one-third of the volume and half the weight of the average generator.
      We anticipate that these generators will be utilized for a wide variety of
      applications including military, commercial, and residential uses. We entered
      into an agreement with Adaptive to assist us in the design, development, and
      manufacture power generators for a family of seven generators ranging
      from 7.5 kilowatt to 1 megawatt contingent upon our ability to secure financing. We will pay Adaptive $3,171,000
      to complete the development of our proposed power generator product line.




Under
      the
      terms of this agreement, Adaptive can utilize its expertise to modify the power
      generator; however, we will have all rights to any patentable technology that
      emerges. Adaptive will be obligated to pay us a royalty of 20% of the gross
      sales to the military. For all commercial non-military sales of power generator
      made utilizing the Axial Vector engine and generator design, we will pay
      Adaptive a royalty of 5% of gross sales. The term of this agreement is 5 years
      unless revised by joint agreement of the parties.




On
      April
      25, 2005, we completed a Financing Agreement in the amount of $4,000,000 with
      Alliance Capital Management. Under the terms of this agreement, we receive
      $400,000 dollars each month for ten months commencing in May of 2005. The
      monthly payments received are convertible in common stock and the amount of
      shares issued is determined based on 75% of the previous ten day trading average
      of the company prior to the issuance. This Financing Agreement satisfies the
      contingency set forth in our agreement with Adaptive.




The
      development process for these power generators commenced in the last quarter
      of
      the fiscal year ended June 30, 2005. We anticipate that Adaptive will be able
      to
      comply with the terms of this agreement and complete the development of our
      initial power generator product line within the next 300 days. We anticipate
      that Adaptive will be able to fulfill its obligations under the agreement within
      the contemplated time frame.




**Purchase
      and Sale of Plant or Significant Equipment**




Within
      the next twelve months, we anticipate that we will acquire a facility and
      equipment to be utilized primarily for our research and development needs. 
      We are seeking to establish this facility in Long Island, New York and we
      propose to refer to this facility as the "Axial Vector Center of Excellence
      for
      Propulsion and Power Generation."




**Changes
      in Number of Employees**





We
      anticipate that we will hire additional full-time employees as needed to assist
      our operations once the testing and development of our generators and engines
      is
      completed and





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they
      are
      ready for manufacture and sale.





**Results
      of Operations for the Years Ended June 30, 2005 and June 30, 2004.**





We
      did
      not earn any revenue during the year ended June 30, 2005 and have not earned
      any
      revenue since our inception. We do not anticipate earning any revenue until
      such
      time that we have complete the testing and development of our engines and
      generators and commence the manufacturing of these products.





We
      incurred operating expenses in the amount of $11,463,294 for the year ended June
      30 ,
      2005,
      compared to operating expenses of $5,277,500 for the year ended June 30, 2004.
      The increase in our operating expenses for the year ended June 30, 2005 was
      primarily attributable to significant increases in expenditures for professional
      and consulting fees, compensation expense, and the impairment of goodwill and
      intangibles. We incurred compensation expense in the amount of $1,113,495 for
      the year ended June 30, 2005, compared to $432,969 in the prior year. We
      incurred professional and consulting fees in the amount of $4,863,366 for the
      year ended June 30, 2005, compared to $1,954,914 in the prior year. We recorded
      the impairment of goodwill and intangibles in the amount of $3,862,500 for
      the
      year ended June 30, 2005, compared to $701,347 in the prior year. The recorded
      impairment of goodwill and intangibles for the year ended June 30, 2005 was
      entirely attributable to the impairment of intellectual property from Transporter,
      Inc. which we acquired.





We
      have
      incurred a net loss of $11,455,616 for the year ended June 30, 2005, compared
      to
      $5,294,630 for the year ended June 30, 2004. Our losses for the year ended
      June
      30, 2005 and 2004 are entirely attributable to operating expenses and the
      impairment of goodwill.





**Liquidity
      and Capital Resources**





As
      of
      June 30, 2005, we had current assets in the amount of $52,360 and current
      liabilities in the amount of $3,939,492. We had a working capital deficit of
      $3,887,132 on June 30, 2005. As a result, we have insufficient capital to
      implement our business plan.





Our
      operations for the fiscal year ended June 30, 2005 were primarily funded through
      debt and equity financings. On May 18, 2005, we received $600,000
      from Samuel J. Higgins, a member of our board of directors, on
      demand together with interest of 5% per annum. The total amount of this loan
      was
      later increased to $1,246,000.  In addition to this loan, we have secured
      financing through private equity offerings during the reporting period.





We
      have
      not attained profitable operations and are dependent upon obtaining financing
      to
      continue operations. We can provide no assurance that we will receive adequate
      financing. For these reasons, our auditors have stated in their report that
      they
      have substantial doubt about our ability to continue as a going concern.





The
      completion of our business plan over the next twelve months is contingent upon
      us obtaining $6,000,000 in additional financing. At the present time, we have
      entered discussions with





15
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potential
      investors and do not have any agreements finalized at the present time. We
      can
      provide no assurance that we will receive the additional financing we are
      seeking.





**Off
      Balance Sheet Arrangements**





As
      of
      June 30, 2005, there were no off balance sheet arrangements. Please refer to
      the
      Commitment and Contingency footnote to our consolidated financial statements
      included elsewhere herein.





**Going
      Concern**





We
      are
      currently in the development stage, and there is no guarantee whether we will
      be
      able to generate enough revenue and/or raise capital to support current
      operations and generate anticipated sales. Our independent auditors have stated
      in their Auditor’s Report that this raises substantial doubt about our ability
      to continue as a going concern.





Management
      believes that the capital requirements will depend on many factors including
      the
      success of our product development efforts.





The
      financial statements do not include any adjustments that might result from
      the
      outcome of these uncertainties.





16
 Table
          of Contents





**Item
      7:****Financial
      Statements**


****


Index to Consolidated Financial
                Statements:**Audited
                Financial Statements:**F-1
            Report of Independent Registered Public Accounting
                Firm;F-2
            Balance Sheets as of June 30, 2005 and 2004;F-3
            Statements of Operations for the Years Ended
                June 30,
                2005 and 2004 and for the period December 30, 2002 (Inception) through
                June 30, 2005 with Cumulative Total Since Inception;F-4
            Statement of Stockholders’ Equity (Deficit) for the
                Years Ended June 30, 2005 and 2004 and for the period December 30,
                2002
                (Inception) through June 30, 2005;F-5
            Statements of Cash Flows for the Years Ended
                June 30,
                2005 and 2004 and for the period December 30, 2002 (Inception) through
                June 30, 2005 with Cumulative Total Since Inception;
                andF-6
            Notes to Financial
                Statements






17
 Table
          of Contents
  REPORT
            OF
            INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 
 To
            the
            Stockholders
 Axial
            Vector Engine Corporation
 Portland,
            OR
 
 We
            have
            audited the accompanying consolidated balance sheets of Axial Vector
            Engine
            Corporation and Subsidiary as of June 30, 2005 and June 30, 2004 and
            the related
            consolidated statements of operations, stockholders’ deficit, and cash flow for
            the years then ended and the period December 30, 2002 (Inception) through
            June
            30, 2005. These consolidated financial statements are the responsibility
            of the
            Company’s management. Our responsibility is to express an opinion on these
            consolidated financial statements based on our audits.
 
 We
            conducted our audits in accordance with the standards of the Public Company
            Accounting Oversight Board (United States). Those standards require that
            we plan
            and perform the audit to obtain reasonable assurance about whether the
            consolidated financial statements are free of material misstatement.
            An audit
            includes examining on a test basis, evidence supporting the amounts and
            disclosures in the consolidated financial statements. An audit also includes
            assessing the accounting principles used and significant estimates made
            by
            management, as well as evaluating the overall consolidated financial
            statement
            presentation. We believe that our audits provide a reasonable basis for
            our
            opinion.
 
 The
            accompanying consolidated financial statements have been prepared assuming
            the
            Company will continue as a going concern. As discussed in Note 10 to
            the
            consolidated financial statements, the Company has sustained operating
            losses
            and capital deficits that raise substantial doubt about its ability to
            continue
            as a going concern. Management’s operating and financing plans in regards to
            these matters are also discussed in Note 10. The consolidated financial
            statements do not include any adjustments that might result from the
            outcome of
            these uncertainties.
 
 In
            our
            opinion, the consolidated financial statements referred to above present
            fairly,
            in all material respects, the financial position of Axial Vector Engine
            Corporation and Subsidiary as of June 30, 2005 and 2004, and the results
            of its
            operations, and cash flows for the years then ended, and the period December
            20,
            2002 (Inception) through June 30, 2005, in conformity with accounting
            principles
            generally accepted in the United States of America.
  
 
 Bagell,
            Josephs, Levine & Company, L.L.C.
 
 Bagell,
            Josephs, Levine & Company, L.L.C.
 Gibbsboro,
            New Jersey
 
 October
            9, 2005
  F-1
  **AXIAL
            VECTOR ENGINE CORPORATION AND SUBSIDIARY**
 **(FORMERLY
            AERO MARINE ENGINE, INC.)**
 **(A
            DEVELOPMENT STAGE COMPANY)**
 CONSOLIDATED
            BALANCE
            SHEETS
 JUNE
            30, 2005 AND
            2004
 
 **ASSETS****2005**
                
                
                **2004**Current
                    Assets:Cash
                    and cash equivalents
                $
                7,360
                
                $
                -Inventory
                
                -
                
                
                -Deposit
                
                22,670
                
                
                22,670Prepaid
                    expenses
                
                22,330
                
                
                -Total
                    Current assets
                
                52,360
                
                
                22,670Property
                    and equipment, net
                
                21,142
                
                
                -Intangible
                    assets, net
                
                63,750
                
                
                -**TOTAL
                    ASSETS**
                $
                137,252
                
                $
                22,670**LIABILITIES
                    AND STOCKHOLDERS' DEFICIT****LIABILITIES**Current
                    Liabilities:Accounts
                    payable and accrued expenses
                $
                131,417
                
                $
                56,960Current
                    portion of note payable
                
                1,500,000
                
                
                -Liabiltiy
                    for stock to be issued
                
                749,949
                
                
                -Due
                    to shareholders
                
                1,246,787
                
                
                499,776Due
                    to related company
                
                311,339
                
                
                314,339Total
                    Current liabilities
                
                3,939,492
                
                
                871,075Note
                    payable - net of current portion
                
                1,495,000
                
                
                -**Total
                    Liabilities**
                
                5,434,492
                
                
                871,075**COMMITMENTS
                    AND CONTINGENCIES**
                
                -
                
                
                -**STOCKHOLDERS'
                    DEFICIT**Preferred
                    stock, $.001 Par Value; 100,000,000 shares authorizedno
                    shares issued and outstanding
                
                -
                
                
                -Common
                    stock, $.001 Par Value; 100,000,000 shares authorized32,162,762
                    and 541,349 shares issued and outstanding
                
                32,162
                
                
                541Additional
                    paid-in capital
                
                11,558,126
                
                
                4,582,966Deficit
                    accumulated during the development stage
                
                (16,887,528)
                
                
                (5,431,912)**Total
                    Stockholders' Deficit**
                
                (5,297,240)
                
                
                (848,405)**TOTAL
                    LIABILITIES AND STOCKHOLDERS' DEFICIT**
                $
                137,252
                
                $
                22,670
  The
          accompanying notes are an integral part of these consolidated financial
          statements.
  F-2
 Table
              of Contents
  **AXIAL
            VECTOR ENGINE CORPORATION AND SUBSIDIARY**
 **(FORMERLY
            AERO MARINE ENGINE, INC.)**
 **(A
            DEVELOPMENT STAGE COMPANY)**
 CONSOLIDATED
            STATEMENTS OF
            OPERATIONS
 FOR
            THE YEARS ENDED JUNE 30, 2005 AND
            2004
 (WITH
            CUMULATIVE TOTALS SINCE
            INCEPTION)
 **2005**
                
                
                **2004**
                
                
                **Cumulative
                      Totals****December 30, 2002
                      through**
                  **June
                    30, 2005****OPERATING
                    REVENUES**Sales
                
                $
                -
                
                $
                -
                
                $
                -**COST
                    OF SALES**
                
                
                -
                
                
                -
                
                
                -**GROSS
                    PROFIT**
                
                
                -
                
                
                -
                
                
                -**OPERATING
                    EXPENSES**Compensation
                    expense
                
                
                1,113,495
                
                
                432,969
                
                
                1,546,464Professional
                    and consulting fees
                
                
                4,863,366
                
                
                1,954,914
                
                
                6,955,562Advertising
                    and promotions
                
                
                164,185
                
                
                44,891
                
                
                209,076Rent
                
                
                1,393
                
                
                42,783
                
                
                44,176Impairment
                    of goodwill and intangibles
                
                
                3,862,500
                
                
                701,347
                
                
                4,563,847Impairment
                    of property and equipment
                
                
                -
                
                
                107,964
                
                
                107,964Write-off
                    of inventory
                
                
                -
                
                
                266,519
                
                
                266,519Research
                    and development
                
                
                759,330
                
                
                1,571,830
                
                
                2,331,160General
                    and administrative expenses
                
                
                697,171
                
                
                115,443
                
                
                812,614Depreciation
                    and amortization
                
                
                1,854
                
                
                38,840
                
                
                40,694**Total
                    Operating Expenses**
                
                
                11,463,294
                
                
                5,277,500
                
                
                16,878,076**NET
                    LOSS BEFORE OTHER INCOME (EXPENSE)**
                
                
                (11,463,294)
                
                
                (5,277,500)
                
                
                (16,878,076)**OTHER
                    INCOME (EXPENSE)**Interest
                    income
                
                
                7,678
                
                
                -
                
                
                7,678Interest
                    expense
                
                
                -
                
                
                (17,130)
                
                
                (17,130)**Total
                    Other Income (Expenses)**
                
                
                7,678
                
                
                (17,130)
                
                
                (9,452)**NET
                    LOSS BEFORE PROVISION FOR INCOME TAXES**
                
                
                (11,455,616)
                
                
                (5,294,630)
                
                
                (16,887,528Provision
                    for income taxes
                
                
                -
                
                
                -
                
                
                -**NET
                    LOSS APPLICABLE TO COMMON SHARES**
                
                $
                (11,455,616)
                
                $
                (5,294,630)
                
                $
                (16,887,528**WEIGHTED
                    AVERAGE NUMBER OF****COMMON
                    SHARES OUTSTANDING**
                
                
                17,293,298
                
                
                398,990**NET
                    LOSS PER BASIC AND DILUTED SHARES**
                
                $
                (0.66
                )
                $
                (13.27)
  The
            accompanying notes are an integral part of these consolidated financial
            statements.
  F-3
 Table
              of Contents
  **AXIAL
          VECTOR ENGINE CORPORATION AND SUBSIDIARY**
 **(FORMERLY
          AERO MARINE ENGINE, INC.)**
 **(A
          DEVELOPMENT STAGE COMPANY)**
 CONSOLIDATED
          STATEMENTS OF CHANGES IN
          STOCKHOLDERS' EQUITY
 FOR
          THE YEARS ENDED JUNE 30, 2005 AND
          2004
   **Description**
                
                
                **Common
                    Stock**
                  **Shares                
                    Am****ount**
                
                
                **Additional**
                    **Paid-In
                      Capital**
                
                
                **Deficit**
                  **Accumulated**
                  **During
                    the**
                  **Development**
                  **Stage**
                
                
                **Total**Balance,
                    December 30, 2002
                
                
                37,994,923
                
                $
                37,995
                
                $
                1,046,848
                
                $
                -
                
                $
                1,084,843Recapitalization
                    for reverse merger
                
                
                11,000,000
                
                
                11,000
                
                
                (61,184)
                
                
                -
                
                
                (50,184)Issuance
                    of shares for services
                
                
                1,000,000
                
                
                1,000
                
                
                27,563
                
                
                -
                
                
                28,563Cancellation
                    of Founder shares
                
                
                (860,000)
                
                
                (860)
                
                
                860
                
                
                -
                
                
                -Net
                    loss for the period December 30, 2002through
                    June 30, 2003
                
                
                -
                
                
                -
                
                
                -
                
                
                (137,282)
                
                
                (137,282)Balance,
                    June 30, 2003
                
                
                49,134,923
                
                
                49,135
                
                
                1,014,087
                
                
                (137,282)
                
                
                925,940Issuance
                    of shares for services
                
                
                5,000,000
                
                
                5,000
                
                
                3,345,000
                
                
                -
                
                
                3,350,000Conversion
                    of payables to equity
                
                
                -
                
                
                -
                
                
                170,285
                
                
                -
                
                
                170,285Net
                    loss for the year ended June 30, 2004
                
                
                -
                
                
                -
                
                
                -
                
                
                (5,294,630)
                
                
                (5,294,630)Effect
                    of recapitalization 1:100 stock split
                
                
                (53,593,574)
                
                
                (53,594)
                
                
                53,594
                
                
                -
                
                
                -Balance,
                    June 30, 2004
                
                
                541,349
                
                
                541
                
                
                4,582,966
                
                
                (5,431,912)
                
                
                (848,405)Issuance
                    of shares for services
                
                
                4,039,588
                
                
                4,040
                
                
                2,035,931
                
                
                -
                
                
                2,039,971Issuance
                    of shares for intellectual property
                
                
                26,000,000
                
                
                26,000
                
                
                836,500
                
                
                -
                
                
                862,500Issuance
                    of shares for cash
                
                
                1,208,101
                
                
                1,208
                
                
                553,142
                
                
                -
                
                
                554,350Issuance
                    of options for services and compensation
                
                
                -
                
                
                -
                
                
                3,149,961
                
                
                -
                
                
                3,149,961Issuance
                    of shares for cash underStandby
                    Equity Distribution Agreement
                
                
                373,724
                
                
                374
                
                
                399,626
                
                
                -
                
                
                400,000Net
                    loss for the year ended June 30, 2005
                
                
                -
                
                
                -
                
                
                -
                
                
                (11,455,616)
                
                
                (11,455,616)Balance,
                    June 30, 2005
                
                
                32,162,762
                
                $
                32,162
                
                $
                11,558,126
                
                $
                (16,887,528j)
                
                $
                (5,297,240)
 The
          accompanying notes are an integral part of these consolidated financial
          statements.
  F-4
 Table
              of Contents
  **AXIAL
            VECTOR ENGINE CORPORATION AND SUBSIDIARY**
 **(FORMERLY
            AERO MARINE ENGINE, INC.)**
 **(A
            DEVELOPMENT STAGE COMPANY)**
 CONSOLIDATED
            STATEMENTS OF CASH
            FLOW
 **FOR
            THE YEARS ENDED JUNE 30, 2005 AND 2004**
 **(WITH
              CUMULATIVE TOTALS SINCE INCEPTION)**
  
 **2005**
                
                
                **2004**
                
                
                **Cumulative
                      TotalsDecember 30, 2002 through** June
                      30, 2005**CASH
                    FLOWS FROM OPERATING ACTIVITIES**Net
                    loss
                
                $
                (11,455,616)
                
                $
                (5,294,630)
                
                $
                (16,887,528)Adjustments
                    to reconcile net loss to net cashused
                    in operating activitiesCommon
                    stock issued for services
                
                
                2,039,971
                
                
                3,350,000
                
                
                5,389,971Options
                    issued for services
                
                
                2,069,961
                
                
                -
                
                
                2,069,961Options
                    issued as compensation
                
                
                1,080,000
                
                
                -
                
                
                1,080,000Depreciation
                    and amortization
                
                
                1,854
                
                
                38,840
                
                
                40,694Impairment
                    of property and equipment
                
                
                -
                
                
                107,964
                
                
                107,964Impairment
                    of goodwill and intangibles
                
                
                3,862,500
                
                
                701,347
                
                
                4,563,847Write-off
                    of inventory
                
                
                -
                
                
                266,519
                
                
                266,519**Changes
                    in assets and liabilities**(Increase)
                    decrease inprepaid
                    expenses and other current assets
                
                
                (22,330)
                
                
                15,982
                
                
                (21,731)Increase
                    (decrease) inaccounts
                    payable and accrued expenses
                
                
                74,457
                
                
                (12,279
                )
                
                187,723Total
                    adjustments
                
                
                9,106,413
                
                
                4,468,373
                
                
                13,684,948**Net
                    cash (used in) operating activities**
                
                
                (2,349,203)
                
                
                (826,257)
                
                
                (3,202,580)**CASH
                    FLOWS FROM INVESTING ACTIVITIES**Acquisition
                    of business
                
                
                -
                
                
                -
                
                
                (1,018,814)Acquisition
                    of intangible assets
                
                
                (63,750)
                
                
                -
                
                
                (63,750)Acquisitions
                    of fixed assets
                
                
                (22,996)
                
                
                (26,767)
                
                
                (49,763)**Net
                    cash (used in) investing activities**
                
                
                (86,746)
                
                
                (26,767)
                
                
                (1,132,327)**CASH
                    FLOWS FROM FINANCING ACTIVITES**Proceeds
                    from the sale of stock
                
                
                554,349
                
                
                -
                
                
                1,639,192Proceeds
                    from Standby Equity Distribution Agreement
                
                
                400,000
                
                
                -
                
                
                400,000Liability
                    for stock to be issued
                
                
                749,949
                
                
                -
                
                
                749,949Reduction
                    of loan
                
                
                (5,000)
                
                
                -
                
                
                (5,000)Advances
                    from shareholders
                
                
                1,200,935
                
                
                499,776
                
                
                1,700,711Payments
                    to shareholders
                
                
                (453,924)
                
                
                -
                
                
                (453,924)Payments
                    to related company, net
                
                
                (3,000)
                
                
                -
                
                
                (3,000)Advances
                    from related company, net
                
                
                -
                
                
                314,339
                
                
                314,339**Net
                    cash provided by financing activities**
                
                
                2,443,309
                
                
                814,115
                
                
                4,342,267**NET
                    INCREASE (DECREASE) IN****CASH
                    AND CASH EQUIVALENTS**
                
                
                7,360
                
                
                (38,909)
                
                
                7,360**CASH
                    AND CASH EQUIVALENTS -****BEGINNING
                    OF YEAR**
                
                
                -
                
                
                38,909
                
                
                -**CASH
                    AND CASH EQUIVALENTS - END OF YEAR**
                
                $
                7,360
                
                $
                -
                
                $
                7,360**SUPPLEMENTAL
                    CASH FLOW INFORMATION**Cash
                    paid during the year for interest
                
                $
                -
                
                $
                190
                
                $
                190**SUPPLEMENTAL
                    DISCLOSURE OF NONCASH INFORMATION**Common
                    stock issued for services
                
                $
                2,039,971
                
                $
                3,350,000
                
                $
                5,389,971Common
                    stock issued for intangibles
                
                $
                3,000,000
                
                $
                -
                
                $
                3,000,000Options
                    issued for services
                
                $
                2,069,961
                
                $
                -
                
                $
                2,069,961Options
                    issued as compensation
                
                $
                1,080,000
                
                $
                -
                
                $
                1,080,000Impairment
                    of property and equipment
                
                $
                -
                
                $
                107,964
                
                $
                107,964Impairment
                    of goodwill and intangibles
                
                $
                3,862,500
                
                $
                701,347
                
                $
                4,563,847Conversion
                    of payables to equity
                
                $
                -
                
                $
                170,285
                
                $
                170,285
  The
          accompanying notes are an integral part of these
          consolidated financial statements.
  F-5
 Table
              of Contents
   **AXIAL
          VECTOR ENGINE CORPORATION AND SUBSIDIARY**
 **(FORMERLY
          AERO MARINE ENGINE, INC.)**
 **(A
          DEVELOPMENT STAGE COMPANY)**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **JUNE
          30, 2005 AND 2004**
  **NOTE
          1-** **ORGANIZATION
          AND BASIS OF PRESENTATION**
 
 Princeton
          Ventures, Inc. (the "Company") was incorporated in the State of Nevada
          on May
          10, 2001. The Company had not commenced operations. On May 30, 2003, the
          Company
          exchanged 37,994,923 shares of its common stock for all of the issued and
          outstanding shares of Aero Marine Engine Corp. ("Aero"). Aero was formed
          on
          December 30, 2002. Aero had no operations and was formed to acquire the
          assets
          of Dyna-Cam Engine Corporation. The Company changed its name from Princeton
          Ventures, Inc. to Aero Marine Engine, Inc.
 
 At
          the
          time that the transaction was agreed to, the Company had 20,337,860 common
          shares issued and outstanding. In contemplation of the transaction with
          Aero,
          the Company's two primary shareholders cancelled 9,337,860 shares of the
          Company's common stock held by them, leaving 11,000,000 shares issued and
          outstanding. As a result of the acquisition of Aero, there were 48,994,923
          common shares outstanding, and the former Aero stockholders held approximately
          78% of the Company's voting stock. For financial accounting purposes, the
          acquisition was a reverse acquisition of the Company by Aero, under the
          purchase
          method of accounting, and was treated as a recapitalization with Aero as
          the
          acquirer. Accordingly, the historical financial statements have been restated
          after giving effect to the May 30, 2003, acquisition of the Company. The
          financial statements have been prepared to give retroactive effect to December
          30, 2002, the date of inception of Aero, of the reverse acquisition completed
          on
          May 30, 2003, and represent the operations of Aero. Consistent with reverse
          acquisition accounting: (i) all of Aero's assets, liabilities, and accumulated
          deficit, are reflected at their combined historical cost (as the accounting
          acquirer) and (ii) the preexisting outstanding shares of the Company (the
          accounting acquiree) are reflected at their net asset value as if issued
          on May
          30, 2003.
 
 Additionally,
          on June 30, 2003, the Company acquired the operating assets of Dyna-Cam
          Engine
          Corp. ("Dyna-Cam"). Dyna-Cam was a development stage enterprise developing
          a
          unique, axial cam-drive, free piston, internal combustion engine. Dyna-Cam
          intended to produce and sell the engine primarily for aircraft and marine
          applications. Dyna-Cam had not generated significant revenues at the time
          of the
          Company's acquisition.
 
  F-6
 Table
              of Contents
  AXIAL
          VECTOR ENGINE CORPORATION AND
          SUBSIDIARY
 (FORMERLY
          AERO MARINE ENGINE, INC.)
 (A
          DEVELOPMENT STAGE ENTERPRISE)
 NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
          30, 2005 AND 2004
 **NOTE
          1-**  **ORGANIZATION
          AND BASIS OF PRESENTATION**
 
 The
          accompanying financial statements represent the consolidated financial
          position
          and results of operations of the Company and include the accounts and results
          of
          operations of the Company and Aero, its wholly owned subsidiary. The purchase
          of
          the operating assets of Dyna-Cam occurred on June 30, 2003. The consolidated
          entity is considered a development stage enterprise as of June 30, 2005.
 
 The
          accompanying consolidated financial statements have been prepared assuming
          that
          the Company will continue as a going concern, which contemplates the realization
          of assets and the satisfaction of liabilities in the normal course of business.
          The Company faces many operating and industry challenges. The Company intends
          to
          do business in a highly competitive industry. Future operating losses for
          the
          Company are anticipated and the proposed plan of operations, even if successful,
          may not result in cash flow sufficient to finance the initiation and continued
          expansion of its business. These factors raise substantial doubt about
          the
          Company's ability to continue as a going concern. Realization of assets
          is
          dependent upon continued operations of the Company, which in turn is dependent
          upon management's plans to meet its financing requirements, as discussed
          below,
          and the success of its future operations. The consolidated financial statements
          do not include any adjustments that might result from this
          uncertainty.
 
 The
          Company, under its new management, has raised over $1,200,000 in cash to
          affect
          the development of the Axial Vector Engine “E” (Electronic). Management believes
          that significant capital is required to adequately develop the Axial Vector
          Engine “E” engine and begin operations. In the year ended June 30, 2005,
          shareholders of the Company have advanced a net of $1,246,787 to assist
          in
          funding the operations.
 
 The
          Company will require additional capital. Although the current majority
          stockholders of the Company, as well as an affiliate, have made verbal
          commitments with no guarantees to continue to fund the development and
          sales and
          marketing efforts of the Company, if alternate financing cannot be obtained.
          There can be no assurance that any new capital would be available to the
          Company
          or that adequate funds for the Company's operations, whether from the Company's
          revenues, financial markets, or other arrangements will be available when
          needed
          or on terms satisfactory to the Company. The failure of the Company to
          obtain
          adequate additional financing will require the Company to delay, curtail
          or
          scale back some or all of its research and development programs, sales,
          marketing efforts and manufacturing operations.
 
 
 F-7
 AXIAL
          VECTOR ENGINE CORPORATION AND
          SUBSIDIARY
 (FORMERLY
          AERO MARINE ENGINE, INC.)
 (A
          DEVELOPMENT STAGE ENTERPRISE)
 NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS
          (CONTINUED)
 JUNE
          30, 2005 AND 2004
 **NOTE
          1-**  **ORGANIZATION
          AND BASIS OF PRESENTATION** **(CONTINUED)**
 
 On
          May
          19, 2005, the Company announced that it had changed its name to Axial Vector
          Engine Corporation (“Axial”). Management believes the new name  will
          more
 accurately
          describe the Company’s mission. The Company’s stock symbol changed to
          AXVC.
  **NOTE
          2-**  **SUMMARY
          OF SIGNIFICANT ACCOUNTING POLICIES** ****
 
 **Use
          of Estimates**
 
 The
          preparation of financial statements in conformity with accounting principles
          generally accepted in the United States of America requires management
          to make
          estimates and assumptions that affect the amounts reported in the financial
          statements and accompanying notes. Actual results could differ from those
          estimates.
 
 **Cash
          and Cash Equivalents**
 
 Cash
          and
          cash equivalents consists principally of currency on hand, demand deposits
          at
          commercial banks, and liquid investment funds having an original maturity
          of
          three months or less at the time of purchase.
 
 **Principles
          of Consolidation**
 
 The
          consolidated financial statements include the accounts of the Company and
          its
          wholly owned subsidiary, Aero Marine Engine Corp. All significant inter-company
          accounts and transactions are eliminated.
 
 **Inventory**
 
 Inventories
          consisted of raw materials and purchased parts used in the manufacturing
          of
          engines. The Company records the inventory at the lower of cost (first-in,
          first-out) or market. The Company has determined all inventory as of June
          30,
          2004 is obsolete, and has written off the remaining $266,519.
 
  F-8
 Table
              of Contents
  AXIAL
          VECTOR ENGINE CORPORATION AND
          SUBSIDIARY
 (FORMERLY
          AERO MARINE ENGINE, INC.)
 (A
          DEVELOPMENT STAGE ENTERPRISE)
 NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS
          (CONTINUED)
 JUNE
          30, 2005 AND 2004
  **NOTE
          2-**  **SUMMARY
          OF SIGNIFICANT ACCOUNTING POLICIES** **(CONTINUED)**
 
 **Property
          and Equipment**
 
 Property
          and equipment is stated at cost. Depreciation is computed using the
          straight-line method over the estimated useful lives of the assets, three
          to
          seven years. Reviews are regularly performed to determine whether facts
          and
          circumstances exist that indicate the carrying amount of assets may not
          be
          recoverable or the useful life is shorter than originally estimated. The
          Company
          assesses the recoverability of its property and equipment by comparing
          the
          projected undiscounted net cash flows associated with the related asset
          or group
          of assets over their remaining lives against their respective carrying
          amounts.
          Impairment, if any, is based on the excess of the carrying amount over
          the fair
          value of those assets.
 
 If
          assets
          are determined to be recoverable, but the useful lives are shorter than
          originally estimated, the net book value of the assets is depreciated over
          the
          newly determined remaining useful lives. When equipment is retired or otherwise
          disposed of, the cost and related accumulated depreciation are removed
          from the
          accounts and the resulting gain or loss is included in operations.
 
 **Reclassifications**
 
 Certain
          amounts for the year ended June 30, 2004 have been reclassified to conform
          to
          the presentation of the June 30, 2005 amounts. The reclassifications have
          no
          effect on net loss for the year ended June 30, 2004.
 
 **Income
          Taxes**
 
 The
          Company has adopted the provisions of Statement of Financial Accounting
          Standards (“SFAS”) No. 109, Accounting for Income Taxes. The Statement requires
          an asset and liability approach for financial accounting and reporting
          of income
          taxes, and the recognition of deferred tax assets and liabilities for the
          temporary differences between the financial reporting bases and tax bases
          of the
          Company’s assets and liabilities at enacted tax rates expected to be in effect
          when such amounts are realized or settled.
 
 
 F-9
 Table
              of Contents
  AXIAL
          VECTOR ENGINE CORPORATION AND
          SUBSIDIARY
 (FORMERLY
          AERO MARINE ENGINE, INC.)
 (A
          DEVELOPMENT STAGE ENTERPRISE)
 NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS
          (CONTINUED)
 JUNE
          30, 2005 AND 2004
 
 
 **NOTE
          2-**  **SUMMARY
          OF SIGNIFICANT ACCOUNTING POLICIES**
 **(CONTINUED)**
  **Advertising**
 
 The
          Company’s policy is to expense the costs of advertising and marketing as they
          are incurred. Advertising expense for the years ended June 30, 2005 and
          2004 was
          $164,185 and $44,891, respectively.
  **Research
          and Development**
 
 Research
          and development costs are expensed as incurred.
  **Intangible
          Assets**
 
 Intangible
          assets are comprised of goodwill, and the technology and intellectual property
          of Transporter, Inc., as well as new patents pending related to the Axial
          Vector
          Engine “E” (Electronic). These assets represent the value of the difference
          between the purchase price of the acquired business and the fair value
          of the
          identifiable tangible net assets. The Company adopted Statement of Financial
          Accounting Standard (“SFAS”) No. 142, Goodwill and Other Intangible Assets. The
          Company does not amortize goodwill but rather annually evaluates the carrying
          value of goodwill for impairment, in accordance with the provisions of
          SFAS No.
          142. The finite life of the intangibles will be amortized over 7 to 10
          years.
          Amortization expense was $ -0- and $20,037 for the years ended June 30,
          2005 and
          2004, respectively. The Company recognized impairment of the intangible
          asset of
          $3,862,500 and $701,347 for the years ended June 30, 2005 and 2004,
          respectively.
 
 During
          the year ended June 30, 2005, the Company incurred costs of $63,750 in
          applying
          and registering of patents. These patents are currently pending. Due to
          the
          nature of the patents, the Company anticipates receiving confirmation on
          their
          applications in an expedited fashion.
 
  F-10
 Table
              of Contents
  AXIAL VECTOR ENGINE CORPORATION AND SUBSIDIARY
 (FORMERLY AERO MARINE ENGINE, INC.)
 (A DEVELOPMENT STAGE ENTERPRISE)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            (CONTINUED)
 JUNE 30, 2005 AND 2004
 **NOTE
          2-**  **SUMMARY
          OF SIGNIFICANT ACCOUNTING POLICIES**
 **(CONTINUED)**
  **Start-up
          Costs**
 
 In
          accordance with the American Institute of Certified Public Accountants
          Statement
          of Position 98-5, *“Reporting
          on the costs of Start-up Activities”* ,
          the
          Company expenses all costs incurred in connection with the start-up and
          organization of the Company.
 
 **Stock-Based
          Compensation**
 
 Employee
          stock awards under the Company’s compensation plans are accounted for in
          accordance with Accounting Principles Board Opinion No. 25 (“APB 25”), *“Accounting
          for Stock Issued to Employees”* ,
          and
          related interpretations. The Company provides the disclosure requirements
          of
          Statement of Financial Accounting Standards No. 123, “ *Accounting
          for Stock-Based Compensation”* (“SFAS
          123”), and related interpretations. Stock-based awards to non-employees are
          accounted for under the provisions of SFAS 123 and has adopted the enhanced
          disclosure provisions of SFAS No. 148 “Accounting for Stock-Based Compensation -
          Transition and Disclosure, an amendment of SFAS No. 123”.
 
 F-11
 Table
              of Contents
  AXIAL
            VECTOR ENGINE CORPORATION AND
            SUBSIDIARY
 (FORMERLY
            AERO MARINE ENGINE, INC.)
 (A
            DEVELOPMENT STAGE ENTERPRISE)
 NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS
            (CONTINUED)
 JUNE
            30, 2005 AND 2004
 
 **NOTE
          2-**  **SUMMARY
          OF SIGNIFICANT ACCOUNTING POLICIES**
 **(CONTINUED)**
 
 **Stock-Based
          Compensation** **(Continued)**
 
 The
          Company measures compensation expense for its employee stock-based compensation
          using the intrinsic-value method. Under the intrinsic-value method of accounting
          for stock-based compensation, when the exercise price of options granted
          to
          employees is less than the estimated fair value of the underlying stock
          on the
          date of grant, deferred compensation is recognized and is amortized to
          compensation expense over the applicable vesting period. In each of the
          periods
          presented, the vesting period was the period in which the options were
          granted.
 
 The
          Company measures compensation expense for its non-employee stock-based
          compensation under the Financial Accounting Standards Board (FASB) Emerging
          Issues Task Force (EITF) Issue No. 96-18, “ *Accounting
          for Equity Instruments that are Issued to Other Than Employees for Acquiring
          or
          in Conjunction with Selling* , *Goods
          or Services”* .
          The
          fair value of the option issued is used to measure the transaction, as
          this is
          more reliable than the fair value of the services received. The fair value
          is
          measured at the value of the Company’s common stock on the date that the
          commitment for performance by the counterparty has been reached or the
          counterparty’s performance is complete. The fair value of the equity instrument
          is charged directly to compensation expense and additional paid-in
          capital.
 
 **Common
          Stock Issued for Other Than Cash**
 
 Services
          purchased and other transactions settled in the Company’s common stock are
          recorded at the estimated fair value of the stock issued if that value
          is more
          readily determinable than the fair value of the consideration
          received.
 
 **(Loss)
          Per Share of Common Stock**
 
 Historical
          net income (loss) per common share is computed using the weighted average
          number
          of common shares outstanding. Diluted earnings per share (EPS) include
          additional dilution from common stock equivalents, such as stock issuable
          pursuant to the exercise of stock options and warrants. Common stock equivalents
          are not included in the computation of diluted earnings per share when
          the
          Company reports a loss because to do so would be antidilutive for the periods
          presented.
 
 
 F-12
 Table
              of Contents
 AXIAL VECTOR ENGINE CORPORATION AND SUBSIDIARY
 (FORMERLY AERO MARINE ENGINE, INC.)
 (A DEVELOPMENT STAGE ENTERPRISE)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            (CONTINUED)
 JUNE 30, 2005 AND 2004
 **NOTE
          2-**  **SUMMARY
          OF SIGNIFICANT ACCOUNTING POLICIES**
 **(CONTINUED)**
 
 **(Loss)
          Per Share of Common Stock** **(Continued)**
 
 The
          following is a reconciliation of the computation for basic and diluted
          EPS:
 
  **JUNE
                    30,**
                  **2005**
                
                **JUNE
                    30,**
                  **2004**Net
                  Loss
                $
                (11,455,616)
                $
                (5,294,630)Weighted-average
                    common shares
                  outstanding
                    (Basic)
                
                17,293,298
                
                398,990Weighted-average
                    common stock
                  equivalents:
                  Stock
                    options and warrants
                
                -
                
                -Weighted-average
                    common shares
                  outstanding
                    (Diluted)
                
                17,293,298
                
                398,990
 
 Options
          and warrants outstanding to purchase stock were not included in the computation
          of diluted EPS because inclusion would have been antidilutive. As of June
          30,
          2005 there were 2,960,939 options and one warrant available. The warrant
          has the
          option to purchase two million shares. As of June 30, 2004, there were
          no
          outstanding options or warrants available.
 
 **Fair
          Value of Financial Instruments**
  The
          carrying amount reported in the balance sheets for cash and cash equivalents
          and
          liability for stock to be issued approximate fair value because of the
          immediate
          or short-term maturity of these financial instruments.
 
 
 
 F-13
 Table
              of Contents
 AXIAL VECTOR ENGINE CORPORATION AND SUBSIDIARY
 (FORMERLY AERO MARINE ENGINE, INC.)
 (A DEVELOPMENT STAGE ENTERPRISE)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            (CONTINUED)
 JUNE 30, 2005 AND 2004
 **NOTE
          2-**  **SUMMARY
          OF SIGNIFICANT ACCOUNTING POLICIES**
 **(CONTINUED)**
 
 **Recently
          Issued Accounting Pronouncements** **(Continued)**
 
 On
          December 16, 2004, the Financial Accounting Standards Board ("FASB") published
          Statement of Financial Accounting Standards No. 123 (Revised 2004), Share-Based
          Payment ("SFAS 123R"). SFAS 123R requires that compensation cost related
          to
          share-based payment transactions be recognized in the financial statements.
          Share-based payment transactions within the scope of SFAS 123R include
          stock
          options, restricted stock plans, performance-based awards, stock appreciation
          rights, and employee share purchase plans. The provisions of SFAS 123R
          are
          effective for small business issuers as of the first interim period that
          begins
          after December 15, 2005. Accordingly, the Company will implement the revised
          standard in the fourth quarter of fiscal year 2005. Currently, the Company
          accounts for its share-based payment transactions under the provisions
          of APB
          25, which does not necessarily require the recognition of compensation
          cost in
          the financial statements (note 3(d)). Management is assessing the implications
          of this revised standard, which may materially impact the Company's results
          of
          operations in the fourth quarter of fiscal year 2005 and
          thereafter.
 
 On
          December 16, 2004, FASB issued Statement of Financial Accounting Standards
          No.
          153, Exchanges of Non-monetary Assets, an amendment of APB Opinion No.
          29,
          Accounting for Non-monetary Transactions (" SFAS 153"). This statement
          amends
          APB Opinion 29 to eliminate the exception for non-monetary exchanges of
          similar
          productive assets and replaces it with a general exception for exchanges
          of
          non-monetary assets that do not have commercial substance. Under SFAS 153,
          if a
          non-monetary exchange of similar productive assets meets a commercial-substance
          criterion and fair value is determinable, the transaction must be accounted
          for
          at fair value resulting in recognition of any gain or loss. SFAS 153 is
          effective for non-monetary transactions in fiscal periods that begin after
          June
          15, 2005. The Company does not anticipate that the implementation of this
          standard will have a material impact on its financial position, results
          of
          operations or cash flows.
 
 
 F-14
 Table
              of Contents
 AXIAL VECTOR ENGINE CORPORATION AND SUBSIDIARY
 (FORMERLY AERO MARINE ENGINE, INC.)
 (A DEVELOPMENT STAGE ENTERPRISE)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            (CONTINUED)
 JUNE 30, 2005 AND 2004
 
 **NOTE
          3-**  **PROPERTY
          AND EQUIPMENT**
 
 Property
          and equipment consist of the following at June 30, 2005 and
          2004.
  **2005**
                ****
                **2004**Computer
                $
                7,000
                $
                -Equipment
                  and machinery
                
                13,273
                
                18,803Office
                  equipment
                
                2,723
                
                -22,996
                
                18,803Less:
                  accumulated depreciation
                
                (1,854)
                
                (18,803)$
                21,142
                $
                -
  Depreciation
          expense for the years ended June 30, 2005 and 2004 was $1,854 and
          $18,803.
 
 
 **NOTE
          4-**  **RELATED
          PARTY TRANSACTIONS**
 
 An
          affiliated entity is providing office space to the Company at no charge,
          and is
          providing funds for payroll, moving and other general expenses. As of June
          30,
          2005 and 2004, the Company incurred and accrued $311,339 and 314,339,
          respectively, in liabilities to this entity. The advances and funding are
          based
          on verbal commitments with no guarantees of future advances or
          funding.
 
 **NOTE
          5-**  **DUE
          TO
          SHAREHOLDERS**
 
 Certain
          shareholders of the Company have advanced funds to the Company to cover
          cash
          flow deficiencies. During the years ended June 30, 2005 and 2004, these
          shareholders advanced a net of $1,246,787 and $499,776, respectively. The
          advances have no stated repayment terms. The advances will bear interest
          at the
          Federal Reserve prime rate plus 1.25% and interest will be payable
          annually.
 
 
 F-15
 Table
              of Contents
 AXIAL VECTOR ENGINE CORPORATION AND SUBSIDIARY
 (FORMERLY AERO MARINE ENGINE, INC.)
 (A DEVELOPMENT STAGE ENTERPRISE)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            (CONTINUED)
 JUNE 30, 2005 AND 2004
 **NOTE
          6-**  **LIABILTY
          FOR STOCK TO BE ISSUED**
  This
          account represents shares to be issued in connection with the Standby Equity
          Distribution Agreement and a private investor for which cash was received
          by the
          Company prior to issuance of the stock as of June 30, 2005.
 
 **NOTE
          7-**  **NOTE
          PAYABLE**
 
 Note
          payable to Transporter Inc. commencing August 2004 (See Notes 10 and 12)
          for the
          purchase of exclusive rights to certain video-conferencing technology.
          The note
          is payable in intervals over 24 months of which $100,000 was due within
          60 days
          of the date of the agreement. No interest has been imputed as the agreement
          is
          in dispute and a rescission of the agreement is being sought.
 
 **NOTE
          8-**  **PROVISION
          FOR INCOME TAXES**
 
 Deferred
          income taxes will be determined using the liability method for the temporary
          differences between the financial reporting basis and income tax basis
          of the
          Company’s assets and liabilities. Deferred income taxes will be measured based
          on the tax rates expected to be in effect when the temporary differences
          are
          included in the Company’s tax return. Deferred tax assets and liabilities are
          recognized based on anticipated future tax consequences attributable to
          differences between financial statement carrying amounts of assets and
          liabilities and their respective tax bases.
 
 At
          June
          30, 2005, deferred tax assets consist of the following:
  2005Deferred
                    tax assets
                  $3,859,340Less
                    Valuation allowance
                  (3,859,340)Net
                      deferred assets
                  $         -0-
 
 
 
 At
          June
          30, 2005, the Company had federal net operating loss carry forwards in
          the
          approximate amounts of $16,875,000 available to offset future taxable income
          through 2024. The Company established valuation allowances equal to the
          full
          amount of the deferred tax assets due to the uncertainty of the utilization
          of
          the operating losses in future periods.
 
 F-16
 Table
                of Contents
 AXIAL VECTOR ENGINE CORPORATION AND SUBSIDIARY
 (FORMERLY AERO MARINE ENGINE, INC.)
 (A DEVELOPMENT STAGE ENTERPRISE)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              (CONTINUED)
 JUNE 30, 2005 AND 2004
 
 **NOTE
          9-**  **STANDBY
          EQUITY DISTRIBUTION AGREEMENT**
 
 On
          April
          25, 2005, the Company entered into a Standby Equity Distribution Agreement
          (“Agreement”) with Alliance Capital Management. Under the agreement, the Company
          may issue and sell to Alliance Capital Management common stock for a total
          purchase price of up to $4.0 million. The purchase price for the first
          payment
          is 200,000 shares. The remaining purchase price for the shares is equal
          to 75%
          of the market price, which is determined as the lowest volume weighted
          average
          price of the common stock during the ten trading days following the notice
          date.
          This calculation is mandated by the Agreement.
 
 The
          amount of each advance is subject to an aggregate maximum advance of $400,000
          due and payable on the 5 th of each
          month commencing May 5, 2005 and continuing through February 5, 2006. Alliance
          Capital Management received, as additional consideration, one (1) warrant
          to
          purchase two million shares of common stock at a fixed rate of $4.00 per
          share
          for a period of two years.
  **NOTE
          10-**  **STOCKHOLDERS'
          EQUITY (DEFICIT)**
 
 The
          Company has 100,000,000 shares of common stock authorized, par value $.001.
          As
          of June 30, 2005, the Company has 32,162,762 shares of common stock issued
          and
          outstanding.
 
 The
          Company issued 37,994,923 shares of its common stock in connection with
          the
          acquisition of Aero Marine Engine Corp. Under reverse acquisition accounting,
          these shares are reflected as issued on the date of inception and valued
          at the
          book value of the net assets of as of the date of the transaction.
 
 Aero
          was
          incorporated in contemplation of the reverse acquisition of the Company
          as well
          as the Dyna-Cam acquisition. A total of 38,994,923 common shares were issued
          in
          the reverse merger transaction. However, 1,000,000 of those shares were
          designated for the Dyna-Cam acquisition. (See Subsequent Event Footnote.)
          The
          Company raised $1,218,598 as part of its initial capitalization. This capital
          was raised among four individuals in contemplation of their receiving the
          37,994,923 shares of the Company's common stock in connection with the
          acquisition of Aero Marine Engine Corp. The value of the 1,000,000 shares
          issued
          in connection with the Dyna-Cam purchase was determined to be $0.032 per
          share,
          which is the price per share paid by the investors that acquired the 37,994,923
          shares for cash.
 
 
 F-17
 Table
              of Contents
 AXIAL VECTOR ENGINE CORPORATION AND SUBSIDIARY
 (FORMERLY AERO MARINE ENGINE, INC.)
 (A DEVELOPMENT STAGE ENTERPRISE)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            (CONTINUED)
 JUNE 30, 2005 AND 2004
 **NOTE
          10-**  **STOCKHOLDERS'
          EQUITY (DEFICIT)** **(CONTINUED)**
 
 In
          connection with the reverse acquisition transaction with Aero, the Company's
          two
          controlling shareholders at that time cancelled 9,337,860 shares of common
          stock
          held by them. Upon completion of this cancellation, the Company had 11,000,000
          shares of common stock remaining outstanding prior to the reverse acquisition
          transaction.
 
 In
          January 22, 2004, the Company issued 5,000,000 shares of its common stock
          in
          exchange for consulting services rendered to the Company pursuant to an
          S-8
          registration statement. These shares were valued at $3,350,000 ($.67 per
          share),
          the fair value of the stock at the date of issuance.
 
 On
          July
          30, 2004 with an effective date of August 9, 2004 the Board of Directors
          adopted
          a resolution authorizing and approving a 100 to 1 reverse stock split and
          the
          new trading symbol of the company is AOME.
 
 On
          August
          24, 2004 International Equity Partners, SA purchased Transporter, Inc.,
          a
          company developing video conferencing software allowing the creation of
          virtual
          private networks that are PC based, have no need to use servers or special
          equipment, and operate on any broadband connection. The purchase price
          was
          $3,000,000, $100,000 of which is payable within 60 days of the date of
          the
          Exclusive Purchase Agreement with the balance payable in intervals over
          24
          months. In addition, the former stockholders of Transporter, Inc. are to
          be
          issued 1,000,000 shares of the common stock of the Company.
 
 At
          the
          end of a two-year period the shares are guaranteed to be worth at least
          $2.00
          per share, and, if worth less, additional shares of stock will then be
          issued to
          make up the difference. The value of the shares is $50,000 ($.05 per
          share).
 
 On
          August
          24, 2004 the Company acquired through an assignment by International Equity
          Partners, SA all rights, title, and interest in the aforesaid Exclusive
          Purchase
          Agreement in exchange for 25,000,000 shares of common stock of the Registrant.
          All certificates issued will bear the appropriate 2-year restrictive legend.
          The
          value of the issuance is $812,500, which was the fair value of the stock
          at the
          date the transaction
 was
          negotiated.
 
 
 
 F-18
 Table
              of Contents
 AXIAL VECTOR ENGINE CORPORATION AND SUBSIDIARY
 (FORMERLY AERO MARINE ENGINE, INC.)
 (A DEVELOPMENT STAGE ENTERPRISE)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            (CONTINUED)
 JUNE 30, 2005 AND 2004
 **NOTE
          10-**  **STOCKHOLDERS'
          EQUITY (DEFICIT)** **(CONTINUED)**
 
 On
          August
          25, 2004, the Company entered into a Consulting Fee Agreement with Carlyle
          Financial Consulting Group, which will continue to provide consulting services
          for all of the Company’s businesses and will also continue to coordinate
          prospective acquisitions in European countries and the Arabian Gulf. The
          consulting fee was negotiated for 1,400,000 shares of common stock, which
          the
          Company has registered with the Securities and Exchange Commission on Form
          S-8
          Registration Statement under the Securities Act of 1933.
 
 On
          September 9, 2004, the Company issued 200,000 shares of common stock of
          the
          Company in exchange for legal and professional services rendered and to
          be
          rendered.
 
 On
          November 8, 2004 the Company issued 157,788 shares of common stock of the
          Company in exchange for consulting services rendered.
 
 On
          January 3, 2005 the Company issued 100,000 shares of common stock with
          a par
          value of $.001 for $300 cash.
 
 On
          April
          6, 2005 the Company issued 67,710 shares of common stock of the Company
          in
          exchange for consulting services rendered.
 
 On
          April
          20, 2005, the Company completed an offering of 1,800,000 units at a price
          of
          $0.50 per unit. Each unit consists of one share of common stock par value
          $.001
          and one warrant to purchase one share of common stock, exercisable for
          two years
          closing of the offering. The total amount the Company received was 900,000.
          As
          of June 30, 2005, only 1,108,101 shares have been issued.
 
 On
          April
          17, 2005, the Company issued 1,465,000 shares of common stock of the Company
          in
          exchange for a management-consulting contract. The contract is for a period
          of
          five years and is estimated to be worth $35,000 a year, totaling
          $175,000.
  
 F_19
 Table
              of Contents
 AXIAL VECTOR ENGINE CORPORATION AND SUBSIDIARY
 (FORMERLY AERO MARINE ENGINE, INC.)
 (A DEVELOPMENT STAGE ENTERPRISE)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            (CONTINUED)
 JUNE 30, 2005 AND 2004
 **NOTE
          10-**  **STOCKHOLDERS'
          EQUITY (DEFICIT)** **(CONTINUED)**
 
 On
          April
          15, 2005, the Company issued 600,000 shares of common stock of the Company
          in
          exchange for consulting services rendered.
 
 On
          April
          15, 2005, the Company issued 20,000 shares of common stock of the Company
          as
          part of a previous agreement for consulting services rendered.
 
 In
          June
          2005, the Company issued 129,061 shares of common stock of the Company
          for legal
          services.
 
 During
          the year, the Company cancelled 860,000 of founder shares, which had been
          restated back to the period ended June 30, 2003.
 
 The
          Company, at June 30, 2005, has 100,000,000 shares of preferred stock authorized
          and no shares issued and outstanding.
 
 **Stock
          Option Plan and Warrants**
 
 In
          April
          2005, the Company’s Board of Directors established the *Axial
          Vecor Engine Corporation* 2005
          Stock Option Plan. The Board authorized up to 4,244,874 common shares
          (post-split) to be authorized and issued to officers, directors and employees.
 
 The
          Company granted post-split options totaling 3,000,000 shares of which 39,061
          options were exercised as cashless options resulting in 39,061 shares of
          stock.
          All of these options were granted to officers and key members of the management
          team of the Company.
 
 Under
          the
          Black-Scholes option pricing model, the total value of the stock options
          granted
          in 2005 is reflected for pro forma presentation due to the Company following
          APB
          25 for the expensing of its stock options. SFAS No. 123, “ *Accounting
          for Stock-Based Compensation* ”,
          encourages adoption of a fair-value-based method for valuing the cost of
          stock-based compensation. However, it allows companies to continue to use
          the
          intrinsic-value method for options granted to employees and disclose pro
          forma
          net loss.
 
 
 
 F-20
 Table
              of Contents
 AXIAL VECTOR ENGINE CORPORATION AND SUBSIDIARY
 (FORMERLY AERO MARINE ENGINE, INC.)
 (A DEVELOPMENT STAGE ENTERPRISE)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            (CONTINUED)
 JUNE 30, 2005 AND 2004
 **NOTE
          10-**  **STOCKHOLDERS'
          EQUITY (DEFICIT)** **(CONTINUED)**
 
 **Stock
          Option Plan and Warrants** **(Continued)**
 
 The
          following tables summarize the activity of the Company's stock option
          plan:
 
 
 **Year
                        Ended**
                      **June
                        30, 2005****Number
                      of**
                    **Options**
                  
                  **Weighted**
                    **average**
                    **exercise**
                    **price**Outstanding,
                    beginning of period
                  -
                  
                  -Granted
                    below fair value
                  3,000,000
                  
                  1.53Granted
                    at fair value
                  -
                  
                  -Exercised
                  39,061
                  
                  (1.53)Outstanding
                    - end of period
                  2,960,939
                  
                  1.53Exercisable
                    at end of period:
                  2,960,939
                  
                  1.53
  **Year
                        Ended**
                      **June
                        30, 2004****Number
                      of**
                    **Options**
                  
                  **Weighted**
                    **average**
                    **exercise**
                    **price**Outstanding,
                      beginning of period
                  -
                  
                  $                     
                        -Granted
                      below fair value
                  -
                  
                  -Granted
                      at fair value
                  -
                  
                  -Cancelled
                  -
                  
                  -Outstanding
                      - end of period
                  -
                  
                  $                                
                      -Exercisable
                      at end of period:
                  -
                  
                  $                                  -
  F-21
 Table
              of Contents
 AXIAL VECTOR ENGINE CORPORATION AND SUBSIDIARY
 (FORMERLY AERO MARINE ENGINE, INC.)
 (A DEVELOPMENT STAGE ENTERPRISE)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            (CONTINUED)
 JUNE 30, 2005 AND 2004
 **NOTE
          10-**  **STOCKHOLDERS'
          EQUITY (DEFICIT)** **(CONTINUED)**
 
 **Stock
          Option Plan and Warrants** **(Continued)**
 
 For
          disclosure purposes, the fair value of each stock option granted is estimated
          on
          the date of grant using the Black-Scholes option-pricing model, which
          approximates fair value, with the following weighted-average assumptions
          used
          for stock options granted in 2005 and 2004; no annual dividends, volatility
          of
          100%, risk-free interest rate of 5.50%, and expected life of five
          years.
 
 The
          stock
          options vest over a period of five years upon the granting pursuant to
          the
          employees respective employment agreements. The Company anticipates that
          the
          remaining options available are expected to be held until they are fully
          vested.
          For 2005 and 2004, the average years remaining on the options was 5 years
          and 0
          years, respectively. These represent the weighted average contractual life
          of
          the options. If compensation expense for the Company's stock-based compensation
          plans had been determined consistent with SFAS 123, the Company's net income
          and
          net income per share including pro forma results would have been the amounts
          indicated below:
 
  Net
                  loss:As
                    reported
                
                (11,455,616)
                
                
                (5,294,630)Less:
                    Compensation expense recognized
                
                (1,080,000)
                
                
                -Total
                    stock-based employee compensation
                  expense
                    determined under fair value based
                  method
                    for all awards, net of related tax effects
                
                2,255,908
                
                
                -Pro
                    forma
                $
                (10,279,708)
                
                $
                -Net
                  loss per share:As
                    reported:Basic
                
                0
                
                
                13.27Diluted
                
                0
                
                
                13.27Pro
                    forma:Basic
                
                0
                
                
                13.27Diluted
                
                0
                
                
                13.27
  
 
 F-22
 Table
              of Contents
 AXIAL VECTOR ENGINE CORPORATION AND SUBSIDIARY
 (FORMERLY AERO MARINE ENGINE, INC.)
 (A DEVELOPMENT STAGE ENTERPRISE)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            (CONTINUED)
 JUNE 30, 2005 AND 2004
 **NOTE
          10-**  **STOCKHOLDERS'
          EQUITY (DEFICIT)** **(CONTINUED)**
 
 **Stock
          Option Plan and Warrants** **(Continued)**
 
 The
          Company issued 1 and 0 warrants as of June 30, 2005 and 2004. These warrants
          were issued in connection with the equity financing the Company entered
          into in
          April 2005. The warrant has not been exercised as of June 30, 2005.
 
 
 The
          fair
          value of this warrant was estimated using the Black-Scholes pricing model
          with
          the following assumptions: interest rate 5.5%, dividend yield 0%, volatility
          100% and expected life of two years.
 
 The
          Company has the following warrants exercisable for the purchase of its
          common
          stock. All warrants and prices are reflected retroactive to the stock
          split:
 
 **Price**
                
                **Expiration
                    Date**
                
                **2005**
                
                **2004**$    4.00
                
                April
                    25, 2005
                
                2,000,000
                
                -$    3.00
                
                April
                    20, 2007
                
                1,800,000
                
                -
  In
          addition, all of these warrants are outstanding as of June 30, 2005, and
          the
          warrant to date has not been exercised.
 
 **NOTE
          11-**  **GOING
          CONCERN UNCERTAINTY**
 
 As
          shown
          in the accompanying financial statements, as is typical of companies going
          through the development stage, the Company incurred net losses for the
          years
          ended June 30, 2005 and 2004, and since inception. The Company is currently
          in
          the development stage, and there is no guarantee whether the Company will
          be
          able to generate enough revenue and/or raise capital to support current
          operations and generate anticipated sales. This raises substantial doubt
          about
          the Company’s ability to continue as a going concern.
 
 Management
          believes that the Company’s capital requirements will depend on many factors
          including the success of the Company’s product development efforts.
 
 The
          financial statements do not include any adjustments that might result from
          the
          outcome of these uncertainties.
 
 F-23
 Table
              of Contents
  **NOTE
          12-**  **COMMITEMENTS
          AND
          CONTINGENCIES**
 
 The
          Company is a party to a lawsuit involving a past due claim. This amount
          has been
          included in its accounts payable at June 30, 2005, and the Company plans
          on
          making full payment on the outstanding liability.
 
 On
          August
          24 2004 the Company entered into a Joint Venture Agreement with Adaptive
          Propulsion Systems, LLC (“Adaptive”), a wholly owned subsidiary of Tactronics.
          Adaptive will provide 100% of the capital and labor to build military grade
          engines based on the Registrant’s Dyna-Cam engine design. Adaptive will pay the
          Company a 20% gross royalty on all orders of the engines sold to the United
          States Government. The Company will have the rest of the world military
          market
          and all civilian commercial applications, and the Company will pay a five
          (5%)
          percent royalty on such orders to Adaptive.
 
 In
          May
          2005, the Company filed suit against Transporter, Inc and its principals,
          David
          Werner and Craig Della Penna. The suit seeks to rescind the August 2004
          agreement under which the Company acquired the exclusive rights to certain
          video-conferencing technology. The Company contends that the principals
          intentionally misrepresented the status and capabilities of the technology
          that
          was acquired under the original agreement. The case is pending litigation.
          The
          Company has determined that the technology is worthless, and thus has impaired
          the asset in its entirety as of June 30, 2005.





F-24
 Table
          of Contents





**Item
      8:****Changes
      In and Disagreements with Accountants on Accounting and Financial**


**Disclosure**





No
      events
      occurred requiring disclosure under Item 304(b) of Regulation S-B.





**Item
      8A:****Controls
      and Procedures**





We
      carried out an evaluation of the effectiveness of the design and operation
      of
      our disclosure controls and procedures (as defined in Exchange Act Rules
      13a-15(e) and 15d-15(e)) as of June 30, 2005. This evaluation was carried out
      under the supervision and with the participation of our Chief Executive Officer
      and Chief Financial Officer, Dr. Raymond Brouzes. Based upon that evaluation,
      our Chief Executive Officer and Chief Financial Officer concluded that our
      disclosure controls and procedures are effective. There have been no significant
      changes in our internal controls or in other factors, which could significantly
      affect internal controls subsequent to the date we carried out our
      evaluation.





Disclosure
      controls and procedures are controls and other procedures that are designed
      to
      ensure that information required to be disclosed in our reports filed or
      submitted under the Exchange Act are recorded, processed, summarized and
      reported, within the time periods specified in the Securities and Exchange
      Commission's rules and forms. Disclosure controls and procedures include,
      without limitation, controls and procedures designed to ensure that information
      required to be disclosed in our reports filed under the Exchange Act are
      accumulated and communicated to management, including our Chief Executive
      Officer and Chief Financial Officer, to allow timely decisions regarding
      required disclosure.





Limitations
      on the Effectiveness of Internal Controls





Our
      management does not expect that our disclosure controls and procedures or our
      internal control over financial reporting will necessarily prevent all fraud
      and
      material error. An internal control system, no matter how well conceived and
      operated, can provide only reasonable, not absolute, assurance that the
      objectives of the control system are met. Further, the design of a control
      system must reflect the fact that there are resource constraints, and the
      benefits of controls must be considered relative to their costs. Because of
      the
      inherent limitations in all control systems, no evaluation of controls can
      provide absolute assurance that all control issues and instances of fraud,
      if
      any, within the 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. Additionally, controls
      can be circumvented by the individual acts of some persons, by collusion of
      two
      or more people, or by management override of the internal control. The design
      of
      any system of controls also is based in part upon certain assumptions about
      the
      likelihood of future events, and there can be no assurance that any design
      will
      succeed in achieving its stated goals under all potential future conditions.
      Over time, control may become inadequate because of changes in conditions,
      or
      the degree of compliance with the policies or procedures may deteriorate.








18
 Table
          of Contents





**Item
      8B:****Other
      information**





None.





**PART
      III**





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





The
      following information sets forth the names of our current directors and
      executive officers, their ages and their present positions with the Company.





Name
            Age
            Office(s)
                HeldDr.
                Raymond Brouzes
            63
            Chief
                Executive Officer, Chief Financial Officer, &
                DirectorSamuel
                Higgins
            50
            DirectorBenjamin
                Langford
            55
            Director





Set
      forth
      below is a brief description of the background and business experience of each
      of our current executive officers and directors.





**Dr.
      Raymond Brouzes** is
      our
      president, chief executive officer and has been one of our directors since
      January 2005. Dr. Brouzes was invited in 1996 by the National Science and
      Technology Board of Singapore to create an environmental institute that would
      be
      one of the ten institutes funded by the government to spearhead that nation’s
      highly successful knowledge based economy. His appointed was based on a number
      of factors including his successful Canadian experience as Director General
      of
      the Technology Development Branch of Environment Canada; as Corporate Director
      for Environmental Affairs with Alcan Aluminium for 10 years and as a senior
      partner in a venture capital fund. In 2001 following his five year appointment
      in Singapore, Dr. Brouzes accepted the Presidency of Ultrasound Fluid
      Technologies, L.L.C. a Texas based start-up firm specialized in ultrasound
      for
      cost-effective separation (desalination) of salt from seawater to produce
      potable water. From May 2004 to August 2005, Dr. Brouzes served as President
      at
      Trans Max Industries, Inc., a reporting company that specializes in water
      production technology and intelligent plasma ignition management
      systems.





**Samuel
      Higgins** is
      one of
      our Directors since January 2005. Since 1995, Mr. Higgins has served as Senior
      Managing Director of IEP, International Equity Partners a private equity firm
      with offices in Mexico, India and the United Arab Emirates. Mr. Higgins also
      is
      a director of Trans Max Technologies, Inc. and Magellan Industries, Inc., both
      reporting companies.





**Benjamin
      Langford** is
      one of
      our Directors.  Benjamin Langford was formerly our President and resigned
      from this position on January 6, 2005. Mr. Langford was employed from 1999
      to
      2000 at Jefferson Smurfit Corporation in their Oregon City Division in the
      Production Department.  In 2000 until present, Mr. Langford has been
      President and sole owner of Langford Unlimited, as a business
      consultant.





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**Term
      of Office**





Our
      directors are appointed for a one-year term to hold office until the next annual
      meeting of our shareholders or until removed from office in accordance with
      our
      bylaws.





Our
      executive officers are appointed by our board of directors and hold office
      until
      removed by the board.





**Family
      Relationships**





Other
      than the relationships set forth below, there are no family relationships
      between or among the directors, executive officers or persons nominated or
      chosen by the Company to become directors or executive officers.





Benjamin
      Langford is the brother-in-law of Samuel Higgins.





**Involvement
      in Certain Legal Proceedings**





To
      the
      best knowledge of the Company, during the past five years, none of the following
      occurred with respect to a present or former director or executive officer:
      (1)
      any bankruptcy petition filed by or against any business of which such person
      was a general partner or executive officer either at the time of the bankruptcy
      or within two years prior to that time; (2) any conviction in a criminal
      proceeding or being subject to a pending criminal proceeding (excluding traffic
      violations and other minor offenses); (3) being subject to any order, judgment
      or decree, not subsequently reversed, suspended or vacated, of any court of
      any
      competent jurisdiction, permanently or temporarily enjoining, barring,
      suspending or otherwise limiting his involvement in any type of business,
      securities or banking activities; and (4) being found by a court of competent
      jurisdiction (in a civil action), the SEC or the Commodities Futures Trading
      Commission to have violated a federal or state securities or commodities law,
      and the judgment has not been reversed, suspended or vacated.





**Audit
      Committee**





The
      Company does not have a designated standing audit committee.





**Section
      16(a) Beneficial Ownership Reporting Compliance**





Section
      16(a) of the Exchange Act requires the Company’s directors and executive
      officers and persons who beneficially own more than ten percent of a registered
      class of the Company’s equity securities to file with the SEC initial reports of
      ownership and reports of change s
      in
      ownership of common stock and other equity securities of the Company. Officers,
      directors and greater than ten percent beneficial shareholders are required
      by
      SEC regulations to furnish the Company with copies of all Section 16(a) forms
      they file. To the best of our knowledge based solely on a review of Forms 3,
      4,
      and 5 (and any amendments thereof) received by the Company during or with
      respect to the year ended December 31, 2004, the following persons have failed
      to file, on a timely basis, the identified reports required by Section 16(a)
      of
      the Exchange Act during fiscal year ended June 30,





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2005:





Name
                and principal position
            Number
                of late reports
            Transactions
                not timely reported
            Known
                failures to file a required formDr.
                Raymond Brouzes, CEO & President
            1
            1
            1Samuel
                J. Higgins, Director
            4
            19
            4Benjamin
                Langford, Director
            0
            0
            0





**Code
      of Ethics Disclosure**





As
      of
      June 30, 2005, we have not adopted a Code of Ethics for Financial Executives,
      which include our principal executive officer, principal financial officer,
      principal accounting officer or controller, or persons performing similar
      functions, as required for listed issuers by sections 406 and 407 of the
      Sarbanes-Oxley Act of 2002.





We
      have
      begun the process of drafting a code of ethics which will be filed with the
      Securities and Exchange Commission upon its adoption by the board of directors.





**Item
      10:****Executive
      Compensation**





The
      table
      below summarizes all compensation awarded to, earned by, or paid to our current
      executive officers for each of the last three completed fiscal
      years.





Annual
                Compensation
            Long
                Term CompensationName
            Title
            Year
            Salary
              ($)
            Bonus
              ($)
            Other
                AnnualCompensation
              ($)
            Restricted
                Stock
              Awarded
              ($)
            Options/
              SARs
              (#)
            LTIP
              Payouts
              ($)
            All
                Other
              Compensation
              ($)Dr.Raymond
                Brouzes
            President,
                CEO and Director
            2005
              2004
              2003
            62,500
              n/a
              n/a
            0
              n/a
              n/a
            0
              n/a
              n/a
            1,200,000(1)
              n/a
              n/a
            1,000,000
              n/a
              n/a
            0
              n/a
              n/a
            0
              n/a
              n/aBenjamin
                Langford
            Former
                President and Director
            2005
              2004
              2003
            8,545
              2,000
              n/a
            0
              0
              n/a
            0
              0
              n/a
            0
              n/a
            0
              n/a
            0
              n/a
            0
              n/aDonald
                Whitehead
            Former
              Secretary
                and Director
            2005
              2004
              2003
            0
              500
              n/a
            0
              0
              n/a
            0
              0
              n/a
            0
              0
              n/a
            0
              0
              n/a
            0
              0
              n/a
            0
              0
              n/aJeffrey
                Floyd
            Former
              Treasurer
            2005
              2004
              2003
            0
              500
              n/a
            0
              0
              n/a
            0
              0
              n/a
            0
              0
              n/a
            0
              0
              n/a
            0
              0
              n/a
            0
              0
              n/a




(1)
            The
                dollar value was calculated by multiplying the closing market price
                of
                $2.00 on April 15, 2005, the date of the grant, by the 600,000 shares
                of
                restricted common stock awarded.




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(2)****
            The
                aggregate number of restricted stock holdings held by Dr. Raymond
                Brouzes
                as of the fiscal year ended June 30, 2005 was 600,000 shares of restricted
                common stock and the value was $2,028,000. This dollar value was
                calculated by multiplying the closing market price of $3.38 on June
                30,
                2005, the date of the last completed fiscal year, by the aggregate
                number
                restricted stock holdings as of the fiscal year ended June 30, 2005.





**Stock
      Option Grants**





The
      table
      set forth below summarizes the issuance of stock option grants to our executive
      officers and directors during the year ended June 30, 2005. We have not granted
      any stock options to our executive officers or employees since June 30,
      2005.





Name
            Number
                of Securities Underlying Options/SARs
              granted
                (#)
            Percent
                of total
              options/SARs
                granted
              to
                employees in fiscal
              year
            Exercise
                or
              base
                price
              ($/Sh)
            Expiration
              dateDr.
                Raymond Brouzes
            1,000,000
            33.3%
            $1.52
            April
                14, 2010Samuel
                Higgins
            1,000,000
            33.3%
            $1.52
            April
                14, 2010





**Compensation
      to Directors**





The
      Company currently compensate Mr. Higgins $5,000 on a monthly basis for his
      service as a member of the board of directors. Other than the compensation
      paid
      to Mr. Higgins, our directors are not compensated for serving on its board
      of
      directors.








22
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**Item
      11:****Security
      Ownership of Certain Beneficial Owners and Management and** **Related**  **Stockholder
      Matters**





The
      following table sets forth the beneficial ownership of our common stock by
      each
      executive officer and director, by each person known by us to beneficially
      own
      more than 5% of the our common stock and by the executive officers and directors
      as a group. Except as otherwise indicated, all shares are owned directly and
      the
      percentage shown is based on 34,653,780 shares of common stock issued and
      outstanding on September 7, 2005.





**Title
                of class**
            **Name
                and address**
              **of
                beneficial owner****(1)**
            **Amount
                of**
              **beneficial
                ownership**
            **Percent**
              **of
                class*****Current
                Executive Officers & Directors:**Common
            Dr.
                Raymond Brouzes
              One
                World Trade Center
              121
                S.W. Salmon Street, Suite 1100
              Portland,
                Oregon 97204
            1,500,000
                shares
            7.2%(2)Common
            Samuel
                J. Higgins
              One
                World Trade Center
              121
                S.W. Salmon Street, Suite 1100
              Portland,
                Oregon 97204
            18,109,690
                shares(3)
            55.1%(4)Common
            Benjamin
                Langford
              One
                World Trade Center
              121
                S.W. Salmon Street, Suite 1100
              Portland,
                Oregon 97204
            0
                shares
            0%**Total
                of All Current Directors and Officer:**
            19,609,690
                shares
            62.3%








(1)
            As
                used in this table, "beneficial ownership" means the sole or shared
                power
                to vote, or to direct the voting of, a security, or the sole or shared
                investment power with respect to a security (i.e., the power to dispose
                of, or to direct the disposition of, a security). In addition, for
                purposes of this table, a person is deemed, as of any date, to have
                "beneficial ownership" of any security that such person has the right
                to
                acquire within 60 days after such
                date.





(2)
            Included
                in the calculation of beneficial ownership for Dr. Brouzes are options
                which are exercisable within 60 days to purchase 1,000,000 shares
                of
                common stock. These options are immediately exercisable at the price
                of
                $1.52 per share and expire on April 14,
                2010.





(3)
            Mr.
                Higgins has an indirect beneficial ownership in 15,859,690 shares
                held by
                International Equity Partners S.A. Mr. Higgins has an indirect beneficial
                ownership in 1,000,000 shares held by Higgins Irrevocable Trust with
                his
                spouse as trustee. Mr. Higgins has an indirect beneficial ownership
                in
                1,000,000 shares held by HJS Family Trust for the benefit of Mr.
                Higgins’
                sons. Mr. Higgins has an indirect beneficial ownership as trustee
                in
                250,000 shares held by Bessie Family Trust.  In accordance
                with Rule
                13d-4 of the Exchange Act, Mr. Higgins disclaims beneficial ownership
                in
                these shares.





(4)
            Included
                in the calculation of beneficial ownership for Mr. Higgins are options
                which are exercisable within 60 days to purchase 1,000,000 shares
                of
                common stock. These options are immediately exercisable at the price
                of
                $1.52 per share and expire on April 14,
                2010.








23
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**Item
      12:****Certain
      Relationships and Related Transactions**





Except
      as
      disclosed below, none of our directors or executive officers, nor any proposed
      nominee for election as a director, nor any person who beneficially owns,
      directly or indirectly, shares carrying more than 5% of the voting rights
      attached to all of our outstanding shares, nor any members of the immediate
      family (including spouse, parents, children, siblings, and in-laws) of any
      of
      the foregoing persons has any material interest, direct or indirect, in any
      transaction over the last two years or in any presently proposed transaction
      which, in either case, has or will materially affect us.





On
      July
      1, 2004, Financial Investors, Inc. acquired 6,333,784 shares of our common
      stock, Eastern Business Associates, Inc. acquired 6,333,784 shares of the our
      common stock, and the Balboa Group acquired 19,001,352 shares of the our common
      stock. Samuel J. Higgins, one of our directors, is a director each of the
      companies set forth above.





On
      August
      24, 2004, International Equity Partners, S.A. entered into an agreement with
      Transporter, Inc. and acquired the rights to certain technologies. Also on
      August 24, 2004, International Equity Partners, S.A. assigned to us all its
      rights, title, and interest in the agreement entered into with Transporter,
      Inc.
      in exchange for 25,000,000 shares of the our common stock. International Equity
      Partners, S.A. is an entity controlled by Samuel J. Higgins, one of our
      directors.





At
      December 31, 2004, we owed Trans Max Technologies, Inc. (“Trans Max”) $314,339
      for advances made in relocating this company to Ronkonkoma, New York and funding
      their payroll. Our Chief Executive Officer, Raymond Brouzes previously served
      as
      the Chief Executive Officer of Trans Max., but at the time of this advance
      Dr.
      Brouzes was not the Chief Executive Officer of either Aero Marine Engine, Inc.
      or Trans Max.




On
      May 18, 2005, we received $600,000 from Samuel J.
      Higgins, a member of our board of directors, on demand together with interest
      of
      5% per annum.  The total amount of this loan was later increased to
      $1,246,000.




**Item
      13:****Exhibits**





Exhibit
                Number
            Description10.1
            Joint
                Venture Agreement with Adaptive Propulsion Systems, LLC110.2
            Addendum
                to Joint Venture Agreement with Adaptive
                Propulsion Systems, LLC10.3
            Contract
                for Production of Generators with Adaptive Propulsion Systems, LLC110.4
            Exclusive
                Purchase Agreement210.5
            Memorandum
                of Understanding with Kirloskar Oil Engines
                Limited31.1
            Certification
                of Chief Executive Officer pursuant to
                Securities Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant
                to
                Section 302 of the Sarbanes-Oxley Act of 200231.2
            Certification
                of Chief Financial Officer pursuant to
                Securities Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant
                to
                Section 302 of the Sarbanes-Oxley Act of 200232.1
            Certification
                of Chief Executive Officer and Chief
                Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
                pursuant
                to Section 906 of the Sarbanes-Oxley Act of
                2002






24
 Table
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1
            Previously
                filed as an exhibit to the quarterly report on Form 10-QSB for the
                period
                ended March 31, 2005 and filed with the Securities and Exchange Commission
                on May 24, 2005


2
            Previously
                filed as an exhibit to a current report on Form 8-K filed with the
                Securities and Exchange Commission on September 2,
                2004





**Item
      14:****Principal
      Accountant Fees and Services**





**Audit
      Fees**





The
      aggregate fees billed by our auditors for professional services rendered in
      connection with a review of the financial statements included in our quarterly
      reports on Form 10-QSB and the audit of our annual financial statements for
      the
      fiscal years ended June 30, 2004 and 2005 were approximately $9,000 and $19,000
      respectively.





**Audit-Related
      Fees**





Our
      auditors did not bill any additional fees for assurance and related services
      that are reasonably related to the performance of the audit or review of our
      financial statements.




**Tax
      Fees**





The
      aggregate fees billed by our auditors for professional services for tax
      compliance, tax advice, and tax planning were $0 and $0 for the fiscal years
      ended June 30, 2004 and 2005.





**All
      Other Fees**





The
      aggregate fees billed by our auditors
      for all services other than those set forth above, such as attending meetings
      and other miscellaneous financial consulting, for the fiscal years ended June
      30, 2004 and 2005 were $0 and $0 respectively.











25
 Table
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**SIGNATURES**





In
      accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
      this report to be signed on its behalf by the undersigned, thereunto duly
      authorized.








**Axial
        Vector Engine Corporation**
 
 By:  /s/
        Dr.
        Raymond Brouzes
 _________________________
 Dr.
        Raymond Brouzes
 Chief
        Executive Officer,
 Chief
        Financial Officer and Director
 
 October
        13, 2005
 
 In
        accordance with the requirements of the Securities Act of 1933, this
        registration statement was signed by the following persons in the capacities
        and
        on the date stated:
 
 /s/
        Samuel
        Higgins    /s/
        Benjamin
        Langford
 By:___________________________
              By:___________________________Samuel
                  HigginsDirectorOctober 13, 2005
              Benjamin
                  LangfordDirectorOctober
                  13, 2005