**UNITED      STATES**

**SECURITIES      AND EXCHANGE COMMISSION**

**FORM      10-QSB**

| [X]                | Quarterly                Report pursuant to Section 13 or 15(d) of the Securities Exchange                Act of                1934 |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------|
|               |                                                                                                                                 |
|               | For                the quarterly period ended **September                30, 2006**                                                  |
|               |                                                                                                                                 |
| [                ] | Transition                Report pursuant to 13 or 15(d) of the Securities Exchange Act of                1934                       |
|               |                                                                                                                                 |
|               | For                the transition period __________                 to __________                                          |
|               |                                                                                                                                 |
|               | Commission                File Number: **000-49698**                                                                            |

**Axial      Vector Engine Corporation**

| **Nevada**                                                                    | **20-3362479**                                   |
|-------------------------------------------------------------------------------|--------------------------------------------------|
| (State                or other jurisdiction of incorporation or organization) | (IRS                Employer Identification No.) |

| **One                World Trade Center****121                S.W. Salmon Street, Portland, Oregon 97204** |
|------------------------------------------------------------------------------------------------------------|
| (Address                of principal executive offices)                                                    |

| **503-471-1348**                                                                                                 |
|------------------------------------------------------------------------------------------------------------------|
| (Issuer’s                telephone number)                                                                 |
|  _______________________________________________________________                                            |
| (Former                name, former address and former fiscal year, if changed since last                report) |

**[X]      Yes [ ] No**

**[      ] Yes [X] No**

**36,094,096      common shares as of September 29, 2006.**

**Yes      [ ] No [X]**

----

|                                                          | **TABLE                OF CONTENTS**                                                      |   Page |
|---------------------------------------------------------------|-------------------------------------------------------------------------------------------|------------------|
|  **PART                I - FINANCIAL INFORMATION**  |
| Item                1.                                        | Financial                Statements                                                       | 3                |
| Item                2.                                        | Plan                of Operation                                                          | 4                |
| Item                3.                                        | Controls                and Procedures                                                    | 16               |
|  **PART                II - OTHER INFORMATION**     |
| Item                1.                                        | Legal                Proceedings                                                          | 18               |
| Item                2.                                        | Unregistered                Sales of Equity Securities and Use of                Proceeds | 18               |
| Item                3.                                        | Defaults                Upon Senior Securities                                            | 19               |
| Item                4.                                        | Submission                of Matters to a Vote of Security                Holders         | 19               |
| Item                5.                                        | Other                Information                                                          | 19               |
| Item                6.                                        | Exhibits                                                                                  | 19               |

----

**PART      I - FINANCIAL INFORMATION**

**Item      1.** **     Financial      Statements**

| Our                unaudited consolidated                financial statements included in this Form 10-QSB are as                follows: |
|-------------------------------------------------------------------------------------------------------------------------------------------|
|  F-1                                                                                                                                 |  Consolidated                Balance Sheet as of September 30, 2006 (Unaudited)                and September 30, 2005 (Restated); |
|  F-2                                                                                                                                 |  Consolidated                Statements                of Operations for the three months ended September 30, 2006 and 2005                (Restated) with Cumulative Totals Since Inception (Unaudited); |
|  F-3                                                                                                                                 |  Consolidated                Statement of Changes in Stockholders’ Equity for                the three months ended September 30, 2006; |
|  F-4                                                                                                                                 |  Consolidated                Statements of Cash Flows for the three months                ended September 30, 2006 and 2005 (Restated) with Cumulative Totals                Since                Inception (Unaudited); and |
|  F-5                                                                                                                                 |  Notes                to Consolidated Financial                Statements. |

----

**AXIAL      VECTOR ENGINE CORPORATION AND SUBSIDIARY **

**(FORMERLY      AERO MARINE ENGINE, INC.) **

**(A      DEVELOPMENT STAGE COMPANY) **

**CONSOLIDATED      BALANCE SHEETS **

**SEPTEMBER      30, 2006 AND 2005 (Restated)**

**(Unaudited)      **

|                                                                                                                                                                                                   | **September****30,                  2006** |         |                    **September****30,                  2005****(Restated)****Note                  2** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------|--------------|-------------------------------------------------------------------------------------------------------------|
| **ASSETS**                                                                                                                                                                                             |                                       |         |                                                                                                   |
| Current                  Assets:                                                                                                                                                                       |                                       |         |                                                                                                        |   |   |
| Cash                  and cash equivalents                                                                                                                                                             | $                                          | 291,859      |                                                                                                        | $ | 162,015 |
| Deposit                                                                                                                                                                                                |                                       | 22,670       |                                                                                                        |   | 22,670 |
| Subscription                  receivable                                                                                                                                                               |                                       | 53,000       |                                                                                                        |   | - |
| Prepaid                  expenses                                                                                                                                                                      |                                       | 15,000       |                                                                                                        |   | 22,330 |
|                                                                                                                                                                                                   |                                       |         |                                                                                                        |   |   |
| Total                  Current Assets                                                                                                                                                                  |                                       | 382,529      |                                                                                                        |   | 207,015 |
|                                                                                                                                                                                                   |                                       |         |                                                                                                        |   |   |
| Property                  and equipment, net (Note 5)                                                                                                                                                  |                                       | 72,537       |                                                                                                        |   | 39,161 |
|                                                                                                                                                                                                   |                                       |         |                                                                                                        |   |   |
| Due                  from shareholder (Note 13)                                                                                                                                                        |                                       | 10,000       |                                                                                                        |   |  |
|                                                                                                                                                                                                   |                                       |              |                                                                                                        |   |  |
| Intangible                  assets- patents, net (Note 6)                                                                                                                                              |                                       | 243,324      |                                                                                                        |   | 217,544 |
|                                                                                                                                                                                                   |                                       |              |                                                                                                        |   |  |
| **TOTAL                  ASSETS**                                                                                                                                                                      | $                                          | 708,390      |                                                                                                        | $ | 463,720 |
|                                                                                                                                                                                                   |                                       |         |                                                                                                        |   |  |
| **LIABILITIES                  AND STOCKHOLDERS' DEFICIT**                                                                                                                                             |                                       |         |                                                                                                        |   |   |
|                                                                                                                                                                                                   |                                       |         |                                                                                                        |   |   |
| **LIABILITIES**                                                                                                                                                                                        |                                       |         |                                                                                                        |   |   |
| Current                  Liabilities:                                                                                                                                                                  |                                       |         |                                                                                                        |   |   |
| Accounts                  payable and accrued expenses                                                                                                                                                 | $                                          | 594,828      |                                                                                                        | $ | 104,866 |
| Payroll                  tax liabilities                                                                                                                                                               |                                       | 26,971       |                                                                                                        |   | - |
| Current                  portion of note payable (Note 6)                                                                                                                                              |                                       | 1,245,000    |                                                                                                        |   | 995,000 |
| Contingent                  share-based payment (Note 7)                                                                                                                                               |                                       | -            |                                                                                                        |   | - |
| Liability                  for stock to be issued (Note 8)                                                                                                                                             |                                       | 393,326      |                                                                                                        |   | 695,362 |
| Share-based                  fee liability- warrants (Note 9)                                                                                                                                          |                                       | 2,084,884    |                                                                                                        |   | 6,504,250 |
| Share-based                  fee liability- options (Note 10)                                                                                                                                          |                                       | 2,856,220    |                                                                                                        |   | 3,559,128 |
| Share-based                  compensation liability- options (Note 11)                                                                                                                                 |                                       | 5,615,400    |                                                                                                        |   | 8,762,780 |
| Accrued                  interest - shareholder loan (Note 13)                                                                                                                                         |                                       | 77,297       |                                                                                                        |   | 42,171 |
| Due                  to related company (Note 12)                                                                                                                                                      |                                       | 301,339      |                                                                                                        |   | 301,339 |
|                                                                                                                                                                                                   |                                       |         |                                                                                                        |   |   |
| Total                  Current Liabilities                                                                                                                                                             |                                       | 13,195,265   |                                                                                                        |   | 20,964,896 |
|                                                                                                                                                                                                   |                                       |         |                                                                                                        |   |   |
| Due                  to shareholder (Note 13)                                                                                                                                                          |                                       | 917,030      |                                                                                                        |   | 387,683 |
|                                                                                                                                                                                                   |                                       |         |                                                                                                        |   |   |
| **Total                  Liabilities**                                                                                                                                                                 |                                       | 14,112,295   |                                                                                                        |   | 21,352,579 |
|                                                                                                                                                                                                   |                                       |         |                                                                                                        |   |   |
| **STOCKHOLDERS'                  DEFICIT**                                                                                                                                                             |                                       |         |                                                                                                        |   |   |
| Preferred                    stock, $.001 par value; 100,000,000 shares authorized no                  shares issued and outstanding                                                                   |                                       | -            |                                                                                                        |   | - |
| Common                    stock, $.001 par value; 100,000,000 shares authorized                    36,094,096 and 34,657,010 shares issued and outstanding                  (Note                  14) |                                       | 36,094       |                                                                                                        |   | 34,657 |
| Additional                  paid-in capital                                                                                                                                                            |                                       | 23,239,905   |                                                                                                        |   | 21,998,233 |
| Prepaid                  share-based fees (Note 15)                                                                                                                                                    |                                       | (2,306,950)  |                                                                                                        |   | (2,900,702) |
| Prepaid                  share-based compensation (Note 15)                                                                                                                                            |                                       | (352,625)    |                                                                                                        |   | (1,003,625) |
| Beneficial                  reduction of share-based liability (Note 16)                                                                                                                               |                                       | 13,528,016   |                                                                                                        |   | - |
| Deficit                  accumulated during the development stage                                                                                                                                      |                                       | (47,548,345) |                                                                                                        |   | (39,017,422) |
|                                                                                                                                                                                                   |                                       |         |                                                                                                        |   |   |
| **Total                  Stockholders' Deficit**                                                                                                                                                       |                                       | (13,403,905) |                                                                                                        |   | (20,888,859) |
|                                                                                                                                                                                                   |                                       |         |                                                                                                        |   |   |
| **TOTAL                  LIABILITIES AND STOCKHOLDERS' DEFICIT**                                                                                                                                       | $                                          | 708,390      |                                                                                                        | $ | 463,720 |

----

**AXIAL      VECTOR ENGINE CORPORATION AND SUBSIDIARY**

**(FORMERLY      AERO MARINE ENGINE, INC.) **

**(A      DEVELOPMENT STAGE COMPANY) **

**CONSOLIDATED      STATEMENTS OF OPERATIONS **

**FOR      THE THREE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005 (Restated)**

**(WITH      CUMULATIVE TOTALS SINCE INCEPTION)**

**(Unaudited)**

|                                                                          |  **For                  the Three****Months                  Ended September 30,****2006** |        |  **For                  the Three****Months                  Ended September 30,****2005****(Restated)****Note                  2** |   |                    **Cumulative                  Totals****December                  30,****2002                  through****September                  30,****2006** |
|-------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------|-------------|------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                          |                                                                                       |        |                                                                                                                                |   |                                                                                                                                                                  |
| **SALES**                                                                     | $                                                                                               | -           |                                                                                                                                     | $      | -                                                                                                                                                                          |   | $ | - |
|                                                                          |                                                                                            |        |                                                                                                                                     |   |                                                                                                                                                                       |   |   |   |
| **COST                  OF SALES**                                            |                                                                                            | -           |                                                                                                                                     |   | -                                                                                                                                                                          |   |   | - |
|                                                                          |                                                                                            |        |                                                                                                                                     |   |                                                                                                                                                                       |   |   |   |
| **GROSS                  PROFIT**                                             |                                                                                            | -           |                                                                                                                                     |   | -                                                                                                                                                                          |   |   | - |
|                                                                          |                                                                                            |        |                                                                                                                                     |   |                                                                                                                                                                       |   |   |   |
| **OPERATING                  EXPENSES**                                       |                                                                                            |        |                                                                                                                                     |   |                                                                                                                                                                       |   |   |   |
| Accounting                  and Auditing                                      |                                                                                            | 176,875     |                                                                                                                                     |   | 13,435                                                                                                                                                                     |   |   | 274,778 |
| Administration                                                                |                                                                                            | 3,366       |                                                                                                                                     |   | 9,715                                                                                                                                                                      |   |   | 153,304 |
| Advertising,                  promotion, consulting and travel (Note 17) |                                                                                            | 486,304     |                                                                                                                                     |   | 795,412                                                                                                                                                                    |   |   | 7,427,115 |
| Beneficial                  share-based fee (Note 18)                         |                                                                                            | 139,272     |                                                                                                                                     |   | 4,827,272                                                                                                                                                                  |   |   | 2,148,760 |
| Board                  compensation (Note 19)                                 |                                                                                            | 58,590      |                                                                                                                                     |   | 142,290                                                                                                                                                                    |   |   | 1,330,830 |
| Depreciation                  (Note 5)                                        |                                                                                            | 1,480       |                                                                                                                                     |   | 1,552                                                                                                                                                                      |   |   | 48,094 |
| Financing                  cost - standby equity agreement (Note 2 )          |                                                                                            | -           |                                                                                                                                     |   | 760,000                                                                                                                                                                    |   |   | 7,320,000 |
| Legal                  fees (Note 20)                                         |                                                                                            | 220,596     |                                                                                                                                     |   | 584,579                                                                                                                                                                    |   |   | 5,653,076 |
| Insurance                                                                     |                                                                                            | 19,245      |                                                                                                                                     |   | 2,128                                                                                                                                                                      |   |   | 66,110 |
| Interest                                                                      |                                                                                            | 802         |                                                                                                                                     |   | 17,622                                                                                                                                                                     |   |   | 134,693 |
| Office                  expense                                               |                                                                                            | 21,397      |                                                                                                                                     |   | 5,463                                                                                                                                                                      |   |   | 231,805 |
| Officer's                  compensation (Note 21)                             |                                                                                            | 415,250     |                                                                                                                                     |   | 1,202,606                                                                                                                                                                  |   |   | 11,000,613 |
| Payroll                  taxes                                                |                                                                                            | 30,274      |                                                                                                                                     |   | 6,885                                                                                                                                                                      |   |   | 75,318 |
| Rent                                                                          |                                                                                            | 6,529       |                                                                                                                                     |   | 999                                                                                                                                                                        |   |   | 87,274 |
| Research                  and development (Note 22)                           |                                                                                            | 112,954     |                                                                                                                                     |   | 615,851                                                                                                                                                                    |   |   | 5,062,522 |
| Salaries                  and wages-administration                            |                                                                                            | 54,752      |                                                                                                                                     |   | 57,000                                                                                                                                                                     |   |   | 485,340 |
| Salaries                  and wages-engineering                               |                                                                                            | 25,000      |                                                                                                                                     |   | -                                                                                                                                                                          |   |   | 141,712 |
| Impairment                  of intangible asset                               |                                                                                            | -           |                                                                                                                                     |   | -                                                                                                                                                                          |   |   | 3,701,347 |
| **Total                  Operating Expenses**                                 |                                                                                            | 1,772,686   |                                                                                                                                     |   | 9,042,809                                                                                                                                                                  |   |   | 45,342,691 |
|                                                                          |                                                                                            |        |                                                                                                                                     |   |                                                                                                                                                                       |   |   |   |
|                                                                          |                                                                                            |        |                                                                                                                                     |   |                                                                                                                                                                       |   |   |   |
| **NET                  LOSS BEFORE OTHER INCOME (EXPENSE)**                   |                                                                                            | (1,772,686) |                                                                                                                                     |   | (9,042,809)                                                                                                                                                                |   |   | (45,342,691) |
|                                                                          |                                                                                            |        |                                                                                                                                     |   |                                                                                                                                                                       |   |   |   |
| **OTHER                  INCOME (EXPENSE)**                                   |                                                                                            |        |                                                                                                                                     |   |                                                                                                                                                                       |   |   |   |
| Bank                  interest                                                |                                                                                            | -           |                                                                                                                                     |   | 65                                                                                                                                                                         |   |   | 71 |
| Write                  off worthless inventory                                |                                                                                            | -           |                                                                                                                                     |   | -                                                                                                                                                                          |   |   | (266,519) |
| Refunds                                                                       |                                                                                            | (28,400)    |                                                                                                                                     |   | -                                                                                                                                                                          |   |   | (25,813) |
| Lawsuit                  settlements                                          |                                                                                            | -           |                                                                                                                                     |   | -                                                                                                                                                                          |   |   | (1,805,429) |
| Impairment                  of property and equipment                         |                                                                                            | -           |                                                                                                                                     |   | -                                                                                                                                                                          |   |   | (107,964) |
| **Total                  Other Income (Expenses)**                            |                                                                                            | (28,400)    |                                                                                                                                     |   | 65                                                                                                                                                                         |   |   | (2,205,654) |
|                                                                          |                                                                                            |        |                                                                                                                                     |   |                                                                                                                                                                       |   |   |   |
| **NET                  LOSS BEFORE PROVISION FOR INCOME TAXES**               |                                                                                            | (1,801,086) |                                                                                                                                     |   | (9,042,744)                                                                                                                                                                |   |   | (47,548,345) |
|                                                                          |                                                                                            |        |                                                                                                                                     |   |                                                                                                                                                                       |   |   |   |
| Provision                  for income taxes (Note 23)                         |                                                                                            | -           |                                                                                                                                     |   | -                                                                                                                                                                          |   |   | - |
|                                                                          |                                                                                            |        |                                                                                                                                     |   |                                                                                                                                                                       |   |   |   |
| **NET                  LOSS APPLICABLE TO COMMON SHARES**                     | $                                                                                               | (1,801,086) |                                                                                                                                     | $      | (9,042,744)                                                                                                                                                                |   | $ | (47,548,345) |
|                                                                          |                                                                                            |        |                                                                                                                                     |   |                                                                                                                                                                       |   |   |   |
| **NET                  LOSS PER SHARE -BASIC (Note 4)**                       |                                                                                            | (.04)       |                                                                                                                                     |   | (.26                  )                                                                                                                                                    |   |   |  |
|                                                                          |                                                                                            |             |                                                                                                                                     |   |                                                                                                                                                                            |   |   |  |
| **NET                  LOSS PER FULLY DILUTED SHARES (Note 4 )**              | $                                                                                               | (.04)       |                                                                                                                                     | $      | (.23                  )                                                                                                                                                    |   |   |   |

----

**AXIAL      VECTOR ENGINE CORPORATION AND SUBSIDIARY**

**(FORMERLY      AERO MARINE ENGINE, INC.) **

**(A      DEVELOPMENT STAGE COMPANY) **

**CONSOLIDATED      STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY**

**FOR      THE THREE MONTHS ENDED SEPTEMBER 30, 2006 (Restated) **

**(Unaudited)**

| **Description**                                                       |                  **Prepaid****Shares                & Beneficial****Reduction** |       | **Common**                   |   |                  **Additional****Paid-In                Capital** |   |                  **Deficit****Accumulated****During                the****Development****Stage** |       |                  **Total                Stockholders Equity** |
|-----------------------------------------------------------------------|------------------------------------------------------------------------------------------|------------|------------------------------|--------|------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------|
|                                                                  |                                                                                |       |                    |   |                                                              |   |                                                                                             |       |                                                          |
|                                                                  |                                                                                |       |                    |   |                                                              |   |                                                                                             |       |                                                          |
| Balance,                June 30, 2006-restated (Note 2)               | $                                                                                        | 9,428,959  |                         | $      | 35,004                                                                 |   | $                                                                                                     | 20,988,208 |                                                               | $ | (45,747,259) |   | $ | (15,295,088) |
|                                                                  |                                                                                     |       |                         |   |                                                                   |   |                                                                                                  |       |                                                               |   |   |   |   |   |
| Issuance                of shares for services                        |                                                                                     |       |                         |   | 73                                                                     |   |                                                                                                  | 566,814    |                                                               |   |   |   |   | 566,887 |
|                                                                  |                                                                                     |       |                         |   |                                                                   |   |                                                                                                  |       |                                                               |   |   |   |   |   |
| Reduction                in prepaid shares                            |                                                                                     | 400,148    |                         |   |                                                                   |   |                                                                                                  |       |                                                               |   |   |   |   | 400,148 |
|                                                                  |                                                                                     |       |                         |   |                                                                   |   |                                                                                                  |       |                                                               |   |   |   |   |   |
| Beneficial                reduction in option value outstanding       |                                                                                     | 1,039,334  |                         |   |                                                                   |   |                                                                                                  |       |                                                               |   |   |   |   | 1,039,334 |
|                                                                  |                                                                                     |       |                         |   |                                                                   |   |                                                                                                  |       |                                                               |   |   |   |   |   |
| Issuance                of stock for cash                             |                                                                                     | -          |                         |   | 1,017                                                                  |   |                                                                                                  | 1,674,883  |                                                               |   |   |   |   | 1,675,900 |
|                                                                  |                                                                                     |       |                         |   |                                                                   |   |                                                                                                  |       |                                                               |   |   |   |   |   |
| Net                loss for the three months ended September 30, 2006 |                                                                                     |       |                         |   |                                                                   |   |                                                                                                  |       |                                                               |   | (1,801,086) |   |   | (1,801,086) |
|                                                                  |                                                                                     |       |                         |   |                                                                   |   |                                                                                                  |       |                                                               |   |   |   |   |   |
| Balance,                September 30, 2006                            | $                                                                                        | 10,868,441 |                         | $      | 36,094                                                                 |   | $                                                                                                     | 23,229,905 |                                                               | $ | (47,548,345) |   | $ | (13,413,905) |

----

**AXIAL      VECTOR ENGINE CORPORATION AND SUBSIDIARY**

**(FORMERLY      AERO MARINE ENGINE, INC.) **

**(A      DEVELOPMENT STAGE COMPANY) **

**CONSOLIDATED      STATEMENTS OF CASH FLOW **

**FOR      THE THREE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005 (Restated)**

**(WITH      CUMULATIVE TOTALS SINCE INCEPTION) **

**(Unaudited)**

|                                                                                                     |                  **2006** |           |                  **2005****(Restated)****See                Note 2** |   |                  **Cumulative                Totals****December                30,****2002                through**                 **September                30,****2006** |
|----------------------------------------------------------------------------------------------------------|--------------------------------|----------------|---------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                     |                      |           |                                                                 |   |                                                                                                                                                                              |
| **CASH                FLOWS FROM OPERATING ACTIVITIES**                                                  |                      |           |                                                                 |   |                                                                                                                                                                              |
| Net                (Loss)                                                                                | $                              | (1,801,086)    |                                                                      | $      | (                9,042,744)                                                                                                                                                            |   | $ | (47,548,345) |
| Adjustments                to reconcile net loss to net cash used                in operating activities |                           |           |                                                                      |   |                                                                                                                                                                                   |   |   |   |
| Common                stock issued for services                                                          |                           | 212,960        |                                                                      |   | 4,156,500                                                                                                                                                                              |   |   | 9,163,179 |
| Options                issued for services                                                               |                           | 119,500        |                                                                      |   | 1,181,654                                                                                                                                                                              |   |   | 4,350,300 |
| Options                issued as compensation                                                            |                           | -              |                                                                      |   | 57,000                                                                                                                                                                                 |   |   | 7,847,510 |
| Warrants                issued for services                                                              |                           | -              |                                                                      |   | 796,500                                                                                                                                                                                |   |   | 6,024,218 |
| Depreciation                and amortization                                                             |                           | 1,480          |                                                                      |   | 1,552                                                                                                                                                                                  |   |   | 48,094 |
| Shares                issued for lawsuit settlements                                                     |                           | -              |                                                                      |   | -                                                                                                                                                                                      |   |   | 1,805,428 |
| Impairment                of property and equipment                                                      |                           | -              |                                                                      |   |                                                                                                                                                                                   |   |   | 107,964 |
| Impairment                of goodwill and intangibles                                                    |                           | -              |                                                                      |   | -                                                                                                                                                                                      |   |   | 3,701,347 |
| Write-off                of inventory                                                                    |                           | -              |                                                                      |   |                                                                                                                                                                                   |   |   | 266,519 |
| **Changes                in assets and liabilities**                                                     |                           |           |                                                                      |   |                                                                                                                                                                                   |   |   |   |
| (Increase) in                prepaid expenses and other current                assets               |                           | (28,000)  |                                                                      |   | -                                                                                                                                                                                 |   |   | (100,670) |
| Increase                  in accounts                  payable and accrued expenses                      |                           | 714,959        |                                                                      |   | 23,077                                                                                                                                                                                 |   |   | 699,096 |
|                                                                                                     |                           |           |                                                                      |   |                                                                                                                                                                                   |   |   |   |
| Total                adjustments                                                                         |                           | 1,020,899      |                                                                      |   | 6,216,283                                                                                                                                                                              |   |   | 33,912,985 |
|                                                                                                     |                           |           |                                                                      |   |                                                                                                                                                                                   |   |   |   |
| **Net                cash (used in) operating activities**                                               |                           | (780,187)      |                                                                      |   | (                2,826,461)                                                                                                                                                            |   |   | (13,635,360) |
|                                                                                                     |                           |           |                                                                      |   |                                                                                                                                                                                   |   |   |   |
| **CASH                FLOWS FROM INVESTING ACTIVITIES**                                                  |                           |           |                                                                      |   |                                                                                                                                                                                   |   |   |   |
| Bank                interest                                                                             |                           | -              |                                                                      |   | 65                                                                                                                                                                                     |   |   | 71 |
| Acquisition                of intangible assets                                                          |                           | -              |                                                                      |   | (153,794)                                                                                                                                                                              |   |   | (243,324) |
| Acquisitions                of fixed assets                                                              |                           | (38,241)       |                                                                      |   | (19,572)                                                                                                                                                                               |   |   | (83,873) |
|                                                                                                     |                           |           |                                                                      |   |                                                                                                                                                                                   |   |   |   |
| **Net                cash (used in) investing activities**                                               |                           | (38,241)       |                                                                      |   | (173,301)                                                                                                                                                                              |   |   | (327,126) |
|                                                                                                     |                           |           |                                                                      |   |                                                                                                                                                                                   |   |   |   |
| **CASH                FLOWS FROM FINANCING ACTIVITIES**                                                  |                           |           |                                                                      |   |                                                                                                                                                                                   |   |   |   |
| Proceeds                from the sale of stock                                                           |                           | 1,675,900      |                                                                      |   | -                                                                                                                                                                                      |   |   | 6,163,670 |
| Proceeds                from standby equity distribution agreement                                       |                           | -              |                                                                      |   | 2,150,000                                                                                                                                                                              |   |   | 4,000,000 |
| Liability                for stock to be issued                                                          |                           | (354,252)      |                                                                      |   | 610,862                                                                                                                                                                                |   |   | 393,326 |
| Conversion                of shareholder debt to equity                                                  |                           | -              |                                                                      |   | -                                                                                                                                                                                      |   |   | 975,000 |
| Proceeds                from note payable                                                                |                           | -              |                                                                      |   | -                                                                                                                                                                                      |   |   | 1,245,000 |
| Advances                from shareholders                                                                |                           | 136,712        |                                                                      |   | 500,000                                                                                                                                                                                |   |   | 2,923,826 |
| Payments                on shareholder loan                                                              |                           | (401,320)      |                                                                      |   | (140,914)                                                                                                                                                                              |   |   | (1,992,797) |
| Advances                (payments to) related company-net                                                |                           | -              |                                                                      |   | (10,000)                                                                                                                                                                               |   |   | 301,339 |
| Exercise                of stock options                                                                 |                           | -              |                                                                      |   | 44,469                                                                                                                                                                                 |   |   | 244,981 |
|                                                                                                     |                           |           |                                                                      |   |                                                                                                                                                                                   |   |   |   |
| **Net                cash provided by financing activities**                                             |                           | 1,057,040      |                                                                      |   | 3,154,417                                                                                                                                                                              |   |   | 14,254,345 |
|                                                                                                     |                           |           |                                                                      |   |                                                                                                                                                                                   |   |   |   |
| **NET                INCREASE IN**                                                                  |                           |           |                                                                      |   |                                                                                                                                                                                   |   |   |   |
| **CASH                AND CASH EQUIVALENTS**                                                             |                           | 238,612        |                                                                      |   | 154,655                                                                                                                                                                                |   |   | 291,859 |
|                                                                                                     |                           |           |                                                                      |   |                                                                                                                                                                                   |   |   |   |
| **CASH                AND CASH EQUIVALENTS -**                                                           |                           |           |                                                                      |   |                                                                                                                                                                                   |   |   |   |
| **July                1**                                                                                |                           | 53,247         |                                                                      |   | 7,360                                                                                                                                                                                  |   |   | - |
|                                                                                                     |                           |           |                                                                      |   |                                                                                                                                                                                   |   |   |   |
| **CASH                AND CASH EQUIVALENTS - September 30**                                              | $                              | 291,859        |                                                                      | $      | 162,015                                                                                                                                                                                |   | $ | 291,859 |

----

**AXIAL        VECTOR ENGINE CORPORATION AND SUBSIDIARY**

**(FORMERLY        AERO MARINE ENGINE, INC.) **

**(A        DEVELOPMENT STAGE COMPANY) **

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**SEPTEMBER        30, 2006 AND 2005 **

**(Unaudited)**

**NOTE          1**
**    GOING          CONCERN UNCERTAINTY **

*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 *

**NOTE          2**
**    BASIS          OF          PRESENTATION AND RESTATEMENT **

The consolidated          financial statements include the accounts of the Company and its wholly          owned subsidiary Dyna-Cam, Aero Marine Engine Corp. All significant          inter-company accounts and transactions are eliminated. 

----

**AXIAL          VECTOR ENGINE CORPORATION AND SUBSIDIARY**

**(FORMERLY          AERO MARINE ENGINE, INC.) **

**(A          DEVELOPMENT STAGE COMPANY) **

**NOTES          TO CONSOLIDATED FINANCIAL STATEMENTS **

**SEPTEMBER          30, 2006 AND 2005 **

**(Unaudited)**

**NOTE      2     **
**BASIS      OF PRESENTATION AND RESTATEMENT (CONTINUED) **

**Income      Statement for the three months ended September 30, 2005:**

|                                                          | As                Originally Reported |        | As                Adjusted |   | Effect                 of Change |
|---------------------------------------------------------------|---------------------------------------|-------------|----------------------------|--------|---------------------------------------|
| Sales                                                         | $                                     |  -     |                       | $      |  -                               |   | $ |  - |
| Cost                of goods sold                             |                                  | -           |                       |   | -                                     |   |   | - |
| Compensation                                                  |                                  | 29,062      |                       |   | 1,401,896                             |   |   | (1,372,834) |
| Professional                and consulting                    |                                  | 227,163     |                       |   | 1,358,014                             |   |   | (1,130,851) |
| Advertising,                promotion, consulting, and travel |                                  | 42,851      |                       |   | 5,622,684                             |   |   | (5,579,833) |
| Rent                                                          |                                  | 999         |                       |   | 999                                   |   |   | - |
| Research                and development                       |                                  | 615,851     |                       |   | 615,851                               |   |   | - |
| General                and administrative                     |                                  | 96,579      |                       |   | 24,191                                |   |   | 72,388 |
| Depreciation                                                  |                                  | 1,552       |                       |   | 1,552                                 |   |   | - |
| Total                Expenses                                 |                                  | 1,014,057   |                       |   | 9,025,187                             |   |   | (8,011,130) |
| Interest                income                                |                                  | 65          |                       |   | 65                                    |   |   | - |
| Interest                expense                               |                                  | (17,622)    |                       |   | (17,622)                              |   |   |   |
| Net                Income (Loss)                              | $                                     | (1,031,614) |                       | $      | (9,042,744)                           |   | $ | (8,011,130) |
| Per                Share Basic                                |                                  | (.03)       |                       |   | (.27)                                 |   |   | (.24) |
| Per                Share Fully Diluted                        |                                  | (.03)       |                       |   | (.23)                                 |   |   | (.20) |

----

**AXIAL        VECTOR ENGINE CORPORATION AND SUBSIDIARY**

**(FORMERLY        AERO MARINE ENGINE, INC.) **

**(A        DEVELOPMENT STAGE COMPANY) **

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS **

**SEPTEMBER        30, 2006 AND 2005 **

**(Unaudited)**

**NOTE      2  **
**    BASIS      OF      PRESENTATION AND RESTATEMENT (CONTINUED) **

**Balance      Sheet **

**September      30, 2005 **

|                                                       | As                  OriginallyReported |         |  AsAdjusted               |   |  Effect                  ofChange |
|------------------------------------------------------------|----------------------------------------|--------------|--------------------------------|--------|----------------------------------------|
|                                                       |                                   |         |                      |   |                              |
| **Assets**                                                 |                                   |         |                      |   |                              |
| Cash                                                       | $                                      | 149,015      |                           | $      | 162,015                                |   | $ | 13,000 |
| Deposit                                                    |                                   | 22,670       |                           |   | 22,670                                 |   |   | - |
| Prepaid                  expenses                          |                                   | 22,330       |                           |   | 22,330                                 |   |   | - |
| Total                  current assets                      |                                   | 194,015      |                           |   | 207,015                                |   |   | 13,000 |
| Property                  and equipment-net                |                                   | 39,162       |                           |   | 39,161                                 |   |   | (1) |
| Intangible                  assets-net                     |                                   | 217,544      |                           |   | 217,544                                |   |   | - |
| Total                  Assets                              | $                                      | 450,721      |                           | $      | 463,720                                |   | $ | 12,999 |
| **Liabilities                  and Stockholders' Deficit** |                                   |              |                           |   |                                        |   |   |  |
| Accounts                  payable                          | $                                      | 154,492      |                           | $      | 104,866                                |   | $ | 49,626 |
| Current                  portion of note payable           |                                   | 1,500,000    |                           |   | 995,000                                |   |   | 505,000 |
| Liability                  for stock to be issued          |                                   | 337,095      |                           |   | 695,362                                |   |   | (358,267) |
| Share-based                  fee liabilities               |                                   | -            |                           |   | 18,826,158                             |   |   | 18,826,158) |
| Accrued                  interest - shareholder            |                                   | -            |                           |   | 42,171                                 |   |   | (42,171) |
| Due                  to related company                    |                                   | 301,339      |                           |   | 301,339                                |   |   | - |
| Total                  current liabilities                 |                                   | 2,292,926    |                           |   | 20,964,896                             |   |   | (18,671,970) |
| Note                  payable                              |                                   | 1,500,000    |                           |   | -                                      |   |   | 1,500,000 |
| Due                  to shareholder                        |                                   | 1,740,191    |                           |   | 387,683                                |   |   | 1,352,508 |
| Total                  Liabilities                         |                                   | 5,528,117    |                           |   | 21,352,579                             |   |   | (15,824,462) |
| Stockholders’                  Deficit               |                                   |              |                           |   |                                   |   |   |   |
| Prepaid                  share-based fee                   |                                   | -            |                           |   | (2,900,702)                            |   |   | 2,900,702 |
| Prepaid                  share-based compensation.         |                                   | -            |                           |   | (1,003,625)                            |   |   | 1,003,625 |
| Common                  stock                              |                                   | 32,728       |                           |   | 34,657                                 |   |   | (1,929) |
| Additional                  paid-in capital                |                                   | 12,766,588   |                           |   | 21,998,233                             |   |   | (9,231,645) |
| Accumulated                  deficit                       |                                   | (17,876,712) |                           |   | (39,017,422)                           |   |   | 21,140,710 |
| Total                  Stockholders' Deficit               |                                   | (5,077,396)  |                           |   | (20,888,859)                           |   |   | 15,811,463 |
| Total                  Liabilities and Stockholders'       |                                   |              |                           |   |                                        |   |   |  |
| Deficit                                                    | $                                      | 450,721      |                           | $      | 463,720                                |   | $ | (12,999) |

----

**AXIAL        VECTOR ENGINE CORPORATION AND SUBSIDIARY**

**(FORMERLY        AERO MARINE ENGINE, INC.) **

**(A        DEVELOPMENT STAGE COMPANY) **

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS **

**SEPTEMBER        30, 2006 AND 2005 **

**(Unaudited)**

**NOTE        2**
**BASIS        OF PRESENTATION AND RESTATEMENT (CONTINUED) **

| Accumulated                Deficit June 30, 2006 original | $ | (38,874,824) |
|-----------------------------------------------------------|---|--------------|
| Cumulated                effect of Alliance warrants      | $ | (7,320,000)  |
| Incorrect                accounts payable accrual         | $ | 447,565      |
| Accumulated                deficit June 30, 2006 restated | $ | (45,747,259) |

**NOTE        3**
**ORGANIZATION        **

----

**AXIAL      VECTOR ENGINE CORPORATION AND SUBSIDIARY**

**(FORMERLY      AERO MARINE ENGINE, INC.) **

**(A      DEVELOPMENT STAGE COMPANY) **

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS **

**SEPTEMBER      30, 2006 AND 2005 **

**(Unaudited)**

**NOTE        3**
**ORGANIZATION        (CONTINUED) **

**NOTE        4**
**    SUMMARY        OF        SIGNIFICANT ACCOUNTING POLICIES **

**Use        of Estimates **

----

**AXIAL        VECTOR ENGINE CORPORATION AND SUBSIDIARY**

**(FORMERLY      AERO MARINE ENGINE, INC.) **

**(A      DEVELOPMENT STAGE COMPANY) **

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS **

**SEPTEMBER      30, 2006 AND 2005 **

**(Unaudited)**

**NOTE        4**
**SUMMARY        OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) **

**Cash        and Cash Equivalents **

**Concentration        of Credit Risk **

**Property        and Equipment **

----

**AXIAL        VECTOR ENGINE CORPORATION AND SUBSIDIARY**

**(FORMERLY        AERO MARINE ENGINE, INC.) **

**(A        DEVELOPMENT STAGE COMPANY) **

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS **

**SEPTEMBER        30, 2006 AND 2005 **

**(Unaudited)**

**NOTE          4**
**    SUMMARY          OF          SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) **

**Reclassifications          **

**Income          Taxes **

**Advertising,          Promotion, Consulting, and Travel Expenses **

**Research          and Development **

Research          and development costs are expensed as incurred.

**Intangible          Assets **

----

**AXIAL        VECTOR ENGINE CORPORATION AND SUBSIDIARY**

**(FORMERLY        AERO MARINE ENGINE, INC.) **

**(A        DEVELOPMENT STAGE COMPANY) **

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS **

**SEPTEMBER        30, 2006 AND 2005 **

**(Unaudited)**

**NOTE          4**
**SUMMARY          OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) **

**Start-up          Costs **

*“*
*Reporting          on the costs of Start-up Activities” *

**Share-Based          Compensation **

*Accounting          for Share-Based Compensation” *

**(Loss)          Per Share of Common Stock **

The          following is a reconciliation of the computation for basic and diluted          EPS:

----

**AXIAL      VECTOR ENGINE CORPORATION AND SUBSIDIARY**

**(FORMERLY      AERO MARINE ENGINE, INC.) **

**(A      DEVELOPMENT STAGE COMPANY) **

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS **

**SEPTEMBER      30, 2006 AND 2005 **

**(Unaudited)**

**NOTE      4**
**SUMMARY      OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) **

|                                                                        | **Three****Months****Ended****September****30,****2006** |        | **Three****Months****Ended****September                30, 2005****(Restated)** |
|-----------------------------------------------------------------------------|----------------------------------------------------------|-------------|---------------------------------------------------------------------------------|
|                                                                        |                                                     |        |                                                                            |
| Net (Loss)                                                             | $                                                        | (1,801,086) |                                                                            | $ | (9,042,744) |
|                                                                        |                                                     |        |                                                                            |   |   |
| Weighted-average                common shares                               |                                                     |        |                                                                            |   |   |
| outstanding                (Basic)                                          |                                                     | 36,094,046  |                                                                            |   | 34,657,010 |
|                                                                        |                                                     |        |                                                                            |   |   |
| Weighted-average                common stock equivalents:                   |                                                     |        |                                                                            |   |   |
| Stock                warrants                                               |                                                     | 2,500,000   |                                                                            |   | 2,075,000 |
| Stock                options                                                |                                                     | 3,638,000   |                                                                            |   | 3,239,939 |
|                                                                        |                                                     |        |                                                                            |   |   |
| Weighted-average                  common shares outstanding (Fully Diluted) |                                                     | 42,232,046  |                                                                            |   | 39,971,949 |

**Fair        Value of Financial Instruments **

----

**AXIAL        VECTOR ENGINE CORPORATION AND SUBSIDIARY**

**(FORMERLY        AERO MARINE ENGINE, INC.) **

**(A        DEVELOPMENT STAGE COMPANY) **

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS **

**SEPTEMBER        30, 2006 AND 2005 **

**(Unaudited)**

**NOTE        4**
**    SUMMARY        OF        SIGNIFICANT ACCOUNTING POLICIES **
**(CONTINUED)        **

----

**AXIAL      VECTOR ENGINE CORPORATION AND SUBSIDIARY**

**(FORMERLY      AERO MARINE ENGINE, INC.) **

**(A      DEVELOPMENT STAGE COMPANY) **

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS **

**SEPTEMBER      30, 2006 AND 2005 **

**(Unaudited)**

**NOTE        4**
**    SUMMARY        OF        SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)**

         

**NOTE      5**
**PROPERTY      AND EQUIPMENT **

|                                          | 2006   |     | 2005   |
|-----------------------------------------------|--------|----------|--------|
| Computer                                      | $      | 26,572   |   | $ | 26,572 |
| Equipment                and machinery        |   | 13,274   |   |   | 13,273 |
| Leasehold                Improvements         |   | 5,533    |   |   |   |
| Office                equipment               |   | 38,495   |   |   | 2,723 |
|                                          |   | 83,874   |   |   | 42,568 |
|                                          |   |     |   |   |  |
| Less:                accumulated depreciation |   | (11,337) |   |   | (3,407) |
|                                          |   |     |   |   |  |
|                                          | $      | 72,537   |   | $ | 39,161 |

----

**AXIAL        VECTOR ENGINE CORPORATION AND SUBSIDIARY**

**(FORMERLY        AERO MARINE ENGINE, INC.) **

**(A        DEVELOPMENT STAGE COMPANY) **

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS **

**SEPTEMBER        30, 2006 AND 2005 **

**(Unaudited)**

**NOTE      5**
**PROPERTY      AND EQUIPMENT (CONTINUED) **

**NOTE      6**
**    CURRENT      PORTION OF NOTES PAYABLE **

**NOTE      7**
**CONTINGENT      SHARE-BASED PAYMENT **

**NOTE      8**
**LIABILITY      FOR STOCK TO BE ISSUED **

|                              | Shares                to be issued |    | Market                Value |
|-----------------------------------|------------------------------------|---------|-----------------------------|
| September                30, 2005 |                               | 381,259 |                        | $ | 695,362 |
| September                30, 2006 |                               | 169,000 |                        | $ | 393,326 |

----

**AXIAL        VECTOR ENGINE CORPORATION AND SUBSIDIARY**

**(FORMERLY        AERO MARINE ENGINE, INC.) **

**(A        DEVELOPMENT STAGE COMPANY) **

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS **

**SEPTEMBER        30, 2006 AND 2005 **

**(Unaudited)**

**NOTE      9**
**SHARED-BASED      FEE LIABILITY- WARRANTS **

| Warrant                # | Unexercised#                Shares |      | Exercise                Price |   | Until     |   | Value                at September 30, 2006 |    | Value                at September 30, 2005 |
|--------------------------|------------------------------------|-----------|-------------------------------|--------|-----------|--------|--------------------------------------------|---------|--------------------------------------------|
| 11                       |                               | 2,000,000 |                          |   | 4.00      |   |                                       | 5/2007  |                                       | $ | 1,600,000 |   | $ | 6,220,000 |
| 16-19                    |                               | 50,000    |                          |   | 1.75-2.50 |   |                                       | 3/2010  |                                       | $ | 117,250 |   | $ | 284,250 |
| 12-14                    |                               | 35,001    |                          |   | 3.00-5.00 |   |                                       | 10/2007 |                                       | $ | 40,134 |   | $ | - |
| 15                       |                               | 250,000   |                          |   | 4.00      |   |                                       | 11/2007 |                                       | $ | 327,500 |   | $ | - |
| Total                    |                               |           |                          |   |           |   |                                       |         |                                       | $ | 2,084,884 |   | $ | 6,504,250 |

**NOTE      10**
**SHARED-BASED      FEE LIABILITY- OPTIONS **

| Option# | Price  |   | Until  |   | Unexercised                  #Shares                  September                  30,2006 |   | Value                  September 30,2006 |      | Unexercised                  #Shares                  September                  30,2005 |   | Value                  September                  30,2005 |
|---------|--------|--------|--------|--------|------------------------------------------------------------------------------------------|--------|------------------------------------------|-----------|------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------|
| 6       |   | 1.52   |   |   | 4/2010                                                                                   |   |                                     | 762,000   |                                                                                     | $      | 1,760,220                                                 |   |  | 2,604,820 |   | $ | 3,559,128 |
| 8       |   | 3.00   |   |   | 5/2011                                                                                   |   |                                     | 10,000    |                                                                                     |   | 23,000                                                    |   |   | - |   |   | - |
| 12      |   | 2.63   |   |   | 4/2011                                                                                   |   |                                     | 50,000    |                                                                                     |   | 117,000                                                   |   |   | - |   |   | - |
| 14      |   | 2.00   |   |   | 7/2011                                                                                   |   |                                     | 50,000    |                                                                                     |   | 119,500                                                   |   |   |   |   |   |   |
| 13      |   | 2.03   |   |   | 6/2011                                                                                   |   |                                     | 350,000   |                                                                                     |   | 836,500                                                   |   |   | - |   |   | - |
| Total   |   |        |   |   |                                                                                          |   |                                     | 1,222,000 |                                                                                     |   | 2,856,220                                                 |   |   | 2,604,820 |   | $ | 3,559,128 |

----

**AXIAL      VECTOR ENGINE CORPORATION AND SUBSIDIARY**

**(FORMERLY      AERO MARINE ENGINE, INC.) **

**(A      DEVELOPMENT STAGE COMPANY) **

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS **

**SEPTEMBER      30, 2006 AND 2005 **

**(Unaudited)**

**NOTE      11**
**SHARED-BASED      COMPENSATION LIABILITY- OPTIONS **

| Title     | Option# |   | Unexercised                #Shares |   | Price     |   | Until  |      | Value                at September 30, 2006 |   | Value                at September 30, 2005 |
|-----------|---------|--------|------------------------------------|--------|-----------|--------|--------|-----------|--------------------------------------------|--------|--------------------------------------------|
| Board     |    | 1-3    |                               |   | 279,000   |   |   | .50       |                                       |   | 12/09                                      |   | $ | 675,180 |   | $ | 1,065,780 |
| Sec/Treas |    | 4      |                               |   | 1,000,000 |   |   | 1.52      |                                       |   | 4/10                                       |   | $ | 2,310,000 |   | $ | 3,820,000 |
| CEO       |    | 5      |                               |   | 1,000,000 |   |   | 1.52      |                                       |   | 4/10                                       |   | $ | 2,310,000 |   | $ | 3,820,000 |
| Admin     |    | 7,8-11 |                               |   | 140,000   |   |   | 2.15-2.63 |                                       |   | 8/10                                       |   | $ | 320,220 |   | $ | 57,000 |
| Total     |    |        |                               |   |           |   |   |           |                                       |   |                                            |   | $ | 5,615,400 |   | $ | 8,762,780 |

**NOTE      12**
**DUE      TO RELATED COMPANY **

**NOTE      13**
**    DUE      TO      SHAREHOLDERS **

----

**AXIAL      VECTOR ENGINE CORPORATION AND SUBSIDIARY**

**(FORMERLY      AERO MARINE ENGINE, INC.) **

**(A      DEVELOPMENT STAGE COMPANY) **

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS **

**SEPTEMBER      30, 2006 AND 2005 **

**(Unaudited)**

**NOTE        13**
**DUE        TO SHAREHOLDERS (CONTINUED) **

**NOTE        14**
**COMMON        STOCK **

**NOTE        15**
**    PREPAID        SHARE-BASED FEES AND COMPENSATION **
**         **

**NOTE        16**
**BENEFICIAL        REDUCTION OF SHARE-BASED LIABILITIES **

**NOTE        17** **    ADVERTISING,        PROMOTION, CONSULTING AND TRAVEL**** **

----

**AXIAL      VECTOR ENGINE CORPORATION AND SUBSIDIARY**

**(FORMERLY      AERO MARINE ENGINE, INC.) **

**(A      DEVELOPMENT STAGE COMPANY) **

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS **

**SEPTEMBER      30, 2006 AND 2005 **

**(Unaudited)**

**NOTE      17**
**    ADVERTISING,      PROMOTION, CONSULTING AND TRAVEL (CONTINUED)**

|                                    | September                30,2006 |    | September                30,2005 |
|-----------------------------------------|----------------------------------|---------|----------------------------------|
| Cash                and accrued expense | $                                | 178,543 |                             | $ | 126,174 |
| Common                Shares            |                             | 307,761 |                             |   | 632,738 |
| Options                                 |                             | -       |                             |   | 36,500 |
| Warrants                                |                             | -       |                             |   |  |
| Total                                   | $                                | 486,304 |                             | $ | 795,412 |

**NOTE      18**
**    BENEFICIAL      SHARE-BASED FEE EXPENSE **

**NOTE      19**
**    BOARD      COMPENSATION **

**NOTE      20**
**LEGAL      FEES **
**       **

|                                    | September                30 2006 |    | September                30 2005 |
|-----------------------------------------|----------------------------------|---------|----------------------------------|
| Cash                and accrued expense | $                                | 88,696  |                             | $ | 191,544 |
| Common                Shares            |                             | -       |                             |   | - |
| Options                                 |                             | 131,900 |                             |   | 393,035 |
| Total                                   | $                                | 220,596 |                             | $ | 584,579 |

----

**AXIAL        VECTOR ENGINE CORPORATION AND SUBSIDIARY**

**(FORMERLY        AERO MARINE ENGINE, INC.) **

**(A        DEVELOPMENT STAGE COMPANY) **

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS **

**SEPTEMBER        30, 2006 AND 2005 **

**(Unaudited)**

**NOTE      21**
**OFFICERS      COMPENSATION **
**       **

|                                               | September                302006 |    | September                302005 |
|----------------------------------------------------|---------------------------------|---------|---------------------------------|
| CEO,                Ray Brouzes                    |                            |         |                            |   |  |
| Salary                                             | $                               | 37,500  |                            | $ | 15,000 |
| Common                Shares                       |                            | 162,750 |                            |   | 162,750 |
| Options                                            |                            | 100,000 |                            |   | 510,000 |
| Total                                              | $                               | 300,250 |                            | $ | 687,750 |
| Secretary/Treasurer,                Samuel Higgins |                            |         |                            |   |  |
| Salary                                             | $                               | 15,000  |                            | $ | 3,856 |
| Options                                            |                            | 100,000 |                            |   | 510,000 |
| Total                                              | $                               | 115,000 |                            | $ | 513,856 |
| CFO,                Benjamin Langford              |                            |         |                            |   |  |
| Salary                                             | $                               | -       |                            | $ | 1,000 |
| Total                                              | $                               | -       |                            | $ | 1,000 |
| Total                Officer's Compensation        | $                               | 415,250 |                            | $ | 1,202,606 |

**NOTE      22**
**RESEARCH      AND DEVELOPMENT **

----

**AXIAL      VECTOR ENGINE CORPORATION AND SUBSIDIARY**

**(FORMERLY      AERO MARINE ENGINE, INC.) **

**(A      DEVELOPMENT STAGE COMPANY) **

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS **

**SEPTEMBER      30, 2006 AND 2005 **

**(Unaudited)**

**NOTE        23**
**    PROVISION        FOR INCOME TAXES **

|                                     | 2006   |
|------------------------------------------|--------|
| Deferred                tax assets       | $      | 2,095,906 |
| Less:                valuation allowance |   | (2,095,906) |
|                                     |   |   |
| Net                deferred assets       | $      | -0- |

----

**AXIAL        VECTOR ENGINE CORPORATION AND SUBSIDIARY**

**(FORMERLY        AERO MARINE ENGINE, INC.) **

**(A        DEVELOPMENT STAGE COMPANY) **

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS **

**SEPTEMBER        30, 2006 AND 2005 **

**(Unaudited)**

**NOTE          23**
**    PROVISION          FOR INCOME TAXES (CONTINUED)**

** **

**NOTE          24**
**COMMITMENTS          AND CONTINGENCIES **

----

**Item      2.      Plan of      Operation**

**Forward-Looking      Statements**

**Recent      Developments in Our Business**

***Developments      in Our Agreement with Adaptive***

----

***Advent      of the Axial Vector Workhorse 7.1***

***Developments      in Initial Testing***

----

| 1.   | Subsystem                testing |
|----------------|----------------------------------|

| 2.   | Engine                Testing @ an independent third party firm “A” specialized in engines |
|----------------|--------------------------------------------------------------------------------------------------------|

| 3.   | Generator                Testing @ an independent third party firm “B” specializing in generators |
|----------------|---------------------------------------------------------------------------------------------------------------|

| 4.   | Generator                Set (GENSET) Testing |
|----------------|-----------------------------------------------|

| 5.   | Reliability                and Homologation Testing |
|----------------|-----------------------------------------------------|

| 1.   | **Subsystem                testing**                consists of four main tests: |
|----------------|----------------------------------------------------------------------------------|

| a)   | Injection                system testing |
|----------------|-----------------------------------------|

| b)   | Piston-roller                / Cam interface |
|----------------|----------------------------------------------|

| c)   | Generator                coil resistance tests |
|----------------|------------------------------------------------|

| d)   | Generator                magnetic disk tests |
|----------------|----------------------------------------------|

| 2.   | **Engine                Testing**                at                Independent Facility “A” |
|----------------|---------------------------------------------------------------------------------------------------------|

| a)   | Overall                Engine Operation (such as HP and torque over RPM                range) |
|----------------|-----------------------------------------------------------------------------------------------|

| b)   | Fuel                System Evaluation |
|----------------|---------------------------------------|

| c)   | Air                System Evaluation |
|----------------|--------------------------------------|

| d)   | Cylinder                Blowby Measurements |
|----------------|---------------------------------------------|

| e)   | Oil                Consumption |
|----------------|--------------------------------|

| f)   | Heat                Rejection |
|----------------|-------------------------------|

| g)   | Friction                Measurement |
|----------------|-------------------------------------|

| h)   | Calibration                Mapping |
|----------------|------------------------------------|

| i)   | Exhaust                Emissions |
|----------------|----------------------------------|

| 3.   | **Generator                Testing**                at                Independent Facility “B” |
|----------------|------------------------------------------------------------------------------------------------------------|

| a)   | No                load test |
|----------------|-----------------------------|

----

| b)   | Load                test |
|----------------|--------------------------|

| c)   | Speed                - Load test |
|----------------|----------------------------------|

| d)   | Controls                testing |
|----------------|---------------------------------|

| e)   | Additional                tests to examine critical performance parameters and some critical                mechanical parameters for the magnets, axial clearance, coils and                gauss                generated. |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| f)   | Detailed                GENSET                testing will further include: |
|----------------|-----------------------------------------------------------------------------|

| i)   | Functionally                check, define and develop the operational characteristics of the                generator |
|----------------|-----------------------------------------------------------------------------------------------------------------------|

| ii)   | Overall                heat rate vs. rpm and load |
|-----------------|---------------------------------------------------|

| iii)   | Vibration                spectra for the overall GENSET |
|------------------|---------------------------------------------------------|

| iv)   | Voltage                vs. rpm vs. load for the axial flux                generator |
|-----------------|-------------------------------------------------------------------------------------|

| v)   | Temperature                of the magnet at full load |
|----------------|-------------------------------------------------------|

| vi)   | Efficiency                of rectifier vs. temperature vs.                load |
|-----------------|--------------------------------------------------------------------------------|

| vii)   | Efficiency                of inverter vs. temperature vs.                load |
|------------------|-------------------------------------------------------------------------------|

| viii)   | Engine                temperature at full power and varying                rpm |
|-------------------|--------------------------------------------------------------------------------|

| ix)   | Vibration                spectra for the engine vs. power |
|-----------------|-----------------------------------------------------------|

| x)   | Exhaust                temperature vs. power |
|----------------|----------------------------------------------|

| xi)   | Cooling                system thermostat setting and the resultant                effects |
|-----------------|-------------------------------------------------------------------------------------------|

| xii)   | Noise                spectra |
|------------------|------------------------------|

| xiii)   | Alignment                design |
|-------------------|---------------------------------|

| 4.   | **GENSET                Testing**at                Independent Facility “B” |
|----------------|-----------------------------------------------------------------------------------------|

| a)   | Overall                GENSET operation |
|----------------|-----------------------------------------|

| b)   | System                calibration |
|----------------|-----------------------------------|

| c)   | Efficiency |
|----------------|------------|

| d)   | Noise                emissions |
|----------------|--------------------------------|

| **e)  ** | During                the early marriage period, the Control Systems must be verified for                perfect functioning, especially the rectifier, DC bus and inverter                - the                heart of the system |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **f)  ** | The                load sharing synchronization and the transfer panel that the client                operators must monitor and control - this is where interface with                the                client occurs. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **5.  ** | **GENSET                Reliability** |
|--------------------|---------------------------------------|

| a)   | Durability                tests - 3 GENSETS proposed to be tested for 4,000 hours; durability                design                is 40,000 hours between major                overhauls |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| b)   | Beta                tests - 4 proposed Beta sites |
|----------------|---------------------------------------------------|

| c)   | Homologation                tests |
|----------------|-----------------------------------|

| d)   | Need                a UL Certification on the Inverter - a document of some 100 pages.                (UL                2200 is for the “Stationary Engine Generator Assemblies” and not just for                the inverter. Preponderance of safety concerns are however with the                inverter system.) |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

***Re-Emergence      of the Gasoline Powered Sinusoidal Cam Driven Mechanical      Engine***

----

***Developments      in Beta Testing***

----

***Developments      in Licenses***

***Developments      in Joint Ventures***

----

***Developments      in Distribution Agreements***

----

**Summary      of Product Research and Development Expenditures**

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

**Changes      in Number of Employees**

----

**Results      of Operations for the three months ended September 30, 2006 and      2005**

| 1.   | advertising,                promotion, consulting and travel expenses in the amount of                $486,304; |
|----------------|----------------------------------------------------------------------------------------------------------------------|

| 2.   | compensating                our officers in the form of salaries, common shares, and options                with                associated payroll taxes in the amount of                $445,524; |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3.   | legal                fees in the form of cash, accrued expenses and options valued at                $220,596; |
|----------------|----------------------------------------------------------------------------------------------------------------|

| 4.   | accounting                and auditing expenses in the amount of                $176,875; |
|----------------|-------------------------------------------------------------------------------------------|

| 5.   | beneficial                share-based fee expenses for stock awards to vendors that are over                and                above the stated fair value of services provided valued at $139,272;                and |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 6.   | research                and developments costs of $112,954 as noted above. |
|----------------|----------------------------------------------------------------------------|

| 1.   | beneficial                share-based fee expenses for stock awards to venders that are over                and                above the stated fair value of services provided in the amount of                $4,827,272; |
|----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 2.   | compensating                our officers in the form of salaries, common shares, and options                with                associated payroll taxes in the amount of                $1,209,491; |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3.   | advertising,                promotion, consulting and travel expenses in the amount of                $795,412; |
|----------------|----------------------------------------------------------------------------------------------------------------------|

| 4.   | financing                our Standby Equity Agreement in the amount of                $760,000; |
|----------------|-------------------------------------------------------------------------------------------------|

| 5.   | research                and development costs of $615,851 as noted                above; |
|----------------|------------------------------------------------------------------------------------------|

| 6.   | legal                fees in the form of cash, accrued expenses and options valued at                $584,579;                and |
|----------------|-----------------------------------------------------------------------------------------------------------------------------------|

| 7.   | compensating                our board of directors with options valued at $142,290. |
|----------------|-------------------------------------------------------------------------------------|

----

**Liquidity      and Capital Resources**

***Cash      Flows from Operating Activities***

----

***Cash      Flows from Investing Activities***

***Cash      Flows from Financing Activities***

**Off      Balance Sheet Arrangements **

**Going      Concern**

**Critical      Accounting Policies**

*Accounting      for Share-Based Compensation” *

----

*"Share-based      Payments"  *

**Recently      Issued Accounting Pronouncements**

----

**Item      3.     Controls and Procedures**

----

----

**PART      II - OTHER INFORMATION**

**Item      1.     Legal      Proceedings**

**Item      2.     Unregistered Sales of Equity      Securities and Use of Proceeds**

----

**Item      3.     Defaults upon Senior      Securities**

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

**Item      5.     Other      Information**

**Item      6.      Exhibits**

| **Exhibit****Number** | **Description                of Exhibit**                                                                                                                                                                                                                |
|-----------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.1                  | Certification                of Chief Executive Officer pursuant to 18                U.S.C. Section 1350, as adopted pursuant to Section 302 of the                Sarbanes-Oxley Act of 2002                                                           |
| 31.2                  | Certification                of Chief Financial Officer pursuant to 18                U.S.C. Section 1350, as adopted pursuant to Section 302 of the                Sarbanes-Oxley Act of 2002                                                           |
| 32.1                  | 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 |

----

**SIGNATURES**

|   | **Axial                Vector Engine Corporation**                                                                                                                                                                                                                                                            |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                          |
| Date:  | November                14, 2006                                                                                                                                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                          |
|   |  By:       /s/                Dr. Raymond Brouzes             Dr.                Raymond BrouzesTitle:**    Chief                Executive Officer and                Director** |