UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      DC 20549





**FORM
      10-QSB**





[X]
            Quarterly
                Report pursuant to Section 13 or 15(d) of the Securities Exchange
                Act of
                1934For
                the quarterly period ended:December
                31, 2005[   ]
            Transition
                Report pursuant to 13 or 15(d) of the Securities Exchange Act of
                1934For
                the transition period  _________to
                __________Commission
                File Number:000-49698




Axial
      Vector Engine Corporation


(Exact
      name of small business issuer as specified in its charter)





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




One
                World Trade Center
              121
                S.W. Salmon Street, Suite 1100
              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)





Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
      (or
      for such shorter period that the issuer was required to file such reports),
      and
      (2) has been subject to such filing requirements for the past 90 days [X] Yes
      [   ] No





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). [   ] Yes [X] No





State
      the
      number of shares outstanding of each of the issuer’s classes of common stock, as
      of the latest practicable date: 33,713,166 Common Shares as of December 31,
      2005





Transitional
      Small Business Disclosure Format (check one): Yes [  ] No [X]





***Table
          of Contents***








**TABLE
                OF CONTENTS**
            Page**PART
                I - FINANCIAL INFORMATION**Item
                1:
            Financial
                Statements
            3Item
                2:
            Plan
                of Operation
            4Item
                3:
            Controls
                and Procedures
            8**PART
                II - OTHER INFORMATION**Item
                1:
            Legal
                Proceedings
            10Item
                2:
            Unregistered
                Sales of Equity Securities and Use of
                Proceeds
            10Item
                3:
            Defaults
                Upon Senior Securities
            11Item
                4:
            Submission
                of Matters to a Vote of Security
                Holders
            11Item
                5:
            Other
                Information
            11Item
                6:
            Exhibits
            12







2
 ***Table
          of Contents***


**PART
      I - FINANCIAL INFORMATION**





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





Our
      unaudited condensed
      consolidated financial statements included in this Form 10-QSB are as
      follows:





(a)
            Unaudited
                Condensed Consolidated Balance Sheet as of December 31,
                2005.
            F-1(b)
            Unaudited
                Condensed Consolidated Statements of Operations for the six and three
                monthsended December 31, 2005 and 2004;
            F-2(c)
            Unaudited
                Condensed Consolidated Statements of Cash Flows for the six
                monthsended December 31, 2005 and 2004; and
            F-3(d)
            Notes
                to Unaudited Condensed Consolidated Financial Statements
            F-4





These
      unaudited financial statements have been prepared in accordance with accounting
      principles generally accepted in the United States of America for interim
      financial information and the SEC instructions to Form 10-QSB. In the opinion
      of
      management, all adjustments considered necessary for a fair presentation have
      been included. Operating results for the interim period ended December 31,
      2005
      are not necessarily indicative of the results that can be expected for the
      full
      year.











3
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          of Contents***


**AXIAL
      VECTOR ENGINE CORPORATION AND SUBSIDIARY(FORMERLY KNOWN AS AERO MARINE
      ENGINE, INC.)(A DEVELOPMENT STAGE COMPANY) CONDENSEDCONSOLIDATED BALANCE
      SHEETDECEMBER 31, 2005 (UNAUDITED)**





**ASSETS****2005**Current
                Assets:Cash
                and cash equivalents
            
            $
            43,846Deposit
            
            
            22,670Prepaid
                expenses
            
            
            455,871Total
                Current assets
            
            
            522,387Property
                and equipment, net
            
            
            37,080Intangible
                assets, net
            
            
            243,324**TOTAL
                ASSETS**
            
            $
            802,791**LIABILITIES
                AND STOCKHOLDERS' DEFICIT****LIABILITIES**Current
                Liabilities:Accounts
                payable and accrued expenses
            
            $
            709,414Note
                payable
            
            
            2,995,000Liabiltiy
                for stock to be issued
            
            
            283,845Payroll
                liabilities
            
            
            11,823Due
                to related company
            
            
            301,339Total
                Current liabilities
            
            
            4,301,421Long
                Term Liabilities:Due
                to shareholders
            
            
            1,214,222Total
                long term liabilities
            
            
            1,214,222**Total
                Liabilities**
            
            
            5,515,643**COMMITMENTS
                AND CONTINGENCIES**
            
            
            -**STOCKHOLDERS'
                DEFICIT**Preferred
                stock, $.001 Par Value; 100,000,000 shares authorizedno
                shares issued and outstanding
            
            
            -Common
                stock, $.001 Par Value; 100,000,000 shares authorized33,713,166
                shares issued and outstanding
            
            
            33,713Additional
                paid-in capital
            
            
            15,532,678Deficit
                accumulated during the development stage
            
            
            (20,279,243
            )**Total
                Stockholders' Deficit**
            
            
            (4,712,852
            )**TOTAL
                LIABILITIES AND STOCKHOLDERS' DEFICIT**
            
            $
            802,791


The
      accompanying notes are an intregral part of the consensed consolidated financial
      statements.





F
          -
          1
 ***Table
          of Contents***


**AXIAL
        VECTOR ENGINE CORPORATION AND SUBSIDIARY(FORMERLY KNOWN AS AERO MARINE
        ENGINE, INC.)(A DEVELOPMENT STAGE COMPANY)CONDENSED CONSOLIDATED
        STATEMENTS OF OPERATIONSFOR THE SIX AND THREE MONTHS ENDED DECEMBER 31, 2005
        AND 2004 (UNAUDITED)WITH CUMULATIVE TOTALS SINCE
        INCEPTION**
 **SIX
                    MONTHS ENDED**
                
                **THREE
                    MONTHS ENDED**
                
                **CUMULATIVE
                    TOTALS****DECEMBER
                    31**
                
                **DECEMBER
                    31**
                
                **DECEMBER
                    30, 2002 through****2005**
                
                **2004**
                
                **2005**
                
                **2004**
                
                **DECEMBER
                    31, 2005****OPERATING
                    REVENUES**Sales
                
                $
                -
                
                $
                -
                
                $
                -
                
                $
                -
                
                $
                -**COST
                    OF SALES**
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -**GROSS
                    PROFIT**
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -**OPERATING
                    EXPENSES**Compensation
                    expense
                
                
                108,020
                
                
                -
                
                
                78,958
                
                
                -
                
                
                2,854,486Professional
                    and consulting fees
                
                
                658,879
                
                
                174,500
                
                
                431,716
                
                
                82,000
                
                
                6,376,010Advertising
                    and promotions
                
                
                116,438
                
                
                -
                
                
                73,588
                
                
                -
                
                
                325,515Rent
                
                
                8,368
                
                
                -
                
                
                7,369
                
                
                -
                
                
                52,544Impairment
                    of property and equipment
                
                
                -
                
                
                
                
                
                -
                
                
                -
                
                
                107,964Impairment
                    of goodwill and intangibles
                
                
                -
                
                
                812,500
                
                
                -
                
                
                -
                
                
                4,563,847Write-off
                    of inventory
                
                
                -
                
                
                
                
                
                -
                
                
                -
                
                
                266,519Research
                    and development
                
                
                2,239,211
                
                
                
                
                
                1,023,360
                
                
                -
                
                
                4,570,371General
                    and administrative expenses
                
                
                270,514
                
                
                40,062
                
                
                173,934
                
                
                24,562
                
                
                1,079,128Depreciation
                    and amortization
                
                
                3,634
                
                
                287
                
                
                2,082
                
                
                287
                
                
                44,328**Total
                    Operating Expenses**
                
                
                3,405,064
                
                
                1,027,349
                
                
                1,791,007
                
                
                106,849
                
                
                20,240,712**NET
                    LOSS BEFORE OTHER (EXPENSES)****AND
                    PROVISION FOR INCOME TAXES**
                
                
                (3,405,064
                )
                
                (1,027,349
                )
                
                (1,791,007
                )
                
                (106,849
                )
                
                (20,240,712
                )**OTHER
                    (EXPENSES)**Interest
                    income
                
                
                71
                
                
                -
                
                
                6
                
                
                -
                
                
                7,749Interest
                    expense
                
                
                (29,150
                )
                
                (3,351
                )
                
                (13,829
                )
                
                (1,851
                )
                
                (46,280
                )**Total
                    Other Expenses**
                
                
                (29,079
                )
                
                (3,351
                )
                
                (13,823
                )
                
                (1,851
                )
                
                (38,531
                )**NET
                    LOSS BEFORE PROVISION****FOR
                    INCOME TAXES**
                
                
                (3,434,143
                )
                
                (1,030,700
                )
                
                (1,804,830
                )
                
                (108,700
                )
                
                (20,279,243
                )Provision
                    for income taxes
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -**NET
                    LOSS**
                
                $
                (3,434,143
                )
                $
                (1,030,700
                )
                $
                (1,804,830
                )
                $
                (108,700
                )
                $
                (20,279,243
                )**WEIGHTED
                    AVERAGE COMMON SHARES****OUTSTANDING**
                
                
                32,817,555
                
                
                19,764,859
                
                
                33,188,833
                
                
                28,234,413**NET
                    LOSS PER COMMON SHARE OUTSTANDING**
                
                $
                (0.1046
                )
                $
                (0.0521
                )
                $
                (0.0544
                )
                $
                (0.0038
                )


The
        accompanying notes are an intregral part of the consensed consolidated financial
        statements.


F
          -
          2
 ***Table
          of Contents***


**AXIAL
        VECTOR ENGINE CORPORATION AND SUBSIDIARY(FORMERLY KNOWN AS AERO MARINE
        ENGINE, INC.)(A DEVELOPMENT STAGE COMPANY)CONDENSED CONSOLIDATED
        STATEMENTS OF CASH FLOWSFOR THE SIX AND THREE MONTHS ENDED DECEMBER 31, 2005
        AND 2004 (UNAUDITED)(WITH CUMULATIVE TOTALS SINCE
        INCEPTION)**
  **Cumulative
                    Totals****December
                    30, 2002 through****2005**
                
                **2004**
                
                **December
                    31, 2005****CASH
                    FLOWS FROM OPERATING ACTIVITIES**Net
                    loss
                
                
                (3,434,143
                )
                $
                (1,030,700
                )
                $
                (20,279,243
                )Adjustments
                    to reconcile net loss to net cashused
                    in operating activitiesCommon
                    stock issued for services
                
                
                529,600
                
                
                109,000
                
                
                4,681,139Common
                    stock issued as compensation
                
                
                -
                
                
                -
                
                
                1,200,000Options
                    issued for services
                
                
                -
                
                
                -
                
                
                2,069,961Options
                    issued as compensation
                
                
                22,750
                
                
                -
                
                
                1,102,750Depreciation
                    and amortization
                
                
                3,634
                
                
                287
                
                
                44,328Impairment
                    of property and equipment
                
                
                -
                
                
                -
                
                
                107,964Impairment
                    of goodwill and intangibles
                
                
                -
                
                
                812,500
                
                
                4,563,847Impairment
                    of inventory
                
                
                -
                
                
                3,351.00
                
                
                266,519**Changes
                    in assets and liabilities**Decrease
                    (Increase) in prepaid expensesand
                    other current assets
                
                
                (433,541
                )
                
                -
                
                
                (455,272
                )Increase
                    in accounts payable and accrued expenses
                
                
                577,995
                
                
                2,998,351
                
                
                765,720Increase
                    in payroll liabilities
                
                
                11,823
                
                
                -
                
                
                11,823Total
                    adjustments
                
                
                712,261
                
                
                3,923,489
                
                
                14,358,779**Net
                    cash (used in) operating activities**
                
                
                (2,721,882
                )
                
                2,892,789
                
                
                (5,920,464
                )**CASH
                    FLOWS FROM INVESTING ACTIVITIES**Acquisition
                    of business
                
                
                -
                
                
                -
                
                
                (1,018,814
                )Acquisitions
                    of intangible assets
                
                
                (179,574
                )
                
                -
                
                
                (243,324
                )Acquisitions
                    of fixed assets
                
                
                (19,572
                )
                
                (3,011,743
                )
                
                (69,335
                )**Net
                    cash (used in) investing activities**
                
                
                (199,146
                )
                
                (3,011,743
                )
                
                (1,331,473
                )**CASH
                    FLOWS FROM FINANCING ACTIVITIES**Issuance
                    of stock through the excersise of options
                
                
                50,079
                
                
                -
                
                
                50,079Proceeds
                    from the sale of stock
                
                
                -
                
                
                -
                
                
                1,648,048Proceeds
                    from Standby Equity Distribution Agreement
                
                
                3,350,000
                
                
                -
                
                
                3,750,000Liability
                    for stock to be issued
                
                
                (400,000
                )
                
                -
                
                
                337,095Repayment
                    of loan
                
                
                -
                
                
                -
                
                
                (5,000
                )Advances
                    from shareholders
                
                
                -
                
                
                124,723
                
                
                1,700,711Payments
                    to shareholders
                
                
                (32,565
                )
                
                -
                
                
                (486,489
                )Payments
                    to related company
                
                
                (10,000
                )
                
                
                
                
                (13,000
                )Advances
                    from related company
                
                
                -
                
                
                -
                
                
                314,339**Net
                    cash provided by financing activities**
                
                
                2,957,514
                
                
                124,723
                
                
                7,295,783**NET
                    INCREASE IN****CASH
                    AND CASH EQUIVALENTS**
                
                
                36,486
                
                
                5,769
                
                
                43,846**CASH
                    AND CASH EQUIVALENTS -****BEGINNING
                    OF YEAR**
                
                
                7,360
                
                
                -
                
                
                -**CASH
                    AND CASH EQUIVALENTS - END OF YEAR**
                
                $
                43,846
                
                $
                5,769
                
                $
                43,846**SUPPLEMENTAL
                    CASH FLOW INFORMATION**Cash
                    paid during the year for interest
                
                $
                -
                
                $
                -
                
                $
                190**SUPPLEMENTAL
                    DISCLOSURE OF NONCASH INFORMATION**Common
                    stock issued for services
                
                $
                529,600
                
                $
                109,000
                
                $
                4,681,139Impairment
                    of property and equipment
                
                $
                -
                
                $
                -
                
                $
                107,964Impairment
                    of goodwill and intangibles
                
                $
                -
                
                $
                812,500
                
                $
                1,513,847Impairment
                    of inventory
                
                $
                -
                
                $
                -
                
                $
                266,519Conversion
                    of payables to equity
                
                $
                53,250
                
                $
                -
                
                $
                170,285




The
        accompanying notes are an intregral part of the consensed consolidated financial
        statements.


F
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          3
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          of Contents***


**AXIAL
        VECTOR ENGINE CORPORATION AND SUBSIDIARY**
 **(FORMERLY
        AERO MARINE ENGINE, INC.)**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
        31, 2005 AND 2004**
 **(UNAUDITED)**
 
 NOTE
        1
        -ORGANIZATION
        AND BASIS OF PRESENTATION
 
 The
        condensed consolidated unaudited interim financial statements included herein
        have been prepared, without audit, pursuant to the rules and regulations
        of the
        Securities and Exchange Commission (“SEC”). The condensed consolidated financial
        statements and notes are presented as permitted on Form 10-QSB and do not
        contain information included in the Company’s annual statements and notes.
        Certain information and footnote disclosures normally included in financial
        statements prepared in accordance with accounting principles generally accepted
        in the United States of America have been condensed or omitted pursuant to
        such
        rules and regulations, although the Company believes that the disclosures
        are
        adequate to make the information presented not misleading. It is suggested
        that
        these condensed financial statements be read in conjunction with the June
        30,
        2005 audited financial statements and the accompanying notes thereto. While
        management believes the procedures followed in preparing these condensed
        financial statements are reasonable, the accuracy of the amounts are in some
        respects dependent upon the facts that will exist, and procedures that will
        be
        accomplished by the Company later in the year.
 
 These
        condensed consolidated unaudited financial statements reflect all adjustments,
        including normal recurring adjustments which, in the opinion of management,
        are
        necessary to present fairly the operations and cash flows for the periods
        presented.
 
 Princeton
        Ventures, Inc. (the "Company") was incorporated in the State of Nevada on
        May
        10, 2001. The Company had not commenced operations. On May 30, 2003, the
        Company
        exchanged 37,994,923 shares of its common stock for all of the issued and
        outstanding shares of Aero Marine Engine Corp. ("Aero"). Aero was formed
        on
        December 30, 2002. Aero had no operations and was formed to acquire the assets
        of Dyna-Cam Engine Corporation. The Company changed its name from Princeton
        Ventures, Inc. to Aero Marine Engine, Inc.
 
 At
        the
        time that the transaction was agreed to, the Company had 20,337,860 common
        shares issued and outstanding. In contemplation of the transaction with Aero,
        the Company's two primary shareholders cancelled 9,337,860 shares of the
        Company's common stock held by them, leaving 11,000,000 shares issued and
        outstanding. As a result of the acquisition of Aero, there were 48,994,923
        common shares outstanding, and the former Aero stockholders held approximately
        78% of the
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 ***Table
            of Contents***
 **AXIAL
        VECTOR ENGINE CORPORATION AND SUBSIDIARY**
 **(FORMERLY
        AERO MARINE ENGINE, INC.)**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
        31, 2005 AND 2004**
 **(UNAUDITED)**
 
 
 NOTE
        1
        -ORGANIZATION
        AND BASIS OF PRESENTATION (CONTINUED)
 
 Company's
        voting stock. For financial accounting purposes, the acquisition was a reverse
        acquisition of the Company by Aero, under the purchase method of accounting,
        and
        was treated as a recapitalization with Aero as the acquirer. Accordingly,
        the
        historical financial statements have been restated after giving effect to
        the
        May 30, 2003, acquisition of the Company. The financial statements have been
        prepared to give retroactive effect to December 30, 2002, the date of inception
        of Aero, of the reverse acquisition completed on May 30, 2003, and represent
        the
        operations of Aero. Consistent with reverse acquisition accounting: (i) all
        of
        Aero's assets, liabilities, and accumulated deficit, are reflected at their
        combined historical cost (as the accounting acquirer) and (ii) the preexisting
        outstanding shares of the Company (the accounting acquiree) are reflected
        at
        their net asset value as if issued on May 30, 2003.
 
 Additionally,
        on June 30, 2003, the Company acquired the operating assets of Dyna-Cam Engine
        Corp. ("Dyna-Cam"). Dyna-Cam was a development stage enterprise developing
        a
        unique, axial cam-drive, free piston, internal combustion engine. Dyna-Cam
        intended to produce and sell the engine primarily for aircraft and marine
        applications. Dyna-Cam had not generated significant revenues at the time
        of the
        Company's acquisition.
 
 The
        Company, under its new management, has raised over $1,200,000 in cash to
        affect
        the development of the Axial Vector Engine “E” (Electronic). Management believes
        that significant capital is required to adequately develop the Axial Vector
        Engine “E” engine and begin operations. For the three months ended September 30,
        2005, shareholders of the Company have advanced a net of $493,404 to assist
        in
        funding the operations.
 
 The
        Company will require additional capital. Although the current majority
        stockholders of the Company, as well as an affiliate, have made verbal
        commitments with no guarantees to continue to fund the development and sales
        and
        marketing efforts of the Company, if alternate financing cannot be obtained.
        There can be no assurance that any new
  F
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 ***Table
            of Contents***
 **AXIAL
        VECTOR ENGINE CORPORATION AND SUBSIDIARY**
 **(FORMERLY
        AERO MARINE ENGINE, INC.)**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
        31, 2005 AND 2004**
 **(UNAUDITED)**
 
 NOTE
        1
        -ORGANIZATION
        AND BASIS OF PRESENTATION(CONTINUED)
 
 capital
        would be available to the Company or that adequate funds for the Company's
        operations, whether from the Company's revenues, financial markets, or other
        arrangements will be available when needed or on terms satisfactory to the
        Company. The failure of the Company to obtain adequate additional financing
        will
        require the Company to delay, curtail or scale back some or all of its research
        and development programs, sales, marketing efforts and manufacturing
        operations.
 
 On
        May
        19, 2005, the Company announced that it had changed its name to Axial Vector
        Engine Corporation (“Axial”). Management believes the new name will more
        accurately describe the Company’s mission. The Company’s stock symbol changed to
        AXVC.
 
 **Use
        of Estimates**
 
 The
        preparation of condensed consolidated financial statements in conformity
        with
        accounting principles generally accepted in the United States of America
        requires management to make estimates and assumptions that affect the amounts
        reported in the financial statements and accompanying notes. Actual results
        could differ from those estimates.
 
 **Cash
        and Cash Equivalents**
 
 Cash
        and
        cash equivalents consists principally of currency on hand, demand deposits
        at
        commercial banks, and liquid investment funds having an original maturity
        of
        three months or less at the time of purchase.
 
 **Concentration
        of Credit Risk**
 
 Financial
        instruments that potentially subject the Company to credit risk consist of
        cash
        equivalents and accounts receivable.
 
 The
        Company’s policy is to review the amount of credit exposure to any one financial
        institution and place investments with financial institutions evaluated as
        being
        creditworthy. In the ordinary course of business, the Company has bank deposits
        that may exceed federally insured limits. As of December 31, 2005, the Company
        was not in excess of the $100,000 insured limit.
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 ***Table
            of Contents***
 **AXIAL
        VECTOR ENGINE CORPORATION AND SUBSIDIARY**
 **(FORMERLY
        AERO MARINE ENGINE, INC.)**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
        31, 2005 AND 2004**
 **(UNAUDITED)**
 
 NOTE
        2
        -SUMMARY
        OF SIGNIFICANT ACCOUNTING POLICIES
 **(CONTINUED)**
 
 **Principles
        of Consolidation**
 
 The
        condensed 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.
 
 **Property
        and Equipment**
 
 Property
        and equipment is stated at cost. Depreciation is computed using the
        straight-line method over the estimated useful lives of the assets, three
        to
        seven years. Reviews are regularly performed to determine whether facts and
        circumstances exist that indicate the carrying amount of assets may not be
        recoverable or the useful life is shorter than originally estimated. The
        Company
        assesses the recoverability of its property and equipment by comparing the
        projected undiscounted net cash flows associated with the related asset or
        group
        of assets over their remaining lives against their respective carrying amounts.
        Impairment, if any, is based on the excess of the carrying amount over the
        fair
        value of those assets.
 
 If
        assets
        are determined to be recoverable, but the useful lives are shorter than
        originally estimated, the net book value of the assets is depreciated over
        the
        newly determined remaining useful lives. When equipment is retired or otherwise
        disposed of, the cost and related accumulated depreciation are removed from
        the
        accounts and the resulting gain or loss is included in operations.
 
  F
            -
            7
 ***Table
            of Contents***
 **AXIAL
        VECTOR ENGINE CORPORATION AND SUBSIDIARY**
 **(FORMERLY
        AERO MARINE ENGINE, INC.)**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
        31, 2005 AND 2004**
 **(UNAUDITED)**
 
 NOTE
        2
        -SUMMARY
        OF SIGNIFICANT ACCOUNTING POLICIES
 **(CONTINUED)**
 
 **Reclassifications**
 
 Certain
        amounts for the six months ended December 30, 2004 have been reclassified
        to
        conform to the presentation of the December 31, 2005 amounts. The
        reclassifications have no effect on net loss for the six months ended December
        31, 2004.
 
 **Income
        Taxes**
 
 The
        Company has adopted the provisions of Statement of Financial Accounting
        Standards (“SFAS”) No. 109, Accounting for Income Taxes. The Statement requires
        an asset and liability approach for financial accounting and reporting of
        income
        taxes, and the recognition of deferred tax assets and liabilities for the
        temporary differences between the financial reporting bases and tax bases
        of the
        Company’s assets and liabilities at enacted tax rates expected to be in effect
        when such amounts are realized or settled.
 
 **Advertising**
 
 The
        Company’s policy is to expense the costs of advertising and marketing as they
        are incurred. Advertising expense for the six months ended December 31, 2005
        and
        2004 was $116,438 and $0, respectively.
 
 **Research
        and Development**
 
 Research
        and development costs are expensed as incurred.
  F
            -
            8
 ***Table
            of Contents***
 **AXIAL
        VECTOR ENGINE CORPORATION AND SUBSIDIARY**
 **(FORMERLY
        AERO MARINE ENGINE, INC.)**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
        31, 2005 AND 2004**
 **(UNAUDITED)**
 
 NOTE
        2
        -SUMMARY
        OF SIGNIFICANT ACCOUNTING POLICIES
 **(CONTINUED)**
 
 **Intangible
        Assets**
 
 Intangible
        assets are comprised of goodwill, and the technology and intellectual property
        of Transporter, Inc., as well as new patents pending related to the Axial
        Vector
        Engine “E” (Electronic). These assets represent the value of the difference
        between the purchase price of the acquired business and the fair value of
        the
        identifiable tangible net assets. The Company adopted Statement of Financial
        Accounting Standard (“SFAS”) No. 142, Goodwill and Other Intangible Assets. The
        Company does not amortize goodwill, but rather annually evaluates the carrying
        value of goodwill for impairment, in accordance with the provisions of SFAS
        No.
        142. The finite life of the intangibles will be amortized over 17 years when
        final approval is granted. Amortization expense was $ -0- for the six months
        ended December 31, 2005
  The
        Company recognized impairment of the intangible asset of $-0- and $812,500
        for
        the six months ended December 31, 2005 and 2004, respectively.
 
 During
        the six months ended December 31, 2005, the Company incurred costs of $179,574
        in applying and registering of patents. These patents are currently pending.
        Due
        to the nature of the patents, the Company anticipates receiving confirmation
        on
        their applications in an expedited fashion.
 
 **Start-up
        Costs**
 
 In
        accordance with the American Institute of Certified Public Accountants Statement
        of Position 98-5, *“Reporting
        on the costs of Start-up Activities”* ,
        the
        Company expenses all costs incurred in connection with the start-up and
        organization of the Company.
 
 **Stock-Based
        Compensation**
 
 Employee
        stock awards under the Company’s compensation plans are accounted for in
        accordance with Accounting Principles Board Opinion No. 25 (“APB 25”), *“Accounting
        for Stock Issued to Employees”* ,
        and
        related interpretations. The Company provides the disclosure requirements
        of
        Statement of Financial Accounting Standards No. 123, “ *Accounting
        for*
  F
            -
            9
 ***Table
            of Contents***
 **AXIAL
        VECTOR ENGINE CORPORATION AND SUBSIDIARY**
 **(FORMERLY
        AERO MARINE ENGINE, INC.)**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
        31, 2005 AND 2004**
 **(UNAUDITED)**
 
 NOTE
        2
        -SUMMARY
        OF SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)
 
 Stock-Based
        Compensation(Continued)
 
 *Stock-Based
        Compensation”* (“SFAS
        123”), and related interpretations. Stock-based awards to non-employees are
        accounted for under the provisions of SFAS 123 and has adopted the enhanced
        disclosure provisions of SFAS No. 148 “Accounting for Stock-Based Compensation -
        Transition and Disclosure, an amendment of SFAS No. 123”.
 
 The
        Company measures compensation expense for its employee stock-based compensation
        using the intrinsic-value method. Under the intrinsic-value method of accounting
        for stock-based compensation, when the exercise price of options granted
        to
        employees is less than the estimated fair value of the underlying stock on
        the
        date of grant, deferred compensation is recognized and is amortized to
        compensation expense over the applicable vesting period. In each of the periods
        presented, the vesting period was the period in which the options were
        granted.
 
 The
        Company measures compensation expense for its non-employee stock-based
        compensation under the Financial Accounting Standards Board (FASB) Emerging
        Issues Task Force (EITF) Issue No. 96-18, “ *Accounting
        for Equity Instruments that are Issued to Other Than Employees for Acquiring
        or
        in Conjunction with Selling* , *Goods
        or Services”* .
        The
        fair value of the option issued is used to measure the transaction, as this
        is
        more reliable than the fair value of the services received. The fair value
        is
        measured at the value of the Company’s common stock on the date that the
        commitment for performance by the counterparty has been reached or the
        counterparty’s performance is complete. The fair value of the equity instrument
        is charged directly to compensation expense and additional paid-in
        capital.
 
 **Common
        Stock Issued for Other Than Cash**
 
 Services
        purchased and other transactions settled in the Company’s common stock are
        recorded at the estimated fair value of the stock issued if that value is
        more
        readily determinable than the fair value of the consideration
        received.
  F
            -
            10
 ***Table
            of Contents***
 **AXIAL
        VECTOR ENGINE CORPORATION AND SUBSIDIARY**
 **(FORMERLY
        AERO MARINE ENGINE, INC.)**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
        31, 2005 AND 2004**
 **(UNAUDITED)**
 
 NOTE
        2
        -SUMMARY
        OF SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)
 
 **(Loss)
        Per Share of Common Stock**
 
 Historical
        net income (loss) per common share is computed using the weighted average
        number
        of common shares outstanding. Diluted earnings per share (EPS) include
        additional dilution from common stock equivalents, such as stock issuable
        pursuant to the exercise of stock options and warrants. Common stock equivalents
        are not included in the computation of diluted earnings per share when the
        Company reports a loss because to do so would be antidilutive for the periods
        presented.
 
 The
        following is a reconciliation of the computation for basic and diluted
        EPS: **December
                    31,****2005**
                
                **2004**Net
                    Income (Loss)
                
                $
                (3,434,143
                )
                $
                594,300Weighted-average
                    common sharesoutstanding
                    (Basic)
                
                
                32,817,555
                
                
                19,764,859Weighted-average
                    common stockequivalents:Stock
                    options and warrants
                
                
                -
                
                
                -Weighted-average
                    common sharesoutstanding
                    (Diluted)
                
                
                32,817,555
                
                
                19,764,859
  Options
        and warrants outstanding to purchase stock were not included in the computation
        of diluted EPS because inclusion would have been antidilutive. As of December
        31, 2005 there were 243,209 options and 250,004 warrants available. The warrants
        have the options to purchase 2,355,000 shares. As of December 31, 2004, there
        were no outstanding options or warrants available.
 
 **Fair
        Value of Financial Instruments**
  The
        carrying amount reported in the balance sheets for cash and cash equivalents
        and
        liability for stock to be issued approximate fair value because of the immediate
        or short-term maturity of these financial instruments.
  F
            -
            11
 ***Table
            of Contents***
 **AXIAL
        VECTOR ENGINE CORPORATION AND SUBSIDIARY**
 **(FORMERLY
        AERO MARINE ENGINE, INC.)**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
        31, 2005 AND 2004**
 **(UNAUDITED)**
 
 NOTE
        2
        -SUMMARY
        OF SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)
 
 Recently
        Issued Accounting Pronouncements
 
 On
        December 16, 2004, the Financial Accounting Standards Board ("FASB") published
        Statement of Financial Accounting Standards No. 123 (Revised 2004), Share-Based
        Payment ("SFAS 123R"). SFAS 123R requires that compensation cost related
        to
        share-based payment transactions be recognized in the financial statements.
        Share-based payment transactions within the scope of SFAS 123R include stock
        options, restricted stock plans, performance-based awards, stock appreciation
        rights, and employee share purchase plans. The provisions of SFAS 123R are
        effective for small business issuers as of the first interim period that
        begins
        after December 15, 2005. Accordingly, the Company will implement the revised
        standard January 1, 2006. Currently, the Company accounts for its share-based
        payment transactions under the provisions of APB 25, which does not necessarily
        require the recognition of compensation cost in the financial statements
        (note
        3(d)). Management is assessing the implications of this revised standard,
        which
        may materially impact the Company's results of operations commencing January
        1,
        2006 and thereafter.
 
 On
        December 16, 2004, FASB issued Statement of Financial Accounting Standards
        No.
        153, Exchanges of Non-monetary Assets, an amendment of APB Opinion No. 29,
        Accounting for Non-monetary Transactions (" SFAS 153"). This statement amends
        APB Opinion 29 to eliminate the exception for non-monetary exchanges of similar
        productive assets and replaces it with a general exception for exchanges
        of
        non-monetary assets that do not have commercial substance. Under SFAS 153,
        if a
        non-monetary exchange of similar productive assets meets a commercial-substance
        criterion and fair value is determinable, the transaction must be accounted
        for
        at fair value resulting in recognition of any gain or loss. SFAS 153 is
        effective for non-monetary transactions in fiscal periods that begin after
        June
        15, 2005. The Company does not anticipate that the implementation of this
        standard will have a material impact on its financial position, results of
        operations or cash flows.
  F
            -
            12
 ***Table
            of Contents***
 **AXIAL
        VECTOR ENGINE CORPORATION AND SUBSIDIARY**
 **(FORMERLY
        AERO MARINE ENGINE, INC.)**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
        31, 2005 AND 2004**
 **(UNAUDITED)**
 
 NOTE
        3
        -PROPERTY
        AND EQUIPMENT
 
 Property
        and equipment consist of the following at December 31, 2005. **2005**Computer
                
                $
                26,572Equipment
                    and machinery
                
                
                13,274Office
                    equipment
                
                
                2,72342,569Less:
                    accumulated depreciation
                
                
                (5,489
                )$
                37,080
 
 Depreciation
        expense for the six months ended December 31, 2005 was $3,634.
 
 NOTE
        4
        -RELATED
        PARTY TRANSACTIONS
 
 An
        affiliated entity provided office space to the Company at no charge, and
        funded
        payroll, moving and other general expenses. As of December 31, 2005, the
        Company
        incurred and accrued $301,339, in liabilities to this entity. The advances
        and
        funding are based on verbal commitments with no guarantees of future advances
        or
        funding.
 
 NOTE
        5
        -DUE
        TO
        SHAREHOLDERS
 
 Certain
        shareholders of the Company have advanced funds to the Company to cover cash
        flow deficiencies. These advances have no stated repayment terms and bear
        interest at 5% with interest payable annually.
  F
            -
            13
 ***Table
            of Contents***
 **AXIAL
        VECTOR ENGINE CORPORATION AND SUBSIDIARY**
 **(FORMERLY
        AERO MARINE ENGINE, INC.)**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
        31, 2005 AND 2004**
 **(UNAUDITED)**
 
 NOTE
        6
        -LIABILTY
        FOR STOCK TO BE ISSUED
 
 This
        account represents shares to be issued in connection to a private investor
        for
        which cash was received by the Company prior to issuance of the stock as
        of
        December 31, 2005.
 
 NOTE
        7
        -NOTE
        PAYABLE
 
 Note
        payable to Transporter Inc. commencing August 2004 for the purchase of exclusive
        rights to certain video-conferencing technology. The Company is currently
        in
        litigation with Transporter Inc. regarding the technology for which the note
        was
        issued. The Company has defaulted on this note and this note is due in full.
        See
        Note 12 regarding the litigation of this matter.
 
 NOTE 8
        -PROVISION
        FOR INCOME TAXES
 
 Deferred
        income taxes will be determined using the liability method for the temporary
        differences between the financial reporting basis and income tax basis of
        the
        Company’s assets and liabilities. Deferred income taxes will be measured based
        on the tax rates expected to be in effect when the temporary differences
        are
        included in the Company’s tax return. Deferred tax assets and liabilities are
        recognized based on anticipated future tax consequences attributable to
        differences between financial statement carrying amounts of assets and
        liabilities and their respective tax bases.
 
 At
        December 31, 2005, deferred tax assets consist of the
        following:
 2005Deferred
                  tax assets
              
              $
              6,902,000Less:
                  valuation allowance
              
              
              (6,902,000
              )Net
                  deferred assets
              
              $
              -0-
  At
        December 31, 2005, the Company had federal net operating loss carry forwards
        in
        the approximate amounts of $20,300,000 available to offset future taxable
        income
        through 2024. The Company established valuation allowances equal to the full
        amount of the deferred tax assets due to the uncertainty of the utilization
        of
        the operating losses in future periods.
  F
            -
            14
 ***Table
            of Contents***
 **AXIAL
        VECTOR ENGINE CORPORATION AND SUBSIDIARY**
 **(FORMERLY
        AERO MARINE ENGINE, INC.)**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
        31, 2005 AND 2004**
 **(UNAUDITED)**
 
 **NOTE
        9
        -** **STANDBY
        EQUITY DISTRIBUTION AGREEMENT**
 
 On
        April
        25, 2005, the Company entered into a Standby Equity Distribution Agreement
        (“Agreement”) with Alliance Capital Management. Under the agreement, the Company
        may issue and sell to Alliance Capital Management common stock for a total
        purchase price of up to $4.0 million. The purchase price for the first payment
        is 200,000 shares. The remaining purchase price for the shares is equal to
        75%
        of the market price, which is determined as the lowest volume weighted average
        price of the common stock during the ten trading days following the notice
        date.
        This calculation is mandated by the Agreement.
 
 The
        amount of each advance is subject to an aggregate minimum advance of $400,000
        and payable on the 5 th of each
        month commencing May 5, 2005 and continuing through February 5, 2006. Alliance
        Capital Management received, as additional consideration, one (1) warrant
        to
        purchase two million shares of common stock at a fixed rate of $4.00 per
        share
        for a period of two years.
 
 **NOTE
        10 -** **STOCKHOLDERS'
        EQUITY (DEFICIT)**
 
 The
        Company has 100,000,000 shares of common stock authorized, par value $.001.
        As
        of December 31, 2005, the Company has 33,713,166 shares of common stock issued
        and outstanding.
 
 The
        Company issued 37,994,923 shares of its common stock in connection with the
        acquisition of Aero Marine Engine Corp. Under reverse acquisition accounting,
        these shares are reflected as issued on the date of inception and valued
        at the
        book value of the net assets of as of the date of the transaction.
 
 Aero
        was
        incorporated in contemplation of the reverse acquisition of the Company as
        well
        as the Dyna-Cam acquisition. A total of 38,994,923 common shares were issued
        in
        the reverse merger transaction. However, 1,000,000 of those shares were
        designated for the Dyna-Cam acquisition. (See Subsequent Event Footnote.)
        The
        Company raised $1,218,598 as part of its initial capitalization. This capital
        was raised among four individuals in contemplation of their receiving the
        37,994,923 shares of the Company's common stock in connection with the
        acquisition of Aero Marine Engine Corp. The value of the 1,000,000 shares
        issued
        in connection with the Dyna-Cam purchase was determined to be $0.032 per
  F
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            15
 ***Table
            of Contents***
 **AXIAL
        VECTOR ENGINE CORPORATION AND SUBSIDIARY**
 **(FORMERLY
        AERO MARINE ENGINE, INC.)**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
        31, 2005 AND 2004**
 **(UNAUDITED)**
 
 **NOTE
        10 -** **STOCKHOLDERS'
        EQUITY (DEFICIT)** **(CONTINUED)**
 
 share,
        which is the price per share paid by the investors that acquired the 37,994,923
        shares for cash.
 
 In
        connection with the reverse acquisition transaction with Aero, the Company's
        two
        controlling shareholders at that time cancelled 9,337,860 shares of common
        stock
        held by them. Upon completion of this cancellation, the Company had 11,000,000
        shares of common stock remaining outstanding prior to the reverse acquisition
        transaction.
 
 In
        January 22, 2004, the Company issued 5,000,000 shares of its common stock
        in
        exchange for consulting services rendered to the Company pursuant to an S-8
        registration statement. These shares were valued at $3,350,000 ($.67 per
        share),
        the fair value of the stock at the date of issuance.
 
 On
        July
        30, 2004 with an effective date of August 9, 2004 the Board of Directors
        adopted
        a resolution authorizing and approving a 100 to 1 reverse stock split and
        the
        new trading symbol of the company is AOME.
 
 On
        August
        24, 2004 International Equity Partners, SA purchased Transporter, Inc., a
        company developing video conferencing software allowing the creation of virtual
        private networks that are PC based, have no need to use servers or special
        equipment, and operate on any broadband connection. The purchase price was
        $3,000,000, $100,000 of which is payable within 60 days of the date of the
        Exclusive Purchase Agreement with the balance payable in intervals over 24
        months. In addition, the former stockholders of Transporter, Inc. are to
        be
        issued 1,000,000 shares of the common stock of the Company.
 
 At
        the
        end of a two-year period the shares are guaranteed to be worth at least $2.00
        per share, and, if worth less, additional shares of stock will then be issued
        to
        make up the difference. The value of the shares is $50,000 ($.05 per
        share).
 
 On
        August
        24, 2004 the Company acquired through an assignment by International Equity
        Partners, SA all rights, title, and interest in the aforesaid Exclusive Purchase
        Agreement in exchange for 25,000,000 shares of common stock of the Registrant.
        All certificates issued will bear the appropriate 2-year restrictive legend.
        The
        value of the issuance is $812,500, which was the fair value of the stock
        at the
        date the transaction
 was
        negotiated.
  F
            -
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 ***Table
            of Contents***
 **AXIAL
        VECTOR ENGINE CORPORATION AND SUBSIDIARY**
 **(FORMERLY
        AERO MARINE ENGINE, INC.)**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
        31, 2005 AND 2004**
 **(UNAUDITED)**
 
 **NOTE
        10 -** **STOCKHOLDERS'
        EQUITY
        (DEFICIT)** **(CONTINUED)**
 
 On
        August
        25, 2004, the Company entered into a Consulting Fee Agreement with Carlyle
        Financial Consulting Group, which will continue to provide consulting services
        for all of the Company’s businesses and will also continue to coordinate
        prospective acquisitions in European countries and the Arabian Gulf. The
        consulting fee was negotiated for 1,400,000 shares of common stock, which
        the
        Company has registered with the Securities and Exchange Commission on Form
        S-8
        Registration Statement under the Securities Act of 1933.
 
 On
        September 9, 2004, the Company issued 200,000 shares of common stock of the
        Company in exchange for legal and professional services rendered and to be
        rendered.
 
 On
        November 8, 2004 the Company issued 157,788 shares of common stock of the
        Company in exchange for consulting services rendered.
 
 On
        November 11, 2004 the Company issued 463,776 shares of common stock of the
        Company in exchange for financial services. The services were never rendered
        and
        the shares were subsequently cancelled. These transactions have been
        retroactively restated back to the period ended December 31, 2004 to reflect
        the
        cancellation.
 
 On
        January 3, 2005 the Company issued 100,000 shares of common stock with a
        par
        value of $.001 for $300 cash.
 
 On
        April
        6, 2005 the Company issued 50,000 shares of common stock of the Company in
        exchange for consulting services rendered.
 
 In
        April
        2005, the Company completed an offering of 1,125,811 shares of common stock
        par
        value $.001 to eight purchasers at the price of $0.50 per share. The total
        amount the Company received was $562,901. Due to an administrative error,
        106,500 of these shares were not issued to a single purchaser and these shares
        were later issued in November 2005.
 
 On
        April
        20, 2005, the Company completed an offering of 1,800,000 units at a price
        of
        $0.50 per unit. Each unit consists of one share of common stock par value
        $.001
        and one warrant to purchase one share of common stock, exercisable for two
        years
        closing of the offering. The total amount the Company received was $900,000.
        As
        of December 31, 2005, only 1,232,311 shares have been issued.
 
  F
            -
            17
 ***Table
            of Contents***
 **AXIAL
        VECTOR ENGINE CORPORATION AND SUBSIDIARY**
 **(FORMERLY
        AERO MARINE ENGINE, INC.)**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
        31, 2005 AND 2004**
 **(UNAUDITED)**
 
 **NOTE
        10
        -** **STOCKHOLDERS'
        EQUITY
        (DEFICIT)** **(CONTINUED)**
 
 On
        April
        17, 2005, the Company issued 1,465,000 shares of common stock of the Company
        in
        exchange for a management-consulting contract. The contract is for a period
        of
        five years and is estimated to be worth $35,000 a year, totaling
        $175,000.
 
 On
        April
        15, 2005, the Company issued 600,000 shares of common stock of the Company
        as
        compensation.
 
 On
        April
        15, 2005, the Company issued 20,000 shares of common stock of the Company
        as
        part of a previous agreement for consulting services rendered.
 
 In
        June
        2005, the Company issued 129,061 shares of common stock of the Company for
        legal
        services.
 
 During
        the year, the Company cancelled 860,000 of founder shares, which had been
        restated back to the period ended June 30, 2003.
 
 In
        August
        of 2005, the Company issued 1,465,000 shares of common stock in exchange
        for
        financial services. The services were never rendered and the shares were
        subsequently cancelled.
 
 For
        the
        three months ended December 31, 2005, the Company issued 195,000 shares of
        common stock of the Company in exchange for consulting services
        rendered.
 
 For
        the
        three months ended December 31, 2005, the Company granted an employee options
        to
        purchase 15,000 shares of its common stock exercisable for a period of ten
        years
        at the exercise price of $2.15 per share.
 
 For
        the
        six months ended December 31, 2005, the Company issued 32,730 shares of common
        stock through the exercise of options. The options carried a strike price
        of
        $1.53.
  For
        the
        six months ended December 31, 2005, the Company issued 1,241,174 shares of
        common stock as part of their Standby Equity Agreement (See Note 9)
 
 
  F
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 ***Table
            of Contents***
 **AXIAL
        VECTOR ENGINE CORPORATION AND SUBSIDIARY**
 **(FORMERLY
        AERO MARINE ENGINE, INC.)**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
        31, 2005 AND 2004**
 **(UNAUDITED)**
 
 **NOTE
        10 -** **STOCKHOLDERS'
        EQUITY (DEFICIT)**
 (CONTINUED)
 
 The
        Company, at December 31, 2005, has 100,000,000 shares of preferred stock
        authorized and no shares issued and outstanding.
 
 **NOTE
        11 -** **GOING
        CONCERN UNCERTAINTY**
 
 As
        shown
        in the accompanying financial statements, as is typical of companies going
        through the development stage, the Company incurred net losses for the years
        ended June 30, 2005 and 2004 and for the six months ended December 30, 2005.
        The
        Company is currently in the development stage, and there is no guarantee
        whether
        the Company will be able to generate enough revenue and/or raise capital
        to
        support current operations and generate anticipated sales. This raises
        substantial doubt about the Company’s ability to continue as a going concern.
        Management believes that the Company’s capital requirements will depend on many
        factors including the success of the Company’s product development efforts. The
        financial statements do not include any adjustments that might result from
        the
        outcome of these uncertainties.
 
 **NOTE
        12 -** **COMMITEMENTS
        AND CONTINGENCIES**
 
 On
        August
        24, 2004 the Company entered into a Joint Venture Agreement with Adaptive
        Propulsion Systems, LLC (“Adaptive”), a wholly owned subsidiary of Tactronics.
        Adaptive will provide 100% of the capital and labor to build military grade
        engines based on the Registrant’s Dyna-Cam engine design. Adaptive will pay the
        Company a 20% gross royalty on all orders of the engines sold to the United
        States Government. The Company will have the rest of the world military market
        and all civilian commercial applications, and the Company will pay a five
        (5%)
        percent royalty on such orders to Adaptive. For the six months ended December
        31, 2005 the Company has research and development costs of approximately
        $2,239,000
 
 In
        May
        2005, the Company filed suit against Transporter, Inc and its principals,
        Daniel
        Werner and Craig Della Penna. The suit seeks to rescind the August 2004
        agreement under which the Company acquired the exclusive rights to certain
        video-conferencing technology. The Company contends that the principals
        intentionally misrepresented the status and capabilities of the technology
        that
        was acquired under the original agreement. The case is pending litigation.
        The
        Company has determined that the technology is worthless, and thus has impaired
        the asset in its entirety as of December 31, 2005.
 
 In
        October 2005, the Company entered into a business consulting agreement with
        Wexler Kronen Capital Associates. Wexler is to provide consulting and
  F
            -
            19
 ***Table
            of Contents***
 **AXIAL
        VECTOR ENGINE CORPORATION AND SUBSIDIARY**
 **(FORMERLY
        AERO MARINE ENGINE, INC.)**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
        31, 2005 AND 2004**
 **(UNAUDITED)**
 
 **NOTE
        12 -** **COMMITEMENTS
        AND
        CONTINGENCIES** **(CONTINUED)**
 
 promotional
        services for a period of 12 months. The payment for these services is $7,000
        per
        month, 10,000 shares of restricted stock and 3 warrants. Each warrant is
        exercisable for 35,000 shares at various exercise prices. One for $4.00,
        the
        second for $4.50 and the third for $5.00. The warrants expire October
        2008.
  In
        November 2005, the Company entered into a business consulting agreement with
        Redwood Consultants L.L.C. Redwood is to provide consulting services for
        a
        period of 12 months to the Company. As part of this agreement, the Company
        issued 50,000 restricted shares with an additional 50,000 shares to be issued
        March 9, 2006 and July 9, 2006. All 150,000 were issued at commencement of
        the
        agreement and have been recorded as a prepaid asset on a prorata basis. In
        addition, the company has granted warrants to purchase 250,000 shares at
        $4.00
        per share which expire November 2007.
 
  F
            -
            20
 ***Table
            of Contents***
 Item
        2.     Plan of
        Operation





**Forward-Looking
      Statements**




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





**Summary
      of Product Research and Development**





**Internal
      Combustion Engine**





Joint
      Venture Agreement with Adaptive Propulsion Systems, LLC





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





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





4
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          of Contents***


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





On
      November 30, 2005, we selected the final engineering design for the prototypical
      Axial Vector engine (“prototypical engine”). We anticipate that the prototypical
      engine will be completed by the end of March 2006. We anticipate commencing
      beta
      testing on our prototypical engine initially at Adaptive’s facilities in April
      2006. Thereafter, we intend to conduct beta testing on our prototypical engine
      at several different global locations with varying climates and elevations
      commencing prior to the end of July 2006. Beta testing and data gathering will
      proceed for a period of at least 3 months. During this time we will also gather
      data to estimate the Mean Time to Failure (“MTF”) of our prototypical engine.
      The planned MTF testing will consist of running the engine for 60 days and
      taking measurements of the engine components to estimate the wear at the
      conclusion of the test. This testing will provide us with an accurate gauge
      of
      the endurance of the engine and its specific components. Based upon the results
      of the MTF and beta testing, further modifications may be required.





Following
      the completion of all testing and modifications, we are planning to commence
      initial manufacturing of an engine utilizing the axial vector design no later
      than December 2006. In the expected event that we are successful in generating
      revenue from licensing our technology and/or product sales, we will seek to
      increase our manufacturing capacity.




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




**Power
      Generators**




Power
      Generation Agreement




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




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




5
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          of Contents***




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




The
      development process for these power generators commenced in the last quarter
      of
      the fiscal year ended June 30, 2005. Subsequent to the reporting period, we
      agreed to pay Adaptive approximately $660,000 to retain personnel to improve
      the
      functionality of the Axial Flux design utilized in our Gen Sets. We anticipate
      that Adaptive will be able to comply with the terms of this agreement and
      complete the development of our prototypical 200 kW Axial Flux generator driven
      by a 352 HP Axial Vector Engine (“prototypical generator”) prior to the end of
      March 2006. We anticipate commencing beta testing on our prototypical generator
      initially at Adaptive’s facilities in April 2006. Thereafter, we intend to
      conduct beta testing at several different global locations with varying climates
      and elevations commencing prior to the end of July 2006. Beta testing and data
      gathering will proceed for a period of at least 3 months. During this time
      we
      will also conduct tests to estimate the Mean Time to Failure (“MTF”) of our
      prototypical generator. The planned MTF testing will consist of running the
      generator for 60 days and taking measurements of its components to estimate
      the
      wear at the conclusion of the test. This testing will provide us with an
      accurate gauge of the endurance of the generator and its specific components.
      Based upon the results of the MTF and beta testing, further modifications may
      be
      required.




Initial
      commercial manufacturing production of the Gen Sets is planned to be carried
      out
      at Adaptive’s facilities in December 2006. In the expected event that we are
      successful in generating revenue from licensing our technology and product
      sales, we will seek to increase our manufacturing capacity.





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




To
      date,
      Adaptive has performed all of our research, testing, and product development.
      If
      we are successful in developing products for military and commercial use, we
      intend to license the manufacturing rights. As a result, we do not anticipate
      any purchase or sale of and equipment over the next twelve months.




**Licenses**




On
      September 10, 2005, we entered into a memorandum of understanding (“MOU”) with
      Kirloskar Oil Engines Limited (“KOEL”), an Indian based manufacturer and
      engineering company. We are working toward the execution of a definite agreement
      with KOEL where we would grant KOEL the exclusive right to utilize our
      technology for non-automotive applications including tractor engines, loader
      engines, fork lift truck engines, and other farm and forestry applications.
      The
      execution of a definitive agreement is  contingent
      upon completion of the parties due diligence which was anticipated to be occur
      in January 2006. The parties have extended the anticipated closing date of
      a
      definitive agreement to July 2006 in order to provide the senior managers from
      KOEL with an opportunity to conduct additional due diligence at beta test sites
      where further product testing will be ongoing. Pursuant to the terms of the
      MOU,
      KOEL placed $1,000,000 into a segregated account which it controls and we have
      granted them a right of first refusal with respect to the right to utilize
      our
      technology for non-automotive applications including tractor engines, loader
      engines, fork lift truck engines, and other farm and forestry applications
      should the parties fail to executive a definitive agreement.





6
 ***Table
          of Contents***


**Changes
      in Number of Employees**





As
      previously stated, our research, product development, and testing is primarily
      being conducted by Adaptive. During the reporting period, we retained a senior
      engineer to assist with the generator development and power production.
      Subsequent to the reporting period, we retained a consultant to assist us with
      the upcoming beta testing. We anticipate that we will hire additional full-time
      employees to assist our operations once the testing and development of our
      generators and engines is completed and they are ready for manufacture and
      sale.





**Results
      of Operations for the Three and Six Months Ended December 31, 2005 and December
      31, 2004.**





We
      did
      not earn any revenue during the three or six months ended December 31, 2005
      and
      have not earned any revenue since our inception. We do not anticipate earning
      any revenue until we have completed testing and development of our engines
      and
      generators and commenced the manufacturing of these products.





We
      incurred operating expenses in the amount of $1,791,007 for the three months
      ended December 31, 2005, compared to operating expenses of $106,849 for the
      three months ended December 31, 2004. We incurred operating expenses in the
      amount of $3,405,064 for the six months ended December 31, 2005, compared to
      operating expenses of $1,027,349 for the six months ended December 31, 2004.
      The
      increase in our operating expenses for the three and six months ended December
      31, 2005 was primarily attributable to research and development expenses and
      professional and consulting fees. We incurred research and development expenses
      in the amount of $1,023,360 for the three months ended December 31, 2005 and
      $2,239,211 for the six months ended December 31, 2005, compared to no research
      and development expenses during the same reporting periods in the prior year.
      We
      incurred professional and consulting fees in the amount of $431,716 for the
      three months ended December 31, 2005, compared to $82,000 during the same period
      in the prior year. We incurred professional and consulting fees in the amount
      of
      $658,879 for the six months ended December 31, 2005, compared to $174,500 during
      the same period in the prior year.




We
      have
      incurred a net loss of $1,804,830 for the three months ended December 31, 2005,
      compared to $108,700 for the three months ended December 31, 2004. We have
      incurred a net loss of $3,434,143 for the six months ended December 31, 2005,
      compared to net income of $594,300 for the six months ended December 31, 2004.
      The recording of net income for the six months ended December 31, 2004 is
      attributable to the impairment of goodwill and intangibles in three months
      ended
      September 30, 2004 resulting the impairment of intellectual property from
      Transporter, Inc. which we acquired.





**Liquidity
      and Capital Resources**





As
      of
      December 31, 2005, we had current assets in the amount of $522,387 and current
      liabilities in the amount of $4,301,421. We had a working capital deficit of
      $3,779,034 on December 31, 2005. As a result, we have insufficient working
      capital to implement our business plan. Our operations for the reporting period
      were primarily funded through equity financings.





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


7
 ***Table
          of Contents***


The
      completion of our business plan over the next twelve months is contingent upon
      us obtaining $6,000,000 in additional financing. At the present time, we have
      entered discussions with potential investors and do not have any agreements
      finalized at the present time. We can provide no assurance that we will receive
      the additional financing we are seeking.





**Off
      Balance Sheet Arrangements**





As
      of
      December 31, 2005, there were no off balance sheet arrangements. Please refer
      to
      the Commitment and Contingency footnote to our consolidated financial statements
      included elsewhere herein.





**Going
      Concern**





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





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





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


uncertainties.





**Item
      3.     Controls and Procedures**





We
      carried out an evaluation of the effectiveness of the design and operation
      of
      our disclosure controls and procedures (as defined in Exchange Act Rules
      13a-15(e) and 15d-15(e)) as of December 31, 2005. This evaluation was carried
      out under the supervision and with the participation of our Chief Executive
      Officer and Chief Financial Officer, Dr. Raymond Brouzes. Based upon that
      evaluation, our Chief Executive Officer and Chief Financial Officer concluded
      that, as of December 31, 2005, our disclosure controls and procedures are
      effective. There have been no significant changes in our internal controls
      over
      financial reporting during the quarter ended December 31, 2005 that have
      materially affected or are reasonably likely to materially affect such controls.





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


8
 ***Table
          of Contents***





Limitations
      on the Effectiveness of Internal Controls





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







9
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          of Contents***




**PART
      II - OTHER INFORMATION**





**Item
      1. Legal
      Proceedings**





Except
      as
      provided below, there have been no material developments in the ongoing legal
      proceedings previously reported in which we are a party. More discussion of
      our
      ongoing legal proceedings is discussed in our annual report on Form 10-KSB
      for
      the year ended June 30, 2005 and in our quarterly report for the three months
      ended September 30, 2005.





*Axial
      Vector Engine Corporation v. Dyna-Cam Engine Corporation, et. al in the U.S.
      District Court, District of Central California*





On
      October 26, 2005, we filed an a request with the United States District Court,
      Central District of California (the “Court”) to temporarily restrain defendants
      Dyna-Cam Engine Corporation, Patricia Wilks and Dennis Palmer (the “Defendants”)
      from using the “Dyna-Cam” mark, similar names and marks, and other intellectual
      property, and to set a hearing for a preliminary injunction. The Court granted
      our request, issued a temporary restraining order (“TRO”), and set a hearing for
      November 9, 2005 to determine whether the Defendants should be enjoined pending
      trial of this case from using the “Dyna-Cam” mark, similar names and marks, and
      other intellectual property. On November 9, 2005, the Court converted our TRO
      into a preliminary injunction until the matter is resolved. No trial date has
      been set and discovery is ongoing.





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





The
      information set forth below relates to our issuances of equity securities
      without registration under the Securities Act of 1933 during the reporting
      period.





On
      April
      25, 2005, we completed a Financing Agreement in the amount of $4,000,000 with
      Alliance Capital Management. Under the terms of this agreement, we will receive
      $400,000 dollars each month for ten months commencing in May of 2005. The
      monthly payments are convertible in common stock and the amount of shares issued
      is determined based on 75% of the previous ten day trading average of the
      company prior to the issuance. Pursuant to the terms of the Financing Agreement
      described above, we issued the following shares of common stock to Alliance
      Capital Management during and subsequent to the reporting period: (a) 286,792
      shares of common stock on October 20, 2005, (b) 159,363 shares of common stock
      on November 11, 2005, and 254,777 shares of common stock on December 20, 2005.
      These issuances are exempt pursuant to Regulation S of the Securities Act.
      Alliance Capital Management is a non-US person as defined in Regulation S.
      We
      did not engage in a distribution of this offering in the United States. The
      purchaser represented his intention to acquire the securities for investment
      only and not with a view toward distribution. We requested that our stock
      transfer agent affix the appropriate restrictive legend to the stock certificate
      issued in accordance with Regulation S. The investor was given adequate access
      to sufficient information about us to make an informed investment decision.
      These securities were not sold through an underwriter and accordingly, there
      were no underwriting discounts or commissions involved. No registration rights
      were granted to the purchaser.




10
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          of Contents***





On
      July
      22, 2005, we entered into a Management Consulting Agreement (the “MCA”) with
      Twilight Bay L.L.C. (“Twilight Bay”) whereby Twilight Bay agreed to provide
      administrative and marketing consulting services, including, but not limited
      to
      a positioning statement, corporate profile, public relations, and logos and
      designs in exchange for the issuance of 1,465,000 shares of our common stock.
      These shares were issued pursuant to Section 4(2) of the Securities Act. We
      did
      not engage in any general solicitation or advertising. We issued the stock
      certificates and affixed the appropriate legends to the restricted stock. On
      November 1, 2005, the parties agreed to terminate the MCA and the shares issued
      to Twilight Bay were returned for cancellation.





On
      October 20, 2005, we entered into a business consulting agreement (“consulting
      agreement”) with a consultant. Pursuant to the terms of the consulting
      agreement, we agreed to issue 10,000 shares of our common stock each month
      for
      twelve (12) months commencing in November 2005. During the reporting period,
      we
      issued a total of 20,000 shares of our common stock as required under the
      consulting agreement. Under the terms of the consulting agreement, we also
      issued warrants to purchase 105,000 shares of our common stock vesting
      one-twelfth per month from the date of the consulting agreement until fully
      vested. All vested warrants are exercisable for a period of two (2) years from
      the expiration or termination date of the consulting agreement. The exercise
      price of the warrants is as follows: 35,000 of the warrants are exercisable
      at
      the exercise price of $4.00 per share, 35,000 of the warrants are exercisable
      at
      the exercise price of $4.50 per share, and 35,000 of the warrants are
      exercisable at the exercise price of $5.00 per share. All shares and warrants
      were issued pursuant to Section 4(2) of the Securities Act. We did not engage
      in
      any general solicitation or advertising. We issued the stock certificates and
      affixed the appropriate legends to the restricted stock.





Pursuant
      to the terms of a consulting agreement entered into on November 9, 2005, we
      issued 50,000 shares of our common stock to a consultant for services rendered.
      We also issued 100,000 pursuant to the terms of the consulting agreement and
      these shares are being held in escrow until certain conditions set forth in
      the
      consulting agreement have been satisfied. These shares were issued pursuant
      to
      Section 4(2) of the Securities Act. We did not engage in any general
      solicitation or advertising. We issued the stock certificates and affixed the
      appropriate legends to the restricted stock.





During
      the reporting period, we issued 25,000 shares of our common stock to a
      consultant for services rendered. These shares were issued pursuant to Section
      4(2) of the Securities Act. We did not engage in any general solicitation or
      advertising. We issued the stock certificates and affixed the appropriate
      legends to the restricted stock.





During
      the reporting period, we granted an employee options to purchase 15,000 shares
      of our common stock exercisable for a period of ten years at the exercise price
      of $2.15 per share. These shares and options were issued pursuant to Section
      4(2) of the Securities Act of 1933, as amended.





**Item
      3.     Defaults upon Senior
      Securities**





None





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





No
      matters have been submitted to our security holders for a vote, through the
      solicitation of proxies or otherwise, during the quarterly period ended December
      31, 2005.





**Item
      5. Other
      Information**





None.





11
 ***Table
          of Contents***




**Item
      6.   Exhibits**





**Exhibit**
              **Number**
            **Description
                of Exhibit**10.1
            Joint
                Venture Agreement with Adaptive Propulsion Systems, LLC110.2
            Addendum
                to Joint Venture Agreement with Adaptive Propulsion Systems, LLC310.3
            Contract
                for Production of Generators with Adaptive Propulsion Systems, LLC110.4
            Exclusive
                Purchase Agreement210.5
            Memorandum
                of Understanding with Kirloskar Oil Engines Limited331.1
            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 200231.2
            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 200232.1
            Certification
                of Chief Executive Officer and Chief
                Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
                pursuant
                to Section 906 of the Sarbanes-Oxley Act of
                2002





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


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


3
            Previously
                filed as an exhibit to the annual report on Form 10-KSB for the year
                ended
                June 30, 2005 and filed with the Securities and Exchange Commission
                on
                October 14, 2005





**SIGNATURES**





In
      accordance with the requirements of the Securities and Exchange Act of 1934,
      the
      Registrant has duly caused this report to be signed on its behalf by the
      undersigned, thereunto duly authorized.





**AXIAL
                VECTOR ENGINE CORPORATION**Date:
            February
                21, 2006By:/s/  Dr.
                Raymond
                Brouzes
              Dr. Raymond Brouzes
              Title:**Chief
                Executive Officer, Chief Financial
                Officer,            
                and Director**









12