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 endedSeptember
                30, 2005[
                ]
            Transition
                Report pursuant to 13 or 15(d) of the Securities Exchange Act of
                1934For
                the transition periodto
                __________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: 33,019,026 Common Shares as of October 31,
      2005





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





Table
          of Contents








TABLE
                OF CONTENTS
            PagePART
                I - FINANCIAL INFORMATIONItem
                1:
            Financial
                Statements
            3Item
                2:
            Plan
                of Operation
            4Item
                3:
            Controls
                and Procedures
            8PART
                II - OTHER INFORMATIONItem
                1:
            Legal
                Proceedings
            9Item
                2:
            Unregistered
                Sales of Equity Securities and Use
                of Proceeds
            10Item
                3:
            Defaults
                Upon Senior Securities
            10Item
                4:
            Submission
                of Matters to a Vote of Security
                Holders
            10Item
                5:
            Other
                Information
            11Item
                6:
            Exhibits
            11







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 September 30, 2005
            F-1(b)
            Unaudited
                Condensed Consolidated Statements of Operations for
                the three months ended September 30, 2005 and 2004;
            F-2(c)
            Unaudited
                Condensed Consolidated Statements
                of Cash Flows for the three months ended September 30, 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 September 30,
      2005
      are not necessarily indicative of the results that can be expected for the
      full
      year.




3
 Table
          of Contents






**AXIAL
        VECTOR ENGINE CORPORATION AND
        SUBSIDIARY**
 **(FORMERLY
        AERO MARINE ENGINE, INC.)**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **CONDENSED
        CONSOLIDATED BALANCE SHEET**
 **SEPTEMBER
        30, 2005**
 **(UNAUDITED)**





**ASSETS****2005**Current
                  Assets:Cash
                  and cash
                  equivalents
              
              $
              149,015Deposit
              
              
              22,670Prepaid
                  expenses
              
              
              22,330Total
                  Current
                  assets
              
              
              194,015Property
                  and
                  equipment, net
              
              
              39,162Intangible
                  assets, net
              
              
              217,544**TOTAL
                  ASSETS**
              
              $
              450,721
   **LIABILITIES
                  AND STOCKHOLDERS' DEFICIT****LIABILITIES**Current
                  Liabilities:Accounts
                  payable and accrued expenses
              
              $
              154,492Current
                  portion of note payable
              
              
              1,500,000Liabiltiy
                  for stock to be issued
              
              
              337,095Due
                  to related company
              
              
              301,339Total
                  Current
                  liabilities
              
              
              2,292,926Long
                  Term Liabilities:Due
                  to shareholders
              
              
              1,740,191Note
                  payable - net of current portion
              
              
              1,495,000Total
                  long term liabilities
              
              
              3,235,191**Total
                  Liabilities**
              
              
              5,528,117**COMMITMENTS
                  AND CONTINGENCIES**
              
              
              -**STOCKHOLDERS'
                  DEFICIT**Preferred
                  stock, $.001 Par Value; 100,000,000 shares authorizedno
                  shares issued and outstanding
              
              
              -Common
                  stock, $.001 Par Value; 100,000,000 shares authorized32,728,234
                  shares issued and outstanding
              
              
              32,728Additional
                  paid-in capital
              
              
              12,766,588Deficit
                  accumulated during the development stage
              
              
              (17,876,712)**Total
                  Stockholders' Deficit**
              
              
              (5,077,396)**TOTAL
                  LIABILITIES AND STOCKHOLDERS' DEFICIT**
              
              $
              450,721






The
      accompanying notes are an integral part of these
      condensed consolidated financial statements.





F-1
 Table
          of Contents




**AXIAL
        VECTOR ENGINE CORPORATION AND
        SUBSIDIARY**
 **(FORMERLY
        AERO MARINE ENGINE, INC.)**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **CONDENSED
        CONSOLIDATED STATEMENT OF OPERATIONS**
 **FOR
        THE THREE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004** **(UNAUDITED)**
 **(WITH
        CUMULATIVE TOTALS SINCE INCEPTION)**


**THREE
                  MONTHS ENDED**
              
              
              **Cumulative
                  Totals****SEPTEMBER
                  30,**
              
              
              **December
                  30, 2002 through****2005**
              
              
              **2004**
              
              
              **September
                  30, 2005****OPERATING
                  REVENUES**Sales
              
              $
              -
              
              $
              -
              
              $
              -**COST
                  OF SALES**
              
              
              -
              
              
              -
              
              
              -**GROSS
                  PROFIT**
              
              
              -
              
              
              -
              
              
              -**OPERATING
                  EXPENSES**Compensation
                  expense
              
              
              29,062
              
              
              -
              
              
              2,775,528Professional
                  and consulting fees
              
              
              227,163
              
              
              92,500
              
              
              5,944,294Advertising
                  and promotions
              
              
              42,851
              
              
              -
              
              
              251,927Rent
              
              
              999
              
              
              -
              
              
              45,175Impairment
                  of goodwill and intangibles
              
              
              -
              
              
              812,500
              
              
              4,563,847Impairment
                  of property and equipment
              
              
              -
              
              
              -
              
              
              107,964Write-off
                  of inventory
              
              
              -
              
              
              -
              
              
              266,519Research
                  and development
              
              
              615,851
              
              
              -
              
              
              2,947,011General
                  and administrative expenses
              
              
              96,579
              
              
              15,500
              
              
              905,192Depreciation
                  and amortization
              
              
              1,552
              
              
              -
              
              
              42,246**Total
                  Operating Expenses**
              
              
              1,014,057
              
              
              920,500
              
              
              17,849,703**NET
                  LOSS BEFORE OTHER INCOME (EXPENSE)**
              
              
              (1,014,057)
              
              
              (920,500)
              
              
              (17,849,703)**OTHER
                  INCOME (EXPENSE)**Interest
                  income
              
              
              65
              
              
              -
              
              
              7,743Interest
                  expense
              
              
              (17,622)
              
              
              (1,500)
              
              
              (34,752)**Total
                  Other Income (Expenses)**
              
              
              (17,557)
              
              
              (1,500)
              
              
              (27,009)**NET
                  LOSS BEFORE PROVISION FOR INCOME TAXES**
              
              
              (1,031,614)
              
              
              (922,000)
              
              
              (17,876,712)Provision
                  for income taxes
              
              
              -
              
              
              -
              
              
              -**NET
                  LOSS APPLICABLE TO COMMON SHARES**
              
              $
              (1,031,614)
              
              $
              (922,000)
              
              $
              (17,876,712)**WEIGHTED
                  AVERAGE NUMBER OF****COMMON
                  SHARES OUTSTANDING**
              
              
              32,446,277
              
              
              11,295,724**NET
                  LOSS PER BASIC AND DILUTED SHARES**
              
              $
              (0.03)
              
              $
              (0.08)






The
      accompanying notes are an integral part of these
      condensed consolidated financial statements.






F-2
 Table
          of Contents




**AXIAL
        VECTOR ENGINE CORPORATION AND
        SUBSIDIARY**
 **(FORMERLY
        AERO MARINE ENGINE, INC.)**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **CONDENSED
        CONSOLIDATED STATEMENT OF CASH FLOWS**
 **FOR
        THE THREE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004** **(UNAUDITED)**
 **(WITH
        CUMULATIVE TOTALS SINCE INCEPTION)**
 
 **THREE
                  MONTHS ENDED**
              
              **Cumulative
                  Totals****SEPTEMBER
                  30,**
              
              **December
                  30, 2002 through****2005**
              
              **2004**
              
              **September
                  30, 2005****CASH
                  FLOWS FROM OPERATING ACTIVITIES**Net
                  loss
              $
              (1,031,614)
              $
              (922,000)
              $
              (17,876,712)Adjustments
                  to reconcile net loss to net cashused
                  in operating activitiesCommon
                  stock issued for services
              
              -
              
              59,000
              
              4,151,539Common
                  stock issued as compensation
              
              -
              
              -
              
              1,200,000Options
                  issued for services
              
              -
              
              -
              
              2,069,961Options
                  issued as compensation
              
              -
              
              -
              
              1,080,000Depreciation
                  and amortization
              
              1,552
              
              -
              
              42,246Impairment
                  of property and equipment
              
              -
              
              -
              
              107,964Impairment
                  of goodwill and intangibles
              
              -
              
              812,500
              
              4,563,847Write-off
                  of inventory
              
              -
              
              -
              
              266,519**Changes
                  in assets and liabilities**(Increase)
                  in prepaid expenses and other current assets
              
              -
              
              -
              
              (21,731)Increase
                  in accounts payable and accrued expenses
              
              23,077
              
              3,001,500
              
              210,802Total
                  adjustments
              
              24,629
              
              3,873,000
              
              13,671,147**Net
                  cash provided by (used in) operating activities**
              
              (1,006,985)
              
              2,951,000
              
              (4,205,565)**CASH
                  FLOWS FROM INVESTING ACTIVITIES**Acquisition
                  of business
              
              -
              
              -
              
              (1,018,814)Acquisition
                  of intangible assets
              
              (153,794)
              
              -
              
              (217,544)Acquisitions
                  of fixed assets
              
              (19,572)
              
              (3,000,000)
              
              (69,335)**Net
                  cash (used in) investing activities**
              
              (173,366)
              
              (3,000,000)
              
              (1,305,693)**CASH
                  FLOWS FROM FINANCING ACTIVITIES**Issuance
                  of stock through the exercise of options
              
              38,602
              
              -
              
              1,686,650Proceeds
                  from Standby Equity Distribution Agreement
              
              1,200,000
              
              -
              
              1,600,000Liability
                  for stock to be issued
              
              (400,000)
              
              -
              
              337,095Repayment
                  of loan
              
              -
              
              -
              
              (5,000)Advances
                  from shareholders
              
              651,000
              
              49,000
              
              2,351,711Payments
                  to shareholders
              
              (157,596)
              
              -
              
              (611,520)Payments
                  to related company, net
              
              (10,000)
              
              -
              
              (13,000)Advances
                  from related company, net
              
              -
              
              -
              
              314,339**Net
                  cash provided by financing activities**
              
              1,322,006
              
              49,000
              
              5,660,275**NET
                  INCREASE IN CASH AND CASH EQUIVALENTS**
              
              141,655
              
              -
              
              149,017**CASH
                  AND CASH EQUIVALENTS -****BEGINNING
                  OF PERIOD**
              
              7,360
              
              -
              
              -**CASH
                  AND CASH EQUIVALENTS - END OF PERIOD**
              
              $
                  149,015
              $
              -
              
              $
                  149,017**SUPPLEMENTAL
                  CASH FLOW INFORMATION**Cash
                  paid during the year for interest
              $
              -
              $
              -
              
              $
                  190**SUPPLEMENTAL
                  DISCLOSURE OF NONCASH INFORMATION**Common
                  stock issued for services
              
              $
              -
              
              $
              59,000
              
              $
              5,389,971Common
                  stock issued for intangibles
              
              $
              -
              
              $
              -
              
              $
              3,000,000Options
                  issued for services
              
              $
              -
              
              $
              -
              
              $
              2,069,961Options
                  issued as compensation
              
              $
              -
              
              $
              -
              
              $
              1,080,000Impairment
                  of property and equipment
              
              $
              -
              
              $
              -
              
              $
              107,964Impairment
                  of goodwill and intangibles
              
              $
              -
              
              $
              812,500
              
              $
              4,563,847Conversion
                  of payables to equity
              
              $
              -
              
              $
              -
              
              $
              170,285






The
      accompanying notes are an integral part of these
      condensed consolidated financial statements.






F-3
 Table
          of Contents




**AXIAL
      VECTOR ENGINE CORPORATION AND
      SUBSIDIARY**


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


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**SEPTEMBER
      30, 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





F-4
 Table
          of Contents





**AXIAL
      VECTOR ENGINE CORPORATION AND SUBSIDIARY**


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


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**SEPTEMBER
      30, 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-5
 Table
          of Contents





**AXIAL
      VECTOR ENGINE CORPORATION AND SUBSIDIARY**


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


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**SEPTEMBER
      30, 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 September 30, 2005, the Company
      had $486,200 in excess of the $100,000 insured limit.








F-6
 Table
          of Contents





**AXIAL
      VECTOR ENGINE CORPORATION AND SUBSIDIARY**


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


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**SEPTEMBER
      30, 2005 AND 2004**


**(UNAUDITED)**









NOTE
      2-SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES


**(CONTINUED)**





Concentration
      of Credit Risk(Continued)





Concentration
      of credit risk, with respect to accounts receivable-customers, is limited
      through the Company’s credit evaluation process. The Company reviews the credit
      history before extending credit. Generally, the Company does not require
      collateral from its customers.





**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**


**SEPTEMBER
      30, 2005 AND 2004**


**(UNAUDITED)**






NOTE
      2-SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES


(CONTINUED)





**Reclassifications**





Certain
      amounts for the three months ended September 30, 2004 have been reclassified
      to
      conform to the presentation of the September 30, 2005 amounts. The
      reclassifications have no effect on net loss for the three months ended
      September 30, 2004.





**Income
      Taxes**





The
      Company has adopted the provisions of Statement of Financial Accounting
      Standards (“SFAS”) No. 109, Accounting for Income Taxes. The Statement requires
      an asset and liability approach for financial accounting and reporting of income
      taxes, and the recognition of deferred tax assets and liabilities for the
      temporary differences between the financial reporting bases and tax bases of
      the
      Company’s assets and liabilities at enacted tax rates expected to be in effect
      when such amounts are realized or settled.





**Advertising**





The
      Company’s policy is to expense the costs of advertising and marketing as they
      are incurred. Advertising expense for the three months ended September 30,
      2005
      and 2004 was $42,851 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**


**SEPTEMBER
      30, 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 three months
      ended September 30, 2005




The
      Company recognized impairment of the intangible asset of $0 and $812,500 for
      the
      three months ended September 30, 2005 and 2004, respectively.





During
      the three months ended September 30, 2005, the Company incurred costs of
      $153,794 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**


**SEPTEMBER
      30, 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**


**SEPTEMBER
      30, 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:




**September
                  30,****2005**
              
              
              **2004**Net
                  Loss
              
              $
              (1,031,614)
              
              $
              (922,000)Weighted-average
                  common sharesoutstanding
                  (Basic)
              
              
              32,446,277
              
              
              11,295,724Weighted-average
                  common stockequivalents:Stock
                  options and warrants
              
              
              -
              
              
              -Weighted-average
                  common sharesoutstanding
                  (Diluted)
              
              
              32,446,277
              
              
              11,295,724




Options
      and warrants outstanding to purchase stock were not included in the computation
      of diluted EPS because inclusion would have been antidilutive. As of September
      30, 2005 there were 2,935,709 options and one warrant available. The warrant
      has
      the option to purchase 2,000,000 shares. As of September 30, 2004, there were
      no
      outstanding options or warrants available.





**Fair
      Value of Financial Instruments**




The
      carrying amount reported in the balance sheets for cash and cash equivalents
      and
      liability for stock to be issued approximate fair value because of the immediate
      or short-term maturity of these financial instruments.








F-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**


**SEPTEMBER
      30, 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**


**SEPTEMBER
      30, 2005 AND 2004**


**(UNAUDITED)**







NOTE
      3-PROPERTY
      AND EQUIPMENT





Property
      and equipment consist of the following at September 30, 2005.





**2005**Computer
              $
              26,572Equipment
                  and machinery
              
              13,274Office
                  equipment
              
              2,72342,569Less:
                  accumulated depreciation
              
              (3,407)$
              39,162







Depreciation
      expense for the three months ended September 30, 2005 was $1,552.





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 September 30, 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**


**SEPTEMBER
      30, 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
      September 30, 2005.





NOTE
      7-NOTE
      PAYABLE





Note
      payable to Transporter Inc. commencing August 2004 (See Note 12) for the
      purchase of exclusive rights to certain video-conferencing technology. The
      note
      is payable in intervals over 24 months of which $100,000 was due within 60
      days
      of the date of the agreement. No interest has been imputed as the agreement
      is
      in dispute and a rescission of the agreement is being sought.





NOTE
      8-PROVISION
      FOR INCOME TAXES





Deferred
      income taxes will be determined using the liability method for the temporary
      differences between the financial reporting basis and income tax basis of the
      Company’s assets and liabilities. Deferred income taxes will be measured based
      on the tax rates expected to be in effect when the temporary differences are
      included in the Company’s tax return. Deferred tax assets and liabilities are
      recognized based on anticipated future tax consequences attributable to
      differences between financial statement carrying amounts of assets and
      liabilities and their respective tax bases.





At
      September 30, 2005, deferred tax assets consist of the following:




**2005****Deferred
                  tax assets**
              $
              **6,077,840****Less:
                  valuation allowance**
              
              **(6,077,840)****Net
                  deferred assets**
              $
              **-0-**







At
      September 30, 2005, the Company had federal net operating loss carry forwards
      in
      the approximate amounts of $17,876,000 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**


**SEPTEMBER
      30, 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 maximum advance of $400,000
      due and payable on the 5 th of each
      month commencing May 5, 2005 and continuing through February 5, 2006. Alliance
      Capital Management received, as additional consideration, one (1) warrant to
      purchase two million shares of common stock at a fixed rate of $4.00 per share
      for a period of two years.





NOTE
      10-STOCKHOLDERS'
      EQUITY (DEFICIT)





The
      Company has 100,000,000 shares of common stock authorized, par value $.001.
      As
      of September 30, 2005, the Company has 32,728,234 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-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**


**SEPTEMBER
      30, 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-16
 Table
          of Contents





**AXIAL
      VECTOR ENGINE CORPORATION AND SUBSIDIARY**


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


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**SEPTEMBER
      30, 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 tranactions
      has
      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.





On
      April
      20, 2005, the Company completed an offering of 1,800,000 units at a price of
      $0.50 per unit. Each unit consists of one share of common stock par value $.001
      and one warrant to purchase one share of common stock, exercisable for two
      years
      closing of the offering. The total amount the Company received was 900,000.
      As
      of June 30, 2005, only 1,125,811 shares have been issued.





On
      April
      17, 2005, the Company issued 1,465,000 shares of common stock of the Company
      in
      exchange for a management-consulting contract. The contract is for a period
      of
      five years and is estimated to be worth $35,000 a year, totaling
      $175,000.








F-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**


**SEPTEMBER
      30, 2005 AND 2004**


**(UNAUDITED)**




NOTE
      10-STOCKHOLDERS'
      EQUITY (DEFICIT)


(CONTINUED)





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.





For
      the
      three months ended September 30, 2005, the Company issued 540,242 shares of
      common stock as part of their Standby Equity Agreement (See Note 9)




For
      the
      three months ended September 30, 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.  These transactions
      have been retroactively restated for the period ended September 30, 2005 to
      reflect the cancellation.




In
      September 2005, the Company issued 25,230 shares of common stock through the
      exercise of options. The options carried a strike price of $1.53.





The
      Company, at September 30, 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 three months ended September 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.











F-18
 Table
          of Contents





**AXIAL
      VECTOR ENGINE CORPORATION AND SUBSIDIARY**


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


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**SEPTEMBER
      30, 2005 AND 2004**


**(UNAUDITED)**








NOTE
      11-GOING
      CONCERN UNCERTAINTY


(CONTINUED)





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.





In
      May
      2005, the Company filed suit against Transporter, Inc and its principals, David
      Werner and Craig Della Penna. The suit seeks to rescind the August 2004
      agreement under which the Company acquired the exclusive rights to certain
      video-conferencing technology. The Company contends that the principals
      intentionally misrepresented the status and capabilities of the technology
      that
      was acquired under the original agreement. The case is pending litigation.
      The
      Company has determined that the technology is worthless, and thus has impaired
      the asset in its entirety as of September 30,2005.






F-19
 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
 Table
          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.




During
      the year ended June 2005, Adaptive conducted an engine endurance evaluation
      using digital simulation with the assistance of a software product. This
      particular testing is useful in estimating the Mean Time to Failure (“MTF”) of
      our engine utilizing the axial vector design. Further
      testing on our Axial Vector design still remains. We anticipate that by
      mid-January 2006 all of our engine components will be fully operational and
      the
      engine will be operating consistently at the targeted performance level. In
      mid-January 2006 we anticipate that we will commence the MTF dynamometer
      testing. The planned MTF dynamometer testing will consist of running the engine
      for 60 days and taking measurements of engine components to estimate the wear
      at
      various time intervals. This testing will provide us with an accurate gauge
      of
      the endurance of the engine and its specific components. Based upon the results
      of the MTF dynamometer testing, further modifications may be required.




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




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




**Power
      Generators**




Power
      Generation Agreement




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




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




5
 Table
          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. We anticipate that Adaptive will be able
      to
      comply with the terms of this agreement and complete the development of our
      initial power generator product line before the end of fiscal year on June
      30,
      2006. We anticipate that Adaptive will be able to fulfill its obligations under
      the agreement within the contemplated time frame.




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




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 is anticipated to be occur in January 2006. Pursuant to
      the
      terms of the MOU, KOEL placed $1,000,000 into a segregated account which it
      controls and we have granted them a right of first refusal with respect to
      the
      right to utilize our technology for non-automotive applications including
      tractor engines, loader engines, fork lift truck engines, and other farm and
      forestry applications should the parties fail to executive a definitive
      agreement.





**Changes
      in Number of Employees**





As
      previously stated, all of our research, product development, and testing is
      currently being conducted by Adaptive. 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 Months Ended September 30, 2005 and September 30,
      2004.**





We
      did
      not earn any revenue during the three months ended September 30, 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 $ 1,014,057 for the three months
      ended September
      30 ,
      2005,
      compared to operating expenses of $920,500 for the three months ended September
      30, 2004. The increase in our operating expenses for the three months ended
      September 30, 2005 was primarily attributable to research and development
      expenses and professional and consulting fees. We incurred research and
      development expenses in the amount of $615,851 for the three months ended
      September 30, 2005, compared to no research and development expenses during
      the
      same period in the prior year.


6
 Table
          of Contents


We
      incurred professional and consulting fees in the amount of $227,163 for the
      three months ended September 30, 2005, compared to $92,500 during the same
      period in the prior year.





We
      have
      incurred a net loss of $1,031,614 for the three months ended September 30,
      2005,
      compared to $922,000 for the three months ended September 30, 2004. Our losses
      for the three months ended September 30, 2005 are primarily attributable to
      research and development expenses and professional and consulting fees, while
      our losses for the three months ended September 30, 2004 are almost entirely
      attributable to the impairment of goodwill and intangibles. The recorded
      impairment of goodwill and intangibles for the three months ended September
      30,
      2004 was entirely attributable to the impairment of intellectual property from
      Transporter, Inc. which we acquired.





**Liquidity
      and Capital Resources**





As
      of
      September 30, 2005, we had current assets in the amount of $194,015 and current
      liabilities in the amount of $2,292,926. We had a working capital deficit of
      $2,098,911 on September 30, 2005. As a result, we have insufficient working
      capital to implement our business plan.





Our
      operations for the three months ended September 30, 2005 were primarily funded
      through debt and equity financings. On May 18, 2005, we received $600,000 from
      International Equity Partners S.A. payable on demand together with interest
      of
      5% per annum. The total amount of this loan was later increased to $1,246,000.
      This loan helped to fund our operations during the reporting period. An officer
      and director of our company, Samuel J. Higgins, is also the managing director
      of
      International Equity Partners S.A. In addition to this loan, we received
      financing through the issuance of securities in a private equity offering during
      the reporting period.





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





The
      completion of our business plan over the next twelve months is contingent upon
      us obtaining $6,000,000 in additional financing. At the present time, we have
      entered discussions with 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
      September 30, 2005, there were no off balance sheet arrangements. Please refer
      to the Commitment and Contingency footnote to our consolidated financial
      statements included elsewhere herein.





**Going
      Concern**





We
      are
      currently in the development stage, and there is no guarantee whether we will
      be
      able to generate enough revenue and/or raise capital to support current
      operations and generate anticipated sales. Our independent auditors 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


7
 Table
          of Contents


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 September 30, 2005. This evaluation was carried
      out under the supervision and with the participation of our Chief Executive
      Officer and Chief Financial Officer, Dr. Raymond Brouzes. Based upon that
      evaluation, our Chief Executive Officer and Chief Financial Officer concluded
      that, as of September 30, 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 September 30, 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.





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.




8
 Table
          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 reports on Form 10-KSB
      for
      the year ended June 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 proceeding.





*Richard
      Powers, et. al v. Trans Max Technologies, Inc., et. al, in the Supreme Court
      State of New York, County of Suffolk, Riverhead*





This
      case
      is currently in discovery, where we are seeking proof from Richard Powers,
      Raymond B Wedel, Jr., and Alan Cohen (the “Plaintiffs”) as to their alleged
      employment and any employment agreements. As of September 30, 2005, this action
      was still pending in the New York Superior Court, and we are waiting for
      responses to our discovery requests.





*Aero
      Marine Engine, Inc. v. Transporter, Inc., et. al, in the U.S. District Court,
      District of Oregon*





Craig
      Della Penna and Daniel H. Warner (the “Defendants”) failed to answer our
      complaint in the time provided by the Federal Rules of Civil Procedure. As
      a
      result, we filed default papers with the U.S. District Court, District of Oregon
      (the “Court”). Since then, the Defendants have requested an extension of time
      from the Court to answer our complaint. We have opposed the Defendants request
      for an extension of time.






9
 Table
          of Contents


**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) 149,254
      shares on July 28, 2005; (b) 201,005 shares on August 9, 2005; (c) 189,983
      shares on September 7, 2005; and (d) 286,792 shares on October 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.





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.
      Subsequent to the reporting period on November 1, 2005, the parties agreed
      to
      terminate the MCA and the shares issued to Twilight Bay were returned for
      cancellation.





**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
      September 30, 2005.





10
 Table
          of Contents


**Item
      5.     Other
      Information**





On
      September 26, 2005, we entered into an agreement with Goodrich Capital
      International, a New York based corporate financial advisory firm that
      specializes in mergers and acquisitions, divestitures, capital raises and
      financial planning services for middle market public and private companies.
      Pursuant to the agreement, Goodrich Capital will provide us with strategic
      planning services, financial advisory services, and business consulting services
      in exchange for fees at a rate of $50,000 (USD) per month. We are obligated
      to
      pay for three months at this rate and then will evaluate the service price
      90
      days after the execution of the agreement.





In
      addition, for each capital raising transaction closed during the term of
      engagement with Goodrich Capital, as more fully described in the actual
      agreement, we agreed to pay or issue to Goodrich Capital, as applicable, (i)
      a
      cash fee equal to 5% of the transaction amount or the equivalent economic value
      of a strategic partnership as agreed by the parties; and (ii) warrants to
      purchase to purchase 5% of our capital stock issued in connection with such
      capital raising transaction.





The
      period of the agreement will extend one year and will automatically depending
      on
      the development of certain criteria.





**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 Limited310.6
            Goodrich
                Capital Agreement, dated September 26,
                200510.7
            Management
                Consulting Agreement with Twilight Bay,
                L.L.C. dated July 22, 200510.8
            Cancellation
                of Management Consulting Agreement, dated
                November 1, 200531.1
            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
                ended March 31, 2005 and filed with the Securities and Exchange Commission
                on May 24, 2005


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


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








11
 Table
          of Contents





**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:
            November
                16, 2005By:     /s/
                Dr. Raymond Brouzes
              Dr.
                Raymond Brouzes
              Title:**Chief
                Executive Officer, Chief Financial Officer, and
                Director**