UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                              WASHINGTON, DC 20549

                                   FORM 10-QSB
                                   (Mark One)
  [X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
            of 1934 For the quarterly period ended December 31, 2004

       [ ] Transition report under Section 13 or 15(d) of the Exchange Act

             For the transition period from __________ to __________

                         Commission file number 0-25177

                       ADVANCED ENGINE TECHNOLOGIES, INC.


        (Exact Name of Small Business Issuer as Specified in Its Charter)


           Colorado                                              84-1358194
(State or Other Jurisdiction of                              (I.R.S. Employer
 Incorporation or Organization)                             Identification No.)


          11150 W. Olympic Boulevard, Suite 1050, Los Angeles, CA 90064
                    (Address of Principal Executive Offices)
                                 (310) 914-9599
                (Issuer's Telephone Number, Including Area Code)
              (Former Name, Former Address and Former Fiscal Year,
                          if Changed Since Last Report)

                     APPLICABLE ONLY TO ISSUERS INVOLVED IN
                        BANKRUPTCY PROCEEDINGS DURING THE
                              PRECEDING FIVE YEARS

Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.

Yes __ No __

                      APPLICABLE ONLY TO CORPORATE ISSUERS

         State the number of shares outstanding of each of the issuer's classes
         of common equity, as of the latest practicable date: 33,855,000 shares
         of common stock, $0.001 par value per share, as of February 1, 2005.

            Transition Small Business Disclosure Format (check one):
Yes __ No _X_

<PAGE>
                                     Part I
                              FINANCIAL INFORMATION

Item 1. Financial Statements.


                       ADVANCED ENGINE TECHNOLOGIES, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                                    CONTENTS


FINANCIAL STATEMENTS                                       Page

     Balance Sheets                                          3
     Statements of Operations                                4
     Statements of Cash Flows                              5-6
     Notes to Financial Statements                         7-14




<PAGE>
ADVANCED ENGINE TECHNOLOGIES, INC
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
December 31, 2004 (unaudited) and June 30, 2004

<TABLE>
<CAPTION>
                                                                                     December 31,      June 30,
ASSETS                                                                                   2004            2004
                                                                                     (unaudited)
                                                                                     ------------    ------------
<S>                                                                                  <C>             <C>
CURRENT ASSETS:
            Cash and equivalents                                                     $    303,072    $    401,358
            Deposits                                                                         --            97,500
            Prepaid and other                                                             193,366          70,053
                                                                                     ------------    ------------
                         Total current assets                                             496,438         568,911
                                                                                     ------------    ------------
            Due from related party                                                         21,000          21,000
            Property and equipment, net                                                   151,363         147,895
            Patents, net of accumulated amortization of $993,988 as of
                 December 31, 2004 (unaudited) and $886,834 as of June 30, 2004           835,925         922,462
                                                                                     ------------    ------------
                         Total assets                                                $  1,504,726    $  1,660,268
                                                                                     ============    ============

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:

            Accounts payable and accrued expenses                                    $     55,474    $     60,799
                                                                                     ------------    ------------
                         Total current liabilities                                         55,474          60,799
                                                                                     ------------    ------------



STOCKHOLDERS' EQUITY
            Common stock-50,000,000 shares authorized,
            33,830,000 issued and outstanding; $.001 par value
              as of December 31, 2004 (unaudited) and 33,790,000
               issued and outstanding; $.001 par value June 30, 2004                       33,830          33,790
            Additional paid-in capital                                                 20,879,385      20,869,825
            Subscription receivable                                                    (4,900,500)     (5,700,500)
            Deficit accumulated during the development stage                          (14,563,463)    (13,603,646)
                                                                                     ------------    ------------
                         Total stockholders' equity                                     1,449,252       1,599,469
                                                                                     ------------    ------------
Total liabilities and stockholders' equity                                           $  1,504,726    $  1,660,268
                                                                                     ============    ============
</TABLE>

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

                                       3
<PAGE>
ADVANCED ENGINE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
For the Three and Six Months Ended December 31, 2004 and 2003 (unaudited)
and for the Period From September 23, 1996 (Inception)
to December 31, 2004 (unaudited)

<TABLE>
<CAPTION>
                                                  For the                         For the
                                            Three Months Ended                Six Months Ended         September 23,
                                                December 31,                    December 31,               1996
                                          -----------------------         -----------------------       (Inception)
                                                                                                          Through
                                           2004            2003            2004            2004       December 31, 2004
                                       ------------    ------------    ------------    ------------    ------------
                                       (unaudited)      (unaudited)     (unaudited)     (unaudited)     (unaudited)
<S>                                    <C>             <C>             <C>             <C>             <C>
Expenses:
       Operating                       $    312,482    $    202,421    $    519,458    $    409,213    $  5,758,643
       Research and development             145,656         133,681         441,749         257,293       4,300,783
       Stock grant                             --           232,500            --           465,000       4,650,000
       Write-off of patent                     --              --              --              --            23,332
                                       ------------    ------------    ------------    ------------    ------------
Total expenses                              458,138         568,602         961,207       1,131,506      14,732,758
                                       ------------    ------------    ------------    ------------    ------------

Loss from operations                       (458,138)       (568,602)       (961,207)     (1,131,506)    (14,732,758)

Other income:
       Interest income                          647             415           1,389             770         170,228
       Loss on sale of fixed asset                                                                             (933)
                                       ------------    ------------    ------------    ------------    ------------

Net loss                               $   (457,491)   $   (568,187)   $   (959,818)   $ (1,130,736)   $(14,563,463)
                                       ============    ============    ============    ============    ============

Basic and diluted net loss per share   $      (0.01)   $      (0.02)   $      (0.03)   $      (0.03)
                                       ============    ============    ============    ============

Weighted average number of common
  shares outstanding                     33,800,549      33,790,000      33,795,217      33,712,065
                                       ============    ============    ============    ============
</TABLE>

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

                                       4
<PAGE>
ADVANCED ENGINE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
For the Six Months Ended December 31, 2004 and 2003 (unaudited)
and for the Period From September 23, 1996 (Inception)
to December 31, 2004 (unaudited)

<TABLE>
<CAPTION>
                                                                           For the                September 23,
                                                                      Six Months Ended               1996
                                                                         December 31,              (Inception)
                                                                      ----------------               Through
                                                                     2004            2003        December 31, 2004
                                                                 ------------    ------------    -----------------
                                                                 (unaudited)      (unaudited)    (unaudited)
<S>                                                              <C>             <C>             <C>
Cash Flow from operating activities:
              Net loss                                           $   (959,818)   $ (1,130,736)   $(14,563,463)
Adjustments to
  reconcile net loss to
   net cash used in operating activities
              Stock grant expense                                        --           465,000       4,650,000
              Depreciation and amortization                           126,543         117,058       1,193,295
              Issuance of common stock for
                assets and services                                     9,600           7,397         801,220
              Net loss on sale of fixed assets                           --              --               933
              Stock options issued for services                          --              --           551,995
              Write off of patents                                       --              --            23,332
(Increase) decrease in                                                   --              --
        Due from related party                                           --              --           (21,000)
        Prepaid expenses                                             (123,313)        (58,842)       (193,366)
        Deposits                                                       97,500            --
Increase in
              Accounts payable and accrued expenses                    (5,325)        (24,048)         55,474
                                                                 ------------    ------------    ------------
               Net cash flows used in
                   operating activities                              (854,813)       (624,171)     (7,501,580)
                                                                 ------------    ------------    ------------
Cash flows from investing activities:
              Acquisition of patents                                  (20,616)        (46,335)     (1,873,661)
              Purchase of property and equipment                      (22,857)       (106,577)       (331,587)
              Proceeds from sale of fixed assets                                                          400
                                                                 ------------    ------------    ------------
               Net cash flows used in
                   investing activities                               (43,473)       (152,912)     (2,204,848)
                                                                 ------------    ------------    ------------
Cash flow from financing activities:
              Proceeds from note payable                                 --              --           500,000
              Proceeds from stock subscription receivable             800,000         812,000       5,099,500
              Repayment of notes payable                                 --              --          (500,000)
              Repurchase of common stock                                 --              --           (90,000)
              Proceeds from issuance of common stock                     --              --         5,000,000
                                                                 ------------    ------------    ------------
               Net cash flows provided by
                 financing activities                                 800,000         812,000      10,009,500
                                                                 ------------    ------------    ------------

               Net increase (decrease) in cash and equivalents        (98,286)         34,917         303,072

               Cash and equivalents, at beginning of period           401,358          58,962            --
                                                                 ------------    ------------    ------------

               Cash and equivalents, at end of period            $    303,072    $     93,879    $    303,072
                                                                 ============    ============    ============
</TABLE>

                                       5
<PAGE>

Supplemental Schedule of Non-Cash Investing and Financing Activities
--------------------------------------------------------------------

During the six months ended December 31, 2004 the Company issued 40,000 shares
to its directors (including one director that is also an officer) for services
rendered. Total compensation recorded for the grant of these shares is $9,600.

During the six months ended December 31, 2003, the Company:

Issued 200,000 (unaudited) shares of common stock to the University of
California Riverside Foundation, which as of June 30, 2003 was treated as
committed common stock under a stock grant agreement.

Retired 180,000 shares (unaudited) of common stock valued at $90,000 (unaudited)
pursuant to a stock redemption agreement.

During the period from September 23, 1996 (inception) through December 31, 2004
the Company:

Issued 1,000,000 shares (unaudited) of common stock valued at $4,650,000
(unaudited) to the University of California Riverside Foundation pursuant to a
stock grant agreement. For the six months ended December 31, 2003 $465,000 of
the total value had been expensed. The entire value of the common stock granted
(unaudited) has been expensed on the statement of operations as of June 30,
2004.

Issued 21,210,000 (unaudited) shares of common stock for services and assets
valued at $801,220 (unaudited).

Issued 90,000 shares of its common stock during the fiscal year ended June 30,
2004 to its directors for services rendered during the fiscal year ended June
30, 2003.

Issued 2,800,000 (unaudited) stock options valued at $551,995 (unaudited) for
services.

Retired 180,000 shares (unaudited) of common stock valued at $90,000 (unaudited)
pursuant to a stock redemption agreement.

Issued 61,534 shares of common stock valued at $18,604 (unaudited) that were
treated as committed as of June 30, 2003.




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

                                       6
<PAGE>
Advanced Engine Technologies, Inc.
Notes to Financial Statements
December 31, 2004

NOTE 1 - ORGANIZATION AND LINE OF BUSINESS

Advanced Engine Technologies, Inc. (the "Company") was incorporated in Colorado
and commenced operations on September 23, 1996. The Company was formed to
develop and commercialize the OX2 internal combustion engine, a uniquely
designed engine. On October 18, 1996 the Company entered into an exclusive
sublicense agreement with OX2 Engine (Distribution) Limited, a company
incorporated under the laws of the Republic of Vanuatu ("OX2 LTD"), pursuant to
which the Company acquired the right to manufacture, distribute and market the
OX2 engine in the North American Free Trade Agreement countries (presently the
United States, Canada and Mexico). Pursuant to the terms of the sublicense
agreement, the Company issued 20,000,000 shares of its common stock to OX2 LTD
and agreed to pay a 15% royalty on the gross proceeds generated from actual
sales of the OX2 engine. In addition, the sublicense agreement provided that the
Company would issue an additional 19,000,000 shares of common stock to OX2 LTD
upon completion of certain emissions testing. In December 1998, the parties
agreed to rescind the obligation of the Company to issue these additional
19,000,000 shares of common stock to OX2 LTD.

In May 1999, pursuant to a four-party agreement among the Company, OX2 LTD, OX2
Intellectual Property Inc. and Advanced Engine Technology PTY Ltd., the Company
acquired the worldwide patent rights for the OX2 engine for $1,500,000. This
agreement superseded and terminated the October 1996 sublicense agreement. The
Company has assumed responsibility for patent maintenance and for future
research and development on the OX2 engine.

On October 15, 2001, the Company entered into a three year agreement with OX2
LTD and the inventor of the OX2 engine to provide research and development
products and services related to the OX2 engine (the "R and D Agreement"). OX2
LTD is wholly-owned by the inventor of the OX2 engine. Research and development
activities include continued maintenance of the first and second performing test
engines as well as design and development of three additional OX2 test engines.
The agreement also calls for the design and manufacturing of new and advanced
components for the test engines. In addition, the Company has contracted with
the inventor of the OX2 engine to provide consulting services for the sum of
eighty thousand dollars ($80,000) per annum. For the three and six months ended
December 31, 2004 the Company paid $6,684 and $20,686, respectively, in
connection with consulting services under this agreement. This agreement ended
October 15, 2004 and the Company is in the process of negotiating a new R and D
agreement with OX2 LTD.

On August 13, 2004, the Company entered into an agreement with Danotek Motion
Technologies, to co-develop a 30 kilowatt integrated generator unit. The
agreement calls for the production of three prototype generator components that
will produce 30kw of power in a significantly scaled down and proportional
version that can be affixed to the Company's OX2 engine.

The development of the three 30 kilowatt integrated generator prototypes is
expected to be completed by June 2005 at an anticipated expense to the Company
of $325,000. The Company will also retain all intellectual property rights
pertaining to this development initiative. For the three and six months ended
December 31, 2004 $65,000 and $227,500, respectively, was paid on this contract
and is recorded as a research and development expenditure in the statement of
operations.

As of December 31, 2004, the Company's operations consisted of engineering,
testing, marketing and development of the OX2 combustion engine for commercial
applications and raising any necessary capital investments. Management does not
expect to generate significant sales revenue during the year ending June 30,
2005. Accordingly, planned principal operations have not commenced.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Interim Unaudited Financial Information
---------------------------------------

The unaudited financial information furnished herein reflects all adjustments,
consisting only of normal recurring adjustments, which in the opinion of
management, are necessary to fairly state the Company's financial position, the
results of operations, and cash flows for the periods presented. The results of
operations for the three months

                                       7
<PAGE>
Advanced Engine Technologies, Inc.
Notes to Financial Statements
December 31, 2004

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

ended December 31, 2004 are not necessarily indicative of results for the entire
fiscal year ending June 30, 2005.

The information with respect to the three and six months ended December 31, 2004
and 2003 is unaudited.

Development Stage Enterprise
----------------------------

The Company is a development stage company as defined in Statement of Financial
Accounting Standards ("SFAS") No. 7, "Accounting and Reporting by Development
Stage Enterprises". All losses accumulated since inception have been considered
as part of the Company's development stage activities.

Comprehensive Income
--------------------

The Company utilizes SFAS No. 130, "Reporting Comprehensive Income". This
statement establishes standards for reporting comprehensive income and its
components in a financial statement. Comprehensive income as defined includes
all changes in equity (net assets) during a period from non-owner sources.
Examples of items to be included in comprehensive income, which are excluded
from net income, include foreign currency translation adjustments and unrealized
gains and losses on available-for-sale securities. Comprehensive income is not
presented in the Company's financial statements since the Company did not have
any of the items of comprehensive income in any period presented.

Cash and Cash Equivalents
-------------------------

For purposes of the statements of cash flows, the Company considers all highly
liquid investments purchased with original maturity of three months or less to
be cash equivalents.

The Company maintains its cash balances at a bank located in Southern
California. The balances at the bank are insured by the Federal Deposit
Insurance Corporation up to $100,000. At times, cash balances are in excess of
the insured limit. As of December 31, 2004 the Company exceeded the FDIC limit
by $203,072.

Property and Equipment
----------------------

Property and equipment are stated at cost. Depreciation is provided on a
straight-line basis over an estimated useful life of three to ten years.

Patent Rights
-------------

Patent rights are amortized on a straight-line basis over the remaining
estimated useful life of five to ten years. The Company continually reviews its
patent rights to assess recoverability from estimated future net cash flows. To
date, these reviews have not resulted in a reduction of these assets.

For the three and six months ended December 31, 2004 and 2003 and from the
period from September 23, 1996 (inception) through December 31, 2004, the
Company had the following patent activity, net of patent write-offs:

                                       8
<PAGE>
Advanced Engine Technologies, Inc.
Notes to Financial Statements
December 31, 2004

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

<TABLE>
<CAPTION>
                                                                                         Period from
                                                                                     September 23, 1996
                  For the three months ended      For the six months ended           (Inception) through
                        December 31,:                     December 31,:               December 31, 2004
                  --------------------------      ------------------------           ------------------
                       2004          2003           2004            2003
                   (Unaudited)    (Unaudited)    (Unaudited)     (Unaudited)
<S>                  <C>           <C>             <C>             <C>                   <C>
Additions            $3,220        $26,652         $20,616         $46,335               $1,829,913
                     ======        =======         =======         =======               ==========

Amortization        $53,657        $50,218        $107,154         $99,277                 $940,491
                    =======        =======        ========         =======                 ========
</TABLE>

Impairment of Long-lived Assets
-------------------------------

The Company reviews long-lived assets for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. If the sum of the expected future cash flows (undiscounted and
without interest charges) is less than the carrying amount of the asset, the
Company would recognize an impairment loss based on the estimated fair value of
the asset.

Concentration of Credit Risk
----------------------------

At December 31, 2004, a subscription receivable in the amount of $4,900,500
(unaudited) is due from one party.

Stock-Based Compensation
------------------------

Currently the Company accounts for its equity transactions under SFAS No. 123,
"Accounting for Stock-Based Compensation." SFAS No. 123 establishes and
encourages the use of the fair value based method of accounting for stock-based
compensation arrangements under which compensation cost is determined using the
fair value of stock-based compensation determined as of the date of grant and is
recognized over the periods in which the Company elects to continue using the
current implicit value accounting method specified in Accounting Principles
Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," to
account for stock-based compensation.

The Company has elected to use the intrinsic value based method and has
disclosed the pro forma effect of using the fair value based method to account
for its stock-based compensation.

The Company has no pro forma expense for the three and six months ended December
31, 2004 and 2003, as options issued in the prior years vested immediately.
Therefore, the pro forma expense related to those options was recognized in the
year they were granted.

SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure," an amendment of SFAS No. 123, provides alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, SFAS No. 148 amends the
disclosure requirements of SFAS No. 123 to require more prominent and more
frequent disclosures in financial statements about the effects of stock-based
compensation.

In December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 123(R),"Share-Based Payment". SFAS 123(R) amends SFAS No. 123,"Accountung
for Stock-Based Compensation", and APB Opinion 25,"Accounting for Stock Issued
to Employees." SFAS No.123(R) requires that the cost of share-based payment
transactions (including those with employees and non-employees) be recognized in
the financial statements. SFAS No. 123(R) applies to all share- based payment
transactions in which an entity acquires goods or services by issuing

                                       9
<PAGE>
Advanced Engine Technologies, Inc.
Notes to Financial Statements
December 31, 2004

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(or offering to issue) its shares, share options, or other equity instruments
(except for those held by an ESOP) or by incurring liabilities (1) in amounts
based (even in part) on the price of the entity's shares or other equity
instruments, or (2) that require (or may require) settlement by the issuance of
an entity's shares or other equity instruments. This statement is effective (1)
for public companies qualifying as small business issuers under the rules and
regulation of the Securities and Exchange Commission (the "SEC"), as of the
first interim period or fiscal year beginning after December 15, 2005, or (2)
for all other public companies, as of the first interim period or fiscal year
beginning after June 15, 2005, or (3) for all nonpublic entities, as of the
first fiscal year beginning after December 15, 2005. Management is currently
assessing the effect of SFAS No. 123(R) on the Company's financial statement.

Income Taxes
------------

The Company uses the asset and liability method of accounting for income taxes.
The asset and liability method accounts for deferred income taxes by applying
enacted statutory rates in effect for periods in which the difference between
the book value and the tax bases of assets and liabilities are scheduled to
reverse. The resulting deferred tax asset or liability is adjusted to reflect
changes in tax laws or rates. Because the Company has incurred losses from
operations, no benefit is realized for the tax effect of the net operating loss
carry forward and software development costs capitalized for tax purposes due to
the uncertainty of its realization.

Loss per Share
--------------

Basic loss per share is computed by dividing loss available to common
stockholders by the weighted-average number of common shares outstanding.
Diluted loss per share is computed in a manner similar to basic loss per share
except that the denominator is increased to include the number of additional
common shares that would have been outstanding if the potential common shares
had been issued and if the additional common shares were dilutive. The following
potential common shares have been excluded from the computation of diluted loss
per share or the three months and six months ended December 31, 2004 and 2003
because they are anti-dilutive:

                            2004               2003
                          ----------        -----------
                         (unaudited)        (unaudited)
Stock Options             7,675,000          7,675,000
                          =========          =========

Because the Company has incurred net losses, basic and diluted loss per share is
the same.

Estimates
---------

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, as
well as the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.

Recently Issued Accounting Pronouncements
-----------------------------------------

SFAS No. 151
------------

In November 2004, the FASB issued SFAS No. 151,"Inventory Costs". SFAS No. 151
amends the accounting for abnormal amounts of idle facility expense, freight,
handling costs, and wasted material (spoilage) under the guidance in ARB No. 43,
Chapter 4,"Inventory Pricing". Paragraph 5 of ARB No. 43, Chapter 4, previously
stated that ". . . under some circumstances, items such as idle facility
expense, excessive spoilage, double freight, and rehandling costs may be so
abnormal as to require treatment as current period charges. . . ." This
Statement requires that those items be recognized as current-period charges
regardless of whether they meet the criterion of "so abnormal." In addition,
this Statement requires that allocation of fixed production overheads to the
costs of

                                       10
<PAGE>
Advanced Engine Technologies, Inc.
Notes to Financial Statements
December 31, 2004

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

conversion be based on the normal capacity of the production facilities. This
statement is effective for inventory costs incurred during fiscal years
beginning after June 15, 2005. Since the Company currently has no inventory
management does not expect adoption of SFAS No. 151 to have a material impact on
the Company's financial statements.

SFAS No. 152
------------

In December 2004, the FASB issued SFAS No. 152,"Accounting for Real Estate
Time-Sharing Transactions". The FASB issued this Statement as a result of the
guidance provided in AICPA Statement of Position (SOP) 04-2,"Accounting for Real
Estate Time-Sharing Transactions". SOP 04-2 applies to all real estate
time-sharing transactions. Among other items, the SOP provides guidance on the
recording of credit losses and the treatment of selling costs, but does not
change the revenue recognition guidance in SFAS No. 66,"Accounting for Sales of
Real Estate", for real estate time-sharing transactions. SFAS No. 152 amends
Statement No. 66 to reference the guidance provided in SOP 04-2. SFAS No. 152
also amends SFAS No. 67, "Accounting for Costs and Initial Rental Operations of
Real Estate Projects", to state that SOP 04-2 provides the relevant guidance on
accounting for incidental operations and costs related to the sale of real
estate time-sharing transactions. SFAS No. 152 is effective for years beginning
after June 15, 2005, with restatements of previously issued financial statements
prohibited. This statement is not applicable to the Company.

SFAS No. 153
------------

In December 2004, the FASB issued SFAS No. 153,"Exchanges of Nonmonetary
Assets," an amendment to Opinion No. 29,"Accounting for Nonmonetary
Transactions". Statement No. 153 eliminates certain differences in the guidance
in Opinion No. 29 as compared to the guidance contained in standards issued by
the International Accounting Standards Board. The amendment to Opinion No. 29
eliminates the fair value exception for nonmonetary exchanges of similar
productive assets and replaces it with a general exception for exchanges of
nonmonetary assets that do not have commercial substance. Such an exchange has
commercial substance if the future cash flows of the entity are expected to
change significantly as a result of the exchange. SFAS No. 153 is effective for
nonmonetary asset exchanges occurring in periods beginning after June 15, 2005.
Earlier application is permitted for nonmonetary asset exchanges occurring in
periods beginning after December 16, 2004. Management does not expect adoption
of SFAS No. 153 to have a material impact on the Company's financial statements.

 SFAS No. 123(R)
 ---------------

In December 2004, the FASB issued SFAS No. 123(R),"Share-Based Payment". SFAS
123(R) amends SFAS No. 123,"Accountung for Stock-Based Compensation", and APB
Opinion 25,"Accounting for Stock Issued to Employees." SFAS No.123(R) requires
that the cost of share-based payment transactions (including those with
employees and non-employees) be recognized in the financial statements. SFAS No.
123(R) applies to all share-based payment transactions in which an entity
acquires goods or services by issuing (or offering to issue) its shares, share
options, or other equity instruments (except for those held by an ESOP) or by
incurring liabilities (1) in amounts based (even in part) on the price of the
entity's shares or other equity instruments, or (2) that require (or may
require) settlement by the issuance of an entity's shares or other equity
instruments. This statement is effective (1) for public companies qualifying as
SEC small business issuers, as of the first interim period or fiscal year
beginning after December 15, 2005, or (2) for all other public companies, as of
the first interim period or fiscal year beginning after June 15, 2005, or (3)
for all nonpublic entities, as of the first fiscal year beginning after December
15, 2005. Management is currently assessing the effect of SFAS No. 123(R) on the
Company's financial statements.

                                       11
<PAGE>
Advanced Engine Technologies, Inc.
Notes to Financial Statements
December 31, 2004

NOTE 3--PROPERTY AND EQUIPMENT

Property and equipment at December 31, 2004 (unaudited) and June 30, 2004
consisted of the following:

                                      December 31,  June 30,
                                         2004        2004
                                      (unaudited)
                                      ----------   ---------

Furniture                             $   7,523    $   7,523
Software                                 25,568       25,568
Computer equipment                       56,926       51,477
Manufacturing equipment and tooling     231,569      214,161
                                      ---------    ---------
                                        321,586      298,729
Less: accumulated depreciation         (170,223)    (150,834)
                                      ---------    ---------
 Total                                $ 151,363    $ 147,895
                                      =========    =========

Depreciation expense for the three and six months ended December 31, 2004 was
$9,606 (unaudited) and $19,389 (unaudited), respectively. Depreciation expense
for the three and six months ended December 31, 2003 was $11,147 (unaudited) and
$17,781 (unaudited), respectively.

NOTE 4 - SHAREHOLDERS' EQUITY

Stock Grant Agreement
---------------------

In June 1999, the Company agreed to issue 1,000,000 shares of restricted common
stock to the University of California Riverside Foundation in five annual
installments of 200,000 shares each. The donated stock is to provide an
endowment for research funds for the College of Engineering Center for
Collaborative Research on the development of advanced engine technologies. For
financial statement presentation purposes, the stock under the grant agreement
is treated as committed stock until its issuance. The first, second, third,
fourth and fifth installments were issued in July 1999, July 2000, September
2001, September 2002 and August 2003, respectively.

Expense in the grant was recognized ratably over a five-year period based upon
an estimated fair value at the date of the grant of $4.65 per share. This
estimate of its fair value is based upon the tracking price of the stock on the
grant date of $7.75 per share, less a 40% discount because the stock was
restricted, the Company's stock had a very low trading volume at the time of the
grant agreement, and the Company was still in the development stage. During the
period from September 23, 1996 (inception) to December 31, 2004, the Company
recognized total expense on the stock grant of $4,650,000 (unaudited), including
$232,500 and $465,000 for the three and six months ended December 31, 2003. This
grant was fully amortized as of June 30, 2004.

In connection with the R & D Agreement described in Note 1, the Company had the
option to repurchase from Steven Charles Manthey (the inventor of the OX2
engine), or his affiliates, 240,000 shares of common stock of the Company at
$2.00 per share. The Company has allocated its $2.00 per share repurchase price
as follows: $.50 per share for redemption of common shares and $1.50 per share
as research and development expense. The $.50 common share redemption price is
based on the fair market value of the common shares as of the date of the R & D
Agreement. As of December 31, 2004, the Company had repurchased 180,000
(unaudited) shares of common stock under the R & D Agreement. The Company did
not redeem any shares for the three and six months ended December 31, 2004. On
August 12, 2003 stock certificates representing the 180,000 (unaudited)
repurchased shares were cancelled.

In August 2003, the Company issued 90,000 shares to its Board of Directors for
services rendered. Of these 90,000 shares, 61,534 shares or $18,604 were issued
from committed common stock. The Company recorded compensation expense of $4,674
and prepaid compensation of $2,723 during the six months ended December 31,
2003.

                                       12
<PAGE>
The Advanced Engine Technologies, Inc.
Notes to Financial Statements
December 31, 2004

The prepaid compensation of $2,723 was amortized to expense through June 30,
2004.

In December 2004 the Company issued 40,000 shares to its directors (including
one director that is also an officer). This transaction was recorded as
compensation of $9,600 during the three and six months ended December 31, 2004.

NOTE 5 - RELATED PARTY TRANSACTIONS

The Company has paid research and development costs and rent to a company owned
by its current President in the amount of $1,471,226 from September 23, 1996
(inception) to December 31, 2004, including $109,297 (unaudited) and $212,898
(unaudited) for the three and six months ended December 31, 2004 and $103,464
and $186,558 for the three and six months ended December 31, 2003, respectively.

The Company has paid for services to a company that is a stockholder in the
amount of $71,956 (unaudited) for the period from September 23, 1996 (inception)
to December 31, 2004.

At December 31, 2004, the Company had an outstanding receivable from the legal
corporation owned by its Secretary of $21,000 for reimbursement of remodeling
costs on office space that the Company and its Secretary share.

The Company shares office space with a legal corporation that is legal counsel
to the Company and of which its Secretary is a principal. For the period from
September 23, 1996 (inception) to December 31, 2004, the Company incurred legal
fees, rent, and other reimbursement costs of $671,889, including $29,260 and
$55,292 for the three and six months ended December 31, 2004, respectively and
$20,246 and $38,322, for the three and six months ended December 31, 2003,
respectively.

For the three and six month periods ended December 31, 2004, the Company paid a
director $6,686 and $26,684, respectively in connection with consulting
services. For the three and six month periods ended December 31, 2003, the
Company paid a director $13,331 and $33,330, respectively in connection with the
same consulting services (see Note 1). In addition the Company paid $360,000 to
a company wholly-owned by such director for the repurchase of 180,000 shares of
common stock from the director in connection with the R&D agreement (see Note
1). Of the $360,000 paid, $270,000 has been charged to research and development
expense from September 23, 1996 (inception) to December 31, 2004. No shares were
redeemed during the three or six months ended December 31, 2004.

The Company paid consulting fees to its former President and director and a
current stockholder in the amount of $293,503 from September 23, 1996
(inception) to June 30, 2001. No consulting fees were paid for the years ended
June 30, 2004, 2003 and 2002 and for the three and six months ended December 31,
2004.

The Company paid administrative fees and reimbursed expenses to a company that
is owned by a stockholder in the amount of $117,693 from September 23, 1996
(inception) to June 30, 2001. No administrative fees and reimbursed expenses
were paid to this company for the years end June 30, 2004, 2003 and 2002 and for
the three and six months ended December 31, 2004.

In May 2000, the Company paid engine development costs to an individual who is a
stockholder of OX2 LTD in the amount of $300,000.

In October 1996, the Company issued 600,000 shares of its common stock to one of
its founders in exchange for his services in organizing the Company. The
transaction was recorded at the estimated fair market value of the services
provided, which was $6,000, as this was more readily determinable than the fair
market value of the stock.

See Note 1 for related party transactions in connection with a sublicense
agreement and a patent and license agreement.

During the year ended June 30, 2002, the Company recognized $537,608 in
operating and research and development expense for 2,775,000 stock options that
were issued to various officers and directors for their services to the Company
that were for activities and services in addition to their normal
responsibilities as officers and directors.

                                       13
<PAGE>
During the year ended June 30, 2003 the Company recognized $69,923 in operating
and research and development expense for 50,000 shares issued and approximately
60,000 shares committed to its directors for their services to the Company that
were for activities and services in addition to their normal responsibilities as
officers and directors. No such shares were committed during 2004.

In December 2004 the Company issued 40,000 shares to its directors (including
one director that is also an officer). This transaction was recorded as
compensation of $9,600 during the three and six months ended December 31, 2004.

                                       14
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation.

Cautionary Statement
--------------------

You should read the following discussion and analysis in conjunction with the
Financial Statements and related notes thereto contained elsewhere in this Form
10-QSB ("Report"). The information in this Report is not a complete description
of our business or the risks associated with an investment in our common stock.
We urge you to carefully review and consider the various disclosures made by us
in this Report and in our other reports filed with the Securities and Exchange
Commission ( the "SEC"), including our Annual Report on SEC Form 10-KSB for the
year ended June 30, 2004.

The section entitled "Risk Factors" set forth in this Report and similar
discussions in our Annual Report on Form 10-KSB for the year ended June 30, 2004
and in our other SEC filings, discuss some of the important risk factors that
may affect our business, results of operations and financial condition. You
should carefully consider those risks, in addition to the other information in
this Report and in our other filings with the SEC, before deciding to invest in
our company or to maintain or increase your investment.

This Report contains forward-looking statements. These statements relate to
future events or our future financial performance. In some cases, you can
identify forward-looking statements by terminology such as "may," "will,"
"should," "except," "plan," "anticipate," "believe," "estimate," "predict,"
"potential" or "continue," the negative of such terms or other comparable
terminology. These statements are only predictions. These statements are not
guarantees of future performance and are subject to certain risks, uncertainties
and assumptions that are difficult to predict.

Therefore, our actual results could differ materially and adversely from those
expressed in any forward-looking statements as a result of various factors.
Moreover, neither we nor any other person assumes responsibility for the
accuracy and completeness of the forward-looking statements. We are under no
duty to update any of the forward-looking statements after the date of this
Report to conform such statements to actual results or to changes in our
expectations.

Overview
--------

Advanced Engine Technologies, Inc. ("we ", "us "or the "Company") was formed to
develop and commercialize the OX2 internal combustion engine, a uniquely
designed engine. Our focus is on the development and commercial introduction of
the OX2 engine and the subsequent licensing of the OX2 engine technology to
approved manufacturers.

We have been granted U.S. and Australian patents for an Axial Piston Rotary
Engine. In addition, we have patent registrations in countries throughout the
world which have either been granted or are pending.

Plan of Operation
-----------------

We plan to continue the research and development of our OX2 engine prototype
during the 2005 fiscal year. On October 15, 2001 we entered into a three year
agreement with OX2 Engine Development PTY, LTD, an Australian Company ("OX2
LTD"), and Steven Charles Manthey, the inventor of the OX2 engine, to provide
research and development products and services related to the OX2 engine. OX2
LTD is wholly-owned by Mr. Manthey. The agreement was amended in January 2002
and April 2002. Research and development activities under the agreement include
continued maintenance of the first and second OX2 Engine Prototypes as well as
design and development of three additional OX2 Engine Prototypes. In
consideration for the services provided by Mr. Manthey and OX2 under the
agreement, we will repurchase from Mr. Manthey, or his affiliates, 240,000
shares of Common Stock, at $2 per share. We have allocated the $2 per share
repurchase price as follows: $.50 per share for the redemption of shares of
Common Stock and $1.50 per share as research and development expense. The $.50
common share redemption price is based on the fair market value of the Common
Stock as of the agreement date. In addition, Mr. Manthey provided consulting
services under the agreement for the sum of $80,000 per annum. As of December
31, 2004, we have repurchased 180,000 shares of common stock for $360,000 under
this agreement. No stock under this agreement was repurchased for the three and
six months ended December 31, 2004. For the three and six months ended December
31, 2004 the Company paid $6,684 and $20,686, respectively, in connection with
consulting services under this agreement. This agreement terminated on October
15, 2004 and the Company is in the process of negotiating a new research and
development agreement with OX2 LTD.

                                       15
<PAGE>
We have an agreement with the University of California, Riverside ("UCR"), which
provides that it will continue to provide engine testing and related services to
the Company, with particular emphasis on testing related to emissions. These
services are being provided under the guidance of Dr. Joseph Norbeck (of the
CE-CERT program at UCR) and Dr. Roberta Nichols, one of our consultants. We are
also conducting research and development and testing activities in Gardena,
California.

On August 13, 2004, the Company entered into an agreement with Danotek Motion
Technologies, to co-develop a 30 kilowatt integrated generator unit. The
agreement calls for the production of three prototype generator components that
will produce 30kw of power in a significantly scaled down and proportional
version that can be affixed to the Company's OX2 engine.

The development of the three 30 kilowatt integrated generator prototypes is
expected to be completed by June, 2005 at an anticipated expense to the Company
of $325,000. The Company will also retain all intellectual property rights
pertaining to this development initiative. For the three and six months ended
December 31, 2004 $65,000 and $227,500, respectively, was paid on this contract
and was recorded as a research and development expenditure in the statement of
operations.

We have spent $145,656 and $441,749, respectively, for the three and six months
ended December 31, 2004, and $133,681 and $257,293 for the three and six months
ended June 30, 2003, on research and development for the OX2 engine. For the
period from September 23, 1996 (Inception) through December 31, 2004 we have
spent $4,300,783 on research and development activities.

Assuming the successful completion of all necessary research and development
work, and assuming the tests of our OX2 Engine Prototypes (existing and future)
are successful; we will attempt to introduce the OX2 engine into the market.
Such marketing activities may include demonstrations to manufacturers of
products using internal combustion engines and the addition of joint venture
and/or strategic partners to assist in the marketing, development and commercial
application of the OX2 engine.

In the short term, our plans are to develop the OX2 engine for commercial
stationary generator applications, and in the longer term, we plan to develop
the engine for commercial, marine, aircraft and/or automotive applications.

We expect that our cash flow requirements to fund general operations in the
fiscal year ending June 30, 2005 will total approximately $1,500,000, including
outside consulting fees and expenditures for equipment. We expect to fund these
costs with our cash or cash equivalent reserves, which were $388,910 as of
December 31, 2004. The Company also has available a $4,900,500 stock
subscription receivable from the R.E. & M. Petersen Trust DTD 1/17/83 (the
"Petersen Trust"), which may be drawn upon at the discretion of the Board of
Directors. The Petersen Trust has executed a promissory note and security
agreement for the sole purpose of paying down the stock subscription receivable
balance. The Board of Directors, at its discretion, may draw down upon the
secured promissory note at any time to further the research, development and/or
commercial application of the Company's engine(s). Our cost estimates do not
include provisions for any contingencies or unexpected expenses that may arise
or any unanticipated increases in costs.

Our net loss since inception (September 23, 1996) is $14,563,463. Our net loss
for the three and six months ended December 31, 2004 is $447,891 and $950,218,
respectively.

Currently, there are no signed contracts that will produce revenue, and we can
provide no assurance that management will be successful in negotiating any such
contracts.

Critical Accounting Policies

We believe that our accounting policy for long-lived assets, including patents,
is a critical accounting policy that significantly impacts our financial
statements. Our accounting policy of long-lived assets, including patents, is as
follows:

We assess the fair value and recoverability of our long-lived assets, including
patents, whenever events and circumstances indicate the carrying value of an
asset may not be recoverable from estimated future cash flows expected to result

                                       16
<PAGE>
from its use and eventual disposition. In doing so, we make assumptions and
estimates regarding future cash flows and other factors to make our
determination. The fair value of our long-lived assets and patents is dependent
upon the forecasted performance of our business, changes in the automotive
industries, and the overall economic environment. When we determine that the
carrying value of our long-lived assets may not be recoverable, we measure any
impairment based upon the excess of the carrying value that exceeds the
estimated fair value of the assets. As a result of these reviews, we have not
yet recognized any impairment losses as of December 31, 2004.

Risk Factors

You should carefully consider the following risks and the other information
contained in this Report and in our other filings with the Securities and
Exchange Commission before you decide to invest in us or to maintain or increase
your investment. The risks and uncertainties described below are not the only
ones facing us. Additional risks and uncertainties may also adversely impact and
impair our business. If any of the following risks actually occur, our business,
results of operations or financial condition would likely suffer. In such case,
the trading price of our Common Stock could decline, and you may lose all or
part of your investment.

WE PRESENTLY MEET THE LEGAL STANDARDS THAT MAKE US ELIGIBLE TO TERMINATE OUR
OBLIGATIONS TO FILE PERIODIC REPORTS WITH THE SECURITIES AND EXCHANGE COMMISSION
(THE "SEC") (SUCH AS FORMS 10-K, 10-Q AND 8-K) AND TO DEREGISTER OUR COMMON
STOCK WITH THE SEC, AND WE MIGHT CHOOSE TO TAKE THIS ACTION WITHOUT PRIOR NOTICE
AT ANY TIME, PRIMARILY TO ELIMINATE THE COSTS ASSOCIATED WITH BEING A
PUBLICLY-REPORTING COMPANY. If we take this action, our Common Stock will no
longer be quoted on the OTC Bulletin Board and the amount of publicly available,
periodic information about us will be substantially reduced. As a result, the
public market for our Common Stock may become much smaller, resulting in even
greater illiquidity and difficulty in ascertaining the Common Stock's fair
market value than presently exists.

THERE CAN BE NO ASSURANCE THAT WE WILL BE ABLE TO DEVELOP SUCCESSFULLY THE OX2
ENGINE. No OX2 engines have been developed or manufactured for commercial
production use, and no assurance can be given that the OX2 engine will be
successfully developed or manufactured in a commercial application. Testing and
development on the engine are still in progress. Until further testing and
research and development have been completed, we will not have a finished
product for introduction into the market. We do not have an estimated completion
date for such testing and research and development. Furthermore, we cannot
provide any assurance that we will be successful in the ultimate development of
the OX2 engine for commercial applications.

A MARKET FOR OUR OX2 ENGINE MAY TAKE LONGER TO DEVELOP THAN ANTICIPATED OR MAY
NEVER DEVELOP, WHICH WOULD ADVERSELY AFFECT OUR REVENUES AND PROFITABILITY. Our
OX2 engine represents an innovation in the industry for internal combustion
engines. The size and nature of the internal combustion engine industry makes
the introduction of changes to industry standards a complex promotional and
marketing exercise. We cannot ensure that our targeted customers will purchase
our engine. If the market for our engines fails to develop, or develops more
slowly that anticipated, we may not be able to meet our expenses and may not
achieve profitable results. In addition, we cannot provide any assurance that we
will be successful with our marketing efforts or the development of future joint
ventures or strategic partnerships.

OUR CASH OR CASH EQUIVALENTS RESERVES MAY NOT BE ADEQUATE TO COVER OUR COSTS OF
OPERATIONS. To date, we have covered our operating losses by privately placing
securities. We expect to fund our general operations and marketing activities
for 2005 with our current cash and cash equivalents reserves, which were
obtained from the sale of securities and were $388,910 as of December 31, 2004.
We also have a $4,900,500 stock subscription receivable from the R.E.&M.
Petersen Living Trust DTD 1/17/83 (the "Petersen Trust"), which may be drawn
upon at the discretion of our Board of Directors. The Petersen Trust has
executed a promissory note and security agreement for the sole purpose of paying
down the stock subscription receivable balance. However, our cost estimates do
not include provisions for any contingencies, unexpected expenses or increases
in costs that may arise. If our cash and cash equivalent reserves are exhausted,
we plan to request payments on the subscription receivable as funds are required
for operations.

WE MAY NOT BE ABLE TO RAISE THE CAPITAL WE NEED. It is likely that we will need
to raise additional capital at some point in the future. If additional funds are
raised through the issuance of equity, our shareholders' ownership will be
diluted. There can be no assurance that additional financing will be available
on terms favorable to us or at all. If funds are not available or are not
available on terms acceptable to us, we may not be able to continue the
development of our product, respond to our competitors or continue our business.

                                       17
<PAGE>
OUR BUSINESS DEPENDS ON THE PROTECTION OF OUR INTELLECTUAL PROPERTY AND MAY
SUFFER IF WE ARE UNABLE TO PROTECT ADEQUATELY OUR INTELLECTUAL PROPERTY.
Currently, we have been granted one U.S. Patent and one Australian Patent for an
Axial Piston Rotary Engine. We have registered these patents in many countries
and have patent registrations pending in many other countries throughout the
world. We believe that our ability to establish and maintain our position in the
market depends on these patents. We cannot provide any assurance that our
patents will not be invalidated, circumvented or challenged, that the rights
granted under the patents will give us competitive advantages or that our patent
registration applications will be granted. In the future, we may also have to
enforce our patents and other intellectual property rights through litigation.
Any such enforcement could also result in substantial costs and could materially
affect our financial condition and our business.

IF WE ARE FOUND TO INFRINGE ON THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS, WE
MAY NOT BE ABLE TO CONTINUE THE DEVELOPMENT AND PRODUCTION OF THE OX2 ENGINE, OR
WE MAY HAVE TO ENTER INTO COSTLY LICENSE OR SETTLEMENT AGREEMENTS TO BE ABLE TO
CONTINUE DEVELOPMENT AND/OR PRODUCTION. Third parties may allege infringement by
us with respect to past, current or future intellectual property rights. Any
claim of infringement, regardless of merit, could be costly and time-consuming
and could require us to develop non-infringing technology or enter into royalty,
licensing or settlement agreements. These agreements could be on terms
unfavorable or unacceptable to us and could significantly harm the development
of our products and, ultimately, our business.

OUR BUSINESS IS DEPENDENT ON OUR RELATIONSHIPS WITH OTHER PARTIES. Research and
development and testing of our engine are presently being carried out internally
and in conjunction with Steven Charles Manthey, the inventor of the OX2 engine,
and his companies. In addition, we have agreements with Carroll Shelby and his
companies to assist in the further development, testing and promotion of our
engine. Completion of such research, development and testing is essential to the
success of our business. Until such research, development, and testing have been
completed, we will not have a finished product to introduce to the market. Thus,
if we are unable to maintain our relationships with Steven Charles Manthey
and/or Carroll Shelby and their companies, our business may be adversely
affected.

WE HAVE A HISTORY OF LOSSES. We have a history of operating losses and an
accumulated deficit, as of December 31, 2004, of $14,563,463. Our ability to
generate revenues and profits is subject to the risks and uncertainties
encountered by development stage companies.

OUR FUTURE REVENUES AND PROFITABILITY ARE UNPREDICTABLE. We currently have no
signed contracts that will produce revenue, and we do not have an estimate as to
when we will be entering into such contracts. Furthermore, we cannot provide any
assurance that management will be successful in negotiating such contracts.

RAPID TECHNOLOGICAL CHANGES COULD ADVERSELY AFFECT OUR BUSINESS. The market for
internal combustion engines is characterized by rapidly changing technology,
evolving industry standards and changing customer demands. Thus, if we are
unable to adapt to rapidly changing technologies and to adapt our product to
evolving industry standards, our business will be adversely affected.

OUR COMMON STOCK IS NOT WIDELY TRADED, WHICH MAY RESULT IN ILLIQUIDITY AND
INCREASED VOLATILITY. Our Common Stock is not widely traded, and, as a result,
the prices quoted for our stock may not reflect its fair market value. Because
of the low volume of trading in our Common Stock, our shareholders may find it
difficult to sell their shares. If we elect to terminate our periodic reporting
and deregister our Common Stock, as discussed above, these risk factors will
become greater.

OUR PRINCIPAL SHAREHOLDERS CAN EXERCISE SIGNIFICANT CONTROL OVER US AND COULD
LIMIT THE ABILITY OF OUR OTHER SHAREHOLDERS TO INFLUENCE THE OUTCOME OF
TRANSACTIONS REQUIRING A SHAREHOLDER VOTE. As of December 31, 2004 approximately
90% of our outstanding Common Stock was owned by our executive officers,
directors and principal shareholders. These shareholders will have the ability
to exercise influence over all matters requiring approval by our shareholders,
including the election of directors and approval of significant corporate
transactions.

IF WE ELECT TO TERMINATE OUR PERIODIC REPORTING OBLIGATIONS AND DEREGISTER OUR
COMMON STOCK WITH THE SEC, AS DISCUSSED ABOVE, THEN ANY OF OUR SHAREHOLDERS
WHOSE COMMON STOCK IS DEEMED "RESTRICTED SECURITIES" AND ANY OF OUR

                                       18
<PAGE>
SHAREHOLDERS WHO ARE "AFFILIATES" OF THE COMPANY WILL NO LONGER BE ABLE TO RELY
ON SEC RULE 144 AS A MEANS OF TRANSFERRING THEIR SHARES WITHOUT SEC
REGISTRATION. (In this context, "restricted securities" generally means Common
Stock that was acquired from the Company or an affiliate in a transaction or
chain of transactions not involving a public offering and has been held for less
than two years thereafter, and an "affiliate" is a person who directly or
indirectly controls, is controlled by, or is under common control with, the
Company.) Consequently, such shareholders will have the burden of demonstrating
that they qualify for some other exemption from SEC registration if they wish to
transfer their shares without the time and expense required for registration.

Recent Accounting Pronouncements:

SFAS No. 151
------------

In November 2004, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 151,"Inventory Costs".
SFAS No. 151 amends the accounting for abnormal amounts of idle facility
expense, freight, handling costs, and wasted material (spoilage) under the
guidance in ARB No. 43, Chapter 4,"Inventory Pricing". Paragraph 5 of ARB No.
43, Chapter 4, previously stated that ". . . under some circumstances, items
such as idle facility expense, excessive spoilage, double freight, and
rehandling costs may be so abnormal as to require treatment as current period
charges. . . ." This Statement requires that those items be recognized as
current-period charges regardless of whether they meet the criterion of "so
abnormal." In addition, this Statement requires that allocation of fixed
production overheads to the costs of conversion be based on the normal capacity
of the production facilities. This statement is effective for inventory costs
incurred during fiscal years beginning after June 15, 2005. Since the Company
currently has no inventory, management does not expect adoption of SFAS No. 151
to have a material impact on the Company's financial statements.

SFAS No. 152
------------

In December 2004, the FASB issued SFAS No. 152,"Accounting for Real Estate
Time-Sharing Transactions". The FASB issued this Statement as a result of the
guidance provided in AICPA Statement of Position (SOP) 04-2,"Accounting for Real
Estate Time-Sharing Transactions". SOP 04-2 applies to all real estate
time-sharing transactions. Among other items, the SOP provides guidance on the
recording of credit losses and the treatment of selling costs, but does not
change the revenue recognition guidance in SFAS No. 66,"Accounting for Sales of
Real Estate", for real estate time-sharing transactions. SFAS No. 152 amends
Statement No. 66 to reference the guidance provided in SOP 04-2. SFAS No. 152
also amends SFAS No. 67, "Accounting for Costs and Initial Rental Operations of
Real Estate Projects", to state that SOP 04-2 provides the relevant guidance on
accounting for incidental operations and costs related to the sale of real
estate time-sharing transactions. SFAS No. 152 is effective for years beginning
after June 15, 2005, with restatements of previously issued financial statements
prohibited. This statement is not applicable to the Company.

SFAS No. 153
------------

In December 2004, the FASB issued SFAS No. 153,"Exchanges of Nonmonetary
Assets," an amendment to Opinion No. 29,"Accounting for Nonmonetary
Transactions". Statement No. 153 eliminates certain differences in the guidance
in Opinion No. 29 as compared to the guidance contained in standards issued by
the International Accounting Standards Board. The amendment to Opinion No. 29
eliminates the fair value exception for nonmonetary exchanges of similar
productive assets and replaces it with a general exception for exchanges of
nonmonetary assets that do not have commercial substance. Such an exchange has
commercial substance if the future cash flows of the entity are expected to
change significantly as a result of the exchange. SFAS No. 153 is effective for
nonmonetary asset exchanges occurring in periods beginning after June 15, 2005.
Earlier application is permitted for nonmonetary asset exchanges occurring in
periods beginning after December 16, 2004. Management does not expect adoption
of SFAS No. 153 to have a material impact on the Company's financial statements.

SFAS No. 123(R)
---------------

In December 2004, the FASB issued SFAS No. 123(R),"Share-Based Payment". SFAS
123(R) amends SFAS No. 123,"Accountung for Stock-Based Compensation", and APB
Opinion 25,"Accounting for Stock Issued to Employees." SFAS No.123(R) requires

                                       19
<PAGE>
that the cost of share-based payment transactions (including those with
employees and non-employees) be recognized in the financial statements. SFAS No.
123(R) applies to all share-based payment transactions in which an entity
acquires goods or services by issuing (or offering to issue) its shares, share
options, or other equity instruments (except for those held by an ESOP) or by
incurring liabilities (1) in amounts based (even in part) on the price of the
entity's shares or other equity instruments, or (2) that require (or may
require) settlement by the issuance of an entity's shares or other equity
instruments. This statement is effective (1) for public companies qualifying as
SEC small business issuers, as of the first interim period or fiscal year
beginning after December 15, 2005, or (2) for all other public companies, as of
the first interim period or fiscal year beginning after June 15, 2005, or (3)
for all nonpublic entities, as of the first fiscal year beginning after December
15, 2005. Management is currently assessing the effect of SFAS No. 123(R) on the
Company's financial statements.

Item 3. Controls and Procedures.

Management, including the Company's principal executive officer and principal
financial officer, has evaluated, as of the end of the period covered by this
report, the effectiveness of the design and operation of the Company's
disclosure controls and procedures with respect to the information generated for
use in this report. Based upon, and as of the date of that evaluation, the
principal executive officer and principal financial officer concluded that the
disclosure controls and procedures were effective to provide reasonable
assurances that information required to be disclosed in the reports filed or
submitted under the Securities Exchange Act of 1934, as amended, is recorded,
processed, summarized and reported within the time periods specified in the
rules and forms of the Securities and Exchange Commission.

In designing and evaluating the disclosure controls and procedures, management
recognized that any controls and procedures, no matter how well designed and
operated, can provide only reasonable, not absolute, assurance of achieving the
desired control objectives and management necessarily was required to apply its
judgment in evaluating the cost-benefit relationship of possible controls and
procedures. Based upon the above evaluation, management believes that its
controls do provide such reasonable assurances.

There have been no changes in the Company's internal control over financial
reporting that occurred during the Company's last fiscal quarter that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.



                                       20
<PAGE>
                                     PART II
                                OTHER INFORMATION

Item 1. Legal Proceedings.

None.

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

             Name of Director                    Number of Shares of Common
                                                 Stock

             Noel Holmres                        10,000
             Steven Charles Manthey              10,000
             Alexandria Phillips                 10,000
             Carroll Shelby                      10,000

Item 3. Defaults Upon Senior Securities.

None.

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

On November 5, 2004, the Company held its annual meeting of shareholders.
Shareholders present in person or by proxy, representing 21,074,481 shares of
common stock, voted on the following matters:

1. The shareholders elected the following four directors of the Company to hold
office until the next annual meeting of shareholders or until their successors
are elected and qualified:

<TABLE>
<CAPTION>
Name of Director                   Number of Shares Cast in Favor       Number of Shares for Which
                                                                        Authority Withheld
------------------------------------------------------------------------------------------
<S>                                <C>                                  <C>
Noel Holmes                        21,032,910                           41,571
Steven Charles Manthey             21,032,910                           41,571
Alexandria Phillips                21,032,910                           41,571
Carroll Shelby                     21,032,910                           41,571
</TABLE>

2. The shareholders ratified the appointment of Singer Lewak Greenbaum &
Goldstein LLP as the Company's independent auditors for the year ended June 30,
2004, as follows:

<TABLE>
<CAPTION>
Number of Shares Cast in Favor     Number of Shares Cast Against        Number of Shares Abstaining
---------------------------------------------------------------------------------------------------
<C>                                <C>                                  <C>
21,045,043                         20,918                               8,520
</TABLE>

                                       21
<PAGE>
Item 5.    Other Information.

None.

Item 6.     Exhibits and Reports on 8-K

Exhibits
--------
Number  Description

3.1    Certificate of Incorporation of the Registrant (incorporated by reference
       to Exhibit 3.1 to the Registrant's Registration Statement on Form
       10-SB12G, filed on December 17, 1998).
3.2    Form of Amended and Restated By-Laws of the Registrant (this is a
       compilation of the Registrant's By-Laws reflecting amendments made on
       December 7, 1999 and November 16, 2000) (incorporated by reference to
       Exhibit 3.2 to the Registrant's Report on Form 10-KSB for the fiscal year
       ended June 30, 2001).
10.1   Cancellation of the issuance of 19,000,000 shares of the Registrant's
       Common Stock (incorporated by reference to Exhibit 10.2 to the
       Registrant's Report on Form 10-KSB for the fiscal year ended June 30,
       1999).
10.2   Deed of Agreement Concerning the Patents, Licensing and Research and
       Development in Relation to the OX2 Engine, by and among the Registrant,
       Advanced Engine Technology Pty. Ltd. AN 063 092 759, OX2 Intellectual
       Property Inc., and OX2 Engine (Distribution) Limited, dated as of May 12,
       1999 (incorporated by reference to Exhibit 10.2 to the Registrant's
       Report on Form 10-KSB for the fiscal year ended June 30, 1999).
10.3   Joint Venture Agreement by and between the Registrant and Carroll Shelby,
       dated as of July 15, 1998 (incorporated by reference to Exhibit 10.1 to
       the Registrant's Registration Statement on Form 10-SB12G, filed on
       December 17, 1998).
10.4   Agreement by and between the Registrant and Steven Charles Manthey, dated
       as of May 23, 2000 (incorporated by reference to Exhibit 10.4 to the
       Registrant's Report on Form 10-KSB for the fiscal year ended June 30,
       2000).
10.5   Release Agreement by and among the Registrant, Advanced Engine Technology
       Pty. Ltd. and Steven Charles Manthey, dated as of May 23, 2000
       (incorporated by reference to Exhibit 10.5 to the Registrant's Report on
       Form 10-KSB for the fiscal year ended June 30, 2000).
10.6   Agreement for Performance of Technology Development Services by
       Independent Contractors by and among the Registrant, Steven Charles
       Manthey and OX2 Engine Development PTY Limited, dated as of October 15,
       2001 (incorporated by reference to Exhibit 10.6 to the Registrant's
       Report on Form 10-KSB for the fiscal year ended June 30, 2002).
10.7   First Amendment to Agreement for Performance of Technology Development
       Services by Independent Contractors by and among the Registrant, Steven
       Charles Manthey and OX2 Engine Development PTY Limited, dated as of
       January 24, 2002 (incorporated by reference to Exhibit 10.7 to the
       Registrant's Report on Form 10-KSB for the fiscal year ended June 30,
       2002).
10.8   Second Amendment to Agreement for Performance of Technology Development
       Services by Independent Contractors by and among the Registrant, Steven
       Charles Manthey and OX2 Engine Development PTY Limited, dated as of April
       2002 (incorporated by reference to Exhibit 10.8 to the Registrant's
       Report on Form 10-KSB for the fiscal year ended June 30, 2002).
10.9   Share Subscription Agreement by and between the Registrant and the R.E. &
       M. Petersen Living Trust DTD 1/17/83 (incorporated by reference to
       Exhibit 10.6 to the Registrant's Report on Form 10-QSB filed on November
       14, 2000).
10.10  Promissory Note of The Robert E. and Margaret M. Petersen Trust in favor
       of the Registrant, dated September 1, 2001 (incorporated by reference to
       Exhibit 10.10 to the Registrant's Report on Form 10-KSB for the fiscal
       year ended June 30, 2002).
10.11  Security Agreement of The Robert E. and Margaret M. Petersen Trust in
       favor of the Registrant (incorporated by reference to Exhibit 10.11 to
       the Registrant's Report on Form 10-KSB for the fiscal year ended June 30,
       2002).
10.12  Registrant's 2000 Stock Incentive Plan (incorporated by reference to
       Exhibit 4.1 to the Registrant's Report on Form 10-KSB for the fiscal year
       ended June 30, 2000).
10.13  Form of Stock Option Agreement (incorporated by reference to Exhibit10.13
       to the Registrant's Report on Form 10-KSB for the fiscal year ended June
       30, 2002).

                                       22
<PAGE>
10.14  First Amendment to the Registrant's 2000 Stock Incentive Plan
       (incorporated by reference to Exhibit 10.8 to the Registrant's Report on
       Form 10-KSB for the fiscal year ended June 30, 2001).
10.15  Second Amendment to the Registrant's 2000 Stock Incentive Plan
       (incorporated by reference to Exhibit 10.9 to the Registrant's Report on
       Form 10-KSB for the fiscal year ended June 30, 2001).
10.16  Memorandum of Understanding, Charitable Gift Agreement, by and among the
       Registrant, the UC Riverside Foundation and the Regents of the University
       of California, dated as of June 7, 1999 (incorporated by reference to
       Exhibit 10.10 to the Registrant's Report on Form 10-KSB for the fiscal
       year ended June 30, 2001).
10.17  Agreement by and between the Registrant and Danoteck Motion Technologies,
       dated as of August 13, 2004 (incorporated by reference to Exhibit 10.17
       to the Registrant's Report on Form 10-QSB for the fiscal quarter ended
       September 30, 2004).
14.1   Code of Business Conduct and Ethics
31.1   Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
       2002--President.
31.2   Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
       2002--Treasurer
32.1   Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
       Section 906 of the Sarbanes-Oxley Act of 2002--President.
32.2   Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
       Section 906 of the Sarbanes-Oxley Act of 2002--Treasurer.


Reports of Form 8-K
-------------------

None.

                                       23
<PAGE>
                                   SIGNATURES

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

                       ADVANCED ENGINE TECHNOLOGIES, INC.
                                  (Registrant)





Date: February 14, 2005          By: /s/ Carroll Shelby
                                     ------------------
                                     Carroll Shelby, President and Director


Date: February 14, 2005          By: /s/ Alexandria Phillips
                                     -----------------------
                                     Alexandria Phillips, Treasurer and Director



                                       24