<PAGE>

                     U.S. 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 March 31, 2002

[_]  Transition report under Section 13 or 15(d) of the Securities 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, California 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)

     Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.

Yes   X         No _____
    -----

<PAGE>

                     APPLICATION 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:

     33,455,000 shares of common stock, $0.001 par value per share, as of May
13, 2002.

     Transitional Small Business Disclosure Format (check one):

Yes _____       No   X
                   -----

<PAGE>

                                     Part I
                              FINANCIAL INFORMATION

Item 1.   Financial Statements.

                                      -2-

<PAGE>

                                              ADVANCED ENGINE TECHNOLOGIES, INC.
                                                   (A DEVELOPMENT STAGE COMPANY)
                                                                        CONTENTS
                                          As of June 30, 2001 and March 31, 2002
                                                                     (unaudited)
================================================================================

<TABLE>
<CAPTION>
FINANCIAL STATEMENTS                                                        Page
<S>                                                                         <C>
         Balance Sheets                                                        5

         Statements of Operations                                              6

         Statements of Cash Flow                                               7

         Notes to Financial Statements                                      8-13
</TABLE>

                                      -3-

<PAGE>

ADVANCED ENGINE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
March 31, 2002 (unaudited) and June 30, 2001

<TABLE>
<CAPTION>
                                                                                  March 31,        June 30,
    ASSETS                                                                          2002             2001
                                                                                 -----------     -----------
<S>                                                                              <C>             <C>
CURRENT ASSETS:                                                                  (unaudited)
           Cash and equivalents                                                  $    85,538     $    176,225
           Due from related party                                                         --           21,000
           Other current assets                                                       35,434           20,021
                                                                                 -----------     ------------
                     Total current assets                                            120,972          217,246
                                                                                 -----------     ------------
           Property and equipment, net                                                54,215           62,528
           Patents, net of accumulated amortization of $451,876
                (unaudited) and $331,983                                           1,169,420        1,214,313
           Due from related party                                                     21,000               --
                                                                                 -----------     ------------
                     Total assets                                                $ 1,365,607     $  1,494,087
                                                                                 ===========     ============

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:

           Accounts payable and accrued expenses                                 $    62,715     $     64,095
                                                                                 -----------     ------------
                     Total current liabilities                                        62,715           64,095
                                                                                 -----------     ------------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
           Common stock-50,000,000 shares authorized,
           33,230,000 issued and outstanding; $.001 par value
             as of June 30, 2001,  33,430,000 issued and outstanding;
              $.001 par value as of March 31, 2002 (unaudited)                        33,430           33,230
           Additional paid-in capital                                             18,480,320       17,550,520
           Shares receivable under stock repurchase agreement                        (55,000)              --
           Committed common stock under grant agreement                            1,860,000        2,790,000
           Subscription receivable                                                (9,000,000)     (10,000,000)
           Deferred costs under grant agreement                                   (2,014,500)      (2,712,000)
           Deficit accumulated during the development stage                       (8,001,358)      (6,231,758)
                                                                                 -----------     ------------
                     Total stockholders' equity                                    1,302,892        1,429,992
                                                                                 -----------     ------------
Total liabilities and stockholders' equity                                       $ 1,365,607     $  1,494,087
                                                                                 ===========     ============
</TABLE>

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

                                      -4-

<PAGE>

ADVANCED ENGINE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
For the Three and Nine Months Ended March 31, 2002 and 2001 (unaudited)
and for the Period From September 23, 1996 (Inception)
to March 31, 2002 (unaudited)

<TABLE>
<CAPTION>
                                                    For the                    For the
                                               Three Months Ended         Nine Months Ended         September 23,
                                                   March 31,                  March 31,                 1996
                                               ------------------         -----------------          (Inception)
                                                                                                       Through
                                              2002           2001          2002          2001       March 31, 2002
                                           -----------    -----------   -----------   -----------     -----------
                                           (unaudited)    (unaudited)   (unaudited)   (unaudited)     (unaudited)
<S>                                        <C>            <C>           <C>           <C>            <C>
Expenses:
     Operating                             $   199,233    $   206,744   $   657,247   $   601,215    $ 2,963,566
     Research and development                  172,212         48,523       418,406       135,335      2,543,805
     Stock grant                               232,500        232,500       697,500       697,500      2,635,500
     Write-off of patent                           --            --             --                        23,332
                                           -----------    -----------   -----------   -----------    ------------
Total expenses                                 603,945        487,767     1,773,153     1,434,050      8,166,203
                                           -----------    -----------   -----------   -----------    ------------

Loss from operations                          (603,945)      (487,767)   (1,773,153)   (1,434,050)    (8,166,203)

Interest income                                    592          8,336         3,553        39,407        164,845
                                           -----------    -----------   -----------   -----------    ------------

Net loss                                   $  (603,353)   $  (479,431)  $(1,769,600)  $(1,394,643)   $(8,001,358)
                                           ===========    ===========   ===========   ===========    ============

Basic and diluted net loss per share            $(0.02)   $     (0.01)  $     (0.05)  $     (0.05)   $     (0.32)
                                           ===========    ===========   ===========   ===========    ===========

Weighted average number of common
 shares outstanding                         33,430,000     33,150,000    33,375,185    31,298,148     24,785,220
                                           ===========    ===========   ===========   ===========    ===========
</TABLE>

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

                                      -5-

<PAGE>

ADVANCED ENGINE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
For the Nine Months Ended March 31, 2002 and 2001 (unaudited)
and for the Period From September 23, 1996 (Inception)
to March 31, 2002 (unaudited)

<TABLE>
<CAPTION>
                                                                                For the                          September 23,
                                                                           Nine Months Ended                        1996
                                                                               March 31,                         (Inception)
                                                                          -------------------                      Through
                                                                        2002                  2001              March 31, 2002
                                                                    -----------            -----------           ------------
                                                                    (unaudited)            (unaudited)           (unaudited)
<S>                                                                   <C>                  <C>                   <C>
Reconciliation of net losses to net cash used in operations:
         Net loss                                                     $(1,769,600)         $ (1,394,643)         $ (8,001,358)
         Stock grant expense                                              697,500               697,500             2,635,500
Adjustments to reconcile net loss to
net cash used in operating activities
         Depreciation and amortization                                    138,032               144,220               562,228
         Issuance of common stock for assets and services                       -                     -               714,250
         Stock options issued for services                                      -                     -                 9,500
         Write off of patents                                                   -                     -                23,332
(Increase) decrease in
         Other current assets                                             (15,410)               17,576               (35,434)
         Due from related party                                                 -               (17,295)              (21,000)
Increase (decrease) in

         Accounts payable and accrued expenses                             (1,381)              (18,416)               62,715
                                                                       ----------          ------------          ------------
         Net cash flows used in
            operating activities                                         (950,859)             (571,058)           (4,050,267)
                                                                       ----------          ------------          ------------
Cash flows from investing activities:
         Purchase of intangible asset                                     (75,000)                    -            (1,665,046)
         Purchase of property and equipment                                (9,828)                    -              (144,149)
                                                                       ----------          ------------          ------------
         Net cash flows used in
            investing activities                                          (84,828)                    -            (1,809,195)
                                                                       ----------          ------------          ------------
Cash flow from financing activities:
         Proceeds from issuance of common stock                                                                     5,000,000
         Proceeds from stock subscription receivable                    1,000,000                     -             1,000,000
         Proceeds from note payable                                             -                     -               500,000
         Repayment of notes payable                                             -                     -              (500,000)
         Redemption of common stock                                       (55,000)                                    (55,000)
                                                                       ----------          ------------          ------------
         Net cash flows provided by
            financing activities                                          945,000                     -             5,945,000
                                                                       ----------          ------------          ------------

         Net increase (decrease) in cash and equivalents                  (90,687)             (571,058)               85,538

         Cash and equivalents, at beginning of period                     176,225             1,026,990                     -
                                                                      -----------          ------------          ------------

         Cash and equivalents, at end of period                       $    85,538          $    455,932          $     85,538
                                                                      ===========          ============          ============
</TABLE>
The accompanying notes are an integral part of these financial statements.

                                      -6-

<PAGE>

Advanced Engine Technologies, Inc.
Notes to Financial Statements
March 31, 2002



NOTE 1 - DESCRIPTION OF BUSINESS

         Advanced Engine Technologies, Inc. (the "Company") was incorporated
under the laws of Colorado and began operations on September 23, 1996. The
Company was formed to acquire the rights to manufacture, distribute and market
an OX2 combustion engine throughout the United States, Canada and Mexico. On
October 18, 1996, the Company entered into a sublicense agreement with OX2
Engine (Distribution) LTD, a company incorporated under the laws of the Republic
of Vanuatu ("OX2D"), pursuant to which the Company acquired the rights to
manufacture, distribute and market the OX2 combustion engine in the NAFTA
countries. Pursuant to the terms of said sublicense agreement, the Company
issued 20,000,000 shares of its common stock to OX2D 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 OX2D upon completion of certain
emission 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
OX2D.

         In May 1999, pursuant to a four-party agreement among and between the
Company, OX2D, OX2 Intellectual Property Inc. and Advanced Engine Technology PTY
Ltd., the Company acquired the worldwide patent rights for the OX2 combustion
engine for $1,500,000. This agreement superseded and terminated the October 1996
sublicense agreement. The Company has assumed responsibility for worldwide
patent maintenance and enforcement, as well as engine development,
manufacturing, marketing and sales activities.

         On October 15, 2001, the Company entered into an agreement with OX2
Engine Development PTY, LTD, an Australian company ("OX2 LTD"), to provide
research and development products and services related to the OX2 engine ("R and
D Agreement"). OX2 LTD is wholly-owned by the inventor of the OX2 engine.
Research and development activities will include continued maintenance of the
first and second performing test engines as well as design and development of
three additional OX2 test engines. In addition, the agreement calls for the
design and manufacturing of new and advanced components for the test engines. In
consideration for this agreement the Company will repurchase from the inventor,
or his affiliates, 240,000 shares of common stock of the Company at $2 per
share. The Company has allocated its $2.00 per share repurchase price as $.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 and D Agreement. As of
March 31, 2002, the Company has repurchased 110,000 shares of common stock under
the R and D Agreement.

         In addition, the Company has contracted with the OX2 engine inventor to
provide consulting services for the sum of eighty thousand dollars ($80,000) per
annum. For the three months and nine months ended March 31, 2002, the Company
paid $20,000 and $40,000, respectively, in connection with consulting and
product development services under this agreement.

                                       -7-

<PAGE>

Advanced Engine Technologies, Inc.
Notes to Financial Statements
March 31, 2002



         As of March 31, 2002, the Company's operations consisted of marketing,
testing and developing the OX2 combustion engine for the commercial applications
and raising any necessary capital investments. Management does not expect to
generate significant sales revenue during the year ending June 30, 2002.
Accordingly, planned principal operations have not commenced, and the Company is
a development stage enterprise.

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 and nine months ended March 31,
2002 are not necessarily indicative of results for the entire fiscal year ending
June 30, 2002.

         The information with respect to the nine months and three months ended
March 31, 2002 and 2001 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." The Company is devoting substantially all of its
present efforts to establish a new business, and its planned principal
operations have not yet commenced. 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.

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

                                       -8-

<PAGE>

Advanced Engine Technologies, Inc.
Notes to Financial Statements
March 31, 2002



than the carrying amount of the asset, the Company would recognize an impairment
loss based on the estimated fair value of the asset.

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

         SFAS No. 123, "Accounting for Stock-based Compensation," 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 related services
are rendered. The statement also permits companies to elect to continue using
the current implicit value accounting method specified in Accounting Principles
Bulletin ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," to
account for stock-based compensation issued to employees. 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.

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

                                      -9-

<PAGE>

Advanced Engine Technologies, Inc.
Notes to Financial Statements
March 31, 2002



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

         In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." This statement addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
This statement replaces SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of," the accounting
and reporting provisions of APB No. 30, "Reporting the Results of Operations -
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual, and Infrequently Occurring Events and Transactions," for the disposal
of a segment of a business, and amends Accounting Research Bulletin No. 51,
"Consolidated Financial Statements," to eliminate the exception to consolidation
for a subsidiary for which control is likely to be temporary. The Company does
not expect the adoption of SFAS No. 144 to have a material impact on its
financial position or results of operation.

         In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." SFAS No. 145 updates, clarifies and simplifies existing accounting
pronouncements. This statement rescinds SFAS No. 4, which required all gains and
losses from extinguishment of debt to be aggregated and, if material, classified
as an extraordinary item, net of related income tax effect. As a result, the
criteria in APB No. 30 will now be used to classify those gains and losses. SFAS
No. 64 amended SFAS No. 4 and is no longer necessary as SFAS No. 4 has been
rescinded. SFAS No. 44 has been rescinded as it is no longer necessary. SFAS No.
145 amends SFAS No. 13 to require that certain lease modifications that have
economic effects similar to sale-leaseback transactions be accounted for in the
same manner as sale-lease transactions. This statement also makes technical
corrections to existing pronouncements. While those corrections are not
substantive in nature, in some instances, they may change accounting practice.
This statement is not applicable to the Company.

Reclassification
----------------

         In the statement of operations for the three months ended September 30,
2001, as originally filed, $35,000 of rental expense was classified as an
operating expense rather than as a research and development expense. This amount
has now been reclassified as research and development expense in the statement
of operations for the nine months ended March 31, 2002.

NOTE 3- STOCKHOLDERS' 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

                                      -10-

<PAGE>

Advanced Engine Technologies, Inc.
Notes to Financial Statements
March 31, 2002



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 and third installments were issued in July 1999,
July 2000 and September 2001, respectively.

         Expense in the grant is being 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, and 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 March 31, 2002, the Company recognized
total expense on the stock grant of $2,635,000, including $232,500 and $697,500,
respectively, for the three months and nine months ended March 31, 2002 and
2001.

         During the nine months ended March 31, 2002, in accordance with the
Company's agreement with OX2 LTD (see Note 1) the Company repurchased 110,000
shares of its common stock. These repurchased shares are held in trust and have
not been returned to the Company.

NOTE 4 - RELATED PARTY TRANSACTIONS

         The Company paid research and development costs and rent to a company
owned by its current President in the amount of $68,508 (unaudited) for the
three months ended March 31, 2002 and $193,538 (unaudited) for the nine months
ended March 31, 2002.

         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 March 31, 2002.

         At March 31, 2002, the Company had an outstanding receivable from 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 in which its
Secretary is a principal, which also serves as part of the Company's legal
counsel. The Company incurred legal fees, rent and other reimbursement costs of
$16,050 (unaudited) for the three months ended March 31, 2002 and $77,027
(unaudited) for the nine months ended March 31, 2002.

         For the three months and nine months ended March 31, 2002, the Company
paid Steven Charles Manthey $20,000 and $40,000, respectively, in connection
with consulting services (see Note 1). In addition the Company paid $220,000
(unaudited) to OX2 LTD (a company wholly-owned by Steven Charles Manthey) for
the repurchase of 110,000 shares of common stock from Steven Charles Manthey in
connection with product development services. (see Note 1). Of the $220,000
(unaudited) paid, $165,000 has been charged to research and development expense
during the nine months ended March 31, 2002.

                                      -11-

<PAGE>

Advanced Engine Technologies, Inc.
Notes to Financial Statements
March 31, 2002


NOTE 5 - RESTATEMENT OF THE MARCH 31, 2001 FINANCIAL STATEMENTS

     The financial statements for the three months and nine months ended March
31, 2001 have been restated from the originally filed financial statements to
reflect greater expense recognition in those years in connection with the June
1999 stock grant agreement with the University of Riverside Foundations (see
Note 3 for a description of the agreement and the accounting related to the
agreement). Specifically, upon reevaluation of the agreement, current management
has concluded that the fair value of the committed common stock on the date of
the agreement was $4,650,000, and not $1,500,000 as originally valued. This
increase in the fair value of the committed common stock on the date of the
grant agreement impacts the expense recognition on the stock grant agreement
because the expense which is recognized over a five-year period is based upon
the fair value of the committed common stock on the date of the stock grant
agreement. Originally, the financial statements for the three and nine months
ended March 31, 2001 reflected $0 and $300,000, respectively, of research and
development expense associated with this grant. As a result of the foregoing,
the financial statements for the three and nine months ended March 31, 2001 have
been restated to reflect stock grant expense of $232,500 and $697,500,
respectively. Also, the originally filed March 31, 2001 financial statements
classified the expense on the stock grant as research and development expense,
whereas, the restated financial statements present the expense as "stock grant
expense."

                                      -12-

<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
SEC, including our Annual Report on Securities and Exchange Commission ("SEC")
Form 10-KSB for the year ended June 30, 2001.

     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, 2001
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. 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.


     Based on its design, we believe our OX2 engine prototype will be
fuel efficient, lightweight, low-emission, multi-fueled and smaller and less
expensive than conventional internal combustion engines. We also believe that it
will not have the complex manufacture/production requirements of conventional
internal combustion engines.

     At the present time three (3) prototypes of the OX2 internal combustion
engine ("Prototypes"), plus additional parts that can be used for engine
development or for the building of additional

                                      -13-

<PAGE>

Prototypes, have been built. The development and testing of Prototypes are
ongoing. No OX2 engines have been manufactured for production use, and no
assurance can be given that the OX2 engine will be successfully developed or
manufactured for commercial application.

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

     We plan to continue the research and development of our OX2 engine
Prototypes during the 2002 fiscal year. In addition, we have agreements with
Steven Charles Manthey, the inventor of the OX2 engine, and his companies, which
require that Mr. Manthey and his companies provide the Company with (i)
delivery, on or before July 31, 2002, of two (2) additional OX2 engine
Prototypes for development and testing, and (ii) those research, development,
consulting and engine maintenance products and services necessary to advance the
continuing development of the OX2 engine for commercial application.

     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.

     Assuming the successful completion of all necessary research and
development work, and assuming the tests of our OX2 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, 2002 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 $85,538 as of March
31, 2002. The Company also has available a $9,000,000 stock subscription
receivable which may be drawn upon at the

                                      -14-

<PAGE>

discretion of the Board of Directors. The investor to whom the $9,000,000 stock
subscription receivable relates 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 $8,001,358.

     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
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
industry, and the overall economic environment. When we determine that the
carrying value of our long-lived assets and goodwill 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 March 31, 2002.

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.

     .    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, research and development. Furthermore, we cannot provide any
          assurance that we will be successful in the ultimate development of
          the 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
          --------------------------------------------------------------
          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 than anticipated, we may not be able to meet our
          expenses and may not achieve profitable results. In addition, we
          cannot provide assurance that we will be successful with our marketing
          efforts or the development of future joint ventures or strategic
          partnerships.

     .    Our cash or cash equivalent 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 2002 with our current cash and cash
          equivalents, which were obtained from the

                                      -15-

<PAGE>

          sale of securities. However, our cost estimates do not include
          provisions for any contingence, unexpected expenses or increases in
          costs that may arise.

     .    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.

     .    Our business depends on the protection of our intellectual property
          -------------------------------------------------------------------
          and may suffer if we are unable to adequately protect our intellectual
          ----------------------------------------------------------------------
          property. Currently, we have been granted one U.S. Patent and one
          --------
          Australian Patent for an Axial Piston Rotary Engine ("Patents"). We
          have successfully registered these patents in many countries and have
          patent registrations pending in many other countries throughout the
          world.  Certain of these registrations have been granted and certain
          are pending. We believe that our ability to establish and maintain our
          position in the market depends substantially on these Patents. We
          cannot provide 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.

     .    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, time-consuming and
          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. 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.

     .    Our business is dependent on our relationships with other parties.
          -----------------------------------------------------------------
          Research, development and testing of our engine is 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.

                                      -16-

<PAGE>

     .    We have a history of losses. We have a history of operating losses and
          ---------------------------
          an accumulated deficit, as of March 31, 2002, of $8,001,358. 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 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 stockholders may find it difficult to sell their shares.

     .    Our principal stockholders can exercise significant control over us
          -------------------------------------------------------------------
          and could limit the ability of our other stockholders to influence the
          ----------------------------------------------------------------------
          outcome of transactions requiring a shareholder vote. As of March 31,
          ----------------------------------------------------
          2002, approximately 75% of our outstanding common stock is owned by
          our executive officers, directors and principal stockholders. These
          stockholders will have the ability to exercise influence over all
          matters requiring approval by our stockholders, including the election
          of directors and approval of significant corporate transactions.

                                     Part II
                                OTHER INFORMATION

Item 1.   Legal Proceedings.

     None.

Item 2.   Changes in Securities and Use of Proceeds.

     None.

Item 3.   Defaults Upon Senior Securities.

     None.

                                      -17-

<PAGE>

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

     None.

Item 5.   Other Information.

     The following two lawsuits previously named us as a defendant. One action
was filed in the State of New Mexico and the other in the State of California.
Both actions were filed by the Estate of Paul Gerrard Ebbage (the "Estate") and
concerned the Estate's beneficial entitlement to a percentage of shares of
Common Stock that originally were issued to OX2 LTD (the "Disputed Shares"). In
August 2000, we accepted the surrender of 10,713,238 shares of Common Stock,
which we subsequently deposited with the Superior Court of the State of
California, County of Los Angeles (the "Los Angeles Superior Court"), for the
court to then determine who rightfully owns the Disputed Shares as between the
plaintiff and the named defendants (other than us). We were dismissed from the
action filed in the State of New Mexico in May 2001. Furthermore, in May 2001 a
Joint Stipulation and Order Dismissing Verified Derivative Complaint and
Verified Cross Complaint in Interpleader Without Prejudice was filed and entered
in the action filed in the State of California dismissing the Company from the
action without prejudice.

     In April 2002, the Company received notice that a "Joint Stipulation and
Order for Transfer of Disputed Shares Pursuant to Settlement Between the Parties
and Dismissal of All Claims With Prejudice" ("Order") had been filed with the
Los Angeles Superior Court and entered. This Order specifies the manner in which
the Disputed Shares are to be distributed by the Company to the Estate and
Steven Charles Manthey, or their designees. The Company will comply with such
Order.

     The two lawsuits (now dismissed) are:

     1)   Raymond J. Ebbage, as executor of the Estate of Paul Gerrard Ebbage v.
          Steven Charles Manthey, et.al. Superior Court of the State of
          California, County of Los Angeles, No. BC 232758.

     2)   Raymond J. Ebbage, as executor of the Estate of Paul Gerrard Ebbage v.
          Steven Charles Manthey, et.al. Second Judicial District, County of
          Bernalillo, State of New Mexico, CV No. 2000-02628.

Item 6.   Exhibits and Reports on Form 8-K.

     None.

                                      -18-

<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:  May 15, 2002                     By:  /s/  Carroll Shelby
                                        ----------------------------------------
                                        Carroll Shelby, President and Director

Date:  May 15, 2002                     By:  /s/  M. Neil Cummings
                                        ----------------------------------------
                                        M. Neil Cummings, Secretary