SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   FORM 10-QSB

[X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
      EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDING SEPTEMBER 30, 2005

[_]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

                        COMMISSION FILE NUMBER 000-51113

                                   AEC I, INC.

             (Exact name of registrant as specified in its charter)

           Nevada                                            36-4452773
        - - - - - -                                         - - - - - - - - - -
(State or other jurisdiction of                              (I.R.S. Employer
 incorporation or organization)                             Identification No.)

                          105-3325 North Service Road
                               Burlington, Ontario
                                 Canada L7N 3G2
                    (Address of principal executive offices)

         Registrant's telephone number including area code: 905.332.3110

           SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

                                      None

           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                         Common shares, $0.001 par value

Indicate by check mark whether THE REGISTRANT (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that THE REGISTRANT was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.

Yes [ ] No [ ]

The number of common shares without par value outstanding on September 30, 2005
was 74,900,715 Shares.


<PAGE>

AEC,1 INC.
Condensed Balance Sheet
Unaudited
                                            Sept, 30     December, 31
                                               2005          2004
                                           -----------   -----------

ASSETS

Current
  Cash                                         106,618       421,690
  Deferred consulting costs                    165,149       373,333
  Prepaid expense and sundry assets            219,101       232,979
  Marketable security                          155,268       360,000
  Investment in Related Party                  100,000       100,000
Other
  Property & equipment                         311,574       313,317
  Technology & patent assets                 2,124,373     2,124,373

                                           -----------   -----------
                                           $ 3,182,083   $ 3,925,692
                                           ===========   ===========
LIABILITIES
Current
  Accounts payable & accrued liabilities       149,827        76,541
  Loans payable                                500,846             0
  Due to director                              597,109       504,629
                                           -----------   -----------
                                           $ 1,247,782   $   581,170
                                           ===========   ===========

MINORITY INTEREST                              623,532       981,474

SHAREHOLDERS' EQUITY
  Capital stock                                 37,893        37,893
  Additional paid in capital                10,306,246    10,015,594
  Accumulated other comprehensive income      -120,882         3,063
  Deficit                                   -8,912,488    -7,693,502

                                           -----------   -----------
                                             1,310,769     2,363,048
                                           -----------   -----------

                                           -----------   -----------
                                           $ 3,182,083   $ 3,925,692
                                           ===========   ===========

               See accompanying notes to the financial statements


                                       2
<PAGE>

AEC I, INC.
Condensed Statement of Operations

<TABLE>
<CAPTION>
Unaudited

                               Nine Months Ending September 30,   Three Months Ending September 30,
                                     2005             2004             2005             2004
                                -------------    -------------    -------------    -------------
<S>                             <C>              <C>              <C>              <C>
REVENUE                         $          --    $          --    $          --    $          --
                                -------------    -------------    -------------    -------------

EXPENSES
  Management fees                           0        4,200,290                0                0
  Professional fees                   257,738           92,197           51,386           98,279
  Consulting                        1,122,315          448,043          244,011        1,191,622
  Administration                      316,914          562,021           61,716          123,849
  Amortization                         62,009                            23,896                0

                                -------------    -------------    -------------    -------------
                                $   1,758,976    $   5,302,551    $     381,009    $   1,413,750
                                -------------    -------------    -------------    -------------

LOSS BEFORE THE UNDERNOTED      $  (1,758,976)   $  (5,302,551)   $    (381,009)   $  (1,413,750)

MINORITY INTEREST               $     539,990    $  (1,110,819)   $     113,748    $    (296,039)

NET EARNINGS (loss)             $  (1,218,986)   $   4,191,732    $    (267,261)   $  (1,117,711)
                                -------------    -------------    -------------    -------------

NET LOSS PER SHARE                       0.02             0.04            (0.00)           (0.01)


WEIGHTED BASIC AVERAGE SHARES      74,900,715      104,870,715       74,900,715      104,870,715
                                =============    =============    =============    =============
</TABLE>

               See accompanying notes to the financial statements


                                       3
<PAGE>

AEC I, INC.
Condensed Statement of Cash flow
Unaudited

Nine Months Ending September 30,             2005            2004
--------------------------------------   ------------    ------------

OPERATING

Net earnings (loss)                      $ (1,218,986)   $  4,191,732
Services for stock                       $    843,314
Stock options issued                            54500
Minority Interest                        $   (539,990)   $ (1,110,819)
Amortization                             $     62,009


Accounts payable & accrued liabilities   $     73,286    $   (251,033)
Prepaid expense                               (13,878)   $  1,378,520
                                         ------------    ------------
                                         $   (739,745)   $  4,208,400
                                         ============    ============
FINANCING

Share subscription

Advances from director                         92,480          84,135

LOAN PAYABLE                                  500,846
Issuance of additional paid in capital                      3,664,943
Changes in comprehensive income              (143,951)        102,895
                                         ------------    ------------
                                              449,375       3,851,973
                                         ============    ============
INVESTING

Purchase of intangible assets            $ (63,752.00)
Increase in minority interest                            $(172,743.00)
Sale of Marketable Security              $  39,050.00    $ 861,180.00
                                         ------------    ------------
                                         $ (24,702.00)   $ 688,437.00
                                         ============    ============

net increase in cash during the year     $   (315,072)   $    365,346
                                         ------------    ------------

cash, opening                            $    421,690    $    415,547
                                         ------------    ------------

cash, closing                            $    106,618    $    780,893
                                         ------------    ------------

NON CASH ITEMS

marketable securities                               0               0
deferred consulting                           208,184               0
Increase in Investment                        290,652               0
minority                                      357,942               0

               See accompanying notes to the financial statements


                                       4
<PAGE>

ALTERNATE ENERGY CORP.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(Unaudited) September 30, 2005

1. GENERAL

The unaudited condensed statements have been prepared on the same basis as the
audited financial statements and, in the opinion of management, reflect all
adjustments (consisting of normal recurring adjustments) necessary for a fair
presentation for each of the periods presented. The results of operations for
interim statements are not necessarily indicative of results to be achieved for
full fiscal years.

The consolidated financial statements present the accounts of AEC, I, Inc.,
Alternate Energy Corp. and 2040412 Ontario Inc. The consolidated entities will
hereinafter be referred to as the Company. All significant inter-company
accounts and transactions have been eliminated.

As contemplated by the Securities and Exchange Commission (SEC) under Rule 10-01
of Regulation S-X, the accompanying financial statements and related footnotes
have been condensed and do not contain certain information that will be included
in THE COMPANY'S annual financial statements and footnotes thereto. For further
information, refer to the financial statements and related footnotes for the
year ended December 31, 2004 included in THE COMPANY'S annual report on Form
10-KSB.

INCOME TAXES

The Company accounts for its income taxes under the liability method specified
by Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for
Income Taxes. Deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities as measured by the enacted tax rates which will be in effect when
these differences reverse. Deferred tax expense is the result of changes in
deferred tax assets and liabilities.

In assessing the realizability of future tax assets, management considers
whether it is more likely than not that some portion or all of the future tax
assets will not be realized. The ultimate realization of future tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of future tax liabilities projected future taxable income and
tax planning strategies in making this assessment.


                                       5
<PAGE>

LOSS PER SHARE

THE COMPANY reports earnings per share in accordance with the provisions of SFAS
No. 128, EARNING PER SHARE. SFAS No 128 requires presentation of basic and
diluted earnings per share in conjunction with the disclosure of the methodology
used in computing such earnings per share. Basic earnings per share excludes
dilution and is computed by dividing income available to common shares by the
weighted average common shares outstanding during the period. Diluted earnings
per share takes into account the potential dilution that could occur if the
securities or other CONTRACTS to issue stock were exercised and converted to
common stock.

Basic weighted average shares outstanding September 30, 2005 were 74,900,715
December 31, 2004 - 74,870,715.

2. CAPITAL STOCK

No new shares were issued during this period.

ITEM. 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

GENERAL

The following discussion and analysis should be read in conjunction with the
financial statements, and the notes thereto included herein. The information
contained below includes statements of AEC I's or management's beliefs,
expectations, hopes, goals and plans that, if not historical, are
forward-looking statements subject to certain risks and uncertainties that could
cause actual results to differ materially from those anticipated in the
forward-looking statements. Information included or incorporated by reference in
this Quarterly Report may contain forward-looking statements. This information
may involve known and unknown risks, uncertainties and other factors which may
cause our actual results, performance or achievements to be materially different
from the future results, performance or achievements expressed or implied by any
forward-looking statements. Forward-looking statements, which involve
assumptions and describe our future plans, strategies and expectations, are
generally identifiable by use of the words "may," "will," "should," "expect,"
"anticipate," "estimate," "believe," "intend" or "project" or the negative of
these words or other variations on these words or comparable terminology.


                                       6
<PAGE>

DESCRIPTION OF BUSINESS

         We are an alternate energy holding company that provides specialized
solutions through our operating subsidiaries, referred to as our group
companies. We seek to grow both organically and by acquisition.

         We incorporated as Environmental Motor Corp., a Delaware corporation,
on March 22, 2000. On July 3, 2001 we changed our name to Alternate Energy
Corporation. On September 27, 2002 we merged with Alternate Energy Corporation,
a Nevada corporation, for the purposes of changing our domicile to Nevada. In
February 2003, we entered into an agreement with COI Solutions, Inc., a public
company, to sell substantially all our assets in exchange for 104,870,715 shares
of COI's common stock. The sale of our assets included the sale of the name
"Alternate Energy Corporation," so on March 4, 2003 we changed our name to AEC
I, Inc.

         Our activities range from complete operational control over the
business to involvement in the management of our group companies in which we
maintain controlling or significant holdings. We participate in the management
of our group companies by means of active membership on their boards of
directors and board committees. As a result, we are involved in matters of
policy, strategic planning, marketing, selecting and manning senior management
positions, approving investments and budgets, financing and the overall ongoing
monitoring of our group companies' performance. In addition to our
representation on the boards of directors of our group companies, we provide
hands-on assistance to the group companies' management in support of their
growth. We view our hands-on involvement in the operations of our group
companies as a key element of our business. Our group companies therefore
benefit from the experience of our management team in various areas in which
they need support and leadership, including, but not limited to, budgetary
control, legal support, market analysis, risk management, identifying joint
venture opportunities, introductions to potential customers and investors,
business plan preparation, strategic planning and research and development
guidance.

         We expect to continue to build and realize value for our shareholders
through the sale of a portion of our holdings in, or the issuance of shares by
any of our group companies to third parties, while simultaneously pursuing the
acquisition of, or investment in, new and existing companies and building our
group companies. We believe that this strategy provides the ability to increase
shareholder value as well as capital to support the growth of our group
companies.

         We expect to make additional acquisitions in companies that design and
develop fuel cells, engines that run on alternative fuels, production of
alternate fuels and the production of materials used in alternate fuel
applications.

         Since our formation we have made one acquisition, namely Alternate
Energy Corp. (ARGY). The business overview discussed below is presented in
accordance with our subsidiary and corporate operations.


                                       7
<PAGE>

CRITICAL ACCOUNTING POLICIES, ESTIMATES AND NEW ACCOUNTING PRONOUNCEMENTS

Management's discussion and analysis of our financial condition and results of
operations are based upon our financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America. The preparation of these financial statements requires that we make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. At each balance sheet date, management evaluates its estimates. We
base our estimates on historical experience and on various other assumptions
that are believed to be reasonable under the circumstances. Actual results may
differ from these estimates under different assumptions or conditions. The
estimates and critical accounting policies that are most important in fully
understanding and evaluating our financial condition and results of operations
include those listed below:

DEFERRED CONSULTING COSTS

Shares have been issued to service providers and consultants over the term of
contracts ranging from 1 to 2 years. Shares have been issued at the fair market
value price at date of contract signing and the expense will be amortized over
the term of the contract.

IMPAIRMENT OF INTANGIBLE ASSETS WITH INDEFINITE LIVES
On May 22, 2003, the Company adopted SFAS No 142, "Goodwill and Other Intangible
Assets." Under the new statement, the Company no longer amortizes intangible
assets with indefinite lives, but instead tests for impairment on at least an
annual basis. In accordance with SFAS No. 142, the Company evaluates the
carrying value of other intangible assets annually as of December 31 and between
annual evaluations if events occur or circumstances change that would more
likely than not reduce the fair value of the reporting unit below its carrying
amount. Such circumstances could include, but are not limited to, (1) a
significant adverse change in legal factors or in business climate, (2)
unanticipated competition, or (3) an adverse action or assessment by a
regulator. When evaluating whether the other intangible asset is impaired, the
Company compares the fair value of the reporting unit to which the other
intangible asset is assigned to its carrying amount. If the carrying amount of a
reporting unit exceeds its fair value, then the amount of the impairment loss
must be measured. The impairment loss would be calculated by comparing the
implied fair value of reporting unit to its carrying amount. In calculating the
implied fair value of the other intangible assets, the fair value of the
reporting unit is allocated to all of the other assets and liabilities of that
unit based on their fair values. The excess of the fair value of a reporting
unit over the amount assigned to its other assets and liabilities is the implied
fair value of its intangibles. The initial evaluation of the intangible assets
completed as of October 1, 2003 in accordance with SFAS No. 142 resulted in no
impairment losses. Additionally, the Company performed its periodic review of
its intangible assets for impairment as of December 31, 2004, and did not
identify any asset impairment as a result of the review.


                                       8
<PAGE>

STOCK OPTION PLANS

The Company applies the fair value based method of accounting prescribed by SFAS
No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION in accounting for its stock
options granted to both employees and non-employees. As such, compensation
expense is recorded on the date of grant based on the fair market value of the
stock and expensed in the period which the option was granted.

RESULTS OF OPERATIONS

                  FOR FISCAL QUARTER ENDED SEPTEMBER 30, 2005,


For the fiscal quarter ended September 30, 2005 and September 30, 2004, AEC I
had no revenues.

                                    EXPENSES

On a consolidated basis, we had total expenses of $381,009 and $1,413,750 in the
fiscal quarter ended September 30, 2005 and September 30, 2004, respectively. .
Nearly all expenses occurred in our majority owned subsidiary, Alternate Energy
Corporation (AEC), where expenses for the fiscal quarter ended September 30,
2005 consisted of $60,452 in administrative expenses, $244,011 in consulting
fees, $48,176 in professional fees and $23,896 in amortization. During the
fiscal quarter ended September 30, 2005, AEC's expenses decreased significantly
comparative to the fiscal quarter ended September 30, 2004, mostly due to
consulting fees, which were $1,191,622 in the 2004 period. The decrease is
attributed to the utilization of core consultants relative to the focus on
research and development pertaining to its hydrogen production system, its
demonstration units and its marketing and operation strategy. There were also
shares issued to select consultants to the company reducing the total fees due.

There was a decrease of $63,397 in administrative expenses for the period ended
September 30, 2005 compared to the same period in 2004. The reason for this
decrease can be referred to shares of the company that were issued relating to
R&D, the utilization of core consultants as well as the sub leasing of our
Tennessee facility, all of which has lowered administrative costs by more than
half of the administrative expenses incurred comparative to the period ending
September 30, 2004.

Professional fees were $48,176 for the fiscal quarter ended September 30, 2005
compared to $98,279 for the same period in 2004. The prior years professional
fees were higher due to private placements and financing completed along with
the legal fees associated with it.

There were no substantial expenses attributable to AEC I during this period.

Over the next 12 months, AEC1 anticipates that its expenses will not increase
substantially over its expenses in fiscal year 2004. AEC1 will continue pursuing
the acquisitions of, or investment in, new and existing companies and building
our group companies. As well as the continuing involvement in the growth of our
group companies


                                       9
<PAGE>

                                    NET LOSS

On a consolidated basis we had a net loss of $381,009 for the fiscal quarter
ended September 30, 2005, compared with a net loss of $1,413,750 for the fiscal
quarter ended September 30, 2004. The decrease of $1,032,741 in the net loss for
the 2005 fiscal quarter compared to the 2004 fiscal quarter relates to the
overall reduction of professional, consulting and administrative fees for AEC in
the 2005 period. Management believes that, for the fiscal year ending December
31, 2005, AEC will only be able to reduce its net loss if AEC can create and
sustain significant revenues from its hydrogen production system.

LIQUIDITY AND CAPITAL RESOURCES

Our financial statements have been prepared on a going concern basis that
contemplates the realization of assets and the settlement of liabilities and
commitments in the normal course of business. We have incurred a net loss of
$381,009 and $1,413,750 for the quarters ended September 30, 2005 and September
30, 2004, respectively. On a consolidated basis we had $106,618 in cash on hand
as of September 30, 2005. Management may obtain additional capital principally
through the sale of our equity securities of those of AEC. The realization of
assets and satisfaction of liabilities in the normal course of business is
dependent upon AEC ultimately obtaining profitable operations. However, no
assurances can be given that AEC will be successful in these activities. Should
any of these events not occur, the accompanying financial statements will be
materially affected.

Due to no cash generated from operations, AEC currently does not internally
generated cash sufficient to pay all of its incurred expenses and other
liabilities. As a result, AEC is dependent on investor capital and loans to meet
its expenses and obligations. Although investor funds have allowed AEC to meet
its obligations in the recent past, there can be no assurances that AEC's
present methods of generating cash flow will be sufficient to meet future
obligations. Historically, AEC has, from time to time, been able to raise
additional capital, but there can be no assurances that AEC will be able to
raise additional capital in this manner.

Net cash used in operating activities was $(1,758,976) for the nine month period
ended September 30, 2005.

Net cash obtained from financing activities was $0 for the three month period
ended September 30, 2005, compared with $0 for the three month period ended
September 30, 2004.

On March 2, 2005, AEC entered into a private placement with certain accredited
investors whereby these investors have purchased $1,500,000 in convertible
notes, with Class A Warrants to purchase a number of shares equal to the number
of shares to which the Notes are convertible at a price of $.40 per share
expiring in 3 years and with Class B Warrants to purchase up to an additional
$1.5 million in AEC's common shares at 70% of the average closing bid price for
the 5 days preceding the notice to exercise and expiring 90 days after the
registration statement registering the shares has been declared effective. The
note carries an interest rate of 6%. Interest is payable quarterly in arrears in
either cash or stock of AEC, at AEC's discretion.


                                       10
<PAGE>

The Notes are convertible into shares of AEC at 70% of the average closing bid
price for the 5 days preceding the notice to convert with a floor of $.15 and a
ceiling of $.35 per share.

The Company has received $500,000 in cash from the investors and will receive an
additional $1,000,000 upon its registration statement filed with the SEC being
declared effective.

Class C Warrants are being issued to Westor Online, Inc., the placement agent
for the transaction. The warrant allows for the purchase of 400,000 shares at
$.40 per share and 400,000 shares at $1.00 per share, exercisable for 3 years
from the date of the closing. The investors are additionally getting 200,000
Class C Warrants.

In January 2004, AEC entered into a Securities Purchase Agreement with Palisades
Master Fund LP, Crescent International Ltd., Alpha Capital AG, Bristol
Investment Fund, Ltd., Ellis International Limited, Inc., Vertical Ventures,
LLC, Platinum Partners, Abraham Schwartz, Colbart Birnet, Chana Braun, Ronald
Nash, Marketwise Trading, West End Convertible Fund, and a trust account
pursuant to which AEC sold a total of 5,500,000 shares of common stock at a
price of $0.50 per share and warrants to purchase a total of 2,750,000 shares of
common stock at an exercise price of $0.85 per share. The warrants have a three
year term. AEC received gross proceeds of $2,750,000 from this transaction.

In December 2003, AEC entered into a Securities Purchase Agreement with LRG
Holdings Inc., Professional Traders Fund LLC, Generation Capital Associates,
First Mirage Inc., Truk Opportunity Fund LLC, pursuant to which AEC sold a total
of 1,060,000 shares of common stock at a price of $0.50 per share and warrants
to purchase a total of 471,112 shares of common stock and an exercise price of
$1.20 per share. The warrants have a three year term. AEC received gross
proceeds of $530,000 from this transaction.

May 22, 2003, AEC issued 104,870,715 shares of common stock to AEC 1, Inc. in
exchange for technology, products and licenses.

There are no assurances that AEC will be able to raise sufficient funds to meet
long-term capital needs. AEC may also seek alternative sources of financing,
including from more conventional sources such as bank loans and credit lines.
Again, no assurances can be given that AEC will be able to meet its needs
through the sale of securities or otherwise. Further, the availability of any
future financing may not be on terms that are satisfactory to AEC.

From time to time, AEC may evaluate potential acquisitions involving
complementary businesses, content, products or technologies. AEC has no present
agreements or understanding with respect to any such acquisition. AEC's future
capital requirements will depend on many factors, including growth of AEC's
business, the success of its operations, economic conditions and other factors
including the results of future operations.


                                       11
<PAGE>

PLAN OF OPERATION

AEC1 will continue in its involvement in the management of our group companies
in which we maintain controlling or significant holdings. We will continue to
participate in the management of our group companies by means of active
membership on their boards of directors and board committees. As a result, we
will be involved in matters of policy, strategic planning, marketing, selecting
and manning senior management positions, approving investments and budgets,
financing and the overall ongoing monitoring of our group companies'
performance. In addition to our representation on the boards of directors of our
group companies, we will provide hands-on assistance to the group companies'
management in support of their growth. We view our hands-on involvement in the
operations of our group companies as a key element of our business. Our group
companies will therefore benefit from the experience of our management team in
various areas in which they need support and leadership, including, but not
limited to, budgetary control, legal support, market analysis, risk management,
identifying joint venture opportunities, introductions to potential customers
and investors, business plan preparation, strategic planning and research and
development guidance.

         We expect to continue to build and realize value for our shareholders
through the sale of a portion of our holdings in, or the issuance of shares by
any of our group companies to third parties, while simultaneously pursuing the
acquisition of, or investment in, new and existing companies and building our
group companies. We believe that this strategy provides the ability to increase
shareholder value as well as capital to support the growth of our group
companies.

         We expect to make additional acquisitions in companies that design and
develop fuel cells, engines that run on alternative fuels, production of
alternate fuels and the production of materials used in alternate fuel
applications.

Over the next twelve months, AEC will continue to focus on the development of
the ICE (internal combustion engine) and fuel cell generator sets for
demonstration to investors and potential customers of AEC's hydrogen fuel
production capability. The ICE generators will use our hydrogen as fuel
throughout the demonstration, produced on the spot by AEC's hydrogen production
unit the H2 1500-A1.

Our first alpha-stage unit, the H2 1500-A1, was recently demonstrated before two
separate multinational engine companies in the U.S. This mobile "road show" was
set up on-site with each organization, to review AEC's small scale, on-demand
Hydrogen Production technology and discuss business opportunities.

The company is on schedule with its product development timetable to take
advantage of several opportunities with targeted organizations. These meetings
are the beginning of a series of such meetings, whereby Alternate Energy
Corporation will be showcasing its hydrogen production technology to a list of
prospective commercial customers, potential licensees, select government and
institutional contacts and other interested commercial parties. These groups
have been pre-qualified as having a demonstrated need for clean, alternative
power. These developments parallel AEC's recent work on its hydrogen production
unit for use with the Astris E8 alkaline fuel cell. The fuel cell and ICE
platforms are expected to provide AEC with multiple market opportunities and
greater revenue potential. We have and will also continue to refine our hydrogen
production process. Due to the strict purity and volume requirements of a fuel
cell, our technical team has worked and continues to work in conjunction with a
number of recognized independent laboratories to ensure that outputs meet
acceptable levels.


                                       12
<PAGE>

As of Nov 4th, 2005 the company has made formal application for a patent on its
technology.

The company has also filed a provisional patent application with the U.S. Patent
and Trademark Office in connection with its proprietary process of producing
pure hydrogen. As a result of working closely with Experchem Laboratories of
Toronto, Canada over the past nine months, our method of producing hydrogen has
benefited from significant enhancements. The modifications and improvements to
our hydrogen production process have resulted in a more efficient production
process, an increased production of hydrogen, and the ability to produce what we
believe to be a saleable, in-demand by-product. This by-product, however, may
provide us with a source of future revenue, which could partially offset the
cost of our hydrogen production and accelerate our entry into the $3 billion
(USD) bulk hydrogen market.

A provisional patent application establishes an official United States patent
application filing date for an invention and permits one year's authorization to
use a "Patent Pending" notice in connection with the invention and to assess the
invention's commercial potential before committing to the higher cost of filing
and prosecuting a non-provisional application for patent.

In order to accomplish and continue with these steps management estimates that
the Company we will require half a million dollars towards the end of Fiscal
year ended 2005 and several million dollars towards the end of fiscal year ended
2006. As the Company does not have any current revenue, such funds will come
from loans from officers and private placements of the Company's common stock.

ITEM 3. CONTROLS AND PROCEDURES.

As of the end of the period covered by this report, the Company carried out an
evaluation, under the supervision and with the participation of the Company's
Principal Executive Officer and the Principal Financial Officer, of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures. The Company's disclosure controls and procedures are designed to
provide a reasonable level of assurance of achieving the Company's disclosure
control objectives. The Company's Principal Executive Officer and Principal
Accounting Officer have concluded that the Company's disclosure controls and
procedures are, in fact, effective at this reasonable assurance level. In
addition, we reviewed our internal controls, and there have been no significant
changes in our internal controls or in other factors that could significantly
affect those controls subsequent to the date of their last valuation or from the
end of the reporting period to the date of this Form 10-QSB.


                                       13
<PAGE>

                                     PART II

ITEM 1. LEGAL PROCEEDINGS
On August 15, 2002 the Securities and Exchange Commission filed a civil lawsuit
against the Company, its former CEO and other individuals. SEC v. COI Solutions,
et al. Case No. 02-80766-CIV-Hurley. The SEC alleged in its complaint that COI
Solutions, while under prior management, engaged in a scheme to pay illegal
kickbacks to representatives of a European fund contrived by the FBI and made
false and misleading statements in filing on Form S-8. This litigation has been
settled. We neither admitted nor denied liability and agreed to not violate the
Federal securities laws in the future. There was no penalty or other money paid
by us to settle this matter. On October 22, 2004 we sued Russell Rothman in the
Ontario Superior Court of Justice (Case No. 04-CV-277760CM2). We are seeking the
rescission of agreements between us and Rothman, return of shares paid to him,
and return of money paid. We had entered into an agreement with Rothman for the
purchase of certain technology related to the production of hydrogen gas.
Rothman represented to us that he had all right title and interest in the
technology and had the ability to sell the technology. We alleged in our lawsuit
that Rothman had in fact sold the technology to other companies, and on more
than one occasion, prior to entering into the agreement with us. We additionally
allege that the technology he purported to sell did not work. We do not rely on
the Rothman technology for the production of hydrogen. We have developed our own
proprietary processes for producing hydrogen. Rothman has counterclaimed against
us for breach of contract in the amount of $2 billion and is asking for punitive
damages in the amount of $10 million. We believe that the counterclaim is
completely without merit. Mr. Rothman's attorney has withdrawn from the case and
the Court has ordered Mr. Rothman to obtain new counsel by July 28, 2005.

Mr. Rothman has obtained new counsel and a court date has been set for December
9th, 2005.

ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS


In March 2005, the company entered into a private placement with certain
accredited investors whereby these investors have purchased $1,500,000 in
convertible notes, with Class A Warrants to purchase a number of shares equal to
the number of shares to which the Notes are convertible at a price of $.40 per
share expiring in 3 years and with Class B Warrants to purchase up to an
additional $1.5 million in the Company's common shares at 70% of the average
closing bid price for the 5 days preceding the notice to exercise and expiring
90 days after the registration statement registering the shares has been
declared effective. The note carries an interest rate of 6%. Interest is payable
quarterly in arrears in either cash or stock of the Company, at the Company's
discretion.


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<PAGE>

The Company has received $500,000 in cash from the investors and will receive an
additional $1,000,000 upon its registration statement filed with the SEC being
declared effective.

ITEM 3. DEFAULT UPON SENIOR SECURITIES

None

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5. CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT

None

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(b) An 8-K has been filed on March 2, 2005.


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<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, THE
REGISTRANT has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.

DATED THIS 18th DAY OF NOVEMBER, 2005

                             AEC 1, Inc.

                             BY: /S/ BLAINE FROATS
                                 -------------------------
                                 BLAINE FROATS,
                                 CHIEF EXECUTIVE OFFICER


                             BY: /S/ BLAINE FROATS
                                 -------------------------
                                 BLAINE FROATS,
                           PRINCIPAL FINANCIAL OFFICER


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