U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

(Mark One)

[ x ]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
       ACT OF 1934

       FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001


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

       For the transition period from                     to                  .
                                     --------------------    -----------------

         Commission File Number 0-27689

                       AVIATION UPGRADE TECHNOLOGIES, INC.
--------------------------------------------------------------------------------
        (Exact name of small business issuer as specified in its charter)


             Nevada                                       33-0881303
--------------------------------------------------------------------------------
 (State or other jurisdiction of               (IRS Employer Identification No.)
  incorporation or organization)

            6550 South Pecos Road, Suite 142, Las Vegas, NV 89120 USA
--------------------------------------------------------------------------------
                    (Address of principal executive offices)


                                 (702) 450-0003
                           (Issuer's telephone number)

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
As been subject to such filing requirements for the past 90 days.

                              Yes    X               No
                                 ----------            --------

Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K contained in this form, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]

The issuer's revenue for the fiscal year ended December 31, 2001 was $0.

The market value of the voting stock held by non-affiliates of the issuer as of
February 26, 2002 was approximately $0.

The number of shares of the common stock outstanding as of February 26, 2002 was
10,783,000.

Documents incorporated by reference:   None.


<PAGE>


PART 1

         Aviation Upgrade Technologies, Inc., a Nevada corporation ("Company,"
"we," or "AUT"), filed a Registration Statement on Form 10-SB on December 2,
1999. On February 1, 2000, our Registration Statement on Form 10-SB was declared
effective and we became a reporting company pursuant to the Securities Exchange
Act of 1934. We did not file any periodic reports or other information with the
Securities and Exchange Commission until March 2001, at which time, we filed all
delinquent annual and quarterly reports for the year ended December 31, 2000
concurrently. We have filed all quarterly reports for the year ended December
31, 2001 on a timely basis.

Item 1.  Description of Business

         Business Development. We were incorporated in Nevada on January 8,
1999. We have had no revenue from operations since inception and no current
customers. There has not been any bankruptcy filing, receivership or any similar
proceeding since our inception. There has been no reclassification, merger or
consolidation since our inception. There has been no purchase or sale of a
significant amount of assets that were not in the ordinary course of our
business.

         We were originally formed to develop, market and install modifications
to aircraft, such as the Boeing 727, which were designed to improve and extend
the economic life of these aircraft by bringing them into compliance with strict
noise and emission control levels as they became mandatory in the years ahead.

         When we were initially formed, we anticipated that we would receive
financing of $12.3 million from the sale of stock, contributions by third party
suppliers and the use of two initial aircraft by one airline in order to have
sufficient capital resources to cover establishment of our management and
operational infrastructure and the launching of our business plan. We did not
receive any contributions by third party suppliers and we did not have any
formal arrangements with the airlines. In mid-1999, however, after months of
negotiations with a number of aircraft engine manufacturers for the purchase of
new engines, each company withdrew at the last minute from executing a final
contract. There is extensive correspondence and additional verbal communication
between each of the engine manufacturers and us.

         On June 30, 2000, we filed a lawsuit against The Boeing Company
("Boeing"), a Delaware corporation, CFM International, Inc. ("CFM"), a Delaware
corporation, and Rolls Royce PLC ("Rolls Royce"), a United Kingdom corporation,
in the United States District Court for the Central District of California,
Western Division, Case # 00-07157, for violations of the Sherman Act ss.ss. 1
and 2, intentional interference with prospective economic relationships and
breach of contract. We are seeking actual and economic damages and attorneys'
fees and costs. We believe that our claims have merit and intend to vigorously
prosecute our claims against the defendants. We allege in our complaint that CFM
and Rolls-Royce withdrew from the project after each had exhibited great
enthusiasm and carefully negotiated the proposed terms of a contract with us,
only after consulting with Boeing which directly or impliedly suggested to the
engine manufacturers that their future relationships with Boeing would be
jeopardized by doing our project. We believe the withdrawals were the result of
pressure from a major aircraft manufacturer fearing a reduction in the sale of
new aircraft if the lives of existing aircraft were significantly increased as
proposed by us.

         The outcome of the Boeing litigation is uncertain. Antitrust litigation
is particularly complex and can extend for a protracted time, which can
substantially increase the cost of such litigation. We do not expect to incur
significant legal fees in connection with the Boeing litigation because we
retained our legal counsel on a contingency basis. However, we do anticipate
that we will incur significant costs in connection with the litigation.
Moreover, the Boeing litigation has diverted, and is expected to continue to
divert, the efforts and attention of our key management and technical personnel.
As a result, our pursuit and potential defense of the Boeing litigation,
regardless of its eventual outcome, has been, and will likely continue to be,
costly and time consuming. Should the outcome of the Boeing litigation be
adverse to us, we may be required to pay the defendants' costs, and we may be
unable to carry out our business plan. If we are required to pay significant
costs, or are unable to carry out our business plan, our business will be
harmed.

         In its efforts to continue business development, we evaluated several
businesses for purchase during the latter half of 1999 and throughout 2000,
including an aircraft maintenance company and an aircraft leasing company
specializing in cargo aircraft, none of which came to fruition.



                                       1
<PAGE>


         In April 2001, we acquired from Torbjorn B. Lundqvist, our chief
executive officer and one of our directors, the marketing rights to an
electronic tire valve cap for airplanes and automobiles that blinks if the tire
pressure falls below an initially calibrated level. The product provides early
warning of low pressure in tires, which we believe will lead to safer travel in
these vehicles and better fuel efficiency in automobiles. Once the tire is
inflated to the appropriate pressure, the initial tightening of the cap onto the
valve sets the pressure inside a control chamber in the valve cap equal to the
pressure in the tire. If the pressure in the tire drops by more than
approximately two pounds per square inch, a red light will blink to indicate the
need to check the tire pressure. The licensing agreement has a term of five
years and requires the payment of a license fee equal to 12% of the monthly
gross profit from sales of the tire valve cap. It also requires the
reimbursement of research and development costs incurred by Mr. Lundqvist and
the payment of ongoing development costs during the term of the agreement to a
maximum of $50,000. In addition, it stipulates the issuance of 50,000 shares of
our common stock to Claes Grondahl for efforts in co-designing the product and
another 1,000 shares of common stock to Doug Watt for naming the product. The
source of the funds used by us to acquire the marketing rights was our general
corporate account.

         Products. Aircraft Re-Engineering. We were originally formed for
re-engining and upgrading of the Boeing 727. Our only product consisted of
installing two Rolls Royce RB211-535E4 or CFM56-5C4 power plants into the Boeing
727 aircraft, with primary emphasis upon the Boeing 727-200 advanced version of
this aircraft, since this would be the most conducive for these modifications.
The re-engining of these aircraft was to consist of removing the original three
JT8D engines and replacing them with two Rolls Royce RB211-535E4 or CFM56-5C4
power plants. In effect, two modern high bypass power plants would have worked
in place of the original installation of three low bypass ratio engines. Due to
the unwillingness of the third party suppliers to execute their contracts with
us, we are currently in the process of litigating the matter.

         Air Alert Valve Cap. We currently license the marketing rights for an
electronic tire valve cap that may be used on both airplanes and automobiles.
The product provides early warning of low pressure in tires, which we believe
will lead to safer travel in these vehicles and better fuel efficiency in
automobiles. Once the tire is inflated to the appropriate pressure, the initial
tightening of the cap onto the valve sets the pressure inside a control chamber
in the valve cap equal to the pressure in the tire. If the pressure in the tire
drops by more than approximately two pounds per square inch, a red light will
blink to indicate the need to check the tire pressure.

         Manufacturing. We anticipate that we will contract with third parties
to manufacture the Air Alert Valve Cap. We currently do not have a relationship
with any third party to manufacture the valve cap. If we are unable to find
third party to manufacture the valve cap, we will need to develop other sources
of revenue.

         Marketing. We believe that our primary target market will consist of
automobile manufacturers and tire manufacturers. We believe that the potential
market for the tire valve cap is extremely large. The requirement for a warning
system to detect tire pressure is currently under consideration in the
automobile industry. On October 10, 2000, the Congress passed the Transportation
Recall Enhancement, Accountability and Documentation Act, which specified that
legislation would be developed concerning a low tire pressure warning for motor
vehicles. We believe that the valve cap technology could become standard
equipment on all new vehicles sold in the United States and all over the
industrialized world in the years ahead, in addition to being added to existing
and replacement tires. If mass-produced, the cost of this product is expected to
be less than $1.00 each, which we believe will allow for a significant profit
margin for each product sold.

         Government Regulation. The following does not purport to be a summary
of all present and proposed federal, state and local regulations and legislation
relating to the automobile industry. The following attempts to identify those
aspects that could affect our business. Other existing legislation and
regulation and, in many jurisdictions, state and local franchise requirements,
are currently the subject of a variety of judicial proceedings, legislative
hearings and administrative and legislative proposals which could also affect
our method of operation or the methods of industries in which we are involved.

         The Department of Transportation, the National Highway Traffic Safety
Administration and other regulatory and administrative agencies have established
standards for automotive and tire products and processes, which require the
maintenance of certain records and provide for unscheduled inspections of
facilities. Our products may be considered within the scope of such regulation
and in such event, we will have to comply with those agency standards. In
particular, the National Highway Traffic Safety Administration has established
standards regarding the shape, size, and performance requirements of warning
devices, as well as standards relating to tire manufacturing, maintenance and
repair.



                                       2
<PAGE>


         State, local and foreign governments have also adopted regulations
relating to the manufacture and marketing of automotive and tire products. We
cannot guaranty that our products will be in material compliance with all
applicable regulations, which could have a material adverse impact on our
business, financial conditions and results of operations. Any future violation
of, and the cost of compliance with, these laws and regulations could have a
material adverse effect on our business, financial condition and results of
operations.

         Patents. We do not presently own any patents, trademarks, concessions
or royalties. Our success, however, depends in part on the ability of our
founder to obtain United States and foreign patent protection for the tire valve
cap, which is currently in process, to protect our license, preserve our trade
secrets, and operate without infringing upon the proprietary rights of third
parties.

         We cannot guaranty, however, that any patents will be issued for the
product or that, if issued, the breadth or degree of protection of these patents
will be adequate to protect our interests. In addition, we cannot guaranty that
others will not independently develop substantially equivalent proprietary
information or obtain access to our know-how. Further, we cannot guaranty that
others will not be issued patents which may prevent the sale of our products or
require licensing and the payment of significant fees or royalties by us in
order for us to be able to carry on our business. Finally, we cannot guaranty
that the products of others will not infringe any patents issued to or licensed
by us. Defense and prosecution of patent claims can be expensive and time
consuming, even in those instances in which the outcome is favorable to us. If
the outcome is adverse, it could subject us to significant liabilities to third
parties, require us to obtain licenses from third parties or require us to cease
our marketing activities.

         Competition. In the re-engineering project, we had a direct competitor
in terms of a re-engineering company, the Aerospace Division of B.F. Goodrich
Co. Due to the unwillingness of the third party suppliers to execute their
contracts with us, we are not currently pursuing this business.

         Competition for the electronic tire valve cap is limited. To our
knowledge, there is only one mechanical tire valve cap on the market, which is
sold by several companies under different brand names. Our review and testing of
this product has indicated to us that it is unreliable and inefficient due to
its mechanical nature. Other solutions to the tire pressure problem facing the
industry are currently directed toward interior warning signals, which are
significantly more expensive than our tire valve cap, and therefore, not
considered direct competition. We anticipate that we will compete on the basis
of the quality of our products and price.

         Research and Development. We are not currently conducting any research
and development activities, other than those activities related to the licensing
agreement for the electronic valve cap. During the year ended December 31, 2001,
we incurred $72,648 (including $51,000 in value of stock issued for services)
for research and development costs in connection with the licensing agreement.
We issued 50,000 shares to Claes Grondahl for his efforts in co-designing the
product with Mr. Lundqvist and 1,000 shares to Doug Watt for the name "Air Alert
Valve Cap." During the license period and any renewal period, we will pay fees,
expenses and costs related to product development and any application for
patents and trademarks. Our obligation to pay such development costs shall not
exceed $50,000.

         Insurance. We are investigating the availability of product liability
insurance for our products and intend to obtain product liability coverage, if
available, on terms acceptable to us. However, we cannot guaranty that product
liability insurance will be available to us on terms that we can afford, or at
all, or that we will ever obtain such insurance.

         Employees. We have one full time employee and two part time employees.
Mr. Lundquist currently works for us on a full time basis. Mr. Lindholm
currently devotes approximately ten hours per week, but anticipates that he will
devote significantly more hours if the valve cap starts producing significant
revenues. Mr. Rhodes currently devotes approximately ten hours per week, but
anticipates that he will devote significantly more hours if the valve cap starts
producing significant revenues. We anticipate that we will not hire any
employees in the next six months, unless we generate significant revenues. We
believe our future success depends in large part upon the continued service of
our key senior management personnel and our ability to attract and retain
managerial personnel.


                                       3
<PAGE>


Item 2.  Properties

         Effective January 1, 2001, we moved our executive offices to Las Vegas,
Nevada. We entered into a lease for office space for which we pay $350 per
month. The lease has a term of six months and expires on June 30, 2002. It
includes certain amenities such as receptionist services and conference rooms.


Item 3.  Legal Proceedings

         There are no legal actions pending against us nor are any legal actions
contemplated by us at this time, except for the following:

         On June 30, 2000, we filed a $2.5 billion lawsuit against The Boeing
Company, a Delaware corporation, CFM International, Inc., a Delaware
corporation, and Rolls Royce PLC, a United Kingdom corporation, in the United
States District Court for the Central District of California, Western Division,
Case # 00-07157, for violations of the Sherman Act ss.ss. 1 and 2, intentional
interference with prospective economic relationships and breach of contract. The
defendants filed a motion for dismissal of charges but the court denied the
defendants' motion to dismiss in its entirety. The case is now in active
discovery and a trial date of May 21, 2002 has been set. While this date is
subject to change, it is likely that the trial phase of the case will be
concluded by the end of 2002.

         Our lawsuit is based on our claim that we developed a workable plan to
reconfigure approximately seven hundred 727 aircraft by converting it to two
engines, replacing the avionics, remodeling the cockpit and making other
changes. The price of the virtually new aircraft would have been about $24
million. While Boeing itself considered this option, it elected, instead, to
build a completely new aircraft, the 757 to be sold at a price of more than $50
million. Had we succeeded in our program, our reconfigured 727s would have been
directly competitive with the new Boeing 757 and would have threatened sales of
that aircraft of about $35 billion. Each of the two engine manufacturer
defendants had sold billions of dollars of engines to Boeing. The course of
dealing between the two engine manufacturers and us is well documented. Whether
an enforceable contract was formed, particularly with CMF, is a legal
conclusion, but our management believes it is arguable that one did exist.
Negotiations, orally and in writing, culminated in what appeared a meeting of
the minds on the terms and conditions of sale. The same is true of Rolls Royce
although in that case there was advice to us that top management had not yet
"signed off" even though we were advised that such approval would almost
certainly be forthcoming. Given the extensive and expensive contract
negotiations, based presumably on due diligence reflecting the feasibility of
the project, and given that each had contact with Boeing before terminating the
relationship with us, there is a strong presumption that Boeing discouraged the
engine manufacturers from dealing with us by threats or otherwise.

         Boeing's own engineering group which also exhibited great enthusiasm to
help design the project withdrew after consulting with the aircraft sales group.
The assertion that our reconfigured 727s would have been competitive with Boeing
new 757 aircraft is supported by the following:

    o    admissions in Boeing's response to the complaint;
    o    expert testimony; and
    o    the opinion of our management.

         The assertion that the two engine manufacturers and later Boeing
Engineering each initially exhibited great enthusiasm is derived from
examination of the words and tone of their own documents supported by the
observations of our management. The express or implicit threats of retaliation
is an inference of our lawyers and management based on the totality of the
available evidence, including, without limitation, the initial enthusiasm, the
course of the contracting process and finally the withdrawal of each engine
manufacturing and Boeing engineering only after there had been contact with
Boeing Aircraft.

         We allege that Boeing, in violation of the Sherman Act, induced and
persuaded the engine manufacturers and its engineering unit not to deal with us
on express or implicit threats of retaliation. We believe our claims have merit
and we intend to vigorously prosecute our claims against the defendants.

         The outcome of the Boeing litigation is uncertain. Antitrust litigation
is particularly complex and can extend for a protracted time, which can
substantially increase the cost of such litigation. We do not expect to incur
significant legal fees in connection with the Boeing litigation because we
retained our legal counsel on a contingency basis. However, we do anticipate
that we will incur significant costs in connection with the litigation.
Moreover, the Boeing litigation has diverted, and is expected to continue to
divert, the efforts and attention of our key management and technical personnel.
As a result, our pursuit of the Boeing litigation, regardless of its eventual
outcome, has been, and will likely continue to be, costly and time consuming.
Should the outcome of the Boeing litigation be adverse to us, we may be required
to pay the defendants' costs, and we may be unable to carry out our business
plan. If we are required to pay significant costs, or are unable to carry out
our business plan, our business will be harmed.


                                       4
<PAGE>


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

         We did not hold a stockholders meeting in the year ended December 31,
2001, and therefore, no matters were submitted for a vote of the stockholders.


PART II

Item 5.  Market for Common Equity and Related Stockholder Matters

         Our securities are not listed for trading on any exchange or quotation
service. We are not required to comply with the timely disclosure policies of
any exchange or quotation service. The requirements to which we would be subject
if our securities were so listed typically include the timely disclosure of a
material change or fact with respect to our affairs and the making of required
filings. We have delivered an annual report to security holders for the year
ended 2000, we intend to provide an annual report to our security holders, in
which will include audited financial statements.

         We are a reporting company with the Securities and Exchange Commission,
the public may read and copy any materials filed with the Securities and
Exchange Commission at the Security and Exchange Commission's Public Reference
Room at 450 Fifth Street N.W., Washington, D.C. 20549. The public may also
obtain information on the operation of the Public Reference Room by calling the
Securities and Exchange Commission at 1-800-SEC-0330. The Securities and
Exchange Commission maintains an Internet site that contains reports, proxy and
information statements, and other information regarding issuers that file
electronically with the Securities and Exchange Commission. The address of that
site is http://www.sec.gov.

         As of February 26, 2002, there were 45 record holders of our common
stock.

         As of February 26, 2002, there were 527,000 outstanding warrants to
purchase shares of our common stock. Each warrant entitles the holder the right
to purchase of an additional share of common stock at $0.10 per share. These
warrants expire three years from the date of issuance.

         732,000 shares of our common stock can be sold pursuant to Rule 144
promulgated pursuant to the Securities Act of 1933. Rule 144 provides, among
other things, that persons holding restricted securities for a period of one
year may each sell, assuming all of the conditions of Rule 144 are satisfied, in
brokerage transactions every three (3) months an amount of restricted securities
equal to one percent (1%) of our outstanding shares of common stock, or the
average weekly reported volume of trading during the four calendar weeks
preceding the filing of a notice of proposed sale, which ever is more. Rule 144
also provides that, after holding such securities for a period of two (2) years,
a non-affiliate of the company may sell those securities without restriction,
other than the requirement that we are current with respect to our information
reporting requirements.

         There have been no cash dividends declared on our common stock.
Dividends are declared at the sole discretion of our Board of Directors.

         Recent Sales of Unregistered Securities. During the fiscal year ended
December 31, 2001, we issued unregistered shares of our Common Stock in the
following transactions:

         We completed a private placement of shares of our common stock at a
price of $1.00 per share by issuing an aggregate of 114,000 shares for $114,000.

         In January 2001, we issued 1,500 shares of common stock for services in
connection with the offering. The shares were valued at $1.00 per share and
charged to equity as a cost of funding.



                                       5
<PAGE>


         In May 2001, we issued 51,000 shares of common stock for services in
connection with the licensing agreement for the electronic tire valve cap. We
issued 50,000 to one individual for co-designing the product and 1,000 shares to
another individual for the name Air Alert Valve Cap. These shares were valued at
$1.00 per share and were charged to research and development costs.


Item 6.  Management's Discussion and Analysis or Plan of Operation

         General. We are a start-up company and to date have had no revenue from
operations. The primary activities during 1999 consisted of interviewing and
making decisions on key personnel, locating possible facilities for the original
business plan of upgrading Boeing 727 aircraft, and making contact with and
engaging various persons with requisite engineering, financing, accounting or
legal expertise. Since the untimely halt of that plan, we continued our business
development efforts in 2000 by evaluating several businesses in the airline
industry, including an aircraft maintenance company and an aircraft leasing
company specializing in cargo aircraft. Ultimately, none of these deals was
economically feasible for us. In addition, in 2000, we pursued and filed an
antitrust lawsuit against the third party suppliers and aircraft manufacturer
involved in the original business plan. Efforts in the pursuit of this lawsuit
could adversely affect the amount of time available for business development,
however, a positive outcome could provide a significant cash infusion for us.

         In April 2001, we acquired from Torbjorn B. Lundqvist, our chief
executive officer and one of our directors, the marketing rights to an
electronic tire valve cap for airplanes and automobiles that blinks if the tire
pressure falls below an initially calibrated level. The product provides early
warning of low pressure in tires, which we believe will lead to safer travel in
both these types of vehicles and better fuel efficiency in automobiles. Once the
tire is inflated to the appropriate pressure, the initial tightening of the cap
onto the valve sets the pressure inside a control chamber in the valve cap equal
to the pressure in the tire. If the pressure in the tire drops by more than
approximately two pounds per square inch, a red light will blink to indicate the
need to check the tire pressure. The licensing agreement has a term of five
years and requires the payment of a license fee equal to 12% of the monthly
gross profit from sales of the tire valve cap. It also requires the
reimbursement of research and development costs incurred by its founder and the
payment of ongoing development costs during the term of the agreement to a
maximum of $50,000. In addition, it stipulates the issuance of 50,000 shares of
its common stock to one individual for efforts in co-designing the product and
another 1,000 shares of common stock to another individual for naming the
product.

For the fiscal year ended December 31, 2001, compared to the fiscal year ended
December 31, 2000.

         Liquidity and Capital Resources. The cash on hand as of December 31,
2001 was $8,347, as compared to $242,967 as of December 31, 2000. Total current
liabilities were $80,420 as of December 31, 2001, an increase over the prior
year balance of $59,131, represented primarily by accrued payroll. As of
December 31, 2001, we had an accumulated deficit of $773,383 as compared to an
accumulated deficit of $391,164 at December 31, 2000. In January 2001, we closed
a Rule 506 private placement for the sale of our common stock at $1.00 per share
to residents of the United States and a Regulation S private placement for the
sale of our common stock at $1.00 per share to non-residents of the United
States. Total proceeds received from these offerings were $40,000 in the Rule
506 offering and $467,000 in the Regulation S offering. In May 2001, we filed a
Registration Statement on Form SB-2, which was subsequently amended to provide
for a public offering of 250,000 shares of common stock at $8.75 per share.
Offering costs consisting of legal expenses and filing fees incurred during the
year ended December 31, 2001 in connection with the Registration Statement were
$38,340. The amount of expenditures required to maintain operations and to
continue business development has been estimated at $31,500 per month,
therefore, as of December 31, 2001 we are only able to satisfy our cash
requirements for less than one month unless additional funds are raised from the
sale of additional securities.

         Results of Operations. Since our inception, we have generated no
revenues. Total operating expenses for the year ended December 31, 2001 were
$386,025 compared to total operating expenses for the prior year period of
$253,148. The increase of $132,877 resulted primarily from, over $58,000 of
additional payroll for the full year 2001 as compared to a partial year of
payroll in 2000, in addition to over $72,000 of research and development costs
incurred in 2001 in connection with the tire valve cap that were not incurred in
2000. For the year ended December 31, 2001, our net loss was $382,219, compared
to a loss of $261,655 for the prior period.



                                       6
<PAGE>


For the fiscal year ended December 31, 2000, compared to the fiscal year ended
December 31, 1999.

         Liquidity and Capital Resources. As of December 31, 2000, we had cash
in the amount of $242,967, a significant increase from zero as of December 31,
1999. Stock subscriptions receivable amounted to $43,000 as of December 31,
2000, all of which was received in January 2001. Total current liabilities were
$59,131 as of December 31, 2000, a slight increase over the prior year balance
of $54,509, due to accrued payroll taxes. As of December 31, 2000, we had an
accumulated deficit of $391,164.

         Results of Operations. Total operating expenses for the year ended
December 31, 2000 were $253,148 compared to total operating expenses for the
period from January 8, 1999, our date of inception, to December 31, 1999 of
$125,674. The increase resulted primarily from investor relations, directors'
fees, and other consulting expenses recorded for stock issued for these services
in 2000. In the year ended December 31, 2000, our net loss was $271,655,
compared to a loss of $129,509 for the prior year.

         Plan of Operation For Next 12 Months. On June 30, 2000, we filed a $2.5
billion lawsuit against The Boeing Company, a Delaware corporation, CFM
International, Inc., a Delaware corporation, and Rolls Royce PLC, a United
Kingdom corporation, in the United States District Court for the Central
District of California, Western Division (Case # 00-07157) for violations of the
Sherman Act ss.ss. 1 and 2, intentional interference with prospective economic
relationships and breach of contract ("Boeing Litigation"). We are seeking
actual and economic damages and attorneys' fees and costs. The defendants filed
a motion for dismissal of charges but the court denied the defendants' motion to
dismiss in its entirety. The case is now in active discovery and a trial date of
May 21, 2002 has been set. While this date is subject to change, it is likely
that the trial phase of the case will be concluded by the end of 2002. We
believe our claims have merit and we intend to vigorously prosecute our claims
against the defendants.

         The outcome of the Boeing litigation is uncertain. Antitrust litigation
is particularly complex and can extend for a protracted time, which can
substantially increase the cost of such litigation. We do not expect to incur
significant legal fees in connection with the Boeing litigation because we
retained our legal counsel on a contingency basis. However, we do anticipate
that we will incur significant costs in connection with the litigation.
Moreover, the Boeing litigation has diverted, and is expected to continue to
divert, the efforts and attention of our key management and technical personnel.
As a result, our pursuit and potential defense of the Boeing litigation,
regardless of its eventual outcome, has been, and will likely continue to be,
costly and time consuming. Should the outcome of the Boeing litigation be
adverse to us, we may be required to pay the defendants' costs, and we may be
unable to carry out our business plan. If we are required to pay significant
costs, or are unable to carry out our business plan, our business will be
harmed.

         We believe that our primary target market will consist of automobile
manufacturers and tire manufacturers. We believe that the potential market for
the tire valve cap is extremely large. The requirement for a warning system to
detect tire pressure is currently under consideration in the automobile
industry. On October 10, 2000, the Congress passed the Transportation Recall
Enhancement, Accountability and Documentation Act, which specified that
legislation would be developed concerning a low tire pressure warning for motor
vehicles. We believe that the valve cap technology could become standard
equipment on all new vehicles sold in the United States and all over the
industrialized world in the years ahead, in addition to being added to existing
and replacement tires. If mass-produced, the cost of this product is expected to
be less than $1.00 each, which we believe will allow for a significant profit
margin for each product sold.

         Competition for the electronic tire valve cap is limited. To our
knowledge, there is only one mechanical tire valve cap on the market, which is
sold by several companies under different brand names. Our review and testing of
this product has indicated to us that it is unreliable and inefficient due to
its mechanical nature. Other solutions to the tire pressure problem facing the
industry are currently directed toward interior warning signals, which are
significantly more expensive than our tire valve cap, and therefore, not
considered direct competition. We anticipate that we will compete on the basis
of the quality of our products and price.

         Our plan of operation is materially dependent on the outcome of the
Boeing litigation and our ability to generate revenues from the electronic tire
valve cap. We have acquired the marketing rights to the electronic tire valve
cap. We believe that sales of the valve cap could potentially generate
significant revenues. However, we do not anticipate that we will be able to
generate significant revenues in the next twelve months. We can make no
prediction as to when, if ever, we will be able to conduct our operations on a
profitable basis.


                                       7
<PAGE>


         We need to raise additional capital to market, promote and sell the
electronic tire valve cap. Such additional capital may be raised through public
or private financing as well as borrowings and other sources. We cannot guaranty
that additional funding will be available on favorable terms, if at all.

         We are not currently conducting any research and development
activities, other than those activities related to the licensing agreement for
the electronic tire valve cap. In connection with the licensing agreement, we
paid $21,648 to our chief executive officer, and other vendors, as reimbursement
and payment for research and development costs incurred in developing the
electronic valve cap. During the license period and any renewal periods, we will
pay fees, expenses and costs related to product development and any application
fees for patents and trademarks. Our obligation to pay such development costs
shall not exceed $50,000. We have also issued 50,000 shares of common stock to
one individual for efforts in co-designing the product with Mr. Lundqvist and
another 1,000 shares of common stock to another individual for the name "Air
Alert Valve Cap."

         Although we do not anticipate any significant changes in the number of
our employees, if additional financing is not obtained we may not be able to
retain our present employees other than Mr. Lundqvist. The loss of key employees
could have a material adverse effect upon our operations.

         Forward Looking Statements. This Form 10-KSB contains forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Our forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause our actual results, performance
or achievements to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements. Factors
that could cause actual results to differ materially from the forward looking
statements include, but are not limited to, risks associated with lack of
significant operating history, international, national and local general
economic and market conditions; our ability to sustain, manage or forecast
growth; new business development, adverse publicity; competition; changes in
business strategy or development plans; business disruptions; the ability to
attract and retain talented personnel; the ability to protect technology; and
other factors referenced in this report. Given these uncertainties, readers are
cautioned not to place undue reliance on such forward-looking statements.
Management disclaims any obligation to forward-looking statements contained
herein to reflect any change in our expectation with regard thereto or any
change in events, conditions, circumstances or assumptions underlying such
statements.





                                       8
<PAGE>



Item 7.  Financial Statements

Independent Auditors' Report..................................................10

Balance Sheets as of December 31, 2001 and 2000...............................11

Statements of Operations for the years ended December 31,  2001, 2000 and for
the period January 8,  1999 (inception)  through December 31, 1999............12

Statements of Stockholders'  Equity (Deficit) for the years ended December 31,
2001, 2000 and for the period January 8,  1999 (inception) through
December 31, 1999.............................................................13

Statements of Cash Flows for the years ended December 31,  2001, 2000 and
for the period January 8,  1999 (inception)  through December 31, 1999........14

Notes to Financial Statements ...........................................15 - 19




                                       9
<PAGE>



                          Independent Auditors' Report
                          ----------------------------

To the Board of Directors and Stockholders of
AVIATION UPGRADE TECHNOLOGIES, Inc.



         We have audited the accompanying balance sheets of Aviation Upgrade
Technologies, Inc. (the "Company") as of December 31, 2001 and 2000, and the
related statements of operations, stockholders' equity (deficit) and cash flows
for the years ended December 31, 2001, 2000 and the period from January 8, 1999
(inception) to December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements based on our audits.

         We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

         In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Aviation Upgrade
Technologies, Inc. as of December 31, 2001 and 2000, and the results of its
operations and its cash flows for the years ended December 31, 2001, 2000 and
the period from January 8, 1999 (inception) to December 31, 1999 in conformity
with accounting principles generally accepted in the United States of America.

         The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As shown in the accompanying
financial statements, the Company is a start up company which has experienced
significant losses since inception with no revenues. These factors and other
factors discussed in Note 1 to the financial statements raise substantial doubt
about the ability of the Company to continue as a going concern. Management's
plans in regard to these matters are described in Note 1. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.





                                         Lesley, Thomas, Schwarz & Postma, Inc.
                                         A Professional Accountancy Corporation

Newport Beach, California
January 15, 2002



                                       10
<PAGE>



                       AVIATION UPGRADE TECHNOLOGIES, INC.

                                 BALANCE SHEETS


                                     ASSETS
                                     ------
<TABLE>
<CAPTION>
                                                                                            December 31,
                                                                                 -----------------------------------
                                                                                       2001                2000
                                                                                 ----------------    ---------------
<S>                                                                                    <C>                  <C>
CURRENT ASSETS
   Cash                                                                          $         8,347     $       242,967
   Stock subscriptions receivable                                                              0              43,000
   Prepaid expenses                                                                       10,000              10,000
                                                                                 ---------------     ---------------

     Total current assets                                                                 18,347             295,967

OTHER ASSETS                                                                                 350                   0
                                                                                 ---------------     ---------------

                                                                                 $        18,697     $       295,967
                                                                                 ===============     ===============

                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
                 ----------------------------------------------

CURRENT LIABILITIES:
   Accounts payable                                                              $        33,523     $         3,739
   Due to related party                                                                   23,226               5,287
   Accrued payroll and related expenses                                                   23,671              50,105
                                                                                 ---------------     ---------------

     Total current liabilities                                                            80,420              59,131
                                                                                 ---------------     ---------------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY (DEFICIT)
   Common stock, $0.001 par value; 100,000,000 shares authorized; 10,783,000 and
     10,616,500 shares issued and outstanding at
     December 31, 2001 and 2000, respectively                                             10,783              10,617
   Common stock subscribed, $.001 par value; 43,000 shares at
     December 31, 2000                                                                         0                  43
   Additional paid-in capital                                                            700,877             617,340
   Accumulated deficit                                                                  (773,383)           (391,164)
                                                                                 ---------------     ---------------

     Total stockholders' equity (deficit)                                                (61,723)            236,836
                                                                                 ---------------     ---------------

                                                                                 $        18,697     $       295,967
                                                                                 ===============     ===============
</TABLE>







            See the accompanying notes to these financial statements

                                       11
<PAGE>






                       AVIATION UPGRADE TECHNOLOGIES, INC.

                            STATEMENTS OF OPERATIONS



<TABLE>
<CAPTION>
                                                                            Years Ended                  January 8, 1999
                                                               -------------------------------------       (Inception)
                                                                            December 31,                     Through
                                                               -------------------------------------       December 31,
                                                                     2001                 2000                 1999
                                                               ----------------     ----------------     ----------------
<S>                                                                   <C>                 <C>                   <C>
REVENUES                                                       $              0     $              0     $              0

COST OF SALES                                                                 0                    0                    0
                                                               ----------------     ----------------     ----------------

GROSS PROFIT (LOSS)                                                           0                    0                    0
                                                               ----------------     ----------------     ----------------

OPERATING EXPENSES
   General and  administrative  ($18,000 of rent was paid to
     a related party in 2001, 2000 and 1999)                            313,377              253,148              125,674
   Research and development                                              72,648                    0                    0
                                                              -----------------    -----------------    -----------------
                                                                        386,025              253,148              125,674
                                                              -----------------    -----------------    -----------------

LOSS FROM OPERATIONS                                                   (386,025)            (253,148)            (125,674)

OTHER INCOME (EXPENSE)
   Interest income                                                        3,806                    0                    0
   Interest expense                                                           0               (8,507)              (3,835)
                                                               ----------------     ----------------     ----------------

NET LOSS                                                       $       (382,219)    $       (261,655)    $       (129,509)
                                                               ================     ================     ================

BASIC AND DILUTED LOSS PER COMMON SHARE                        $         (0.04)     $         (0.03)     $         (0.01)
                                                               ================     ================     ================

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING                           10,757,574           10,003,604            9,943,978
                                                               ================     ================     ================
</TABLE>






            See the accompanying notes to these financial statements

                                       12
<PAGE>





                       AVIATION UPGRADE TECHNOLOGIES, INC.

                  STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
         FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND FOR THE PERIOD
              JANUARY 8, 1999 (INCEPTION) THROUGH DECEMBER 31, 1999




<TABLE>
<CAPTION>
                                           Common Stock        Common Stock Subscribed    Additional
                                      -----------------------  ------------------------    Paid-In      Accumulated
                                        Shares       Amount       Shares       Amount      Capital       Deficit          Total
                                      ----------  -----------  -----------  -----------  -----------  -------------  -------------
<S>                                      <C>          <C>          <C>          <C>          <C>           <C>            <C>
Balance, January 8, 1999 (inception)           0  $         0            0  $         0  $         0  $           0  $           0

Common stock issued to founder        10,000,000       10,000            0            0      (10,000)             0              0
Common stock subscribed for $1.00 per
  share                                        0            0       75,000           75       74,925              0         75,000

Net loss                                       0            0            0            0            0       (129,509)      (129,509)
                                      ----------  -----------  -----------  -----------  -----------  -------------  -------------

Balance, December 31, 1999            10,000,000       10,000       75,000           75       64,925       (129,509)       (54,509)

Common stock issued for $1.00 per
  share                                  468,000          468      (75,000)         (75)     392,607              0        393,000
Common stock subscribed for $1.00 per
  share                                        0            0       43,000           43       42,957              0         43,000
Common stock issued for services         148,500          149            0            0      116,851              0        117,000
Net loss                                       0            0            0            0            0       (261,655)      (261,655)
                                      ----------  -----------  -----------  -----------  -----------  -------------  -------------

Balance, December 31, 2000            10,616,500       10,617       43,000           43      617,340       (391,164)       236,836

Common stock issued for $1.00 per
  share                                  114,000          114      (43,000)         (43)      69,429              0         69,500
Common stock issued for services          52,500           52            0            0       52,448              0         52,500
Cost of funding                                                                              (38,340)                      (38,340)
Net loss                                       0            0            0            0            0       (382,219)      (382,219)
                                      ----------  -----------  -----------  -----------  -----------  -------------  -------------

Balance, December 31, 2001            10,783,000  $    10,783            0  $         0  $   700,877  $    (773,383) $     (61,723)
                                      ==========  ===========  ===========  ===========  ===========  =============  ==============
</TABLE>





            See the accompanying notes to these financial statements

                                       13
<PAGE>




                       AVIATION UPGRADE TECHNOLOGIES, INC.

                            STATEMENTS OF CASH FLOWS



<TABLE>
<CAPTION>
                                                                                  Years Ended                January 8, 1999
                                                                      ------------------------------------     (Inception)
                                                                                 December 31,                   Through
                                                                      ------------------------------------    December 31,
                                                                            2001                2000             1999
                                                                      -----------------   ----------------   ----------------
<S>                                                                         <C>                  <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net loss                                                           $       (382,219)   $       (261,655)  $       (129,509)
   Adjustments to reconcile net loss to net cash used in operating
activities
     Common stock issued for services                                           51,000             117,000                  0
     Changes in operating assets and liabilities
       Prepaid expenses                                                              0             (10,000)                 0
       Other assets                                                               (350)                  0                  0
       Accounts payable                                                         29,784               3,739                  0
       Due to related party                                                     17,939             (49,222)            54,509
       Accrued payroll and related expenses                                    (26,434)             50,105                  0
                                                                      -----------------   ----------------   ----------------

         Net cash used in operating activities                                (310,280)           (150,033)           (75,000)
                                                                      ----------------    ----------------   ----------------

CASH FLOWS FROM FINANCING ACTIVITIES
   Proceeds from issuance of common stock                                       71,000             393,000                  0
   Common stock subscribed                                                      43,000                                 75,000
   Stock offering costs                                                        (38,340)                  0                  0
                                                                      -----------------   ----------------  -----------------

         Net cash provided by financing activities                              75,660             393,000             75,000
                                                                      ----------------    ----------------  -----------------

NET CHANGE IN CASH                                                            (234,620)            242,967                  0

CASH, beginning of period                                                      242,967                   0                  0
                                                                      ----------------    ----------------   ----------------

CASH, end of period                                                   $          8,347    $        242,967   $              0
                                                                      ================    ================   ================

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
   Cash paid during the period for interest                           $              0    $          8,507   $          3,835
   Cash paid during the period for taxes                              $          2,455    $              0   $              0
</TABLE>


SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES

    During the year ended December 31, 2001, the Company issued 1,500 shares of
       common stock valued at $1.00 per share for services relating to raising
       capital.

    During the year ended December 31, 2000, the Company issued 31,500 shares of
       common stock valued at $1.00 per share for services relating to raising
       capital.

    During the year ended December 3,1 2000, the Company recorded a subscription
       receivable in the amount of $43,000 relating to the subscription of
       43,000 shares of common stock.



            See the accompanying notes to these financial statements

                                       14
<PAGE>



                       AVIATION UPGRADE TECHNOLOGIES, INC.

                          NOTES TO FINANCIAL STATEMENTS

           FOR THE YEARS ENDED DECEMBER 31, 2001 AND DECEMBER 31, 2000


NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Nature of Business - Aviation Upgrade Technologies, Inc. ("AUT" or the
"Company") is a Nevada corporation, organized on January 8, 1999. The Company
was originally formed to develop, market and install modifications to aircraft,
such as the Boeing 727, which were designed to improve and extend the economic
life of these aircraft by bringing them into compliance with strict noise and
emission control levels as they became mandatory in the years ahead.

         In mid-1999, however, after months of negotiations with a number of
aircraft engine manufacturers for the purchase of new engines, each company
withdrew at the last minute from executing a final contract. AUT believes the
withdrawals were the result of pressure from a major aircraft manufacturer
fearing a reduction in the sale of new aircraft if the lives of existing
aircraft were significantly increased as proposed by AUT. AUT has retained a
prominent antitrust law firm on a contingency basis and on June 30, 2000, AUT
filed a lawsuit against these companies, including the aircraft manufacturer.

         In its efforts to continue business development, AUT evaluated several
businesses for purchase during the latter half of 1999 and throughout 2000,
including an aircraft maintenance company and an aircraft leasing company
specializing in cargo aircraft, none of which came to fruition.

         In April 2001, AUT acquired from Torbjorn B. Lundqvist, our Chief
Executive Officer and one of our directors, the marketing rights to an
electronic tire valve cap for airplanes and automobiles that blinks if the tire
pressure falls below an initially calibrated level. The product provides early
warning of low pressure in tires, which we believe will lead to safer travel in
both these types of vehicles and better fuel efficiency in automobiles. Once the
tire is inflated to the appropriate pressure, the initial tightening of the cap
onto the valve sets the pressure inside a control chamber in the valve cap equal
to the pressure in the tire. If the pressure in the tire drops by more than
approximately two pounds per square inch, a red light will blink to indicate the
need to check the tire pressure. The licensing agreement has a term of five
years and requires the payment of a license fee equal to 12% of the monthly
gross profit from sales of the tire valve cap. It also requires the
reimbursement of research and development costs incurred by its founder and the
payment of ongoing development costs during the term of the agreement to a
maximum of $50,000. In addition, it stipulates the issuance of 50,000 shares of
its common stock to one individual for efforts in co-designing the product and
another 1,000 shares of common stock to another individual for naming the
product.

         Going Concern - AUT hopes to obtain revenues from future product sales,
but there is no commitment by any person for purchase of the Company's
electronic tire valve cap. In the absence of significant sales and profits, the
Company may seek to raise additional funds to meet its working capital needs
principally through the additional sales of its securities. However, there is no
assurance that the Company will be able to obtain sufficient additional funds
when needed, or that such funds, if available, will be obtainable on terms
satisfactory to the Company.

         These circumstances raise substantial doubt about the Company's ability
to continue as a going concern. The accompanying financial statements do not
include any adjustments that might result from the outcome of this uncertainty.

         Equipment - During the year ended December 31, 2001, AUT purchased an
insignificant amount of equipment. The Company elected to expense these
purchases immediately.


                                       15
<PAGE>



NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         Common Stock Issued for Services Rendered - AUT periodically issues
common stock for services rendered. Common stock issued is valued at the
estimated fair market value, as determined by management and the board of
directors of the Company. Management and the board of directors consider, recent
stock offering prices and other factors in determining fair market value for
purposes of valuing the common stock. During the year ended December 31, 2001,
AUT issued 52,500 shares of common stock for services. 1,500 shares were issued
for investor relations services and 51,000 shares were issued in connection with
a licensing agreement for the electronic tire valve cap (Note 3).

         Basic and Diluted Loss Per Share - Basic and diluted loss per share
were computed based on the weighted average number of shares outstanding for the
period. Basic and diluted loss per share are the same as the effect of warrants
on loss per share are antidilutive and thus not included in the diluted loss per
share calculation.

         Income Taxes - The Company accounts for income taxes under Statement of
Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income
Taxes." Under SFAS 109, deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. A valuation
allowance is provided for significant deferred tax assets when it is more likely
than not that such assets will not be recovered.

         Use of Estimates - The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of
America requires management to make certain estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.

         Risks and Uncertainties - AUT is a start up company subject to the
substantial business risks and uncertainties inherent to such an entity,
including the potential risk of business failure.

         Derivative Instruments and Hedging Activities - The Company has adopted
Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting
for Derivative Instruments and Hedging Activities." SFAS 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities on the balance sheet at their fair value. This statement, as amended
by SFAS 137, is effective for financial statements for all fiscal quarters of
all fiscal years beginning after June 15, 2000. The adoption of this SFAS 133
has not materially impacted the Company's results of operations, financial
position or cash flows as it currently does not engage in any derivative or
hedging activities.

         Start Up Activities - As required by Statement of Position No. 98-5
("SOP 98-5"), "Reporting the Costs of Start-Up Activities", the Company is
expensing the costs of start-up activities, including organization costs as
those costs are incurred.

         Research and Development - Research and development costs related to
the tire valve cap are charged to operations as incurred. The Company recognized
research and developments costs of $72,648 for the year ended December 31, 2001.
No research and development costs were incurred in prior periods.

         Fair Value of Financial Instruments - The Company's financial
instruments consist primarily of cash, prepaid expenses and current liabilities.
The Company believes all the financial instruments recorded are valued at their
approximate fair value.


                                       16
<PAGE>


NOTE 2 - INCOME TAXES

         No provisions for income taxes for the years ended December 31, 2001,
2000 and the period from January 8, 1999 (inception) through December 31, 1999
is required, except for minimum state taxes, since the Company incurred taxable
losses during these periods.

         As of December 31, 2001, 2000 and 1999 the Company's only deferred tax
item was capitalized start-up costs of approximately $382,000, $262,000 and
$130,000. respectively. Due to the Company's lack of operations, no deferred tax
benefit has been recognized for this deferred tax asset.


NOTE 3 - COMMITMENTS

         Operating Lease - The Company's founder and majority stockholder
provided approximately 400 square feet of office space for the Company's use
through his privately held marketing company to December 2001. Rent expense was
$18,000 in each of the years ended December 31, 2001, 2000 and the period from
January 8, 1999 (inception) through December 31, 1999.

         In December 2001, AUT entered into an operating lease for the rental of
its new executive offices in Las Vegas, Nevada. Monthly lease payments are $350
for a term of six months. The lease expires on June 30, 2002.

         Employment Agreement - On May 31, 2000, AUT entered into an employment
agreement with Mr. Lundqvist to employ him as its Chief Executive Officer. The
agreement, which has an initial term of two years, provides for an annual base
salary of $140,000 effective June 1, 2000, adjustable annually at the discretion
of the board of directors. Among other provisions, the agreement also provides
for an annual cash salary incentive equal to 3% of adjusted net profits
beginning with the year ended December 31, 2001. The "adjusted net profit" shall
be the net profit of the Company before federal and state income taxes,
determined in accordance with accounting principles generally accepted in the
United States of America by the Company's independent accounting firm and
adjusted to exclude: (i) any incentive salary payments paid pursuant to this
employment agreement; (ii) any contributions to pension and/or profit sharing
plans; (iii) any extraordinary gains or losses; (iv) any refund or deficiency of
federal and state income taxes paid in a prior year; and (v) any provision for
federal or state income taxes made in prior years which is subsequently
determined to be unnecessary. The maximum incentive salary payable for any given
year may not exceed 400% of the then applicable base salary.

         Licensing Agreement - In April 2001, AUT acquired from Torbjorn B.
Lundqvist, our Chief Executive Officer and one of our directors, the marketing
rights to the electronic tire valve cap. The licensing agreement has a term of
five years and requires the payment of a license fee equal to 12% of the monthly
gross profit from sales of the tire valve cap. It also requires the
reimbursement of research and development costs incurred by its founder and the
payment of ongoing development costs during the term of the agreement to a
maximum of $50,000. In addition, it stipulates the issuance of 50,000 shares of
its common stock to one individual for efforts in co-designing the product and
another 1,000 shares of common stock to another individual for naming the
product.


NOTE 4 - WARRANTS

         During 2001 and 2000, the Company issued 71,000 and 436,000 warrants in
connection with the sale of its common stock to investors, respectively. For
each share of stock sold at $1.00, a warrant was issued for the purchase of an
additional share of common stock at $0.10. These warrants are exercisable at the
option of the warrant holder and expire three years from the date of issuance.
All warrants were issued in connection with the sale of stock and therefore no
expense was recorded for their issuance.


                                       17
<PAGE>


NOTE 4 - WARRANTS (CONTINUED)

         The following represents a summary of the warrants outstanding as of
December 31, 2001 and 2000:
<TABLE>
<CAPTION>
                                                                2001                               2000
                                                   -------------------------------    --------------------------------
                                                                        Wtd Avg                            Wtd Avg
                                                      Shares           Ex Price          Shares           Ex Price
                                                   -------------     -------------    -------------     -------------
              <S>                                      <C>                <C>             <C>                <C>
         Outstanding, beginning of period                456,000     $        0.10           20,000     $        0.10

         Granted                                          71,000              0.10          436,000              0.10
         Expired/forfeited                                     0                 0                0                 0
                                                   -------------     -------------    -------------     -------------

         Outstanding, end of period                      527,000     $        0.10          456,000     $        0.10
                                                   =============     =============    =============     =============

         Weighted average fair value of warrants granted             $        0.10                      $        0.10
                                                                     =============                      =============
</TABLE>

         The outstanding warrants at December 31, 2001 and 2000 are all held by
stockholders, five thousand of which were issued to a former officer and
director in connection with his purchase of stock.


NOTE 5 - STOCKHOLDERS' EQUITY (DEFICIT)

         Holders of the common stock do not have preemptive rights to purchase
additional shares of common stock or other subscription rights. The common stock
carries no conversion rights and is not subject to redemption or to any sinking
fund provisions. All shares of common stock are entitled to share equally in
dividends from sources legally available therefor when, as and if declared by
the board of directors and, upon liquidation or dissolution of the company,
whether voluntary or involuntary, to share equally in the assets of the Company
available for distribution to stockholders. The board of directors is authorized
to issue additional shares of common stock on such terms and conditions and for
such consideration as the Board may deem appropriate without further stockholder
action.

         Each holder of common stock is entitled to one vote per share, either
in person or by proxy, on all matters that may be voted on by the owners thereof
at meetings of the stockholders. Since the shares of common stock do not have
cumulative voting rights, the holders of more than 50% of the shares voting for
the election of directors that can elect all the directors and, in such event,
the holders of the remaining shares will not be able to elect any person to the
board of directors.

         All of the Company's common stock is held by insiders and persons who
acquired shares in private offerings. These are "restricted securities" as that
term is defined in Rule 144 promulgated under the Securities Act. The Company
has not declared or paid any dividends on its common stock to date and there is
no assurance that the Company will ever be able to pay dividends in the future.

         In January 2001, AUT concluded a Regulation D, Rule 506 Offering ("Rule
506 Offering") of the common stock in the United States and a Regulation S
offering of common stock overseas. As part of the Rule 506 Offering, the Company
issued 40,000 shares of common stock for aggregate cash consideration of $40,000
in 2000. As part of the Regulation S offering, AUT issued 467,000 shares of
common stock for aggregate cash consideration of $467,000, $393,000 of which was
received in 2000 and $114,000 was received in January 2001. In January 2001, AUT
also issued 1,500 shares of common stock for investor relations services in
connection with this offering.

         In May 2001, AUT issued 51,000 shares of common stock for services in
connection with a licensing agreement. The shares were valued at $1.00 per share
and $51,000 was recognized as research and development costs.



                                       18
<PAGE>



NOTE 5 - STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)

         In May 2001, AUT filed a Form SB-2 Registration Statement
("Registration Statement), which was subsequently amended, with the SEC for a
secondary public offering of 250,000 shares of common stock at $8.75 per share.
Offering costs consisting of legal expenses and filing fees incurred during the
year ended December 31, 2001 in connection with the Registration Statement and
its Amendments were $38,340.

         In August 2001, AUT entered into an agreement with a consultant to
assist the Company in ensuring that the tire valve cap qualifies for standards
in a new rule to be issued by the National Highway Traffic Safety
Administration. The new rule requires that, by 2003, all vehicles sold in the
United States have a low tire pressure warning system. In addition to $5,000 in
consulting fees paid under the agreement, 10,000 shares of common stock are to
be issued contingent upon the tire valve cap qualifying for the new rule.


NOTE 6 - LOSS PER SHARE

         The following is a reconciliation of the numerators and denominators of
the basic and diluted loss per share computations:
<TABLE>
<CAPTION>
                                                                               Year Ended
                                                                   ------------------------------------     Period Ended
                                                                              December 31,                  December 31,
                                                                   ------------------------------------   ----------------
                                                                         2001                2000               1999
                                                                   ----------------    ----------------   ----------------
                 <S>                                                     <C>                  <C>             <C>
         Numerator for basic and diluted loss per share
           Net loss                                                $       (382,219)   $       (261,655)  $       (129,509)
                                                                   ================    ================   ================

         Denominator for basic and diluted loss per share
           Weighted average shares                                       10,757,574          10,003,604          9,943,978
                                                                   ================    ================   ================

         Basic and diluted loss per share
           Net loss                                                $         (0.04)    $         (0.03)   $         (0.01)
                                                                   ================    ================   ================
</TABLE>


NOTE 7 - LEGAL MATTERS

         On June 30, 2000, AUT filed a $2.5 billion antitrust lawsuit against
third party suppliers with whom it had negotiated with for the upgrade of Boeing
727 aircraft for failure to execute a final contract and against an aircraft
manufacturer who AUT believes exerted pressure on the suppliers not to execute
the final contract. The defendants filed a motion for dismissal of charges but
were denied on all counts. At this time, the lawsuit is in the discovery phase
and any possible outcome cannot be predicted.


NOTE 8 - RELATED PARTY TRANSACTIONS

         Since its inception, AUT has not generated sufficient working capital
to cover the cost of its operations. Therefore, its founder and Chief Executive
Officer has provided working capital and substantially all its assets, including
400 square feet of office space, through his privately held marketing company.
All amounts advanced to AUT have been recorded as expenses of the Company in the
period they were incurred and the amount owing is reflected in due to related
party and totals $23,226 and $5,287 as of December 31, 2001 and 2000,
respectively.

            In accordance with the valve cap licensing agreement AUT has entered
into with its founder and Chief Executive Officer, the Company incurred $72,648
(including $51,000 in value of stock issued for services valued at $1.00 per
share) during the year ended December 31, 2001 for research and development
costs in connection with the development of the tire valve cap. No research and
development costs were incurred in prior periods.


                                       19
<PAGE>


Item 8.  Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures

         On June 15, 2000, we decided that Barry L. Friedman, Certified Public
Accountant would no longer be retained as our independent accountant for the
fiscal years ended December 31, 2000 and 1999. Accordingly, the
client-independent accountant relationship was terminated as of that date. The
decision to change accountants was recommended and approved by our entire board
of directors. Mr. Friedman's report on our financial statements for the period
from inception to July 31, 1999 did not contain any adverse opinion or a
disclaimer of opinion, or was not qualified, but contained an explanatory
paragraph as to our ability to continue as a going concern. For the period from
inception to July 31, 1999, there were no disagreements with Mr. Friedman on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreement, if not resolved to the
satisfaction of the former accountant, would have caused it to make reference to
the subject matter of the disagreement in connection with its reports. We are
unable to include correspondence from Mr. Friedman specifying that our
disclosures regarding the change in accountants are true and correct because Mr.
Friedman passed away in January 2001.

         On December 30, 2000, a new independent accounting firm, Lesley,
Thomas, Schwarz & Postma, Inc., Newport Beach, California, was engaged as our
independent accountants. We did not consult Lesley, Thomas, Schwarz & Postma,
Inc., regarding either the application of accounting principles to a specified
transaction or the type of audit opinion that might be rendered on our financial
statements, or any matter that was the subject of a disagreement or was a
reportable event.


PART III

Item 9.   Directors and Executive Officers of the Registrant

         Executive Officers and Directors. We are dependent on the efforts and
abilities of certain of our senior management. The interruption of the services
of key management could have a material adverse effect on our operations,
profits and future development, if suitable replacements are not promptly
obtained. We anticipate that we will enter into employment agreements with each
of our key executives. We cannot guaranty that each executive will remain with
us during or after the term of his or her employment agreement. In addition, our
success depends, in part, upon our ability to attract and retain other talented
personnel. Although we believe that our relations with our personnel are good
and that we will continue to be successful in attracting and retaining qualified
personnel, we cannot guaranty that we will be able to continue to do so. Our
officers and directors will hold office until their resignations or removal.

         Our directors and principal executive officers are as specified on the
following table:

======================== ============ =========================================
  Name                       Age           Position
------------------------ ------------ -----------------------------------------
  Torbjorn B. Lundqvist      49            Chairman and Chief Executive Officer
------------------------ ------------ -----------------------------------------
  Dick G. Lindholm           51            Vice President, Director
------------------------ ------------ -----------------------------------------
  William S. Rhodes          51            President, Director
======================== ============ =========================================

         Torbjorn B. Lundqvist. Mr. Lundqvist has been our chief executive
officer and the chairman of our board of directors since our inception. Mr.
Lundqvist has been primarily responsible for the formation and development to
date of Aviation Upgrade Technologies, Inc. Mr. Lundqvist has had vast
experience in international business. His strength is managing and developing
new ventures and ideas. Mr. Lundqvist was born in Helsinki, Finland in 1952.
After serving as a transportation officer during his mandatory service in the
Finnish army, he owned and managed several companies in Finland, including
companies involved in remodeling and manufacturing. Since 1982, Mr. Lundqvist
has been owner and president of Minitec Marketing, Inc. which is an import and
export firm. Among other things, Minitec Marketing, Inc. invented, patented and
manufactured a Power Take Out for 4-wheel drive GM vehicles. This product allows
the user to divert some of the power from the vehicles engine and use it for
other purposes than powering the vehicle itself, e.g. external devices like snow
blowers, generators, and pumps. The product was developed to suit a niche market
in Finland. Since 1989 he has also been owner and president of Minitec Motors,
Inc., USA, a car dealership specializing in exporting cars to nice markets where
a slight modification of the vehicle would put it in a lower tax bracket when
imported to that particular nice market. Mr. Lundqvist is not an officer or
director of any other reporting company.



                                       20
<PAGE>


         Dick G. Lindholm. Mr. Lindholm has been our vice president and one of
our directors since December 1999. Mr. Lindholm is known in the Scandinavian
aviation circles as a problem solver and skillful negotiator, including
experience dealing with clients, suppliers and labor unions. He has over thirty
years aviation experience, primarily in rotorcraft. He has thirty years flying
experience with over 8,000 flying hours. From 1976 until 1985, he was president
of Helikopteripalvelu, the leading helicopter company in Finland. From 1985
until 1993, he held various duties as a pilot for Helikopter Service A/S. From
1993 until 1997, he was managing director of Helifyg AB, the leading helicopter
operator in Sweden. From 1997 to March 1999, he was area manager, Nordic
Countries, of Helicopter Service A/S, which at the time was the world's largest
helicopter company in terms of revenues. From March to November 1999, Mr.
Lindholm has been vice president of business development for Copter Action Oy,
Finland. Since December 1999, Mr. Lindholm has been vice president of flight
operations for SHT AB of Finland, a company responsible for development of the
helicopter emergency medical service in the country. Mr. Lindholm was born in
1950 and resides in Espoo, Finland. Mr. Lindholm is not an officer or director
of any other reporting company.

         William S. Rhodes. Mr. Rhodes has been our president and one of our
directors since August 2000. Mr. Rhodes has spent most of his career in
commercial aircraft, military aircraft and third party aircraft maintenance. Mr.
Rhodes has been intimately involved in the managing, planning and production of
commercial aircraft modification and maintenance of transport aircraft for
twenty-three years. His maintenance management experience has been with air
carriers including American, Continental, Hawaiian, United, and U.S. Air. During
the period 2000 through 2001, Mr. Rhodes has been working with AUT. From 1997 to
2000, Mr. Rhodes was the General Manager and Senior Vice President of
administration for Santa Barbara Aerospace, Inc., which repairs and maintains
aircraft, and Director of Programs for Avtel Services, Inc., which maintains and
repairs aircraft. His career includes the day-to-day management in Department of
Defense contracts with NAVAIR and ARL for a period of fifteen years including
mission specific requirements for the secretary of defense and chief of naval
operations. Mr. Rhodes has held positions with aircraft corporations including
Beech Aircraft, Garrett Aviation, Tracor Aviation, Rogerson Aircraft and Dynair.
These positions have ranged from program manager to senior vice president in
technical and administrative management fields. Mr. Rhodes is a currently
licensed A&P whose aviation work experience started in the U.S. Marines in 1968,
and education is in engineering and business administration. Mr. Rhodes
currently resides in San Bernardino County, California. Mr. Rhodes is not an
officer or director of any other reporting company.

         There is no family relationship between any of our officers or
directors. There are no orders, judgments, or decrees of any governmental agency
or administrator, or of any court of competent jurisdiction, revoking or
suspending for cause any license, permit or other authority to engage in the
securities business or in the sale of a particular security or temporarily or
permanently restraining any of our officers or directors from engaging in or
continuing any conduct, practice or employment in connection with the purchase
or sale of securities, or convicting such person of any felony or misdemeanor
involving a security, or any aspect of the securities business or of theft or of
any felony. Nor are any of the officers or directors of any corporation or
entity affiliated with us so enjoined.

Section 16(a) Beneficial Ownership Reporting Compliance

         Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the officers and directors of the Company and those persons who
beneficially own more than 10% of the outstanding shares of common stock of the
Company to file reports of securities ownership and changes in such ownership
with the Securities and Exchange Commission ("the Commission"). Officers,
directors and greater than 10% beneficial owners are also required by rules
promulgated by the Commission to furnish the Company with copies of all Section
16(a) forms they file.

         AUT believes that during 1999, 2000 and 2001 no Section 16(a) filings
were required.


                                       21
<PAGE>



Item 10.  Executive Compensation And Other Information

         Cash Compensation of Executive Officers - The following table sets
forth the total compensation earned by the Chief Executive Officer and Directors
per annum since inception.
<TABLE>
<CAPTION>
                                        Annual Compensation                           Long-Term Compensation
                      ----------------------------------------------------------------------------------------------
         <S>             <C>         <C>          <C>             <C>               <C>               <C>                <C>
                                                                                 Restricted      Common Shares
                                                                 Other         Stock Granted   Underlying Options
                                                 Annual          Awards          (# Shares)         Granted            All Other
  Name and Position     Year       Salary         Bonus       Compensation                         (# Shares)        Compensation
--------------------- --------- ------------- -------------- --------------- ---------------- ------------------- -----------------

Torbjorn B.             2001      $140,000         -0-            -0-               -0-               -0-                 -0-
Lundqvist, Chairman     2000       $81,667         -0-            -0-               -0-               -0-                 -0-
and CEO                 1999        $-0-           -0-            -0-            10,000,000           -0-                 -0-

Dick G. Lindholm,       2001         -0-           -0-            -0-               -0-               -0-                 -0-
Director                2000         -0-           -0-            -0-              35,000             -0-                 -0-
                        1999         -0-           -0-            -0-               -0-               -0-                 -0-

William S. Rhodes,      2001         -0-           -0-            -0-               -0-               -0-                 -0-
Director (2)            2000         -0-           -0-            -0-              10,000             -0-                 -0-
                        1999         -0-           -0-            -0-               -0-               -0-                 -0-

Darle Ford, (1)         2001         -0-           -0-            -0-               -0-               -0-                 -0-
Former Officer and      2000         -0-           -0-            -0-              3,000              -0-                 -0-
Director                1999         -0-           -0-            -0-               -0-               -0-                 -0-
(1)      Mr. Ford resigned as Director in July 2000.
(2)      Shares were issued in the name of his spouse, Lyn Rhodes.
</TABLE>
         Director Compensation. Board members are serving without cash
compensation. During 2000, directors received shares of AUT's common stock for
their services to the Company. Each director holds office until his successor is
elected and qualified or until his earlier resignation in the manner provided in
the Bylaws of the Company. The Company has not secured "key man" or liability
insurance coverage for its officers and directors.

         Employment contracts. On May 31, 2000, we entered into an employment
agreement with Mr. Lundqvist to employ him as our chief executive officer. The
agreement, which has an initial term of two years, provides for an annual base
salary of $140,000 effective June 1, 2000, adjustable annually at the discretion
of the board of directors. Among other provisions, the agreement also provides
for an annual cash salary incentive equal to 3% of adjusted net profits
beginning with the year ended December 31, 2001. The "adjusted net profit" shall
be our net profit before federal and state income taxes, determined in
accordance with generally accepted accounting principles by our independent
accounting firm and adjusted to exclude:

    o    any incentive salary payments paid pursuant to this employment
         agreement;
    o    any contributions to pension and/or profit sharing plans;
    o    any extraordinary gains or losses;
    o    any refund or deficiency of federal and state income taxes paid in a
         prior year; and
    o    any provision for federal or state income taxes made in prior years
         which is subsequently determined to be unnecessary.

         The maximum incentive salary payable for any given year may not exceed
400% of the then applicable base salary.

         Indemnification of Directors. Section 6 of our Bylaws provide, among
other things, that our officers or directors shall not be personally liable to
us or our shareholders for monetary damages for breach of fiduciary duty as an
officer or director, except for liability



                                       22
<PAGE>


    o    for any breach of such officer's or director's duty of loyalty to us or
         our security holders;
    o    for acts or omissions not in good faith or which involve intentional
         misconduct or a knowing violation of law;
    o    liability for unlawful payments of dividends or unlawful stock purchase
         or redemption by us; or
    o    for any transaction from which such officer or director derived any
         improper personal benefit.

         Accordingly, our officers or directors may have no liability to our
shareholders for any mistakes or errors of judgment or for any act of omission,
unless such act or omission involves intentional misconduct, fraud, or a knowing
violation of law or results in unlawful distributions to our shareholders.

         Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to our directors, officers and controlling persons
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.


Item 11.  Security Ownership of Certain Beneficial Owners and Management

The following table sets forth certain information regarding the beneficial
ownership of our common stock as of February 26, 2002 by each person or entity
known by us to be the beneficial owner of more than 5% of the outstanding shares
of common stock, each of our directors and named executive officers, and all of
our directors and executive officers as a group.
<TABLE>
<CAPTION>
Title of Class             Name and Address of Beneficial Owner       Amount and Nature of Beneficial         Percent of Class
                                                                      Owner
-----------------------    --------------------------------------     ------------------------------------    --------------------
<S>                            <C>                                           <C>                                     <C>
Common Stock               Torbjorn B. Lundqvist,                     10,000,000 shares, chief executive             92.7%
                           6550 South Pecos Road, Suite 142           officer, chairman of board of
                           Las Vegas, Nevada   89120                  directors

Common Stock               Dick G. Lindholm                           35,000 shares, vice president,                 0.3%
                                                                      director


Common Stock               William S. Rhodes*                         10,000 shares, president, director             0.1%


Common Stock               All directors and named executive          10,045,000 shares                              93.1%
                           officers as a group
</TABLE>
* William S. Rhodes is the beneficial owner of 10,000 shares of common stock
through his spouse Lyn Rhodes.

Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. In accordance with Securities and Exchange
Commission rules, shares of our common stock which may be acquired upon exercise
of stock options or warrants which are currently exercisable or which become
exercisable within 60 days of the date of the table are deemed beneficially
owned by the optionees. Subject to community property laws, where applicable,
the persons or entities named in the table above have sole voting and investment
power with respect to all shares of our common stock indicated as beneficially
owned by them.

Changes in Control. Our management is not aware of any arrangements which may
result in "changes in control" as that term is defined by the provisions of Item
403(c) of Regulation S-B.


                                       23
<PAGE>


Item 12.  Certain Relationships and Related Transactions

         Conflicts related to other business activities. The persons serving as
our officers and directors have existing responsibilities and, in the future,
may have additional responsibilities, to provide management and services to
other entities in addition to us. As a result, conflicts of interest between us
and the other entities may occur from time to time.

         In addition to serving as our chief executive officer and chairman of
our board of directors, Mr. Lundqvist is the president and a director of Minitec
Marketing, Inc., a California corporation and an importer and exporter of
products. Minitec Marketing, Inc. has not conducted any operations in the last
two years. Mr. Lundqvist currently devotes approximately 4% of his time to
Minitec Marketing, Inc. Mr. Lundqvist is the president and a director of Minitec
Motors, Inc., a California corporation. Mr. Lundqvist currently devotes
approximately 1% of his time to Minitec Motors, Inc. We do not believe that we
have any conflicts of interest with the business or industry of Minitec
Marketing, Inc., other than Mr. Lundqvist's duty to provide management and
services.

         In addition to serving as our officers and director, Mr. Rhodes and Mr.
Lindholm currently devote a significant portion of their time to other
companies. Mr. Lindholm currently devotes approximately ten hours per week, but
anticipates that he will devote significantly more hours if the valve cap starts
producing significant revenues. Mr. Rhodes currently devotes approximately ten
hours per week, but anticipates that he will devote significantly more hours if
the valve cap starts producing significant revenues. We do not believe that we
have any conflicts of interest with the business or industry of those companies,
other than their duties to provide management and services.

         We will attempt to resolve any such conflicts of interest in our favor.
Our officers and directors are accountable to us and our shareholders as
fiduciaries, which requires that such officers and directors exercise good faith
and integrity in handling our affairs. A shareholder may be able to institute
legal action on our behalf or on behalf of that shareholder and all other
similarly situated shareholders to recover damages or for other relief in cases
of the resolution of conflicts in any manner prejudicial to us.

         Related party transactions. Mr. Lundqvist, our chief executive officer
and director and principal shareholder, provides substantially all the assets
used by us, including the 400 square feet of office space we occupied to
December 2001, through Minitec Marketing, Inc., his privately held marketing
company. We have reimbursed this entity $1,500 per month for the use of this
space.

         We entered into a license agreement with Torbjorn B. Lundqvist, to
license the marketing rights for the tire valve technology. During the year
ended December 31, 2001, we incurred $72,648 for research and development costs
in connection with the licensing agreement (including $51,000 for shares issued
for services). We issued 50,000 shares to Claes Grondahl for his efforts in
co-designing the product with Lundqvist and 1,000 shares to Doug Watt, one of
our shareholders, for the name "Air Alert Valve Cap." The 51,000 shares were
valued at $51,000. Claes Grondahl is a cousin of Torbjorn B. Lundqvist, our
chief executive officer. During the license period and any renewal period, we
will pay fees, expenses and costs related to product development and any
application for patents and trademarks. Our obligation to pay such development
costs shall not exceed $50,000. The license agreement also specifies that we
will enter into a manufacturing agreement with Torbjorn B. Lundqvist, our chief
executive officer. However, no terms of the manufacturing agreement have been
negotiated.

         Mr. Lundqvist was issued 10,000,000 shares of our common stock in
exchange for services relating to founding and organizing the business, which
were valued at $10,000. In addition, during the period ended December 31, 1999,
Mr. Lundqvist, our chief executive officer and director and principal
shareholder, paid for various goods and performed services relating to our
operations. Those goods included office supplies of $2,000. Those services of
$8,000 provided by Mr. Lundqvist were for services as our promoter including
founding and organizing the business.



                                       24
<PAGE>



Item 13.  Exhibits, Financial Statement Schedules and Reports on Form 8-K

(A) The following financial statements are included in Part II, Item 7.
<TABLE>
<CAPTION>
<S>                                                                                                            <C>
                                                                                                               PAGE
                                                                                                               ----
Independent Auditors' Report.....................................................................................10

Balance Sheets as of December 31, 2001 and 2000..................................................................11

Statements of Operations for the years ended December 31, 2001, 2000 and for the period
   January 8, 1999 (inception) through December 31, 1999.........................................................12

Statements of Stockholders' Equity (Deficit) for the years ended December 31, 2001, 2000 and
   for the period January 8, 1999 (inception) through December 31, 1999..........................................13

Statements of Cash Flows for the years ended December 31, 2001, 2000 and for the period
   January 8, 1999 (inception) through December 31, 1999.........................................................14

Notes to Financial Statements ................................................................................15-19
</TABLE>
(A3).....List of Exhibits Filed as Part of the Report

Exhibit No.
-----------
3.1            Certificate of Incorporation of the Company*
3.2            Bylaws of the Company*
10.1           Employment Agreement**

*    Previously filed on December 2, 1999, as exhibit to the Registration
     Statement on Form 10-SB.
**   Previously filed as an exhibit to Amendment No. 4 to Registration Statement
     on Form SB-2 (Registration No. 33-61530).

                                   SIGNATURES

In accordance with Section 13(a) or 15(d) of the Exchange Act, the registrant
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
                                    Aviation Upgrade Technologies, Inc.


                                    By:  /s/  Torbjorn B. Lundqvist
                                       -----------------------------------------
                                        Torbjorn B. Lundqvist
                                        Chairman and Chief Executive Officer


         In accordance with the Exchange Act, this report has been signed by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
         Signatures                           Title                                 Date
--------------------------------- ---------------------------------------  -----------------------
           <S>                                 <C>                                   <C>
 /s/ Torbjorn B. Lundqvist         Chairman and Chief Executive Officer       February 27, 2002
---------------------------------
Torbjorn B. Lundqvist              (principal executive officer)

 /s/ Dick G. Lindholm              Director                                   February 27, 2002
---------------------------------
Dick G. Lindholm

 /s/ William S. Rhodes
---------------------------------
William S. Rhodes                  Director                                   February 27, 2002
</TABLE>