U. S. SECURITIES AND EXCHANGE COMMISSION

                              WASHINGTON, DC 20549

                                   FORM 10-QSB

               QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE

                         SECURITIES EXCHANGE ACT OF 1934

                 For the quarterly period ended: March 31, 2005

                           Commission file No.0-24511
                                              -------

                        ADVANCED OPTICS ELECTRONICS, INC.
           (Name of small business issuer as specified in its charter)

                  NEVADA                                 88-0365136
        (State of incorporation)             (IRS Employer Identification No.)

           8301 WASHINGTON NE, SUITE 5, ALBUQUERQUE, NEW MEXICO 87113
           (Address of principal executive offices including zip code)

         Issuer's telephone number: (505) 797-7878

         Check whether the issuer (1) filed all reports  required to be filed by
         Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or
         for such shorter  period that the  registrant was required to file such
         reports),  and (2) has been subject to such filing requirements for the
         past 90 days. Yes X  No
                          ---   ---

         The number of issuer's shares of Common Stock outstanding as of May 13,
2005 was 3,878,136,349.

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

<PAGE>

PART I:  FINANCIAL INFORMATION
ITEM 1:  Financial Statements

                        ADVANCED OPTICS ELECTRONICS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                           CONSOLIDATED BALANCE SHEET
                                 MARCH 31, 2005
                                   (UNAUDITED)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                     ASSETS
<S>                                                                             <C>
CURRENT ASSETS
               Cash                                                               $    350,667
               Marketable securities                                                 1,935,050
               Other current assets                                                     16,057
                                                                                  ------------

                    Total current assets                                             2,301,774

INTANGIBLES, NET OF ACCUMULATED AMORTIZATION OF $59,386                                203,759

PROPERTY AND EQUIPMENT, NET OF ACCUMULATED DEPRECIATION OF $410,666                    148,042

OTHER ASSETS
               Notes receivable and deposits                                            51,737

                                                                                  $  2,705,312
                                                                                  ============

                               LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
               Accounts payable                                                   $    104,006
               Accrued expenses                                                        192,269
               Advances from shareholders                                              134,988
               Advances from officer                                                    64,710
               Convertible debentures                                                   80,093
                                                                                  ------------

                    Total current liabilities                                          576,066
                                                                                  ------------
COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
               Preferred stock, $0.001 par value, 10,000,000 shares authorized;
                 no shares issued and outstanding                                           --
               Common stock, $0.001 par value, 4,000,000,000 shares authorized;
                 3,733,136,349 shares issued and outstanding                         3,733,136
               Treasury stock, at cost                                                 (37,195)
               Notes receivable officer                                                (67,299)
               Additional paid in capital                                           17,929,002
               Accumulated other comprehensive income                                  978,292
               Deficit accumulated during the development stage                    (20,406,690)
                                                                                  ------------

                    Total stockholders' equity                                       2,129,246
                                                                                  ------------

                                                                                  $  2,705,312
                                                                                  ============
</TABLE>

--------------------------------------------------------------------------------
F-1             SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.

<PAGE>

                      CONSOLIDATED STATEMENTS OF OPERATIONS
  FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2005 AND 2004 AND FOR THE PERIOD
              FROM MAY 22, 1996 (INCEPTION) THROUGH MARCH 31, 2005
                                   (UNAUDITED)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                               MAY 22, 1996
                                                                                                (INCEPTION)
                                                                                                  THROUGH
                                                                                                  MARCH 31,
                                                              2005               2004               2005
                                                         ---------------    ---------------    ---------------
<S>                                                      <C>                <C>                <C>
CONTRACT REVENUES                                        $            --    $            --    $            --

OPERATING EXPENSES
       General and administrative                                283,447            526,452         10,888,410
       Payroll and related                                       277,358            175,604          1,810,155
       Research and development                                    8,720            239,342          2,110,369
       Professional Fees                                           1,904             21,364            172,285
       Depreciation & amortization                                12,499             13,992            137,979
       Licensing Fees                                                 --                 --             37,976
       Inventory write-off                                            --                 --             29,293
       Asset impairment                                               --                 --            592,884
                                                         ---------------    ---------------    ---------------
                  Total operating expenses                       583,928            976,754         15,779,351

LOSS ON CONTRACT                                                      --             47,463          2,255,944
                                                         ---------------    ---------------    ---------------

OPERATING LOSS                                                  (583,928)        (1,024,217)       (18,035,295)
                                                         ---------------    ---------------    ---------------
OTHER INCOME (EXPENSES)
       Interest income                                               860                 15             81,241
       Realized loss on marketable equity securities              (2,213)            17,044           (130,141)
       Other investment gains                                         --                 --             59,784
       Loss from investment in Biomoda, Inc.                          --                 --           (289,750)
       Gain (loss) on disposal of assets                              --                 --             (3,520)
       Gain (loss) on settlement of debts                         10,122                 --           (545,966)
       Interest expense                                           (6,421)            (9,651)        (1,291,294)
       Other income                                                   --                 --                551
                                                         ---------------    ---------------    ---------------
                 Total other income (expenses)                     2,348              7,408         (2,119,095)
                                                         ---------------    ---------------    ---------------
NET LOSS BEFORE CUMULATIVE EFFECT OF CHANGE

IN ACCOUNTING PRINCIPLE & EXTRAORDINARY LOSS                    (581,580)        (1,016,809)       (20,154,390)

EXTRAORDINARY LOSS                                                    --                 --           (189,280)

CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING

PRINCIPLE                                                             --                 --            (63,020)
                                                         ---------------    ---------------    ---------------

NET LOSS                                                 $      (581,580)   $    (1,016,809)   $   (20,406,690)
                                                         ===============    ===============    ===============
OTHER COMPREHENSIVE GAIN (LOSS)
       Unrealized gain (loss) on marketable securities           987,983            (25,045)           978,292
                                                         ---------------    ---------------    ---------------

COMPREHENSIVE GAIN (LOSS)                                        406,403         (1,041,854)       (19,428,398)
                                                         ===============    ===============    ===============

BASIC AND DILUTED NET LOSS BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE AVAILABLE TO COMMON
SHAREHOLDER

PER COMMON SHARE AND EXTRAORDINARY LOSS                  $        (0.000)   $        (0.000)

EXTRAORDINARY LOSS                                                    --                 --

CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE                   --                 --
                                                         ---------------    ---------------

BASIC AND DILUTED NET LOSS AVAILABLE TO COMMON
SHAREHOLDER                                              $        (0.000)   $        (0.000)
                                                         ===============    ===============
PER COMMON SHARE

BASIC AND DILUTED WEIGHTED AVERAGE COMMON SHARES

  OUTSTANDING                                              3,548,236,349      2,841,154,481
                                                         ===============    ===============
</TABLE>

*    Weighted  average  number of shares used to compute  basic and diluted loss
     per  share  is  the  same  since  the  effect  of  dilutive  securities  is
     anti-dilutive.

--------------------------------------------------------------------------------
F-2             SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.

<PAGE>

                        ADVANCED OPTICS ELECTRONICS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                            STATEMENTS OF CASH FLOWS
  FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2005 AND 2004 AND FOR THE PERIOD
              FROM MAY 22, 1996 (INCEPTION) THROUGH MARCH 31, 2005
                                   (UNAUDITED)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                                                  MAY 22, 1996
                                                                                                                   (INCEPTION)
                                                                                                                    THROUGH
                                                                                                                    MARCH 31,
                                                                                      2005            2004            2005
                                                                                 ------------    ------------    ------------
<S>                                                                              <C>             <C>             <C>
Cash flows from operating activities:
     Net loss                                                                    $   (581,580)   $ (1,016,809)   $(20,406,690)
     Adjustments to reconcile net loss to net cash
       used in operating activities:
         Intrinsic value of conversion features                                            --              --         610,603
         Write off of organization costs/goodwill                                          --              --          63,020
         Extraordinary loss                                                                --                         189,280
         Inventory write off                                                               --                          29,293
         Amortization of discount on convertible notes and
           preferred stock                                                                 --              --         295,209
         Loss (Gain) on marketable securities                                           2,213         (17,044)        130,141
         Loss on disposal of assets                                                        --              --           3,520
         Loss on investment in Biomoda, Inc.                                               --                              --
         Issuance of common stock for services                                             --         228,172       6,504,726
         Issuance of Biomoda common stock and options for services                         --                         165,000
         Issuance of notes payable for services                                            --              --          50,000
         Increase in excess of costs and earnings over billings
         on uncompleted contract                                                           --         (47,463)     (2,050,000)
         Increase in allowance for loss on contract                                        --          47,463       2,050,000
         Loss (Gain) on extinguishment of debt                                        (10,122)                        545,966
         Interest accrued on convertible debentures                                        --                         309,504
         Interest earned on note receivable from stockholder and
           related parties                                                                 --                         (17,823)
         Depreciation and amortization                                                 12,499          13,992         675,939
         Bad debt expense                                                                  --              --          15,000
         Asset impairment                                                                  --              --         592,884
         Other non-cash expenses                                                           --              --          33,447
         Accrued interest                                                                              (2,903)         30,667
     Changes in operating assets and liabilities:
         Decrease (Increase) in other current assets                                    1,389         (22,269)        (10,824)
         Decrease in inventory                                                                                        (35,293)
         (Decrease) Increase in accounts payable and accrued expenses                 (51,737)       (132,120)        (25,797)
                                                                                 ------------    ------------    ------------

     Net cash used in operating activities                                           (627,338)       (948,981)     (9,962,479)
                                                                                 ------------    ------------    ------------
Cash flows from investing activities:
     Purchases of property and equipment                                               (3,780)        (20,300)       (521,860)
     Additions to Patent, trademark and license fee, net of extraordinary gain        (30,775)             --        (135,347)
     Proceeds from sale of property and equipment                                          --              --          23,800
     Investment in Genomed                                                                           (900,000)       (900,000)
     Investment other                                                                                                      --
     Investment in Biomoda, Inc.                                                                           --        (383,845)
     Proceeds from sale of Biomoda, Inc. stock                                             --              --          28,930
     Advances to Biomoda, Inc.                                                                                        (38,432)
     Advances from shareholders                                                                                        14,009
     Sale of marketable securities                                                     15,756         137,200         208,543
     Purchases of marketable securities                                               (18,770)       (167,168)       (664,104)
     Cash of variable entity on consolidation                                                                             155
     Decrease in certificates of deposit                                                   --              --              --
     Increase in notes receivable                                                      (2,158)                        (51,737)
     Purchase of other assets                                                              --              --        (245,579)
                                                                                 ------------    ------------    ------------

     Net cash used in investing activities                                            (39,727)       (950,268)     (2,665,466)
                                                                                 ------------    ------------    ------------
</TABLE>

--------------------------------------------------------------------------------
F-3                     SEE ACCOMPANYING  NOTES TO THE FINANCIAL  STATEMENTS.

<PAGE>

<TABLE>
<CAPTION>
                                                                                                                  MAY 22, 1996
                                                                                                                   (INCEPTION)
                                                                                                                    THROUGH
                                                                                                                    MARCH 31,
                                                                                      2005            2004            2005
                                                                                 ------------    ------------    ------------
<S>                                                                              <C>             <C>             <C>
Cash flows from financing activities:
     Principal repayments on notes payable and capital leases                                                        (269,987)
     Proceeds from notes payable                                                                           --         622,776
     Issuance of common stock for cash                                                430,080         455,511      11,753,798
     Issuance of Biomoda common stock for cash                                                                         60,000
     (Increase) decrease in note receivable stockholder                                                    --          (5,422)
     Repayment for advances from officer                                              (25,000)                        (25,000)
     Proceeds from sale of treasury stock                                                              22,234         225,419
     Purchase of treasury stock                                                            --                        (258,377)
     Proceeds from issuance of convertible debt                                                                     1,270,965
     Principal repayments on convertible debt                                              --        (154,000)       (395,560)
                                                                                 ------------    ------------    ------------
     Net cash provided by financing activities                                        405,080         323,745      12,978,612
                                                                                 ------------    ------------    ------------
Net (decrease) increase in cash                                                      (261,985)     (1,575,504)        350,667
Cash at beginning of period                                                           612,652       3,964,609              --
                                                                                 ------------    ------------    ------------
Cash at end of period                                                            $    350,667    $  2,389,105    $    350,667
                                                                                 ============    ============    ============

Supplemental  disclosure  of cash flow  information  -
   Cash paid during the year for:
         Interest                                                                $         --    $         --
                                                                                 ============    ============
         Income taxes                                                            $         --    $         --
                                                                                 ============    ============
</TABLE>

--------------------------------------------------------------------------------
F-4                       SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS.

<PAGE>

--------------------------------------------------------------------------------
                        ADVANCED OPTICS ELECTRONICS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

MANAGEMENTS' REPRESENTATION:

The management of Advanced  Optics  Electronics,  Inc. (the  "Company")  without
audit has prepared the consolidated  financial  statements  included herein. The
accompanying  unaudited  consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America  for  interim  financial  information.   Certain  information  and  note
disclosures normally included in the financial statements prepared in accordance
with accounting  principles  generally  accepted in the United States of America
have been omitted.  In the opinion of  management,  all  adjustments  considered
necessary for fair  presentation of the financial  statements have been included
and  were  of a  normal  recurring  nature,  and the  accompanying  consolidated
financial statements present fairly the financial position as of March 31, 2005,
and the results of  operations  and cash flows for the three month periods ended
March 31, 2005 and 2004.

It is suggested that these financial  statements be read in conjunction with the
audited  financial  statements  and notes for the year ended  December 31, 2004,
included in the  Company's  Form 10-KSB filed with the  Securities  and Exchange
Commission.  The interim results are not  necessarily  indicative of the results
for a full year.

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION AND NATURE OF OPERATIONS

Advanced Optics Electronics,  Inc. (the "Company") and its subsidiary,  Biomoda,
Inc  (Biomoda)  are  development  stage  technology  companies.   The  Company's
principal  focus is the  development  and production of  large-scale  flat panel
displays and Biomoda's is cancer  detection and diagnostic  tests. The Company's
stock trades on the Over The Counter Bulletin Board under the symbol "ADOT." The
Company  plans to focus on  producing  and  selling the  large-scale  flat panel
displays for outdoor advertising billboards.

The  Company  is  developing  a color  recognition  optical  device and plans to
initially focus on marketing it as a color  identifier to the visually  impaired
and as a  teaching  aid for  small  children.  The  Company's  unique  and novel
conception  and  implementation  of  hardware  and  firmware   determines  color
optically  and  expresses  the  results  with vocal  responses.  The  Company is
intending to establish  marketing  arrangements  for the  distribution to retail
locations after a supply has been manufactured and inventoried.

The  Company's  research and  development  work have not  completed  the initial
product.  Completion  of the product is now expected in the latter half of 2005.
Because of the lack of  anticipated  revenues  in 2005,  the  Company  has taken
excess cash funds and invested these in what they deem to be sound investment in
Genomed  that may  produce  additional  funds and gains to the  company in 2005.
These funds and gains would then be used for additional product  development and
administrative expenses in the initial production stage of the product.

In 2002, the Company's Chief  Executive  Officer ("CEO") and the Chief Financial
Officer  ("CFO")  replaced  Biomoda's  management  team,  affecting  a change in
control.  The Company also owns  approximately  15.9% of  Biomoda's  outstanding
common  stock.  In  2003,  the  CEO  and  the CFO  each

--------------------------------------------------------------------------------
F-5

<PAGE>

--------------------------------------------------------------------------------
                        ADVANCED OPTICS ELECTRONICS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

acquired 7.27% of the outstanding  common stock of Biomoda.  On August 13, 2003,
Biomoda formed a 100% owned subsidiary known as Biomoda Holdings, Inc., a Nevada
corporation, for the purpose of research, development,  production and marketing
of medical and  biomedical  products.  As of March 31, 2005,  the Company  owned
approximately 1,132,000 or 15.9% of the 7,117,000 outstanding shares of Biomoda.
In addition,  two of the Company's officers own approximately 12%, collectively,
of Biomoda's outstanding shares. Further, the Company subleases office space and
lab equipment to Biomoda and two of the Company's  officers are also officers of
Biomoda.  The Company has been the sole source of funding to Biomoda  since 2002
through  advances  made  under  a line  of  credit  agreement.  The  Company  is
considered  the  primary  beneficiary  as it stands to absorb  the  majority  of
Biomoda's, called herein as the variable interest entity, expected losses. Since
Biomoda  and the  Company  are  considered  entities  under  common  control for
accounting purposes,  the Company measures the assets and liabilities of Biomoda
at their carrying amounts in consolidation. (Note 5)

Biomoda's  primary  focus is on early  cancer  detection  technology.  Its novel
cell-targeting   technology   is  globally   patented   for  the   detection  of
pre-cancerous  and cancerous  conditions in all human tissue.  This  technology,
based  on a  compound  called  Tetrakis  Carboxy  Phenyl  Porphine  (TCPP),  was
developed  at  St.  Mary's   hospital  in  Colorado  and  Los  Alamos   National
Laboratories.  Biomoda  obtained  a  worldwide  exclusive  license  to the  TCPP
technology  from the  University  of  California  in late  1995,  and  began new
research broadening the scope of the original patent and technology. In November
2000,  Biomoda  filed a new U.S.  provisional  patent  application  defining the
ability  of its  version  of the  TCPP to  detect  pre-cancerous  and  cancerous
conditions in all human tissue.  Biomoda began the commercialization  process by
trade marking the  technology as CyPath.  Management  expects to continue  assay
validation work and register its product with the FDA in 2005. There are several
business models,  product types and regulatory routes that Biomoda is evaluating
including: licensing, ASR, 510K, PMA and IVD kits. Biomoda is evaluating several
cancers with a focus on large markets that are in the need of the most immediate
diagnostic support. These include: lung, bladder and cervical.

PRINCIPLES OF CONSOLIDATION

The consolidated  financial  statements  include accounts of the Company and the
accounts  of  the  variable  interest  entity,   Biomoda,  Inc.  (Note  5).  All
significant  inter-company  accounts and  transactions  have been  eliminated in
consolidation.

USE OF ESTIMATES

The  preparation of the  consolidated  financial  statements in conformity  with
accounting  principles  generally  accepted  in the  United  States  of  America
("GAAP")  requires  management to make estimates and assumptions that affect the
reported  amounts of assets and  liabilities  and the  disclosure  of contingent
assets and liabilities at the date of the consolidated financial statements, and
the  reported  amounts of revenues  and expenses  during the  reporting  period.
Significant  estimates made by management are, among others,  expected losses of
the  variable  interest  entity,  valuation  of  marketable  securities  and the
valuation of other assets.  Actual  results could  materially  differ from those
estimates.

--------------------------------------------------------------------------------
F-6

<PAGE>

--------------------------------------------------------------------------------
                        ADVANCED OPTICS ELECTRONICS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

RISKS AND UNCERTAINTIES

The Company operates in a highly competitive industry that is subject to intense
competition.  The Company has no operating history and has not generated revenue
from its business  operations.  As a development stage entity, the Company faces
risks and  uncertainties  relating to its ability to successfully  implement its
business  strategy.  Among  other  things,  these  risks  include the ability to
develop and sustain revenue growth; managing expanding operations;  competition;
attracting,  retaining  and  motivating  qualified  personnel;  maintaining  and
developing new strategic relationships;  and the ability to anticipate and adapt
to the changing markets. Therefore, the Company may be subject to uncertainties,
including  financial,  operational,  technological,  regulatory  and other risks
associated with an emerging  business,  including the potential risk of business
failure.

DEVELOPMENT STAGE AND GOING CONCERN

The  Company has been in the  development  stage  since  Inception,  and has not
generated any revenues from  operations  and there is no assurance of any future
revenues.

The accompanying  consolidated  financial statements have been prepared assuming
the Company will continue as a going concern,  which  contemplates,  among other
things,  the realization of assets and satisfaction of liabilities in the normal
course of business. As of March 31, 2005, the Company has accumulated deficit of
$20,406,690.  The  Company's  total  assets  exceeded the total  liabilities  by
$2,129,246.  These  factors,  among others,  raise  substantial  doubt about the
Company's ability to continue as a going concern.

The  Company  may  require  additional  funding  for  continuing   research  and
development,   obtaining   acceptance   in  the   market   place   and  for  the
commercialization  of its product.  There can be 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.

Management  plans to  obtain  revenues  from  product  sales,  but  there are no
significant  commitments for purchases of any of the proposed  products.  In the
absence  of  significant  sales  and  profits,  the  Company  may  seek to raise
additional  funds  to  match  its  working  capital   requirements  through  the
additional sales of debt and equity  securities,  there is no assurance that the
Company will be able to obtain sufficient additional funds when needed, although
such funds,  if  available,  will be  obtainable  on terms  satisfactory  to the
Company.  The successful  outcome of future  activities  cannot be determined at
this time and there is no  assurance  that if  achieved,  the Company  will have
sufficient  funds to execute its  intended  business  plan or generate  positive
operating results.

MARKETABLE SECURITIES

The  Company   classifies   its   investments   in   marketable   securities  as
"available-for sale" in accordance with the provisions of Statement of Financial
Accounting  Standards No. 115,  "ACCOUNTING FOR CERTAIN  INVESTMENTS IN DEBT AND
EQUITY  SECURITIES"  (SFAS  115).  The  Company  does not  have any  investments
classified as "trading" or "held to maturity".

--------------------------------------------------------------------------------
F-7

<PAGE>

--------------------------------------------------------------------------------
                        ADVANCED OPTICS ELECTRONICS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

On  January 8, 2004,  the  Company  entered  into a Stock  Sale  Agreement  (the
"Agreement") with GenoMed,  Inc., a Florida corporation  ("GenoMed") whereby the
Company purchased approximately  33,300,000 shares of restricted common stock of
GenoMed for  $900,000  in cash,  representing  approximately  17.9% of the total
outstanding shares of GenoMed  immediately after the execution of the Agreement.
The Company has accounted for this investment under the cost method as it cannot
exercise  significant  influence  over the operating  and financial  policies of
GenoMed. As of March 31, 2005, these shares become free trading shares. At March
31, 2005, the Company held approximately 32,793,000 of these shares.

Following is a summary of marketable securities classified as available for sale
as of March 31, 2005:

                                       COST BASIS   FAIR VALUE  UNREALIZED GAIN
                                       -----------  ----------  ---------------
Marketable securities-Common stock    $  956,758    $1,935,050     $978,292

Available-for-sale  securities  consist of securities in GenoMed and are carried
at fair  value  with  the  unrealized  gain or  loss,  net of tax,  reported  in
accumulated other comprehensive  income. The fair value of marketable securities
was determined  based on available market  information.  During the three months
ended  March  31,  2005,  the  Company  transferred  571,409  shares  valued  at
approximately $15,000 to a consultant in exchange for services.

STOCK BASED COMPENSATION

The Company accounts for stock-based  compensation issued to employees using the
intrinsic  value based  method as  prescribed  by  Accounting  Principles  Board
Opinion No. 25 ("APB 25"), "ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES." Under the
intrinsic value based method, compensation expense is the excess, if any, of the
fair  value of the stock at the grant  date or other  measurement  date over the
amount an employee must pay to acquire the stock.  Compensation expense, if any,
is recognized over the applicable  service period,  which is usually the vesting
period.

SFAS 123, "ACCOUNTING FOR STOCK-BASED  COMPENSATION," if fully adopted,  changes
the method of accounting for employee stock-based compensation plans to the fair
value based method.  For stock  options and  warrants,  fair value is determined
using an option  pricing  model that takes into  account  the stock price at the
grant date,  the exercise  price,  the  expected  life of the option or warrant,
stock  volatility  and the  annual  rate of  quarterly  dividends.  Compensation
expense,  if any, is recognized  over the applicable  service  period,  which is
usually the vesting period.

The  adoption of the  accounting  methodology  of SFAS 123 is  optional  and the
Company has elected to continue  accounting for stock-based  compensation issued
to  employees  using APB 25;  however,  pro forma  disclosures,  as the  Company
adopted the cost  recognition  requirement  under SFAS 123,  are  required to be
presented (see below). For stock-based compensation issued to non-employees, the
Company uses the fair value method of  accounting  under the  provisions of SFAS
123.

FASB  Interpretation  No. 44 ("FIN 44"),  "ACCOUNTING  FOR CERTAIN  TRANSACTIONS
INVOLVING  STOCK  COMPENSATION,  AN  INTERPRETATION  OF APB  25"  clarifies  the
application of APB 25 for (a) the definition of

--------------------------------------------------------------------------------
F-8

<PAGE>

--------------------------------------------------------------------------------
                        ADVANCED OPTICS ELECTRONICS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

employee  for  purpose of  applying  APB 25, (b) the  criteria  for  determining
whether  a  plan  qualifies  as a non  compensatory  plan,  (c)  the  accounting
consequence for various  modifications  to the terms of a previously fixed stock
option or award and (d) the  accounting  for an exchange  of stock  compensation
awards in a business combination.  Management believes that the Company accounts
for transactions involving stock compensation in accordance with FIN 44.

SFAS 148, "ACCOUNTING FOR STOCK-BASED  COMPENSATION - TRANSITION AND DISCLOSURE,
AN  AMENDMENT  OF FASB  STATEMENT  NO.  123,"  provides  alternative  methods of
transition  for a voluntary  change to the fair value based method of accounting
for stock-based employee  compensation.  In addition,  this statement amends the
disclosure  requirements  of SFAS 123 to require  prominent  disclosures in both
annual and  interim  financial  statements  about the method of  accounting  for
stock-based employee  compensation and the effect of the method used on reported
results.

At March 31, 2005, the Company has one stock-based  employee  compensation  plan
(the "Plan"), which is described more fully in Note 11. The Company accounts for
the Plan under the recognition and measurement principles of APB 25, and related
interpretation.  No  stock-based  compensation  cost is  recognized in net loss.
Stock options  granted  under the Plan have exercise  prices equal to the market
value of the underlying common stock on the dates of grant.

The Company did not grant any option  during the three month periods ended March
31, 2005 and 2004.

COMPREHENSIVE INCOME

The  Company  reports  comprehensive  income in  accordance  with SFAS No.  130,
"REPORTING  COMPREHENSIVE  INCOME."  SFAS  130  establishes  standards  for  the
reporting and display of comprehensive  income and its components.  SFAS No. 130
requires  unrealized  holding gains and losses,  net of related tax effects,  on
available  for sale  securities  to be included in  comprehensive  income  until
realized.

REPORTING SEGMENTS

Statement of financial accounting standards No. 131, "DISCLOSURES ABOUT SEGMENTS
OF AN  ENTERPRISE  AND RELATED  INFORMATION"  (SFAS No. 131),  which  superseded
statement of financial  accounting  standards  No. 14,  Financial  reporting for
segments of a business enterprise, establishes standards for the way that public
enterprises  report  information  about operating  segments in annual  financial
statements  and  requires  reporting  of selected  information  about  operating
segments  in interim  financial  statements  regarding  products  and  services,
geographic areas and major customers. SFAS No. 131 defines operating segments as
components  of an  enterprise  about which  separate  financial  information  is
available that is evaluated  regularly by the chief operating  decision maker in
deciding how to allocate  resources and in assessing  performances.  The Company
allocates resources and assesses the performance based upon information from two
reporting units, (1) ADOT and (2) Biomoda, Inc.

In January 2003, the FASB issued FIN No. 46, "CONSOLIDATION OF VARIABLE INTEREST
ENTITIES, AN INTERPRETATION OF ARB 51." The primary objectives of FIN No. 46 are
to provide  guidance  on the  identification  of entities  for which  control is
achieved through means other than voting rights (variable  interest  entities or
"VIEs")  and  how  to  determine  when  and  which  business  enterprise  should
consolidate

--------------------------------------------------------------------------------
F-9

<PAGE>

--------------------------------------------------------------------------------
                        ADVANCED OPTICS ELECTRONICS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

the VIE. This new model for consolidation applies to an entity for which either:
(1) the equity investors do not have a controlling  financial  interest;  or (2)
the  equity  investment  at  risk  is  insufficient  to  finance  that  entity's
activities  without  receiving  additional  subordinated  financial support from
other  parties.  In  addition,  FIN  No.  46  requires  that  both  the  primary
beneficiary and all other enterprises with a significant  variable interest in a
VIE make  additional  disclosures.  As amended in December  2003,  the effective
dates of FIN No. 46 for public  entities  that are small  business  issuers,  as
defined ("SBIs"), are as follows: (a) For interests in special-purpose entities:
periods  ended after  December  15,  2003;  and (b) For all other VIEs:  periods
ending after  December 15, 2004.  The December 2003 amendment of FIN No. 46 also
includes  transition  provisions that govern how an SBI which previously adopted
the  pronouncement  (as it was originally  issued) must account for consolidated
VIEs.

As disclosed in Note 3, the Company is associated with Biomoda, Inc. because two
officers  of the Company  also serve as  officers  of Biomoda and other  factors
discussed in FIN No. 46R, the Company has complied  with the  pronouncement  and
consolidated the two Company's financial  statements.  See note 6 for the impact
of adoption of the standard.

2. RECENT PRONOUNCEMENTS

In December 2004, the FASB issued FASB Statement No. 123R, "Share-Based Payment,
an Amendment of FASB Statement No. 123" ("FAS No. 123R").  FAS No. 123R requires
companies to recognize in the statement of operations the grant- date fair value
of stock options and other equity-based  compensation  issued to employees.  FAS
No. 123R is effective  beginning in the Company's second quarter of fiscal 2006.
The Company is  evaluating  the  effects  adoption of SFAS 123R will have on its
financial statements.

In December  2004,  the FASB  issued  SFAS  Statement  No.  153,  "Exchanges  of
Nonmonetary  Assets."  The  Statement  is an  amendment of APB Opinion No. 29 to
eliminate the exception for nonmonetary  exchanges of similar  productive assets
and replaces it with a general  exception  for exchanges of  nonmonetary  assets
that do not have  commercial  substance.  The Company is evaluating  the effects
adoption of SFAS 123R will have on its financial statements.

In March 2004, the Emerging  Issues Task Force  ("EITF")  reached a consensus on
Issue  No.  03-1,  "The  Meaning  of  Other-Than-Temporary  Impairment  and  its
Application  to Certain  Investments."  The EITF  reached a consensus  about the
criteria  that should be used to  determine  when an  investment  is  considered
impaired,  whether that impairment is other-than-temporary,  and the measurement
of an  impairment  loss and how that criteria  should be applied to  investments
accounted for under SFAS No. 115, "ACCOUNTING IN CERTAIN INVESTMENTS IN DEBT AND
EQUITY   SECURITIES."  EITF  03-01  also  included   accounting   considerations
subsequent to the recognition of another-than-temporary  impairment and requires
certain  disclosures  about  unrealized  losses that have not been recognized as
other-than-temporary   impairments.   Additionally,   EITF  03-01  includes  new
disclosure  requirements  for  investments  that are  deemed  to be  temporarily
impaired.  In September  2004, the Financial  Accounting  Standards Board (FASB)
delayed  the  accounting  provisions  of  EITF  03-01;  however  the  disclosure
requirements remain effective for annual reports ending after June 15, 2004. The
Company will evaluate the impact of EITF 03-01 once final guidance is issued.

--------------------------------------------------------------------------------
F-10

<PAGE>

--------------------------------------------------------------------------------
                        ADVANCED OPTICS ELECTRONICS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

3. PATENTS

Biomoda has entered into license agreements with a major university and national
laboratory to obtain rights for the purpose of  developing,  manufacturing,  and
selling products using its patented technologies.  Under such agreement, Biomoda
will pay  royalties  at  varying  rates  based upon the level of  revenues  from
licensed  products.  The  agreement  continues as long as any  licensed  patents
remain in force.  Biomoda has not incurred any royalty expense during the period
from January 3, 1990 (inception) to March 31, 2005.  Biomoda also pays an annual
fee in the amount of $15,000 to renew such  license  agreement.  As of March 31,
2005, Biomoda was in full compliance with the provisions of this agreement.

4. NOTES RECEIVABLE

Notes Receivable consists of the following at March 31, 2005

Notes receivable bearing a 7% and will mature on March 2005              $27,233
Notes receivable bearing a 6.5% and will mature on December 2005         $24,504
        Total                                                            $51,737
                                                                         =======

5. VARIABLE INTEREST ENTITY-BIOMODA, INC.

At March 31, 2005,  the Company  owned  approximately  1,132,000 or 15.9% of the
7,117,000 outstanding shares of Biomoda,  Inc. ("Biomoda"),  a development stage
company  involved in the  development of technology  for the early  detection of
lung cancer. In addition,  two of the Company's  officers own approximately 12%,
collectively,  of Biomoda's  outstanding shares.  Further, the Company subleases
office space and lab equipment to Biomoda and two of the Company's  officers are
also  officers  of  Biomoda.  Finally,  the  Company has been the sole source of
funding  to  Biomoda  since 2002  through  advances  made under a line of credit
agreement.  Such advances totaled  $1,063,137 at March 31, 2005 and has recorded
interest  income on advances of $52,914.  These amounts have been  eliminated in
consolidation. The Company is considered the primary beneficiary as it stands to
absorb the majority of the VIE's expected losses.  Since Biomoda and the Company
are considered  entities under common control,  the Company  measures the assets
and liabilities of Biomoda at their carrying amounts in consolidation.

As of March 31, 2005, the Company has consolidated  Biomoda's  balance sheet and
its results of the  operations  for the quarter  then ended in the  accompanying
financial  statements.  Biomoda has a  stockholders'  deficit at March 31, 2005.
General  creditors  of  Biomoda  have no  recourse  against  the  Company.  From
inception through March 31, 2005, Biomoda has generated no revenues

In 2005,  Biomoda  anticipates  being  able to raise its own funds in the public
equity market. In this case,  Biomoda may be able to sustain its own operations,
repay its  obligation to the Company,  and hire its own officers.  In such case,
the Company may no longer be considered the primary  beneficiary and the results
of Biomoda may be deconsolidated. There can be no assurance that Biomoda will be
able to raise sufficient funds to repay its obligation to the Company and become
self-sustaining in its operations.

--------------------------------------------------------------------------------
F-11

<PAGE>

--------------------------------------------------------------------------------
                        ADVANCED OPTICS ELECTRONICS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

6. RELATED PARTY TRANSACTIONS

NOTES RECEIVABLE - OFFICER

As of March 31,  2005 and 2004,  the  Company  has net  advances  to an  officer
approximating  $67,300. The advances accrue interest at rates ranging from 5% to
6% (interest income was  insignificant  for the quarter ended March 31, 2005 and
2004) and are due on demand.  As these notes receivable are with the shareholder
and a Company officer, the Company has classified these amounts as a decrease to
stockholders' equity at March 31, 2005.

ADVANCES FROM OFFICER

As of March 31, 2005, the Company has advances from officer of $69,710.  This is
due on demand and non interest  bearing.  The Company  paid  $25,000  during the
quarter ended March 31, 2005.

ADVANCES FROM STOCKHOLDERS

As of March 31, 2005, the Company had advances of approximately $135,000 payable
to two of its stockholders.  Such advances historically bore interest at 10% per
annum.  No interest  expense related to such advances for the three month period
ended March 31, 2004 was recorded. Interest expense was approximately $3,400 and
$124,000 for the three month period ended March 31, 2005 and for the period from
inception through March 31, 2005, respectively.

7. CONVERTIBLE DEBENTURES

On September 15, 2000, the Company entered into an agreement to issue a total of
$10,000,000 in convertible debentures which bear interest at an annual rate of 8
percent.   The  Company  authorized  the  initial  sale  of  $2,000,000  of  the
convertible  debentures,  and entered into a structured facility with purchasers
(the  "Purchasers")  in which the Purchasers  shall be obligated to purchase the
remaining  $8,000,000 of convertible  debentures at certain obligation dates, as
defined.  The Company's  right to require the Purchasers to purchase  debentures
commences on the actual  effective  date of the  registration  of the  Company's
securities in an amount equal to the securities  that would be convertible  upon
issuance of the debentures.  The related  agreement  provides for a limit on the
amount of obligation  debentures  that the Company may require the Purchasers to
purchase in a given month.

On September 15, 2000, the Company issued $500,000 of the initial  $2,000,000 in
unsecured convertible  debentures discussed above.  Effective as of the issuance
date, the debentures are  convertible  into shares of common stock at the lesser
of a 25 percent  discount to the average of the three lowest  closing bid prices
during  the  thirty  trading  days prior to the issue date of this note and a 20
percent  discount to the average of the three lowest  closing bid prices for the
ninety  trading days prior to the  conversion  date, as defined.  The debentures
were issued in exchange  for  $430,000 in cash,  $20,000 in legal  services  and
$50,000  in  commissions.   The  commissions   have  been  capitalized  as  debt
origination  costs and are being amortized to interest  expense over the life of
the  debentures.  The  embedded  intrinsic  value of the  beneficial  conversion
feature  was  estimated  to be  approximately  $239,000,  which was  immediately
charged to interest expense. The convertible  debentures also include detachable
warrants

--------------------------------------------------------------------------------
F-12

<PAGE>

--------------------------------------------------------------------------------
                        ADVANCED OPTICS ELECTRONICS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

for the purchase of 500,000 shares of common stock at an exercise price of $0.38
per share, which vested upon grant and expire in September 2005.  Management has
estimated the fair market value of these warrants at $25,000 (based on the Black
Scholes  pricing  model  pursuant  to SFAS 123 and EITF  00-27) and  immediately
charged such  amounts to interest  expense.  During the year ended  December 31,
2003, the Company settled  amounts owed and in connection with such  settlement,
the Company recorded a gain on extinguishment of approximately $40,000, which is
included in the accompanying statement of operations.

On November  7, 2000,  the  Company  entered  into an  agreement  that  modified
outstanding convertible preferred agreements.  The new agreement resulted in the
exchange of  outstanding  preferred  stock for the  Company's  7.5%  convertible
debentures  and  other  consideration.  The  total  amount  of  the  convertible
debentures approximated $741,000,  including $31,000 of interest. The debentures
are convertible into shares of common stock at the lesser of the stock's closing
price on March 8, 2000 and 77.5% of the average of the five  lowest  closing bid
prices  for 20  days  before  November  2,  2000.  The  intrinsic  value  of the
conversion  feature  was  estimated  to be  approximately  $228,000,  which  was
immediately  charged  to  expense.  The  convertible   debentures  also  include
detachable warrants for the purchase of 71,000 shares of common stock, the value
of which was insignificant.  The principal balance of the convertible debentures
at March 31, 2005 amounts to $80,093.

During 2001, the Company issued convertible  debentures  totaling $500,000.  The
debentures are  convertible  into shares of common stock at the lesser of (i) 75
percent of the average of the three lowest closing bid prices for 30 days before
August 30 and  November  19, 2001 or (ii) 80% of the average of the three lowest
closing  bids  during the 90 days prior to the  conversion  date.  The  embedded
intrinsic  value  of the  beneficial  conversion  feature  was  estimated  to be
$143,875 and  immediately  charged to interest  expense.  These  debentures were
retired in 2004.

8. STOCKHOLDERS' EQUITY

COMMON STOCK

During the three  months ended March 31, 2005,  the Company  issued  344,000,000
shares of common stock for cash, which were valued at approximately $430,000.

During the quarter ended March 31, 2005, the Company issued 21,000,000 shares of
common stock for its convertible debentures. Conversion price per share shall be
the lesser of 75% of the average of the three lowest  closing bid prices  during
the 30 trading days prior to but not including the issue date of the  debentures
and 80% of the  average of the three  lowest  closing  bid prices  during the 90
trading days  immediately  prior to but not including the conversion date, which
is  approximately  $0.01 per share.  These  shares were valued at  approximately
$31,000.

During the quarter ended March 31, 2004, the Company sold  39,800,000  shares of
common  stock for  approximately  $455,000  in cash or  approximately  $0.01 per
share.

During the quarter ended March 31, 2004, the Company issued 19,800,000 shares of
common stock for services, which were valued at approximately $210,000 (based on
the closing  market  price on the date of grant,  which  approximated  $0.01 per
share).  The Company  recorded  such  amounts in the  accompanying

--------------------------------------------------------------------------------
F-13

<PAGE>

--------------------------------------------------------------------------------
                        ADVANCED OPTICS ELECTRONICS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

statement of operations.

During the quarter  ended March 31,  2004,  in  accordance  with the  applicable
convertible  debentures  agreement,  the Company  issued  103,000,000  shares of
common  stock at  conversion  prices of less than $0.01 in  connection  with the
conversion  of notes payable  approximating  $505,000,  including  approximately
$160,000 of accrued interest.

STOCK OPTIONS

On January 4, 1999, the Company established the Incentive Stock Option Plan (the
"Plan").  Pursuant to the Plan, up to 10,000,000  shares of the Company's common
stock may be granted as options to key employees  with exercise  prices at least
equal to the fair market value on the date of grant.  The exercise  dates of the
options  are  based  on the  related  agreement,  as  approved  by the  Board of
Directors.  The Plan expires on January 4, 2009.  Options awarded under the Plan
mature four years from the date of grant and vest  ratably  over one to two year
periods.

The following is a status of the stock options  outstanding  for the three month
periods ended March 31, 2005 and 2004

<TABLE>
<CAPTION>
                                          Three Month Ended      Three Month Ended
                                               March 31,            March 31,
                                                2005                  2004
                                        --------------------  --------------------
                                                    Weighted              Weighted
                                                    Average               Average
                                         Options     Price     Options     Price
                                        ---------    -----    ---------    -----
<S>                                     <C>          <C>      <C>          <C>
Outstanding, beginning of year            400,000    $0.02    3,175,000    $0.23
Granted                                        --       --           --       --
Exercised                                      --       --           --       --
Cancelled/Terminated                           --       --           --       --
                                        ---------    -----    ---------    -----
Outstanding and exercisable               400,000    $0.02    3,175,000    $0.23
                                        =========    =====    =========    =====
Weighted average fair value of options
granted                                                                    =====
</TABLE>

--------------------------------------------------------------------------------
F-14

<PAGE>

--------------------------------------------------------------------------------
                        ADVANCED OPTICS ELECTRONICS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

The following table summarizes  information related to stock options outstanding
at March 31, 2005:

<TABLE>
<CAPTION>
                            Options Outstanding                        Options Exercisable
                 --------------------------------------------      --------------------------
                                 Weighted
                                  Average           Weighted                         Weighted
                                 Remaining          Average                           Average
                                Contractual         Exercise                         Exercise
Exercise Price   Number        Life (Years)          Price          Number             Price
---------------------------------------------------------------------------------------------
<S>              <C>               <C>             <C>             <C>               <C>
    $0.02        400,000           1.04            $  0.02         400,000           $  0.02
                 -------                           -------         -------           -------
</TABLE>

There were no stock  options  granted  during the three month periods ended 2005
and 2004.

WARRANTS

From time to time, the Company issues warrants to employees and to third parties
pursuant to various agreements.

In January 2002, the Company issued  warrants to purchase  300,000 shares of the
Company's  common stock to two directors.  The exercise price of the warrants is
$0.02 per share (the fair market value of the Company's common stock on the date
of grant) and vested  immediately.  The warrants expire five years from the date
of issuance.

--------------------------------------------------------------------------------
F-15

<PAGE>

--------------------------------------------------------------------------------
                        ADVANCED OPTICS ELECTRONICS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

The following  represents a summary of warrants  outstanding for the three month
periods ended March 31, 2005 and 2004:

<TABLE>
<CAPTION>
                                     Three Month Ended           Three Month Ended
                                         March 31,                   March 31,
                                           2005                        2004
                                --------------------------   --------------------------
                                               Weighted                      Weighted
                                 Warrants    Average Price    Warrants    Average Price
                                -------------------------------------------------------
<S>                              <C>             <C>          <C>             <C>
Outstanding, beginning of year   4,796,000       $0.10        8,646,000       $0.09
Granted                                 --          --               --          --
Exercised                               --          --               --          --
Cancelled/Terminated               (55,000)       1.62               --          --
                                ----------       -----       ----------       -----
Outstanding and exercisable      4,741,000       $0.10        8,646,000       $0.09
                                ==========       =====       ==========       =====
Weighted average fair value
of warrants granted                                                           =====
</TABLE>

The following table summarizes  information  related to warrants  outstanding at
March 31, 2005:

<TABLE>
<CAPTION>
                                 Warrants Outstanding                         Warrants Exercisable
                      -------------------------------------------         ---------------------------
                                      Weighted
                                       Average           Weighted                           Weighted
                                      Remaining          Average                             Average
                                     Contractual         Exercise                           Exercise
  Exercise Price      Number        Life (Years)          Price            Number            Price
-----------------------------------------------------------------------------------------------------
<S>                    <C>              <C>              <C>              <C>               <C>
      $0.02            3,250,000        0.79             $  0.02          3,250,000         $  0.02
  $0.34 - $0.43        1,491,000        1.97                0.22          1,491,000            0.22
                       ---------                         -------          ---------         -------
                       4,741,000                         $  0.10          4,741,000         $  0.10
-----------------------------------------------------------------------------------------------------
</TABLE>

There were no warrants  issued  during the three month  periods  ended March 31,
2004 and 2005.

--------------------------------------------------------------------------------
F-16

<PAGE>

--------------------------------------------------------------------------------
                        ADVANCED OPTICS ELECTRONICS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

9. SEGMENTS AND MAJOR CUSTOMERS

The Company has two reportable  segments consisting of (1) producing and selling
large-scale flat panel displays for outdoor advertising billboards and its color
identifier for the vision impared;  (2) early cancer detection  technology.  The
accounting  policies  of the  segments  are the same as those  described  in the
summary of significant accounting policies.

The  following is  information  for the  Company's  reportable  segments for the
quarter ended March 31 (in thousands):

<TABLE>
<CAPTION>
                                    2005                                             2004
                        ADOT      Biomoda   Unallocated   Total       ADOT     Biomoda   Unallocated   Total
                       -------------------------------------------------------------------------------------
<S>                    <C>        <C>        <C>         <C>        <C>        <C>        <C>         <C>
Revenue                $   --     $   --     $    --     $   --     $   --     $   --     $    --     $   --
Loss on Operations        499         85          --        584        824        201          --      1,025
Depreciation
    and amortization        8          4          --         12         11          3          --         14
Interest expense           --          6          --          6         10         --          --         10
Capital expenditure         4         31          --         35          6         31          --         37
Net Loss               $  490     $   92     $    --     $  582     $  816     $  201     $    --     $1,017
</TABLE>

10. EARNINGS PER SHARE

Earnings per share for the quarter ended March 31, 2005 and 2004 were determined
by dividing  net income for the periods by the weighted  average  number of both
basic  and  diluted  shares  of  common  stock  and  common  stock   equivalents
outstanding.  Stocks to be issued are regarded as common stock  equivalents  and
are considered in diluted earnings per share calculations.

--------------------------------------------------------------------------------
F-17

<PAGE>



                 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OR
                               PLAN OF OPERATIONS

FORWARD - LOOKING STATEMENTS

This Quarterly  Report contains  forward-looking  statements about the business,
financial  condition and prospects of the Company that reflect  assumptions made
by management and management's beliefs based on information  currently available
to it. The Company can give no assurance that the expectations indicated by such
forward-looking  statements will be realized. If any of management's assumptions
should prove incorrect, or if any of the risks and uncertainties underlying such
expectations  should  materialize,  the  Company's  actual  results  may  differ
materially from those indicated by the forward-looking statements.

The key factors  that are not within the  Company's  control and that may have a
direct  bearing  on  operating  results  include,  but are not  limited  to, the
acceptance by customers of the  Company's  products,  the  Company's  ability to
develop  new  products  cost-effectively,  the  ability of the  Company to raise
capital in the future, the development by competitors of products using improved
or alternative  technology,  the retention of key employees and general economic
conditions.

There may be other risks and circumstances that management is unable to predict.
When  used in this  Quarterly  Report,  words  such as,  "believes,"  "expects,"
"intends,"  "plans,"  "anticipates"  "estimates"  and  similar  expressions  are
intended to identify forward-looking  statements,  although there may be certain
forward-looking   statements   not   accompanied   by  such   expressions.   All
forward-looking statements are intended to be covered by the safe harbor created
by Section 27A of the  Securities  Act of 1933, as amended and by Section 21E of
the Securities Exchange Act of 1934, as amended.

                                    OVERVIEW

GENERAL

Advanced  Optics  Electronics,  Inc.  (the  "Company",  "us",  "we",  or "ADOT")
(ADOT-OTC BB) is a technology  company  based in  Albuquerque,  New Mexico.  Its
primary  focus  is the  development,  production  and  sales  of its  novel  and
innovative  electronic  flat panel  displays.  We maintain an R&D  facility  and
manufacturing plant, and are engaged in building large-scale flat panel displays
utilizing  its  patented  technology.   We  are  currently  investigating  other
applications  of this core technology and different  products  related to optics
and image recognition and analysis.

The Company was organized as a Nevada  corporation  on May 22, 1996. On November
7, 1996,  the Company  acquired the  business and patents of PLZTech,  a company
involved in the development of flat panel displays.

                                       2
<PAGE>

The  Company's  principal  offices are located at 8301  Washington  NE, Suite 5,
Albuquerque, New Mexico 87113, and its telephone number is (505) 797-7878.

COMPANY OVERVIEW

We are a developmental  stage  technology  company with our primary focus on the
development,  production and sales of our large-scale flat panel displays, which
utilize our patented  technology.  We are  currently  continuing  our  research,
development,  prototyping,  and manufacturing of our products and the underlying
technology.  We are in the process of making the transition from a developmental
stage  company to producing  and selling our product  line.  We plan to focus on
producing  and  selling  our  large-scale  flat panel  displays  for the outdoor
advertising  billboard  industry.  In  addition,  there  are other  markets  and
applications that represent  opportunities  for additional  sources of business,
and we are  beginning  to  explore  these  markets  and  applications,  such  as
e-cinema, lighting sources, stadium and sports applications and systems, control
and status monitoring.

Our goal is to create a product line based on  technology  that is scalable both
in terms of size and resolution to meet a wide range of requirements  related to
site,  economics and use from our potential  customers.  We are also planning to
develop a leasing program and an Owned & Operated group.

THE MAJOR ADVANTAGES AND FEATURES OF THE DISPLAY ARE:

     o    Brightest display ever available (35,000 nits)

     o    Widest viewing angle available

     o    Smallest dot pitch  available for outdoor  large-scale  displays (8 mm
          dot pitch)

     o    High definition picture quality

     o    Modular  assembly (1 meter  increments)  for  scaleable  and shapeable
          architectures

     o    True Color (24 bit)

     o    Full motion video (up to 120 frames per second)

     o    Transportable for mobile operations

     o    Weather resistant for outdoor applications

     o    Modest power requirements

     o    Minimum 5 year continual use lifetime

     o    Real-time live video feeds

     o    Broadcast/simulcast applications

     o    Supports streaming video

     o    Uses  industry  standard  DVI protocol for high speed data linking and
          digital video interfacing

     o    Satellite linkable

PROPRIETARY BILLBOARD SOFTWARE CAPABILITIES ARE:

     o    Manage and update display content remotely

     o    Works with all image file formats and digital video editors

     o    Secure Internet or WAN  communications

     o    WEB-based  status  monitoring

     o    Provides time, temperature and other dynamic content inserts

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Our  operating  activities  have related  primarily to the initial  planning and
development  of our product and building our operating  infrastructure.  We have
completed,  tested,  and  measured the  performance  of, our  prototype  and are
currently in the  manufacturing  process of our  production  model.  The initial
production  model is scheduled to be  completed in the  third/fourth  quarter of
2005.

We expect  our  principal  source of  revenue  to be  derived  from sales of our
electronic display product.  To date we have not recognized any revenue,  but we
have developed a functioning prototype and we anticipate sales by the end of the
last  quarter of 2005.  The  Company has set the price for its units at $395,000
and $1,490,000  respectively for its 2 meter x 3 meter and its 3 meter x 8 meter
flat panel displays.

The Company has made research and  development  progress in the first quarter of
2005 but has not  completed  the initial  product as expected  due to  technical
hurdles.  Completion  of the  product  is now  expected  in the  third to fourth
quarter  of 2005.  Because  of the lack of  anticipated  revenues  in 2004,  the
Company has taken excess cash funds and  invested  these in what they deem to be
sound investments that may produce  additional funds and gains to the Company in
2005 and 2006.  These funds and gains would then be used for additional  product
development and  administrative  expenses in the initial production stage of the
product.  These  investments  include  marketable  securities of other companies
including the bio-medical companies Biomoda and Genomed.

Advanced  Optics  Electronics,  Inc.  completed  filing for its  initial  patent
relating to its hand held color check  device  known as  COLOR-CHEK.  The patent
covers the Company's unique and novel conception and  implementation of hardware
and firmware  system for  determining  the color  optically and  expressing  the
result with vocal  responses.  This invention will initially  benefit the vision
impaired.  ADOT is also developing a color coding kit to enhance the color check
capabilities of a broader application of the color spectrum. Pricing is targeted
in the $70-85  range.  The Company is currently in the  development  stages of a
second iteration prototype.  The first prototype, of which five were made, was a
success  from  a  proof-of-performance   standpoint.   This  next  version  will
incorporate a number of refinements  and  improvements  in software and hardware
components and incorporate an initial design of the casing..

Our operating expenses have increased significantly since our inception. This is
due to increased  engineering and management  staff and investments in operating
infrastructure.  Since our inception we have incurred significant losses and, as
of March 31, 2005, had a deficit  accumulated  during the  development  stage of
$20,416,812.

In the fourth  quarter of 2004, it was determined  that the Company  consolidate
the financials of Biomoda. This was in response to a new pronouncement FIN 46.

RESULTS OF OPERATIONS

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Due  to  our  limited  operating  history,  we  believe  that   period-to-period
comparisons of our results of operations are not fully meaningful and should not
be relied upon as an indication of future performance.

COMPARISON OF THE THREE-MONTH PERIODS ENDED MARCH 31, 2005 AND 2004

RESEARCH AND DEVELOPMENT. Research and development expenses consist primarily of
personnel  expenses and consulting  fees  associated  with the  development  and
enhancement of our flat panel  displays.  These expenses  decreased to $8,720 in
the first  quarter of 2005 from  $239,342 in the same period of 2004.  Continued
investment  in product  development  is  critical  to  attaining  our  strategic
objectives  and, as such,  we expect  product  development  expenses to increase
significantly in future periods.  We expense product  development  costs as they
are incurred.

GENERAL AND  ADMINISTRATIVE  AND PAYROLL.  General and  administrative  expenses
consist of expenses  for  facilities,  professional  services,  travel,  general
corporate  activities,  and  depreciation  and  amortization  of  equipment  and
leasehold  improvements.  General and administrative and payroll costs decreased
to  approximately  $283,000  in the first  quarter of 2005 from  $526,000 in the
first quarter of 2004. We expect general and administrative costs to increase in
the future as our business prospects develop and we will require more staff. The
costs  associated  with being a publicly  traded  company and  potential  future
strategic  acquisitions will also be a contributing  factor to increases in this
expense.

LIQUIDITY AND CAPITAL RESOURCES

Since  inception,  we have funded our operations  primarily  through the private
placement of equity securities and the issuance of convertible debentures. As of
March 31, 2005, we have raised such net proceeds of approximately $21,662,000.

The cash balance at the end of the quarter of $350,667  represents  an estimated
three months of future cash operating expenses.

We have also utilized  equipment loans and capital lease financing.  As of March
31, 2005 the only debt financing is a Convertible  debenture in the  approximate
amount of $80,000  (including accrued interest) that we intend to pay off in its
entirety in 2005.

The  Company's  holding in  Biomoda,  Inc  ("Biomoda")  may  provide  additional
liquidity.  Biomoda is a biomedical  development  company.  The Company's direct
ownership of Biomoda, as of March 31, 2005 was approximately 15.9%. Two officers
of ADOT  are  also  securities  holders  of  Biomoda  in  addition  to the  ADOT
ownership.  Biomoda filed an SB-2 registration statement with the Securities and
Exchange  Commission,  which was declared  effective  February 11, 2003 offering
6,000,000 shares at $3.00 per share (for an aggregate  offering of $18,000,000).
It is  anticipated  that a  public  market  for  Biomoda's  securities  will  be
established in 2005 at the revised price.  Because a market for Biomoda's shares
has not been established, the potential value of the Company's investment cannot
be measured. Consequently, there can be no assurance that if the Company were to
sell such  investment that it would be able to on terms favorable to the Company
or for the initial offering price. Factors such as dilution, blockage and a lack
of a market may be encountered.

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The  Company's  relationship  to its  investment in Biomoda  changed  during the
second quarter of 2002. There is now an active  leadership role in Biomoda being
provided  by John  Cousins  and Leslie  Robins,  officers  of the  Company.  The
consolidated financial statements include the accounts of Biomoda and its wholly
owned subsidiary,  Biomoda Holdings, Inc. All significant inter-company accounts
and transactions have been eliminated in consolidation.

During the three months ended March 31, 2005, approximately $4,000 was spent for
the purchase of computers and software.  Research and  development  expenditures
were approximately  $277,000 in the first quarter of 2005. Funds for operations,
research and development and capital expenditures were provided from the sale of
securities and cash reserves.

During the first  quarter of 2004,  we purchased  33,300,000  restricted  shares
under Rule 144 of Genomed,  Inc., which represented  approximately  17.9% of the
outstanding  shares of Genomed at that time. At March 31, 2005, the Company held
33,292,821 shares.

 The  Company  has  accounted  for this  investment  under the cost method as it
cannot exercise significant  influence over the operating and financial policies
of GenoMed.  As of March 31, 2005,  these shares become free trading shares.  At
March 31, 2005, the Company held approximately 32,793,000 of these shares.

Available-for-sale  securities  consist of securities in GenoMed and are carried
at fair  value  with  the  unrealized  gain or  loss,  net of tax,  reported  in
accumulated other comprehensive  income. The fair value of marketable securities
was determined  based on available market  information.  During the three months
ended  March  31,  2005,  the  Company  transferred  571,409  shares  valued  at
approximately $15,000 to a consultant in exchange for services.

Management  believes that sales of  securities,  cash  reserves and  anticipated
contract revenue will provide adequate  liquidity and capital  resources to meet
the anticipated  development  stage  requirements  through the end of the fourth
quarter 2005. At that time it is  anticipated  that sales of flat panel displays
will begin and contribute to operating  revenues.  It is anticipated  that these
sales will provide the additional capital resources to fund the  proportionately
higher working  capital  requirements of production and sales  initiatives.  The
Company currently has no other significant  commitments for capital expenditures
in 2005.

INFLATION

Management  believes  that  inflation  has  not  had a  material  effect  on the
Company's results of operations.

                         ITEM 3. CONTROLS AND PROCEDURES

EVALUATION OF CONTROLS AND PROCEDURES

Under the supervision and with the  participation  of our management,  including
our Chief  Executive  Officer ("CEO") and Chief Financial  Officer  ("CFO"),  we
evaluated  the  effectiveness  of

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the design and operation of our  disclosure  controls and procedures (as defined
in  Rule  13a-15(e)  and  15d-15(e)  of  the  Exchange  Act  as of a  date  (the
"Evaluation  Date") within 90 days prior to filing the Company's  March 31, 2005
Form 10-QSB.  Based upon that evaluation,  the CEO and CFO concluded that, as of
March 31, 2005, the Company's disclosure controls and procedures were of limited
effectiveness.

CHANGES IN CONTROLS AND PROCEDURES

There were no significant  changes made in our internal  controls over financial
reporting during the quarter ended March 31, 2005 that have materially  affected
or are  reasonably  likely to  materially  affect these  controls.  The Company,
however,  is evaluating  changes to its existing  controls or adding controls to
improve the design effectiveness of its system.

LIMITATIONS ON THE EFFECTIVENESS OF INTERNAL CONTROL

The Company's management, including the CEO, does not expect that our disclosure
controls and procedures or our internal  control over  financial  reporting will
necessarily  prevent all fraud and material errors.  An internal control system,
no matter how well  conceived and  operated,  can provide only  reasonable,  not
absolute,  assurance that the objectives of the control system are met. Further,
the design of a control  system must  reflect  the fact that there are  resource
constraints,  and the benefits of controls must be considered  relative to their
costs.  Because of the inherent  limitations on all internal control systems, no
evaluation of controls can provide  absolute  assurance  that all control issues
and instances of fraud,  if any,  within the Company have been  detected.  These
inherent limitations include the realities that judgments in decision-making can
be faulty,  and that  breakdowns  can occur  because of simple error or mistake.
Additionally,  controls  can be  circumvented  by the  individual  acts  of some
persons,  by collusion of two or more people,  and/or by management  override of
the control.  The design of any system of internal control is also based in part
upon certain assumptions about the likelihood of future events, and there can be
no assurance  that any design will  succeed in achieving  its stated goals under
all  potential  future  conditions.  Over time,  controls may become  inadequate
because of changes in  circumstances,  and/or the degree of compliance  with the
policies and procedures may deteriorate.

                           PART II. OTHER INFORMATION

Item 1.  Legal proceedings

The Company may on occasion be a party to litigation involving claims made by or
against the company arising in the ordinary course of business. The officers and
directors know of no legal  proceedings  pending or  contemplated by any person,
entity or governmental  authority which would have a material  adverse effect on
the Company.

Item 2.  Changes in securities

Common Stock

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As of March  31,  2005,  the  status of the  common  stock of the  Company  was:
4,000,000,000 shares authorized and 3,733,136,349 shares issued and outstanding.

During  the  three  month  period  ended  March 31,  2005,  the  Company  issued
344,000,000  shares for cash of approximately  $430,080 and 21,000,000 shares of
common stock for debentures in the approximate amount of $31,122.

Item 3.  Defaults upon senior securities - None

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

There were no matters  submitted  to a vote of the  Company's  security  holders
during the first quarter of fiscal year 2005.

Item 5.  Other Information - Not applicable

Item 6.  Exhibits

31.1 Certification  of CEO pursuant to Securities  Exchange Act rules 13a-15 and
     15d-15(c) as adopted pursuant to section 302 of the  Sarbanes-Oxley  act of
     2002.

31.2 Certification  of CFO pursuant to Securities  Exchange Act rules 13a-15 and
     15d-15(c) as adopted pursuant to section 302 of the  Sarbanes-Oxley  act of
     2002.

32.1 Certification of Leslie S. Robins,  Chief Executive  Officer pursuant to 18
     U.S.C.   section  1350,   as  adopted   pursuant  to  section  906  of  the
     Sarbanes-Oxley act of 2002.

32.2 Certification  of John  J.  Cousins,  Chief  Financial  Officer  (Principal
     Accounting Officer) pursuant to 18 U.S.C. section 1350, as adopted pursuant
     to section 906 of the Sarbanes-Oxley act of 2002.

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                                   SIGNATURES

In  accordance  with  Section 13 or 15(d) of the Exchange  Act,  the  registrant
caused this report on Form 10QSB to be signed on its behalf by the  undersigned,
thereunto duly authorized.

Dated:    May 13, 2005

ADVANCED OPTICS ELECTRONICS, INC.

                                              BY:/S/JOHN J. COUSINS
                                                 -------------------------------
                                              John J. Cousins
                                              Vice President of Finance
                                              (Principal Accounting Officer)

                                              BY:/S/LESLIE S. ROBINS
                                                 -------------------------------
                                              Leslie S. Robins
                                              Executive Vice President
                                              (Principal Executive Officer)