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: September 30, 2000


                           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 September 30,
2000 was 61,312,676

    Transitional Small Business Disclosure Format (check one): Yes [_] No [X]

<PAGE>

ADVANCED OPTICS ELECTRONICS, INC.
(A DEVELOPMENT STAGE COMPANY)



                                               ADVANCED OPTICS ELECTRONICS, INC.
                                                   (A DEVELOPMENT STAGE COMPANY)

                                                                FINANCIAL REPORT

                                                              SEPTEMBER 30, 2000



<PAGE>

                        ADVANCED OPTICS ELECTRONICS, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                                    CONTENTS

                                                                    Page

INDEPENDENT ACCOUNTANTS' REPORT                                       1

FINANCIAL STATEMENTS

       Balance Sheet                                                  2

       Statements of Operations                                       4

       Statements of Changes in Stockholders' Equity                  6

       Statements of Cash Flows                                      10

       Notes to Financial Statements                                 13

<PAGE>

NEFF & RICCI LLP
----------------------------
CERTIFIED PUBLIC ACCOUNTANTS
7001 PROSPECT PLACE NE
ALBUQUERQUE, NM  87110

                         Independent Accountants' Report


Board of Directors
Advanced Optics Electronics, Inc.


We have reviewed the  accompanying  condensed  balance sheet of Advanced  Optics
Electronics,  Inc. (a  development  stage company) as of September 30, 2000, and
the  related  condensed  statements  of  operations,  cash flows and  changes in
stockholders'  equity for the quarters and the nine months ended  September  30,
2000 and 1999,  and for the 2000,  1999, and 1998 portion of the period from May
22, 1996  (inception)  through  September 30, 2000. The 1996 and 1997 portion of
the condensed financial  statements for the period from May 22, 1996 (inception)
through  September 30, 2000,  were audited by other  auditors whose report dated
February 5, 1998, expressed an unqualified opinion.

We conducted our review in accordance with standards established by the American
Institute  of  Certified  Public  Accountants.  A review  of  interim  financial
information consists principally of applying analytical  procedures to financial
data and making  inquiries of persons  responsible  for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with  generally  accepted  auditing  standards,  the  objective  of which is the
expression of an opinion  regarding the financial  statements  taken as a whole.
Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material  modifications that should
be made to the accompanying condensed financial statements referred to above for
them to be in conformity with generally accepted accounting principles.

/s/ NEFF & RICCI LLP

Albuquerque, New Mexico
October 20, 2000


                                                                               1
<PAGE>

ADVANCED OPTICS ELECTRONICS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
September 30, 2000
See Accountants' Report.


ASSETS

Current Assets
    Cash and cash equivalents                               $  778,220
    Certificates of deposit                                    106,684
    Costs and estimated earnings
        in excess of billings on
        uncompleted contract                                   588,789
    Raw materials                                               29,293
    Due from officer and shareholder                            44,493
                                                            ----------

           Total current assets                              1,547,479

Property and Equipment, net                                    304,133
                                                            ----------

Other Assets
    Investment in Bio Moda, Inc.                               156,698
    Intangible assets, net                                     242,605
    Due from officer and shareholder                           199,477
    Other assets                                                30,089
                                                            ----------

           Total other assets                                  628,869
                                                            ----------


           Total assets                                     $2,480,481
                                                            ==========


See Notes to Financial Statements.


                                                                               2
<PAGE>

<TABLE>
<S>                                                                     <C>
LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities
    Accounts payable                                                    $   161,038
    Accrued liabilities                                                       7,764
    Current portion of long-term debt
        and capital lease obligation                                         39,552
    Allowance for loss on contract                                          108,414
                                                                        -----------
           Total current liabilities                                        316,768
                                                                        -----------

Long-term portion of long-term debt
    and capital lease obligation                                            334,549
                                                                        -----------

Shareholders' Equity
    Capital stock:
        Preferred Series A, 7.5% cumulative, convertible into
           common stock at a rate determined by dividing the
           purchase price of the preferred shares by the
           conversion price of the common stock; $.001 par
           value; authorized 10,000,000 shares, issued 550 shares
           in first quarter of 2000 and 160 shares in the third
           quarter of 2000                                                        1
        Common, authorized 150,000,000 shares, $.001 par value
           61,312,676 shares issued and 61,175,176 shares outstanding        61,313
    Additional paid-in capital                                            8,635,792
    Deficit accumulated during the development stage                     (6,813,368)
    Treasury stock                                                          (54,574)
                                                                        -----------

           Total shareholders' equity                                     1,829,164
                                                                        -----------

           Total liabilities and shareholders' equity                   $ 2,480,481
                                                                        ===========
</TABLE>


                                                                               3
<PAGE>

ADVANCED OPTICS ELECTRONICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
Quarters Ended September 30, 2000 and 1999
See Accountants' Report.


                                                       2000              1999

Revenues
    Contract revenue                              $     82,490          125,000
                                                  -----------------------------

Costs and Expenses
    General and administrative                         295,340          309,082
    Contract costs                                     154,490          119,451
    Research and development                           178,821           50,611
                                                  -----------------------------

           Total expenses                              628,651          479,144
                                                  -----------------------------

    Operating loss                                    (546,161)        (354,144)
                                                  -----------------------------

Other Income and (Expenses)
    Interest income                                      5,113            3,959
    Unrealized gain (loss) on marketable
        equity securities                                2,352            7,505
    Loss on Bio Moda, Inc.                             (18,193)          (9,781)
    Interest expense                                    (4,833)         (39,735)
                                                  -----------------------------

           Total other expenses                        (15,561)         (38,052)
                                                  -----------------------------

           Net loss                                   (561,722)        (392,196)
                                                  -----------------------------

Net loss per share                                $       (.01)            (.01)
                                                  =============================

Weighted average shares outstanding                 60,627,342       41,851,287
                                                  =============================

See Notes to Financial Statements.


                                                                               4
<PAGE>

STATEMENTS OF OPERATIONS
Nine Months Ended September 30, 2000 and 1999
and the Period from May 22, 1996 (Inception)
Through September 30, 2000
See Accountants' Report.

<TABLE>
<CAPTION>
                                                                                                         5/22/96
                                                                                                       (Inception)
                                                                                                         Through
                                                               2000                   1999               09/30/00
<S>                                                       <C>                     <C>                   <C>
Revenues
    Contract revenue                                      $    118,117               261,375               678,662
                                                          --------------------------------------------------------

Costs and Expenses
    General and administrative                               2,067,891               721,624             4,640,626
    Contract costs                                             387,964               283,570             1,129,325
    Research and development                                   447,448               137,051               875,595
                                                          --------------------------------------------------------

           Total expenses                                    2,903,303             1,142,245             6,645,546
                                                          --------------------------------------------------------

    Operating loss                                          (2,785,186)             (880,870)           (5,966,884)
                                                          --------------------------------------------------------

Other Income and (Expenses)
    Interest income                                             10,813                11,028                22,530
    Unrealized gain (loss) on marketable
        equity securities                                        4,194               (15,424)              (29,365)
    Loss on Bio Moda, Inc.                                     (50,637)              (48,309)             (227,148)
    Interest expense                                          (193,368)             (225,115)             (389,804)
                                                          --------------------------------------------------------

           Total other expenses                               (228,998)             (277,820)             (623,787)
                                                          --------------------------------------------------------

           Net loss before cumulative effect
               of change in accounting principle            (3,014,184)           (1,158,690)           (6,590,671)
                                                          --------------------------------------------------------

Cumulative Effect of Change
    in Accounting Principle                                         --               (63,020)              (63,020)
                                                          --------------------------------------------------------

           Net loss                                         (3,014,184)           (1,221,710)           (6,653,691)
                                                          --------------------------------------------------------

Net loss per share before cumulative effect
    of change in accounting principle                             (.06)                 (.04)                 (.25)

Cumulative effect of change in
    accounting principle                                            --                    --                    --
                                                          --------------------------------------------------------

Net loss per share                                        $       (.06)                 (.04)                 (.25)
                                                          ========================================================

Weighted average shares outstanding                         53,921,575            32,149,015            26,094,822
                                                          ========================================================
</TABLE>

See Notes to Financial Statements.


                                                                               5
<PAGE>

ADVANCED OPTICS ELECTRONICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Period from May 22, 1996 (Inception)
Through September 30, 2000
See Accountants' Report.

<TABLE>
<CAPTION>
                                                                      Common Stock                        Preferred Stock
                                                             ------------------------------         ----------------------------
                                                                                     Par                                  Par
                                                                Shares              Value              Shares            Value
<S>                                                           <C>                    <C>                   <C>       <C>
Balance, May 22, 1996                                                 --        $        --                 --       $        --
Stock issued to incorporators for cash                           500,000                500                 --                --
Stock issued for the net assets of PLZ Tech, Inc.              4,500,000              4,500                 --                --
Net loss                                                              --                 --                 --                --
                                                             -------------------------------------------------------------------

Balance, December 31, 1996                                     5,000,000              5,000                 --                --
Stock issued in public offering                                2,281,212              2,281                 --                --
Net loss                                                              --                 --                 --                --
                                                             -------------------------------------------------------------------

Balance, December 31, 1997                                     7,281,212              7,281                 --                --
Stock issued for cash                                         10,979,275             10,979                 --                --
Stock issued for services                                      2,751,000              2,751                 --                --
Stock issued in exchange for note receivable                     315,000                315                 --                --
Purchase and retirement of treasury stock                       (472,200)              (472)                --                --
Net loss                                                              --                 --                 --                --
                                                             -------------------------------------------------------------------

Balance, December 31, 1998                                    20,854,287             20,854                 --                --
Stock issued for cash                                          8,681,624              8,682                 --                --
Stock issued for services                                     17,094,313             17,094                 --                --
Intrinsic value of beneficial conversion
    feature of notes payable                                          --                 --                 --                --
Fair value of warrants related to notes payable                       --                 --                 --                --
Purchase and retirement of treasury stock                       (489,251)              (489)                --                --
Purchase of treasury stock                                            --                 --                 --                --
Sale of treasury stock                                                --                 --                 --                --
Net loss                                                              --                 --                 --                --
                                                             -------------------------------------------------------------------

Balance, December 31, 1999                                    46,140,973             46,141                 --                --
Stock issued for cash                                            782,000                782                550                 1
Stock issued for services                                      1,791,733              1,792                 --                --
Purchase of treasury stock                                            --                 --                 --                --
Sale of treasury stock                                                --                 --                 --                --
Constructive dividends (amortization of
    discount on convertible preferred stock)                          --                 --                 --                --
Net loss                                                              --                 --                 --                --
                                                             -------------------------------------------------------------------

Balance, March 31, 2000                                       48,714,706             48,715                550                 1
</TABLE>

See Notes to Financial Statements


                                                                               6
<PAGE>

<TABLE>
<CAPTION>
                                                                                                        Equity
                                                                                                       (Deficit)
                                                                                                      Accumulated
                                                               Treasury Stock           Additional     During the       Total
                                                         ---------------------------      Paid-In      Development  Shareholders'
                                                             Shares        Cost           Capital         Stage         Equity
<S>                                                        <C>          <C>             <C>           <C>             <C>
Balance, May 22, 1996                                            --     $       --             --             --             --
Stock issued to incorporators for cash                           --             --         24,500             --         25,000
Stock issued for the net assets of PLZ Tech, Inc.                --             --        281,096             --        285,596
Net loss                                                         --             --             --        (76,902)       (76,902)
                                                         ----------------------------------------------------------------------

Balance, December 31, 1996                                       --             --        305,596        (76,902)       233,694
Stock issued in public offering                                  --             --        362,720             --        365,001
Net loss                                                         --             --             --        (84,690)       (84,690)
                                                         ----------------------------------------------------------------------

Balance, December 31, 1997                                       --             --        668,316       (161,592)       514,005
Stock issued for cash                                            --             --      1,281,728             --      1,292,707
Stock issued for services                                        --             --        293,719             --        296,470
Stock issued in exchange for note receivable                     --             --         28,685             --         29,000
Purchase and retirement of treasury stock                        --             --        (39,913)            --        (40,385)
Net loss                                                         --             --             --       (752,111)      (752,111)
                                                         ----------------------------------------------------------------------

Balance, December 31, 1998                                       --             --      2,232,535       (913,703)     1,339,686
Stock issued for cash                                            --             --        855,101             --        863,783
Stock issued for services                                        --             --      1,469,320             --      1,486,414
Intrinsic value of beneficial conversion                         --             --        174,610             --        174,610
    feature of notes payable
Fair value of warrants related to notes payable                  --             --        125,000             --        125,000
Purchase and retirement of treasury stock                        --             --        (10,643)            --        (11,132)
Purchase of treasury stock                                 (229,000)       (41,760)            --             --        (41,760)
Sale of treasury stock                                       85,000         11,130         24,334             --         35,464
Net loss                                                         --             --             --     (2,725,804)    (2,725,804)
                                                         ----------------------------------------------------------------------

Balance, December 31, 1999                                 (144,000)       (30,630)     4,870,257     (3,639,507)     1,246,261
Stock issued for cash                                            --             --        852,710             --        853,493
Stock issued for services                                        --             --      1,118,441             --      1,120,233
Purchase of treasury stock                                   (6,500)        (7,683)            --             --         (7,683)
Sale of treasury stock                                       25,000          4,486         45,284             --         49,770
Constructive dividends (amortization of
    discount on convertible preferred stock)                     --             --         42,581        (42,581)            --
Net loss                                                         --             --             --     (1,501,338)    (1,501,338)
                                                         ----------------------------------------------------------------------

Balance, March 31, 2000                                    (125,500)    $  (33,827)     6,929,273     (5,183,426)     1,760,736
</TABLE>


                                                                               7
<PAGE>

ADVANCED OPTICS ELECTRONICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CONTINUED)
For the Period from May 22, 1996 (Inception)
Through September 30, 2000
See Accountants' Report.

<TABLE>
<CAPTION>
                                                                    Common Stock                        Preferred Stock
                                                            -----------------------------           -----------------------
                                                                                   Par                               Par
                                                                Shares            Value             Shares          Value
                                                            ---------------------------------------------------------------
<S>                                                           <C>              <C>                     <C>       <C>
Exercise of stock options for note receivable                  1,000,000       $    1,000               --       $       --
Stock issued for services                                      1,247,970            1,248               --               --
Stock issued upon conversion of
    outstanding convertible notes                              9,200,000            9,200               --               --
Purchase of treasury stock                                            --               --               --               --
Constructive dividends (amortization of
    discount on convertible preferred stock)                          --               --               --               --
Net loss                                                              --               --               --               --
                                                            ---------------------------------------------------------------

Balance, June 30, 2000                                        60,162,676       $   60,163              550       $        1
                                                            ---------------------------------------------------------------

Stock issued for cash                                                 --               --              160               --
Exercise of stock options for note receivable                    850,000              850               --               --
Stock issued for services                                        300,000              300               --               --
Purchase of treasury stock                                            --               --               --               --
Sale of treasury stock                                                --               --               --               --
Intrinsic value of beneficial conversion
    feature of notes payable                                          --               --               --               --
Fair value of warrants related to notes payable                       --               --               --               --
Net loss                                                              --               --               --               --
                                                            ---------------------------------------------------------------
Balance, September 30, 2000                                   61,312,676       $   61,313              710       $        1
</TABLE>

See Notes to Financial Statements.


                                                                               8
<PAGE>

ADVANCED OPTICS ELECTRONICS, INC.
(A DEVELOPMENT STAGE COMPANY)

<TABLE>
<CAPTION>
                                                                                                        Equity
                                                                                                       (Deficit)
                                                                                                      Accumulated
                                                               Treasury Stock           Additional     During the        Total
                                                        --------------------------        Paid-In      Development    Shareholders'
                                                           Shares           Cost          Capital         Stage          Equity
<S>                                                      <C>           <C>              <C>           <C>              <C>
Exercise of stock options for note receivable                  --      $       --         119,000             --         120,000
Stock issued for services                                      --              --         384,181             --         385,429
Stock issued upon conversion of
    outstanding convertible notes                              --              --         533,678             --         542,878
Purchase of treasury stock                                (44,000)        (33,817)             --             --         (33,817)
Constructive dividends (amortization of
    discount on convertible preferred stock)                   --              --         117,096       (117,096)             --
Net loss                                                       --              --              --       (951,124)       (951,124)
                                                        ------------------------------------------------------------------------

Balance, June 30, 2000                                   (169,500)     $  (67,644)      8,083,228     (6,251,646)      1,824,102
                                                        ------------------------------------------------------------------------

Stock issued for cash                                          --              --         160,000             --         160,000
Exercise of stock options for note receivable                  --              --         101,150             --         102,000
Stock issued for services                                      --              --          90,260             --          90,560
Purchase of treasury stock                                (13,000)         (4,986)             --             --          (4,986)
Sale of treasury stock                                     45,000          18,056           9,487             --          27,543
Intrinsic value of beneficial conversion
    feature of notes payable                                   --              --         166,667             --         166,667
Fair value of warrants related to notes payable                --              --          25,000             --          25,000
Net loss                                                       --              --              --       (561,722)       (561,722)
                                                        ------------------------------------------------------------------------

Balance, September 30, 2000                              (137,500)     $  (54,574)      8,635,792     (6,813,368)      1,829,164
                                                        ------------------------------------------------------------------------
</TABLE>


                                                                               9
<PAGE>

ADVANCED OPTICS ELECTRONICS, INC.
(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF CASH FLOWS
For the Quarters Ended September 30, 2000 and 1999
See Accountants' Report.

<TABLE>
<CAPTION>
                                                                              2000            1999
<S>                                                                       <C>              <C>
Cash Flows From Operating Activities
    Net loss                                                              $(561,722)       (392,196)
    Adjustments to reconcile net loss to net cash
        provided by operating activities:
           Amortization and depreciation expense                             26,578          53,762
           Amortization of discounts on convertible notes                     6,944              --
           Unrealized (gain) loss on marketable securities                   (2,352)         (7,505)
           Loss on Bio Moda, Inc.                                            18,193           9,781
           Issuance of common stock for services                             90,560         175,531
           Issuance of notes for services                                    20,000
           Other receivables                                                 45,524         (13,509)
    (Increase) decrease in:
           Contract receivable                                                7,383
                                                                                           (125,000)
           Marketable equity securities                                        (132)             --
    (Increase (decrease) in:
           Allowance for loss on contract                                   (19,843)             --
           Accrued liabilities and accounts payable                         135,821         (19,557)
                  Net cash used by operating
                  activities                                               (233,046)       (318,693)
                                                                          -------------------------
Cash Flows From Investing Activities
    Purchase of equipment                                                   (13,873)        (25,769)
    Purchase of marketable securities                                       (30,759)         (8,836)
    Purchase of certificate of deposit                                       (3,504)           (451)
    Sale of marketable securities                                            66,825              --
                                                                          -------------------------
               Net cash provided (used) by investing
                  activities                                                 18,689         (35,056)
                                                                          -------------------------
Cash Flows From Financing Activities
    Additions to notes payable                                              430,000           4,383
    Payments on notes payable and capital
        lease obligation                                                    (13,107)         (2,041)
    Issuance of common stock                                                     --         240,035
    Purchase of treasury stock                                               (4,986)         (7,303)
    Issuance of preferred stock                                             160,000              --
    Sale of treasury stock                                                   27,543              --
                                                                          -------------------------
               Net cash (used) provided by financing
                  activities                                                599,450        235,074
                                                                          -------------------------
Net (decrease) increase in cash                                             385,093        118,675

Cash, beginning of period                                                   393,127         360,664
                                                                          -------------------------

Cash, end of period                                                       $ 778,220         241,989
                                                                          =========================
</TABLE>

See Notes to Financial Statements


                                                                              10
<PAGE>

ADVANCED OPTICS ELECTRONICS, INC.
(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF CASH FLOWS (CONTINUED)
For the Nine Months Ended September 30, 2000 and 1999
and the Period from May 22, 1996 (Inception) Through
September 30, 2000
See Accountants' Report.

<TABLE>
<CAPTION>
                                                                                                                 5/22/96
                                                                                                               (Inception)
                                                                                                                 Through
                                                                           2000                 1999             09/30/00
<S>                                                                    <C>                  <C>                 <C>
Cash Flows From Operating Activities
    Net loss                                                           $(3,014,184)         (1,221,710)         (6,653,691)
    Adjustments to reconcile net loss to net cash
        provided by operating activities:
           Amortization and depreciation expense                            91,764             109,870             286,290
           Write off of organization costs                                      --              63,020              63,020
           Amortization of discounts on convertible notes                  190,611                  --             326,143
           Unrealized (gain) loss on marketable securities                  (4,194)             15,424              29,365
           Loss on Bio Moda, Inc.                                           50,637              48,309             227,148
           Issuance of common stock for services                         1,596,222             565,488           3,379,106
           Issuance of notes for services                                   20,000              50,000              70,000
    (Increase) decrease in:
           Contract receivable                                             (28,244)           (261,375)           (588,789)
           Marketable equity securities                                       (421)                 --                (421)
           Other receivables                                                76,554             (21,970)             (3,320)
           Inventory                                                         6,000             (41,324)            (29,293)
    Increase (decrease) in:
           Allowance for loss on contract                                   36,869                  --             108,414
           Accrued liabilities and accounts payable                        (88,422)            (21,446)            168,802
                                                                        --------------------------------------------------
               Net cash used by operating
                  activities                                              (889,964)           (715,714)         (2,617,226)
                                                                        --------------------------------------------------

Cash Flows From Investing Activities
    Purchase of equipment                                                  (60,835)            (86,431)           (373,176)
    Investment in Bio Moda, Inc.                                                --                  --            (383,845)
    Sale of marketable securities                                          100,642                  --             100,642
    Purchase of marketable securities                                      (59,642)            (19,836)           (129,676)
    Purchase of certificate of deposit                                     (55,408)            (55,251)           (159,990)
    Redemption of certificate of deposit                                    53,306                  --              53,306
    Purchase of other assets                                                    --             (10,000)            (96,427)
    Proceeds from sale of Wizard Technologies, Inc.                         65,000                  --                  --
                                                                        --------------------------------------------------
               Net cash used by investing
                  activities                                                43,063            (171,518)           (989,166)
                                                                        --------------------------------------------------
</TABLE>

See Notes to Financial Statements.


                                                                              11
<PAGE>

ADVANCED OPTICS ELECTRONICS, INC.
(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF CASH FLOWS (CONTINUED)
For the Nine Months Ended September 30, 2000 and 1999
and the Period from May 22, 1996 (Inception) Through
September 30, 2000
See Accountants' Report.

<TABLE>
<CAPTION>
                                                                                                 5/22/96
                                                                                               (Inception)
                                                                                                 Through
                                                                 2000             1999          09/30/00
<S>                                                         <C>                 <C>             <C>
Cash Flows From Financing Activities
    Additions to notes payable                              $   430,000         447,383         1,002,776
    Payments on notes payable and capital
        lease obligation                                        (39,586)        (11,978)         (161,162)
    Issuance of common stock                                    853,493         507,639         3,399,984
    Issuance of preferred stock                                 160,000              --           160,000
    Sale of treasury stock                                       77,313              --           112,777
    Purchase of treasury stock                                  (46,486)        (18,435)         (129,763)
                                                            ---------------------------------------------
               Net cash provided by financing
                  activities                                  1,434,734         924,609         4,384,612
                                                            ---------------------------------------------

Net increase in cash                                            587,833          37,377           778,220

Cash, beginning of period                                       190,387         204,612                --
                                                            ---------------------------------------------

Cash, end of period                                         $   778,220         241,989           778,220
                                                            =============================================
</TABLE>

See Notes to Financial Statements.


                                                                              12
<PAGE>

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of  Presentation.  The interim  financial  information  included herein is
unaudited. Certain information and footnote disclosures normally included in the
financial  statements  have been condensed or omitted  pursuant to the rules and
regulations  of the  Securities  and  Exchange  Commission  (SEC),  although the
Company  believes that the disclosures made are adequate to make the information
presented  not  misleading.   These  financial  statements  should  be  read  in
conjunction  with the financial  statements  and related notes  contained in the
Company's  annual report on Form 10-KSB for the period ended  December 31, 1999.
Other than as indicated herein,  there have been no significant changes from the
financial  data  published in that report.  In the opinion of  management,  such
unaudited  information  reflects  all  adjustments,  consisting  only of  normal
recurring  accruals and other  adjustments  necessary for a fair presentation of
the unaudited information.

Description of Business.  Advanced Optics  Electronics,  Inc. (the Company) is a
developmental   stage  technology  company  with  its  principal  focus  on  the
development and production of large-scale  flat panel  displays.  The Company is
currently  continuing  its  research  and  development  of  this  product.  Upon
substantial  completion of the research and  development of the large flat panel
display,  the Company plans to make the transition  from a  developmental  stage
company to selling and producing  this product.  The market for the  large-scale
flat panel will include,  but not be limited to,  cockpit  displays,  flat panel
computer monitors, and advertising billboards. Advanced Optics Electronics, Inc.
plans to focus on producing and selling the large-scale  flat panel displays for
outdoor advertising billboards.

The  Company  has  obtained  a  contract  to  produce  two  outdoor  advertising
billboards using its flat panel display technology. This is the first commercial
application of the Company's technology.  The success of the Company will depend
on its ability to commercialize its technology and complete this contract. As of
September 30, 2000, completion of this contract was behind schedule. The Company
received a payment on the contract of  approximately  $90,000 during the quarter
ending  September  30,  2000.  While  management   believes  the  contract  will
ultimately  be  completed,   there  can  be  no  certainty  that  this  will  be
accomplished  because  the  technology  has not yet  been  used in a  commercial
application.  In  addition,  the Company  may be  required to obtain  additional
capital in order to fund the completion of the contract.

Revenue and Cost Recognition.  The Company recognizes revenue on its contract in
process using the percentage-of completion method of accounting,  which is based
on the proportion of the contract cost incurred to the estimated  total contract
cost. Costs incurred and estimated  earnings in excess of billings represent the
revenue recognized that has not yet been billed.

Contract  costs include all direct  material and labor costs and those  indirect
costs  related  to  contract  performance,  such as  indirect  labor,  supplies,
overhead, and equipment depreciation.


                                                                              13
<PAGE>

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
        (CONTINUED)

Marketable  Equity  Securities.  The Company  classifies  all of its  marketable
equity  securities  as  available  for  sale  securities.   Available  for  sale
securities  are  carried  at fair  value  with the  unrealized  gains and losses
reported  in  Other  Comprehensive  Income.  As of  September  30,  2000,  gross
unrealized losses for the quarter were $2,352 and not considered  significant to
the financial statements taken as a whole. Therefore, they have been reported in
the income statement.

Inventories.  Inventory consists of raw materials and is carried at the lower of
cost (specific identification) or market.

Equity  Investment.  The investment in Bio Moda, Inc. is accounted for using the
equity method. Under this method, income and losses reported by the investee are
recorded  by the  Company  in its  proportionate  interest  at the time they are
recognized by the investee.  The original cost of the Bio Moda, Inc.  investment
exceeded the  Company's  proportionate  interest in Bio Moda's book value.  This
difference is being amortized over a 15 year period.

Loss Per Share.  Loss per share is computed on the basis of the weighted average
number of common  shares  outstanding  during the year and did not  include  the
effect of potential  common stock as their  effect  would be  antidilutive.  The
numerator  for the  computation  is the net  loss  and  the  denominator  is the
weighted  average  shares of  common  stock  outstanding.  Certain  options  and
warrants  outstanding  were not  included in the  computation  of loss per share
because their effect would be antidilutive.  Convertible  preferred stock issued
during the quarter  also was not included in the  computation  of loss per share
because their effect would be antidilutive.

Use of Estimates.  The  preparation of financial  statements in conformity  with
generally accepted  accounting  principles requires management to make estimates
and assumptions  that affect the reported  amounts of assets and liabilities and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting  period.  Actual  results  could  differ  from  those  estimates.  The
principal  areas  requiring  estimation  are  revenue  recognition  based on the
percentage of completion  method,  loss  allowances  and the valuation of common
stock issued for services.


                                                                              14
<PAGE>

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
        (CONTINUED)

The contract to produce two outdoor advertising  billboards totals $1.7 million,
with  $885,000  allocated  to  the  first  unit.  An  estimated  total  loss  of
approximately $465,000 in the first unit has been recognized as of September 30,
2000.  The  Company's  estimated  cost to complete as of  September  30, 2000 is
$315,000,  which it expects  to fund with cash,  billings  on the  contract  and
additional capital.

In accordance with the contract, the Company will bill the customer when certain
milestones  have been met.  During the quarter  ending  September 30, 2000,  the
Company billed and received approximately $90,000 on the contract.

Adjustments to the original estimates of total contract revenue,  total contract
cost,  and extent of  progress  toward  completion  are often  required  as work
progresses under the contract and as experience is gained, even though the scope
of the work required under the contract may not change. The nature of accounting
for  contracts  is  such  that   refinements  of  the  estimating   process  for
continuously  changing  conditions and new developments are a characteristic  of
the process.  Accordingly,  provisions  for losses on contracts  are made in the
period in which they become evident under the percentage-of-completion method.


NOTE 2. RELATED PARTY RECEIVABLES

Related party receivables at September 30, 2000, consist of the following:

    Due from officer                                                $  29,493
    Note receivable from former shareholder bearing
        interest at 8% and due in November, 2000                       15,000
    Note receivable from officer, interest at 10% due
        quarterly (first quarter prepaid) and principal
        due in June, 2003                                              97,477
    Note receivable from officer, interest at 10% due
        quarterly and principal due in September 2003                  48,000
    Note receivable from officer, interest at 10% due
        quarterly and principal due in August 2003                     54,000
                                                                    ---------

                                                                      243,970

               Less current portion                                    44,493
                                                                    ---------

                                                                    $ 199,477


                                                                              15
<PAGE>

NOTE 3. INVESTMENTS

During 1999,  Bio Moda,  Inc. sold  additional  shares,  therefore the Company's
investment in Bio Moda,  Inc.  decreased from 22 to 20 percent.  As of September
30, 2000,  the Company  owned  931,253  shares of Bio Moda's  total  outstanding
shares of 4,650,985,  and had an option to purchase an additional 187,000 shares
at .485 cents per share. Bio Moda, Inc. is a development  stage company involved
primarily  in the  development  of  technology  for the early  detection of lung
cancer. As a development stage company,  Bio Moda, Inc. has not had any revenues
and, as of September 30, 2000, was in the process of conducting clinical trials.

There is currently no active  market for the common stock of Bio Moda,  Inc. The
ultimate value of the Company's  investment in Bio Moda, Inc. will depend on its
ability  to  complete  its  research  and  either   commercialize  or  sell  its
proprietary technology.

A summary of the  unaudited  financial  data  relative  to Bio Moda,  Inc. as of
December 31, 1999 is as follows:

     Assets:
         Current assets                                             $  30,730
         Other assets                                                  24,465
                                                                    ---------
                                                                       55,195
                                                                    ---------

         Fixed assets                                                   2,515
                                                                    ---------

     Total assets                                                   $  57,710
                                                                    =========

     Liabilities and equity
         Notes payable to stockholders                              $  92,711
         Common stock                                                 760,037
         Deficit accumulated during the development stage            (795,038)
                                                                    ---------

     Total liabilities and equity                                   $  57,710
                                                                    =========

The  investment in Bio Moda,  Inc. is accounted for using the equity  method.  A
summary of the investment is as follows:

     Original cost, all of which exceeded book value                $ 358,845
     Additional purchase in 1999                                       25,000
     Share of net loss                                               (166,709)
     Amortization of excess of cost
         over book value                                              (60,438)
                                                                    ---------

     Net investment                                                 $ 156,698
                                                                    =========


                                                                              16
<PAGE>

In August 1999,  the Company issued 200,000 shares of its common stock to Wizard
Technologies,  Inc.  for  $88,580.  The  Company  then  purchased  a 10  percent
ownership in Wizard for $65,000  with the  proceeds.  During the quarter  ending
March 31, 2000, the Company sold back all of its shares of Wizard's common stock
to Wizard for its original investment of $65,000.

NOTE 4. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATION

Convertible  Notes.  On June 3, 1999, the Company issued $500,000 in convertible
notes which bear  interest at an annual rate of 8 percent and mature  (principal
and  interest)  on May 31,  2001.  Effective  August  1,  1999,  the  notes  are
convertible  into shares of common stock at a 25 percent discount to the closing
bid price of a share of common  stock at the time of  conversion  or the time of
exercise.  The notes were issued in exchange  for  $430,000 in cash,  $50,000 in
legal services and $20,000 in commissions. The commissions have been capitalized
as debt  origination  costs and are being  amortized over the life of the notes.
The notes are unsecured.

The  intrinsic  value of the  conversion  feature of the  principal  and accrued
interest was estimated to be $174,610.  This has been recorded as an increase in
paid-in  capital and a discount to the convertible  notes payable,  with related
amortization being charged to interest expense.  The discount is being amortized
over a  one-year  period,  which is  management's  estimate  of time  before any
conversion  will be exercised.  The  convertible  notes also include  detachable
warrants for the purchase of  12,500,000  shares of common stock at the lower of
75 percent of the  closing  bid price of a share of common  stock at the time of
exercise or September 1, 1999. The warrants  expire on June 3, 2002.  Management
estimates  that  approximately  half the  warrants  will be  exercised  prior to
expiration.

Management  estimated  the fair market  value of these  warrants at $125,000 and
recorded  this amount as an  increase  in paid-in  capital and a discount to the
convertible  notes  payable.  The discount is being  amortized over the two-year
life of the notes.

A significant  contingency  required by the aforementioned  convertible note and
warrant  agreements  is the  registration  of the  underlying  shares  with  the
Securities  and Exchange  Commission.  The company is to use its best efforts to
register  these  shares and is in the  process  of  preparing  the  registration
statement.

On June 12,  2000,  the Company  entered  into an  agreement  that  modified the
convertible  notes  agreement  entered  into on June 3, 1999.  The result of the
modified  agreement was the issuance of 9,200,000 shares of the Company's common
stock upon conversion of the  convertible  notes plus accrued  interest  through
June 12, 2000, which totaled $542,878. This transaction constituted a conversion
of the  outstanding  convertible  notes,  and as such,  $40,058  of  unamortized
intrinsic value of the conversion feature was charged to interest expense during
the quarter.  In addition,  the modified agreement voided the related 12,500,000
detachable warrants,  and as a result the unamortized discount of $72,917 on the
estimated fair market value of $125,000 for the warrants was charged to interest
expense during the quarter.

On September 15, 2000, the Company entered into an agreement to issue a total of
$10,000,000  in  convertible  notes,  which bear interest at an annual rate of 8
percent. The Company has authorized


                                                                              17
<PAGE>

NOTE 4. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATION (CONTINUED)

the initial sale of $2,000,000 of the convertible  notes, and has entered into a
structured  facility with Purchasers in which the Purchasers  shall be obligated
to purchase the remaining  $8,000,000 of convertible  notes. The Company's right
to require the  Purchasers to purchase notes  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 notes.  The related
agreement provides for

a limit on the amount of  obligation  notes 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
convertible notes, which bear interest at an annual rate of 8 percent and mature
(principal  and  interest) on September  15, 2003.  Effective as of the issuance
date, the notes 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. The notes 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 over the life of the notes.

A significant  contingency  required by the aforementioned  convertible notes is
the  registration  of the  underlying  shares with the  Securities  and Exchange
Commission.  The Company is to use its best efforts to register these shares and
is in the process of preparing the registration statement.

NOTE 5. EQUITY TRANSACTIONS

The Company was initially capitalized through the issuance of 500,000 shares for
$25,000 in cash.  In November  1996,  the  Company  issued  4,500,000  shares in
exchange  for the  outstanding  shares of PLZ Tech,  Inc.  The  transaction  was
accounted for as a purchase and net assets of $285,596,  consisting primarily of
patents and equipment  were  recorded.  In previous  financial  statements,  the
Company  did not present  unclaimed  shares  resulting  from the merger with PLZ
Tech, Inc. as outstanding  shares.  In the accompanying 1997 and prior financial
statements the number of shares  outstanding  has been restated to include these
shares.

During 1997, the Company issued  2,281,212 shares of stock in a public offering,
primarily for cash.

During  1998,  the  Company  repurchased  472,200  of its  outstanding  stock in
exchange  for  $10,000  in  notes  receivable  and  $30,385  in cash in  various
transactions. This stock was subsequently retired.

The  Company  also  issued  9,274,811  shares of common  stock in  exchange  for
$1,292,707 in cash, net of sales commissions and other direct costs.  Certain of
these sales included price maintenance  agreements  resulting in the issuance of
an additional 1,704,464 shares of stock in 1998.


                                                                              18
<PAGE>

In 1998,  the Company  issued  2,751,000  shares of common stock in exchange for
services from contractors,  officers and others. These shares were valued at the
estimated  fair market  value for  similar  issuances  of stock and  amounted to
$296,470. The Company also issued 315,000 shares to an officer in exchange for a
note  receivable  of $29,000.  The notes bear  interest at the rate of 7 percent
with interest due semiannually and the principal due July, 2001.

In 1999, the Company  repurchased  489,251 shares of its  outstanding  stock for
$11,132 in cash. These shares were retired. The Company also repurchased 229,000
shares for $41,760 and resold 85,000 of these shares for $35,464.  The remaining
144,000 treasury shares have been recorded at cost.

The  Company  also sold  8,681,624  shares  for  $863,782  in cash,  and  issued
17,094,313 shares for services from contractors, officers and others, which were
valued at $1,486,414.

During the quarter ending March 31, 2000, the Company sold 782,000 shares of its
common stock for  $368,495 in cash,  and issued  1,791,733  shares of its common
stock for services from contractors,  officers and others,  which were valued at
$1,120,233.  The value of the  services is included in the costs and expenses on
the Statement of Operations.

Also during this quarter,  the Company sold 25,000 shares of its treasury  stock
for $49,770 and repurchased 6,500 shares for $7,683. The repurchased shares have
been recorded at cost.

On March 14,  2000,  the Company  issued 550 shares of its Series A  convertible
preferred  stock for  $550,000.  Related  finders  fees and  attorney  fees were
$65,000,  and were netted  against the  proceeds  for a net increase in cash and
equity of $485,000.  Effective  June 14, 2000, the shares are  convertible  into
shares of common  stock at the lesser of 110 percent of the closing bid price of
a share of common  stock on March 13, 2000 or 77.5 percent of the average of the
five lowest  closing bid prices for the common stock for the twenty trading days
immediately preceding the conversion date.

Management  estimated  the  intrinsic  value  of the  conversion  feature  to be
$159,677.  This has been  recorded  as an  increase  in  paid-in  capital  and a
discount to the convertible  preferred stock,  with related  amortization  being
charged to retained earnings via constructive  dividends.  The discount is being
amortized over a 90-day period, which is the period from the date of issuance to
the point at which the preferred  shares can be converted to common shares.  The
convertible  preferred stock also includes  detachable warrants for the purchase
of 55,000  shares of common  stock at a  purchase  price per share  equal to 110
percent of the closing bid price for the common stock on the closing date (March
8, 2000). The warrants expire on March 8, 2005. The detachable warrants have not
been valued in the accompanying  financial  statements,  as management estimates
their fair market value to be immaterial.

During the quarter ended June 30, 2000, the Company issued  1,247,970  shares of
its common stock for services from contractors,  officers and others, which were
valued at  $385,429.  The value of the  services  is  included  in the costs and
expenses on the Statement of  Operations.  The Company also  repurchased  44,000
shares  of its  outstanding  common  stock for  $33,817  in cash.  These  shares
remained in treasury at June 30, 2000, and have been recorded at cost.

Also during this quarter,  an officer of the Company  exercised  1,000,000 stock
options at a price of


                                                                              19
<PAGE>

 .12 cents per share.  The Company issued a note receivable to the officer in the
amount of $120,000 for the shares. Interest for the first quarter was prepaid.

During the quarter ended  September 30, 2000,  the Company issued 300,000 shares
of its common stock for services from  contractors,  officers and others,  which
were valued at $90,260.  The value of the  services is included in the costs and
expenses on the Statement of Operations.  The Company also sold 45,000 shares of
its outstanding  common stock for $27,543 in cash and repurchased  13,000 shares
of its outstanding common stock for $4,986. These shares remained in treasury at
September 30, 2000, and have been recorded at cost.

An officer of the  Company  exercised  850,000  stock  options at a price of .12
cents per share.  The Company  issued  note's  receivable  to the officer in the
amount of $102,000 for the shares.

Also,  during the quarter the Company  issued 160 shares of preferred  stock for
$160,000 cash.

NOTE 6. STOCK PLANS

During the quarter ending  September 30, 2000, the Company granted an additional
2,375,000  stock warrants to certain key employees.  This results in total stock
options and warrants  granted and  unexercised of 10,050,000 as of September 30,
2000.  The shares  issued upon  exercise of the  options may be  authorized  and
unissued shares or shares held by the Company in its treasury. The exercise date
of options granted is based upon the related  agreement as approved by the Board
of  Directors.  Also during this quarter,  an officer  exercised his options and
purchased 850,000 shares of common stock for $102,000 (see Notes 2 and 5).

NOTE 7. SUBSEQUENT EVENT

On November 7, 2000,  the Company  entered into an agreement  that  modified the
outstanding  convertible  preferred agreements entered into on March 8, 2000 and
August 2, 2000.  The new  agreement  resulted  in the  exchange  of  outstanding
preferred  stock plus  additional  consideration  for the  Company's 7.5 percent
convertible  debentures due November 7, 2003. The total amount of the debentures
is  $740,667,   including  accrued  interest  of  $30,667.  The  debentures  are
convertible  into  shares of common  stock at the lessor of the  stocks  closing
price on  March 8,  2000 and 77.5  percent  of the  average  of the five  lowest
closing bid prices for 20 days before November 2, 2000.

The  intrinsic  value of the  conversion  feature of the  principal  and accrued
interest was estimated to be $166,650.  The convertible  debentures also include
detachable  warrants  for  the  purchase  of  71,000  shares  of  common  stock.
Management has estimated the fair market value of these warrants at $3,550.


                                                                              20
<PAGE>

                        ADVANCED OPTICS ELECTRONICS, INC.


                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF

                  FINANCIAL CONDITION AND RESULTS OF OPERATION


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 21E of the Securities Exchange Act of 1934.

                                    OVERVIEW

Advanced Optics Electronics, Inc. is a technology company whose primary focus is
the development, production and sales of its electronic flat panel displays. The
primary  initial  product  will be  marketed  to  users of  outdoor  advertising
billboards.  We believe that our product line has the  potential to create a new
segment of the outdoor advertising industry. Our systems software and electronic
displays represent an innovative approach to advertising that takes advantage of
the recent  technological  convergence of broadcast and billboard  media and the
World Wide Web.


                                                                              21
<PAGE>

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 also  plan  the
development of 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


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.  Our operating  activities
have related  primarily to the initial  planning and  development of our product
and building our operating infrastructure.  During this quarter we completed our
prototype  and are  currently  in the  manufacturing  process of our  production
model.

We expect  our  principal  source of  revenue  to be  derived  from sales of our
electronic display product.  To date we have recognized limited revenue,  but we
have developed a functioning prototype,  which was completed during the quarter,
and we anticipate  sales by the first quarter 2001. The company has recently set
the price for its units at $395,000 and $1,490,000


                                                                              22
<PAGE>

respectively  for its 2 meter x 3  meter  and its 3 meter x 8 meter  flat  panel
displays.

The company  received a revenue  installment on contract in the third quarter of
approximately $90,000.


The company has just  completed a marketing  film to be  distributed by November
30, 2000 on a national and international basis. The recipients who would receive
this film would be institutional investors and qualified potential buyers of the
flat panel displays.

Our operating expenses have increased significantly since our inception, and the
rate of increase has risen since last year. 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 September 30, 2000, had
an accumulated deficit of $6.8 million.



RESULTS OF CONTINUING OPERATIONS

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 September 30, 2000 and 1999

Revenue. Since our inception, we have been in the development stage and have had
only limited revenue. Revenues decreased to $82,490 in the third quarter of 2000
from $125,000 in the third quarter of 1999.

Product Development. Product development expenses consist primarily of personnel
expenses,  consulting fees and depreciation of the equipment associated with the
development and enhancement of our flat panel displays. Research development and
technical  costs increased to $178,821 in the third quarter of 2000 from $50,611
in the third  quarter of 1999. We believe that  continued  investment in product
development is critical to attaining our strategic  objectives and, as a result,
expect product development expenses to increase significantly in future periods.
We expense product development costs as they are incurred.

General  and  Aministrative.  General  and  administrative  expenses  consist of
expenses for executive and administrative  personnel,  facilities,  professional
services,  travel,  general  corporate  activities,  and  the  depreciation  and
amortization  of  office  furniture  and  leasehold  improvements.  General  and
administrative  costs  decreased  to $295,340 in the third  quarter of 2000 from
$309,082  in the third  quarter  of 1999.  The  increase  was  primarily  due to
increased personnel, professional service fees and facility expenses. Due to the
growth of our business and continuing  expansion of our staff, we expect general
and administrative costs to increase. The costs


                                                                              23
<PAGE>

associated   with  being  a  publicly   traded  company  and  future   strategic
acquisitions will also be a contributing factor to increases in this expense.

Other Income  (Expense).  Other income (expense)  consists of interest and other
income and expense.  Interest income increased to $5,113 in the third quarter of
2000 from $3,959 in the third quarter of 1999.  The increase in interest  income
was due to an increase in our average net cash and cash equivalents balance.

Depreciation  decreased to $26,578 in the third  quarter of 2000 from $53,762 in
the third quarter of 1999 due primarily to start-up  expenses  being  completely
amortized.


     LIQUIDITY AND CAPITAL RESOURCES

Since  inception,  we have funded our operations  primarily  through the private
placement  of equity  securities.  As of  September  30, 2000 we have raised net
proceeds of $3,559,984.

On September 15, 2000, the Company entered into an agreement to issue a total of
$2,000,000  in  convertible  notes,  which bear  interest at an annual rate of 8
percent.  The  Company has  authorized  the initial  sale of  $2,000,000  of the
convertible  notes, and has been in negotiations to expand this to a $10,000,000
financing.

We have  also  utilized  equipment  loans and  capital  lease  financing.  As of
September  30,  2000 we have a balance  of $65,910  on the  equipment  loans and
$23,363 on the capital lease.  During the quarter the company  secured a $50,000
loan for purchase of manufacturing equipment.


In August 1998 Advanced Optics Electronics,  Inc. entered into a lease agreement
for the  financing of equipment  for the  development  of its flat panel display
systems. The Company is required to repay the $101,000 in equal monthly payments
of the lease.  Monthly payments on the lease are approximately  $2,850. The term
of the lease is 3 years and is backed by the credit of the Company.

The Company's holding in BioModa, Inc will provide additional liquidity. BioModa
is a biomedical  development  company. The Company's ownership of BioModa, as of
September  30,  2000 was  approximately  20%.  No  immediate  family  members of
officers or  directors  of Advanced  Optics  Electronics,  Inc.  are  securities
holders of BioModa  with the  exception of Harold  Herman,  who is a director of
Advanced Optics Electronics, Inc. and a small minority shareholder in BioModa.

During the quarter  ended  September 30, 2000 $13,873 was spent for the purchase
of equipment.  Product  development  expenditures  were $178,821 for the quarter
ended September 30, 2000. Funds for operations,  product development and capital
expenditures were provided from the sale of securities and cash reserves.  As of
September 30, 2000, we had approximately $778,220 of cash and cash equivalents.


                                                                              24
<PAGE>

Management believes that sales of securities, cash reserves and contract revenue
will provide  adequate  liquidity and capital  resources to meet the anticipated
development  stage  requirements  through the end of the third  quarter 2001. 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 2000.


                           PART II. OTHER INFORMATION

Item 1. Legal proceedings

The  Company is not a party to any  significant  legal  proceeding,  the adverse
outcome of which, in management's opinion,  would have a material adverse effect
on the Company's  operating results.  The Company is a plaintiff in a proceeding
to remedy Internet  related  defamation.  The damages sought are not significant
relative to the current assets of the Company.

Item 2. Changes in securities

During the third quarter of fiscal year 2000 there was an 1,150,000  increase in
shares of common stock; 850,000 shares of which were issued upon the exercise of
stock options.

Item 3. Defaults upon senior securities - Not applicable

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 third quarter of fiscal year 2000.

Item 5. Other Information - Not applicable

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits
27.1 Financial Data Schedule

(b) Reports on Form 8-K
No reports on Form 8-K were filed by the company during the  three-month  period
ending September 30, 2000


                                                                              25
<PAGE>

                                   SIGNATURES


In accordance with the  requirements 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: November 9, 2000

                                        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)


                                                                              26