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: June 30, 2004

                           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 June
         30, 2004 was 2,939,936,349

         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)
                              CONDENSED BALANCE SHEET
                                 June 30, 2004
--------------------------------------------------------------------------------
                                   (UNAUDITED)
                                     ASSETS
<TABLE>
<CAPTION>


<S>                                                                       <C>
CURRENT ASSETS
       Cash                                                                  1,521,486
       Costs in excess of billings on uncompleted contract, net                795,000
       Marketable securities                                                    77,051
       Other current assets                                                     37,110
                                                                          ------------

            Total current assets                                             2,430,647

PROPERTY AND EQUIPMENT, NET                                                    103,784

OTHER ASSETS
       Investment in and advances to Biomoda, Inc.                             605,082
       Investment in GenoMed, Inc.                                             900,000
       Notes receivable                                                         63,500
                                                                          ------------

TOTAL ASSETS                                                              $  4,103,013
                                                                          ============
                        LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
       Accounts payable                                                        106,784
       Accrued expenses                                                         80,707
       Convertible debentures                                                  102,977
                                                                          ------------

            Total current liabilities                                          290,468
                                                                          ------------
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, 2,950,000,000 shares
         authorized; 2,939,936,349 shares issued and outstanding             2,939,936
       Treasury stock, at cost                                                 (50,274)
       Notes receivable from officer                                           (67,299)
       Additional paid in capital                                           17,074,771
       Accumulated other comprehensive income (loss)                           (38,894)
       Deficit accumulated during the development stage                    (16,045,695)
                                                                          ------------

            Total stockholders' equity                                       3,812,545
                                                                          ------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                $  4,103,013
                                                                          ============

</TABLE>

--------------------------------------------------------------------------------
Page F-1         See Accompanying Notes to These Condensed Financial Statements.

<PAGE>

--------------------------------------------------------------------------------
                        ADVANCED OPTICS ELECTRONICS, INC.
                          (A Development Stage Company)
                       CONDENSED STATEMENTS OF OPERATIONS
            For the Three Month Periods Ended June 30, 2004 and 2003
--------------------------------------------------------------------------------
                                (UNAUDITED)
<TABLE>
<CAPTION>
                                                                   2004               2003
                                                             ---------------    ---------------
<S>                                                          <C>                <C>
CONTRACT REVENUES                                            $            --    $            --
                                                             ---------------    ---------------
OPERATING EXPENSES
  General and administrative                                        (438,497)          (255,587)
  Payroll and related                                               (259,657)                --
  Research and development                                          (107,977)           (21,462)
  Asset impairment                                                        --                 --
                                                             ---------------    ---------------
                                                                    (806,131)          (277,049)

ESTIMATED LOSS ON CONTRACT                                           (34,610)                --
                                                             ---------------    ---------------

OPERATING LOSS                                                      (840,741)          (277,049)
                                                             ---------------    ---------------
OTHER INCOME (EXPENSE)
  Interest income                                                      6,788              7,840
  Gain (loss) on marketable equity securities                            703                 --
  Other investment gains                                                  --                 --
  Equity in losses in Biomoda, Inc.                                  (35,098)           (20,966)
  Loss on disposal of assets                                              --                 --
  Gain on extinguishment of debt                                          --                 --
  Interest expense                                                       (46)           (20,546)
                                                             ---------------    ---------------
                                                                     (27,653)           (33,672)
                                                             ---------------    ---------------

NET LOSS BEFORE CUMULATIVE EFFECT OF CHANGE
  IN ACCOUNTING PRINCIPLE                                           (868,394)          (310,721)

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

NET LOSS                                                     $      (868,394)   $      (310,721)
                                                             ===============    ===============

BASIC AND DILUTED NET LOSS AVAILABLE TO
  COMMON SHAREHOLDER PER COMMON SHARE                        $            --    $            --
                                                             ===============    ===============
BASIC AND DILUTED WEIGHTED AVERAGE COMMON
  SHARES OUTSTANDING                                           2,933,421,132      1,222,227,575
                                                             ===============    ===============
</TABLE>

--------------------------------------------------------------------------------
Page F-2         See Accompanying Notes to These Condensed Financial Statements.

<PAGE>

--------------------------------------------------------------------------------
                        ADVANCED OPTICS ELECTRONICS, INC.
                          (A Development Stage Company)
                       CONDENSED STATEMENTS OF OPERATIONS
    for the Six Month Periods Ended June 30, 2004 and 2003 and for the Period
                 May 22, 1996 (Inception) Through June 30, 2004
--------------------------------------------------------------------------------
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                                                              May 22, 1996
                                                                                              (Inception)
                                                                                                Through
                                                                                                June 30,
                                                                 2004            2003            2004
                                                            -------------   -------------    ------------
<S>                                                         <C>             <C>             <C>
CONTRACT REVENUES                                            $         --   $          --    $         --
                                                            -------------   -------------    ------------
OPERATING EXPENSES
  General and administrative                                     (943,825)       (591,506)    (10,096,283)
  Payroll and related                                            (435,261)             --      (1,270,417)
  Research and development                                       (215,884)        (35,011)     (1,608,795)
  Asset impairment                                                     --              --        (227,570)
                                                            -------------   -------------    ------------
                                                               (1,594,970)       (626,517)    (13,203,065)

ESTIMATED LOSS ON CONTRACT                                        (82,073)        (50,000)     (1,337,073)
                                                            -------------   -------------    ------------

OPERATING LOSS                                                 (1,677,043)       (676,517)    (14,540,138)
                                                            -------------   -------------    ------------
OTHER INCOME (EXPENSE)
  Interest income                                                  12,993          11,960          95,362
  Gain (loss) on marketable equity securities                      17,747              --         (11,621)
  Other investment gains                                               --              --          59,784
  Equity in losses in Biomoda, Inc.                               (63,617)        (22,600)       (402,915)
  Loss on disposal of assets                                           --              --          (4,306)
  Gain on extinguishment of debt                                       --              --          40,171
  Interest expense                                                 (9,697)        (22,772)     (1,219,012)
                                                            -------------   -------------    ------------
                                                                  (42,574)        (33,412)     (1,442,537)
                                                            -------------   -------------    ------------
NET LOSS BEFORE CUMULATIVE EFFECT OF CHANGE
  IN ACCOUNTING PRINCIPLE                                      (1,719,617)       (709,929)    (15,982,675)

CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE                                                              --              --         (63,020)
                                                            -------------   -------------    ------------

NET LOSS                                                    $  (1,719,617)  $    (709,929)   $(16,045,695)
                                                            =============   =============    ============
BASIC AND DILUTED NET LOSS AVAILABLE TO
  COMMON SHAREHOLDER PER COMMON SHARE                       $       (0.00)  $       (0.00)
                                                            =============   =============
BASIC AND DILUTED WEIGHTED AVERAGE COMMON
  SHARES OUTSTANDING                                        2,887,373,986   1,006,650,730
                                                            =============   =============
</TABLE>

--------------------------------------------------------------------------------
Page F-3         See accompanying notes to these condensed financial statements.

<PAGE>

--------------------------------------------------------------------------------
                        ADVANCED OPTICS ELECTRONICS, INC.
                          (A Development Stage Company)
                       CONDENSED STATEMENTS OF CASH FLOWS
    For the Six Month Periods Ended June 30, 2004 and 2003 and for the Period
                 May 22, 1996 (Inception) Through June 30, 2004
--------------------------------------------------------------------------------
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                                                                       May 22, 1996
                                                                                                        (Inception)
                                                                                                          Through
                                                                                                         June 30,
                                                                           2004            2003            2004
                                                                       ------------    ------------    ------------
<S>                                                                    <C>             <C>             <C>
Cash flows from operating activities:
     Net loss                                                          $ (1,719,617)   $   (709,929)   $(16,045,695)
     Adjustments to reconcile net loss to net cash
       used in operating activities:
        Intrinsic value of conversion features                                   --              --         610,603
        Write off of organization costs                                          --              --          63,020
        Amortization of discount on convertible notes and
          preferred stock                                                        --              --         295,209
        (Gain) loss on marketable securities                                (17,747)             --          11,621
        Gain on disposal of assets                                               --              --           4,306
        Loss on investment in Biomoda, Inc.                                  63,617           1,634         402,915
        Issuance of common stock for services                               334,992         211,371       6,584,938
        Issuance of notes payable for services                                   --              --          50,000
        Increase in allowance for loss on contract                           47,463          50,000       1,302,463
        Gain on extinguishment of debt                                           --              --         (40,170)
        Interest earned on note receivable from stockholder and
          related parties                                                        --          (4,120)        (17,823)
        Depreciation and amortization                                        21,876          21,835         633,440
        Bad debt expense                                                         --              --          15,000
        Asset impairment                                                         --              --         227,570
        Other non-cash expenses                                                  --              --          33,447
        Accrued interest                                                     (2,903)             --         337,268
     Changes in operating assets and liabilities:
        Decrease in other current assets                                      3,328              --         (71,595)
        Increase in excess of costs and earnings over billings
        on uncompleted contract                                             (47,463)       (110,503)     (2,097,463)
        (Decrease) increase in accounts payable and accrued expenses        (94,545)       (102,478)        159,599
                                                                       ------------    ------------    ------------

     Net cash used in operating activities                               (1,410,999)       (642,190)     (7,541,347)
                                                                       ------------    ------------    ------------
Cash flows from investing activities:
     Purchases of property and equipment                                     (8,909)             --        (463,846)
     Proceeds from sale of property and equipment                                --              --          23,800
     Investment in Biomoda, Inc.                                                 --              --        (383,845)
     Proceeds from sale of Biomoda, Inc. stock                                   --              --          28,930
     Repayments on advances to Biomoda, Inc.                                     --              --              --
     Advances to Biomoda, Inc.                                             (333,724)        (11,458)       (650,179)
     Investment in GenoMed, Inc.                                           (900,000)             --        (900,000)
     Sale of marketable securities                                          156,859              --         197,524
     Purchases of marketable securities                                    (215,757)             --        (325,091)
     Increase in notes receivable                                                --              --         (35,000)
     Purchase of other assets                                                    --              --        (245,579)
                                                                       ------------    ------------    ------------

     Net cash used in investing activities                               (1,301,531)        (11,458)     (2,753,286)
                                                                       ------------    ------------    ------------
</TABLE>

--------------------------------------------------------------------------------
Page F-4         See accompanying notes to these condensed financial statements.

<PAGE>

--------------------------------------------------------------------------------
                        ADVANCED OPTICS ELECTRONICS, INC.
                          (A Development Stage Company)
                       CONDENSED STATEMENTS OF CASH FLOWS
    for the Six Month Periods Ended June 30, 2004 and 2003 and for the Period
                 May 22, 1996 (Inception) Through June 30, 2004
--------------------------------------------------------------------------------
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                                                                May 22, 1996
                                                                                                 (Inception)
                                                                                                   Through
                                                                                                  June 30,
                                                                    2004            2003            2004
                                                                ------------    ------------    ------------
<S>                                                             <C>             <C>             <C>

Cash flows from financing activities:
     Principal repayments on notes payable and capital leases             --         (27,958)       (269,987)
     Proceeds from notes payable                                          --              --         622,776
     Issuance of common stock for cash                               455,511         468,230      10,660,198
     (Increase) decrease in note receivable officer                       --              --          (5,422)
     (Increase) decrease in note receivable related party            (28,500)             --         (28,500)
     Proceeds from sale of treasury stock                              7,686              --         184,845
     Purchase of treasury stock                                       (6,543)             --        (223,196)
     Proceeds from issuance of convertible debt                           --              --       1,270,965
     Principal repayments on convertible debt                       (154,000)         (9,000)       (395,560)
                                                                ------------    ------------    ------------
     Net cash provided by financing activities                       274,154         431,272      11,816,119
                                                                ------------    ------------    ------------
Net (decrease) increase in cash                                   (2,438,376)       (222,376)      1,521,486
Cash at beginning of period                                        3,959,862          49,858              --
                                                                ------------    ------------    ------------
Cash at end of period                                           $  1,521,486    $   (172,518)   $  1,521,486
                                                                ============    ============    ============
</TABLE>

--------------------------------------------------------------------------------
Page F-5         See accompanying notes to these condensed financial statements.

<PAGE>

--------------------------------------------------------------------------------
                        ADVANCED OPTICS ELECTRONICS, INC.
                          (A Development Stage Company)
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                   (UNAUDITED)
--------------------------------------------------------------------------------

MANAGEMENTS' REPRESENTATION:

The management of Advanced  Optics  Electronics,  Inc. (the  "Company")  without
audit has prepared the  condensed  financial  statements  included  herein.  The
accompanying  unaudited  condensed  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 condensed financial  statements have been
included and were of a normal recurring nature,  and the accompanying  condensed
financial  statements present fairly the financial position as of June 30, 2004,
and the results of  operations  and cash flows for the three month periods ended
June 30, 2004 and 2003.

It is suggested that these condensed financial statements be read in conjunction
with the audited financial  statements and notes for the year ended December 31,
2003,  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
-------------------------------------

The Company is a development  stage technology  company with its principal focus
on the  development  and  production of  large-scale  flat panel  displays.  The
Company  trades on the Over The Counter  Bulletin Board under the symbol "ADOT."
The  market  for  the  large-scale  flat  panel  displays  includes  advertising
billboards, flat panel computer monitors and cockpit displays. The Company plans
to focus on producing and selling the large-scale flat panel displays  primarily
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,  complete  this  contract and
obtain  additional  contracts.  While  management  believes  this  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 need to obtain additional capital in
order to fund the completion of the contract.

--------------------------------------------------------------------------------
Page F-6

<PAGE>
--------------------------------------------------------------------------------
                        ADVANCED OPTICS ELECTRONICS, INC.
                          (A Development Stage Company)
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                   (UNAUDITED)
--------------------------------------------------------------------------------

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Organization and Nature of Operations (Continued)
-------------------------------------------------

Since May 22, 1996 ("Inception"),  the Company has primarily been engaged in the
research and  development of its product.  Once the research and  development is
complete,  the Company will begin to manufacture  and obtain new contracts.  The
Company is in the  development  stage and has not  generated  revenues  from any
product  sales.  The Company  believes  that its planned  products  will produce
sufficient revenues in the future.  There are no assurances,  however,  that the
Company will be able to produce such products, or if produced, that they will be
accepted in the market place.

Development Stage
-----------------

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  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 has taken action to address these matters, which include:

     o    Retention of experienced  management  personnel with particular skills
          in the development and commercialization of such product.

     o    The Company is seeking new contracts.

     o    The Company has an equity  method  investment  in a start-up  company,
          which management hopes will be profitable (see Note 2).

     o    The  Company  has a cost  method  investment  in a  development  stage
          company, which management expects will be profitable (see Note 3).

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, and 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.

--------------------------------------------------------------------------------
Page F-7

<PAGE>

--------------------------------------------------------------------------------
                        ADVANCED OPTICS ELECTRONICS, INC.
                          (A Development Stage Company)
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                   (UNAUDITED)
--------------------------------------------------------------------------------

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Development Stage (Continued)
-----------------------------

The accompanying  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 June  30,  2004,  the  Company  has  positive  working  capital
approximating  $2,140,000 including approximately $1,521,000 of cash. Management
believes that such cash balance will be sufficient  to satisfy  working  capital
needs through December 31, 2004.

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

At June 30, 2004, the Company has one  stock-based  employee  compensation  plan
(the  "Plan").  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  due to all  options  issued  to
employees were at market value or all intrinsic value has been expensed in prior
periods.  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 following
table illustrates the effect on net income and loss per share if the Company had
applied  the  fair  value  recognition  provisions  of SFAS  123 to  stock-based
employee compensation.

<TABLE>
<CAPTION>
                                                         Three Months              Six Months Ended
                                                        Ended June 30,                 June 30,
                                                       2004         2003           2004        2003
                                                   -----------   -----------   -----------   ---------
<S>                                                <C>           <C>           <C>           <C>
Net loss:
    As reported                                    $  (868,394)  $  (310,721)  $(1,719,617)  $(709,929)
    Deduct: Total stock-based employee
          compensation expense determined under
          fair value based method for all awards            --            --            --          --
    Pro forma                                      $  (868,394)  $  (310,721)  $(1,719,619)  $(709,929)
                                                   ===========   ===========   ===========   =========
Basic and diluted net loss per share:
    As reported                                    $        --   $        --   $        --   $      --
                                                   ===========   ===========   ===========   =========
    Pro forma                                      $        --   $        --   $        --   $      --
                                                   ===========   ===========   ===========   =========
</TABLE>

The  above  pro  forma  effects  of  applying  SFAS  123  are  not   necessarily
representative of the impact on reported net loss for future years.

--------------------------------------------------------------------------------
Page F-8

<PAGE>

--------------------------------------------------------------------------------
                        ADVANCED OPTICS ELECTRONICS, INC.
                          (A Development Stage Company)
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                   (UNAUDITED)
--------------------------------------------------------------------------------

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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."  The Company does not have any  investments  classified  as
"trading" or "held to maturity".

Available-for-sale  securities  consist of equity securities in GenoMed (Note 3)
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
quarter  ended June 30, 2004,  the Company  purchased  securities  approximating
$216,000  and  sold  securities  approximating  $157,000,  realizing  a net gain
approximating $18,000 upon sale.

Revenue Recognition
-------------------

In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin  101 ("SAB  101"),  "Revenue  Recognition,"  which  outlines  the basic
criteria  that  must be met to  recognize  revenue  and  provides  guidance  for
presentation  of revenue  and for  disclosure  related  to  revenue  recognition
policies  in  financial  statements  filed  with  the  Securities  and  Exchange
Commission.  As the Company  accounts for  long-term  contracts in accordance to
Statements of Position  ("SOP") 81-1 (see below),  management  believes that the
Company's revenue recognition policy conforms to SAB 101.

In accordance with SOP 81-1,  "Accounting  for Performance of  Construction-Type
and Certain  Production-Type  Contracts,"  the Company  accounts for revenue and
costs  related to its  long-term  contract in process by the  completed-contract
method,  whereas during the period from Inception to December 31, 1999,  revenue
and  costs  were  determined  by  the   percentage-of-completion   method.   The
completed-contract method of accounting was adopted in 2000 due to the Company's
uncertainty  regarding contract cost estimates.  The financial statements of the
period from Inception to December 31, 1999, were restated to apply the completed
contract method retroactively. The effect of the accounting change had no effect
on net loss or loss per share  previously  reported  for 1999 or for the  period
from Inception to December 31, 1999.

Under the completed  contract method of accounting,  contract revenues and costs
are recognized when the contract is completed,  with estimated losses recognized
when it becomes  evident  that  contract  costs will exceed  contract  revenues.
Contract  costs include all direct  material and labor costs and those  indirect
costs  related  to  contract  performance,  such as  indirect  labor,  supplies,
overhead, equipment depreciation and interest.

Costs in excess of amounts billed are classified as current assets.

--------------------------------------------------------------------------------
Page F-9

<PAGE>

--------------------------------------------------------------------------------
                        ADVANCED OPTICS ELECTRONICS, INC.
                          (A Development Stage Company)
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                   (UNAUDITED)
--------------------------------------------------------------------------------

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Revenue Recognition (Continued)
-------------------------------

The contract to produce two outdoor advertising  billboards totals $1.7 million,
with  $885,000  assigned to the first unit. An estimated  loss of  approximately
$1,300,000 from  production of the first unit has been  recognized  through June
30, 2004,  which  includes a current  quarter loss  approximating  $50,000.  The
Company's estimated cost to complete, as of June 30, 2004 is $200,000,  which is
expected to be funded with cash,  billings on the contract and proceeds from the
issuance of the Company's common stock. Per the agreement, the first unit is not
to exceed  $885,000,  of which  $90,000 has been billed and  collected  in prior
periods.  Therefore,  all  additional  costs to  complete  will be  expensed  as
incurred.

The  anticipated   delivery  date  of  the  first  unit  is  in  November  2004.
Unanticipated  delays have postponed  delivery  resulting in an amended delivery
date.  During the contract period,  the Company is entitled to bill the customer
as the following milestones are met:

           Completion of board design      $ 65,000
           Production                       265,000
           Completion                       265,000
           Acceptance after installation    290,000
                                           --------
                                           $885,000
                                           ========

Adjustments to the original estimates of total contract revenues, total contract
costs and the 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 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 completed-contract  method. It is at least reasonably possible
that the estimate of completion  costs for this contract will be further revised
in the near-term.

--------------------------------------------------------------------------------
Page F-10

<PAGE>

--------------------------------------------------------------------------------
                        ADVANCED OPTICS ELECTRONICS, INC.
                          (A Development Stage Company)
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                   (UNAUDITED)
--------------------------------------------------------------------------------

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Significant Recent Accounting Standards
---------------------------------------

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 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.  The Company is  evaluating  the effects of FIN No. 46 (as amended) on its
consolidated financial statements.

As disclosed in Note 2, the Company is associated with Biomoda,  Inc. Because of
common ownership  between the Company and Biomoda and other factors discussed in
FIN No. 46R, the Company is evaluating  whether Biomoda  requires  consolidation
under FIN 46.

Other  recent  accounting  pronouncements  issued  by the  FASB  (including  its
Emerging  Issues  Task  Force),  The  American  Institute  of  Certified  Public
Accountants,  and the  Securities  and  Exchange  Commission  did not or are not
believed by  management to have a material  impact on the  Company's  present or
future financial statements.

--------------------------------------------------------------------------------
Page F-11

<PAGE>

--------------------------------------------------------------------------------
                        ADVANCED OPTICS ELECTRONICS, INC.
                          (A Development Stage Company)
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                   (UNAUDITED)
--------------------------------------------------------------------------------

2. INVESTMENTS IN AND ADVANCES TO BIOMODA

As of June 30, 2004, the Company owned  approximately  1,132,000 or 16.5% of the
6,832,000 outstanding shares of 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 14.3%,  collectively,
of the  outstanding  shares of common stock of Biomoda.  As a development  stage
company, Biomoda has not had any revenues as of June 30, 2004.

A summary of the investment is as follows:

           Original cost                     $(383,845)
           Additional investment               (48,000)
           Equity in loss of investment        402,915
           Sale of investment                   28,930
           Advances on line of credit, net     605,082
                                             ---------
                                             $ 605,082
                                             =========

The Company will  continue to provide  Biomoda with bridge  financing  needed to
fund  its' day to day  operations,  until  such  time that  Biomoda  has  raised
sufficient capital, to fund operations.

Line of Credit
--------------

In May 2002,  the Company and Biomoda  entered  into a line of credit  agreement
(the "LOC"),  as amended,  with no maximum  borrowings,  accruing interest at an
annual interest rate of 5% and is due on demand.  Interest income related to the
LOC  approximated  $13,000 and $1,000 for the  six-month  periods ended June 30,
2004 and 2003, respectively.

Other Related Party Transactions
--------------------------------

In May 2002,  the Company  entered  into a sublease  agreement  with  Biomoda to
sublease  office  space to Biomoda  for $300 per  month.  The  sublease  is on a
month-to-month  basis and Biomoda is to abide with all relevant covenants of the
Company's master lease.

In December  2003,  the Company  entered into a lease  agreement with Biomoda to
lease certain lab equipment for $500 per month. The lease is on a month-to-month
basis.

Rental income  related to the above leases for the three and  six-month  periods
ended June 30, 2004, was approximately $2,400 and $4,800, respectively.

--------------------------------------------------------------------------------
Page F-12

<PAGE>

--------------------------------------------------------------------------------
                        ADVANCED OPTICS ELECTRONICS, INC.
                          (A Development Stage Company)
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                   (UNAUDITED)
--------------------------------------------------------------------------------

3. INVESTMENT IN GENOMED, INC.

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.  In addition,  the Company holds  approximately  193,000 shares of free
trading  common stock of GenoMed not acquired in connection  with the Agreement,
which the Company has  classified as marketable  securities in the  accompanying
condensed financial statements.

4. STOCKHOLDERS' EQUITY

Common Stock
------------

During the quarter ended June 30, 2004, the Company issued  22,200,000 shares of
common stock for services, which were valued at approximately $124,000 (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  statement of
operations.

--------------------------------------------------------------------------------
Page F-13

<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.

Page 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,  which  represents  the  first  time  that our
technology is available to this 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


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<PAGE>

     o    WEB-based status monitoring
     o    Provides time, temperature and other dynamic content inserts

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 November of 2004.

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 last
quarter of 2004.  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  completed a  marketing  film that is being  distributed  on a
national  and  international  basis.  The  recipients  who receive this film are
institutional  investors  and  qualified  potential  buyers  of the  flat  panel
displays.

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 June 30, 2004,  had a deficit  accumulated  during the  development  stage of
$16,045,695.

RESULTS OF 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 June 30, 2004 and 2003
------------------------------------------------------------------

RESEARCH AND DEVELOPMENT. Research and 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 $107,977 in the second quarter of
2004 from $21,462 in the same period of 2003.  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.  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 increased to approximately  $438,000 in the second quarter
of 2004 from  $255,500  in the second  quarter of 2003.  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

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<PAGE>

with being a publicly traded company and potential 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  and the  equity  interest  in Biomoda  Inc.  Other  income
(expense)  net  decreased  to  ($27,653)  in the  second  quarter  of 2004  from
approximately  ($34,000)  in the  second  quarter  of 2003  due  primarily  to a
decrease  in  interest  expense  because  much of the  companies  debt  has been
retired.

There was a larger loss on our Biomoda  Investment due to the increased activity
at Biomoda and the related increased expenses.

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
June 30, 2004 we have raised net proceeds of approximately $11,865,000.

The  cash  balance  at  the  end  of  the  quarter  of   $1,521,486   represents
approximately six months of cash operating expenses.

We have also utilized  equipment loans and capital lease  financing.  As of June
30, 2004 the only debt financing is a Convertible  debenture in the  approximate
amount of $103,000 (including accrued interest) that we intend to pay off in its
entirety in the fourth quarter of 2004.

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 June 30, 2004 was approximately  16.5%. Two officers
of ADOT  are  also  securities  holders  of  Biomoda  in  addition  to the  ADOT
ownership.  Biomoda  filed  a  revised  SB-2  registration  statement  with  the
Securities and Exchange Commission,  which was declared effective July 11, 2003.
Biomoda  is  offering  5,000,000  shares at $6.00 per  share  (for an  aggregate
offering of  $30,000,000).  It is anticipated that a public market for Biomoda's
securities  will be established in the fourth quarter of 2004.  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  was 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.

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 Company
has gone to the equity method of reporting its investment in Biomoda  because of
these changes in the management relationship between the two companies. ADOT has
committed to  providing  bridge  financing  until  sufficient  capital is raised
through the sale of Securities of Biomoda.

During the six months  ended June 30, 2004,  $8,900 was spent for the purchase
of  computers  and  software.   Research  and  development   expenditures   were
approximately  $108,000  in the second  quarter of 2004.  Funds for  operations,
research and development and capital expenditures were provided from the sale of
securities and cash reserves.

Page 5
<PAGE>

During the first quarter 2004, we have purchased  33,300,000  shares of Genomed,
Inc., which represents  approximately 18% of the outstanding  shares of Genomed,
Inc.  The  shares  are  restricted  and must be held for one year.  Genomed is a
publicly traded biotech company working in genomics based disease management.

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 2004. 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 2004.

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 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 June 30, 2004 Form 10-QSB. Based upon that evaluation, the CEO and
CFO concluded that, as of June 30, 2004, the Company's  disclosure  controls and
procedures were of limited effectiveness.

Consequently,  in March 2004, the Company has hired an  independent  third party
contractor to evaluate and revise its existing  control policies and procedures,
including  our  disclosure  controls  and  procedures,  and  to  implement  more
effective and efficient controls and procedures.

Changes in Controls and Procedures
----------------------------------

There were no significant  changes made in our internal  controls over financial
reporting  during the quarter ended June 30, 2004 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

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<PAGE>

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
------------

As of June  30,  2004,  the  status  of the  common  stock of the  Company  was:
2,950,000,000 shares authorized and 2,939,936,349 shares issued and outstanding.

During the three month period ended June 30, 2004, the Company issued 22,200,000
shares of common stock for services, which were valued at $124,320 (based on the
closing market price on the date of grant, which was approximately $0.01).

These transactions were exempt under Section 4(2) of the Securities Act of 1933,
as amended.  The purchasers were well known to an executive  officer of Advanced
Optics Electronics,  Inc. and each had a net worth or income level to qualify as
accredited investors, were experienced in financial and business matters, and no
general solicitation was involved in the transaction.

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 second quarter of fiscal year 2004.

Item 5.  Other Information - Not applicable

Item 6.  Exhibits and Reports on Form 8-K

Page 7

<PAGE>

(a)  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.

(a)  Reports on Form 8-K

No reports on Form 8-K was filed during the second quarter of 2004.

Page 8
<PAGE>

                                   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:     August 16, 2004

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)




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