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 six month period ended: June 30, 2006


                           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 August 18, 2006
was 9,403,836,349

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

<PAGE>



PART I:  FINANCIAL INFORMATION
ITEM 1:  Financial Statements


--------------------------------------------------------------------------------
                        ADVANCED OPTICS ELECTRONICS, INC.
                          (A Development Stage Company)
                           CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                June 30,       December 31,
                                                                 2006             2005
                                                             ------------    ------------
<S>                                                          <C>             <C>
                                     ASSETS

Current Assets
   Cash                                                      $    156,756    $     92,518
   Cash, restricted                                                30,000            --
   Marketable securities                                          450,920         902,027
   Other current assets                                            21,057          24,252
                                                             ------------    ------------

                Total current assets                              658,733       1,018,797

Intangibles, net of accumulated amortization
     of $80,115 and $71,900                                       188,861         194,576

Property and Equipment, net of accumulated
     depreciation of $453,828 and $438,380                        104,880         120,328

Notes receivable and deposits                                      56,262          54,406
                                                             ------------    ------------

                                                             $  1,008,736    $  1,388,107
                                                             ============    ============


                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities
   Accounts payable                                          $    183,387    $    165,546
   Accrued expenses                                               446,310         363,658
   Common stock subscribed                                         30,000            --
   Advances from shareholders                                     156,652         149,002
   Convertible debentures                                          91,896          88,574
                                                             ------------    ------------

                Total current liabilities                         908,245         766,780
                                                             ------------    ------------

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,
     10,000,000,000 shares authorized;
     8,688,836,349 shares issued and outstanding                8,688,836       6,023,836
   Treasury stock, at cost                                        (14,892)        (12,660)
   Notes receivable officer                                          --              --
   Additional paid in capital                                  14,473,651      16,326,251
   Accumulated other comprehensive income (loss)                  (56,553)        164,789
   Deficit accumulated during the development stage           (22,990,551)    (21,880,889)
                                                             ------------    ------------

                Total stockholders' equity                        100,491         621,327
                                                             ------------    ------------

                                                             $  1,008,736    $  1,388,107
                                                             ============    ============
</TABLE>

--------------------------------------------------------------------------------
        See accompanying notes to the consolidated financial statements

F-1
<PAGE>

--------------------------------------------------------------------------------
                        ADVANCED OPTICS ELECTRONICS, INC.
                          (A Development Stage Company)
                       CONSOLIDATED STATEMENTS OF EXPENSES
           Six Months Ended June 30, 2006 and 2005 and For The Period
               From May 22, 1996 (Inception) Through June 30, 2006
                                   (Unaudited)
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                                                                                      May 22, 1996
                                                                                                      (Inception)
                                                                                                        Through
                                                                                                        June 30,
                                                                   2006               2005               2006
                                                             ---------------    ---------------    ---------------
<S>                                                          <C>                <C>                <C>
OPERATING EXPENSES
      General and administrative                                     708,893          1,297,561         14,774,164
      Research and development                                       274,540             38,949          2,402,717
      Professional fees                                              126,996             13,256            380,551
      Depreciation & amortization                                     23,663             25,269            201,870
      Licensing fees                                                  15,000             15,000             68,101
      Inventory write-off                                               --                 --               29,293
      Asset impairment                                                  --                 --              592,884
      Loss on contract                                                  --                 --            2,255,944
                                                             ---------------    ---------------    ---------------

OPERATING LOSS                                                    (1,149,092)        (1,390,035)       (20,705,524)
                                                             ---------------    ---------------    ---------------

OTHER INCOME (EXPENSES)
      Interest income                                                  1,883              1,743             86,836
      Realized gain (loss) on marketable equity securities            35,665             (2,147)            (8,164)
      Other investment gains                                            --                 --               59,784
      Loss from investment in Biomoda, Inc.                             --                 --             (289,750)
      Gain (loss) on disposal of assets                                 --                 --               (3,520)
      Gain (loss) on settlement of debts                              16,064             10,122           (540,024)
      Interest expense                                               (14,182)           (24,964)        (1,338,440)
      Other income                                                      --                 --                  551
                                                             ---------------    ---------------    ---------------
                     Total other income (expenses)                    39,430            (15,246)        (2,032,727)
                                                             ---------------    ---------------    ---------------

NET LOSS BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE & EXTRAORDINARY LOSS                      (1,109,662)        (1,405,281)       (22,738,251)

EXTRAORDINARY LOSS                                                      --                 --             (189,280)

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

NET LOSS                                                          (1,109,662)        (1,405,281)       (22,990,551)

OTHER COMPREHENSIVE GAIN (LOSS)
      Unrealized gain (loss) on marketable securities               (221,342)           680,233            (56,553)

                                                             ---------------    ---------------    ---------------
COMPREHENSIVE LOSS                                           $    (1,331,004)   $      (725,048)   $   (23,047,104)
                                                             ===============    ===============    ===============



Basic and diluted net loss available to common shareholder
  per common share                                           $        (0.000)   $        (0.000)
                                                             ===============    ===============


Basic and diluted weighted average common shares
  outstanding                                                 7,412,336,349      3,591,538,375
                                                             ===============    ===============
</TABLE>

--------------------------------------------------------------------------------
        See accompanying notes to the consolidated financial statements
F-2
<PAGE>

--------------------------------------------------------------------------------
                        ADVANCED OPTICS ELECTRONICS, INC.
                       CONSOLIDATED STATEMENTS OF EXPENSES
            For the Three Month Periods Ended June 30, 2006 and 2005
                                   (Unaudited)
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>

                                                                  2006               2005
                                                             ---------------    ---------------
<S>                                                          <C>                <C>
OPERATING EXPENSES
        General and administrative                                   260,926            674,091
        Research and development                                     146,447             92,894
        Professional Fees                                             61,617             11,352
        Depreciation & amortization                                   11,476             12,770
        Licensing Fees                                                15,000             15,000
           Loss on contract                                             --                 --
                                                             ---------------    ---------------

OPERATING LOSS                                                      (495,466)          (806,107)
                                                             ---------------    ---------------

OTHER INCOME (EXPENSES)
        Interest income                                                  961                883
        Realized loss on marketable equity securities                 (3,045)                66
        Gain (loss) on settlement of debts                            16,064               --
        Interest expense                                              (5,555)           (18,543)
        Other income                                                    --                 --
                                                             ---------------    ---------------
                       Total other income (expenses)                   8,425            (17,594)
                                                             ---------------    ---------------

NET LOSS BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE & EXTRAORDINARY LOSS                        (487,041)          (823,701)

EXTRAORDINARY LOSS                                                      --                 --

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

NET LOSS                                                            (487,041)          (823,701)

OTHER COMPREHENSIVE GAIN (LOSS)
        Unrealized gain (loss) on marketable securities             (220,270)           395,007

                                                             ---------------    ---------------
COMPREHENSIVE LOSS                                           $      (707,311)   $      (428,694)
                                                             ===============    ===============



Basic and diluted net loss available to common shareholder
  per common share                                           $        (0.000)   $        (0.000)
                                                             ===============    ===============


Basic and diluted weighted average common shares
  outstanding                                                  3,776,180,793      2,933,421,132
                                                             ===============    ===============

</TABLE>

--------------------------------------------------------------------------------
        See accompanying notes to the consolidated financial statements
F-3
<PAGE>

--------------------------------------------------------------------------------
                        ADVANCED OPTICS ELECTRONICS, INC.
                          (A Development Stage Company)
          CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) AND
COMPREHENSIVE INCOME (LOSS) For The Period From May 22, 1996 (Inception) Through
                                 June 30, 2006
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                     Preferred Stock                  Common Stock
                                              ----------------------------    ----------------------------

                                                 Shares          Amount          Shares         Amount
                                              ------------    ------------    ------------    ------------
<S>                                           <C>             <C>             <C>             <C>
Balance at May 22, 1996 (Inception)                   --      $       --              --      $       --
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 for cash and services                    --              --         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                                  710               1         782,000             782
Stock issued for services                             --              --         3,955,202           3,955
Purchase of treasury stock                            --              --              --              --
Sale of treasury stock                                --              --              --              --
Exercise of stock options for
  notes receivable                                    --              --         1,850,000           1,850
Amortization of discount of convertible
  preferred stock                                     --              --              --              --
Exercise of preferred stock
  conversion feature                                  --              --         9,200,000           9,200
Issuance of convertible debentures                    --              --              --              --
Exchange of preferred stock for
  convertible debentures                              (710)             (1)           --              --
Intrinsic value of convertible debenture              --              --              --              --
De-investment in Wizard Technologies                  --              --              --              --
Net loss                                              --              --              --              --
                                              ------------    ------------    ------------    ------------

Balance, December 31, 2000                            --              --        61,928,175          61,928
Stock issued for cash                                 --              --         1,382,778           1,383
Stock issued for services                             --              --        10,461,498          10,461
Purchase of treasury stock                            --              --              --              --
Amortization of discount on convertible
  debentures                                          --              --              --              --
Stock issued upon debt conversion                     --              --         7,064,886           7,065
Net loss                                              --              --              --              --
                                              ------------    ------------    ------------    ------------



--------------------------------------------------------------------------------
        See accompanying notes to the consolidated financial statements
F-4
<PAGE>



Balance, December 31, 2001                            --              --        80,837,337          80,837
Stock issued for cash                                 --              --       315,845,000         315,845
Stock issued for services                             --              --       115,768,000         115,768
Purchase of treasury stock                            --              --              --              --
Sale of treasury stock                                --              --              --              --
Exercise of stock options for
  notes receivable                                    --              --         1,100,000           1,100
Advances to officer                                   --              --              --              --
Reclass of accrued interest with
  note receivable                                     --              --              --              --
Stock issued upon debt conversion                     --              --        78,695,566          78,696
Retroactive application of equity method
  for investment in Biomoda, Inc.                     --              --              --              --
Net loss                                              --              --              --              --
                                              ------------    ------------    ------------    ------------

Balance, December 31, 2002                            --              --       592,245,903         592,246
Stock issued for cash                                 --              --     1,477,760,000       1,477,760
Stock issued for services                             --              --       367,249,994         367,250
Purchase of treasury stock                            --              --              --              --
Sale of treasury stock                                --              --              --              --
Accrued interest on advances to officer               --              --              --              --
Cancellation of stock issued for
  note receivable                                     --              --        (2,950,000)         (2,950)
Stock issued upon debt conversion,
  including $67,000 of interest                       --              --       320,830,452         320,830
Gain on sale of available for
  sale securities                                     --              --              --              --
Net loss                                              --              --              --              --
                                              ------------    ------------    ------------    ------------

Balance, December 31, 2003                            --              --     2,755,136,349       2,755,136
Stock issued for cash                                 --              --       462,800,000         462,800
Stock issued for services                             --              --        47,200,000          47,200
Purchase of treasury stock                            --              --              --              --
Sale of treasury stock                                --              --              --              --
Stock issued upon debt conversion,
  including $166,240 of interest                      --              --       103,000,000         103,000
Unrealized gain (loss) on
  marketable securities                               --              --              --              --
Net loss                                              --              --              --              --
                                              ------------    ------------    ------------    ------------

Balance, December 31, 2004                            --              --     3,368,136,349       3,368,136
Stock issued for cash                                 --              --     2,634,700,000       2,634,700
Purchase of treasury stock                            --              --              --              --
Sale of treasury stock                                --              --              --              --
Expense advances to officer, net
  of accrued interest                                 --              --              --              --
Stock issued upon debt conversion                     --              --        21,000,000          21,000
Unrealized gain (loss) on marketable
  securities                                          --              --              --              --
Net loss                                              --              --              --              --
                                              ------------    ------------    ------------    ------------

Balance, December 31, 2005                            --      $       --     6,023,836,349    $  6,023,836
Stock issued for cash                                 --              --     2,600,000,000       2,600,000
Stock issued for services                             --              --        65,000,000          65,000
Purchase of treasury stock                            --              --              --              --
Unrealized gain (loss) on marketable
  securities                                          --              --              --              --
Net loss                                              --              --              --              --
                                              ------------    ------------    ------------    ------------

Balance, June 30, 2006                               --      $       --      8,688,836,349    $  8,688,836
                                              ============    ============    ============    ============
</TABLE>

F-5
<PAGE>
--------------------------------------------------------------------------------
                        ADVANCED OPTICS ELECTRONICS, INC.
                          (A Development Stage Company)
          CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) AND
COMPREHENSIVE INCOME (LOSS) For The Period From May 22, 1996 (Inception) Through
                                 June 30, 2006
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                      Treasury Stock            Additional
                                              -----------------------------      Paid In            N/R
                                                Shares           Amount          Capital        Stockholder
                                              ------------     ------------    ------------     ------------
 <S>                                           <C>             <C>             <C>             <C>
Balance at May 22, 1996 (Inception)                   --       $       --      $       --       $       --
Stock issued to incorporators for cash                --               --            24,500             --
Stock issued for the net assets of
  PLZ Tech, Inc.                                      --               --           281,096             --
Net loss                                              --               --              --               --
                                              ------------     ------------    ------------     ------------

Balance, December 31, 1996                            --               --           305,596             --
Stock issued for cash and services                    --               --           362,720             --
Net loss                                              --               --              --               --
                                              ------------     ------------    ------------     ------------

Balance, December 31, 1997                            --               --           668,316             --
Stock issued for cash                                 --               --         1,281,728             --
Stock issued for services                             --               --           293,719             --
Stock issued in exchange for
  note receivable                                     --               --            28,685             --
Purchase and retirement of treasury stock             --               --           (39,913)            --
Net loss                                              --               --              --               --
                                              ------------     ------------    ------------     ------------

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

Balance, December 31, 1999                        (144,000)         (30,630)      4,870,257             --
Stock issued for cash                                 --               --         1,012,710             --
Stock issued for services                             --               --         1,726,197             --
Purchase of treasury stock                         (63,500)         (46,486)           --               --
Sale of treasury stock                             142,400           22,542          54,771             --
Exercise of stock options for
  notes receivable                                    --               --           220,150             --
Amortization of discount of convertible
  preferred stock                                     --               --           159,677         (193,427)
Exercise of preferred stock
  conversion feature                                  --               --           533,678             --
Issuance of convertible debentures                    --               --           263,830             --
Exchange of preferred stock for
  convertible debentures                              --               --          (869,678)            --
Intrinsic value of convertible debenture              --               --           227,898             --
De-investment in Wizard Technologies                  --               --           (59,583)            --
Net loss                                              --               --              --               --
                                              ------------     ------------    ------------     ------------

Balance, December 31, 2000                         (65,100)         (54,574)      8,139,907         (193,427)
Stock issued for cash                                 --               --            66,844             --
Stock issued for services                             --               --           412,284             --
Purchase of treasury stock                        (251,700)         (16,215)           --               --
Amortization of discount on convertible
  debentures                                          --               --           143,875             --
Stock issued upon debt conversion                     --               --           147,008             --
Net loss                                              --               --              --               --
                                              ------------     ------------    ------------     ------------


--------------------------------------------------------------------------------
        See accompanying notes to the consolidated financial statements

F-6
<PAGE>


Balance, December 31, 2001                        (316,800)         (70,789)      8,909,918         (193,427)
Stock issued for cash                                 --               --           229,816             --
Stock issued for services                             --               --           366,301             --
Purchase of treasury stock                      (1,400,000)          (8,732)           --               --
Sale of treasury stock                             507,800           72,887         (65,058)            --
Exercise of stock options for
  notes receivable                                    --               --            20,900          (22,000)
Advances to officer                                   --               --              --            (34,300)
Reclass of accrued interest with
  note receivable                                     --               --              --            (59,175)
Stock issued upon debt conversion                     --               --           348,324             --
Retroactive application of equity method
  for investment in Biomoda, Inc.                     --               --              --               --
Net loss                                              --               --              --               --
                                              ------------     ------------    ------------     ------------

Balance, December 31, 2002                      (1,209,000)          (6,634)      9,810,201         (308,902)
Stock issued for cash                                 --               --         4,553,055             --
Stock issued for services                             --               --         1,464,845             --
Purchase of treasury stock                     (13,250,000)         (61,943)           --               --
Sale of treasury stock                           9,950,000           24,846          31,707             --
Accrued interest on advances to officer               --               --              --             (2,397)
Cancellation of stock issued for
  note receivable                                     --               --          (241,050)         244,000
Stock issued upon debt conversion,
  including $67,000 of interest                       --               --           337,563             --
Gain on sale of available for
  sale securities                                     --               --              --               --
Net loss                                              --               --              --               --
                                              ------------     ------------    ------------     ------------

Balance, December 31, 2003                      (4,509,000)         (43,731)     15,956,321          (67,299)
Stock issued for cash                                 --               --           656,231             --
Stock issued for services                             --               --           207,580             --
Purchase of treasury stock                      (9,800,000)         (41,724)           --               --
Sale of treasury stock                          14,100,000           48,260            --               --
Stock issued upon debt conversion,
  including $166,240 of interest                      --               --         1,022,790             --
Unrealized gain (loss) on
  marketable securities                               --               --              --               --
Net loss                                              --               --              --               --
                                              ------------     ------------    ------------     ------------

Balance, December 31, 2004                        (209,000)         (37,195)     17,842,922          (67,299)
Stock issued for cash                                 --               --        (1,487,526)            --
Purchase of treasury stock                     (22,205,000)         (15,926)           --               --
Sale of treasury stock                           1,804,000           40,461         (39,267)            --
Expense advances to officer, net
  of accrued interest                                 --               --              --             67,299
Stock issued upon debt conversion                     --               --            10,122             --
Unrealized gain (loss) on marketable
  securities                                          --               --              --               --
Net loss                                              --               --              --               --
                                              ------------     ------------    ------------     ------------

Balance, December 31, 2005                     (20,610,000)    $    (12,660)   $ 16,326,251     $       --
Stock issued for cash                                 --              --         (1,800,600)            --
Stock issued for services                             --              --            (52,000)            --
Purchase of treasury stock                      (4,875,000)          (2,232)          --                --
Unrealized gain (loss) on marketable
  securities                                          --              --              --                --
Net loss                                              --              --              --                --
                                              ------------    -------------   -------------     ------------

Balance, June 30, 2006                         (25,485,000)    $    (14,892)   $ 14,473,651     $       --
                                              ============    =============   =============     ============

</TABLE>

F-7
<PAGE>
--------------------------------------------------------------------------------
                        ADVANCED OPTICS ELECTRONICS, INC.
                          (A Development Stage Company)
          CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) AND
COMPREHENSIVE INCOME (LOSS) For The Period From May 22, 1996 (Inception) Through
                                 June 30, 2006
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                      Deficit
                                                       Other         Accumulated             Total
                                                    Comprehensive     During the          Stockholders'
                                                       Income       Development Stage    equity (deficit)
                                                     ------------    ------------        ------------
<S>                                                 <C>             <C>                <C>
Balance at May 22, 1996 (Inception)                  $       --      $       --          $       --
Stock issued to incorporators for cash                       --              --                25,000
Stock issued for the net assets of
  PLZ Tech, Inc.                                             --              --               285,596
Net loss                                                     --           (76,902)            (76,902)
                                                     ------------    ------------        ------------

Balance, December 31, 1996                                   --           (76,902)            233,694
Stock issued for cash and services                           --              --               365,001
Net loss                                                     --           (84,690)            (84,690)
                                                     ------------    ------------        ------------

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

Balance, December 31, 1998                                   --          (913,703)          1,339,686
Stock issued for cash                                        --              --               863,783
Stock issued for services                                    --              --             1,486,414
Intrinsic value of beneficial conversion
  feature of notes payable                                   --              --               174,610
Fair value of warrants related to
  notes payable                                              --              --               125,000
Purchase and retirement of treasury stock                    --              --               (11,132)
Purchase of treasury stock                                   --              --               (41,760)
Sale of treasury stock                                       --              --                35,464
Net loss                                                     --        (2,765,862)         (2,765,862)
                                                     ------------    ------------        ------------

Balance, December 31, 1999                                   --        (3,679,565)          1,206,203
Stock issued for cash                                        --              --             1,013,493
Stock issued for services                                    --              --             1,730,152
Purchase of treasury stock                                   --              --               (46,486)
Sale of treasury stock                                       --              --                77,313
Exercise of stock options for
  notes receivable                                           --              --               222,000
Amortization of discount of convertible
  preferred stock                                            --              --                33,750
Exercise of preferred stock
  conversion feature                                         --              --               542,878
Issuance of convertible debentures                           --              --               263,830
Exchange of preferred stock for
  convertible debentures                                     --              --              (869,679)
Intrinsic value of convertible debenture                     --              --               227,898
De-investment in Wizard Technologies                         --              --               (59,583)
Net loss                                                     --        (3,827,873)         (3,827,873)
                                                     ------------    ------------        ------------

Balance, December 31, 2000                                   --        (7,507,438)            446,396
Stock issued for cash                                        --              --                68,227
Stock issued for services                                    --              --               422,745
Purchase of treasury stock                                   --              --               (16,215)
Amortization of discount on convertible
  debentures                                                 --              --               143,875
Stock issued upon debt conversion                            --              --               154,073
Net loss                                                     --        (1,985,142)         (1,985,142)
                                                     ------------    ------------        ------------


--------------------------------------------------------------------------------
        See accompanying notes to the consolidated financial statements

F-8
<PAGE>

Balance, December 31, 2001                                   --        (9,492,580)           (766,041)
Stock issued for cash                                        --              --               545,661
Stock issued for services                                    --              --               482,069
Purchase of treasury stock                                   --              --                (8,732)
Sale of treasury stock                                       --              --                 7,829
Exercise of stock options for
  notes receivable                                           --              --                  --
Advances to officer                                          --              --               (34,300)
Reclass of accrued interest with
  note receivable                                            --              --               (59,175)
Stock issued upon debt conversion                            --              --               427,020
Retroactive application of equity method
  for investment in Biomoda, Inc.                            --           (97,674)            (97,674)
Net loss                                                     --        (1,285,830)         (1,285,830)
                                                     ------------    ------------        ------------

Balance, December 31, 2002                                   --       (10,876,084)           (789,173)
Stock issued for cash                                        --              --             6,030,815
Stock issued for services                                    --              --             1,832,095
Purchase of treasury stock                                   --              --               (61,943)
Sale of treasury stock                                       --              --                56,553
Accrued interest on advances to officer                      --              --                (2,397)
Cancellation of stock issued for
  note receivable                                            --              --                  --
Stock issued upon debt conversion,
  including $67,000 of interest                              --              --               658,393
Unrealized gain on available for
  sale securities                                          17,449            --                17,449
Net loss                                                     --        (3,900,959)         (3,900,959)
                                                                                         ------------
Comprehensive loss                                           --              --            (3,883,510)
                                                     ------------    ------------        ------------

Balance, December 31, 2003                                 17,449     (14,777,043)          3,840,833
Stock issued for cash                                        --              --             1,119,031
Stock issued for services                                    --              --               254,780
Purchase of treasury stock                                   --              --               (41,724)
Sale of treasury stock                                       --              --                48,260
Stock issued upon debt conversion,
  including $166,240 of interest                             --              --             1,125,790
Unrealized gain (loss) on
  marketable securities                                   (27,140)           --               (27,140)
Net loss                                                     --        (5,048,067)         (5,048,067)
                                                                                         ------------
Comprehensive loss                                           --              --            (5,020,927)
                                                     ------------    ------------        ------------

Balance, December 31, 2004                                 (9,691)    (19,825,110)          1,271,763
Stock issued for cash                                        --              --             1,147,174
Purchase of treasury stock                                                   --               (15,926)
Sale of treasury stock                                       --              --                 1,194
Expense advances to officer, net
  of accrued interest                                        --              --                67,299
Stock issued upon debt conversion                            --              --                31,122
Unrealized gain (loss) on marketable
  securities                                              174,480            --               174,480
Net loss                                                     --        (2,055,779)         (2,055,779)
                                                                                         ------------
Comprehensive loss                                           --              --            (1,881,299)
                                                     ------------    ------------        ------------

Balance, December 31, 2005                           $    164,789    $(21,880,889)       $    621,327
Stock issued for cash                                        --              --               799,400
Stock issued for services                                    --              --                13,000
Purchase of treasury stock                                   --              --                (2,232)
Unrealized gain (loss) on
  marketable securities                                  (221,342)                           (221,342)
Net loss                                                     --        (1,109,662)         (1,109,662)
                                                                                         ------------
Comprehensive loss                                           --              --            (1,331,004)
                                                     ------------    ------------        ------------

Balance, June 30, 2006                               $    (56,553)   $(22,990,551)       $    100,491
                                                     ============    ============        ============
</TABLE>

--------------------------------------------------------------------------------
        See accompanying notes to the consolidated financial statements
F-9
<PAGE>

--------------------------------------------------------------------------------
                       ADVANCED OPTICS ELECTRONICS, INC.
                          (A Development Stage Company)
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
           SIX MONTHS ENDED JUNE 30, 2006 AND 2005 AND FOR THE PERIOD
               FROM MAY 22, 1996 (INCEPTION) THROUGH JUNE 30, 2006
                                  (Unaudited)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                                                                                  May 22, 1996
                                                                                                                    (Inception)
                                                                                                                     Through
                                                                                                                      June 30,
                                                                                       2006            2005            2006
                                                                                   ------------    ------------    ------------
<S>                                                                                <C>             <C>             <C>
Cash flows from operating activities:
     Net loss                                                                      $ (1,109,662)   $ (1,405,281)   $(22,990,551)
     Adjustments to reconcile net loss to net cash
       used in operating activities:
        Intrinsic value of conversion features                                             --              --           610,603
        Write off of organization costs/goodwill                                           --              --            63,020
        Extraordinary loss                                                                 --              --           189,280
        Inventory write off                                                                --              --            29,293
        Amortization of discount on convertible notes and
          preferred stock                                                                  --              --           295,209
        (Gain) loss on marketable securities                                            (35,665)           --             8,164
        Loss on disposal of assets                                                         --              --             3,520
        Loss on investment in Biomoda, Inc.                                                --              --           289,750
        Issuance of common stock for services                                            13,000            --         6,517,726
        Stock option expense                                                             (2,500)           --           162,500
        Issuance of notes payable for services                                             --              --            50,000
        Exchange of investment securities for services                                  163,234         290,839         316,662
        Increase in excess of costs and earnings over billings
        on uncompleted contract                                                            --              --        (2,050,000)
        Increase in allowance for loss on contract                                         --              --         2,050,000
        Loss (Gain) on extinguishment of debt                                              --              --           556,088
        Interest accrued on convertible debentures                                         --              --           317,985
        Interest earned on note receivable from stockholder and
          related parties                                                                  --              --           (17,823)
        Depreciation and amortization                                                    23,663          25,268         739,830
        Bad debt expense                                                                   --              --            15,000
        Asset impairment                                                                   --              --           592,884
        Other non-cash expenses                                                            --              --            34,923
        Expense advances to officer                                                        --              --            67,299
        Gain on forgiveness of debt to officer                                             --              --           (51,351)
     Changes in operating assets and liabilities:
        Decrease (Increase) in other current assets                                       3,195         (13,411)        (15,824)
        Decrease in inventory                                                              --              --           (35,293)
        (Decrease) Increase in accounts payable and accrued expenses                    103,815          47,306         340,975
                                                                                   ------------    ------------    ------------

     Net cash used in operating activities                                             (840,920)     (1,055,279)    (11,910,131)
                                                                                   ------------    ------------    ------------

Cash flows from investing activities:
     Purchases of property and equipment                                                   --            (3,780)       (521,860)
     Additions to Patent, trademark and license fee, net of extraordinary gain             --           (41,460)       (114,878)
     Investment in restricted cash                                                      (30,000)           --           (30,000)
     Investment in GenoMed                                                               (3,093)          2,508        (924,571)
     Proceeds from sale of GenoMed                                                      105,289            --           289,335
     Investment in Biomoda, Inc.                                                           --              --          (383,845)
     Proceeds from sale of Biomoda stock                                                   --              --            28,930
     Advances to Biomoda                                                                   --              --           (38,432)
     Advances from shareholders                                                            --              --            14,009
     Sale of marketable securities                                                         --              --           192,787
     Purchases of marketable securities                                                    --              --          (645,334)
     Cash of variable entity on consolidation                                              --              --               155
     Increase in notes receivable                                                        (1,856)         (3,033)        (56,262)
     Purchase of other assets                                                              --              --          (245,579)
                                                                                   ------------    ------------    ------------

     Net cash provided by (used in) investing activities                                 70,340         (45,765)     (2,435,545)
                                                                                   ------------    ------------    ------------


Cash flows from financing activities:
     Principal repayments on notes payable and capital leases                              --              --          (308,346)
     Proceeds from notes payable                                                           --              --           622,776
     Issuance of common stock for cash                                                  829,400         693,127      13,300,291
     Issuance of Biomoda common stock for cash                                             --              --            60,000
     Advances from Biomoda stockholders                                                   7,650            --             7,650
     (Increase) decrease in note receivable stockholder                                    --             2,212          (5,422)
     Proceeds from sale of treasury stock                                                  --              --           226,613
     Purchase of treasury stock                                                          (2,232)         (1,752)       (276,535)
     Proceeds from issuance of convertible debt                                            --              --         1,270,965
     Principal repayments on convertible debt                                              --              --          (395,560)
                                                                                   ------------    ------------    ------------

     Net cash provided by financing activities                                          834,818         693,587      14,502,432
                                                                                   ------------    ------------    ------------

Net (decrease) increase in cash                                                          64,238        (407,457)        156,756

Cash at beginning of period                                                              92,518         612,652            --
                                                                                   ------------    ------------    ------------

Cash at end of period                                                              $    156,756    $    205,195    $    156,756
                                                                                   ============    ============    ============


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

Non-cash transactions:
        Unrealized gain (loss) on marketable securities                            $   (221,342)   $    395,007
                                                                                   ============    ============

</TABLE>

--------------------------------------------------------------------------------
        See accompanying notes to the consolidated financial statements
F-10
<PAGE>


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

1.      BASIS OF PRESENTATION:

The management of Advanced Optics  Electronics,  Inc. ("ADOT") without audit has
prepared the condensed  consolidated  financial  statements included herein. The
accompanying  unaudited condensed  consolidated  financial  statements have been
prepared in accordance  with  accounting  principles  generally  accepted in the
United States of America for interim financial information.  Certain information
and note disclosures  normally included in the financial  statements prepared in
accordance with accounting principles generally accepted in the United States of
America  have been  omitted.  In the  opinion  of  management,  all  adjustments
considered necessary for fair presentation of the condensed financial statements
have been included and were of a normal recurring  nature,  and the accompanying
condensed   consolidated  financial  statements  present  fairly  the  financial
position as of June 30, 2006,  the results of  operations  for the three and six
month  periods and cash flows for the six month  period  ended June 30, 2006 and
2005.

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,
2005,  included in ADOT'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.

2.      DEVELOPMENTAL STAGE AND GOING CONCERN

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

The accompanying  consolidated  financial statements have been prepared assuming
ADOT 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, 2006, ADOT has accumulated  deficit of $22,990,551.
ADOT's total assets exceeded the total  liabilities by $100,491.  These factors,
among  others,  raise  substantial  doubt about ADOT's  ability to continue as a
going concern.

ADOT 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 ADOT will be able to obtain  sufficient
additional  funds  when  needed,  or that  such  funds,  if  available,  will be
obtainable on terms satisfactory to ADOT.

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,  ADOT 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 ADOT will be able to
obtain  sufficient  additional  funds  when  needed,  although  such  funds,  if
available,  will be obtainable on terms  satisfactory  to ADOT.  The  successful
outcome of future  activities  cannot be determined at this time and there is no
assurance  that if  achieved,  ADOT will have  sufficient  funds to execute  its
intended business plan or generate positive operating results.

F-11
<PAGE>


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

3.      MARKETABLE SECURITIES

ADOT classifies its investments in marketable securities as "available-for sale"
in accordance with the provisions of Statement of Financial Accounting Standards
No. 115,  "Accounting  for Certain  Investments  in Debt and Equity  Securities"
(SFAS 115). ADOT does not have any investments  classified as "trading" or "held
to maturity".

On January 8, 2004,  ADOT entered into a Stock Sale Agreement (the  "Agreement")
with GenoMed,  Inc., a Florida  corporation  ("GenoMed")  whereby ADOT 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.  ADOT has
accounted  for this  investment  under the cost  method  as it  cannot  exercise
significant  influence over the operating and financial policies of GenoMed.  As
of January and February,  2005, these shares become free trading shares. At June
30, 2006, ADOT held 18,400,821 of these shares. Of these,  6,400,000 shares were
held in escrow as  collateral  securing  payment of a  settlement.  See note 10,
below.

Following is a summary of marketable securities classified as available for sale
as of June 30, 2006:

<TABLE>
<CAPTION>
                                          COST BASIS          FAIR VALUE         UNREALIZED LOSS
                                       ----------------    -----------------    ------------------
<S>                                    <C>                <C>                   <C>
Marketable securities-Common stock      $  507,473          $  450,920             $  56,553

</TABLE>


Available-for-sale  securities  consist of securities in GenoMed and are carried
at fair  value  with  the  unrealized  gain or  loss,  net of tax,  reported  in
accumulated other comprehensive  income. The fair value of marketable securities
was  determined  based on available  market  information.  During the six months
ended June 30, 2006, ADOT  transferred  4,950,000 shares valued at approximately
$163,234 to consultants in exchange for services.

4.      STOCK BASED COMPENSATION

On January 1, 2006 ADOT adopted SFAS No. 123(R),  "Share-Based  Payment"  ("SFAS
123(R)").  SFAS 123(R)  replaced SFAS No. 123 and supersedes APB Opinion No. 25.
SFAS 123(R) requires all share-based payments to employees,  including grants of
employee stock options,  to be recognized in the financial  statements  based on
their fair values. The pro forma disclosures previously permitted under SFAS 123
are no longer an alternative to financial  statement  recognition.  However,  at
June 30, 2006,  there were no  instruments  remaining  which were subject to the
pronouncement.

5.      VARIABLE INTEREST ENTITY - BIOMODA, INC.

At June 30, 2006, ADOT owned approximately  1,132,000 or 15.75% of the 7,187,000
outstanding  shares of Biomoda,  Inc.  ("Biomoda"),  a development stage company
involved  in the  development  of  technology  for the early  detection  of lung
cancer. In addition, two of ADOT's officers own approximately 12%, collectively,
of Biomoda's  outstanding shares.  Further,  ADOT subleases office space and lab
equipment to Biomoda and two of ADOT's  officers  are also  officers of Biomoda.
Finally,  ADOT has been the sole source of funding to Biomoda since 2002 through
advances made under a line of credit agreement. Such advances totaled $1,699,546
at June 30, 2006 and ADOT has recorded  interest income on advances of $138,545.
These amounts have been  eliminated  in  consolidation.  ADOT is considered  the
primary  beneficiary  as it stands to absorb the majority of the VIE's  expected
losses.  Since Biomoda and ADOT are considered  entities  under common  control,
ADOT measures the assets and liabilities of Biomoda at their carrying amounts in
consolidation.

F-12
<PAGE>

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

As of June 30,  2006,  ADOT has  consolidated  Biomoda's  balance  sheet and its
results  of the  operations  for the  quarter  then  ended  in the  accompanying
financial  statements.  Biomoda has a  stockholders'  deficit at June 30,  2006.
General  creditors  of Biomoda have no recourse  against  ADOT.  From  inception
through June 30, 2006, Biomoda has generated no revenues

In 2006,  Biomoda  anticipates  being  able to raise its own funds in the public
equity market. In this case,  Biomoda may be able to sustain its own operations,
repay its obligation to ADOT, and hire its own officers.  In such case, ADOT may
no longer be considered the primary  beneficiary  and the results of Biomoda may
be deconsolidated.  There can be no assurance that Biomoda will be able to raise
sufficient funds to repay its obligation to ADOT and become  self-sustaining  in
its operations.

6.      RELATED PARTY TRANSACTIONS

As of June 30, 2006, ADOT had advances of approximately  $157,000 payable to two
of its stockholders.  Such advances historically bore interest at 10% per annum.
Interest expense was approximately $8,000, $17,000 and $90,000 for the six month
periods ended June 30, 2006 and 2005 and for the period from  inception  through
June 30, 2006, respectively.

7.      STOCKHOLDERS' EQUITY

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

During the six months ended June 30, 2006, ADOT issued  2,600,000,000  shares of
common stock for cash of approximately  $799,400 and issued 65,000,000 shares of
common stock for services,  which were valued at approximately $13,000 (based on
the closing market price on the date of grant,  which  approximated  $0.0002 per
share). ADOT recorded such amounts in the accompanying  statement of operations.
There were no stock options  granted during the six month periods ended June 30,
2006 and 2005.

8.      SEGMENTS

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



The following is information for ADOT's  reportable  segments for the six months
ended June 30 (in thousands):

<TABLE>
<CAPTION>

                                             2006                                               2005
                        ------------------------------------------------      -----------------------------------------
<S>                     <C>           <C>         <C>              <C>        <C>       <C>         <C>            <C>
                        ADOT          Biomoda     Unallocated      Total       ADOT     Biomoda     Unallocated    Total
Revenue                 $  -           $   -          $   -       $    -      $    -     $   -         $   -      $    -
Loss on Operations       706             443              -        1,149       1,169       253             -       1,422
Depreciation
    and amortization      14              10              -           24          16         9             -          25
Interest expense           3              11              -           14           -        23             -          23
Capital expenditure        -               -              -            -           4        41             -          45
Net Loss                $672            $438          $   -       $1,110      $1,162     $ 243         $   -      $1,405

</TABLE>


F-13
<PAGE>

9.   SETTLEMENT OF CLAIM

The Company joined  Biomoda,  Inc. and settled a lawsuit that they and two other
plaintiffs had filed against a former employee of Biomoda,  Inc. A non-recurring
gain was realized by Biomoda,  Inc.,  which received 60,000 shares of its common
stock for $50,000 and also Biomoda,  Inc. received a release of a $137,064 claim
in exchange for eight $10,000 monthly payments beginning June 30, 2006. From the
date of the settlement,  June 15, 2006, two such payments have been made. At the
time,  Biomoda,  Inc.  had accrued  $137,064 as a  potential  liability  in this
matter.  The settlement  resulted in a nonrecurring gain of $16,064 for Biomoda,
Inc. In order to enable  Biomoda,  Inc. to achieve this  non-recurring  gain and
acquire 60,000 of its shares for $50,000,  the Company allowed  6,400,000 shares
of GenoMed,  Inc.  that the  Company  holds as an  investment  to be held by the
Company's attorneys as collateral to secure the payment of the remaining balance
of the  settlement.  At June 30,  2006,  the Company  held  18,400,821  of these
shares.

10.    SUBSEQUENT EVENTS

On July 11, 2006,  ADOT  increased  the number of  authorized  common  shares to
10,000,000,000 shares.

From July 1, 2006 through  August 18, 2006,  715,000,000  shares were issued for
cash in the amount of approximately $113,000.


F-14
<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 are
engaged in developing  large-scale  flat panel  displays  utilizing its patented
technology.  We are  currently  investigating  other  applications  of this core
technology and different  products  related to optics and image  recognition and
analysis.

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

                                        2
<PAGE>

Company Overview
----------------

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

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

THE MAJOR ADVANTAGES AND FEATURES OF THE DISPLAY ARE:

     o    Brightest display ever available (35,000 nits)
     o    Widest viewing angle available
     o    Smallest dot pitch available for outdoor large-scale displays (8 mm
          dot pitch)
     o    High definition picture quality
     o    Modular assembly (1 meter increments) for scaleable and shapeable
          architectures
     o    True Color (24 bit)
     o    Full motion video (up to 120 frames per second)
     o    Transportable for mobile operations
     o    Weather resistant for outdoor applications
     o    Modest power requirements
     o    Minimum 5 year continual use lifetime
     o    Real-time live video feeds
     o    Broadcast/simulcast applications
     o    Supports streaming video
     o    Uses  industry  standard  DVI protocol for high speed data linking and
          digital video interfacing
     o    Satellite linkable

PROPRIETARY BILLBOARD SOFTWARE CAPABILITIES ARE:

     o    Manage and update display content remotely
     o    Works with all image file formats and digital video editors
     o    Secure Internet or WAN communications
     o    WEB-based status monitoring
     o    Provides time, temperature and other dynamic content inserts

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  development  process of our  production  model.  The  initial
production model is scheduled to be completed in the second quarter of 2007.

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 completion of our first
sign by the first half of 2007.

The Company has made research and  development  progress in the first quarter of
2006 but has not  completed  the initial  product as expected  due to  technical
hurdles.  Completion  of the  product  is now  expected  in the  first to second
quarter  of 2007.  Because  of the lack of  anticipated  revenues  in 2006,  the
Company has taken excess cash funds and  invested  these in what they deem to be
sound investments that may produce  additional funds and gains to the Company in
2006 and 2007.  These funds and gains would then be used for additional  product
development and  administrative  expenses in the initial production stage of the
product.  These  investments  include  marketable  securities of other companies
including the bio-medical companies Biomoda and GenoMed.

Advanced  Optics  Electronics,  Inc.  completed  filing for its  initial  patent
relating to its hand held color check  device  known as  COLOR-CHEK.  The patent


                                        3
<PAGE>

covers the Company's unique and novel conception and  implementation of hardware
and firmware  system for  determining  the color  optically and  expressing  the
result with vocal  responses.  This invention will initially  benefit the vision
impaired.  ADOT is also developing a color coding kit to enhance the color check
capabilities of a broader application of the color spectrum. Pricing is targeted
in the $70-85  range.  The Company is currently in the  development  stages of a
second  iteration   prototype.   The  first  prototype  was  a  success  from  a
proof-of-performance  standpoint. This next version will incorporate a number of
refinements and improvements in software and hardware components and incorporate
an initial design of the casing..

Our operating expenses have increased significantly since our inception. This is
due to increased  engineering and management  staff and investments in operating
infrastructure.  Since our inception we have incurred significant losses and, as
of June 30, 2006,  had a deficit  accumulated  during the  development  stage of
$22,990,551.

Biomoda, Inc.
-------------

Beginning  with the 2004  10-KSB,  the Company has  consolidated  the  financial
statements of Advanced Optics Electronics, Inc. with the financial statements of
Biomoda, Inc. This has been done in order to comply with FIN 46, a pronouncement
by Financial  Accounting  Standards Board,  that became  effective  December 15,
2004. The nature of Biomoda's  business is substantially  different from that of
Advanced  Optics  Electronics,  Inc.. The following is a discussion of Biomoda's
results of operations, financial condition and liquidity. More information about
Biomoda is available in Biomoda's  2004 10-KSB which is accessible  from the SEC
website. The SEC website  (http://www.sec.gov)  contains reports and information
statements and other information regarding Biomoda and other companies that file
materials with the SEC electronically.

Biomoda's  initial  product is a  diagnostic  test for lung  cancer that will be
performed by using a sputum sample from the patient.  This test does not require
any invasive  sample  taking.  The sample will be sent to a clinical lab where a
procedure  will be performed to determine the presence,  or lack, of lung cancer
or precancerous  cells.  This diagnostic test can be used for other cell samples
and Biomoda  intends to create and market  products  to diagnose  and screen for
other prevalent cancers such as cervical, bladder, and colorectal. This has been
determined   on  the  basis  of   available   healthcare   delivery   and  payer
infrastructure.  Japan is leading  the world in this area and has  instituted  a
nationwide lung cancer-screening program.

Management  of Biomoda  expects to continue  assay  validation  work and seek to
register its product with the FDA in 2006.  There are several  business  models,
product types and regulatory routes that Biomoda is evaluating  including:  ASR,
510K, PMA and IVD kits: ASR: This is the FDA  designation  for Analyte  Specific
Reagent.  There  are  generally  two  classes:  Class I & Class  II.  Class I is
considered  to the  lowest  risk.  Biomoda's  ASR  product is a Class I and only
requires registration and meeting the FDA standards. This product is viewed as a
component for an assay developed in-house by Medical Reference Laboratories.

510K:  This is the FDA  designation for approvals that are based on "Substantial
Equivalence"  with previously  approved products and does require approval prior
to marketing. There are generally three classes: Class I, Class II, & Class III.
Depending on the indication  established  with the FDA,  Biomoda's  product will
either be Class I or Class II, if Biomoda  proceeds  with this product  approval
route.  This  product  will be a kit  developed  to  determine  the  presence of
abnormal cells in a body fluid sample.

PMA: This is the FDA designation  for approvals for new product  indications (no
Substantial Equivalence) and does require approval prior to marketing. There are
generally  two  classes:  Class II, & Class III. If Biomoda  proceeds  with this
approval route, Biomoda's expects this product to be Class III due to indication
of diagnostic for a specific cancer.

IVD: This is an industry  designation for In Vitro  Diagnostic.  Products in the
industry  are either  reagents or kits.  Kits would  include the key  components
required to conduct the assay for the specific  indication stated in the package
insert.  Reagents are single  components used in assays developed by a Reference
Labs.  The lab  will be  required  to have met the FDA  CLIA  (current  Clinical
Laboratory  Improvement  Act)  regulations  to market a  diagnostic.  Biomoda is
evaluating several cancers with a focus on large markets that are in need of the
most immediate  diagnostic support.  These include:  lung, bladder and cervical.
Our products are subject to FDA  registration  or approval and to  post-approval
FDA reporting requirements.


                                        4
<PAGE>

Costs in complying with regulatory and legislative  matters such as the Clinical
Laboratory Improvement Amendment of 1988 (CLIA), which regulates the quality and
reliability of medical testing in the U.S.,  adverse changes in zoning laws, tax
laws, or other laws affecting the medical and  diagnostic  industry may prove to
be a major  obstacle,  both in respect of time and costs,  in our  research  and
development.

The timing of  regulatory  filings  and  approvals,  if any,  for the  Company's
products are made less certain by the Company's  strategy of seeking one or more
collaborative  arrangements with development and marketing  partners,  which may
require that a  collaborative  partner be responsible  for seeking and obtaining
regulatory  approvals either in foreign countries or in the U.S. Biomoda intends
to market its  products  throughout  the world.  There are  numerous  regulatory
agencies that  regulate the sale of diagnostic  and  therapeutic  products,  and
these  agencies may be affected or influenced by criteria  materially  different
than those of the FDA. The sale of Biomoda's products may be materially affected
by the policies of these  regulatory  agencies or the  domestic  politics of the
countries  involved.  Biomoda  has not  applied  for and  does  not now have the
approval  of any  foreign  country  to  sell  its  products  for  diagnostic  or
therapeutic use.


Class I/II 510K can be completed as judged appropriate for the business and will
require  approximately 6 to 9 months effort to prepare documentation and receive
FDA  approval.  During that time kit  manufacturing  can be  initiated.  Partial
funding will be provided from reagent sales revenue. It is estimated  additional
funding of $300,000 will be required.

PMA will require  clinical studies to be completed and will be initiated when it
is viewed as appropriate for the business.  This will require on the order of 18
months to plan, execute, and document. During that time kit manufacturing can be
initiated.

Biomoda's  current  intention  regarding  regulatory  strategy,  is to  initiate
product  introductions  via an ASR registration  and potentially  migrate up the
regulatory spectrum as markets require.

RESULTS OF OPERATIONS

The Company is  currently in the process of final  assembly,  testing and system
integration of approximately 1500 of its display subassemblies. This will create
a 2 meter by 3 meter display. Additional research and development is anticipated
and planned in  electrical  and  mechanical  realms.  These  include but are not
limited   to:   power   systems  and   distribution,   heat   dissipation,   and
weatherproofing.

There are no explicit plans to hire additional personnel at
this time  but,  from  time to time,  the  Company  expects  to hire  additional
personnel in order to carry out its business strategy.

Comparison of the Three-Month Periods Ended June 30, 2006 and 2005
-------------------------------------------------------------------

Research  and  development   expenses  consist   primarily  of  consulting  fees
associated  with the  development  and  enhancement of our flat panel  displays.
These expenses increased to $274,540 in the first half of 2006 from $165,755 and
to $146,447  from  $92,894 in the second  quarter for the same  periods in 2005.
This  significant  change  is the  result of  increased  personnel  and  outside
consulting costs for Biomoda.

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.


                                        5
<PAGE>

General  and  administrative   expenses  consist  of  expenses  for  facilities,
professional services,  travel,  general corporate activities,  and depreciation
and   amortization  of  equipment  and  leasehold   improvements.   General  and
administrative  costs decreased to approximately  $261,000 in the second quarter
of 2006 from $674,000 and to approximately $709,000 from $1,171,000 year to date
in the prior year.  The primary reason for the decrease is  significantly  lower
shareholder relations expense. The costs associated with being a publicly traded
company and potential future strategic  acquisitions will also be a contributing
factor to increases in this expense.

Biomoda, Inc.
-------------

Biomoda's  plan of operation  for the next twelve months is to verify and refine
its assay,  and  initiate a dialogue  with the FDA  relative  to their  approval
submission.  Biomoda,  Inc. is relying on a bridge  financing  arrangement  with
Advanced  Optics  Electronics,  Inc.  Biomoda is  currently  leasing  Laboratory
equipment from Advanced Optics  Electronics,  Inc. on a month to month basis and
intends to purchase this equipment when adequate funds are raised.

Biomoda has recorded no revenue from its  inception  through June 30, 2006.  The
accumulated  deficit  is  $3,577,228.  In 2005,  the net loss for the six  month
period  June 30 was  $303,922  compared  to  $475,983  in 2006.  The  loss  from
operations  was  $442,905 in 2006 and  $253,486 in 2005.  Most of its expense is
related to product  development.  Product development expenses consist primarily
of personnel expenses,  consulting fees and lab expenses.  Research  development
and  technical  costs  were  $258,725  in 2006 and  $148,534  in  2005.  Biomoda
believes,  however, that continued investment in product development is critical
to  attaining  its  strategic  objectives  and,  as  a  result,  expect  product
development  expenses  to  increase  significantly  in future  periods.  Biomoda
expenses product development costs as they are incurred.

General and  administrative  expenses  consist of  expenses  for  executive  and
administrative personnel, facilities,  professional services, travel and general
corporate activities. General and administrative costs were $137,844 in 2006 and
$67,432 in 2005. Biomoda expects general and administrative costs to increase in
the future as its business matures and develops.

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, 2006, we have raised such net proceeds of approximately $23,000,000.

The  Company's  holding in  Biomoda,  Inc  ("Biomoda")  may  provide  additional
liquidity.  The Company's direct  ownership of Biomoda,  as of June 30, 2006 was
approximately  15.75 %. Two  officers  of ADOT are also  securities  holders  of
Biomoda in  addition  to the ADOT  ownership.  It is  anticipated  that a public
market for Biomoda's  securities  will be established in 2006.  Because a market
for  Biomoda's  shares  has not been  established,  the  potential  value of the
Company's investment cannot be measured. Consequently, there can be no assurance
that if the  Company  were to sell such  investment  that it would be able to on
terms favorable to the Company or for the initial  offering price.  Factors such
as dilution, 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
consolidated financial statements include the accounts of Biomoda and its wholly
owned subsidiary,  Biomoda Holdings, Inc. All significant inter-company accounts
and transactions have been eliminated in consolidation.

During the first six months of 2004, we purchased  33,300,000  restricted shares
under Rule 144 of GenoMed,  Inc.,  which represents  approximately  17.6% of the
outstanding  shares  of  GenoMed,  Inc.  At June  30,  2006,  the  Company  held
18,400,821  shares,  of which  6,400,000  shares  were  held in escrow to secure
payment by the Company of its  obligation  pursuant to an  agreement to settle a
claim.  GenoMed is a publicly  traded biotech  company working in genomics based
disease management.

The  investment  in GenoMed  was made as an interim  cash  management  decision.
Management's  opinion  is that  the  investment  represented  the  potential  to

                                        6
<PAGE>

increase the resources the Company has to fund ongoing  operations.  The Company
made this decision  based on its  determination  that GenoMed has very promising
technology and prospects.  The company  intends to liquidate its investment over
time in order to fund its core operations.

GenoMed uses medical genomics to improve patient outcomes. GenoMed is working to
translate  knowledge  of  medical  genomics--the  study  of  which  genes  cause
disease--into clinical practice.

Research and development  expenditures were approximately  $275,000 in the first
six months of 2006.  Funds for operations,  research and development and capital
expenditures were provided from the sale of securities and cash reserves.

Marketable Securities Portfolio
-------------------------------

As of June 30, 2006, the Company had a marketable securities portfolio valued at
$450,920.  The Company is actively  pursuing  potential  financing options as it
looks to  secure  additional  funds  to both  stabilize  and  grow its  business
operations.  Management  will review any  financing  options at its disposal and
will judge each potential source of funds on its individual merits. There can be
no assurance that the Company will be able to secure  additional funds from debt
or equity  financing,  or if it can,  that it will be on terms  favorable to the
Company or existing stockholders.

There are no expected purchases or sales of significant equipment.

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

Biomoda, Inc.
------------

Biomoda's  total  assets are  $258,891 at June 30,  2006.  Of this,  $217,638 is
patent costs,  net of accumulated  amortization  of $81,115.  Its liabilities of
$2,467,923  primarily  consist of its debt to Advanced  Optics of $1,838,091 and
payables and accrued  liabilities of $443180.  Stockholders'  deficit as of June
30, 2006 is $3,577,228.

Since  inception,  Biomoda  has  funded  operations  primarily  through  private
placement  of equity  securities  to third  parties  and to ADOT and loans  from
Advanced Optics Electronics, Inc. As of June 30, 2006 it had raised net proceeds
of approximately  $3,215,000,  of which  approximately  $1,838,000 was loaned by
ADOT.  On May 1, 2002,  Biomoda  entered  into a line of credit  agreement  (the
"Agreement")  with Advanced  Optics  Electronics,  Inc.,  an affiliated  entity,
("Advanced  Optics")  with an  annual  interest  rate of 5%.  On May 1, 2003 the
agreement was extended.

Biomoda had  positive  cash flows of $88 for the six months  ended June 30, 2006
resulting from $345,130 used in Biomoda's operating activities,  $30,000 used in
investing activities and $375,218 of cash provided by financing activities. Cash
used in  operating  activities  for the six  months  ended  June  30,  2006  was
primarily due to $442,905 in operating  expenses,  of which  $137,844 is General
and  Administrative,  $258,725  is  Research  and  Development  and  $21,643  is
professional  fees.  Cash provided by financing  activities for the three months
was due primarily to the proceeds from a line of credit from Advanced Optics

Biomoda has been in the development  stage since it began  operations on January
3, 1990 and has not  generated  any  revenues  from  operations  and there is no
assurance of any future revenues.  As of June 30, 2006,  Biomoda had accumulated
deficit  of   approximately   $3,577,000  and  a  working   capital  deficit  of
approximately  $2,435,000.  In addition,  Biomoda did not generate any cash from
operations and had no cash reserve dedicated to fund expenditures. These factors
create an uncertainty as to Biomoda's ability to continue as a going concern.


                                        7
<PAGE>

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 the end of the period  covered by this  report).  Based upon
that  evaluation,  the CEO and  CFO  concluded  that  the  Company's  disclosure
controls and procedures were effective.

Changes in Controls and Procedures

There were no significant  changes made in our internal  controls over financial
reporting  during  the six  months  ended  June 30,  2006 that  have  materially
affected or are  reasonably  likely to  materially  affect these  controls.  The
Company,  however,  is  evaluating  changes to its  existing  controls or adding
controls to improve the design effectiveness of its system.

Limitations on the Effectiveness of Internal Control

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


PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

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

ITEM 2.  CHANGES IN SECURITIES

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

As of June  30,  2006,  the  status  of the  common  stock of the  Company  was:
9,000,000,000 shares authorized and 8,688,836,349 shares issued and outstanding.

During  the  six  month  period  ended  June  30,  2006,   the  Company   issued
2,600,000,000 shares for cash of approximately $800,000 and 65,000,000 shares of
common stock for services valued at $13,000.

ITEM 3.  Defaults upon senior securities - None

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

There were no matters  submitted  to a vote of the  Company's  security  holders
during the first quarter of 2006.

ITEM 5.  Other Information - Not applicable

ITEM 6.  Exhibits

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

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

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

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

                                        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 21, 2006

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)




                                        9