U. S. SECURITIES AND EXCHANGE COMMISSION

                              Washington, DC 20549

                                   FORM 10-QSB

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

                         SECURITIES EXCHANGE ACT OF 1934

                  For the quarterly period ended: June 30, 2001

                           Commission file No.0-24511

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

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

           8301 Washington NE, Suite 5, Albuquerque, New Mexico 87113
          (Address of principal executive offices including zip code)

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

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

The number of issuer's  shares of Common Stock  outstanding  as of June 30, 2001
was 65,819,285

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


<PAGE>


                         FINANCIAL STATEMENTS AND REPORT
                            OF INDEPENDENT CERTIFIED
                               PUBLIC ACCOUNTANTS'

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

                                  June 30, 2001
<PAGE>

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

                                 C O N T E N T S



                                                                       Page

REPORT OF INDEPENDENT CERTIFIED PUBLIC
  ACCOUNTANTS ............................................................1

FINANCIAL STATEMENTS

     BALANCE SHEET........................................................2

     STATEMENTS OF OPERATIONS...........................................3-4

     STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT........................5

     STATEMENTS OF CASH FLOWS...........................................6-9

     NOTES TO FINANCIAL STATEMENTS....................................10-24

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


<PAGE>

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


Board of Directors
Advanced Optics Electronics, Inc.

We have reviewed the accompanying  balance sheet of Advanced Optics Electronics,
Inc.  (A  Development  Stage  Company),  as of June 30,  2001,  and the  related
statements of operations,  changes in  stockholders'  deficit and cash flows for
the quarter and six month period then ended. These financial  statements are the
responsibility of the Company's management. The financial statements of Advanced
Optics  Electronics,  Inc.  for the quarter and six month  period ended June 30,
2000 were  reviewed by other  auditors  whose  report dated July 17, 2000 stated
that they were not aware of any  material  modifications  that should be made to
those statements, before restatement, in order for them to be in conformity with
generally accepted  accounting  principles in the United States of America.  The
financial  statements for the 1998, and 1999 portions of the period from May 22,
1996 (inception) through December 31, 1999 were audited by other auditors, whose
reports  dated  February  18,  2000  expressed  unqualified  opinions  on  those
statements, before restatement.

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

Based on our review and the  reports of other  accountants,  we are not aware of
any material  modifications  that should be made to the  accompanying  financial
statements  in  order  for  them to be in  conformity  with  generally  accepted
accounting principles in the United States of America.



                                            Atkinson & Co., Ltd.

Albuquerque, New Mexico
August 15, 2001


                                      -1-
<PAGE>


                        Advanced Optics Electronics, Inc.
                          (A Development Stage Company)

BALANCE SHEET
                                   (Unaudited)

                                  June 30, 2001

                                     ASSETS

     CURRENT ASSETS
       Cash and cash equivalents                                 $   95,039
       Costs and estimated earnings in excess of
         billings on uncompleted contract                         1,320,809
                                                                 ----------

               Total current assets                               1,415,848
                                                                 ----------

     PROPERTY AND EQUIPMENT, net                                    226,316
                                                                 ----------
     OTHER ASSETS
       Intangible assets, net                                       268,229
       Investment in Bio Moda, Inc.                                 207,335
       Other assets                                                  69,413
       Note receivable from officer and shareholder                  44,493
                                                                 ----------

               Total other assets                                   589,470
                                                                 ----------

               Total assets                                      $2,231,634
                                                                 ==========


    The accompanying notes are an integral part of this financial statement.


                                      -2-
<PAGE>


                      LIABILITIES AND STOCKHOLDERS' DEFICIT

<TABLE>
<CAPTION>

<S>                                                                              <C>
     CURRENT LIABILITIES
       Accounts payable                                                          $   164,939
       Accrued liabilities                                                           103,707
       Current portion of long-term debt                                              34,270
       Allowance for loss on contract                                                690,000
                                                                                 -----------

               Total current liabilities                                             992,916
                                                                                 -----------

     LONG-TERM PORTION OF LONG-TERM DEBT                                              29,028

     CONVERTIBLE DEBENTURES                                                        1,320,677

     STOCKHOLDERS' DEFICIT
       Capital stock - Preferred Series A, 7.5%  cumulative,  convertible into
         common stock at a rate  determined by dividing the purchase  price of
         the  preferred  shares by the  conversion  price of the common stock;
         $.001 par value; authorized 10,000,000 shares, no shares
         issued or outstanding                                                            --
       Common stock - Authorized 150,000,000 shares, $.001
         par value; 65,915,585 shares issued and 65,819,285
         shares outstanding                                                           65,892
       Additional paid-in capital                                                  8,457,979
       Deficit accumulated during the development stage                           (8,381,638)
       Treasury stock, at cost                                                       (59,793)
        Notes receivable from officer for exercise of stock options                 (193,427)
                                                                                 -----------

               Total stockholders' deficit                                          (110,987)
                                                                                 -----------

               Total liabilities and stockholders' deficit                       $ 2,231,634
                                                                                 ===========
</TABLE>


   The accompanying notes are an integral part of these financial statements.


                                      -3-
<PAGE>

                        Advanced Optics Electronics, Inc.
                          (A Development Stage Company)

                            STATEMENTS OF OPERATIONS
                                   (Unaudited)

                  For the Quarters ended June 30, 2001 and 2000

<TABLE>
<CAPTION>
                                                                                   2000
                                                                 2001           (Restated)
                                                             ------------      ------------
<S>                                                          <C>               <C>
     Revenues
       Contract revenue                                      $         --      $         --
                                                             ------------      ------------

     Costs and expenses
       General and administrative                                 247,455           572,081
       Research and development                                    74,400           134,660
                                                             ------------      ------------

               Total costs and expenses                           321,855           706,741

     Estimated loss on contract                                        --          (120,000)
                                                             ------------      ------------

     Operating loss                                              (321,855)         (826,741)
                                                             ------------      ------------

     Other income (expenses)
       Interest income                                              8,121             3,407
       Unrealized gain (loss) on marketable
         equity securities                                             --            (5,813)
       Other investment gains                                          --                --
       Loss on Bio Moda, Inc.                                          --           (16,222)
       Gain (loss) on disposal of assets                               --                --
       Interest expense                                           (29,395)         (111,954)
                                                             ------------      ------------

               Total other income (expenses)                      (21,274)         (130,582)
                                                             ------------      ------------

               Net loss before cumulative effect of
                 change in accounting principle                  (343,129)         (957,323)

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

               Net loss                                      $   (343,129)     $   (957,323)
                                                             ============      ============

     Net loss per share before cumulative effect
       of change in accounting principle                            (.005)            (.018)

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

     Net loss per share                                             (.005)            (.018)
                                                             ============      ============

     Weighted average shares outstanding                       64,647,667        52,259,092
                                                             ============      ============
</TABLE>

   The accompanying notes are an integral part of these financial statements.


                                      -4-
<PAGE>

                        Advanced Optics Electronics, Inc.
                          (A Development Stage Company)

                      STATEMENTS OF OPERATIONS - CONTINUED
                                   (Unaudited)

                For the Six Months ended June 30, 2001 and 2000
                  and the period from May 22, 1996 (Inception)
                              through June 30, 2001

<TABLE>
<CAPTION>
                                                                                                     May 22, 1996
                                                                                                      (Inception)
                                                                                        2000            Through
                                                                      2001           (Restated)      June 30, 2001
                                                                  ------------      ------------     -------------
<S>                                                               <C>               <C>               <C>
     Revenues
       Contract revenue                                           $         --      $         --      $         --
                                                                  ------------      ------------      ------------

     Costs and expenses
       General and administrative                                      561,314         1,784,949         5,499,024
       Research and development                                        152,602           268,627         1,312,778
                                                                  ------------      ------------      ------------

               Total costs and expenses                                713,916         2,053,576         6,811,802
                                                                  ------------      ------------      ------------

     Estimated loss on contract                                       (125,000)         (197,847)         (690,000)
                                                                  ------------      ------------      ------------

     Operating loss                                                   (838,916)       (2,251,423)       (7,501,802)
                                                                  ------------      ------------      ------------

     Other income (expenses)
       Interest income                                                  15,316             5,700            45,646
       Unrealized gain (loss) on marketable equity securities               --                --           (29,368)
       Other investment gains                                               --             1,842            59,784
       Loss on Bio Moda, Inc.                                               --           (32,444)         (176,510)
       Gain (loss) on disposal of assets                                 6,000                --            (4,306)
       Interest expense                                                (56,600)         (188,535)         (712,062)
                                                                  ------------      ------------      ------------

               Total other income (expenses)                           (35,284)         (213,437)         (816,816)
                                                                  ------------      ------------      ------------

               Net loss before cumulative effect of
                 change in accounting principle                       (874,200)       (2,464,860)       (8,318,618)

     Cumulative effect of change in
       accounting principle                                                 --                --           (63,020)
                                                                  ------------      ------------      ------------

               Net loss                                           $   (874,200)     $ (2,464,860)     $ (8,381,638)
                                                                  ============      ============      ============

     Net loss per share before cumulative effect
       of change in accounting principle                                 (.014)            (.049)            (.266)

     Cumulative effect of change in accounting principle                    --                --           (63,020)
                                                                  ------------      ------------      ------------

     Net loss per share                                                  (.014)            (.049)            (.268)
                                                                  ============      ============      ============

     Weighted average shares outstanding                            63,910,167        50,500,857        31,250,321
                                                                  ============      ============      ============
</TABLE>

   The accompanying notes are an integral part of these financial statements.


                                      -5-
<PAGE>

                        Advanced Optics Electronics, Inc.
                          (A Development Stage Company)

                  STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
                                   (Unaudited)

       For the period from May 22, 1996 (inception) through June 30, 2001

<TABLE>
<CAPTION>
                                                                       Common Stock                     Preferred Stock
                                                               ----------------------------       ----------------------------

                                                                                    Par                                Par
                                                                  Shares           Value            Shares            Value
                                                               -----------      -----------       -----------      -----------
<S>                                                            <C>              <C>               <C>              <C>
Balance, May 22, 1996                                                   --      $        --                --      $        --
Stock issued to incorporators for cash                             500,000              500                --               --
Stock issued for the net assets of PLZ Tech, Inc.                4,500,000            4,500                --               --
Net loss                                                                --               --                --               --
                                                               -----------      -----------       -----------      -----------
Balance, December 31, 1996                                       5,000,000            5,000                --               --
Stock issued 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                                              782,000              782               710               1
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 on 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)
                                                               -----------      -----------       -----------      -----------
Net loss                                                                --               --                --               --
                                                               -----------      -----------       -----------      -----------
Balance, December 31, 2000                                      61,928,175           61,928                --               --
Stock issued for services                                        1,475,000            1,475                --               --
Purchase of treasury stock                                              --               --                --               --
Net loss                                                                --               --                --               --
                                                               -----------      -----------       -----------      -----------
Balance, March 31, 2001                                         63,403,175           63,403                --               --
Stock issued for services                                        1,835,000            1,835                --               --
Stock issued for cash                                              676,205              653                --               --
Stock issued upon debt conversion                                  301,205              301                --               --
Purchase of treasury stock                                              --               --                --               --
Cancellation of shares                                            (300,000)            (300)               --               --
Net loss                                                                --               --                --               --
                                                               -----------      -----------       -----------      -----------
Balance, June 30, 2001                                          65,915,585      $    65,892                --      $        --
                                                               ===========      ===========       ===========      ===========
</TABLE>

<PAGE>


   The accompanying notes are an integral part of these financial statements.


                                      -6-
<PAGE>

<TABLE>
<CAPTION>
           Treasury Stock
     --------------------------                           Equity (Deficit)       Notes
                                         Additional         During the         Receivable            Total
                                          Paid-In           Development           From           Stockholders'
       Shares           Cost              Capital              Stage             Officer            Deficit
     ---------       ----------         -----------       ---------------       ---------        -------------
<S>                  <C>                <C>                 <C>                 <C>               <C>
                     $       --         $        --         $        --         $      --         $        --
            --               --              24,500                  --                --              25,000
            --               --             281,096                  --                --             285,596
            --               --                  --             (76,902)               --             (76,902)
     ---------       ----------         -----------         -----------         ---------         -----------
            --               --             305,596             (76,902)               --             233,694
            --               --             362,720                  --                --             365,001
            --               --                  --             (84,690)               --             (84,690)
     ---------       ----------         -----------         -----------         ---------         -----------
            --               --             668,316            (161,592)               --             514,005
            --               --           1,281,728                  --                --           1,292,707
            --               --             293,719                  --                --             296,470
            --               --              28,685                  --                --              29,000
            --               --             (39,913)                 --                --             (40,385)
            --               --                  --            (752,111)               --            (752,111)
     ---------       ----------         -----------         -----------         ---------         -----------
            --               --           2,232,535            (913,703)               --           1,339,686
            --               --             855,101                  --                --             863,783
            --               --           1,469,320                  --                --           1,486,414

            --               --             174,610                  --                --             174,610
            --               --             125,000                  --                --             125,000
            --               --             (10,643)                 --                --             (11,132)
      (229,000)         (41,760)                 --                  --                --             (41,760)
        85,000           11,130              24,334                  --                --              35,464
            --               --                  --          (2,725,804)               --          (2,725,804)
     ---------       ----------         -----------         -----------         ---------          ----------
      (144,000)         (30,630)          4,870,257          (3,639,507)               --           1,246,261
            --               --           1,012,710                  --                --           1,013,493
            --               --           1,726,197                  --                --           1,730,152
       (63,500)         (46,486)                 --                  --                --             (46,486)
       142,400           22,542              54,771                  --                --              77,313
            --               --             220,150                  --          (193,427)             28,573
            --               --             159,677                  --                --             159,677
            --               --             533,678                  --                --             542,878
            --               --             263,830                  --                --             263,830
            --               --            (641,780)                 --                --            (641,781)
            --               --             (59,583)                 --                --             (59,583)
            --               --                  --          (3,867,931)               --          (3,867,931)
     ---------       ----------         -----------         -----------         ---------         -----------
       (65,100)         (54,574)          8,139,907          (7,507,438)         (193,427)            446,396
            --               --             174,773                  --                --             176,248
       (17,300)          (3,207)                 --                  --                --              (3,207)
            --               --                  --            (531,071)               --            (531,071)
     ---------       ----------         -----------         -----------         ---------         -----------
       (82,400)         (57,781)          8,314,680          (8,038,509)         (193,427)             88,366
            --               --             131,203                  --                --             133,038
            --               --              39,347                  --                --              40,000
            --               --              19,699                  --                --              20,000
       (13,900)          (2,012)                 --                  --                --              (2,012)
            --               --             (46,950)                 --                --             (47,250)
            --               --                  --            (343,129)               --            (343,129)
     ---------       ----------         -----------         -----------         ---------         -----------
     $ (96,300)        $(59,793)        $ 8,457,979         $(8,381,638)        $(193,427)        $  (110,987)
     =========       ==========         ===========         ===========         =========         ===========
</TABLE>

   The accompanying notes are an integral part of these financial statements.


                                      -7-
<PAGE>

                        Advanced Optics Electronics, Inc.
                          (A Development Stage Company)

                            STATEMENTS OF CASH FLOWS
                                   (Unaudited)

                  For the quarters ended June 30, 2001 and 2000

                                                           2001         2000
                                                        ---------    ---------
Cash flows from operating activities
  Net loss                                              $(343,129)   $(957,323)
  Adjustments to reconcile net loss to net cash
    used in operating activities

       Interest on convertible debentures                  25,000           --
       Intrinsic value of conversion features                  --           --
      Amortization and depreciation expense                42,777       43,755
      Write off of organization costs                          --           --
      Amortization of discounts on convertible
        notes                                                  --      112,976
      Unrealized (gain) loss on marketable securities          --        5,813
      Gain (loss) on disposal of assets                        --           --
      Loss on Bio Moda, Inc.                                   --       16,222
      Issuance of common stock for services                85,588      385,429
      Issuance of notes for services                           --           --
      Marketable equity securities                             --         (158)
      Other receivables                                        --           --
      Accrued liabilities and accounts payable                 --           --
      Increase in costs in excess of
        billings on uncompleted contract                  (77,252)      (1,588)
      (Increase) decrease in other assets                  (5,121)          --
      Increase (decrease) in inventory                         --           --
      Increase in allowance for loss on contract               --       38,673
      Increase (decrease) in accrued liabilities
        and accounts payable                               69,597        3,352
      Other non-cash expenses                                  --           --
      Accrued interest                                         --           --
                                                        ---------    ---------

          Net cash used in operating activities          (202,540)    (352,849)
                                                        ---------    ---------


   The accompanying notes are an integral part of these financial statements.


                                      -8-
<PAGE>

                        Advanced Optics Electronics, Inc.
                          (A Development Stage Company)

                      STATEMENTS OF CASH FLOWS - CONTINUED
                                   (Unaudited)

                  For the quarters ended June 30, 2001 and 2000


                                                           2001         2000
                                                        ---------     ---------
Cash flows from investing activities
  Purchase of equipment                                    (1,610)      (15,076)
  Investment in Bio Moda, Inc.                                 --            --
  Sale of marketable securities                                --        33,817
  Purchase of marketable securities                            --            --
  (Increase) decrease in certificate of deposits           52,935        53,057
  Proceeds from sale of equipment                              --            --
  Purchase of other assets                                 (6,003)           --
  Redemption of sale of Wizard Technologies, Inc.              --            --
                                                        ---------     ---------

     Net cash provided by investing activities             45,322        71,798
                                                        ---------     ---------

Cash flows from financing activities
  Additions to notes payable                                   --            --
  Payments on notes payable and capital
    lease obligations                                     (10,749)      (11,382)
  Issuance of capital stock                                40,000            --
  Collection of officer notes                                  --            --
  Sale of treasury stock                                       --            --
  Purchase of treasury stock                               (2,012)      (33,817)
  Proceeds from issuance of convertible
    debenture                                                  --            --
                                                        ---------     ---------

          Net cash provided (used) by
            financing activities                           27,239       (45,199)
                                                        ---------     ---------

          NET INCREASE (DECREASE) IN CASH                (129,979)     (326,250)

Cash and cash equivalents, beginning of period            225,018       719,377
                                                        ---------     ---------

Cash and cash equivalents, end of period                $  95,039     $ 393,127
                                                        =========     =========

                  NON CASH INVESTING AND FINANCING TRANSACTIONS

During the quarter  ended June 30, 2001,  $20,000 of debentures  were  converted
into 301,205 shares of the Company's common stock.


   The accompanying notes are an integral part of these financial statements.


                                      -9-
<PAGE>

                        Advanced Optics Electronics, Inc.
                          (A Development Stage Company)

                      STATEMENTS OF CASH FLOWS - CONTINUED
                                   (Unaudited)

                For the Six months ended June 30, 2001 and 2000
                  and the Period from May 22, 1996 (Inception)
                             through June 30, 2001

<TABLE>
<CAPTION>
                                                                                         May 22, 1996
                                                                                          (Inception)
                                                                                            Through
                                                            2001            2000         June 30, 2001
                                                          ---------      -----------     -------------
<S>                                                       <C>            <C>              <C>
Cash flows from operating activities
  Net loss                                                $(874,200)     $(2,464,860)     $(8,381,638)
  Adjustments to reconcile net loss to net cash
    used in operating activities

       Interest on convertible debentures                    50,000               --           50,000
       Intrinsic value of conversion features                    --               --          466,728
      Amortization and depreciation expense                  71,150           77,584          397,791
      Write off of organization costs                            --               --           63,020
      Amortization of discounts on convertible notes             --          183,667          295,209
      Unrealized (gain) loss on marketable securities            --           (1,842)          29,368
      Gain (loss) on disposal of assets                      (6,000)              --            4,306
      Loss on Bio Moda, Inc.                                     --           32,444          176,510
      Issuance of common stock for services                 261,836        1,505,662        3,774,872
      Issuance of notes for services                             --               --           50,000
      Increase in costs in excess of billings on
        uncompleted contract                               (175,320)         (35,627)      (1,320,809)
      Marketable equity securities                               --             (289)              --
      (Increase) decrease in other assets                     4,629               --          (75,246)
      Increase (decrease) in inventory                           --            6,000          (35,293)
      Increase in allowance for loss on contract            125,000           56,712          690,000
      Increase in other receivables                              --           31,030               --
      Increase (decrease) in accrued liabilities
        and accounts payable                                 52,620          (47,399)         268,846
      Other non-cash expenses                                    --               --           33,447
      Accrued interest                                           --               --           30,667
                                                          ---------      -----------      -----------

          Net cash provided by used in
            operating activities                           (490,285)        (656,918)      (3,482,222)
                                                          =========      ===========      ===========
</TABLE>

   The accompanying notes are an integral part of these financial statements.


                                      -10-
<PAGE>

                        Advanced Optics Electronics, Inc.
                          (A Development Stage Company)

                      STATEMENTS OF CASH FLOWS - CONTINUED
                                   (Unaudited)

                For the Six months ended June 30, 2001 and 2000
                  and the Period from May 22, 1996 (Inception)
                             through June 30, 2001

<TABLE>
<CAPTION>
                                                                                     May 22, 1996
                                                                                      (Inception)
                                                                                        Through
                                                           2001           2000       June 30, 2001
                                                        ---------      ---------     -------------
<S>                                                       <C>            <C>             <C>
Cash flows from investing activities
  Purchase of equipment                                   (23,736)       (46,962)        (375,979)
  Investment in Bio Moda, Inc.                                 --             --         (383,845)
  Sale of marketable securities                                --         33,817           40,665
  Purchase of marketable securities                            --        (28,883)         (70,034)
  (Increase) decrease in certificate of deposits          107,426          1,402               --
  Proceeds from sale of equipment                          23,800             --           23,800
  Purchase of other assets                                 (6,653)            --         (239,785)
  Redemption of sale of Wizard Technologies, Inc.              --         65,000               --
                                                        ---------      ---------      -----------

          Net cash provided by (used in)
            investing activities                          100,837         24,374       (1,005,178)
                                                        ---------      ---------      -----------

Cash flows from financing activities
  Additions to notes payable                                   --             --          622,776
  Payments on notes payable and capital
    lease obligations                                     (34,581)       (26,479)        (206,689)
  Issuance of capital stock                                40,000        853,493        3,599,984
  Collection of officer notes                                  --             --           28,573
  Sale of treasury stock                                       --         49,770          112,777
  Purchase of treasury stock                               (5,219)       (41,500)        (134,982)
  Proceeds from issuance of convertible
    preferred stock                                            --             --          485,000
  Proceeds from issuance of convertible
    debenture                                              75,000             --           75,000
                                                        ---------      ---------      -----------

          Net cash provided by financing activities        75,200        835,284        4,582,439
                                                        ---------      ---------      -----------

          NET INCREASE (DECREASE) IN CASH                (314,248)       202,740           95,039

Cash and cash equivalents, beginning of period            409,287        190,387               --
                                                        ---------      ---------      -----------

Cash and cash equivalents, end of period                $  95,039      $ 393,127      $    95,039
                                                        =========      =========      ===========
</TABLE>

                  NON CASH INVESTING AND FINANCING TRANSACTIONS

During the six month  period  ended June 30, 2001,  $20,000 of  debentures  were
converted into 301,205 shares of the Company's common stock.

   The accompanying notes are an integral part of these financial statements.


                                      -11-
<PAGE>

Advanced Optics Electronics, Inc.
                          (A Development Stage Company)

                          NOTES TO FINANCIAL STATEMENTS
                                   (Unaudited)

                                  June 30, 2001

         NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    A summary of the Company's significant accounting policies consistently
    applied in the preparation of the accompanying financial statements follows.

    Notes to Interim Financial Statements

    The  interim  financial  data  is  unaudited,  however  in  the  opinion  of
    management, the interim data includes all adjustments,  consisting of normal
    recurring adjustments, necessary for a fair statement of the results for the
    interim period. The financial  statements included herein have been prepared
    by the Company  pursuant to the rules and  regulations of the Securities and
    Exchange   Commission.   The  organization  and  business  of  the  Company,
    accounting  policies  followed  by the  Company  and other  information  are
    contained in the notes to the Company's  financial  statements filed as part
    of the Company's June 30, 2001 Form 10-QSB.  This quarterly report should be
    read in conjunction with such annual report.

    Description of Business

    Advanced Optics  Electronics,  Inc. (the Company) is a  developmental  stage
    technology   company  with  its  principal  focus  on  the  development  and
    production  of  large-scale  flat panel  displays.  The Company is currently
    continuing its research and  development of this product.  Upon  substantial
    completion of the research and  development of the large flat panel display,
    the Company plans to make the transition from a developmental  stage company
    to selling and producing this product.  The market for the large-scale  flat
    panel  displays will include  advertising  billboards,  flat panel  computer
    monitors,  and cockpit displays. The Company plans to focus on producing and
    selling  the  large-scale  flat  panel  displays  for  outdoor   advertising
    billboards.

    The  Company has  obtained a contract  to produce  two  outdoor  advertising
    billboards  using  its flat  panel  display  technology.  This is the  first
    commercial  application  of the  Company's  technology.  The  success of the
    Company  will  depend on its ability to  commercialize  its  technology  and
    complete this contract. As of June 30, 2001, completion of this contract was
    behind schedule.

    While management believes the contract will ultimately be completed, there
    can be no certainty that this will be accomplished because the technology
    has not yet been used in a commercial application. In addition, the Company
    may be required to obtain additional capital in order to fund the completion
    of the contract.

   The accompanying notes are an integral part of these financial statements.


                                      -12-

<PAGE>


                        Advanced Optics Electronics, Inc.
                          (A Development Stage Company)

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED
                                   (Unaudited)

                                  June 30, 2001


NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

    The accompanying  financial statements have been prepared in conformity with
    generally  accepted  accounting   principles  which  are  based  on  certain
    underlying  assumptions,  including  the  assumption  that the Company  will
    continue as a going concern.  The Company is a development  stage enterprise
    and has not yet earned  revenues from its planned  principal  operations and
    has  a net  capital  deficiency.  The  Company's  entry  into  its  intended
    operational  stage is  dependent  upon its  ability to  continue to generate
    sufficient  working capital and to develop a market  accepted  product line.
    The  accompanying  financial  statements do not include any adjustments that
    might result from the resolution of this uncertainty.

    Cash and Cash Equivalents

    Cash and cash  equivalents  include  all cash  balances  and  highly  liquid
    instruments with original  maturities of three months or less. The Company's
    cash  deposits  are  maintained  in local  branches  of  national  financial
    institutions and are insured by the Federal Deposit Insurance Corporation up
    to $100,000 at each institution.  Cash balances may from time to time exceed
    these insurance limits,  but management  believes the Company is not exposed
    to any risk of loss from these deposits.

    Revenue and Cost Recognition

    The  Company  recognizes  revenue  on its  contract  in  process  using  the
    completed  contract  method,  under which  contract  revenues  and costs are
    recognized when the contract is completed,  with estimated losses recognized
    when it becomes evident that contract costs will exceed  contract  revenues.
    Contract  costs  include  all  direct  material  and  labor  costs and those
    indirect  costs  related to contract  performance,  such as indirect  labor,
    supplies, overhead, equipment depreciation, and interest.

    The  contract  to produce  two outdoor  advertising  billboards  totals $1.7
    million,  with  $885,000  assigned to the first unit.  An estimated  loss of
    approximately $690,000 from production of the first unit has been recognized
    through June 30, 2001.  The Company's  estimated cost to complete as of June
    30, 2001 is $164,318  which is expected to be funded with cash,  billings on
    the contract and contributed capital.

    In accordance with the contract terms, the anticipated  delivery date of the
    first unit is October 15, 2001.  During the contract period,  the Company is
    entitled to bill the customer as the following milestones are met:

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

   The accompanying notes are an integral part of these financial statements.


                                      -13-

<PAGE>

                        Advanced Optics Electronics, Inc.
                          (A Development Stage Company)

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED
                                   (Unaudited)

                                  June 30, 2001

NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

    Revenue and Cost Recognition - Continued

    Billings and collections through June 30, 2001 have totaled $89,873.

    Adjustments  to the original  estimates of total  contract  revenues,  total
    contract  costs,  and the extent of  progress  toward  completion  are often
    required as work progresses under the contract, and as experience is gained,
    even though the scope of the work may not change.  The nature of  accounting
    for  contracts  is such  that  refinements  of the  estimating  process  for
    continuously  changing  conditions and new developments are a characteristic
    of the process. Accordingly,  provisions for losses on contracts are made in
    the period in which they become evident.  It is at least reasonably possible
    that the  estimate of  completion  costs for this  contract  will be further
    revised in the near-term.

    Investment

    As of June 30, 2001, the Company owned 16.4% of the outstanding common stock
    of Bio Moda, Inc., an unconsolidated investment accounted for using the cost
    method.  Prior to December 31, 1999, the Company's  ownership was sufficient
    for the investment to be accounted for using the equity method.

    The  carrying  value of the  investment  as of June 30, 2001 is the original
    investment cost adjusted by the Company's  proportionate  interest in losses
    reported by the investee through December 31, 1999.

    Property, Plant and Equipment

    Property,  plant and equipment are carried at cost.  Repair and  maintenance
    costs are charged against income as incurred. Asset additions,  renewals and
    betterments are capitalized at cost and depreciated  using the straight-line
    method over estimated useful lives ranging from 3 to 15 years.

    Other Assets

    Intangible  assets  are  carried  at  historical  cost,  net of  accumulated
    amortization.  Patents are  amortized  on a  straight-line  basis over their
    estimated useful lives of 8 years. Goodwill is amortized over 10 years. Debt
    origination costs are amortized over 3 years.

    Certain assets previously  classified as inventory are no longer used in the
    Company's on-going production  processes,  and are held for sale. Management
    estimates  that  the net  realizable  value  of these  items  exceeds  their
    carrying value as of June 30, 2001.

   The accompanying notes are an integral part of these financial statements.


                                      -14-
<PAGE>


                        Advanced Optics Electronics, Inc.
                          (A Development Stage Company)

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED
                                   (Unaudited)

                                  June 30, 2001

NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

    Research and Development Costs

    Research and development costs are expensed as incurred.

    Income Taxes

    The Company  accounts for income  taxes using the  liability  method,  under
    which,  deferred  tax  liabilities  and assets are  determined  based on the
    difference  between the  financial  statement  carrying  amounts and the tax
    bases of assets and  liabilities  using  enacted  tax rates in effect in the
    years in which the differences are expected to reverse.

    Loss Per Share

    Loss per share is computed on the basis of the  weighted  average  number of
    common shares  outstanding  during the period and did not include the effect
    of potential  common stock as their  inclusion  would reduce loss per share.
    The numerator for the computation is the net loss and the denominator is the
    weighted  average shares of common stock  outstanding.  Certain  options and
    warrants  outstanding were not included in the computation of loss per share
    because their inclusion would reduce loss per share.

    Use of Estimates

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

    Stock-Based Compensation

    The Company has elected to apply the  provisions  of  Accounting  Principles
    Board  Opinion No. 25,  Accounting  for Stock  Issued to  Employees,  and to
    furnish  the  proforma   disclosures  required  by  Statement  on  Financial
    Accounting  Standards No. 123, Accounting for Stock Based Compensation.  See
    note 10.

    Comprehensive Income

    In 2001 and 2000,  the  Company had no changes in equity  which  constituted
    components of other comprehensive income.

   The accompanying notes are an integral part of these financial statements.


                                      -15-
<PAGE>


                        Advanced Optics Electronics, Inc.
                          (A Development Stage Company)

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED
                                   (Unaudited)

                                  June 30, 2001

NOTE 2.  NOTES RECEIVABLE

    Notes receivable at June 30, 2001, consist of the following:

         Due from officer                                       $   29,493
         Note receivable from former shareholder,
           interest at 8% and due on demand                         15,000
                                                                ----------

                                                                $   44,493
                                                                ==========

    The Company  also has notes  receivable  from an officer  totaling  $193,427
    which bear interest at 10% per annum,  and are due in 2003. These notes were
    received  as  consideration  upon  exercise  of  stock  options.  Management
    considers these notes to be fully collectible.

NOTE 3.  INVESTMENTS

    As of June 30, 2001,  the Company  owned  879,707 or 16.4% of the  5,373,858
    outstanding  shares of Bio Moda, Inc. The Company's interest in Bio Moda has
    declined  from 22% in 1998 to its  present  level,  as Bio  Moda has  issued
    additional shares in the course of its financing activities.  As of June 30,
    2001,  the Company had options to purchase an additional  187,000  shares at
    $0.485 cents per share.

    Bio Moda,  Inc. is a  development  stage company  involved  primarily in the
    development  of  technology  for the early  detection of lung  cancer.  As a
    development  stage company,  Bio Moda, Inc. has not had any revenues and, as
    of June 30, 2001, was in the process of conducting clinical trials.

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

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

         Original cost                                        $   383,845
         Share of net loss                                       (134,010)
         Amortization of excess of cost
           over book value                                        (42,500)
                                                              -----------

         Carrying value of investment in Bio Moda, Inc.       $   207,335
                                                              ===========

   The accompanying notes are an integral part of these financial statements.


                                      -16-
<PAGE>


                        Advanced Optics Electronics, Inc.
                          (A Development Stage Company)

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED
                                   (Unaudited)

                                  June 30, 2001

NOTE 4.  LONG-TERM OBLIGATIONS

    As of June 30, 2001, the Company's long-term obligations were as follows:

         Notes  payable  to a  financial  institution,
          due in  monthly  payments aggregating $3,221
          through  October 2003,  bearing  interest at
          bank prime rate plus 1.5%, collateralized by
          operating equipment and a vehicle.                  $  63,298

         Less:  Current portion                                  34,270
                                                              ---------

                                                              $  29,028
                                                              =========

    Future principal payments on long-term obligations for the years ending June
    30, are as follows:

                  2002                                        $  34,270
                  2003                                           23,974
                  2004                                            5,054
                                                              ---------

                                                              $  63,298
                                                              =========

NOTE 5.  CONVERTIBLE DEBENTURES

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

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

   The accompanying notes are an integral part of these financial statements.


                                      -17-
<PAGE>

                        Advanced Optics Electronics, Inc.
                          (A Development Stage Company)

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED
                                   (Unaudited)

                                  June 30, 2001

NOTE 5.  CONVERTIBLE DEBENTURES - CONTINUED

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

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

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

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

    On September 15, 2000, the Company issued $500,000 of the initial $2,000,000
    in convertible  notes which bear interest at an annual rate of 8 percent and
    mature  (principal and interest) on September 15, 2003.  Effective as of the
    issuance date, the notes are convertible  into shares of common stock at the
    lesser of a 25 percent  discount to the average of the three lowest  closing
    bid prices  during the thirty  trading  days prior to the issue date of this
    note and a 20 percent  discount to the average of the three  lowest  closing
    bid prices for the ninety  trading days prior to the  conversion  date.  The
    notes  were  issued in  exchange  for  $430,000  in cash,  $20,000  in legal
    services and $50,000 in commissions.  The commissions  have been capitalized
    as debt  origination  costs  and are  being  amortized  over the life of the
    notes. The notes are unsecured.

   The accompanying notes are an integral part of these financial statements.


                                      -18-
<PAGE>


                        Advanced Optics Electronics, Inc.
                          (A Development Stage Company)

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED
                                   (Unaudited)

                                  June 30, 2001

NOTE 5.  CONVERTIBLE DEBENTURES - CONTINUED

    The intrinsic  value of the conversion  feature of the principal and accrued
    interest was estimated to be $238,830. This has been recorded as an increase
    in paid-in capital and a charge to interest  expense.  The convertible notes
    also  include  detachable  warrants  for the  purchase of 500,000  shares of
    common  stock.  Management  has  estimated  the fair  market  value of these
    warrants  at $25,000  and  recorded  this  amount as an  increase in paid-in
    capital and a discount to the  convertible  notes  payable.  The discount is
    being amortized over the three-year life of the notes.

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

    On November 7, 2000, the Company entered into an agreement that modified the
    outstanding  convertible  preferred agreements entered into on March 8, 2000
    and  August  2,  2000.  The  new  agreement  resulted  in  the  exchange  of
    outstanding preferred stock plus additional  consideration for the Company's
    7.5 percent convertible debentures due November 7, 2003. The total amount of
    the  debentures  is $740,677,  including  accrued  interest of $30,677.  The
    debentures are convertible  into shares of common stock at the lesser of the
    stocks closing price on March 8, 2000 and 77.5 percent of the average of the
    five lowest closing bid prices for 20 days before November 2, 2000.

    The intrinsic  value of the conversion  feature of the principal and accrued
    interest was  estimated  to be $227,898.  The  convertible  debentures  also
    include  detachable  warrants  for the  purchase of 71,000  shares of common
    stock.  Management  has estimated the fair market value of these warrants at
    $3,550.

    During  the  quarter  ended  June  30,  2001,  debenture  holders  converted
    convertible debentures in the amount of $20,000 into shares of the Company's
    common  stock.  The  parties  have  indicated  that  they  are  planning  on
    converting  more of their  convertible  debenture  holding  in the very near
    future.  The Company is also in the  registration  process of the underlying
    securities,  which will allow for the  conversion of all of the  convertible
    debentures.  This conversion reduces the convertible debenture liability and
    increases equity.

   The accompanying notes are an integral part of these financial statements.


                                      -19-
<PAGE>

                        Advanced Optics Electronics, Inc.
                          (A Development Stage Company)

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED
                                   (Unaudited)

                                  June 30, 2001


         NOTE 6.  FAIR VALUE OF FINANCIAL INSTRUMENTS

    The Company's  carrying  values and  methodologies  for  estimating the fair
    values of its financial instruments are as follows:

         Cash, cash equivalents, and certificates of deposit, costs in excess of
         billings on uncompleted  contract,  and accounts payable.  The carrying
         amounts  reported in the  accompanying  balance sheet  approximate fair
         values.

         Notes  receivable.  Management  estimates that the carrying amounts are
         reasonable estimates of their fair values.

         Long-term  obligations.  Notes payable to bank have variable rates that
         reflect currently available terms for similar debt, and accordingly the
         carrying values are reasonable  estimates of their fair values.  Due to
         the short-term maturity of the capital lease, management estimates that
         the carrying value approximates its fair value.

         Convertible  debentures.  Management  estimates the carrying  values to
         approximate their fair values.

         Notes receivable from officer.  Management  estimates these notes to be
         fully  collectible,   and  that  the  carrying  values  are  reasonable
         estimates of their fair values.

    The carrying amounts and fair values of the Company's financial  instruments
    as of June 30, 2001 are as follows:

                                                           Estimated
                                            Carrying         Fair
                                             Amount          Value
                                           ----------     ----------
        Cash and cash equivalents          $   95,039     $   95,039
        Costs in excess of billings on
          uncompleted contract              1,320,809      1,320,809
        Notes receivable                       44,493         44,493
        Accounts payable                      164,939        164,939
        Long-term obligations                  63,298         63,298
        Convertible debentures              1,320,677      1,320,677
        Notes receivable from officer         193,427        193,427

   The accompanying notes are an integral part of these financial statements.


                                      -20-
<PAGE>

                        Advanced Optics Electronics, Inc.
                          (A Development Stage Company)

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED
                                   (Unaudited)

                                  June 30, 2001

NOTE 7.  INCOME TAXES

    As of June 30, 2001,  the Company had a net operating loss  carryforward  of
    approximately  $8,400,000  which  expire in  varying  amounts  between  2016
    through 2020.  Realization of this potential future tax benefit is dependent
    on  generating  sufficient  taxable  income prior to  expiration of the loss
    carryforward.  The deferred tax asset related to this  potential  future tax
    benefit has been offset by a valuation  allowance  in the same  amount.  The
    amount of the deferred tax asset ultimately realizable could be increased in
    the near term if estimates of future taxable income during the  carryforward
    period are revised.

NOTE 8.  OPERATING LEASES

    The  Company  occupies   administrative,   engineering,   and  manufacturing
    facilities  under operating leases which expire in February 2002. The leases
    call for aggregate  minimum monthly lease payments of $4,225.  Lease expense
    totaled  $12,675 and $11,200 for the quarters  ended June 30, 2001 and 2000,
    respectively,  $25,350 and $22,400 for the six month  period  ended June 30,
    2001 and 2000,  respectively,  and  $122,559 in the period from May 22, 1996
    (inception) through June 30, 2001.

    Future  minimum  lease  payments  under the  long-term  operating  lease are
    $33,800 through February 2002.

NOTE 9.  EQUITY TRANSACTIONS

    The Company was initially capitalized through the issuance of 500,000 shares
    for $25,000 in cash. In November 1996, the Company issued  4,500,000  shares
    in exchange for the outstanding shares of PLZ Tech, Inc. The transaction was
    accounting for as a purchase,  with assets acquired and liabilities  assumed
    recorded at their book  values,  determined  in  accordance  with  generally
    accepted  accounting  principles.  Intangible assets of PLZ Tech acquired in
    the purchase  transaction  were carried at historical book values.  Research
    and  development  costs of PLZ Tech were  expensed as incurred.  In previous
    financial statements, the Company did not present unclaimed shares resulting
    from  the  merger  with  PLZ  Tech,  Inc.  as  outstanding  shares.  In  the
    accompanying  1997 and  prior  financial  statements  the  number  of shares
    outstanding has been restated to include these shares.

    During  1997,  the  Company  issued  2,281,212  shares of stock for cash and
    services.

    During 1998, the Company  repurchased  472,200 of its  outstanding  stock in
    exchange  for  $10,000 in notes  receivable  and  $20,385 in cash in various
    transactions. This stock was subsequently retired.

   The accompanying notes are an integral part of these financial statements.


                                      -21-
<PAGE>

                        Advanced Optics Electronics, Inc.
                          (A Development Stage Company)

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED
                                   (Unaudited)

                                  June 30, 2001

NOTE 9.  EQUITY TRANSACTIONS - CONTINUED

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

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

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

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

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

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

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

   The accompanying notes are an integral part of these financial statements.


                                      -22-
<PAGE>

                        Advanced Optics Electronics, Inc.
                          (A Development Stage Company)

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED
                                   (Unaudited)

                                  June 30, 2001

NOTE 9.  EQUITY TRANSACTIONS - CONTINUED

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

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

    Also during this  quarter,  an officer of the  Company  exercised  1,000,000
    stock  options  at a price of $0.12 per  share.  The  Company  issued a note
    receivable to the officer in the amount of $120,000 for the shares. Interest
    for the first quarter was prepaid.

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

    An officer of the  Company  exercised  850,000  stock  options at a price of
    $0.12 per share.  The Company issued notes  receivable to the officer in the
    amount of $102,000 for the shares.

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

    During the quarter  ended  December 31,  2000,  the Company  issued  615,500
    shares of common stock for services from  contractors,  officers and others,
    valued at $130,275.

    During the quarter ended March 31, 2001, the Company issued 1,475,000 shares
    of common stock for services from contractors,  officers and others,  valued
    at $176,248.

   The accompanying notes are an integral part of these financial statements.


                                      -23-
<PAGE>


                        Advanced Optics Electronics, Inc.
                          (A Development Stage Company)

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED
                                   (Unaudited)

                                  June 30, 2001

NOTE 9.  EQUITY TRANSACTIONS - CONTINUED

    During the quarter ended June 30, 2001, the Company issued  1,835,000 shares
    of common stock for services from contractors,  officers and others,  valued
    at $133,038.  The Company canceled 300,000 shares of common stock originally
    issued for  services  during the quarter  ended March 31, 2001 for  services
    valued at  $47,250.  The value of the  services is included in the costs and
    expenses on the Statements of Operations.  The Company issued 676,205 shares
    of common stock for $40,000.

    Also, during this quarter,  the Company  repurchased 13,900 shares of common
    stock for $2,012. The repurchased shares have been recorded at cost.

NOTE 10.  STOCK PLANS

    On January 4, 1999, the Company established the Incentive Stock Option Plan.
    Pursuant to the Plan, up to 10,000,000  shares of the Company's common stock
    may be granted as options to key employees.  The shares issued upon exercise
    of the options may be authorized  and unissued  shares or shares held by the
    Company in its  treasury.  The exercise  date of the options is based on the
    related agreement as approved by the Board of Directors. The Incentive Stock
    Option Plan expires on January 4, 2009.  Options awarded under the Plan have
    four-year  terms and vest ratably over one to two year  periods.  As of June
    30, 2001,  there were 6,175,000  shares  available under the Plan for future
    awards.  No stock options were issued during the six month period ended June
    30, 2001.

    The Company  applies APB Opinion No. 25 in its accounting for the Plan, and,
    accordingly,  no compensation cost has been recognized for its stock options
    in the financial  statements.  Had the Company determined  compensation cost
    based on the fair  value at the  grant  date  for its  stock  options  under
    Statement of Financial  Accounting Standards No. 123, the Company's net loss
    and loss per  share  would  have  been  increased  to the  proforma  amounts
    indicated as follows:

<TABLE>
<CAPTION>
                                                     Years ended December 31,
                                           2000                1999               1998
                                       -----------         -----------        ----------
<S>                                    <C>                 <C>                <C>
    Net loss, as reported              $(3,199,935)        $(2,725,804)       $ (752,111)
    Proforma net loss                   (3,575,534)         (2,940,633)         (752,111)

    Loss per share, as reported             (0.055)             (0.072)           (0.055)
    Proforma loss per share                 (0.061)             (0.078)           (0.055)
</TABLE>

   The accompanying notes are an integral part of these financial statements.


                                      -24-
<PAGE>


                        Advanced Optics Electronics, Inc.
                          (A Development Stage Company)

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED
                                   (Unaudited)

                                  June 30, 2001

NOTE 10.  STOCK PLANS - CONTINUED

    The fair value of each option  grant for the above  proforma  disclosure  is
    estimated  on the date of the grant using the  Black-Scholes  option-pricing
    model with the following weighted-average  assumptions:  dividends of $0 per
    year;  expected  volatility of 42.3 percent;  risk-free interest rate of 6.0
    percent; and expected lives of four years.

    Total stock options  granted and  unexercised  were 3,825,000 as of June 30,
    2001.  The shares issued upon exercise of the options may be authorized  and
    unissued shares or shares held by the Company in its treasury.  The exercise
    date of options  granted is based upon the related  agreement as approved by
    the Board of Directors.

    The Company also issued Stock Purchase Warrants to key employees.  The total
    number of "warrant  shares"  issued  under these  agreements  was  3,425,000
    shares,  exercisable  at any time until they  expire on June 15,  2004.  The
    price established for the shares ranges from $0.15 to $0.41 per share.

    A summary of the common  stock option and warrant  activity  for  employees,
    directors and officers is as follows:

                                                    Weighted
                                      Warrants      Average
                                        and         Exercise
                                      Options        Prices        Exercisable
                                     ---------      --------       -----------
    Balance, December 31, 1997         153,954      $   0.58         153,954
    Balance, December 31, 1998         153,954          0.58         153,954

         Granted                     6,900,000          0.16
         Expired                      (153,954)         0.58
                                     ---------

    Balance, December 31, 1999       6,900,000          0.16       6,185,000
                                                                  ==========

         Cancelled                  (2,775,000)         0.72
         Replacement                 2,775,000          0.34
         Granted                     6,200,000          0.72
         Exercised                  (2,000,000)         0.12
                                    ----------

    Balance, December , 2000        11,100,000          0.27       9,517,500
                                    ==========         =====      ==========


    Balance, June 30, 2001          11,100,000          0.27      10,361,250
                                    ==========         =====      ==========

   The accompanying notes are an integral part of these financial statements.


                                      -25-
<PAGE>


                        Advanced Optics Electronics, Inc.
                          (A Development Stage Company)

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED
                                   (Unaudited)

                                  June 30, 2001

NOTE 10.  STOCK PLANS - CONTINUED

    The option prices established for the shares upon exercise ranges from $0.12
    to $0.34 per share, and expire through October 2004.

NOTE 11.  ACCOUNTING CHANGES

    The financial statements for the quarter and six month period ended June 30,
    2000  have  been  retroactively  restated  to give  effect  to a  change  in
    accounting  for the  Company's  long-term  contract and changes in estimated
    useful  lives of  intangible  assets.  The  effect of these  changes  was to
    increase net loss for the three and six month periods ended June 30, 2000 by
    $6,199 and  $12,398,  respectively,  and to increase  net loss per share for
    both periods by a deminimus amount.

   The accompanying notes are an integral part of these financial statements.


                                      -26-
<PAGE>

                        ADVANCED OPTICS ELECTRONICS, INC.


                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF

                  FINANCIAL CONDITION AND RESULTS OF OPERATION

Forward - Looking Statements

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

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

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

                                    OVERVIEW

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

   The accompanying notes are an integral part of these financial statements.


                                      -27-
<PAGE>

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

The major advantages and features of the Display are:

    o   Brightest display ever available (35,000 nits)

    o   Widest viewing angle available

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

    o   High definition picture quality

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

    o   True Color (24 bit)

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

    o   Transportable for mobile operations

    o   Weather resistant for outdoor applications

    o   Modest power requirements

    o   Minimum 5 year continual use lifetime

    o   Real-time live video feeds

    o   Broadcast/simulcast applications

    o   Supports streaming video

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

    o   Satellite linkable

Proprietary Billboard software capabilities are:

    o   Manage and update display content remotely

    o   Works with all image file formats and digital video editors

    o   Secure Internet or WAN communications

    o   WEB-based status monitoring

    o   Provides time, temperature and other dynamic content inserts

The Company was organized as a Nevada  corporation  on May 22, 1996. On November
7, 1996,  the Company  acquired the  business and patents of PLZTech,  a company
involved in the  development of flat panel  displays.  Our operating  activities
have related  primarily to the initial  planning and  development of our product
and  building our  operating  infrastructure.  We have  completed,  tested,  and
measured  the   performance   of,  our   prototype  and  are  currently  in  the
manufacturing process of our production model.

We expect  our  principal  source of  revenue  to be  derived  from sales of our
electronic display

   The accompanying notes are an integral part of these financial statements.


                                      -28-
<PAGE>

product.  To date we have recognized  limited  revenue,  but we have developed a
functioning  prototype  and we anticipate  sales by the third quarter 2001.  The
company has set the price for its units at $395,000 and $1,490,000  respectively
for its 2 meter x 3 meter and its 3 meter x 8 meter flat panel displays.

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

Our operating expenses have increased significantly since our inception, and the
rate of increase has risen since last year. This is due to increased engineering
and  management  staff and  investments in operating  infrastructure.  Since our
inception we have incurred  significant  losses and, as of June 30, 2001, had an
accumulated deficit of $8,331,638.

RESULTS OF CONTINUING OPERATIONS

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

Comparison of the Three-Month Periods Ended June 30, 2001 and 2000

Revenue.  During the quarter  ended  March 31,  2001,  the  Company  changed the
accounting for our contract to the completed contract method.  According to this
way of accounting for contracts,  we are booking no revenue until the completion
of the  contract.  Please  note that the revenue for the same period in 2000 has
been restated and is now $0. Billings and collections through June 30, 2001 have
totaled $89,873.

Product Development. Product development expenses consist primarily of personnel
expenses,  consulting fees and depreciation of the equipment associated with the
development and enhancement of our flat panel displays. Research development and
technical costs decreased to $74,400 in the second quarter of 2001 from $134,660
in the second  quarter of 2000.  This  reduction  reflects our  transition  from
development to production and manufacturing. We believe, however, that continued
investment  in product  development  is  critical  to  attaining  our  strategic
objectives  and, as a result,  expect product  development  expenses to increase
significantly in future periods.  We expense product  development  costs as they
are incurred.

General and  Administrative.  General  and  administrative  expenses  consist of
expenses for executive and administrative  personnel,  facilities,  professional
services,  travel,  general  corporate  activities,  and  the  depreciation  and
amortization  of  office  furniture  and  leasehold  improvements.  General  and
administrative  costs  decreased to $247,455 in the second  quarter of 2001 from

   The accompanying notes are an integral part of these financial statements.


                                      -29-
<PAGE>

$572,081  in the second  quarter of 2000.  The  decrease  was  primarily  due to
increased  duties handled by in-house  personnel and a reduction in professional
service fees and  expenses.  Due to the growth of our  business and  anticipated
expansion of our staff, we expect general and  administrative  costs to increase
in the future.  The costs  associated  with being a publicly  traded company and
anticipated future strategic  acquisitions will also be a contributing factor to
increases in this expense.

Other Income  (Expense).  Other income (expense)  consists of interest and other
income and expense. Interest income increased to $8,121 in the second quarter of
2001 from $3,407 in the second quarter of 2000. The increase in interest  income
was due to an increase in our average net cash and cash equivalents balance over
the previous quarter.

    LIQUIDITY AND CAPITAL RESOURCES

Since  inception,  we have funded our operations  primarily  through the private
placement of debt and equity securities.  As of June 30, 2001 we have raised net
proceeds of $4,595,200.

Advanced  Optics  Electronics,  Inc. has filed a registration  statement,  and a
subsequent  amendment,  on form SB2  related  to common  shares  underlying  the
Company's convertible debenture financings.

We have also utilized  equipment loans and capital lease  financing.  As of June
30, 2001 we have a balance of $63,298 on the  equipment  loans and no  remaining
balance on the capital lease.

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

The Company's holding in BioModa, Inc will provide additional liquidity. BioModa
is a biomedical  development  company. The Company's ownership of BioModa, as of
June 30, 2001 was approximately  16%. No immediate family members of officers or
directors of Advanced Optics Electronics, Inc. are securities holders of BioModa
with the  exception  of Harold  Herman,  who is a director  of  Advanced  Optics
Electronics, Inc. and a small minority shareholder in BioModa.

During the  quarter  ended June 30,  2001  $1,610 was spent for the  purchase of
equipment.  Product development  expenditures were $74,400 for the quarter ended
June  30,  2001.   Funds  for  operations,   product   development  and  capital
expenditures were provided from the sale of securities and cash reserves.  As of
June 30, 2001, we had approximately $95,039 of cash and cash

   The accompanying notes are an integral part of these financial statements.


                                      -30-
<PAGE>

equivalents.

Management believes that sales of securities, cash reserves and contract revenue
will provide  adequate  liquidity and capital  resources to meet the anticipated
development  stage  requirements  through  the end of 2001.  At that  time it is
anticipated  that sales of flat panel  displays  will  begin and  contribute  to
operating  revenues.  It is  anticipated  that  these  sales  will  provide  the
additional capital resources to fund the proportionately  higher working capital
requirements of production and sales  initiatives.  The Company currently has no
other significant commitments for capital expenditures in 2001.

                           PART II. OTHER INFORMATION

Item 1. Legal proceedings

The  Company  is not a party to any legal  proceeding,  the  adverse  outcome of
which,  in  management's  opinion,  would have a material  adverse effect on the
Company's operating results.

Item 2. Changes in securities

During the second quarter of fiscal year 2001 there was a 2,512,410  increase in
shares of common stock.

Item 3. Defaults upon senior securities - Not applicable

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

There were no matters  submitted  to a vote of the  Company's  security  holders
during the second quarter of fiscal year 2001.

Item 5. Other Information - Not applicable

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

None

(b) Reports on Form 8-K

A report was filed on Form 8-K  related to the  Company's  Change of  Certifying
Accountant. The date of the report was March 19, 2001.

   The accompanying notes are an integral part of these financial statements.


                                      -31-
<PAGE>

                                   SIGNATURES

In accordance with the  requirements of the Exchange Act, the registrant  caused
this  report  on Form  10QSB to be  signed  on its  behalf  by the  undersigned,
thereunto duly authorized.

Dated: August 17, 2001

                                            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)


                                      -32-