U. S. SECURITIES AND EXCHANGE COMMISSION

                              Washington, DC 20549

                                  FORM 10-QSB/A


               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 65,892,158

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>


                                    CONTENTS


                                                                            Page

FINANCIAL STATEMENTS

     BALANCE SHEET...........................................................1-2

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

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

     STATEMENTS OF CASH FLOWS................................................6-7

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

<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
  Investment in Bio Moda, Inc.                                           207,335
  Other assets                                                            69,413
  Note receivable from officer and shareholder                            44,493
  Intangible assets, net                                                  40,659
                                                                      ----------

          Total other assets                                             361,900
                                                                      ----------



          Total assets                                                $2,004,064
                                                                      ==========


                                      -1-
<PAGE>


                                           LIABILITIES AND STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
CURRENT LIABILITIES
<S>                                                                       <C>
  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; 65,892,158 shares issued and 65,819,285
    shares outstanding                                                         65,892
  Additional paid-in capital                                                8,457,979
  Deficit accumulated during the development stage                         (8,609,208)
  Treasury stock, at cost                                                     (59,793)
  Notes receivable from officer for exercise of stock options                (193,427)
                                                                          -----------

          Total stockholders' deficit                                        (338,557)
                                                                          -----------

          Total liabilities and stockholders' deficit                     $ 2,004,064
                                                                          ===========
</TABLE>


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


                                      -2-
<PAGE>


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

                            STATEMENTS OF OPERATIONS
                                   (Unaudited)

                  For the Quarters ended June 30, 2001 and 2000

                                                                       2000
                                                       2001         (Restated)
                                                   ------------    ------------
Revenues
  Contract revenue                                 $         --    $         --
                                                   ------------    ------------

Costs and expenses
  General and administrative                            247,455         572,081
  Research and development                               74,400         134,660
  Asset impairment                                      227,570              --
                                                   ------------    ------------

          Total costs and expenses                      549,425         706,741

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

Operating loss                                         (549,425)       (826,741)
                                                   ------------    ------------

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

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

          Net loss                                 $   (570,699)   $   (957,323)
                                                   ============    ============

Net loss per share before cumulative effect
  of change in accounting principle                       (.009)          (.018)
                                                   ------------    ------------

Net loss per share                                        (.009)          (.018)
                                                   ============    ============

Weighted average shares outstanding                  64,647,667      52,259,092
                                                   ============    ============


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


                                      -3-
<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
  Asset impairments                                             227,570              --         227,570
                                                           ------------    ------------    ------------

          Total costs and expenses                              941,486       2,053,576       7,039,372

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

Operating loss                                               (1,066,486)     (2,251,423)     (7,729,372)
                                                           ------------    ------------    ------------

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                   (1,101,770)     (2,464,860)     (8,546,188)

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

          Net loss                                         $ (1,101,770)   $ (2,464,860)   $ (8,609,208)
                                                           ============    ============    ============

Net loss per share before cumulative effect
  of change in accounting principle                               (.017)          (.049)          (.273)

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

Net loss per share                                                (.017)          (.049)          (.275)
                                                           ============    ============    ============

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


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


                                      -4-
<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          Treasury Stock
                                                         -----------------------    ---------------------    ----------------------
                                                                           Par                      Par
                                                            Shares        Value      Shares        Value       Shares         Cost
                                                         -----------    --------    --------     --------    ----------    --------
<S>                                                       <C>           <C>             <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                                        --          --          --           --      (229,000)    (41,760)
Sale of treasury stock                                            --          --          --           --        85,000      11,130
Net loss                                                          --          --          --           --            --          --
                                                         -----------    --------    --------     --------     ---------    --------
Balance, December 31, 1999                                46,140,973      46,141          --           --      (144,000)    (30,630)
Stock issued for cash                                        782,000         782         710            1            --          --
Stock issued for services                                  3,955,202       3,955          --           --            --          --
Purchase of treasury stock                                        --          --          --           --       (63,500)    (46,486)
Sale of treasury stock                                            --          --          --           --       142,400      22,542
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          --           --       (65,100)    (54,574)
Stock issued for services                                  1,475,000       1,475          --           --            --          --
Purchase of treasury stock                                        --          --          --           --       (17,300)     (3,207)
Net loss                                                          --          --          --           --            --          --
                                                         -----------    --------    --------     --------     ---------    --------
Balance, March 31, 2001                                   63,403,175      63,403          --           --       (82,400)    (57,781)
Stock issued for services                                  1,835,000       1,835          --           --            --          --
Stock issued for cash                                        652,778         653          --           --            --          --
Stock issued upon debt conversion                            301,205         301          --           --            --          --
Purchase of treasury stock                                        --          --          --           --       (13,900)     (2,012)
Cancellation of shares                                      (300,000)       (300)         --           --            --          --
Net loss                                                          --          --          --           --            --          --
                                                         -----------    --------    --------     --------     ---------    --------
Balance, June 30, 2001                                    65,892,158    $ 65,892          --     $     --     $ (96,300)   $(59,793)
                                                         ===========    ========    ========     ========     =========    ========

<CAPTION>

                                                                                            Equity
                                                                                           (Deficit)       Notes
                                                             Additional     During the     Receivable      Total
                                                               Paid-In      Development       From      Stockholders'
                                                               Capital         Stage         Officer      Deficit
                                                             -----------    -----------    ---------    -----------
<S>                                                          <C>            <C>            <C>          <C>
Balance, May 22, 1996                                        $        --    $        --    $      --    $        --
Stock issued to incorporators for cash                            24,500             --           --         25,000
Stock issued for the net assets of PLZ Tech, Inc.                281,096             --           --        285,596
Net loss                                                              --        (76,902)          --        (76,902)
                                                             -----------    -----------    ---------    -----------
Balance, December 31, 1996                                       305,596        (76,902)          --        233,694
Stock issued for cash and services                               362,720             --           --        365,001
Net loss                                                              --        (84,690)          --        (84,690)
                                                             -----------    -----------    ---------    -----------
Balance, December 31, 1997                                       668,316       (161,592)          --        514,005
Stock issued for cash                                          1,281,728             --           --      1,292,707
Stock issued for services                                        293,719             --           --        296,470
Stock issued in exchange for note receivable                      28,685             --           --         29,000
Purchase and retirement of treasury stock                        (39,913)            --           --        (40,385)
Net loss                                                              --       (752,111)          --       (752,111)
                                                             -----------    -----------    ---------    -----------
Balance, December 31, 1998                                     2,232,535       (913,703)          --      1,339,686
Stock issued for cash                                            855,101             --           --        863,783
Stock issued for services                                      1,469,320             --           --      1,486,414
Intrinsic value of beneficial conversion feature
  of notes payable                                               174,610             --           --        174,610
Fair value of warrants related to notes payable                  125,000             --           --        125,000
Purchase and retirement of treasury stock                        (10,643)            --           --        (11,132)
Purchase of treasury stock                                            --             --           --        (41,760)
Sale of treasury stock                                            24,334             --           --         35,464
Net loss                                                              --     (2,725,804)          --     (2,725,804)
                                                             -----------    -----------    ---------    -----------
Balance, December 31, 1999                                     4,870,257     (3,639,507)          --      1,246,261
Stock issued for cash                                          1,012,710             --           --      1,013,493
Stock issued for services                                      1,726,197             --           --      1,730,152
Purchase of treasury stock                                            --             --           --        (46,486)
Sale of treasury stock                                            54,771             --           --         77,313
Exercise of stock options for notes receivable                   220,150             --     (193,427)        28,573
Amortization of discount on convertible preferred stock          159,677             --           --        159,677
Exercise of preferred stock conversion feature                   533,678             --           --        542,878
Issuance of convertible debentures                               263,830             --           --        263,830
Exchange of preferred stock for convertible debentures          (641,780)            --           --       (641,781)
                                                                 (59,583)            --           --        (59,583)
Net loss                                                              --     (3,867,931)          --     (3,867,931)
                                                             -----------    -----------    ---------    -----------
Balance, December 31, 2000                                     8,139,907     (7,507,438)    (193,427)       446,396
Stock issued for services                                        174,773             --           --        176,248
Purchase of treasury stock                                            --             --           --         (3,207)
Net loss                                                              --       (531,071)          --       (531,071)
                                                             -----------    -----------    ---------    -----------
Balance, March 31, 2001                                        8,314,680     (8,038,509)    (193,427)        88,366
Stock issued for services                                        131,203             --           --        133,038
Stock issued for cash                                             39,347             --           --         40,000
Stock issued upon debt conversion                                 19,699             --           --         20,000
Purchase of treasury stock                                            --             --           --         (2,012)
Cancellation of shares                                           (46,950)            --           --        (47,250)
Net loss                                                              --       (570,699)          --       (570,699)
                                                             -----------    -----------    ---------    -----------
Balance, June 30, 2001                                       $ 8,457,979    $(8,609,208)   $(193,427)   $  (338,557)
                                                             ===========    ===========    =========    ===========
</TABLE>


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


                                      -5-
<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                                              $(570,699)   $(957,323)
  Adjustments to reconcile net loss to net cash
    used in operating activities

      Interest on convertible debentures                   25,000           --
      Amortization and depreciation expense                42,777       43,755
      Amortization of discounts on convertible
        notes                                                  --      112,976
      Unrealized (gain) loss on marketable securities          --        5,813
      Loss on Bio Moda, Inc.                                   --       16,222
      Asset impairment                                    227,570           --
      Issuance of common stock for services                85,588      385,429
      Marketable equity securities                             --         (158)
      Increase in costs in excess of
        billings on uncompleted contract                  (77,252)      (1,588)
      (Increase) decrease in other assets                  (5,121)          --
      Increase in allowance for loss on contract               --       38,673
      Increase (decrease) in accrued liabilities
        and accounts payable                               69,597        3,352
                                                        ---------    ---------

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


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


                                      -6-
<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)
  Sale of marketable securities                              --       33,817
  (Increase) decrease in certificate of deposits         52,935       53,057
  Purchase of other assets                               (6,003)          --
                                                      ---------    ---------

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

Cash flows from financing activities
  Payments on notes payable and capital
    lease obligations                                   (10,749)     (11,382)
  Issuance of capital stock                              40,000           --
  Purchase of treasury stock                             (2,012)     (33,817)
                                                      ---------    ---------

          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.


                                      -7-
<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                                              $(1,101,770)   $(2,464,860)   $(8,609,208)
  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
      Asset impairment                                      227,570             --        227,570
      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 used in operating activities            (490,285)      (656,918)    (3,482,222)
                                                        -----------    -----------    -----------
</TABLE>


   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 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.


                                      -9-
<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.


                                      -10-
<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.


                                      -11-
<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.

     In  the  second  quarter  of  2001,  the  Company  recorded  an  impairment
     write-down  of patents in the amount of $227,570,  based on an  uncertainty
     regarding the amounts and timing of future cash flows.  As of June 30, 2001
     the carrying value of patents is $1.


   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

     Other Assets - Continued

     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.

     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.


   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

     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.

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.


   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 3.  INVESTMENTS - CONTINUED

     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  recoverability of the investment in
     Bio Moda,  Inc. is supported  by two recent  private  placements  that were
     completed at a share price greater than the carrying value of the asset.

     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
                                                           =========

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


   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 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 entire amount 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
     12,500,000 shares of common stock at the lower of 75 percent of the closing
     bid price of a share of common  stock at the time of exercise or  September
     1, 1999.  The warrants  expire on June 3, 2002.  Management  estimates that
     approximately half the warrants will be exercised prior to expiration.

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

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

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


   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 5.  CONVERTIBLE DEBENTURES - CONTINUED

     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 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 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

     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.

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 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 6. FAIR VALUE OF FINANCIAL INSTRUMENTS - CONTINUED

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

NOTE 7.  INCOME TAXES

     As of June 30, 2001, the Company had a net operating loss  carryforward  of
     approximately  $8,400,000  which  expires 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.


   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 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 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.


   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 9.  EQUITY TRANSACTIONS - CONTINUED

     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.

     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.


   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

     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.

     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 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 10.  STOCK PLANS - CONTINUED

    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:

                                                                   Years ended
                                                                   December 31,
                                       2000            1999            1998
                                   ------------    ------------    ----------

     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)

     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:


   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 10.  STOCK PLANS - CONTINUED

                                                       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 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.


                                      -24-
<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.


                                      -25-
<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.


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


                                      -26-
<PAGE>


We expect our principal source of revenue to be derived from sales of our
electronic display product. To date we have recognized limited revenue, but we
have developed a functioning prototype 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.


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


                                      -27-
<PAGE>


General and administrative costs decreased to $247,455 in the second quarter of
2001 from $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.

Patents. In the second quarter of 2001, the Company recorded an impairment
write-down of patents in the amount of $227,570, based on an uncertainty
regarding the amounts and timing of future cash flows. As of June 30, 2001 the
carrying value of patents is $1.

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. The
recoverability of the investment in Bio Moda, Inc. is supported by two recent
private placements that


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


                                      -28-
<PAGE>


were completed at a share price greater than the carrying value of the asset.

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 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 2,488,983 net increase
in shares of common stock. 2,788,983 were issued during the quarter and 300,000
shares were canceled.

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.


                                      -29-
<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: October 25, 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)


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


                                      -30-