U. S. SECURITIES AND EXCHANGE COMMISSION

                              Washington, DC 20549

                                   FORM 10-QSB


              X QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934


               For the quarterly period ended: September 30, 1998


               TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE
                                  EXCHANGE ACT


                           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 4, Albuquerque, New Mexico        87113 
(Address of principal executive offices)                  (Zip Code)

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


Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days. Yes _X_ No______

The number of issuer's  shares of Common Stock  outstanding  as of September 30,
1998 was 14,130,000  Transitional Small Business  Disclosure Format (check one):
Yes _X_ No ____



<PAGE>


                               Accountants' Report


Board of Directors
Advanced Optics Electronics, Inc.


We have compiled the accompanying  balance sheet of Advanced Optics Electronics,
Inc. (a  development  stage  company) as of  September  30, 1998 and the related
statements of operations, changes in stockholders' equity and cash flows for the
quarter  then  ended  and the  period  from  May 22,  1996  (inception)  through
September 30, 1998, in accordance  with  Statements on Standards for  Accounting
and  Review  Services  issued by the  American  Institute  of  Certified  Public
Accountants.

A  compilation  is limited to  presenting  in the form of  financial  statements
information  that is the  representation  of management.  We have not audited or
reviewed the accompanying financial statements and, accordingly,  do not express
an opinion or any other form of assurance on them.


Neff & Company LLP

Albuquerque, New Mexico
November 12, 1998


                                                                               1
<PAGE>


ADVANCED OPTICS ELECTRONICS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
September 30, 1998


ASSETS

CURRENT ASSETS
    Cash and cash equivalents                                       $   351,194
    Certificate of deposit                                               50,000
    Contract receivable                                                 144,000
    Other receivables                                                    48,665
                                                                    -----------

           Total current assets                                         593,859
                                                                    -----------

PROPERTY AND EQUIPMENT
    Furniture and fixtures                                               28,014
    Computers                                                            17,745
    Technical equipment                                                  75,573
    Equipment under capital lease                                       100,850
    Less accumulated depreciation                                       (15,627)
                                                                    -----------

           Total property and equipment                                 206,555
                                                                    -----------

OTHER ASSETS
    Investment in Bio Moda, Inc.                                        318,280
    Organizational costs, net of accumulated
        amortization of $33,285                                          71,750
    Goodwill, net of accumulated amortization
        of $240                                                           4,760
    Patents, net of accumulated amortization
        of $24,445                                                      217,894
    Other assets                                                            350
                                                                    -----------
           Total other assets                                           613,034
                                                                    -----------
           Total assets                                             $ 1,413,448
                                                                    ===========


See accompanying notes and accountants' report.


                                                                               2
<PAGE>


LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
    Notes payable                                                   $     5,384
    Accrued liabilities                                                  16,072
    Current portion of capital lease obligations                         23,043
                                                                    -----------

           Total current liabilities                                     44,499
                                                                    -----------
Long-term portion of capital lease obligations                           48,474
                                                                    -----------

SHAREHOLDERS' EQUITY
    Common stock, authorized 25,000,000 shares,
        $.001 par value, 14,130,000 shares issued
        and outstanding                                                  14,130
    Additional paid-in capital                                        1,868,574
    Deficit accumulated during the development stage                   (521,844)
    Treasury stock, at cost                                             (40,385)
                                                                    -----------

           Total shareholders' equity                                 1,320,475
                                                                    -----------




           Total liabilities and shareholders' equity               $ 1,413,448
                                                                    ===========


                                                                               3
<PAGE>


ADVANCED OPTICS ELECTRONICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
Quarter Ended September 30, 1998 and the
Period from May 22, 1996 (Inception)
Through September 30, 1998


                                                                       5/22/96
                                                    Quarter          (Inception)
                                                     Ended             Through
                                                    9/30/98            9/30/98

REVENUES
    Contract revenue                             $         --           144,000
                                                 ------------------------------

COSTS AND EXPENSES
    General and administrative                        130,769           526,799
    Research and development                           44,408           114,023
                                                 ------------------------------

           Total expenses                             175,177           640,822
                                                 ------------------------------

    Operating income (loss)                          (175,177)         (496,822)

OTHER EXPENSES
    Loss on equity investment                           7,622            16,910
    Interest expense                                    2,297             8,112
                                                 -------------------------------

           Total other expenses                         9,919            25,022
                                                 -------------------------------

           Net loss                                  (185,096)         (521,844)
                                                 -------------------------------

Loss per share                                   $      (.013)            (.063)
                                                 ===============================

Weighted average shares outstanding                14,064,135         8,270,073
                                                 ==============================


See accompanying notes and accountants' report.


                                                                               4
<PAGE>


ADVANCED OPTICS ELECTRONICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Quarter Ended September 30, 1998 and the
Period from May 22, 1996 (Inception) Through
September 30, 1998


                                                             Common Stock
                                                     ---------------------------
                                                                        Stated
                                                       Shares           Value

Balance, May 22, 1996                                        --       $       --

Stock issued in public offering                       4,499,290            4,499

Net loss                                                     --               --
                                                     ---------------------------

Balance, December 31, 1996                            4,499,290            4,499

Stock issued in public offering                       2,656,213            2,656

Net loss                                                     --               --
                                                     ---------------------------

Balance, December 31, 1997                            7,155,503            7,155

Stock issued in public offering                       4,894,777            4,895

Comprehensive income                                         --               --
                                                     ---------------------------

Balance, March 31, 1998                              12,050,280           12,050

Stock issued in public offering                       1,947,990            1,948

Purchase of treasury stock                                   --               --

Comprehensive income (loss)                                  --               --
                                                     ---------------------------

Balance, June 30, 1998                               13,998,270           13,998

Stock issued in public offering                         131,730              132

Purchase of treasury stock                                   --               --

Net loss                                                     --               --
                                                     ---------------------------

Balance, September 30, 1998                          14,130,000       $   14,130
                                                     ===========================


See accompanying notes and accountants' report.


                                                                               5
<PAGE>


                                Equity
                               (Deficit)
                              Accumulated
           Additional          During the                          Total
            Paid-In           Development         Treasury     Shareholders'
            Capital              Stage             Stock           Equity

        $             --              --               --               --

                 306,097              --               --          310,596

                      --              --               --          (76,902)
        ------------------------------------------------------------------

                 306,097         (76,902)              --          233,694

                 362,345              --               --          365,001

                      --         (84,690)              --          (84,690)
        ------------------------------------------------------------------

                 668,442        (161,592)              --          514,005

                 786,105              --               --          791,000

                      --         176,465               --          176,465
        ------------------------------------------------------------------

               1,454,547          14,873               --        1,481,470

                 112,004              --               --          113,952

                      --              --          (18,552)         (18,552)

                      --        (351,621)              --         (351,621)
        ------------------------------------------------------------------

               1,566,551        (336,748)         (18,552)       1,225,249

                 302,023              --               --          302,155

                      --              --          (21,833)         (21,833)

                      --        (185,096)              --         (185,096)
        ------------------------------------------------------------------

        $      1,868,574        (521,844)         (40,385)       1,320,475
        ==================================================================


                                                                               6
<PAGE>


ADVANCED OPTICS ELECTRONICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
For the Quarter Ended September 30, 1998 and the
Period from May 22, 1996 (Inception) Through
September 30, 1998


                                                                       5/22/96
                                                                     (Inception)
                                                                       Through
                                                         9/30/98       9/30/98
CASH FLOWS FROM OPERATING ACTIVITIES
    Net (loss)                                         $ (185,096)     (521,844)
    Adjustments to reconcile net loss to net cash
        provided by operating activities:
           Amortization and depreciation expense           10,301        73,596
           Loss on equity investment                        7,622        16,910
           Contract receivable                                 --      (144,000)
           Other receivables                               (3,500)      (38,665)
           Accrued liabilities                             10,131        16,072
                                                       ------------------------
               Net cash applied to operating
                  activities                             (160,542)     (597,931)
                                                       ------------------------


CASH FLOWS FROM INVESTING ACTIVITIES
    Purchase of equipment                                 (43,448)     (121,382)
    Investment in Bio Moda, Inc.                               --      (335,190)
    Purchase of certificate of deposit                    (50,000)      (50,000)
    Increase in other assets                                   --      (352,673)
                                                       -------------------------
               Net cash applied to investing
                  activities                              (93,448)     (859,245)
                                                       -------------------------


CASH FLOWS FROM FINANCING ACTIVITIES
    Notes payable                                              --        52,993
    Debt repayment                                         (8,400)      (47,609)
    Payments on capital lease obligation                  (29,333)      (29,333)
    Issuance of common stock                              292,155     1,872,704
    Purchase of treasury stock                            (21,833)      (40,385)
                                                       -------------------------
               Net cash provided by financing
                  activities                              232,589     1,808,370
                                                       -------------------------

Net increase (decrease) in cash                           (21,401)      351,194

Cash, beginning of period                                 372,595            --
                                                       -------------------------

Cash, end of period                                    $  351,194       351,194
                                                       =========================


See accompanying notes and accountants' report.


                                                                               7
<PAGE>


ADVANCED OPTICS ELECTRONICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
September 30, 1998


NOTE 1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business.  Advanced Optics  Electronics,  Inc. (the Company) is a
developmental   stage  technology  company  with  its  principal  focus  on  the
development and production of large-scale  flat panel  displays.  The Company is
currently  continuing  its  research  and  development  of  this  product.  Upon
substantial  completion of the research and  development of the large flat panel
display,  the Company plans to make the transition  from a  developmental  stage
company to selling and producing  this product.  The market for the  large-scale
flat panel will include,  but not be limited to,  cockpit  displays,  flat panel
computer monitors, and advertising billboards. Advanced Optics Electronics, Inc.
plans to focus on producing and selling the large-scale  flat panel displays for
outdoor  advertising  billboards.  Management  believes  that it will be in full
production by the end of 1998.

Cash and Cash Equivalents.  Cash and cash equivalents  include all cash balances
and highly liquid debt instruments with an original  maturity of three months or
less. The Company's cash is deposited in financial  institutions  and is insured
only  up to  $100,000  by the  Federal  Deposit  Insurance  Corporation  at each
institution. As of September 30, 1998, approximately $70,000 was not insured.

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

Contract Receivable.  Contract receivable consists of revenue recognized but not
yet billed.  No  allowance  for  uncollectible  accounts has been  recorded,  as
management believes the contract to be fully collectible.

Revenue  Recognition.  Revenues  are  generally  recognized  when  services  are
rendered or  products  are  delivered  to  customers.  Long-term  contracts  are
accounted  for  using  the  percentage  of  completion  method,   with  revenues
recognized in proportion  that costs  incurred bear to estimated  total costs at
completion.  Expected  losses on such  contracts,  if any, are charged to income
currently. The Company has entered a contract to produce flat panel displays for
an outdoor  advertising  billboard.  The amount of the contract is $1.7 million.
Management estimates that the contract will be completed in 1999.


                                                                               8
<PAGE>


ADVANCED OPTICS ELECTRONICS,INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
September 30, 1998


NOTE 1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
          (CONTINUED)

Other Assets. Organization costs are amortized on a straight-line basis over the
period to be benefited of five years.  Patents are amortized on a  straight-line
basis  over  the  remaining  estimated  useful  life of 15  years.  Goodwill  is
amortized over the period to be benefited,  or 40 years,  whichever is less. The
Company continually reviews other assets to assess recoverability from estimated
future net cash flows.  To date,  these reviews have not resulted in a reduction
of other assets.

Income  Taxes.  The Company  accounts for its income  taxes using the  liability
method.  Under this method,  deferred tax  liabilities and assets are determined
based on the difference between the financial statement carrying amounts and tax
basis of assets and  liabilities  using enacted tax rates in effect in the years
in which the  differences  are  expected to reverse.  The Company has provided a
valuation   allowance  to  offset  the  benefit  of  any  net   operating   loss
carryforwards or deductible temporary differences

Loss per share.  Loss per share is computed on the basis of the weighted average
number of common  shares  outstanding  during the year and did not  include  the
effect of potential  common stock as their  effect  would be  antidilutive.  The
numerator  for the  computation  is the net  loss  and  the  denominator  is the
weighted average shares of common stock outstanding.

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.


                                                                               9
<PAGE>


ADVANCED OPTICS ELECTRONICS,INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
September 30, 1998


NOTE 2.        OTHER RECEIVABLES

Other receivables at September 30, 1998, consist of the following:

Due from Bio Moda, Inc.                                               $   5,000
Due from officer                                                          9,672
Note receivable for officer, bearing interest
    at 9% and due November 10, 1999                                      18,993
Note receivable from former shareholder bearing
    interest at 8% and due in February, 1999                             15,000
                                                                      ---------

                                                                      $  48,665
                                                                      =========

The note  receivable  from  former  shareholder  was issued  for  $10,000 in the
Company's common stock and $5,000 in cash.

NOTE 3.   INVESTMENT IN BIO MODA, INC.

In April 1998 the Company  increased its  investment in Bio Moda,  Inc. to 21.67
percent. Bio Moda, Inc. is a development stage company involved primarily in the
development of technology for the early detection of lung cancer.

Summary financial information as of September 30, 1998, was not available.

A summary of the financial  data relative to Bio Moda,  Inc. as of June 30, 1998
is as follows:

Assets:
    Current assets                                                    $ 259,306
    Other assets                                                         23,525
                                                                      ---------
                                                                      $ 282,831
                                                                      =========
Liabilities and equity
    Current liabilities                                               $   2,801
    Notes payable to stockholders                                        85,147
    Common stock                                                        348,623
    Deficit accumulated during the development stage                   (153,740)
                                                                      ---------
                                                                      $ 282,831
                                                                      =========


                                                                              10
<PAGE>


ADVANCED OPTICS ELECTRONICS,INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
September 30, 1998


NOTE 3.   INVESTMENT IN BIO MODA, INC. (CONTINUED)

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

Original cost                                                         $ 335,190
Share of net loss                                                        (6,772)
Amortization of excess of cost
    over book value                                                     (10,138)
                                                                      ---------
Net investment                                                        $ 318,280
                                                                      =========


The  investment  in Bio Moda,  Inc. was reported at market value for the quarter
ended March 31, 1998.  Concurrent  with the change to the equity  method for the
quarter ended June 30, 1998, the investment account was restored to its original
cost.  At  September  30,  1998,  there is no  difference  between  the  deficit
accumulated during the development stage and the accumulated other comprehensive
income.


NOTE 4.   LEASES

Capital  Leases.  In July,  1998,  the  Company  entered  into a  capital  lease
agreement for equipment  valued at $100,850.  The Company made a down payment of
$20,170.  The remaining  amount was financed on a lease with 36 monthly payments
of $2,810.  Future  minimum  lease  payments are as follows for the years ending
September 30:


          1999                                                        $  33,720
          2000                                                           33,720
          2001                                                           22,480
                                                                      ---------
                                                                         89,920

    Less amounts representing interest                                  (18,403)
                                                                      ---------
                                                                      $  71,517
                                                                      =========

Operating  Leases.  The operating  lease agreement is for rent of facilities for
the office and production facility.  The lease agreement is $1,300 per month for
three years.


                                                                              11
<PAGE>


ADVANCED OPTICS ELECTRONICS,INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
September 30, 1998


NOTE 5.   INCOME TAXES

At  September  30,  1998,  the  Company had  deferred  tax assets  amounting  to
approximately  $190,000.  The deferred tax assets  consist  primarily of the tax
benefit of net operating loss  carryforwards and are fully offset by a valuation
allowance of the same amount.

The net  change in the  valuation  allowance  for  deferred  tax  assets  was an
increase of approximately  $70,000 in the quarter ending September 30, 1998. The
net change is due primarily to the increase in net operating loss carryforwards.

At September  30, 1998,  the Company had net  operating  loss  carryforwards  of
approximately  $480,000  available to offset  future  state and federal  taxable
income. These carryforwards will expire in 2016 to 2018 for federal tax purposes
and 2001 to 2003 for state tax purposes.


                                                                              12
<PAGE>


                        ADVANCED OPTICS ELECTRONICS, INC.


                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATION



Advanced  Optics  Electronics,   Inc.  is  engaged  primarily  in  research  and
development  of large scale flat panel  displays.  Results of the  research  and
development  for flat panel  displays will be the market and sale of stand alone
flat panel displays, focusing on the outdoor advertising market.

In addition Advanced Optics Electronics, Inc. hold a significant equity position
in the shares of a privately held biotech company by the name of BioModa, Inc.

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 with the  Company's  control  and that may have a
direct  bearing  on  operating  results  include,  but are not  limited  to, the
Company's  ability to develop new products  cost-effectively;  Maturation of the
domestic  and  international  markets for large scale flat panel  displays,  the
inability  of the Company to raise  capital in the future is due to a world wide
recession causing the Company's product to be diminished, very large third party
entries into the flat panel display,  the retention of the 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.



                                                                              13
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

The  Company  relies  upon  current  placement  of its'  securities  to  provide
liquidity for its development of prototype and manufacturing operations.

The Company is also anticipating to produce  additional  liquidity over the next
twelve months through the sale of part of its' holding in BioModa, Inc.

These sales of  securities  will provide  adequate  liquidity  to meet  adequate
requirements through the end of fiscal year 1999.

During the quarter ended September 30, 1998 approximately $ 65,000 was spent for
the purchase of equipment  and property and product  development  costs for flat
panel  displays.  Funds for operation  needs,  product  development  and capital
expenditures  were  provided  from the  sale of  securities  and cash  reserves.
Product  development  expenditures are expected to be approximately $ 150,000 in
1998.

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  $2,850.00.  The
term of the  lease  is 3 years  and is  backed  by the  credit  of the  Company.
Management  anticipates that the cash flow of securities sales and cash reserves
will be sufficient to meet capital requirements at least through the fiscal year
1998. The Company has no other significant  commitments for capital expenditures
in fiscal 1998.


RESULTS OF CONTINUING OPERATIONS

Comparison of the Three-Month Periods Ended September 30, 1998 and 1997

Revenues  were flat in the three month period  September 30, 1998 as compares to
the same  period  the  previous  year.  The  Company  will  begin to market  its
products, primarily the flat panel displays over the next several quarters.

Research  development  and  technical  costs  increased  approximately  $ 19,600
dollars.  The  increase  in  these  costs  is  due  primarily  to  research  and
development efforts.

General  administrative  costs  increased $ 13,700 due to  increases in salaries
related to changes in personnel and increases in professional fees.




                                                                              14
<PAGE>

Comparison of the Nine-Month Periods Ended September 1998 and 1997

Revenues experienced a 98 percent increase or $ 144,000 in the nine month period
ended 1998. As compared to the same period for the previous  year.  The increase
was due primarily to additional allocation of revenues of the contract in place.
General and  administrative  costs  increased  approximately  $29,000 due to the
expansion in personnel costs.  Depreciation  increased  approximately $6,000 due
primarily to depreciation expense for equipment acquired under capital leases.




                                                                              15
<PAGE>


                           PART II. OTHER INFORMATION


Item  1.  Legal Proceedings  - Not applicable

Item  2.  Changes in securities - 131,730  increase in shares of common stock

Item  3.  Defaults Upon Senior Securities - Not applicable

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

Item  5.  Other Information - Change in accountant

                                      Neff & Company
                                      7001 Prospect Place, NE
                                      Albuquerque, NM


Item 6.  Exhibits and Reports on Form 8-K      Item 601 of S-B

(b)  Reports on Form 8-K

No reports on Form 8-K were filed by the company  during the three month  period
ending September 30, 1998



                                                                              16
<PAGE>


                                   SIGNATURES


In  accordance  with  Section 13 or 15(d) of the Exchange  Act,  the  registrant
caused this report to be signed on its behalf by the undersigned  thereunto duly
authorized.


                                         Dated:    December 31, 1998

                                         ADVANCED OPTICS ELECTRONICS, INC.


                                         BY:/s/Leslie S. Robins
                                            -------------------------------
                                         Leslie S. Robins
                                         Chief Accounting Officer
                                         (Principal Accounting Officer)


                                         BY:/s/Leslie S. Robins
                                            -------------------------------
                                         Leslie S. Robins
                                         Executive Vice President
                                         (Principal Executive Officer)





                                                                              17