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**U.        S. SECURITIES AND EXCHANGE COMMISSION**

**Washington,        DC 20549**

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**FORM        10-QSB**

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

**SECURITIES          EXCHANGE ACT OF 1934**

**March 31, 2007**

**0-24511**

**ADVANCED          OPTICS ELECTRONICS, INC.**

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

**8301          Washington NE, Suite 5, Albuquerque, New Mexico 87113**

** (505) 797-7878**

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**PART          I: FINANCIAL INFORMATION**

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

|                                                                                                                   |   |  **March                  31, 2007**  |        |  **December                  31, 2006** |   |
|------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------|-------------|----------------------------------------------|--------|
| **ASSETS**                                                                                                             |
| **Current                  Assets**                                                                                    |   |                                            |        |                                         |   |   |   |
| Cash                                                                                                                   |   | $                                               | 20,322      |                                         | $      | 81,140 |   |
| Marketable                  securities                                                                                 |   |                                            | 14,238      |                                         |   | 78,086 |   |
| Other                  current assets                                                                                  |   |                                            | 21,057      |                                         |   | 21,057 |   |
|                                                                                                                   |   |                                            |        |                                         |   |   |   |
| Total                  current assets                                                                                  |   |                                            | 55,617      |                                         |   | 180,283 |   |
|                                                                                                                   |   |                                            |        |                                         |   |   |   |
| **Intangibles**,                  net of accumulated amortization of $93,168 and $88,717                               |   |                                            | 199,170     |                                         |   | 201,822 |   |
|                                                                                                                   |   |                                            |        |                                         |   |   |   |
| **Property                  and Equipment**,                  net of accumulated depreciation of $475,215 and $468,214 |   |                                            | 83,493      |                                         |   | 90,495 |   |
|                                                                                                                   |   |                                            |        |                                         |   |   |   |
| **Notes                  receivable and deposits**                                                                     |   |                                            | 59,283      |                                         |   | 58,298 |   |
|                                                                                                                   |   |                                            |        |                                         |   |   |   |
|                                                                                                                   |   | $                                               | 397,563     |                                         | $      | 530,898 |   |
|                                                                                                                   |   |                                            |        |                                         |   |   |   |
|                                                                                                                   |   |                                            |        |                                         |   |   |   |
| **LIABILITIES                  AND STOCKHOLDERS' EQUITY (DEFICIT)**                                                    |
|                                                                                                                   |   |                                            |        |                                         |   |   |   |
| **Current                  Liabilities**                                                                               |   |                                            |        |                                         |   |   |   |
| Accounts                  payable                                                                                      |   | $                                               | 242,420     |                                         | $      | 231,910 |   |
| Accrued                  expenses                                                                                      |   |                                            | 523,487     |                                         |   | 553,849 |   |
| Common                  stock subscribed                                                                               |   |                                            | 20,250      |                                         |   | 45,750 |   |
| Advances                  from shareholders                                                                            |   |                                            | 188,997     |                                         |   | 164,842 |   |
| Convertible                  debentures                                                                                |   |                                            | 96,878      |                                         |   | 95,218 |   |
|                                                                                                                   |   |                                            |        |                                         |   |   |   |
| Total                  current liabilities                                                                             |   |                                            | 1,072,032   |                                         |   | 1,091,569 |   |
|                                                                                                                   |   |                                            |        |                                         |   |   |   |
| **Commitments                  and Contingencies**                                                                     |   |                                            |        |                                         |   |   |   |
|                                                                                                                   |   |                                            |        |                                         |   |   |   |
| **Stockholders'                  Equity (Deficit)**                                                                    |   |                                            |        |                                         |   |   |   |
| Preferred                  stock, $0.001 par value, 10,000,000 shares authorized;                                      |   |                                            |        |                                         |   |   |   |
| no                  shares issued and outstanding                                                                      |   |                                            | -           |                                         |   | - |   |
| Common                  stock, $0.001 par value, 16,000,000,000 and 13,000,000,000                  shares             |   |                                            |        |                                         |   |   |   |
| authorized;                  15,643,836,349 and 12,198,836,349 shares issued and                  outstanding          |   |                                            | 15,643,836  |                                         |   | 12,198,836 |   |
| Treasury                  stock, at cost                                                                               |   |                                            | (27,388     | )                                            |   | (27,269 | ) |
| Additional                  paid in capital                                                                            |   |                                            | 8,899,158   |                                         |   | 11,444,751 |   |
| Accumulated                  other comprehensive income (loss)                                                         |   |                                            | (24,105     | )                                            |   | (54,042 | ) |
| Deficit                  accumulated during the development stage                                                      |   |                                            | (25,165,970 | )                                            |   | (24,122,947 | ) |
|                                                                                                                   |   |                                            |        |                                         |   |   |   |
| Total                  stockholders' equity (deficit)                                                                  |   |                                            | (674,469    | )                                            |   | (560,671 | ) |
|                                                                                                                   |   |                                            |        |                                         |   |   |   |
|                                                                                                                   |   | $                                               | 397,563     |                                         | $      | 530,898 |   |
|                                                                                                                   |   |                                            |        |                                         |   |   |   |
| See                  accompanying notes to these consolidated financial                  statements                    |

----

|  **ADVANCED                  OPTICS ELECTRONICS, INC.**   |
|----------------------------------------------------------------|
| **(A                  Development Stage Company)**             |
|  **CONSOLIDATED                  STATEMENTS OF EXPENSES** |
|  **(Unaudited)**                                          |

|                                                                                                     | **For the three months ended****March 31,** |                |        | **May                  22, 1996 **(Inception)                  Thorugh March 31,****  |               |
|-----------------------------------------------------------------------------------------------------|---------------------------------------------|----------------|--------|--------------------------------------------------------------------------------------------|---------------|
|                                                                                                |                                        | **2007**       |   |                                                                                       | **2006**      |   |   | **2007** |   |
|                                                                                                |                                        |           |   |                                                                                       |          |   |   |   |   |
| **OPERATING                  EXPENSES**                                                             |                                        |           |   |                                                                                       |          |   |   |   |   |
| General                  and administrative                                                         | $                                           | 1,239,983      |   | $                                                                                          | 447,967       |   | $ | 16,757,199 |   |
| Research                  and development                                                           |                                        | 471,807        |   |                                                                                       | 128,093       |   |   | 3,498,385 |   |
| Professional                  fees                                                                  |                                        | 139,661        |   |                                                                                       | 65,379        |   |   | 725,891 |   |
| Depreciation                  & amortization                                                    |                                        | 11,453         |   |                                                                                       | 12,187        |   |   | 236,311 |   |
| Licensing                  fees                                                                     |                                        | 50             |   |                                                                                       | -             |   |   | 84,026 |   |
| Inventory                  write-off                                                                |                                        | -              |   |                                                                                       | -             |   |   | 29,293 |   |
| Asset                  impairment                                                                   |                                        | -              |   |                                                                                       | -             |   |   | 592,884 |   |
|                                                                                                |                                        |           |   |                                                                                       |          |   |   |   |   |
| Operating                  expense                                                                  |                                        | 1,862,954      |   |                                                                                       | 653,626       |   |   | 21,923,989 |   |
| Loss                  on contract                                                                   |                                        | -              |   |                                                                                       | -             |   |   | (2,255,944 | ) |
|                                                                                                |                                        |           |   |                                                                                       |          |   |   |   |   |
| **OPERATING                  LOSS**                                                                 |                                        | (1,862,954     | )      |                                                                                       | (653,626      | ) |   | (24,179,933 | ) |
|                                                                                                |                                        |           |   |                                                                                       |          |   |   |   |   |
| **OTHER                  INCOME (EXPENSES)**                                                        |                                        |           |   |                                                                                       |          |   |   |   |   |
| Interest                  income                                                                    |                                        | 1,007          |   |                                                                                       | 922           |   |   | 90,002 |   |
| Realized                  gain (loss) on marketable equity securities                               |                                        | (74,019        | )      |                                                                                       | 38,710        |   |   | (250,211 | ) |
| Other                  investment gains                                                             |                                        | -              |   |                                                                                       | -             |   |   | 59,784 |   |
| Loss                  from investment in Biomoda, Inc.                                              |                                        | -              |   |                                                                                       | -             |   |   | (289,750 | ) |
| Gain                  (loss) on disposal of assets                                                  |                                        | -              |   |                                                                                       | -             |   |   | (3,520 | ) |
| Gain                  (loss) on settlement of debts                                                 |                                        | -              |   |                                                                                       | -             |   |   | (540,024 | ) |
| Interest                  expense                                                                   |                                        | (5,816         | )      |                                                                                       | (8,627        | ) |   | (1,370,803 | ) |
| Gain                  on issuance of stock in subsidiary                                            |                                        | 898,759        |   |                                                                                       |          |   |   | 1,570,234 |   |
| Other                  income                                                                       |                                        | -              |   |                                                                                       | -             |   |   | 551 |   |
|                                                                                                |                                        |                |   |                                                                                       |               |   |   |  |   |
| Total                  other income (expenses)                                                      |                                        | 819,931        |   |                                                                                       | 31,005        |   |   | (733,737 | ) |
|                                                                                                |                                        |           |   |                                                                                       |          |   |   |   |   |
| **NET                  LOSS BEFORE CUMULATIVE EFFECT OF CHANGE**                                    |                                        |           |   |                                                                                       |          |   |   |   |   |
| **IN                  ACCOUNTING PRINCIPLE & EXTRAORDINARY LOSS**                               |                                        | (1,043,023     | )      |                                                                                       | (622,621      | ) |   | (24,913,670 | ) |
|                                                                                                |                                        |           |   |                                                                                       |          |   |   |   |   |
| **EXTRAORDINARY                  LOSS**                                                             |                                        | -              |   |                                                                                       | -             |   |   | (189,280 | ) |
|                                                                                                |                                        |           |   |                                                                                       |          |   |   |   |   |
| **CUMULATIVE                  EFFECT OF CHANGE IN ACCOUNTING**                                      |                                        |           |   |                                                                                       |          |   |   |   |   |
| **PRINCIPLE**                                                                                       |                                        | -              |   |                                                                                       | -             |   |   | (63,020 | ) |
|                                                                                                |                                        |           |   |                                                                                       |          |   |   |   |   |
| **NET                  LOSS**                                                                       |                                        | (1,043,023     | )      |                                                                                       | (622,621      | ) |   | (25,165,970 | ) |
|                                                                                                |                                        |           |   |                                                                                       |          |   |   |   |   |
| **OTHER                  COMPREHENSIVE GAIN (LOSS)**                                                |                                        |           |   |                                                                                       |          |   |   |   |   |
| Unrealized                  gain (loss) on marketable securities                                    |                                        | 29,937         |   |                                                                                       | (1,072        | ) |   | (24,105 | ) |
|                                                                                                |                                        |           |   |                                                                                       |          |   |   |   |   |
| **COMPREHENSIVE                  LOSS**                                                             | $                                           | (1,013,086     | )      | $                                                                                          | (623,693      | ) | $ | (25,190,075 | ) |
|                                                                                                |                                        |           |   |                                                                                       |          |   |   |   |   |
|                                                                                                |                                        |           |   |                                                                                       |          |   |   |   |   |
|                                                                                                |                                        |           |   |                                                                                       |          |   |   |   |   |
| **Basic                  and diluted net loss available to common                  shareholder**    | $                                           | (0.00          | )      | $                                                                                          | (0.00         | ) |   |   |   |
| **per                  common share**                                                               |                                        |           |   |                                                                                       |          |   |   |   |   |
|                                                                                                |                                        |           |   |                                                                                       |          |   |   |   |   |
| **Basic                  and diluted weighted average common shares**                               |                                        |           |   |                                                                                       |          |   |   |   |   |
| **outstanding**                                                                                     |                                        | 14,058,558,571 |   |                                                                                       | 6,755,780,793 |   |   |   |   |
|                                                                                                |                                        |           |   |                                                                                       |          |   |   |   |   |
| See                  accompanying notes to these consolidated financial                  statements |

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| **ADVANCED                  OPTICS ELECTRONICS, INC.**                                                                                           |
|--------------------------------------------------------------------------------------------------------------------------------------------------|
| **(A                  Development Stage Company)**                                                                                               |
| **CONSOLIDATED                  STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) AND COMPREHENSIVE                  INCOME                  (LOSS)** |
| **For                  The Period From May 22, 1996 (Inception) Through March 31,                  2007**                                        |
| **(Unaudited)**                                                                                                                                  |

|                                                               | **Preferred                  Stock** |   | **Common                  Stock** |             | **Treasury                  Stock**  |             |   |   |             |   |             |   |   |   |             |   | **Deficit**  |                               |   |   |                  |
|--------------------------------------------------------------------|--------------------------------------|--------|-----------------------------------|------------------|-------------------------------------------|------------------|--------|--------|------------------|--------|------------------|--------|--------|--------|------------------|--------|-------------------|------------------------------------|--------|--------|-----------------------|
|                                                               |                                 |   |                              |             |                                      |             |   |   |             |   |             |   |   |   |             |   |              | **Additional**                |   |   |                  |   |   | **Other**  |   |   | **Accumulated**  |   |   | **Total** |   |
|                                                               |                                 |   |                              |             |                                      |             |   |   |             |   |             |   |   |   |             |   |              | **Paid                  In**  |   |   | **N/R**          |   |   | **Comprehensive **  |   |   | **During                  the**  |   |   | **Stockholders'**  |   |
|                                                               | **Shares**                      |   |                              | **Amount**  |                                      | **Shares**  |   |   | **Amount**  |   | **Shares**  |   |   |   | **Amount**  |   |              | **Capital**                   |   |   | **Stockholder**  |   |   | **Income**  |   |   | **Development                  Stage**  |   |   | **equity                  (deficit)**  |   |
| **Balance                  at May 22, 1996 (Inception)**           | -                                    |   | $                                 | -                |                                      | -                |   | $      | -                |   | -                |   |   | $      | -                |   | $                 | -                                  |   | $      | -                     |   | $ | - |   | $ | - |   | $ | - |   |
| Stock                  issued to incorporators for cash            | -                                    |   |                              | -                |                                      | 500,000          |   |   | 500              |   | -                |   |   |   | -                |   |              | 24,500                             |   |   | -                     |   |   | - |   |   | - |   |   | 25,000 |   |
| Stock                  issued for the net assets of PLZ Tech, Inc. | -                                    |   |                              | -                |                                      | 4,500,000        |   |   | 4,500            |   | -                |   |   |   | -                |   |              | 281,096                            |   |   | -                     |   |   | - |   |   | - |   |   | 285,596 |   |
| Net                  loss                                          | -                                    |   |                              | -                |                                      | -                |   |   | -                |   | -                |   |   |   | -                |   |              | -                                  |   |   | -                     |   |   | - |   |   | (76,902 | ) |   | (76,902 | ) |
|                                                               |                                 |   |                              |             |                                      |             |   |   |             |   |             |   |   |   |             |   |              |                               |   |   |                  |   |   |   |   |   |   |   |   |   |   |
| **Balance,                  December 31, 1996**                    | -                                    |   |                              | -                |                                      | 5,000,000        |   |   | 5,000            |   | -                |   |   |   | -                |   |              | 305,596                            |   |   | -                     |   |   | - |   |   | (76,902 | ) |   | 233,694 |   |
| Stock                  issued for cash and services                | -                                    |   |                              | -                |                                      | 2,281,212        |   |   | 2,281            |   | -                |   |   |   | -                |   |              | 362,720                            |   |   | -                     |   |   | - |   |   | - |   |   | 365,001 |   |
| Net                  loss                                          | -                                    |   |                              | -                |                                      | -                |   |   | -                |   | -                |   |   |   | -                |   |              | -                                  |   |   | -                     |   |   | - |   |   | (84,690 | ) |   | (84,690 | ) |
|                                                               |                                 |   |                              |             |                                      |             |   |   |             |   |             |   |   |   |             |   |              |                               |   |   |                  |   |   |   |   |   |   |   |   |   |   |
| **Balance,                  December 31, 1997**                    | -                                    |   |                              | -                |                                      | 7,281,212        |   |   | 7,281            |   | -                |   |   |   | -                |   |              | 668,316                            |   |   | -                     |   |   | - |   |   | (161,592 | ) |   | 514,005 |   |
| Stock                  issued for cash                             | -                                    |   |                              | -                |                                      | 10,979,275       |   |   | 10,979           |   | -                |   |   |   | -                |   |              | 1,281,728                          |   |   | -                     |   |   | - |   |   | - |   |   | 1,292,707 |   |
| Stock                  issued for services                         | -                                    |   |                              | -                |                                      | 2,751,000        |   |   | 2,751            |   | -                |   |   |   | -                |   |              | 293,719                            |   |   | -                     |   |   | - |   |   | - |   |   | 296,470 |   |
| Stock                  issued in exchange for note receivable      | -                                    |   |                              | -                |                                      | 315,000          |   |   | 315              |   | -                |   |   |   | -                |   |              | 28,685                             |   |   | -                     |   |   | - |   |   | - |   |   | 29,000 |   |
| Purchase                  and retirement of treasury stock         | -                                    |   |                              | -                |                                      | (472,200         | )      |   | (472             | )      | -                |   |   |   | -                |   |              | (39,913                            | )      |   | -                     |   |   | - |   |   | - |   |   | (40,385 | ) |
| Net                  loss                                          | -                                    |   |                              | -                |                                      | -                |   |   | -                |   | -                |   |   |   | -                |   |              | -                                  |   |   | -                     |   |   | - |   |   | (752,111 | ) |   | (752,111 | ) |
|                                                               |                                 |   |                              |             |                                      |             |   |   |             |   |             |   |   |   |             |   |              |                               |   |   |                  |   |   |   |   |   |   |   |   |   |   |
| **Balance,                  December 31, 1998**                    | -                                    |   |                              | -                |                                      | 20,854,287       |   |   | 20,854           |   | -                |   |   |   | -                |   |              | 2,232,535                          |   |   | -                     |   |   | - |   |   | (913,703 | ) |   | 1,339,686 |   |

----

| Stock                  issued for cash                                             | -      |   |   | -      |   | 8,681,624  |   |   | 8,682  |   | -        |   |   |   | -       |   |   | 855,101   |   |   | -        |   |   | -      |   |   | -          |   |   | 863,783    |   |
|------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|------------|--------|--------|--------|--------|----------|--------|--------|--------|---------|--------|--------|-----------|--------|--------|----------|--------|--------|--------|--------|--------|------------|--------|--------|------------|--------|
| Stock                  issued for services                                         | -      |   |   | -      |   | 17,094,313 |   |   | 17,094 |   | -        |   |   |   | -       |   |   | 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                         | -      |   |   | -      |   | (489,251   | )      |   | (489   | )      | -        |   |   |   | -       |   |   | (10,643   | )      |   | -        |   |   | -      |   |   | -          |   |   | (11,132    | )      |
| Purchase                  of treasury stock                                        | -      |   |   | -      |   | -          |   |   | -      |   | (229,000 | )      |   |   | (41,760 | )      |   | -         |   |   | -        |   |   | -      |   |   | -          |   |   | (41,760    | )      |
| Sale                  of treasury stock                                            | -      |   |   | -      |   | -          |   |   | -      |   | 85,000   |   |   |   | 11,130  |   |   | 24,334    |   |   | -        |   |   | -      |   |   | -          |   |   | 35,464     |   |
| Net                  loss                                                          | -      |   |   | -      |   | -          |   |   | -      |   | -        |   |   |   | -       |   |   | -         |   |   | -        |   |   | -      |   |   | (2,765,862 | )      |   | (2,765,862 | )      |
|                                                                               |   |   |   |   |   |       |   |   |   |   |     |   |   |   |    |   |   |      |   |   |     |   |   |   |   |   |       |   |   |       |   |
| **Balance,                  December 31, 1999**                                    | -      |   |   | -      |   | 46,140,973 |   |   | 46,141 |   | (144,000 | )      |   |   | (30,630 | )      |   | 4,870,257 |   |   | -        |   |   | -      |   |   | (3,679,565 | )      |   | 1,206,203  |   |
| Stock                  issued for cash                                             | 710    |   |   | 1      |   | 782,000    |   |   | 782    |   | -        |   |   |   | -       |   |   | 1,012,710 |   |   | -        |   |   | -      |   |   | -          |   |   | 1,013,493  |   |
| Stock                  issued for services                                         | -      |   |   | -      |   | 3,955,202  |   |   | 3,955  |   | -        |   |   |   | -       |   |   | 1,726,197 |   |   | -        |   |   | -      |   |   | -          |   |   | 1,730,152  |   |
| Purchase                  of treasury stock                                        | -      |   |   | -      |   | -          |   |   | -      |   | (63,500  | )      |   |   | (46,486 | )      |   | -         |   |   | -        |   |   | -      |   |   | -          |   |   | (46,486    | )      |
| Sale                  of treasury stock                                            | -      |   |   | -      |   | -          |   |   | -      |   | 142,400  |   |   |   | 22,542  |   |   | 54,771    |   |   | -        |   |   | -      |   |   | -          |   |   | 77,313     |   |
| Exercise                  of stock options for notes receivable                    | -      |   |   | -      |   | 1,850,000  |   |   | 1,850  |   | -        |   |   |   | -       |   |   | 220,150   |   |   | -        |   |   | -      |   |   | -          |   |   | 222,000    |   |
| Amortization                  of discount of convertible preferred stock           | -      |   |   | -      |   | -          |   |   | -      |   | -        |   |   |   | -       |   |   | 159,677   |   |   | (193,427 | )      |   | -      |   |   | -          |   |   | (33,750    | )      |
| Exercise                  of preferred stock conversion feature                    | -      |   |   | -      |   | 9,200,000  |   |   | 9,200  |   | -        |   |   |   | -       |   |   | 533,678   |   |   | -        |   |   | -      |   |   | -          |   |   | 542,878    |   |
| Issuance                  of convertible debentures                                | -      |   |   | -      |   | -          |   |   | -      |   | -        |   |   |   | -       |   |   | 263,830   |   |   | -        |   |   | -      |   |   | -          |   |   | 263,830    |   |
| Exchange                  of preferred stock for convertible debentures            | (710   | )      |   | (1     | )      | -          |   |   | -      |   | -        |   |   |   | -       |   |   | (869,678  | )      |   | -        |   |   | -      |   |   | -          |   |   | (869,679   | )      |
| Intrinsic                  value of convertible debenture                          | -      |   |   | -      |   | -          |   |   | -      |   | -        |   |   |   | -       |   |   | 227,898   |   |   | -        |   |   | -      |   |   | -          |   |   | 227,898    |   |
| De-investment                  in Wizard Technologies                              | -      |   |   | -      |   | -          |   |   | -      |   | -        |   |   |   | -       |   |   | (59,583   | )      |   | -        |   |   | -      |   |   | -          |   |   | (59,583    | )      |
| Net                  loss                                                          | -      |   |   | -      |   | -          |   |   | -      |   | -        |   |   |   | -       |   |   | -         |   |   | -        |   |   | -      |   |   | (3,827,873 | )      |   | (3,827,873 | )      |
|                                                                               |   |   |   |   |   |       |   |   |   |   |     |   |   |   |    |   |   |      |   |   |     |   |   |   |   |   |       |   |   |       |   |
| **Balance,                  December 31, 2000**                                    | -      |   |   | -      |   | 61,928,175 |   |   | 61,928 |   | (65,100  | )      |   |   | (54,574 | )      |   | 8,139,907 |   |   | (193,427 | )      |   | -      |   |   | (7,507,438 | )      |   | 446,396    |   |

----

| Stock                  issued for cash                                            | -      |   |   | -      |   | 1,382,778     |   |   | 1,383     |   | -           |   |   |   | -       |   |   | 66,844     |   |   | -        |   |   | -      |   |   | -           |   |   | 68,227     |   |
|-----------------------------------------------------------------------------------|--------|--------|--------|--------|--------|---------------|--------|--------|-----------|--------|-------------|--------|--------|--------|---------|--------|--------|------------|--------|--------|----------|--------|--------|--------|--------|--------|-------------|--------|--------|------------|--------|
| Stock                  issued for services                                        | -      |   |   | -      |   | 10,461,498    |   |   | 10,461    |   | -           |   |   |   | -       |   |   | 412,284    |   |   | -        |   |   | -      |   |   | -           |   |   | 422,745    |   |
| Purchase                  of treasury stock                                       | -      |   |   | -      |   | -             |   |   | -         |   | (251,700    | )      |   |   | (16,215 | )      |   | -          |   |   | -        |   |   | -      |   |   | -           |   |   | (16,215    | )      |
| Amortization                  of discount on convertible debentures               | -      |   |   | -      |   | -             |   |   | -         |   | -           |   |   |   | -       |   |   | 143,875    |   |   | -        |   |   | -      |   |   | -           |   |   | 143,875    |   |
| Stock                  issued upon debt conversion                                | -      |   |   | -      |   | 7,064,886     |   |   | 7,065     |   | -           |   |   |   | -       |   |   | 147,008    |   |   | -        |   |   | -      |   |   | -           |   |   | 154,073    |   |
| Net                  loss                                                         | -      |   |   | -      |   | -             |   |   | -         |   | -           |   |   |   | -       |   |   | -          |   |   | -        |   |   | -      |   |   | (1,985,142  | )      |   | (1,985,142 | )      |
|                                                                              |   |   |   |   |   |          |   |   |      |   |        |   |   |   |    |   |   |       |   |   |     |   |   |   |   |   |        |   |   |       |   |
| **Balance,                  December 31, 2001**                                   | -      |   |   | -      |   | 80,837,337    |   |   | 80,837    |   | (316,800    | )      |   |   | (70,789 | )      |   | 8,909,918  |   |   | (193,427 | )      |   | -      |   |   | (9,492,580  | )      |   | (766,041   | )      |
| Stock                  issued for cash                                            | -      |   |   | -      |   | 315,845,000   |   |   | 315,845   |   | -           |   |   |   | -       |   |   | 229,816    |   |   | -        |   |   | -      |   |   | -           |   |   | 545,661    |   |
| Stock                  issued for services                                        | -      |   |   | -      |   | 115,768,000   |   |   | 115,768   |   | -           |   |   |   | -       |   |   | 366,301    |   |   | -        |   |   | -      |   |   | -           |   |   | 482,069    |   |
| Purchase                  of treasury stock                                       | -      |   |   | -      |   | -             |   |   | -         |   | (1,400,000  | )      |   |   | (8,732  | )      |   | -          |   |   | -        |   |   | -      |   |   | -           |   |   | (8,732     | )      |
| Sale                  of treasury stock                                           | -      |   |   | -      |   | -             |   |   | -         |   | 507,800     |   |   |   | 72,887  |   |   | (65,058    | )      |   | -        |   |   | -      |   |   | -           |   |   | 7,829      |   |
| Exercise                  of stock options for notes receivable                   | -      |   |   | -      |   | 1,100,000     |   |   | 1,100     |   | -           |   |   |   | -       |   |   | 20,900     |   |   | (22,000  | )      |   | -      |   |   | -           |   |   | -          |   |
| Advances                  to officer                                              | -      |   |   | -      |   | -             |   |   | -         |   | -           |   |   |   | -       |   |   | -          |   |   | (34,300  | )      |   | -      |   |   | -           |   |   | (34,300    | )      |
| Reclass                  of accrued interest with note receivable                 | -      |   |   | -      |   | -             |   |   | -         |   | -           |   |   |   | -       |   |   | -          |   |   | (59,175  | )      |   | -      |   |   | -           |   |   | (59,175    | )      |
| Stock                  issued upon debt conversion                                | -      |   |   | -      |   | 78,695,566    |   |   | 78,696    |   | -           |   |   |   | -       |   |   | 348,324    |   |   | -        |   |   | -      |   |   | -           |   |   | 427,020    |   |
| Retroactive                  application of equity method for investment          | -      |   |   | -      |   | -             |   |   | -         |   | -           |   |   |   | -       |   |   | -          |   |   | -        |   |   | -      |   |   | -           |   |   | -          |   |
| in                  Biomoda, Inc.                                                 | -      |   |   | -      |   | -             |   |   | -         |   | -           |   |   |   | -       |   |   | -          |   |   | -        |   |   | -      |   |   | (97,674     | )      |   | (97,674    | )      |
| Net                  loss                                                         | -      |   |   | -      |   | -             |   |   | -         |   | -           |   |   |   | -       |   |   | -          |   |   | -        |   |   | -      |   |   | (1,285,830  | )      |   | (1,285,830 | )      |
|                                                                              |   |   |   |   |   |          |   |   |      |   |        |   |   |   |    |   |   |       |   |   |     |   |   |   |   |   |        |   |   |       |   |
| **Balance,                  December 31, 2002**                                   | -      |   |   | -      |   | 592,245,903   |   |   | 592,246   |   | (1,209,000  | )      |   |   | (6,634  | )      |   | 9,810,201  |   |   | (308,902 | )      |   | -      |   |   | (10,876,084 | )      |   | (789,173   | )      |
| Stock                  issued for cash                                            | -      |   |   | -      |   | 1,477,760,000 |   |   | 1,477,760 |   | -           |   |   |   | -       |   |   | 4,553,055  |   |   | -        |   |   | -      |   |   | -           |   |   | 6,030,815  |   |
| Stock                  issued for services                                        | -      |   |   | -      |   | 367,249,994   |   |   | 367,250   |   | -           |   |   |   | -       |   |   | 1,464,845  |   |   | -        |   |   | -      |   |   | -           |   |   | 1,832,095  |   |
| Purchase                  of treasury stock                                       | -      |   |   | -      |   | -             |   |   | -         |   | (13,250,000 | )      |   |   | (61,943 | )      |   | -          |   |   | -        |   |   | -      |   |   | -           |   |   | (61,943    | )      |
| Sale                  of treasury stock                                           | -      |   |   | -      |   | -             |   |   | -         |   | 9,950,000   |   |   |   | 24,846  |   |   | 31,707     |   |   | -        |   |   | -      |   |   | -           |   |   | 56,553     |   |
| Accrued                  interest on advances to officer                          | -      |   |   | -      |   | -             |   |   | -         |   | -           |   |   |   | -       |   |   | -          |   |   | (2,397   | )      |   | -      |   |   | -           |   |   | (2,397     | )      |
| Cancellation                  of stock issued for note receivable                 | -      |   |   | -      |   | (2,950,000    | )      |   | (2,950    | )      | -           |   |   |   | -       |   |   | (241,050   | )      |   | 244,000  |   |   | -      |   |   | -           |   |   | -          |   |
| Stock                  issued upon debt conversion, including $67,000 of interest | -      |   |   | -      |   | 320,830,452   |   |   | 320,830   |   | -           |   |   |   | -       |   |   | 337,563    |   |   | -        |   |   | -      |   |   | -           |   |   | 658,393    |   |
| Gain                  on sale of available for sale securities                    | -      |   |   | -      |   | -             |   |   | -         |   | -           |   |   |   | -       |   |   | -          |   |   | -        |   |   | 17,449 |   |   | -           |   |   | 17,449     |   |
| Net                  loss                                                         | -      |   |   | -      |   | -             |   |   | -         |   | -           |   |   |   | -       |   |   | -          |   |   | -        |   |   | -      |   |   | (3,900,959  | )      |   | (3,900,959 | )      |
| Comprenhesive                  loss                                               |   |   |   |   |   |          |   |   |      |   |        |   |   |   |    |   |   |       |   |   |     |   |   |   |   |   |        |   |        | (3,883,510 | )      |
|                                                                              |   |   |   |   |   |          |   |   |      |   |        |   |   |   |    |   |   |       |   |   |     |   |   |   |   |   |        |   |   |       |   |
| **Balance,                  December 31, 2003**                                   | -      |   |   | -      |   | 2,755,136,349 |   |   | 2,755,136 |   | (4,509,000  | )      |   |   | (43,731 | )      |   | 15,956,321 |   |   | (67,299  | )      |   | 17,449 |   |   | (14,777,043 | )      |   | 3,840,833  |   |

----

| Stock                  issued for cash                                                              | -      |   |   | -      |   | 462,800,000    |   |   | 462,800    |   | -           |   |   |   | -       |   |   | 656,231    |   |   | -       |   |   | -        |   |   | -           |   |   | 1,119,031  |   |
|-----------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|----------------|--------|--------|------------|--------|-------------|--------|--------|--------|---------|--------|--------|------------|--------|--------|---------|--------|--------|----------|--------|--------|-------------|--------|--------|------------|--------|
| Stock                  issued for services                                                          | -      |   |   | -      |   | 47,200,000     |   |   | 47,200     |   | -           |   |   |   | -       |   |   | 207,580    |   |   | -       |   |   | -        |   |   | -           |   |   | 254,780    |   |
| Purchase                  of treasury stock                                                         | -      |   |   | -      |   | -              |   |   | -          |   | (9,800,000  | )      |   |   | (41,724 | )      |   | -          |   |   | -       |   |   | -        |   |   | -           |   |   | (41,724    | )      |
| Sale                  of treasury stock                                                             | -      |   |   | -      |   | -              |   |   | -          |   | 14,100,000  |   |   |   | 48,260  |   |   | -          |   |   | -       |   |   | -        |   |   | -           |   |   | 48,260     |   |
| Stock                  issued upon debt conversion, including $166,240 of                  interest | -      |   |   | -      |   | 103,000,000    |   |   | 103,000    |   | -           |   |   |   | -       |   |   | 1,022,790  |   |   | -       |   |   | -        |   |   | -           |   |   | 1,125,790  |   |
| Unrealized                  gain (loss) on marketable securities                                    | -      |   |   | -      |   | -              |   |   | -          |   | -           |   |   |   | -       |   |   | -          |   |   | -       |   |   | (27,140  | )      |   | -           |   |   | (27,140    | )      |
| Net                  loss                                                                           | -      |   |   | -      |   | -              |   |   | -          |   | -           |   |   |   | -       |   |   | -          |   |   | -       |   |   | -        |   |   | (5,048,067  | )      |   | (5,048,067 | )      |
| Comprenhesive                loss                                                                   |   |   |   |   |   |           |   |   |       |   |        |   |   |   |    |   |   |       |   |   |    |   |   |     |   |   |        |   |   | (5,075,207 | )      |
|                                                                                                |   |   |   |   |   |           |   |   |       |   |        |   |   |   |    |   |   |       |   |   |    |   |   |     |   |   |        |   |   |       |   |
| **Balance,                  December 31, 2004**                                                     | -      |   |   | -      |   | 3,368,136,349  |   |   | 3,368,136  |   | (209,000    | )      |   |   | (37,195 | )      |   | 17,842,922 |   |   | (67,299 | )      |   | (9,691   | )      |   | (19,825,110 | )      |   | 1,271,763  |   |
| Stock                  issued for cash                                                              | -      |   |   | -      |   | 2,634,700,000  |   |   | 2,634,700  |   | -           |   |   |   | -       |   |   | (1,487,526 | )      |   | -       |   |   | -        |   |   | -           |   |   | 1,147,174  |   |
| Purchase                  of treasury stock                                                         | -      |   |   | -      |   | -              |   |   | -          |   | (22,205,000 | )      |   |   | (15,926 | )      |   | -          |   |   | -       |   |   | -        |   |   | -           |   |   | (15,926    | )      |
| Sale                  of treasury stock                                                             | -      |   |   | -      |   | -              |   |   | -          |   | 1,804,000   |   |   |   | 40,461  |   |   | (39,267    | )      |   | -       |   |   | -        |   |   | -           |   |   | 1,194      |   |
| Expense                  advances to officer, net of accrued interest                               | -      |   |   | -      |   | -              |   |   | -          |   | -           |   |   |   | -       |   |   | -          |   |   | 67,299  |   |   | -        |   |   | -           |   |   | 67,299     |   |
| Stock                  issued upon debt conversion                                                  | -      |   |   | -      |   | 21,000,000     |   |   | 21,000     |   | -           |   |   |   | -       |   |   | 10,122     |   |   | -       |   |   | -        |   |   | -           |   |   | 31,122     |   |
| Unrealized                  gain (loss) on marketable securities                                    | -      |   |   | -      |   | -              |   |   | -          |   | -           |   |   |   | -       |   |   | -          |   |   | -       |   |   | 174,480  |   |   | -           |   |   | 174,480    |   |
| Net                  loss                                                                           | -      |   |   | -      |   | -              |   |   | -          |   | -           |   |   |   | -       |   |   | -          |   |   | -       |   |   | -        |   |   | (2,055,779  | )      |   | (2,055,779 | )      |
| Comprenhesive                  loss                                                                 |   |   |   |   |   |           |   |   |       |   |        |   |   |   |    |   |   |       |   |   |    |   |   |     |   |   |        |   |   | (1,881,299 | )      |
|                                                                                                |   |   |   |   |   |           |   |   |       |   |        |   |   |   |    |   |   |       |   |   |    |   |   |     |   |   |        |   |   |       |   |
| **Balance,                  December 31, 2005**                                                     | -      |   |   | -      |   | 6,023,836,349  |   |   | 6,023,836  |   | (20,610,000 | )      |   |   | (12,660 | )      |   | 16,326,251 |   |   | -       |   |   | 164,789  |   |   | (21,880,889 | )      |   | 621,327    |   |
| Stock                  issued for cash                                                              | -      |   |   | -      |   | 6,110,000,000  |   |   | 6,110,000  |   |        |   |   |   |    |   |   | (4,829,500 | )      |   |    |   |   |     |   |   | -           |   |   | 1,280,500  |   |
| Stock                  issued for services                                                          | -      |   |   | -      |   | 65,000,000     |   |   | 65,000     |   |        |   |   |   |    |   |   | (52,000    | )      |   |    |   |   |     |   |   | -           |   |   | 13,000     |   |
| Purchase                  of treasury stock                                                         | -      |   |   | -      |   |           |   |   |       |   | (41,375,000 | )      |   |   | (14,609 | )      |   |       |   |   |    |   |   |     |   |   | -           |   |   | (14,609    | )      |
| Unrealized                  gain (loss) on marketable securities                                    | -      |   |   | -      |   |           |   |   |       |   |        |   |   |   |    |   |   |       |   |   |    |   |   | (218,831 | )      |   | -           |   |   | (218,831   | )      |
| Net                  loss                                                                           | -      |   |   | -      |   |           |   |   |       |   |        |   |   |   |    |   |   |       |   |   |    |   |   |     |   |   | (2,242,058  | )      |   | (2,242,058 | )      |
| Comprenhesive                  loss                                                                 |   |   |   |   |   |           |   |   |       |   |        |   |   |   |    |   |   |       |   |   |    |   |   |     |   |   |        |   |   | (2,460,889 | )      |
|                                                                                                |   |   |   |   |   |           |   |   |       |   |        |   |   |   |    |   |   |       |   |   |    |   |   |     |   |   |        |   |   |       |   |
| **Balance,                  December 31, 2006**                                                     | -      |   |   | -      |   | 12,198,836,349 |   |   | 12,198,836 |   | (61,985,000 | )      |   |   | (27,269 | )      |   | 11,444,751 |   |   | -       |   |   | (54,042  | )      |   | (24,122,947 | )      |   | (560,671   | )      |
| Stock                  issued for cash                                                              |   |   |   |   |   | 3,445,000,000  |   |   | 3,445,000  |   |        |   |   |   |    |   |   | (3,206,500 | )      |   |    |   |   |     |   |   |        |   |   | 238,500    |   |
| Purchase                  of treasury stock                                                         |   |   |   |   |   |           |   |   |       |   | (400,000    | )      |   |   | (119    | )      |   |       |   |   |    |   |   |     |   |   |        |   |   | (119       | )      |
|                                                                                                |   |   |   |   |   |           |   |   |       |   |        |   |   |   |    |   |   | 660,907    |   |   |    |   |   |     |   |   |        |   |   | 660,907    |   |
| Unrealized                  gain (loss) on marketable securities                                    |   |   |   |   |   |           |   |   |       |   |        |   |   |   |    |   |   |       |   |   |    |   |   | 29,937   |   |   |        |   |   | 29,937     |   |
| Net                  loss                                                                           |   |   |   |   |   |           |   |   |       |   |        |   |   |   |    |   |   |       |   |   |    |   |   |     |   |   | (1,043,023  | )      |   | (1,043,023 | )      |
|                                                                                                |   |   |   |   |   |           |   |   |       |   |        |   |   |   |    |   |   |       |   |   |    |   |   |     |   |   |        |   |   |       |   |
| **Balance,                  March 31, 2007**                                                        | -      |   | $      | -      |   | 15,643,836,349 |   | $      | 15,643,836 |   | (62,385,000 | )      |   | $      | (27,388 | )      | $      | 8,899,158  |   | $      | -       |   | $      | (24,105  | )      | $      | (25,165,970 | )      | $      | (674,469   | )      |

----

| **ADVANCED                  OPTICS ELECTRONICS, INC.**     |
|------------------------------------------------------------|
| **(A                  Development Stage Company)**         |
| **CONSOLIDATED                  STATEMENTS OF CASH FLOWS** |
| **(Unaudited)**                                            |

|                                                                                                            | **For                    the three months ended****March                    31,** |       | ****May                    22, 1996**(Inception)****Through****March 31,** |
|-----------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------|
|                                                                                                            | **2007**                                                                     |       |                                                                       | **2006** |   |   | **2007** |   |
| Cash                    flows from operating activities:                                                        |                                                                              |       |                                                                       |   |   |   |   |   |   |   |   |
| Net                    loss                                                                                     | $                                                                                 | (1,043,023 | )                                                                          |   | $ | (622,621 | ) |   | $ | (25,165,970 | ) |
| Adjustments                    to reconcile net loss to net cash                                                |                                                                              |       |                                                                       |   |   |   |   |   |   |   |   |
| used                    in operating activities:                                                                |                                                                              |       |                                                                       |   |   |   |   |   |   |   |   |
| Intrinsic                    value of conversion features                                                       |                                                                              | -          |                                                                       |   |   | - |   |   |   | 610,603 |   |
| Write                    off of organization costs/goodwill                                                     |                                                                              | -          |                                                                       |   |   | - |   |   |   | 63,020 |   |
| Extraordinary                    loss                                                                           |                                                                              | -          |                                                                       |   |   | - |   |   |   | 189,280 |   |
| Inventory                    write off                                                                          |                                                                              | -          |                                                                       |   |   | - |   |   |   | 29,293 |   |
| Amortization                    of discount on convertible notes and                                            |                                                                              |       |                                                                       |   |   |   |   |   |   |   |   |
| preferred                    stock                                                                              |                                                                              | -          |                                                                       |   |   | - |   |   |   | 295,209 |   |
| Gain                    on Genomed shares for services                                                          |                                                                              | (28,325    | )                                                                          |   |   |   |   |   |   | (28,325 | ) |
| (Gain)                    loss on marketable securities                                                         |                                                                              | 74,019     |                                                                       |   |   | (38,710 | ) |   |   | 249,069 |   |
| Loss                    on disposal of assets                                                                   |                                                                              | -          |                                                                       |   |   | - |   |   |   | 3,520 |   |
| Loss                    on investment in Biomoda, Inc.                                                          |                                                                              | -          |                                                                       |   |   | - |   |   |   | 289,750 |   |
| Issuance                    of common stock for services                                                        |                                                                              | -          |                                                                       |   |   | 13,000 |   |   |   | 6,517,726 |   |
| Issuance                    of Biomoda common stock and options for services                                    |                                                                              | -          |                                                                       |   |   | 3,250 |   |   |   | 165,000 |   |
| Issuance                    of notes payable for services                                                       |                                                                              | -          |                                                                       |   |   | - |   |   |   | 50,000 |   |
| Exchange                    of investment securities for services                                               |                                                                              | -          |                                                                       |   |   | 163,350 |   |   |   | 316,778 |   |
| Increase                    in excess of costs and earnings over billings                                       |                                                                              |       |                                                                       |   |   |   |   |   |   |   |   |
| on                    uncompleted contract                                                                      |                                                                              | -          |                                                                       |   |   | - |   |   |   | (2,050,000 | ) |
| Increase                    in allowance for loss on contract                                                   |                                                                              | -          |                                                                       |   |   | - |   |   |   | 2,050,000 |   |
| Loss                    (Gain) on extinguishment of debt                                                        |                                                                              | -          |                                                                       |   |   | - |   |   |   | 556,088 |   |
| Interest                    accrued on convertible debentures                                                   |                                                                              | -          |                                                                       |   |   | - |   |   |   | 317,985 |   |
| Interest                    earned on note receivable from stockholder and                                      |                                                                              |       |                                                                       |   |   |   |   |   |   |   |   |
| related                    parties                                                                              |                                                                              | -          |                                                                       |   |   | - |   |   |   | (17,823 | ) |
| Depreciation                    and amortization                                                                |                                                                              | 11,453     |                                                                       |   |   | 12,187 |   |   |   | 774,271 |   |
| Bad                    debt expense                                                                             |                                                                              | -          |                                                                       |   |   | - |   |   |   | 15,000 |   |
| Asset                    impairment                                                                             |                                                                              | -          |                                                                       |   |   | - |   |   |   | 592,884 |   |
| Other                    non-cash expenses                                                                      |                                                                              | -          |                                                                       |   |   | - |   |   |   | 34,923 |   |
| Expense                    advances to officer                                                                  |                                                                              | -          |                                                                       |   |   | - |   |   |   | 67,299 |   |
| Gain                    on forgiveness of debt to officer                                                       |                                                                              | -          |                                                                       |   |   | - |   |   |   | (51,351 | ) |
| Gain                    on stock held in subsidiary:                                                            |                                                                              | 660,907    |                                                                       |   |   | - |   |   |   | 660,907 |   |
| Decrease                    (Increase) in other current assets                                                  |                                                                              | -          |                                                                       |   |   | 3,195 |   |   |   | (15,824 | ) |
| Decrease                    in inventory                                                                        |                                                                              | -          |                                                                       |   |   | - |   |   |   | (35,293 | ) |
| Bank                    overdraft                                                                               |                                                                              | -          |                                                                       |   |   | 14,961 |   |   |   | - |   |
| (Decrease)                    Increase in accounts payable and accrued expenses                                 |                                                                              | (18,192    | )                                                                          |   |   | 87,034 |   |   |   | 482,167 |   |
|                                                                                                            |                                                                              |       |                                                                       |   |   |   |   |   |   |   |   |
| Net                    cash used in operating activities                                                        |                                                                              | (343,161   | )                                                                          |   |   | (364,354 | ) |   |   | (13,033,814 | ) |
|                                                                                                            |                                                                              |       |                                                                       |   |   |   |   |   |   |   |   |
| Cash                    flows from investing activities:                                                        |                                                                              |       |                                                                       |   |   |   |   |   |   |   |   |
| Purchases                    of property and equipment                                                          |                                                                              | -          |                                                                       |   |   | - |   |   |   | (521,860 | ) |
| Additions                    to Patent, trademark and license fee, net of extraordinary                    gain |                                                                              | (1,799     | )                                                                          |   |   | - |   |   |   | (140,741 | ) |
| Investment                    in restricted cash                                                                |                                                                              | -          |                                                                       |   |   | (30,000 | ) |   |   | - |   |
| Investment                    in GenoMed                                                                        |                                                                              | -          |                                                                       |   |   | (115 | ) |   |   | (921,478 | ) |
| Proceeds                    from sale of GenoMed                                                                |                                                                              | 48,091     |                                                                       |   |   | 62,401 |   |   |   | 547,529 |   |
| Investment                    in Biomoda, Inc.                                                                  |                                                                              | -          |                                                                       |   |   | - |   |   |   | (383,845 | ) |
| Proceeds                    from sale of Biomoda, Inc. stock                                                    |                                                                              | -          |                                                                       |   |   | - |   |   |   | 28,930 |   |
| Advances                    to Biomoda, Inc.                                                                    |                                                                              | -          |                                                                       |   |   | - |   |   |   | (38,432 | ) |
| Advances                    from shareholders                                                                   |                                                                              | -          |                                                                       |   |   | - |   |   |   | 14,009 |   |
| Sale                    of marketable securities                                                                |                                                                              | -          |                                                                       |   |   | - |   |   |   | 192,787 |   |
| Purchases                    of marketable securities                                                           |                                                                              | -          |                                                                       |   |   | - |   |   |   | (650,187 | ) |
| Cash                    of variable entity on consolidation                                                     |                                                                              | -          |                                                                       |   |   | - |   |   |   | 155 |   |
| Increase                    in notes receivable                                                                 |                                                                              | (985       | )                                                                          |   |   | (920 | ) |   |   | (59,283 | ) |
| Purchase                    of other assets                                                                     |                                                                              | -          |                                                                       |   |   | - |   |   |   | (245,579 | ) |
|                                                                                                            |                                                                              |       |                                                                       |   |   |   |   |   |   |   |   |
| Net                    cash provided by (used in) investing activities                                          |                                                                              | 45,307     |                                                                       |   |   | 31,366 |   |   |   | (2,177,995 | ) |
|                                                                                                            |                                                                              |       |                                                                       |   |   |   |   |   |   |   |   |
|                                                                                                            |                                                                              |       |                                                                       |   |   |   |   |   |   |   |   |
| Cash                    flows from financing activities:                                                        |                                                                              |       |                                                                       |   |   |   |   |   |   |   |   |
| Principal                    repayments on notes payable and capital leases                                     |                                                                              | -          |                                                                       |   |   | - |   |   |   | (308,346 | ) |
| Proceeds                    from notes payable                                                                  |                                                                              | -          |                                                                       |   |   | - |   |   |   | 622,776 |   |
| Issuance                    of common stock for cash                                                            |                                                                              | 238,500    |                                                                       |   |   | 448,600 |   |   |   | 13,989,891 |   |
| Issuance                    of Biomoda common stock for cash                                                    |                                                                              | -          |                                                                       |   |   | - |   |   |   | 60,000 |   |
| Advances                    from Biomoda stockholders                                                           |                                                                              | 24,155     |                                                                       |   |   | 3,756 |   |   |   | 39,995 |   |
| (Increase)                    decrease in note receivable stockholder                                           |                                                                              | -          |                                                                       |   |   | - |   |   |   | (5,422 | ) |
| Proceeds                    from sale of treasury stock                                                         |                                                                              | -          |                                                                       |   |   | - |   |   |   | 226,613 |   |
| Purchase                    of treasury stock                                                                   |                                                                              | (119       | )                                                                          |   |   | (673 | ) |   |   | (289,031 | ) |
| Proceeds                    from issuance of convertible debt                                                   |                                                                              | -          |                                                                       |   |   | - |   |   |   | 1,270,965 |   |
| Principal                    repayments on convertible debt                                                     |                                                                              | -          |                                                                       |   |   | - |   |   |   | (395,560 | ) |
| Incease                    in common stock subscribed                                                           |                                                                              | 25,500     |                                                                       |   |   | - |   |   |   | 20,250 |   |
|                                                                                                            |                                                                              |       |                                                                       |   |   |   |   |   |   |   |   |
| Net                    cash provided by financing activities                                                    |                                                                              | 237,036    |                                                                       |   |   | 451,683 |   |   |   | 15,232,131 |   |
|                                                                                                            |                                                                              |       |                                                                       |   |   |   |   |   |   |   |   |
| Net                    (decrease) increase in cash                                                              |                                                                              | (60,818    | )                                                                          |   |   | 118,695 |   |   |   | 20,322 |   |
|                                                                                                            |                                                                              |       |                                                                       |   |   |   |   |   |   |   |   |
| Cash                    at beginning of period                                                                  |                                                                              | 81,140     |                                                                       |   |   | 92,518 |   |   |   | - |   |
|                                                                                                            |                                                                              |       |                                                                       |   |   |   |   |   |   |   |   |
| Cash                    at end of period                                                                        | $                                                                                 | 20,322     |                                                                       |   | $ | 211,213 |   |   | $ | 20,322 |   |
|                                                                                                            |                                                                              |       |                                                                       |   |   |   |   |   |   |   |   |
|                                                                                                            |                                                                              |       |                                                                       |   |   |   |   |   |   |   |   |
| Supplemental                    disclosure of cash flow information -                                           |                                                                              |       |                                                                       |   |   |   |   |   |   |   |   |
| Cash                    paid during the year for:                                                               |                                                                              |       |                                                                       |   |   |   |   |   |   |   |   |
| Interest                                                                                                        | $                                                                                 | -          |                                                                       |   | $ | - |   |   |   |   |   |
| Income                    taxes                                                                                 | $                                                                                 | -          |                                                                       |   | $ | - |   |   |   |   |   |
|                                                                                                            |                                                                              |       |                                                                       |   |   |   |   |   |   |   |   |
| Non-cash                    transactions:                                                                       |                                                                              |       |                                                                       |   |   |   |   |   |   |   |   |
| Unrealized                    gain (loss) on marketable securities                                              | $                                                                                 | 29,937     |                                                                       |   | $ | 1,072 |   |   |   |   |   |
| Common                    stock issued for stock payable                                                        | $                                                                                 | 30,000     |                                                                       |   | $ | - |   |   |   |   |   |

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**ADVANCED        OPTICS ELECTRONICS, INC.**

**(A        Development Stage Company)**

**NOTES        TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**

*Sale        of stock by subsidiary - *

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**ADVANCED          OPTICS ELECTRONICS, INC.**

**(A          Development Stage Company)**

**NOTES          TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**

|                                                  | **Cost                  Basis** | ** ** | **Fair                  Value** | ** ** | **Unrealized                  Gain (Loss)** |   |
|-------------------------------------------------------|---------------------------------|------------|---------------------------------|------------|---------------------------------------------|--------|
| At                  March 31, 2007:                   |                            |       |                            |       |                                        |   |   |   |   |
| Marketable                  securities - Common stock | $                               | 38,305     |                            | $          | 14,200                                      |   | $ | (24,105 | ) |
|                                                  |                            |       |                            |       |                                        |   |   |   |   |
| At                  December 31, 2006:                |                            |       |                            |       |                                        |   |   |   |   |
| Marketable                  securities - Common stock | $                               | 132,090    |                            | $          | 78,048                                      |   | $ | (54,042 | ) |

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**ADVANCED          OPTICS ELECTRONICS, INC.**

**(A          Development Stage Company)**

**NOTES          TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**

|                                           | **2007**   | ** **     | **2006**   |
|------------------------------------------------|------------|----------------|------------|
|                                           | ** ** | **ADOT ** | ** ** | ** ** | **Biomoda** | ** ** | ** ** | **Total** | ** ** | ** ** | **ADOT** | ** ** | ** ** | **Biomoda** | ** ** | ** ** | **Total** |
| Revenue                                        | $          | -              |       | $ | - |   | $ | - |   | $ | - |   | $ | - |   | $ | - |
| Loss                  on operations            |       | 187            |       |   | 1,676 |   |   | 1,863 |   |   | 381 |   |   | 244 |   |   | 624 |
| Depreciation                  and amortization |       | 6              |       |   | 5 |   |   | 11 |   |   | 7 |   |   | 5 |   |   | 12 |
| Interest                  expense              |       | 2              |       |   | 4 |   |   | 6 |   |   | 2 |   |   | 7 |   |   | 9 |
| Capital                  expenditure           |       | -              |       |   | - |   |   | - |   |   | - |   |   | - |   |   | - |
| Net                  (income) loss             | $          | (652           | )          | $ | 1,695 |   | $ | 1,043 |   | $ | 373 |   | $ | 250 |   | $ | 623 |

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**OVERVIEW**

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**THE        MAJOR ADVANTAGES AND FEATURES OF THE DISPLAY ARE:**

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

**PROPRIETARY        BILLBOARD SOFTWARE CAPABILITIES ARE:**

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

----

----

**RESULTS        OF OPERATIONS**

----

**LIQUIDITY        AND CAPITAL RESOURCES**

----

**EVALUATION        OF CONTROLS AND PROCEDURES**

----

**PART        II. OTHER INFORMATION**

----

----

**SIGNATURES**

|                                    |                                                                                  |                                                                                                                                                                                                         |
|-----------------------------------------|---------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                    | **ADVANCED                OPTICS ELECTRONICS, INC.**                                  |
|                               |                                                                             |                                                                                                                                                                                                    |
| Dated: May                21, 2007 | 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) |

----