U. S. SECURITIES AND EXCHANGE COMMISSION

                              Washington, DC 20549

                                   FORM 10-QSB


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

                         SECURITIES EXCHANGE ACT OF 1934


                  For the quarterly period ended: June 30, 1999


                           Commission file No.0-24511


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

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

           8301 Washington NE, Suite 4, Albuquerque, New Mexico 87113
           (Address of principal executive offices including zip code)

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

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

The number of issuer's  shares of Common Stock  outstanding  as of June 30, 1999
was 35,035,435

Transitional Small Business Disclosure Format (check one): Yes ___ No _X_


<PAGE>


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

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


                                                                FINANCIAL REPORT

                                                                   JUNE 30, 1999

                                                                               2

<PAGE>


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







                                    CONTENTS

                                                                            Page

ACCOUNTANTS' REPORT                                                            1

FINANCIAL STATEMENTS

     Balance Sheet                                                             2

     Statements of Operations                                                  4

     Statements of Changes in Stockholders' Equity                             6

     Statements of Cash Flows                                                  8

     Notes to Financial Statements                                            10



<PAGE>


NEFF & RICCI LLP
---------------------------------
CERTIFIED PUBLIC ACCOUNTANTS
7001 PROSPECT PLACE NE
ALBUQUERQUE, NM  87110




                               Accountants' Report



Board of Directors
Advanced Optics Electronics, Inc.


We have compiled the accompanying  balance sheet of Advanced Optics Electronics,
Inc.  (a  development  stage  company)  as of June  30,  1999,  and the  related
statements of operations, changes in stockholders' equity and cash flows for the
quarter and six months ended June 30, 1999 and 1998, and the period from May 22,
1996  (inception)  through June 30,  1999,  in  accordance  with  Statements  on
Standards for Accounting and Review Services issued by the American Institute of
Certified Public Accountants.

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


/s/ Neff & Ricci LLP

Albuquerque,  New Mexico
August 9, 1999

                                                                               1

<PAGE>


ADVANCED OPTICS ELECTRONICS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
June 30, 1999



ASSETS

CURRENT ASSETS
    Cash and cash equivalents                    $   360,664
    Certificate of deposit                           104,800
    Marketable equity securities                      51,230
    Costs and estimated earnings
        in excess of billings on
        uncompleted contract                         386,575
    Raw materials inventory                           41,324
    Related party receivables                         55,508
                                                 -----------

           Total current assets                    1,000,101


FIXED ASSETS, at cost
    Furniture and fixtures                            26,479
    Computers                                         32,068
    Technical equipment                              122,090
    Automobile                                        43,313
    Equipment under capital lease                    100,499
    Leasehold improvements                            15,228
    Less accumulated depreciation                    (78,010)
                                                 -----------

           Total fixed assets                        261,667


OTHER ASSETS
    Note receivable from officer                      29,000
    Investment in Bio Moda, Inc.                     251,893
    Goodwill, net of accumulated amortization
        of $333                                        4,667
    Patents, net of accumulated amortization
        of $36,481                                   205,858
    Note origination costs, net of accumulated
        amortization of $833                          19,167
    Other assets                                      30,350
                                                 -----------

           Total other assets                        540,935

           Total assets                          $ 1,802,703
                                                 ===========

See accompanying notes and accountants'  report.

                                                                               2

<PAGE>


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



                                                                               3

<PAGE>


LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
    Accounts payable                                       $    27,602
    Notes payable                                                5,384
    Accrued liabilities                                          5,922
    Current portion of long-term debt
        and capital lease obligation                            40,766
                                                           -----------
           Total current liabilities                            79,674
                                                           -----------
Long-term portion of long-term debt
    and capital lease obligation                               561,220
                                                           -----------
COMMITMENTS

SHAREHOLDERS' EQUITY
    Common stock, authorized 75,000,000 shares,
        $.001 par value, 35,035,435 shares issued
        and outstanding                                         35,035
    Additional paid-in capital                               2,693,597
    Deficit accumulated during the development stage        (1,566,823)
                                                           -----------

           Total shareholders' equity                        1,161,809
                                                           -----------
           Total liabilities and shareholders' equity      $ 1,802,703
                                                           ===========

                                                                               4

<PAGE>


ADVANCED OPTICS ELECTRONICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
Quarters Ended June 30, 1999 and 1998

<TABLE>
<CAPTION>

                                                      1999                 1998
                                                  ------------        ------------
REVENUES
<S>                                               <C>                   <C>
    Contract revenue                              $     70,000                --
                                                  ------------        ------------

COSTS AND EXPENSES
    General and administrative                         305,972              79,428
    Contract costs                                      78,178              52,479
    Research and development                            38,167               9,928
                                                  ------------        ------------

           Total expenses                              422,317             141,835
                                                  ------------        ------------

    Operating loss                                    (352,317)           (141,835)
                                                  ------------        ------------

OTHER INCOME AND (EXPENSES)
    Interest income                                      5,105                --
    Unrealized gain (loss) on marketable
        equity securities                              (12,961)               --
    Loss on Bio Moda, Inc.                             (13,957)             (9,288)
    Interest expense                                    (5,687)               (478)
                                                  ------------        ------------

           Total other expenses                        (27,500)             (9,766)
                                                  ------------        ------------

           Net loss                                   (379,817)           (151,601)
                                                  ------------        ------------

Other comprehensive income, net of tax:
    Unrealized holding losses on securities               --              (200,020)
                                                  ------------        ------------

Comprehensive loss                                $   (379,817)           (351,621)
                                                  ============        ============

Net loss per share                                $      (.012)              (.012)
                                                  ============        ============

Weighted average shares outstanding                 32,343,166          13,024,275
                                                  ============        ============
</TABLE>

See accompanying notes and accountants'  report.

                                                                               5

<PAGE>


ADVANCED OPTICS ELECTRONICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS (CONTINUED)
Six Months Ended June 30, 1999 and 1998,
and the Period from May 22, 1996 (Inception)
Through June 30, 1999

<TABLE>
<CAPTION>

                                                                                                  5/22/96
                                                                                                (Inception)
                                                                                                  Through
                                                           1999                1998               6/30/99
                                                       ------------        ------------        ------------
REVENUES
<S>                                                    <C>                       <C>                <C>
    Contract revenue                                   $    136,375              72,000             386,575
                                                       ------------        ------------        ------------

COSTS AND EXPENSES
    General and administrative                              412,542             132,691           1,032,677
    Contract costs                                          164,119              87,834             437,259
    Research and development                                 86,440              16,618             275,558
                                                       ------------        ------------        ------------

           Total expenses                                   663,101             237,134           1,745,494
                                                       ------------        ------------        ------------

    Operating loss                                         (526,726)           (165,143)         (1,358,919)
                                                       ------------        ------------        ------------

OTHER INCOME AND (EXPENSES)
    Interest income                                           7,069                --                 7,920
    Unrealized gain (loss) on marketable
        equity securities                                   (22,929)               --               (29,804)
    Loss on Bio Moda, Inc.                                  (38,528)             (9,288)           (106,952)
    Interest expense                                         (8,986)               (725)            (16,048)
                                                       ------------        ------------        ------------

           Total other expenses                             (63,374)            (10,013)           (144,884)
                                                       ------------        ------------        ------------

           Net loss before cumulative effect
               of change in accounting principle           (590,100)           (175,156)         (1,503,803)

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

           Net loss                                    $   (653,120)           (175,156)         (1,566,823)
                                                       ============        ============        ============

Net loss per share before cumulative effect
    of change in accounting principle                  $      (.021)              (.015)              (.132)

Cumulative effect of change in
    accounting principle                                      (.002)               --                 (.006)
                                                       ------------        ------------        ------------

Net loss per share                                     $      (.023)              (.015)              (.138)
                                                       ============        ============        ============

Weighted average shares outstanding                      28,797,880          11,376,438          11,391,411
                                                       ============        ============        ============
</TABLE>

See accompanying notes and accountants'  report.

                                                                               6

<PAGE>


ADVANCED OPTICS ELECTRONICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Period from May 22, 1996 (Inception) Through
June 30, 1999


<TABLE>
<CAPTION>

                                                                 Common Stock
                                                        ------------------------------
                                                                               Par
                                                             Shares           Value
<S>                                                      <C>               <C>
Balance, May 22, 1996                                          --          $      --

Stock issued to incorporators for cash                      500,000                500

Stock issued for the net assets of PLZ Tech, Inc.         4,500,000              4,500

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

Balance, December 31, 1996                                5,000,000              5,000

Stock issued in public offering                           2,281,212              2,281

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

Balance, December 31, 1997                                7,281,212              7,281

Stock issued for cash                                    10,979,275             10,979

Stock issued for services                                 2,751,000              2,751

Stock issued in exchange for note receivable                315,000                315

Purchase and retirement of treasury stock                  (472,200)              (472)

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

Balance, December 31, 1998                               20,854,287             20,854

Stock issued for cash                                     3,259,180              3,259

Stock issued for services                                 6,026,681              6,027

Purchase and retirement of treasury stock                  (489,251)              (489)

Net loss                                                       --                 --

Balance, March 31, 1999                                  29,650,897             29,651

Stock issued for cash                                     1,437,050              1,437

Stock issued for services                                 3,947,488              3,947

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

Balance, June 30, 1999                                   35,035,435        $    35,035
                                                        ===========        ===========
</TABLE>


See accompanying notes and accountants,  report.

                                                                               7

<PAGE>



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

                 $      --               --               --

                      24,500             --             25,000

                     281,096             --            285,596

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

                     305,596          (76,902)         233,694

                     362,720             --            365,001

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

                     668,316         (161,592)         514,005

                   1,281,728             --          1,292,707

                     293,719             --            296,470

                      28,685             --             29,000

                     (39,913)            --            (40,385)

                        --           (752,111)        (752,111)
                 -----------      -----------      -----------

                   2,232,535         (913,703)       1,339,686

                     151,361             --            154,620

                      21,660             --             27,687

                     (10,643)            --            (11,132)

                        --           (273,303)        (273,303)

                   2,394,913       (1,187,006)       1,237,558

                     111,547             --            112,984

                     187,137             --            191,084

                        --           (379,817)        (379,817)
                 -----------      -----------      -----------

                 $ 2,693,597       (1,566,823)       1,161,809
                 ===========      ===========      ===========


                                                                               8
<PAGE>

ADVANCED OPTICS ELECTRONICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
Quarters Ended June 30, 1999 and 1998

<TABLE>
<CAPTION>
                                                               1999           1998

CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                         <C>             <C>
    Net loss                                                $(379,817)      (151,601)
    Adjustments to reconcile net loss to net cash
        provided by operating activities:
           Amortization and depreciation expense               27,371         13,091
           Unrealized loss on marketable securities            12,961           --
           Loss on Bio Moda, Inc.                              13,957          9,288
           Issuance of common stock for services              191,084           --
           Issuance of notes payable for services              50,000           --
           Contract receivable                                (70,000)          --
           Other receivables                                   (2,507)        15,679
           Accrued liabilities and accounts payable            (3,005)        (6,531)
                                                            ---------      ---------
               Net cash applied to operating
                  activities                                 (159,956)      (120,074)
                                                            ---------      ---------

CASH FLOWS FROM INVESTING ACTIVITIES
    Purchase of equipment                                     (33,057)       (34,203)
    Investment in Bio Moda, Inc.                                 --         (300,000)
    Purchase of marketable securities                         (11,000)          --
    Purchase of certificate of deposit                        (54,800)          --
    Purchase of other assets                                     --             --
                                                            ---------      ---------
               Net cash applied to investing
                  activities                                  (98,857)      (334,203)
                                                            ---------      ---------

CASH FLOWS FROM FINANCING ACTIVITIES
    Additions to notes payable                                443,000           --
    Payments on notes payable and capital
        lease obligation                                       (3,173)        (8,021)
    Issuance of common stock                                  112,984        113,952
    Purchase of treasury stock                                   --          (18,552)
                                                            ---------      ---------
               Net cash provided by financing
                  activities                                  552,811         87,379
                                                            ---------      ---------

Net increase (decrease) in cash                               293,998       (366,898)

Cash, beginning of period                                      66,666        739,493
                                                            ---------      ---------

Cash, end of period                                         $ 360,664        372,595
                                                            =========      =========
</TABLE>

See accompanying notes and accountants'  report.

                                                                               9

<PAGE>


ADVANCED OPTICS ELECTRONICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS (CONTINUED)
Six Months Ended June 30, 1999 and 1998,
and the Period from May 22, 1996 (Inception) Through
June 30, 1999

<TABLE>
<CAPTION>
                                                                                          5/22/96
                                                                                        (Inception)
                                                                                          Through
                                                            1999            1998         12/31/98
<S>                                                     <C>               <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES
    Net loss                                            $ (653,120)       (175,156)     (1,566,823)
    Adjustments to reconcile net loss to net cash
        provided by operating activities:
           Amortization and depreciation expense            50,900          22,561         157,671
           Write off of organization costs                  63,020            --            63,020
           Unrealized loss on marketable securities         22,929            --            29,804
           Loss on Bio Moda, Inc.                           38,528           9,288         106,952
           Issuance of common stock for services           218,771            --           515,241
           Issuance of notes payable for services           50,000            --            50,000
           Contract receivable                            (136,375)        (72,000)       (386,575)
           Other receivables                                (8,461)          8,179         (65,858)
           Inventory                                       (41,324)           --           (41,324)
           Accrued liabilities and accounts payable         (1,889)            516          33,524
                                                        ----------      ----------      ----------
               Net cash applied to operating
                  activities                              (397,021)       (206,612)     (1,104,368)
                                                        ----------      ----------      ----------

CASH FLOWS FROM INVESTING ACTIVITIES
    Purchase of equipment                                  (60,662)        (34,752)       (239,178)
    Investment in Bio Moda, Inc.                              --          (300,000)       (358,845)
    Purchase of marketable securities                      (11,000)        (35,191)        (81,034)
    Purchase of certificate of deposit                     (54,800)           --          (104,800)
    Purchase of other assets                               (10,000)           --           (96,777)
                                                        ----------      ----------      ----------
               Net cash applied to investing
                  activities                              (136,462)       (369,943)       (880,634)
                                                        ----------      ----------      ----------

CASH FLOWS FROM FINANCING ACTIVITIES
    Additions to notes payable                             443,000            --           537,726
    Payments on notes payable and capital
        lease obligation                                    (9,937)        (11,671)       (100,855)
    Issuance of common stock                               267,604         904,952       1,950,312
    Purchase of treasury stock                             (11,132)        (18,552)        (41,517)
                                                        ----------      ----------      ----------
               Net cash provided by financing
                  activities                               689,535         874,729       2,345,666
                                                        ----------      ----------      ----------

Net increase (decrease) in cash                            156,052         298,174         360,664

Cash, beginning of period                                  204,612          74,421            --
                                                        ----------      ----------      ----------

Cash, end of period                                     $  360,664         372,595         360,664
                                                        ==========      ==========      ==========
</TABLE>

See accompanying notes and accountants' report.

                                                                              10

<PAGE>

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

See accompanying notes and accountants' report.


                                                                              11

<PAGE>

NOTE 1.        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

The  Company  has  obtained  a  contract  to  produce  two  outdoor  advertising
billboards using its flat panel display technology. This is the first commercial
application of the Company's technology.  The success of the Company will depend
on its ability to  commercialize  its technology and complete this contract.  In
addition,  the Company will be required to obtain additional capital in order to
fund the completion of the contract.

Cash and Cash Equivalents.  Cash and cash equivalents  include all cash balances
and highly liquid debt instruments with an original  maturity of three months or
less. The Company's cash and  certificates of deposit are deposited in financial
institutions  and  are  insured  only  up to  $100,000  by the  Federal  Deposit
Insurance Corporation.

Marketable  Equity  Securities.  The Company  classifies  all of its  marketable
equity securities as trading securities.  Trading securities are carried at fair
value with the unrealized gains and losses reported in the income statement.  As
of June 30,  1999,  gross  unrealized  gains were  $24,983 and gross  unrealized
losses were $54,787. Realized gains and losses were not material.

Inventory.  Inventory  consists of raw  materials and is carried at the lower of
cost (specific identification) or market.

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

Depreciation. Depreciation of property, plant and equipment is provided over the
estimated useful lives of the respective assets ranging from 3 to 10 years using
straight line and declining balance methods.


                                                                              12
<PAGE>


NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
        (CONTINUED)

Other Assets.  Organization  costs were amortized on a straight-line  basis over
the period to be benefited of five years up until December 31, 1998. Patents are
amortized on a straight-line  basis over the remaining  estimated useful life of
15 years.  Goodwill is amortized  over the period to be benefited,  or 40 years,
whichever is less.  Debt  origination  costs are amortized  over the life of the
related notes payable.  The Company  continually  reviews other assets to assess
recoverability from estimated future net cash flows. To date, these reviews have
not resulted in a reduction of other assets.

Research and Development  Costs.  Research and development costs are expensed as
incurred.

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

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

Effect of New  Accounting  Pronouncements.  Statement of Position 98-5 Reporting
the Costs of Start-up  Activities  requires that organization costs be expensed.
The Company applied this new accounting pronouncement effective January 1, 1999.
The  impact of this  change in  accounting  principle  was to reduce  assets and
increase the deficit  accumulated  during the development stage by $63,020 as of
December  31, 1998 and is presented as the  cumulative  effect of an  accounting
change on the statement of operations. There are no related income tax amounts.

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


                                                                              13
<PAGE>


NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
        (CONTINUED)

Revenue and Cost Recognition.  The Company recognized revenue on its contract in
process using the percentage-of-completion  method of accounting, which is based
on the proportion of the contract cost incurred to the estimated  total contract
cost. Costs incurred and estimated  earnings in excess of billings represent the
revenue recognized that has not yet been billed.

Contract  costs include all direct  material and labor costs and those  indirect
costs  related  to  contract  performance,  such as  indirect  labor,  supplies,
overhead, and equipment depreciation.

The contract to produce two outdoor advertising  billboards totals $1.7 million,
with  $885,000  allocated  to  the  first  unit.  An  estimated  total  loss  of
approximately $51,000 in the first unit has been recognized as of June 30, 1999.
The Company's  estimated  cost to complete as of June 30, 1999 is $495,000 which
it expects to fund with cash, billings on the contract and additional capital.

In accordance with the contract, the Company will bill the customer when certain
milestones have been met. There were no billings as of June 30, 1999.

Adjustments to the original estimates of total contract revenue,  total contract
cost,  and extent of  progress  toward  completion  are often  required  as work
progresses under the contract and as experience is gained, even though the scope
of the work required under the contract may not change. The nature of accounting
for  contracts  is  such  that   refinements  of  the  estimating   process  for
continuously  changing  conditions and new developments are a characteristic  of
the process.  Accordingly,  provisions  for losses on contracts  are made in the
period in which they become evident under the percentage-of-completion method.

Reclassifications.  Certain  amounts  in 1998  financial  statements  have  been
reclassified to conform with 1999 presentation.


NOTE 2. RELATED PARTY RECEIVABLES

Related party receivables at June 30, 1999, consist of the following:

    Due from officer                                            $  40,508
    Note receivable from former shareholder bearing
        interest at 8% and due in February, 1999                   15,000
                                                                ---------

                                                                $  55,508
                                                                =========

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

                                                                              14

<PAGE>


NOTE 3. INVESTMENT IN BIO MODA, INC.

During 1998 the Company  increased  its  investment  in Bio Moda,  Inc. to 21.93
percent. Bio Moda, Inc. is a development stage company involved primarily in the
development  of  technology  for  the  early  detection  of  lung  cancer.  As a
development  stage company,  Bio Moda,  Inc. has not had any revenues and, as of
June 30, 1999, was in the process of conducting clinical trials.

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

A summary of the financial  data  relative to Bio Moda,  Inc. as of December 31,
1998 is as follows:

    Assets:
        Current assets                                             $     56,223
        Other assets                                                     17,000
                                                                   ------------
                                                                   $     73,223
                                                                   ============
    Liabilities and equity
        Current liabilities                                        $     32,148
        Notes payable to stockholders                                    84,884
        Common stock                                                    372,273
        Deficit accumulated during the development stage               (416,082)
                                                                   ------------
                                                                   $     73,223
                                                                   ============

The  investment in Bio Moda,  Inc. is accounted for using the equity  method.  A
summary of the investment as of June 30, 1999 is as follows:

    Original cost, all of which exceeded book value                $    358,845
    Share of net loss                                                   (78,080)
    Amortization of excess of cost
        over book value                                                 (28,872)
                                                                   ------------
    Net investment                                                 $    251,893
                                                                   ============

                                                                              15

<PAGE>


NOTE 4. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATION

Capital Lease  Obligation.  In July,  1998,  the Company  entered into a capital
lease  agreement for equipment  valued at $100,499 (net book value of $77,048 at
June 30, 1999). The Company made a down payment of $20,170. The remaining amount
was financed on a lease with 36 monthly payments of $2,810. Future minimum lease
payments are as follows for the years ending June 30:

     2000                                                          $     33,720
     2001                                                                33,720
                                                                   ------------
                                                                         67,440

     Less amounts representing interest                                 (10,748)
                                                                   ------------
                                                                   $     56,692
                                                                   ============

Long-Term Debt. In October 1998, the Company obtained a note payable from a bank
as  part  of  the  purchase  of an  automobile.  The  note  is  due  in  monthly
installments  of principal and interest  (fixed rate of 8 percent) of $817 until
October 2002. The note is secured by the automobile and the balance  outstanding
at June 30, 1999 was $29,743.

In April  1999,  the  Company  obtained a note  payable  from a bank to purchase
equipment.  The note is due in 36 monthly installments of principal and interest
(bank index rate plus 1.5 percent  which was 9.25  percent at June 30,  1999) of
$409.  The note is secured by equipment and the balance  outstanding at June 30,
1999 was $12,592.

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

Principal payments for long-term debt and convertible notes for the years ending
June 30 are as follows:

     2000                                                         $   12,542
     2001                                                            515,359
     2002                                                             12,845
     2003                                                              4,548
                                                                  ----------
                                                                  $  545,294
                                                                  ==========

                                                                              16

<PAGE>


NOTE 5. EQUITY TRANSACTIONS

The Company was initially capitalized through the issuance of 500,000 shares for
$25,000 in cash.  In November  1996,  the  Company  issued  4,500,000  shares in
exchange  for the  outstanding  shares of PLZ Tech,  Inc.  The  transaction  was
accounted for as a purchase and net assets of $285,596,  consisting primarily of
patents and equipment  were  recorded.  In previous  financial  statements,  the
Company  did not present  unclaimed  shares  resulting  from the merger with PLZ
Tech, Inc. as outstanding  shares.  In the accompanying 1997 and prior financial
statements the number of shares  outstanding  has been restated to include these
shares.

During 1997 the Company  issued  2,281,212  shares of stock in a public  offing,
primarily for cash.

During  1998,  the  Company  repurchased  472,200  of its  outstanding  stock in
exchange  for  $10,000  in  notes  receivable  and  $30,385  in cash in  various
transactions. This stock was subsequently retired.

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

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

During the quarter ended March 31, 1999, the Company  repurchased 489,251 shares
of its  outstanding  stock for $11,132 in cash.  These shares were retired.  The
Company also sold  3,259,180  shares for  $154,620 in cash and issued  5,537,430
shares for services which were valued at $27,687.

During the quarter  ended June 30, 1999,  the Company sold  1,437,050  shares of
common  stock for $112,984 in cash and issued  3,947,488  shares in exchange for
services from officers and directors.

                                                                              17

<PAGE>


NOTE 6. FAIR VALUE OF FINANCIAL INSTRUMENTS

The  following  are the  carrying  amounts  and  methods  used by the Company in
estimating its fair value of financial instruments.

     Cash and  Certificates  of Deposit.  The carrying  amounts  reported in the
     balance sheet approximate fair value.

     Marketable Equity Securities.  The fair value reported in the balance sheet
     was based on current market prices.

     Notes Receivable.  Management  estimates the fair value of notes receivable
     approximates the carrying value due to their short terms.

     Notes  Payable.  Management  estimates  the fair  value  of  notes  payable
     approximates the carrying value due to their short terms.

     Capital Lease and Long-Term  Debt.  Management  estimates the fair value of
     capital lease obligations and notes payable approximates the carrying value
     due to their short terms and the fact that they were entered into recently.

The carrying amounts and fair values of the Company's financial  instruments are
as follows at June 30, 1999:

                                                                      Estimated
                                                        Carrying         Fair
                                                         Amount         Value

     Cash and cash equivalents                        $  360,664       360,664
     Certificate of deposit                              104,800       104,800
     Marketable equity securities (with an
       original cost of $81,034)                          51,230        51,230
     Notes payable                                        29,000        29,000
     Long-term debt and capital lease obligation         601,986       601,986

                                                                              18

<PAGE>


NOTE 7. INCOME TAXES

At June 30, 1999, the Company had deferred tax assets amounting to approximately
$520,000.  The deferred tax assets  consist  primarily of the tax benefit of net
operating loss  carryforwards  and are fully offset by a valuation  allowance of
the same amount.

The net  change in the  valuation  allowance  for  deferred  tax  assets  was an
increase  of  approximately  $120,000  in the  quarter  ending June 30, 1999 and
$200,000  for the six  months  ending  June  30,  1999.  The net  change  is due
primarily to the increase in net operating loss carryforwards.

At  June  30,  1999,  the  Company  had  net  operating  loss  carryforwards  of
approximately  $1,300,000  available to offset future state and federal  taxable
income. These carryforwards will expire in 2016 to 2018 for federal tax purposes
and 2001 to 2003 for state tax purposes.


NOTE 8. COMMITMENTS

The Company has a  non-cancelable  operating  lease agreement for its office and
production space. The agreement is through June 2000 with an option to renew for
one additional year.

Rent expense  during the  quarters  ending June 30, 1999 and 1998 was $8,150 and
$3,900,  respectively.  For the six months then ended it was $18,025 and $6,000,
respectively.

Future minimum lease payments for the years ending June 30, are as follows:

     2000                                       $ 32,400

As of June 30, 1999, there was one stock option  outstanding for the purchase of
153,954  shares at $.58 per  share by an  officer  of the  Company.  The  option
expires  August 1, 1999.  During the six  months  ended June 30,  1998 and 1999,
there was no stock option activity.

                                                                              19

<PAGE>


                        ADVANCED OPTICS ELECTRONICS, INC.


                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF

                  FINANCIAL CONDITION AND RESULTS OF OPERATION

Advanced  Optics  Electronics,  Inc.  (ADOT-NASDAQ  BB)  (the  "Company")  is  a
development  stage  technology  company based in  Albuquerque,  New Mexico.  The
Company is primarily  engaged in the  development,  production  and sales of its
novel and innovative electronic flat panel displays.  The result of research and
development  activities  will be the  manufacturing  of  large-scale  flat panel
displays  utilizing  its  patented  technology.  These  large-scale  flat  panel
displays will be marketed and sold to the outdoor advertising billboard market.

Forward - Looking Statements

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

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

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

Liquidity and Capital Resources

The Company  relies upon the purchase of its  securities by investors to provide
capital.  Capital  is  required  for the  development  of  prototype  units  and
manufacturing  operations.   Operating  revenues  from  initial  contracts  also
contribute to operating  liquidity.  The Company's  holding of stock in BioModa,
Inc will provide additional liquidity.

                                                                              20

<PAGE>

BioModa is a biomedical development company. The Company's ownership of BioModa,
as of June 30,  1999,  was 21.93%.  No immediate  family  members of officers or
directors  of  Advanced  Optics  Electronics,  Inc.  are  securities  holders of
BioModa.

During the six months ended June 30, 1999 $147,102 was spent for the purchase of
equipment and product  development  costs.  Funds for operation  needs,  product
development and capital  expenditures  were provided from the sale of securities
and  cash  reserves.   Product  development  expenditures  are  expected  to  be
approximately $250,000 in fiscal 1999.

Management believes that sales of securities, cash reserves and contract revenue
will provide  adequate  liquidity and capital  resources to meet the anticipated
development stage requirements through the end of fiscal year 1999. At that time
it is anticipated that sales of flat panel displays will begin and contribute to
operating  revenues.  It is  anticipated  that  these  sales  will  provide  the
additional capital resources to fund the proportionately  higher working capital
requirements of production and sales  initiatives.  The Company currently has no
other significant commitments for capital expenditures in 1999.

Results of Continuing Operations

Comparison of the Six-Month Periods Ended June 30, 1999 and 1998

Revenues  increased to $136,375 in the first half of 1999 as compared to $72,000
in the first half of 1998.

Research, development and technical costs increased to $86,440 in the first half
of 1999 from  $16,618 in the first half of 1998.  The increase in these costs is
due primarily to increased research and development efforts and resources.

General and administrative costs increased to $412,542 in the first half of 1999
from $132,691 in the first half of 1998 due to increases in salaries  related to
additional personnel and increases in professional fees.

Depreciation  increased  to $78,010 in the first half of 1999 from $9,610 in the
first half of 1998 due primarily to depreciation expense for equipment purchased
and acquired under capital leases.

                                                                              21

<PAGE>


                           PART II. OTHER INFORMATION

Item 1. Legal proceedings

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

Item 2. Changes in securities

During the second quarter of fiscal year 1999 there was a 9,356,885  increase in
shares of common stock.

Item 3. Defaults upon senior securities - Not applicable

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

There were no matters  submitted  to a vote of the  Company's  security  holders
during the second quarter of fiscal year 1999.

Item 5. Other Information - Not applicable

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits
27.1 Financial Data Schedule

(b) Reports on Form 8-K
No reports on Form 8-K were filed by the company during the  three-month  period
ending June 30, 1999

                                                                              22

<PAGE>

                                   SIGNATURES

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

                                        Dated: August 12, 1999

                                        ADVANCED OPTICS ELECTRONICS, INC.

                                        BY: /s/ John J. Cousins
                                            ----------------------------------
                                        John J. Cousins
                                        Chief Accounting Officer
                                        (Principal Accounting Officer)

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

                                                                              24