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: September 30, 2002


                           Commission file No.0-24511


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

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

           8301 WASHINGTON NE, SUITE 5, ALBUQUERQUE, NEW MEXICO 87113
           (Address of principal executive offices including zip code)

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

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

The number of issuer's  shares of Common Stock  outstanding  as of September 30,
2002 was 290,086,921

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


<PAGE>















                         FINANCIAL STATEMENTS AND REPORT
                            OF INDEPENDENT CERTIFIED
                               PUBLIC ACCOUNTANTS

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

                               September 30, 2002



<PAGE>











                                 C O N T E N T S





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

  FINANCIAL STATEMENTS

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

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

       STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT.................5-6

       STATEMENTS OF CASH FLOWS.....................................7-10

       NOTES TO FINANCIAL STATEMENTS...............................11-17




<PAGE>











               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS



Board of Directors
Advanced Optics Electronics, Inc.


We have reviewed the accompanying  balance sheet of Advanced Optics Electronics,
Inc. (A Development  Stage  Company),  as of September 30, 2002, and the related
statements of operations,  changes in  stockholders'  deficit and cash flows for
the three-month and nine-month  periods ended September 30, 2002 and 2001. These
financial  statements are the  responsibility of the Company's  management.  The
financial  statements  for the 1998 and 1999 portions of the period from May 22,
1996 (inception) through December 31, 1999 were audited by other auditors, whose
reports  dated  February  18,  2000  expressed  unqualified  opinions  on  those
statements, before restatement.

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

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



                                                    Atkinson & Co., Ltd.

Albuquerque, New Mexico
October 21, 2002



                                      -1-

<PAGE>

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

                                  BALANCE SHEET
                                   (Unaudited)

                               September 30, 2002

                                     ASSETS

     CURRENT ASSETS
       Cash and cash equivalents                                 $          -
       Costs and estimated earnings in excess of
         billings on uncompleted contract                            1,799,230
                                                                 -------------

               Total current assets                                  1,799,230
                                                                 -------------

     PROPERTY AND EQUIPMENT, net                                       138,111
                                                                 -------------

     OTHER ASSETS
       Investment in Bio Moda, Inc.                                     72,470
       Other assets                                                     72,163
       Note receivable from officer and shareholder                     57,908
       Intangible assets, net                                           19,576
                                                                 -------------

               Total other assets                                      222,117
                                                                 -------------

                   Total assets                                  $   2,159,458
                                                                 =============

                      LIABILITIES AND STOCKHOLDERS' DEFICIT

     CURRENT LIABILITIES
       Bank overdraft                                            $       3,252
       Accounts payable                                                207,612
       Accrued liabilities                                             132,530
       Current portion of long-term debt                                33,845
       Allowance for loss on contract                                1,093,000
                                                                 -------------

               Total current liabilities                             1,470,239
                                                                 -------------

     LONG-TERM DEBT, less current portion                                1,488
                                                                 -------------

     CONVERTIBLE DEBENTURES                                          1,439,284
                                                                 -------------

     STOCKHOLDERS' DEFICIT
       Common stock - Authorized 300,000,000
         shares, $.001 par value,
         290,086,921 shares issued and
         289,132,921 shares outstanding                                290,087
       Additional paid-in capital                                    9,813,210
       Deficit accumulated during the development stage            (10,613,848)
       Treasury stock, at cost                                          (6,156)
       Notes receivable from officer for
         exercise of stock options                                    (234,846)
                                                                 -------------

               Total stockholders' deficit                            (751,553)
                                                                 -------------

               Total liabilities and stockholders' deficit       $   2,159,458
                                                                 =============


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

                                      -2-
<PAGE>
                        Advanced Optics Electronics, Inc.
                          (A Development Stage Company)

                            STATEMENTS OF OPERATIONS
                                   (Unaudited)

             For the Three Months ended September 30, 2002 and 2001


                                                     2002             2001
                                               ---------------   ---------------
  Revenues
    Contract revenue                            $           -     $           -
                                               ---------------   ---------------

  Costs and expenses
    General and administrative                       (180,516)         (210,411)
    Research and development                          (21,660)          (78,380)
    Asset impairment                                        -                 -
                                               ---------------   ---------------

          Total costs and expenses                   (202,176)         (288,791)

  Estimated loss on contract                                -                 -
                                               ---------------   ---------------

    Operating loss                                   (202,176)         (288,791)
                                               ---------------   ---------------

  Other income (expenses)
    Interest income                                     3,370             5,511
    Unrealized gain (loss) on marketable
      equity securities                                     -                 -
    Loss on Bio Moda, Inc.                             (1,158)                -
    Interest expense                                  (22,434)          (70,206)
                                               ---------------   ---------------

          Total other income (expenses)               (20,222)          (64,695)
                                               ---------------   ---------------

          Net loss                              $    (222,398)    $    (353,486)
                                               ===============   ===============

  Net loss per share                            $       (.001)    $       (.005)
                                               ===============   ===============

  Weighted average shares outstanding             229,261,072        68,260,388
                                               ===============   ===============


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

                                      -3-
<PAGE>
                        Advanced Optics Electronics, Inc.
                          (A Development Stage Company)

                      STATEMENTS OF OPERATIONS - CONTINUED
                                   (Unaudited)

              For the Nine Months ended September 30, 2002 and 2001
                  and the Period from May 22, 1996 (Inception)
                           through September 30, 2002
<TABLE>
<S>                                          <C>                <C>             <C>


                                                                                    May 22, 1996
                                                                                    (Inception)
                                                                                      Through
                                                                                    September 30,
                                                     2002             2001              2002
                                               ---------------   ---------------   ---------------
  Revenues
    Contract revenue                            $          -      $          -      $          -


  Costs and expenses
    General and administrative                       (640,881)         (771,725)       (6,638,186)
    Research and development                          (68,169)         (230,982)       (1,334,253)
     Asset impairment                                      -           (227,570)         (227,570)
                                               ---------------   ---------------   ---------------

          Total costs and expenses                   (709,050)       (1,230,277)       (8,200,009)


  Estimated loss on contract                         (185,000)         (125,000)       (1,093,000)
                                               ---------------   ---------------   ---------------

    Operating loss                                   (894,050)       (1,355,277)       (9,293,009)
                                               ---------------   ---------------   ---------------

  Other income (expenses)
    Interest income                                    11,597            20,827            67,553
    Realized gain (loss) on marketable
      equity securities                                    -                 -            (29,368)
    Other investment gains                                 -                 -             59,784
    Loss on Bio Moda, Inc.                             (8,261)               -           (184,771)
    Gain (loss) on disposal of assets                  10,000             6,000             5,694
    Interest expense                                  (77,822)         (126,806)       (1,013,979)
                                               ---------------   ---------------   ---------------

          Total other income (expenses)               (64,486)          (99,979)       (1,095,087)
                                               ---------------   ---------------   ---------------

          Net loss before cumulative effect of
            change in accounting principle           (958,536)       (1,455,256)      (10,388,096)

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

          Net loss                              $    (958,536)    $  (1,455,256)    $ (10,451,116)
                                               ===============   ===============   ===============

  Net loss per share before cumulative effect
    of change in accounting principle           $       (.005)    $       (.022)    $       (.222)

  Cumulative effect of change in
    accounting principle                                   -                 -              (.001)
                                               ---------------   ---------------   ---------------

  Net loss per share                            $       (.005)    $       (.022)    $       (.223)
                                               ===============   ===============   ===============

  Weighted average shares outstanding             185,462,129        66,278,396        46,848,711
                                               ===============   ===============   ===============
</TABLE>

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

                                      -4-
<PAGE>



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

                  STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
                                   (Unaudited)

     For the Period from May 22, 1996 (inception) through September 30, 2002
<TABLE>
<S>                                              <C>             <C>          <C>        <C>        <C>            <C>


                                                         Common Stock           Preferred Stock          Treasury Stock
                                                    ------------------------   -------------------  --------------------------

                                                                     Par                   Par
                                                       Shares       Value      Shares     Value       Shares          Cost
                                                    -----------   ----------   --------   --------   -----------   -----------

BALANCE, MAY 22, 1996                                       -     $      -          -     $    -             -     $       -
Stock issued to incorporators for cash                 500,000          500         -          -             -             -
Stock issued for the net assets of PLZ Tech, Inc.    4,500,000        4,500         -          -             -             -
Net loss                                                    -            -          -          -             -             -
                                                    -----------   ----------   --------   --------   -----------   -----------

BALANCE, DECEMBER 31, 1996                           5,000,000        5,000         -          -             -             -
Stock issued for cash and services                   2,281,212        2,281         -          -             -             -
Net loss                                                    -            -          -          -             -             -
                                                    -----------   ----------   --------   --------   -----------   -----------

BALANCE, DECEMBER 31, 1997                           7,281,212        7,281         -          -             -             -
Stock issued for cash                               10,979,275       10,979         -          -             -             -
Stock issued for services                            2,751,000        2,751         -          -             -             -
Stock issued in exchange for note receivable           315,000          315         -          -             -             -
Purchase and retirement of treasury stock             (472,200)        (472)        -          -             -             -
Net loss                                                    -            -          -          -             -             -
                                                    -----------   ----------   --------   --------   -----------   -----------

BALANCE, DECEMBER 31, 1998                          20,854,287       20,854         -          -             -             -
Stock issued for cash                                8,681,624        8,682         -          -             -             -
Stock issued for services                           17,094,313       17,094         -          -             -             -
Intrinsic value of beneficial conversion feature
  of notes payable                                          -            -          -          -             -             -
Fair value of warrants related to notes payable             -            -          -          -             -             -
Purchase and retirement of treasury stock             (489,251)        (489)        -          -             -             -
Purchase of treasury stock                                  -            -          -          -       (229,000)      (41,760)
Sale of treasury stock                                      -            -          -          -         85,000        11,130
Net loss                                                    -            -          -          -             -             -
                                                    -----------   ----------   --------   --------   -----------   -----------

BALANCE, DECEMBER 31, 1999                          46,140,973       46,141         -          -       (144,000)      (30,630)
Stock issued for cash                                  782,000          782        710          1            -             -
Stock issued for services                            3,955,202        3,955         -          -             -             -
Purchase of treasury stock                                  -            -          -          -        (63,500)      (46,486)
Sale of treasury stock                                      -            -          -          -        142,400        22,542
Exercise of stock options for notes receivable       1,850,000        1,850         -          -             -             -
Amortization of discount on convertible
  preferred stock                                           -            -          -          -             -             -
Exercise of preferred stock conversion feature       9,200,000        9,200         -          -             -             -
Issuance of convertible debentures                          -            -          -          -             -             -
Exchange of preferred stock for
  convertible debentures                                    -            -        (710)        (1)           -             -
De-investment in Wizard Technologies                        -            -          -          -             -             -
Net loss                                                    -            -          -          -             -             -
                                                    -----------   ----------   --------   --------   -----------   -----------

BALANCE, DECEMBER 31, 2000                          61,928,175       61,928         -          -        (65,100)      (54,574)

</TABLE>
The accompanying notes are an integral part of these financial statements.

                                       -5-
<PAGE>

<TABLE>
<S>                                             <C>                <C>               <C>            <C>


                                                                    Equity (Deficit)      Notes
                                                       Additional      During the        Receivable        Total
                                                        Paid-In       Development          From         Stockholders'
                                                        Capital          Stage            Officer          Deficit
                                                    --------------   --------------   --------------   --------------
BALANCE, MAY 22, 1996
Stock issued to incorporators for cash              $         -      $         -      $         -      $         -
Stock issued for the net assets of PLZ Tech, Inc           24,500              -                -             25,000
Net loss                                                  281,096              -                -            285,596
                                                              -            (76,902)             -            (76,902)
                                                    --------------   --------------   --------------   --------------
BALANCE, DECEMBER 31, 1996
Stock issued for cash and services                        305,596          (76,902)             -            233,694
Net loss                                                  362,720              -                -            365,001
                                                              -            (84,690)             -            (84,690)
                                                    --------------   --------------   --------------   --------------
BALANCE, DECEMBER 31, 1997
Stock issued for cash                                     668,316         (161,592)             -            514,005
Stock issued for services                               1,281,728              -                -          1,292,707
Stock issued in exchange for note receivable              293,719              -                -            296,470
Purchase and retirement of treasury stock                  28,685              -                -             29,000
Net loss                                                  (39,913)             -                -            (40,385)
                                                              -           (752,111)             -           (752,111)
                                                    --------------   --------------   --------------   --------------
BALANCE, DECEMBER 31, 1998
Stock issued for cash                                   2,232,535         (913,703)             -          1,339,686
Stock issued for services                                 855,101              -                -            863,783
Intrinsic value of beneficial conversion feature        1,469,320              -                -          1,486,414
  of notes payable
Fair value of warrants related to notes payable           174,610              -                -            174,610
Purchase and retirement of treasury stock                 125,000              -                -            125,000
Purchase of treasury stock                                (10,643)             -                -            (11,132)
Sale of treasury stock                                        -                -                -            (41,760)
Net loss                                                   24,334              -                -             35,464
                                                              -         (2,725,804)             -         (2,725,804)
                                                    --------------   --------------   --------------   --------------
BALANCE, DECEMBER 31, 1999
Stock issued for cash                                   4,870,257       (3,639,507)             -          1,246,261
Stock issued for services                               1,012,710              -                -          1,013,493
Purchase of treasury stock                              1,726,197              -                -          1,730,152
Sale of treasury stock                                        -                -                -            (46,486)
Exercise of stock options for notes receivable             54,771              -                -             77,313
Amortization of discount on convertible                   220,150              -           (193,427)          28,573
  preferred stock                                         159,677              -                -            159,677
Exercise of preferred stock conversion feature            533,678              -                -            542,878
Issuance of convertible debentures                        263,830              -                -            263,830
Exchange of preferred stock for                          (641,780)             -                -           (641,781)
  convertible debentures                                  (59,583)             -                -            (59,583)
De-investment in Wizard Technologies                          -         (3,867,931)             -         (3,867,931)
Net loss                                            --------------   --------------   --------------   --------------

BALANCE, DECEMBER 31, 2000                              8,139,907       (7,507,438)        (193,427)         446,396

</TABLE>
The accompanying notes are an integral part of these financial statements.

<PAGE>



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

            STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT - CONTINUED
                                   (Unaudited)

     For the Period from May 22, 1996 (inception) through September 30, 2002

<TABLE>
<S>                                               <C>             <C>          <C>       <C>        <C>          <C>

                                                           Common Stock          Preferred Stock           Treasury Stock
                                                  --------------------------   -------------------   -------------------------

                                                                     Par                    Par
                                                       Shares       Value       Shares     Value       Shares         Cost
                                                  -------------   ----------   --------   --------   -----------   -----------

Stock issued for cash                                1,382,778        1,383         -          -             -             -
Stock issued for services                           10,461,498       10,461         -          -             -             -
Purchase of treasury stock                                 -            -           -          -       (251,700)      (16,215)
Amortization of discount on convertible
  preferred stock                                          -            -           -          -             -             -
Stock issued upon debt conversion                    7,064,886        7,065         -          -             -             -
Net loss                                                   -            -           -          -             -             -
                                                  -------------   ----------   --------   --------   -----------   -----------

Balance, December 31, 2001                          80,837,337       80,837         -          -       (316,800)      (70,789)
Stock issued for cash                                8,080,000        8,080         -          -             -             -
Stock issued for services                           14,570,000       14,570         -          -             -             -
Sale of treasury stock                                     -            -           -          -        316,800        70,789
Purchase of treasury stock                                 -            -           -          -         (5,000)         (170)
Stock issued upon debt conversion                   22,049,886       22,050         -          -             -             -
Exercise of stock option for notes receivable        1,100,000        1,100         -          -             -             -
Consolidation of accrued interest with
  note receivable                                          -            -           -          -             -             -
Net loss                                                   -            -           -          -             -             -
                                                  -------------   ----------   --------   --------   -----------   -----------
Balance, March 31, 2002                            126,637,223      126,637         -          -         (5,000)         (170)
Stock issued for services                            3,410,000        3,410         -          -             -             -
Stock issued for cash                               26,220,000       26,220         -          -             -             -
Stock issued upon debt conversion                   12,168,000       12,168         -          -             -             -
Purchase of treasury stock                                 -            -           -          -       (660,000)       (7,135)
Retroactive application of the equity method to
  investment in Bio Moda, Inc.                             -            -           -          -             -             -
Net loss                                                   -            -           -          -             -             -
                                                  -------------   ----------   --------   --------   -----------   -----------

Balance, June  30, 2002                            168,435,223      168,435         -          -       (665,000)       (7,305)
Stock issued for services                           31,801,000       31,801         -          -             -             -
Stock issued for cash                               79,600,000       79,600         -          -             -             -
Stock issued upon debt conversion                   10,250,698       10,251         -          -             -             -
Sale of treasury stock                                     -             -          -          -        191,000         2,097
Purchase of treasury stock                                 -             -          -          -       (480,000)         (948)
Net loss                                                   -             -          -          -             -             -
                                                  -------------   ----------   --------   --------   -----------   -----------

Balance, September 30, 2002                        290,086,921    $ 290,087         -     $    -       (954,000)   $   (6,156)
                                                  =============   ==========   ========   ========   ===========   ===========

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

</TABLE>
                                      -6-
<PAGE>
<TABLE>
<S>                                               <C>              <C>               <C>             <C>


                                                                    Equity (Deficit)      Notes
                                                      Additional       During the       Receivable       Total
                                                       Paid-In         Development        From          Stockholders'
                                                       Capital           Stage           Officer          Deficit
                                                    --------------   --------------   --------------   --------------

Stock issued for cash                                      66,844               -                -            68,227
Stock issued for services                                 412,284               -                -           422,745
Purchase of treasury stock                                     -                -                -           (16,215)
Amortization of discount on convertible                   143,875               -                -           143,875
  preferred stock                                         147,008               -                -           154,073
Stock issued upon debt conversion                              -        (1,985,142)              -        (1,985,142)
Net loss                                            --------------   --------------   --------------   --------------

                                                        8,909,918       (9,492,580)        (193,427)        (766,041)
Balance, December 31, 2001                                 39,961               -                -            48,041
Stock issued for cash                                     249,080               -                -           263,650
Stock issued for services                                      -           (64,111)              -             6,678
Sale of treasury stock                                         -                -                -              (170)
Purchase of treasury stock                                261,900               -                -           283,950
Stock issued upon debt conversion                          20,900               -           (22,000)              -
Exercise of stock option for notes receivable                  -                -           (19,419)         (19,419)
Consolidation of accrued interest with                         -          (408,061)              -          (408,061)
  note receivable                                   --------------   --------------   --------------   --------------
Net loss

Balance, March 31, 2002                                 9,481,759       (9,964,752)        (234,846)        (591,372)
Stock issued for services                                  18,260               -                -            21,670
Stock issued for cash                                     106,171               -                -           132,391
Stock issued upon debt conversion                          80,518               -                -            92,686
Purchase of treasury stock                                     -                -                -            (7,135)
Retroactive application of the equity method to
  investment in Bio Moda, Inc.                                 -           (97,674)              -           (97,674)
Net loss                                                       -          (328,077)              -          (328,077)
                                                    --------------   --------------   --------------   --------------

Balance, June  30, 2002                                 9,686,708      (10,390,503)        (234,846)        (777,511)
Stock issued for services                                  79,460               -                -           111,261
Stock issued for cash                                      32,544               -                -           112,144
Stock issued upon debt conversion                          14,498               -                -            24,749
Sale of treasury stock                                         -              (947)              -             1,150
Purchase of treasury stock                                     -                -                -              (948)
Net loss                                                       -          (222,398)              -          (222,398)
                                                    --------------   --------------   --------------   --------------

Balance, September 30, 2002                         $   9,813,210    $ (10,613,848)   $    (234,846)   $    (751,553)
                                                    ==============   ==============   ==============   ==============

</TABLE>

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


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

                            STATEMENTS OF CASH FLOWS
                                   (Unaudited)

             For the Three Months ended September 30, 2002 and 2001



                                                      2002              2001
                                               ---------------   ---------------
 Cash flows from operating activities
   Net loss                                    $     (222,398)   $     (353,486)

   Adjustments to reconcile net loss to net
     cash used in operating activities

       Interest on convertible debentures              25,846                -
       Intrinsic value of conversion features              -             68,875
       Amortization and depreciation expense           22,842            23,411
       Loss on Bio Moda, Inc.                           1,158                -
       Issuance of common stock for services          111,261            67,804
       (Increase) in costs in excess of
         billings on uncompleted contract             (64,480)          (88,333)
       (Increase) in other assets                      (3,523)           (6,374)
       Increase in bank overdraft                       3,252                -
       (Decrease) increase in accrued
         liabilities and accounts payable                (427)           80,568
                                               ---------------   ---------------

         Net cash used in operating activities       (126,469)         (207,535)
                                               ---------------   ---------------


                                      -7-

<PAGE>

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

                      STATEMENTS OF CASH FLOWS - CONTINUED
                                   (Unaudited)

             For the Three Months ended September 30, 2002 and 2001



                                                      2002              2001
                                               ---------------   ---------------
   Cash flows from investing activities
     Advances to Bio Moda, Inc.                        (8,670)               -
     Purchase of equipment                                 -             (4,149)
     Collection of note receivable                     17,680                -
                                               ---------------   ---------------

         Net cash provided by (used in)
          investing activities                          9,010            (4,149)
                                               ---------------   ---------------

   Cash flows from financing activities
     Payments on long-term debt                        (5,505)           (8,160)
     Issuance of capital stock                        112,144            28,227
     Purchase of treasury stock                          (948)           (9,488)
     Sale of treasury stock                             1,150                -
     Proceeds from issuance of
         convertible debenture                             -            200,000
                                               ---------------   ---------------

         Net cash provided by
          financing activities                        106,841           210,579
                                               ---------------   ---------------

             NET DECREASE IN CASH AND
                CASH EQUIVALENTS                      (10,618)           (1,105)

   Cash and cash equivalents,
     beginning of period                               10,618            95,039
                                               ---------------   ---------------
   Cash and cash equivalents,
     end of period                             $           -     $       93,934
                                               ===============   ===============


                NON-CASH INVESTING AND FINANCING TRANSACTIONS


    During the three months ended  September  30, 2002,  $24,749 of debentures
    were converted into 10,250,698 shares of the Company's common stock.

                                      -8-
<PAGE>

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

                      STATEMENTS OF CASH FLOWS - CONTINUED
                                   (Unaudited)

              For the Nine Months ended September 30, 2002 and 2001
                  and the Period from May 22, 1996 (Inception)
                           through September 30, 2002

<TABLE>
<S>                                                        <C>                <C>               <C>

                                                                                                     May 22, 1996
                                                                                                      (Inception)
                                                                                                        Through
                                                                    2002              2001        September 30, 2002
                                                              ---------------   ---------------   -------------------
 Cash flows from operating activities
   Net loss                                                   $     (958,536)   $   (1,455,256)   $      (10,451,116)

   Adjustments to reconcile net loss to net
     cash used in operating activities

       Interest on convertible debentures                             82,848            50,000               204,064
       Intrinsic value of conversion features                            -              68,875               610,603
       Amortization and depreciation expense                          69,086            94,561               513,691
       Write off of organization costs                                   -                 -                  63,020
       Amortization of discounts on
         convertible notes                                               -                 -                 295,209
       Unrealized loss on
         marketable securities                                           -                 -                  29,368
       Gain on disposal of assets                                    (10,000)           (6,000)               (5,694)
       Loss on Bio Moda, Inc.                                          8,261               -                 184,771
       Asset impairment                                                  -             227,570               227,570
       Issuance of common stock for services                         396,581           329,640             4,332,363
       Issuance of notes for services                                    -                 -                  50,000
       (Increase) in costs in excess of
         billings on uncompleted contract                           (228,666)         (263,653)           (1,799,230)
       (Increase) in other assets                                    (11,746)           (1,745)              (91,621)
       (Decrease) in inventory                                           -                 -                 (35,293)
       Increase in allowance for
         loss on contract                                            185,000           125,000             1,093,000
       Increase in bank overdraft                                      3,252               -                   3,252
       Increase in accrued liabilities
         and accounts payable                                         66,583           133,188               340,142
       Increase in other non-cash expenses                               -                 -                  33,447
       Increase in accrued interest                                      -                 -                  30,667
                                                              ---------------   ---------------   -------------------

           Net cash used in operating activities
                                                                    (397,337)         (697,820)           (4,371,787)
                                                              ---------------   ---------------   -------------------

</TABLE>
                                      -9-
<PAGE>
                        Advanced Optics Electronics, Inc.
                          (A Development Stage Company)

                      STATEMENTS OF CASH FLOWS - CONTINUED
                                   (Unaudited)

              For the Nine Months ended September 30, 2002 and 2001
                  and the Period from May 22, 1996 (Inception)
                           through September 30, 2002
<TABLE>
<S>                                                          <C>              <C>               <C>

                                                                                                     May 22, 1996
                                                                                                     (Inception)
                                                                                                       Through
                                                                    2002              2001        September 30, 2002
                                                              ---------------   ---------------   -------------------
   Cash flows from investing activities
     Proceeds from sale of intangible assets                          10,000               -                  10,000
     Proceeds from sale of Bio MOda, Inc. stock                       11,250               -                  11,250
     Advances to Bio Moda, Inc.                                      (13,720)              -                 (13,720)
     Purchase of equipment                                               -             (27,885)             (382,592)
     Investment in Bio Moda, Inc.                                        -                 -                (383,845)
     Sale of marketable securities                                       -                 -                  40,665
     Purchase of marketable securities                                   -                 -                 (70,034)
     Decrease in certificate of deposits                                 -             107,426                   -
     Repayment of note receivable                                     17,680               -                  17,680
     Proceeds from sale of equipment                                     -              23,800                23,800
     Purchase of other assets                                            -              (6,653)             (245,579)
                                                              ---------------   ---------------   -------------------
             Net cash provided by (used in)
               investing activities                                   25,210            96,688              (992,375)
                                                              ---------------   ---------------   -------------------

   Cash flows from financing activities
     Additions to notes payable                                          -                 -                 622,776
     Payments on notes payable and capital
       lease obligations                                             (10,888)          (42,741)             (234,654)
     Issuance of capital stock                                       292,576            68,227             3,920,787
     Collection of officer notes                                         -                 -                  28,878
     Sale of treasury stock                                            7,829               -                 120,606
     Purchase of treasury stock                                       (8,253)          (14,707)             (154,231)
     Proceeds from issuance of
       convertible instruments
                                                                         -             275,000             1,060,000
                                                              ---------------   ---------------   -------------------

             Net cash provided by financing activities               281,264           285,779             5,364,162
                                                              ---------------   ---------------   -------------------

            NET DECREASE IN CASH AND
               CASH EQUIVALENTS                                      (90,863)         (315,353)                  -

   Cash and cash equivalents, beginning of period                     90,863           409,287                   -
                                                              ---------------   ---------------   -------------------

   Cash and cash equivalents, end of period                   $          -      $       93,934    $              -
                                                              ===============   ===============   ===================

</TABLE>

                NON CASH INVESTING AND FINANCING TRANSACTIONS

    During the nine  month  period  ended  September  30,  2002,  the  Company
    recognized  the  retroactive  application  of  the  equity  method  to the
    investment in Bio Moda, Inc. in the amount of $97,674.

    During the nine  month  period  ended  September  30,  2002,  $401,385  of
    debentures were converted into 44,468,584  shares of the Company's  common
    stock.

                                      -10-
<PAGE>
                        Advanced Optics Electronics, Inc.
                          (A Development Stage Company)
                          NOTES TO FINANCIAL STATEMENTS
                                   (Unaudited)
                               September 30, 2002

NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

    Notes to Interim Financial Statements
    -------------------------------------

    The accompanying unaudited condensed financial statements have been prepared
    in accordance with accounting  principles  generally  accepted in the United
    States of America for interim  information and with the instructions to Form
    10-QSB and Regulation S-B. Accordingly,  they do not include all information
    and footnotes  required by accounting  principles  generally accepted in the
    United States of America for complete financial  statements.  In the opinion
    of management,  all  adjustments  consisting of normal and recurring  nature
    considered  necessary for fair presentation  have been included.  Results of
    operations for the  three-month  and nine-month  periods ended September 30,
    2002 may not  necessarily  be indicative of the results that may be expected
    for the year ended December 31, 2002. For further information,  refer to the
    Company's financial statements and footnotes included on the form 10-KSB for
    the year ended December 31, 2001.

    Going Concern
    -------------

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

    The  Company has  obtained a contract  to produce  two  outdoor  advertising
    billboards  using  its flat  panel  display  technology.  This is the  first
    commercial  application  of the  Company's  technology.  The  success of the
    Company  will  depend on its ability to  commercialize  its  technology  and
    complete  this  contract.  As of  September  30,  2002,  completion  of this
    contract was behind schedule.

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

                                      -11-
<PAGE>
                        Advanced Optics Electronics, Inc.
                          (A Development Stage Company)

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED
                                   (Unaudited)

                               September 30, 2002


NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

    Going Concern - Continued
    -------------------------

    The  contract  to produce  two outdoor  advertising  billboards  totals $1.7
    million,  with  $885,000  assigned to the first unit.  An estimated  loss of
    approximately  $1,093,000  from  production  of  the  first  unit  has  been
    recognized  through  September  30, 2002.  The Company's  estimated  cost to
    complete as of September 30, 2002 is $88,897, which is expected to be funded
    from new borrowings and contributed capital.

    In  accordance  with the  contract,  the Company will bill the customer when
    certain  milestones are met. Billings and collections  through September 30,
    2002 have totaled $89,873. Due to the nature of the customer's business, and
    deferments   requested  by  customer,   the  Company  has   experienced   an
    unanticipated  delay in delivering the first unit.  The Company  anticipates
    additional  collections,  for  milestones  previously  achieved,  during the
    fourth quarter of 2002. However,  there is a direct relationship between the
    scheduled  collection on the contract and the sustained business environment
    of the customer.

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

    Investment
    ----------

    As of September 30, 2002, the Company owned 18.6% of the outstanding  common
    stock of Bio Moda, Inc., an  unconsolidated  investment  accounted for using
    the equity  method.  For the years ended  December  31,  2001 and 2000,  the
    Company  reported its  investment  under the cost method since its degree of
    control was not  sufficient for the investment to be accounted for using the
    equity  method.  During 2002, the Company's  influence  over Bio Moda,  Inc.
    increased such that the investment qualified for accounting under the equity
    method.  Losses from Bio Moda,  Inc. in 2002 are recognized in the Company's
    current earnings.  Retroactive recognition of the Bio Moda, Inc. losses from
    2001 and 2000 is recorded  directly  to the  Company's  deficit  accumulated
    during the development stage.

    Bio Moda is currently  in the securities  registration process. Bio Moda has
    filed a revised SB2  registration statement with the Securities and Exchange
    Commission.  Bio  Moda is offering  5,000,000 shares at $6.00 per share (for
    an aggregate offering of $30,000,000).

                                      -12-
<PAGE>
                        Advanced Optics Electronics, Inc.
                          (A Development Stage Company)
                    NOTES TO FINANCIAL STATEMENTS - CONTINUED
                                   (Unaudited)
                               September 30, 2002

NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

    Investment - Continued
    ----------------------

    The  carrying  value  of the  investment  as of  September  30,  2002 is the
    original investment cost adjusted by the Company's proportionate interest in
    losses reported by the investee through September 30, 2002.

    Use of Estimates
    ----------------

    The  preparation  of financial  statements  in  conformity  with  accounting
    principles  generally  accepted  in the United  States of  America  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
    allowances and the valuation of common stock issued for services.

    Stock-Based Compensation
    ------------------------

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

NOTE 2.  NOTES RECEIVABLE
    Notes receivable at September 30, 2002, consist of the following:

                  Due from officer                             $    29,188
                  Note receivable from former shareholder,
                    interest at 8% and due on demand                15,000
                  Notes receivable from Bio Moda, Inc.,
                    interest at 7%                                  13,720
                                                               -----------
                                                               $    57,908
                                                               ===========

    The Company also has a note  receivable  from an officer  totaling  $234,846
    which  bears  interest  at 6% per annum,  and is due in 2007.  This note was
    received as consideration upon exercise of stock options.

                                      -13-
<PAGE>
                        Advanced Optics Electronics, Inc.
                          (A Development Stage Company)
                    NOTES TO FINANCIAL STATEMENTS - CONTINUED
                                   (Unaudited)
                               September 30, 2002

NOTE 3.  INVESTMENTS

    As of September 30, 2002, the Company owned 1,072,285 shares or 18.6% of the
    5,765,282 outstanding shares of Bio Moda, Inc.

    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 as of
    September 30, 2002.

    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.

    During the three months ended March 31, 2002,  the Company sold a portion of
    its interest in Bio Moda to an individual.

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

         Original cost                                         $    383,845
         Share of net loss                                         (239,945)
         Amortization of excess of cost over book value             (42,500)
         Sale of investment                                         (28,930)
                                                               -------------

         Carrying value of investment in Bio Moda, Inc.        $     72,470
                                                               =============

NOTE 4.  LONG-TERM DEBT
    As of September 30, 2002, the Company's long-term debt was as follows:

         Notes  payable to a  financial  institution,
          due in  monthly  payments aggregating  $3,221
          through October 2003, bearing interest at bank
           prime rate plus 1.5%, collateralized by
           operating equipment and a vehicle                   $     35,333

         Less:  Current portion                                     (33,845)
                                                               -------------
                                                               $      1,488
                                                               =============
                                      -14-
<PAGE>

                        Advanced Optics Electronics, Inc.
                          (A Development Stage Company)
                    NOTES TO FINANCIAL STATEMENTS - CONTINUED
                                   (Unaudited)
                               September 30, 2002

NOTE 5.  CONVERTIBLE DEBENTURES

    During the three  months  ended  September  30,  2002,  the  Company  issued
    10,250,698  shares of common stock upon  conversion  of $24,749 of debenture
    principal.

NOTE 6.  FAIR VALUE OF FINANCIAL INSTRUMENTS

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

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

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

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

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

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

NOTE 7.  INCOME TAXES

     As of September 30, 2002, the Company had net operating loss  carryforwards
     of approximately $10,400,000,  which expire in varying amounts between 2016
     through 2021. Realization of this potential future tax benefit is dependent
     on  generating  sufficient  taxable  income prior to expiration of the loss
     carryforward.  The deferred tax asset related to this potential  future tax
     benefit has been offset by a valuation  allowance in the same  amount.  The
     amount of the deferred tax asset  ultimately  realizable could be increased
     in the  near  term  if  estimates  of  future  taxable  income  during  the
     carryforward period are revised.

                                      -15-
<PAGE>

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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED
                                   (Unaudited)

                               September 30, 2002


NOTE 8.  STOCK PLANS

    On January 4, 1999, the Company established the Incentive Stock Option Plan.
    Pursuant to the Plan, up to 10,000,000  shares of the Company's common stock
    may be granted as options to key employees.  The shares issued upon exercise
    of the options may be authorized  and unissued  shares or shares held by the
    Company in its  treasury.  The exercise  date of the options is based on the
    related agreement as approved by the Board of Directors. The Incentive Stock
    Option Plan expires on January 4, 2009.  Options awarded under the Plan have
    four-year  terms  and  vest  ratably  over one to two  year  periods.  As of
    September 30, 2002, there were 8,075,000 shares available under the Plan for
    future  awards.  No stock  options  were issued  during the  three-month  or
    nine-month period ended September 30, 2002.

    Total stock options granted and  unexercised  were 3,825,000 as of September
    30, 2002.  The shares  issued upon exercise of the options may be authorized
    and  unissued  shares or shares  held by the  Company in its  treasury.  The
    exercise  date of options  granted is based upon the  related  agreement  as
    approved by the Board of Directors.

    The Company also issued Stock Purchase Warrants to key employees.  The total
    number of "warrant  shares"  issued  under these  agreements  was  3,425,000
    shares,  exercisable  at any time until they  expire on June 15,  2004.  The
    price established for the shares ranges from $.15 to $.41 per share.

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

                                                    Weighted
                                    Warrants        Average
                                       and           Exercise
                                     Options         Prices        Exercisable
                                  -------------   -------------   -------------

    Balance, December 31, 2001      11,100,000    $      0.27        9,517,500

    Granted                          1,100,000           0.22

    Exercised                       (1,100,000)          0.22
                                  -------------

    Balance, March 31, 2002         11,100,000           0.27        9,517,500

    Granted                                -               -

    Exercised                              -               -
                                  -------------




                                      -16-
<PAGE>

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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED
                                   (Unaudited)

                               September 30, 2002


NOTE 8.  STOCK PLANS - CONTINUED

                                                      Weighted
                                      Warrants         Average
                                        and           Exercise
                                      Options          Prices       Exercisable
                                   --------------   ------------   -------------

    Balance, June 30, 2002            11,100,000           0.27       9,517,500

    Granted                                  -

    Exercised                                -
                                   --------------

    Balance, September 30, 2002       11,100,000           0.27       9,517,500
                                   ==============

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


NOTE 9.  SUBSEQUENT EVENT

    On October 7, 2002,  the Board of  Directors  approved  an  increase  in the
    number of authorized  shares of common stock from 300,000,000 to 450,000,000
    shares.


                                      -17-
<PAGE>

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF

                  FINANCIAL CONDITION AND RESULTS OF OPERATION
                                        .

Forward - Looking Statements
----------------------------

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

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

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


                                    OVERVIEW

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

                                      -18-
<PAGE>


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

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

Proprietary Billboard software capabilities are:
   o   Manage and update display content remotely
   o   Works with all image file formats and digital video editors
   o   Secure  Internet or WAN communications
   o   WEB-based status monitoring
   o   Provides time, temperature and other dynamic content inserts


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

                                      -19-
<PAGE>

We expect  our  principal  source of  revenue  to be  derived  from sales of our
electronic display product.  To date we have recognized limited revenue,  but we
have  developed a functioning  prototype  and we anticipate  sales by the fourth
quarter  2002.  The  company  has set the price for its  units at  $395,000  and
$1,490,000 respectively for its 2 meter x 3 meter and its 3 meter x 8 meter flat
panel displays.

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

Our operating expenses have increased significantly since our inception, and the
rate of increase has risen since last year. This is due to increased engineering
and  management  staff and  investments in operating  infrastructure.  Since our
inception we have incurred significant losses and, as of September 30, 2002, had
an accumulated deficit of $10,613,848.


RESULTS OF CONTINUING OPERATIONS

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

Comparison of the Three-Month Periods Ended September 30, 2002 and 2001
-----------------------------------------------------------------------

Revenue.  During the quarter  ended  March 31,  2001,  the  Company  changed the
-------
accounting for our contract to the completed contract method.  According to this
way of accounting for contracts,  we are booking no revenue until the completion
of the  contract.  Please  note that the  revenue  for the period  "May 22, 1996
(Inception) Through June 30, 2002" has been restated and is now $0. Billings and
collections through September 30, 2002 have totaled $89,873.

Product Development. Product development expenses consist primarily of personnel
-------------------
expenses,  consulting fees and depreciation of the equipment associated with the
development and enhancement of our flat panel displays. Research development and
technical  costs  decreased to $21,660 in the third quarter of 2002 from $78,380
in the third  quarter of 2001.  These  costs  have been  reduced in an effort to
conserve  cash and meet the  challenges of being a  development  stage  company.
However, we believe that continued investment in product development is critical
to  attaining  our  strategic  objectives  and,  as  a  result,  expect  product
development  expenses to increase  significantly  in future periods.  We expense
product development costs as they are incurred.

                                      -20-
<PAGE>

General and  Administrative.  General  and  administrative  expenses  consist of
---------------------------
expenses for executive and administrative  personnel,  facilities,  professional
services,  travel,  general  corporate  activities,  and  the  depreciation  and
amortization  of  office  furniture  and  leasehold  improvements.  General  and
administrative  costs  decreased  to $180,516 in the third  quarter of 2002 from
$210,411 in the third  quarter of 2001.  We expect  general  and  administrative
costs to increase in the future as our  business  prospects  develop and we will
require more staff.  The costs  associated  with being a publicly traded company
and  future  strategic  acquisitions  will  also  be a  contributing  factor  to
increases in this expense.

Other Income  (Expense).  Other income (expense)  consists of interest and other
----------------------
income and expense.  Other (expense) decreased to ($20,222) in the third quarter
of 2002 from  ($64,695) in the third quarter of 2001 due primarily to comparison
with a relatively  large  interest  expense being booked in the third quarter of
2001.

Depreciation  remained  relatively  constant at $22,842 in the third  quarter of
2002 and $23,411 in the third quarter of 2001.


LIQUIDITY AND CAPITAL RESOURCES

Since  inception,  we have funded our operations  primarily  through the private
placement  of equity  securities.  As of  September  30, 2002 we have raised net
proceeds of $5,364,162.

We have  also  utilized  equipment  loans and  capital  lease  financing.  As of
September 30, 2002 we have a balance of $35,333 on the equipment loans.

The Company's holding in Biomoda, Inc will provide additional liquidity. Biomoda
is a biomedical  development  company. The Company's ownership of Biomoda, as of
September 30, 2002 was approximately 18.6%.

The  Company's  relationship  to its  investment in Biomoda  changed  during the
second quarter. There is now an active leadership role in Biomoda being provided
by John  Cousins  and Leslie  Robins.  Biomoda is  currently  in the  process of
registering  securities under an SB2 that has been filed with the Securities and
Exchange Commission.  The Company has gone to the equity method of reporting its
investment  in  Biomoda  because  of  these  recent  changes  in the  management
relationship between the two companies.

Product  development  expenditures  were $21,660 for the quarter ended September
30, 2002.  Funds for operations,  product  development and capital  expenditures
were provided from the sale of securities and cash reserves. As of September 30,
2002,  we  experienced  a temporary  lack of cash and cash  equivalents.  Within
several days of the end of the quarter we had received  capital funds in the mid
five figures.

                                      -21-
<PAGE>

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 the fourth quarter 2002. 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 2002.


                           PART II. OTHER INFORMATION

Item 1.  Legal proceedings

The company may on occasion be a party to litigation involving claims made by or
against the Company arising in the ordinary course of business. The officers and
directors know of no legal  proceedings  pending or  contemplated by any person,
entity or governmental  authority which would have a material  adverse effect on
the Company.

Item 2.  Changes in securities

During the third quarter of fiscal year 2002 there was a 121,651,698 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 third quarter of fiscal year 2002.

Item 5.  Other Information - Not applicable

Item 6.  Exhibits and Reports on Form 8-K

(a)      Exhibits
1. Certification of Periodic Report by CEO and CFO

                                      -22-
<PAGE>

                        CERTIFICATION OF PERIODIC REPORT

 I, Leslie S. Robins, CEO of Advanced Optics Electronics, Inc. (the "Company"),
    certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
    18 U.S.C. Section 1350 that:


(1)     the  (Quarterly/Annual)  Report  on Form  (10-Q/10-K) of the Company for
        the  quarterly  period ended  September  30, 2002 (the  "Report")  fully
        complies  with  the  requirements  of  Section  13  (a) or 15 (d) of the
        Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

(2)     the information contained in the Report fairly presents, in all material
        respects, the financial condition and results of operations of the
        Company.

Dated: November 11, 2002
                                                 /s/ Leslie S. Robins
                                                 --------------------
                                                     Leslie S. Robins
                                                     CEO


                        CERTIFICATION OF PERIODIC REPORT

 I, John J. Cousins, CFO of Advanced Optics Electronics, Inc. (the "Company"),
    certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
    18 U.S.C. Section 1350 that:


(3)     the  (Quarterly/Annual)  Report on  Form  (10-Q/10-K) of the Company for
        the  quarterly  period ended  September  30, 2002 (the  "Report")  fully
        complies  with  the  requirements  of  Section   13 (a) or 15 (d) of the
        Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

(4)     the information contained in the Report fairly presents, in all material
        respects, the financial condition and results of operations of the
        Company.



Dated: November 11, 2002

                                                 /s/ John J. Cousins
                                                 --------------------
                                                     John J. Cousins
                                                     CFO


                                      -23-
<PAGE>

(b) Reports on Form 8-K

On June 17, 2002 a report on Form 8-K was filed referring to the resignation of
Harold Herman as a Director due to restrictive health challenges.


                                   SIGNATURES


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


                                   Dated: November 12, 2002

                                   ADVANCED OPTICS ELECTRONICS, INC.



                                   BY:/s/John J. Cousins
                                      ------------------
                                   John J. Cousins
                                   Vice President of Finance
                                   (Principal Accounting Officer)



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