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: March 31, 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 March 31, 2002
was 126,632,223

    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)

                                 March 31, 2002

<PAGE>

                                 C O N T E N T S

                                                                            Page

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

      FINANCIAL STATEMENTS

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

           STATEMENTS OF OPERATIONS...........................................3

           STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY.....................4-5

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

           NOTES TO FINANCIAL STATEMENTS...................................8-14

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF
             FINANCIAL CONDITION AND RESULTS OF OPERATION.................15-20


<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 March 31, 2002, and the related
statements of operations, changes in stockholders' equity and cash flows for the
three months ended March 31, 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.

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 report 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
May 10, 2002


                                      -1-
<PAGE>

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

                                  BALANCE SHEET
                                   (Unaudited)

                                 March 31, 2002

                                     ASSETS

CURRENT ASSETS
  Cash and cash equivalents                      $   24,210
  Costs and estimated earnings in excess of
    billings on uncompleted contract              1,656,375
                                                 ----------

          Total current assets                    1,680,585
                                                 ----------

PROPERTY AND EQUIPMENT, net                         175,544
                                                 ----------

OTHER ASSETS
  Intangible assets, net                             27,784
  Investment in Bio Moda, Inc.                      178,405
  Other assets                                       65,118
  Note receivable                                    61,868
                                                 ----------

          Total other assets                        333,175
                                                 ----------

          Total assets                           $2,189,304
                                                 ==========

<PAGE>

                      LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES
  Accounts payable                                                  $   223,205
  Accrued liabilities                                                   101,101
  Current portion of long-term
    debt                                                                 33,401
  Allowance for loss on contract                                        908,000
                                                                    -----------

          Total current liabilities                                   1,265,707
                                                                    -----------

LONG-TERM PORTION OF LONG-TERM
  DEBT                                                                   10,931
                                                                    -----------

CONVERTIBLE DEBENTURES                                                1,504,038
                                                                    -----------

STOCKHOLDERS' EQUITY (DEFICIT)
  Common stock - Authorized 150,000,000 shares, $0.001 par value;
    126,637,223 shares issued and 126,632,223
    shares outstanding                                                  126,637
  Additional paid-in capital                                          9,481,759
  Deficit accumulated during the development stage                   (9,964,752)
  Treasury stock, at cost                                                  (170)
   Notes receivable from officer for exercise of stock options         (234,846)
                                                                    -----------

          Total stockholders' equity (deficit)                         (591,372)
                                                                    -----------

          Total liabilities and stockholders' equity (deficit)      $ 2,189,304
                                                                    ===========

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


                                      -2-
<PAGE>

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

                            STATEMENTS OF OPERATIONS
                                   (Unaudited)

               For the Three Months ended March 31, 2002 and 2001
                  and the period from May 22, 1996 (Inception)
                             through March 31, 2002

<TABLE>
<CAPTION>
                                                                                            May 22, 1996
                                                                                            (Inception)
                                                                                              Through
                                                                2002            2001       March 31, 2002
                                                           -------------    ------------   --------------
<S>                                                        <C>              <C>             <C>
Revenues
  Contract revenue                                         $          --    $         --    $         --
                                                           -------------    ------------    ------------

Costs and expenses
  General and administrative                                    (365,114)       (313,859)     (6,362,419)
  Research and development                                       (23,601)        (78,202)     (1,289,685)
  Asset impairment                                                    --              --        (227,570)
                                                           -------------    ------------    ------------

          Total costs and expenses                              (388,715)       (392,061)     (7,879,674)

Estimated loss on contract                                            --        (125,000)       (908,000)
                                                           -------------    ------------    ------------

Operating loss                                                  (388,715)       (517,061)     (8,787,674)
                                                           -------------    ------------    ------------

Other income (expenses)
  Interest income                                                  4,704           7,195          60,660
  Unrealized gain (loss) on marketable equity securities              --              --         (29,368)
  Other investment gains                                              --              --          59,784
  Loss on Bio Moda, Inc.                                              --              --        (176,510)
  Gain (loss) on disposal of assets                               10,000           6,000           5,694
  Interest expense                                               (34,050)         (2,205)       (970,207)
                                                           -------------    ------------    ------------

          Total other income (expenses)                          (19,346)         10,990      (1,049,947)
                                                           -------------    ------------    ------------

          Net loss before cumulative effect of
            change in accounting principle                      (408,061)       (506,071)     (9,837,621)

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

          Net loss                                         $    (408,061)   $   (506,071)   $ (9,900,641)
                                                           =============    ============    ============

Net loss per share before cumulative effect
  of change in accounting principle                               (0.004)   $      (.008)         (0.277)

Cumulative effect of change in accounting principle                   --              --          (0.002)
                                                           -------------    ------------    ------------

Net loss per share                                         $      (0.004)   $      (.008)   $      (.279)
                                                           =============    ============    ============

Weighted average shares outstanding                          103,737,280      62,665,675      35,535,671
                                                           =============    ============    ============
</TABLE>

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


                                      -3-
<PAGE>

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

                  STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                                   (Unaudited)

       For the period from May 22, 1996 (inception) through March 31, 2002

<TABLE>
<CAPTION>
                                                          Common Stock              Preferred Stock             Treasury Stock
                                                   -------------------------  --------------------------  -------------------------
                                                                     Par                        Par
                                                      Shares        Value       Shares         Value        Shares         Cost
                                                   ----------    ----------    ----------    ----------    ----------    ----------

<S>                                                <C>           <C>                 <C>     <C>             <C>         <C>
Balance, May 22, 1996                                      --    $       --            --    $       --            --    $       --
Stock issued to incorporators for cash                500,000           500            --            --            --            --
Stock issued for the net assets of PLZ Tech, Inc.   4,500,000         4,500            --            --            --            --
Net loss                                                   --            --            --            --            --            --
                                                   ----------    ----------    ----------    ----------    ----------    ----------

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

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

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

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

Balance, December 31, 2000                         61,928,175        61,928            --            --       (65,100)      (54,574)
Stock issued for 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                                                   --            --            --            --            --            --
                                                   ----------    ----------    ----------    ----------    ----------    ----------

<CAPTION>
                                                                   Equity (Deficit)      Notes
                                                      Additional      During the      Receivable        Total
                                                        Paid-In       Development        From        Stockholders'
                                                        Capital          Stage         Officer     Equity (Deficit)
                                                      ----------   ----------------   ----------   ---------------
<S>                                                   <C>             <C>             <C>               <C>
Balance, May 22, 1996                                 $       --      $       --      $       --        $       --
Stock issued to incorporators for cash                    24,500              --              --            25,000
Stock issued for the net assets of PLZ Tech, Inc.        281,096              --              --           285,596
Net loss                                                      --         (76,902)             --           (76,902)
                                                      ----------      ----------      ----------        ----------

Balance, December 31, 1996                               305,596         (76,902)             --           233,694
Stock issued for cash and services                       362,720              --              --           365,001
Net loss                                                      --         (84,690)             --           (84,690)
                                                      ----------      ----------      ----------        ----------

Balance, December 31, 1997                               668,316        (161,592)             --           514,005
Stock issued for cash                                  1,281,728              --              --         1,292,707
Stock issued for services                                293,719              --              --           296,470
Stock issued in exchange for note receivable              28,685              --              --            29,000
Purchase and retirement of treasury stock                (39,913)             --              --           (40,385)
Net loss                                                      --        (752,111)             --          (752,111)
                                                      ----------      ----------      ----------        ----------

Balance, December 31, 1998                             2,232,535        (913,703)             --         1,339,686
Stock issued for cash                                    855,101              --              --           863,783
Stock issued for services                              1,469,320              --              --         1,486,414
Intrinsic value of beneficial conversion
  feature of notes payable                                 174,610            --              --           174,610
Fair value of warrants related to notes payable          125,000              --              --           125,000
Purchase and retirement of treasury stock                (10,643)             --              --           (11,132)
Purchase of treasury stock                                    --              --              --           (41,760)
Sale of treasury stock                                    24,334              --              --            35,464
Net loss                                                      --      (2,765,862)             --        (2,765,862)
                                                      ----------      ----------      ----------        ----------

Balance, December 31, 1999                             4,870,257      (3,679,565)             --         1,206,203
Stock issued for cash                                  1,012,710              --              --         1,013,493
Stock issued for services                              1,726,197              --              --         1,730,152
Purchase of treasury stock                                    --              --              --           (46,486)
Sale of treasury stock                                    54,771              --              --            77,313
Exercise of stock options for notes receivable           220,150              --        (193,427)           28,573
Amortization of discount on convertible
  preferred stock                                        159,677              --              --           159,677
Exercise of preferred stock conversion feature           533,678              --              --           542,878
Issuance of convertible debentures                       263,830              --              --           263,830
Exchange of preferred stock for convertible
  debentures                                              (641,780)           --              --          (641,781)
                                                         (59,583)             --              --           (59,583)
Net loss                                                      --      (3,827,873)             --        (3,827,873)
                                                      ----------      ----------      ----------        ----------

Balance, December 31, 2000                             8,139,907      (7,507,438)       (193,427)          446,396
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
  preferred stock                                        143,875              --              --           143,875
Stock issued upon debt conversion                        147,008              --              --           154,073
Net loss                                                      --      (1,985,142)             --        (1,985,142)
                                                      ----------      ----------      ----------        ----------
</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' EQUITY - CONTINUED
                                   (Unaudited)

       For the period from May 22, 1996 (inception) through March 31, 2002

<TABLE>
<CAPTION>
                                                       Common Stock               Preferred Stock              Treasury Stock
                                                -------------------------   -------------------------   --------------------------
                                                                  Par                        Par
                                                  Shares         Value        Shares        Value          Shares         Cost
                                                -----------   -----------   -----------   -----------   -----------    -----------
<S>                                              <C>           <C>          <C>           <C>              <C>         <C>
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            --            --            --             --
                                                         --            --            --            --            --             --
Net loss                                                 --            --            --            --            --             --
                                                -----------   -----------   -----------   -----------   -----------    -----------
Balance, March 31, 2002                         126,637,223   $   126,637            --   $        --        (5,000)   $      (170)
                                                ===========   ===========   ===========   ===========   ===========    ===========

<CAPTION>

                                                              Equity (Deficit)      Notes
                                                 Additional      During the      Receivable        Total
                                                   Paid-In       Development        From        Stockholders'
                                                   Capital          Stage         Officer     Equity (Deficit)
                                                 -----------  ----------------  -----------   ---------------
<S>                                              <C>            <C>             <C>             <C>
Balance, December 31, 2001                         8,909,918     (9,492,580)       (193,427)       (766,041)
Stock issued for cash                                 39,961             --              --          48,041
Stock issued for services                            249,080             --              --         263,650
Sale of treasury stock                                    --        (64,111)             --           6,678
Purchase of treasury stock                                --             --              --            (170)
Stock issued upon debt conversion                    261,900             --              --         283,950
Exercise of stock option for notes receivable         20,900             --         (22,000)             --
                                                          --             --         (19,419)        (19,419)
Net loss                                                  --       (408,061)             --        (408,061)
                                                 -----------    -----------     -----------     -----------
Balance, March 31, 2002                          $ 9,481,759    $(9,964,752)    $  (234,846)    $  (591,372)
                                                 ===========    ===========     ===========     ===========
</TABLE>

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


                                      -5-
<PAGE>

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

                            STATEMENTS OF CASH FLOWS
                                   (Unaudited)

               For the Three Months ended March 31, 2002 and 2001
                  and the Period from May 22, 1996 (Inception)
                             through March 31, 2002

<TABLE>
<CAPTION>
                                                                                                May 22, 1996
                                                                                                (Inception)
                                                                                                  Through
                                                             2002              2001            March 31, 2002
                                                          ---------          ---------         --------------
<S>                                                       <C>                <C>                <C>
Cash flows from operating activities
  Net loss                                                $(408,061)         $(506,071)           $(9,900,641)
  Adjustments to reconcile net loss to net cash
    provided by operating activities

      Intrinsic value of conversion features                     --                 --                610,603
      Amortization and depreciation expense                  23,446             28,373                468,051
      Write off of organization costs                            --                 --                 63,020
      Amortization of discounts on convertible notes             --                 --                295,209
      (Gain) loss on marketable securities                       --                 --                 29,368
      (Gain) loss on disposal of assets                     (10,000)            (6,000)                (5,694)
      Loss on Bio Moda, Inc.                                     --                 --                176,510
      Issuance of common stock for services                 263,650            176,248              4,199,432
      Issuance of notes for services                             --                 --                 50,000
      Interest accrued on convertible debentures             30,167                 --                151,383
      Asset impairment                                           --                 --                227,570
      Increase in costs in excess of billings on
        uncompleted contract                                (85,811)           (98,068)            (1,656,375)
      (Increase) decrease in other assets                    (4,702)             9,750                (84,577)
      Increase (decrease) in inventory                           --                 --                (35,293)
      Increase in allowance for loss on contract                 --            125,000                908,000
      Increase (decrease) in accrued liabilities
        and accounts payable                                 50,747            (16,977)               324,306
      Other non-cash expenses                                    --                 --                 33,447
      Accrued interest                                           --                 --                 30,667
                                                          ---------          ---------            -----------
          Net cash provided by used in
            operating activities                           (140,564)          (287,745)            (4,115,014)
                                                          ---------          ---------            -----------
</TABLE>

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


                                      -6-
<PAGE>

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

                      STATEMENTS OF CASH FLOWS - CONTINUED
                                   (Unaudited)

               For the Three Months ended March 31, 2002 and 2001
                  and the Period from May 22, 1996 (Inception)
                             through March 31, 2002

<TABLE>
<CAPTION>
                                                                                                May 22, 1996
                                                                                                (Inception)
                                                                                                  Through
                                                             2002              2001            March 31, 2002
                                                          ---------          ---------         --------------
<S>                                                        <C>               <C>                  <C>
Cash flows from investing activities
  Purchase of equipment                                          --            (22,126)              (382,592)
  Investment in Bio Moda, Inc.                                   --                 --               (383,845)
  Proceeds from sale of Bio Moda, Inc.                       11,250                 --                 11,250
  Proceeds from sale of intangible assets                    10,000                 --                 10,000
  Redemption of certificates of deposit                          --             54,491                107,426
  Sale of marketable securities                                  --                 --                 40,665
  Purchase of marketable securities                              --                 --                (70,034)
  Increase in certificates of deposits                           --                 --               (107,426)
  Proceeds from sale of equipment                                --             23,800                 23,800
  Purchase of other assets                                       --               (650)              (245,579)
  Redemption of sale of Wizard Technologies, Inc.                --                 --                     --
                                                           --------          ---------            -----------

          Net cash provided by (used in)
            investing activities                             21,250             55,515               (996,335)
                                                           --------          ---------            -----------

Cash flows from financing activities
  Additions to notes payable                                     --                 --                622,776
  Payments on notes payable and capital
    lease obligations                                        (1,889)           (23,832)              (225,655)
  Issuance of capital stock                                  48,041                 --              3,676,252
  Collection of notes receivable from officer                    --                 --                 28,878
  Sale of treasury stock                                      6,679                 --                119,456
  Purchase of treasury stock                                   (170)            (3,207)              (146,148)
  Proceeds from issuance of convertible instruments              --             75,000              1,060,000
                                                           --------          ---------            -----------

          Net cash provided by financing activities          52,661             47,961              5,135,559
                                                           --------          ---------            -----------

          NET INCREASE (DECREASE) IN CASH                   (66,653)          (184,269)                24,210

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

Cash and cash equivalents, end of period                   $ 24,210          $ 225,018            $    24,210
                                                           ========          =========            ===========
</TABLE>

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


                                      -7-
<PAGE>
                        Advanced Optics Electronics, Inc.
                          (A Development Stage Company)

                          NOTES TO FINANCIAL STATEMENTS
                                   (Unaudited)

                                 March 31, 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 period ended
      March 31, 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.

      Description of Business

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

      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 March 31, 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.


                                      -8-
<PAGE>

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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED
                                   (Unaudited)

                                 March 31, 2002

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

      Description of Business - 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 $908,000 from production of the first unit has been
      recognized through March 31, 2002. The Company's estimated cost to
      complete as of March 31, 2002 is $49,032 which is expected to be funded
      with cash, billings on the contract and contributed capital.

      In accordance with the contract, the Company will bill the customer when
      certain milestones are met. Billings and collections through March 31,
      2002 have totaled $89,873.

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

      Investment

      As of March 31, 2002, the Company owned 17.7% of the outstanding common
      stock of Bio Moda, Inc., an unconsolidated investment accounted for using
      the cost method. Prior to December 31, 1999, the Company's ownership was
      sufficient for the investment to be accounted for using the equity method.

      The carrying value of the investment as of March 31, 2002 is the original
      investment cost adjusted by the Company's proportionate interest in losses
      reported by the investee through December 31, 1999.

      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 allowances
      and the valuation of common stock issued for services.


                                      -9-
<PAGE>

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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED
                                   (Unaudited)

                                 March 31, 2002

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

      Stock-Based Compensation

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

NOTE 2. NOTES RECEIVABLE

      Notes receivable at March 31, 2002, consist of the following:

            Due from officer                              $29,188
            Note receivable from former shareholder,
              interest at 8% and due on demand             15,000
            Note receivable from sale of investment and
              Treasury stock                               17,680
                                                          -------

                                                          $61,868
                                                          =======

      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.

NOTE 3. INVESTMENTS

      As of March 31, 2002, the Company owned 1,072,285 shares or 17.7% of the
      6,050,351 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 and, as
      of March 31, 2002, 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.


                                      -10-
<PAGE>

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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED
                                   (Unaudited)

                                 March 31, 2002

NOTE 3. INVESTMENTS - CONTINUED

      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 cost method. A
      summary of the investment is as follows:

            Original cost                                    $ 383,845
            Share of net loss                                 (134,010)
            Amortization of excess of cost over book value     (42,500)
            Sale of investment                                 (28,930)
                                                             ---------

            Carrying value of investment in Bio Moda, Inc.   $ 178,405
                                                             =========

NOTE 4. LONG-TERM OBLIGATIONS

      As of March 31, 2002, the Company's long-term obligations were as follows:

            Notes payable to a financial institution, due in
             monthly payments aggregating $3,221 through
             October 2003, bearing interest at bank prime rate
             plus 1.5%, collateralized by operating equipment
             and a vehicle                                       $ 44,332

            Less:  Current portion                                (33,401)
                                                                 --------

                                                                 $ 10,931
                                                                 ========

NOTE 5. CONVERTIBLE DEBENTURES

      During the three months ended March 31, 2002, the Company issued
      22,049,886 shares of common stock upon conversion of $283,950 of debenture
      principle.


                                      -11-
<PAGE>

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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED
                                   (Unaudited)

                                 March 31, 2002

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 March 31, 2002, the Company had a net operating loss carryforwards
      of approximately $9,900,000 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.


                                      -12-
<PAGE>

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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED
                                   (Unaudited)

                                 March 31, 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 March 31, 2002, there were 8,075,000 shares
      available under the Plan for future awards. No stock options were issued
      during the three-month period ended March 31, 2002.

      The Company applies APB Opinion No. 25 in its accounting for the Plan,
      and, accordingly, no compensation cost has been recognized for its stock
      options in the financial statements. Had the Company determined
      compensation cost based on the fair value at the grant date for its stock
      options under Statement of Financial Accounting Standards No. 123, the
      Company's net loss and loss per share would have been increased to the
      proforma amounts indicated as follows:

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

      Net loss, as reported        $ (3,199,935)   $ (2,725,804)    $ (752,111)
      Proforma net loss              (3,575,534)     (2,940,633)      (752,111)

      Loss per share, as reported        (0.055)         (0.072)        (0.055)
      Proforma loss per share            (0.061)         (0.078)        (0.055)

      The fair value of each option grant for the above proforma disclosure is
      estimated on the date of the grant using the Black-Scholes option-pricing
      model with the following weighted-average assumptions: dividends of $0 per
      year; expected volatility of 42.3 percent; risk-free interest rate of 6.0
      percent; and expected lives of four years.

      Total stock options granted and unexercised were 3,825,000 as of March 31,
      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 $0.15 to $0.41 per
      share.


                                      -13-
<PAGE>

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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED
                                   (Unaudited)

                                 March 31, 2002

NOTE 8. STOCK PLANS - CONTINUED

      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 , 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
                                  ==========    ===========     =========

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


                                      -14-
<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.


                                      -15-
<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.


                                      -16-
<PAGE>

We expect our principal source of revenue to be derived from sales of our
electronic display product. To date we have recognized limited revenue, but we
have developed a functioning prototype and we anticipate sales by the third
quarter 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 March 31, 2002, had an
accumulated deficit of $9,964,752.

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 March 31, 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 March 31, 2002" has been restated and is now $0. Billings
and collections through March 31, 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 $23,601 in the first quarter of 2002 from $78,202
in the first 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.


                                      -17-
<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 increased to $365,114 in the first quarter of 2002 from
$313,859 in the first 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) increased to ($19,346) in the first quarter
of 2002 from $10,990 in the first quarter of 2001 due primarily to $34,050 of
Interest expense in the first quarter of 2002 attributable to interest on
Convertible Debentures that were converted into common stock.

Depreciation increased slightly to $23,446 in the first quarter of 2002 from
$28,373 in the first quarter of 2001 due to the additions of some equipment.

LIQUIDITY AND CAPITAL RESOURCES

Since inception, we have funded our operations primarily through the private
placement of equity securities. As of March 31, 2001 we have raised net proceeds
of $5,135,559.

We have also utilized equipment loans and capital lease financing. As of March
31, 2002 we have a balance of $44,332 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
March 31, 2002 was approximately 17.7%. No immediate family members of officers
or directors of Advanced Optics Electronics, Inc. are securities holders of
BioModa with the exception of Harold Herman, who is a director of Advanced
Optics Electronics, Inc. and a small minority shareholder in BioModa.

Product development expenditures were $23,601 for the quarter ended March 31,
2002. Funds for operations, product development and capital expenditures were
provided from the sale of securities and cash reserves. As of March 31, 2002, we
had approximately $24,210 of cash and cash equivalents.


                                      -18-
<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 third 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 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 first quarter of fiscal year 2002 there was a 52,199,886 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 first quarter of fiscal year 2001.

Item 5. Other Information - Not applicable

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

None

(b) Reports on Form 8-K

No reports on Form 8-K were filed during the first quarter of 2002.


                                      -19-
<PAGE>

                                   SIGNATURES

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

                                              Dated: May 14, 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)

                                      -20-