U.S. Securities and Exchange Commission
                             Washington D. C. 20549

                                   FORM 10-KSB

(Mark One)
[X]         ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF 
              THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]

                   FOR THE FISCAL YEAR ENDED JULY 31, 1997

[  ]           TRANSITION REPORT UNDER SECTION 13 OR 15 (D) OF
             THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

                   FOR THE TRANSITION PERIOD FROM_________ TO ________

                           COMMISSION FILE NO. 0-10841
                       -----------------------------------
                               ENERGY OPTICS, INC.
                 (NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
                 ----------------------------------------------

           NEW MEXICO                                         85-0273340
(STATE OR OTHER JURISDICTION OF                           (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION)                            IDENTIFICATION NO.)

29425 C.R. 561, TAVARES, FLORIDA                               32778
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                    (ZIP CODE)

                    ISSUER'S TELEPHONE NUMBER (352) 742-5010

          SECURITIES REGISTERED PURSUANT TO SECTION 12 (B) OF THE ACT:

TITLE OF EACH CLASS                    NAME OF EACH EXCHANGE WHICH REGISTERED
-------------------                    --------------------------------------
COMMON STOCK, $.001 PAR VALUE                             OTC


          SECURITIES REGISTERED PURSUANT TO SECTION 12 (G) OF THE ACT:
                                      NONE

  CHECK WHETHER THE ISSUER (1) HAS 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. (1) YES [X]
NO [ ] (2) YES [X] NO [ ]

  CHECK IF THERE IS NO DISCLOSURE OF DELINQUENT FILERS IN RESPONSE TO ITEM 405
OF REGULATION S-B IS NOT CONTAINED IN THIS FORM, AND NO DISCLOSURE WILL BE
CONTAINED, TO THE BEST OF THE REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR
INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-KSB
OR ANY AMENDMENT TO THIS FORM 10-KSB. [ ]

  STATE THE ISSUER'S REVENUES FOR ITS MOST RECENT FISCAL YEAR.   NONE.

  STATE THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES
COMPUTED BY REFERENCE TO THE PRICE AT WHICH THE STOCK WAS SOLD, OR THE AVERAGE
BID AND ASKED PRICES OF SUCH STOCK, AS OF A SPECIFIED DATE WITHIN THE PAST 60
DAYS. (SEE DEFINITION OF AFFILIATE IN RULE 12B-2 OF THE EXCHANGE ACT).

  AGGREGATE MARKET VALUE OF THE 534,219 SHARES (AFTER GIVING RETROACTIVE EFFECT
TO THE 1 FOR 10 REVERSE SPLIT) HELD BY NON-AFFILIATES OF THE ISSUER AS OF
NOVEMBER 14, 1997, COMPUTED BY USING THE AVERAGE OF THE ASK AND BID PRICES ON
NOVEMBER 14, 1997, OF $2.31 AND $2.19 IS AS FOLLOWS:

                AVERAGE $2.25/SHARE X 534,219 SHARES = $1,201,993

  THE NUMBER OF SHARES OUTSTANDING OF THE COMPANY'S COMMON STOCK AS OF NOVEMBER
14, 1997, IS 13,289,814. THERE ARE APPROXIMATELY 750 SHAREHOLDERS OF RECORD AS
OF NOVEMBER 14, L997.


<PAGE>

<TABLE>

                      ENERGY OPTICS, INC. AND SUBSIDIARIES
                                   FORM 10-KSB
<CAPTION>

TABLE OF CONTENTS

PART I                                                                                        PAGE
                                                                                              -----
<S>                                                                                              <C>
Item 1.    DESCRIPTION OF BUSINESS                                                               1
Item 2.    DESCRIPTION OF PROPERTY                                                               2
Item 3.    LEGAL PROCEEDINGS                                                                     3
Item 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                   3

PART II

Item 5.    MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                              3
Item 6.    MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION                             3
Item 7.    FINANCIAL STATEMENTS                                                        F-1 to F-15
Item 8.    CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
               ACCOUNTING AND FINANCIAL DISCLOSURE                                               9

PART III

Item 9.    DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS;
               COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT                                 9
Item 10.   EXECUTIVE COMPENSATION                                                               11
Item 11.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                       12
Item 12.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                       13

PART IV

Item 13.   EXHIBITS AND REPORTS ON FORM 8-K                                                     13






</TABLE>












<PAGE>



PART I

ITEM 1. DESCRIPTION OF BUSINESS

PRIOR BUSINESS OF THE COMPANY

Energy Optics, Inc., a New Mexico corporation (NASDAQ OTC: EOPT), was organized
in 1979 and developed various proprietary and patented technologies for
industrial and consumer application. Several advanced electro-optical devices
and systems were developed including a gas well monitoring system for Phillips
Petroleum that resulted in approximately $1 million in revenue. However, when a
large German company bought the Philips subsidiary that was involved, that
revenue was eliminated. Other technologies developed but never marketed include
a system control device that allows an operator to fly in an airplane or
helicopter above a line of oil or gas platforms and remotely control valves and
instruments. Also, patents were obtained on a silverless x-ray film using
microwaves to develop picture negatives as well as a color transfer process that
permits transfer of color images directly onto fabric, walls, or billboards.
Additionally, a passive warning system for vehicle drivers and locomotive
engineers was developed that detects an operator experiencing drooping eyes,
nodding head, or open eyes that are not blinking, indicating unconsciousness.
This evolved from the Company's earlier development of a
"Pilot-Loss-of-Consciousness Alarm" for the U.S. Air Force. Further, a remote
scanning device was developed for detection and analysis of hail sent by data
packet transfer to weather reporting centers for the Atmospheric and
Oceanographic branch of the U.S. Department of Commerce.

The Company was not able to realize any substantial revenue or realize any
profit margins sufficient to maintain an active status and it was unsuccessful
in securing funding sufficient to aggressively market these devices and systems.
It also was unable to enlist the resources of a partner concern necessary to
take product development from the prototypical stage into production and then
properly promote and market its various products through distribution to the
end-user.

After becoming inactive and ceasing all initiatives to pursue funding for
production and marketing, the Company was de-listed from the NASDAQ Small Cap
listing. However, as an inactive over-the-counter stock, the Company's
principals nevertheless maintained the Corporation's books, kept the Company in
good standing and retained the Company's status as fully reporting to the
Securities and Exchange Commission.

The businesses of the acquired Companies are more fully described in Item 6
"Management Discussion and Analysis or Plan of Operation".

In order to proceed with its acquisition strategy, the Company recognized that
it had to reduce the overwhelming debt that the Company owed. A settlement
agreement was reached to eliminate the Small Business Administration debt
(including accrued interest) by a combination of cash payments, issuance of
stock and forgiveness of debt.

The remainder of the debt has been disposed of by forgiveness of some debt and
interest and an exchange for stock. (Most of this debt was to Directors of the
Company.) With a clean slate, the Company believes that it can resume its
research and development of products as well as assist its subsidiaries in
achieving profitability.

                                      -1-
<PAGE>

RECENT BUSINESS ACTIVITY

In June 1997, the Company's principals began discussions with an unincorporated
business organization (UBO) that owned certain assets and that had rights to
purchase or assign purchase of certain other assets. These discussions resulted
in the Company proposing the possibility of acquiring certain assets from the
UBO or its assigns for the purpose of re-establishing the Company as a viable
business. The Company, upon further review and due diligence, was made aware of
certain specific assets owned or assignable by the UBO including technologies
that appeared compatible with those of the Company, as well as other diverse
holdings with market potential. The UBO owned a 21-acre parcel of commercial
real estate in Tavares, Florida with 78,000 square feet of warehouse space and
3,500 square feet of office space containing furniture, equipment, and fixtures.

In July 1997, management entered into negotiations with the UBO on the purchase
of assets or rights to purchase assets in exchange for common stock of the
Company. On August 20, 1997, the Company acquired certain of the UBO's business
assets including the Tavares, Florida real estate, buildings, and equipment and
controlling stock interest (help by parties related to the UBO) of a specialty
food company in a transaction totaling approximately $3.6 million. This
transaction was subsequently amended on October 10, 1997. The Company filed for
foreign corporation registration with the State of Florida and moved its
corporate offices from New Mexico to Tavares, Florida where it occupied the
offices that were purchased on August 20, 1997. It has since leased a portion of
its unused office and warehouse space to other entities.

In September and October 1997, subsequent to the fiscal period ending July 31,
1997, the Company acquired two additional business interests from the UBO, both
of which are development stage enterprises. The Company recognizes the risk
associated with development stage companies not yet generating significant
revenue. However, in performing due diligence on the businesses it acquired,
management believes that these companies are near the beginning of potentially
substantial revenue streams and can achieve profitability in the near future.

The Company's only employees at July 31, 1997, were its officers and directors
and they were not compensated. The Company had contracted some outside services.

ITEM 2.  DESCRIPTION OF PROPERTY

The Company's administrative offices, laboratory/research facilities consisting
of approximately 300 square feet, were located in Las Cruces, New Mexico, where
all of its administrative and research activities were conducted. These
facilities were provided by Edward N. Laughlin, a principal shareholder, at no
cost to Energy Optics, Inc.

The Company did not own nor lease any other real estate until August 20, 1997,
at which time it acquired the real estate more fully described in Item 1 and its
administrative and research activities were moved to Tavares, Florida. The
property located at 29425 CR 561, Tavares, Florida, consisting of 78,000 square
feet of warehouse space and 3,500 square feet of office space containing
furniture, equipment, and fixtures, is considered adequately maintained and
insured. While this facility is occupied primarily by the Company and its
subsidiaries, a small portion of the warehouse and office space is leased to
affiliated entities. Property taxes on the facility are estimated at $24,632
annually. The property was acquired under an agreement for deed, subject to the
payment of a non-recourse 

                                      -2-
<PAGE>

promissory note in the amount of $258,900, payable in equal annual installments
of $64,725, plus interest at 10% annually, due on December 31st of each calendar
year until paid in full.

ITEM 3.  LEGAL PROCEEDINGS

No material legal proceedings to which the Company or any of its subsidiaries is
subject are pending.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's Common Stock is traded on the over-the-counter market. Since May
of 1986, it has been listed in the "pink sheets". Currently, the Company is
listed on the National Association of Securities Dealers' Electronic Bulletin
Board under the symbol EOPT. Individual systems may add other symbols for
access. The high and low bid for each of the last several quarters after giving
retroactive effect to the 1 for 10 reverse stock split is listed below:

                      QUARTER ENDED      HIGH BID           LOW BID
                      -----------------  --------           -------
                      January 31, 1996     $1.60            $  .60
                      April 30, 1996       $1.60            $ 1.00
                      July 31, 1996        $1.60            $  .90
                      October 31, 1996     $1.00            $ 1.00
                      January 31, 1997     $1.10            $ 1.00
                      April 30, 1997       $2.00            $ 1.80
                      July 31, 1997        $1.60            $  .10

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

(a)    PLAN OF OPERATION

As a result of its acquisitions in August, September and October 1997, the
Company has changed its narrow focus to a much broader, diverse group of
operations. These acquisitions and the Company's operating plans are summarized
as follows, and are subject to modification from time to time without notice by
decision of Management and may not reflect actual results:

LEAN PROTEIN FOODS, INC. AND SUBSIDIARY

In its August 20, 1997, transactions, the Company acquired controlling interest
in Lean Protein Foods, Inc. (LPF) which had recently purchased 100% of the
authorized stock of Wildwood Ostrich Ranch, Inc. (WWOR). LPF is a recently
formed specialty food company that has contracted with two meat plants for
processing yearling ostrich produced by WWOR. Both LPF and WWOR are development
stage enterprises. The ranch is a fully integrated facility containing a herd of
approximately 1,900 ostriches, incubation and hatching facilities, and grow-out
colony pens.

                                      -3-
<PAGE>

LPF has developed a line of specialty food products utilizing highly evolved
processing technologies. Marinated and wood roasted ostrich medallions, filets,
and appetizers have been developed and are being produced for sale to specialty
food distribution companies. The ostrich hides, which are a by-product of the
livestock processing, are sold to tanners for ostrich leather which is generally
recognized as highly durable and exotic.

Management believes that it has the expertise and sufficient knowledge of the
meat and specialty food industry, affiliations with distributors, restaurants,
specialty food brokers, and retail industry specialists to provide marketing
advantages to LPF that may be unavailable to other ostrich producers. Further,
management believes that it possesses certain proprietary technological
innovations in ostrich processing and an in-depth knowledge of distribution
pathways that may provide for certain advantages in market entry timing.

LPF is focused on the specialty food segment in both food service and high-end
retail for distribution of its products. It is utilizing trade shows, trade
publications, brokerage and end-user requests for product information to advance
its products into specialty food distributors' inventories. Management is
currently in discussion with a Mexican concern that is importing ostrich
livestock into Mexico from a Texas exporter with whom management has had prior
dealings. A joint venture whereby LPF would supply the Mexican company with
product for the next two to three years while the Mexican firm develops its
livestock herd is scheduled for negotiation in late November 1997.

LPF intends to concentrate on expansion of its specialty food line into food
service and retail establishments through the remainder of 1997 and through
1998. Management believes that acceptable profit margins exist within the
specialty and game meat niche of this growth segment of the food category and
will focus on building brand identity for its WWOR products. While operation of
an agri-business is diverse in nature from the prior business of the Company,
the Company's management nevertheless believes that it has the capacity and
experience to engage in the specialty food business. Further, brand equity
appreciation can result in the value of the LPF assets being appraised in
multiples of its operating cash flow.













                                      -4-
<PAGE>


CASEY HOLDINGS, INC.

On October 10, 1997, the Company concluded discussions on the acquisition of up
to 40% of the authorized stock of Casey Holdings, Inc. (CHI) in a non-binding
contract. The primary business of CHI and its subsidiaries, as a late stage
start-up company, is to provide a three-day, high adventure, total immersion
educational and space flight experience program similar to that provided by the
National Aeronautics and Space Administration (NASA) to astronauts training for
space flight. The "high adventure" segment of the travel business has
experienced significant growth over the past several years. The planned
three-day adventure, primarily targeting the corporate executive market within
the travel industry, consists of one day of realistic astronaut ground flight
training to be conducted by former NASA astronauts as well as a one-day VIP,
behind the scenes, "Gold Tour" of the NASA facility at Kennedy Space Center in
Titusville, Florida. The final day of the planned excursion is anticipated to
culminate in a three-hour flight aboard a NASA equipped DC-9 aircraft that will
perform 12 to 15 "parabolic arcs" which will allow the participants to
experience complete weightlessness. This type of flight would be identical to
those conducted by NASA to train astronauts for weightless space flight.
Management believes that this complete educational and weightless flight
experience program is the first of its type ever offered commercially to the
general public.

















                                      -5-
<PAGE>


To date, two of the largest travel agencies in Japan have requested, in writing,
an exclusive contract to market the $6,000 to $10,000 packages to their
corporate clients. Further, one of the largest corporate incentive travel
agencies in the United States has requested the exclusive contract for the
United States corporate client market; they anticipate the ability to place
5,000 U.S. customers within the first year. Additionally, Research Data Service
(RDS) of Tampa, Florida has projected that there exists globally a 60,000 -
70,000 customer market annually within the corporate executive market for this
type of high adventure and educational experience.

The Company expected to finalize the acquisition of CHI (or successor) later in
1997.

MICROGRAVITY AVIATION COMPANY

On October 10, 1997, the Company contracted to acquire a 20% interest in
Microgravity Aviation Company (MAC), a subsidiary of CHI that is scheduled to
operate the flight portion of the three-day package. MAC will also offer the use
of the DC-9 aircraft to the film and movie production community as a flying film
studio for producing weightless scenes for use in movies, commercials, and
corporate videos. The MAC aircraft may also be used for conducting microgravity
research performed by universities and research companies. MAC recently produced
a ten-minute video that dramatically demonstrates the range of services offered
by MAC for distribution to over 300 film and movie production companies. The
executive management and consulting staff of CHI and MAC is comprised of highly
credentialed professionals including former NASA astronauts as well as former
airline, Federal Aviation Administration (FAA), and NASA executives. The
management of MAC has executed a lease of the specially NASA equipped aircraft
and the effective operation of the company is predicated upon MAC's ability to
take possession of this aircraft. Nevertheless, management is confident that the
Company's stock interest in MAC is well represented with capable and
knowledgeable management and that the risk/reward ratio to the Company is
acceptable and balanced by the Company's other business interests.

AMERICAN MILLENNIUM CORPORATION

On October 9, 1997, the Company contracted to purchase 80% of the issued and
outstanding stock of American Millennium Corporation (AMC). This development
stage enterprise has several distinct similarities to certain of the former
businesses of the Company. Several of the commercial applications of products
developed by AMC may possibly have mutual compatibilities with certain patented
technologies developed by the Company prior to its recent purchases. AMC has
developed a monitoring device utilizing off-the-shelf technologies that are
transparent to various radio spectrum protocols. Railroad, trucking companies,
and other companies that have a need to monitor a moving shipment of high value
cargo are able, via Global Positioning Systems (GPS), to determine exactly where
the cargo shipment is including both direction and speed. The data packet
transfer from the unit to the monitoring station then provides information on
over twenty functions pertinent to the condition of the cargo. Damage loss
claims run into the millions of dollars each year to railroad companies alone.
Location of freight is an ongoing logistical challenge for railroad companies.
This system allows the transporter to identify a problem before possible
irreparable damage or loss occurs as well as the ability to receive real time
data transferred on the actual location of the cargo. AMC is in the process of
completing a successful rolling test with Union Pacific Railroad (UPR) and has
agreed to furnish additional UPR refrigerated railcars with the device. UPR
maintains approximately 35,000 miles of track and has over 8,000 refrigerated
railcars that could benefit from utilization of this monitoring 

                                      -6-
<PAGE>

service. Not only is revenue available in hardware sales of the unit itself, but
also in recurring monthly residual income from data packet transfer charges
between the railcar and monitoring station. A detailed record of conditions
aboard a specific shipment can then be furnished on disk to the customer filing
a damage claim as proof of existing conditions during the time that the shipment
is in a transporter's possession.

Additionally, AMC has entered into a reseller agreement with Orbcomm who has
successfully launched the first two of its expected 26 to 28 low earth orbit
(LEO) satellites scheduled to be in orbit by fall of 1998. Orbcomm currently
receives 500-600 inquiries for reseller applications per month according to a
company spokesperson. AMC is one of approximately thirty companies chosen by
Orbcomm as resellers to date. Since the Orbcomm LEO's are launched from a
Pegasus rocket from underneath the wing of a McDonnell Douglas DC-10, launch
costs are which is considerably less expensive than a ground based launch.
Therefore, AMC anticipates the ability to offer highly competitive data
transmission services. This should allow AMC to globally expand its monitoring
service to a wide range of applications including remote oil and gas wells and
offshore platforms, as well as truck fleets and ocean going cargo ships and
individual containers aboard those vessels. The Orbcomm reseller contract will
also allow for AMC's utilization of satellite transponder space to offer other
competitively priced wireless communications services.

AMC has other proprietary products that are under sensitive requirements of
nondisclosure by the party negotiating purchase of the devices. When
appropriate, AMC will release details of that joint venture proposal. The
Company believes that the 80% acquisition of AMC should add considerable value
that would be reflected in consolidated financial statements for the Company as
revenues and possible near-future earnings by AMC begin to accrue. AMC has
heretofore operated its business with moderate overhead requirements and it
represents a minimal ongoing cost to the Company relative to the revenue
potential achievable over the next six months.

COMPANY EXPANSION INTO DIVERSE BUSINESS

Management has also identified other existing opportunities whereby it may be
able to acquire substantial interest in or controlling interest of certain
business entities that, in the opinion of management, represent potentially
viable and undervalued assets. As noted previously in Item 1 "Prior Business of
the Company", Energy Optics, Inc. has heretofore positioned itself as a highly
technical and narrowly focused developer of specific technologies. Having
previously been less than successful within such a narrow technical scope of
business activity, management believes that expansion of the Company's business
into more diverse operations may allow for a greater, more diverse balance and
substantial appreciation of the Company's business which management believes is
in the best interests of the shareholders. The Company has retained the services
of Tatum CFO Partners, LP (TATUM), to provide financial oversight of its
business interests. In management's opinion, TATUM is a qualified consortium of
accountants, CPA's, and former chief financial officers (CFOs) from a wide
spectrum of small and large corporations. TATUM provides financial analysis,
accounting services, and hands-on financial oversight for numerous other
unrelated companies, as well.

Additionally, the Company's management either has on staff, or has access to, a
diverse group of professionals and consultants who have extensive backgrounds in
wireless technology, aerospace, engineering, agri-business, food processing,
public relations and marketing, or other fields of expertise relative to the
operation of the recently acquired companies and the Company's former business.
By 

                                      -7-
<PAGE>

the end of the next fiscal year, the Company and its subsidiaries anticipate
employing 50-60 people in their operations. The Company has noted a significant
and developing trend in start-up business ventures, which have been formed by
experienced principals with accomplished professional backgrounds in various
fields. In certain cases, their management has identified significant market
opportunities, has performed research and development, and has test marketed
their products or services in order to validate the findings of market studies
indicating a viable and potentially profitable market for those particular
products or services. Management believes that its ability to provide ancillary
support to these ventures that have various needs outside of their core business
expertise, by providing them with accounting services, financial oversight,
technical support, capital formation, marketing and public relations, should
result in the negation of duplicity, a lowering of overhead to each company, and
an increase in efficiency at the operational level. Management has, to date,
contacted for acquisitions wherein there existed mutual consent that broad
financial oversight and/or direct operational control of the Company needed to
be put in place thereby enhancing the ability of the company being acquired to
concentrate on its primary product or service.

MANAGEMENT'S GOALS AND OBJECTIVES

Management will seek to identify companies that have developed substantial niche
or broad market products with significant expected revenue and profit potential.
Compatibility with the Company's present initiatives or the ability to be
integrated into the Company's asset portfolio as the result of management's
ability to provide appropriate technical, financial, and marketing support are
among the criteria used to evaluate the suitability of a potential acquisition
candidate.

The goal of management is to provide a centralized infrastructure of support
systems, appropriate and unique to each particular business. By utilizing the
Company's management and base of consultants and experts, as well as the
financial and analytical oversight provided by TATUM, the Company believes it
can achieve profitability.

(b) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS

The Company has had a liquidity problem. In order to maintain the Company's
viability, the Company has issued restricted stock in exchange for equity
capital and also to reduce debt. Additionally, the Company has postponed payment
and relied on the Officers of the Company to serve with no salary, and to
personally pay expenses of the Company. Forgiveness of debt has also helped the
Company to continue prior to the August 20, 1997, transactions.

The fiscal years ended July 31, 1997 and 1996, reflected no operating income.
The income for 1997 was $318,980 or $.37 per share as contrasted with a loss of
$36,025 or $.05 per share the previous year. During the current fiscal year,
common shares outstanding increased from 7,808,152 in 1996 to 8,778,694 in 1997.
This increase and related forgiveness of debt were responsible for the
difference of income and loss as well as the reduction of current liabilities
from $425,737 in 1996, to $9,397 a year later. The per share data included above
has been presented after giving retroactive effect to the 1 for 10 share reverse
stock split consummated on August 18, 1997.

ITEM 7.  FINANCIAL STATEMENTS

Begin on next page.

                                      -8-

<PAGE>



                                    CONTENTS

                                                                     PAGE
                                                                     -----
INDEPENDENT AUDITOR'S REPORT                                          F-2

CONSOLIDATED FINANCIAL STATEMENTS
  Consolidated Balance Sheets                                         F-3
  Consolidated Statements of Income                                   F-4
  Consolidated Statements of Deficiency in Assets                     F-5
  Consolidated Statements of Cash Flows                               F-6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                        F-7 to F-15


























                                     -F-1-
<PAGE>


Dohan and Company                               7700 North Kendall Drive, #204
Certified Public Accountants 
                                                Miami, Florida  33156-7564
A Professional Association                      Telephone:  (305) 274-1366
                                                Facsimile: (305) 274-1366



                          INDEPENDENT AUDITORS' REPORT



To the Board of Directors of Energy Optics, Inc.
Tavares, Florida

We have audited the accompanying consolidated balance sheet of Energy Optics,
Inc. and subsidiaries as of July 31, 1997, and the related consolidated
statements of income, deficiency in assets and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit. The financial statements of Energy Optics, Inc.
as of July 31, 1996 (as restated), were audited by other auditors whose report
dated October 11, 1996, on those statements included an explanatory paragraph
that described the possibility that the Company might not be able to continue in
business as discussed in Note 9 to the financial statements.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Energy
Optics, Inc. and subsidiaries as of July 31, 1997, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 9 to the
consolidated financial statements, the Company has suffered recurring losses
from operations, and has a deficiency in assets that raise substantial doubt
about its ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 9. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.

                                                          Dohan and Company, PA
                                                   Certified Public Accountants

Miami, Florida
September 19, 1997, except as to Note 10,
          which is November 14, 1997

                                      -F-2-
<PAGE>

<TABLE>
<CAPTION>


ENERGY OPTICS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
==========================================================================================================
                                                                                           (RESTATED
                                                                                            NOTE 8)
JULY 31,                                                                               1997          1996
---------------------------------------------------------------------------------------------------------
<S>                                                                          <C>               <C>        
ASSETS

CURRENT ASSETS
      Cash                                                                   $       536       $       465
-----------------------------------------------------------------------------------------------------------
TOTAL ASSETS                                                                 $       536       $       465
===========================================================================================================

LIABILITIES AND DEFICIENCY IN ASSETS

CURRENT LIABILITIES
      Note payable - Small Business Administration (Note 2)                  $         -       $   152,561
      Accounts payable                                                                 -             7,991
      Interest payable, unrelated parties (Note 2)                                     -            30,792
      Accrued expenses and other liabilities                                       7,897                 -
      Notes payable to officers/stockholders (Note 7)                              1,500           190,425
      Due to officers/stockholders (Note 7)                                            -            43,968
-----------------------------------------------------------------------------------------------------------
           TOTAL CURRENT LIABILITIES                                               9,397           425,737
-----------------------------------------------------------------------------------------------------------
CONTINGENCIES (NOTES 9 AND 10)
DEFICIENCY IN ASSETS (NOTES 5, 7 AND 10)
      Common stock, $.001 par value, 25,000,000 shares authorized,
         shares issued and outstanding 877,869 in 1997 and 780,815 in 1996           878               781
      Additional paid-in capital                                               4,068,284         3,970,950
      Deficit                                                                 (4,078,023)       (4,397,003)
-----------------------------------------------------------------------------------------------------------
           TOTAL DEFICIENCY IN ASSETS                                             (8,861)        (425,272)
-----------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND DEFICIENCY IN ASSETS                                   $       536       $       465
===========================================================================================================
SEE ACCOMPANYING NOTES.






</TABLE>



                                     -F-3-
<TABLE>
<CAPTION>
<PAGE>



ENERGY OPTICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
===========================================================================================================
                                                                                         (RESTATED
                                                                                          NOTE 8)

JULY 31,                                                                          1997         1996

-----------------------------------------------------------------------------------------------------------
<S>                                                                          <C>               <C>        
REVENUES                                                                     $         -       $         -
-----------------------------------------------------------------------------------------------------------

EXPENSES
     Amortization                                                                      -             7,007
     Research and development                                                          -             1,985
     Promotion                                                                         -             5,097
     Professional                                                                  8,886             4,036
     Other general and administrative                                              5,483             6,798
     Interest                                                                      3,869            11,102

-----------------------------------------------------------------------------------------------------------
         TOTAL EXPENSES                                                           18,238            36,025
-----------------------------------------------------------------------------------------------------------

LOSS BEFORE EXTRAORDINARY ITEMS                                                  (18,238)          (36,025)
-----------------------------------------------------------------------------------------------------------

EXTRAORDINARY ITEMS - GAIN ON EXTINGUISHMENT OF DEBT Small Business
     Administration, net of income taxes of $47,967 (Note 2)                      91,387                 -
     Related parties, net of income taxes of $69,025 (Note 7)                    128,839                 -
     Tax benefit from utilization of net operating loss carryforward             116,992 
-----------------------------------------------------------------------------------------------------------
         TOTAL EXTRAORDINARY ITEMS -  NET GAIN ON
               EXTINGUISHMENT OF DEBT                                            337,218                 -
-----------------------------------------------------------------------------------------------------------

NET INCOME (LOSS)                                                            $   318,980       $   (36,025)
===========================================================================================================

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
     (PRIMARY AND FULLY DILUTED)                                                 853,821            773,194
===========================================================================================================

(LOSS) PER COMMON SHARE BEFORE EXTRAORDINARY ITEMS
     (PRIMARY AND FULLY DILUTED)                                             $     (0.02)      $     (0.05)
===========================================================================================================

NET INCOME (LOSS) PER COMMON SHARE
     (PRIMARY AND FULLY DILUTED)                                             $      0.37       $     (0.05)
===========================================================================================================
SEE ACCOMPANYING NOTES.




</TABLE>












                                     -F-4-
<PAGE>

<TABLE>
<CAPTION>


ENERGY OPTICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF DEFICIENCY IN ASSETS (AFTER GIVING RETROACTIVE EFFECT
TO A 1 FOR 10 REVERSE STOCK SPLIT ON AUGUST 18,
1997)
========================================================================================================
                                        COMMON STOCK          ADDITIONAL
                                ----------------------------    PAID-IN      ACCUMULATED      TOTAL
DESCRIPTION                          SHARES        AMOUNT       CAPITAL        DEFICIT      DEFICIENCY
--------------------------------------------------------------------------------------------------------

<S>                                   <C>              <C>     <C>          <C>             <C>        
BALANCE JULY 31, 1995                 $ 706,270        $ 706   $ 3,792,948  $ (4,360,978)   $ (567,324)

Issuance of common stock
   under option to redeem (Note 5)       20,000           20        99,980             -       100,000

Stock exchanged for debt 
   reduction (Note 7)                    54,545           55        59,945             -        60,000

Capitalized debt (Note 7)                     -            -        18,077             -        18,077

Net loss for the year ended
   (Restated Note 8)                                                             (36,025)      (36,025)
--------------------------------------------------------------------------------------------------------
BALANCE JULY 31, 1996
   (RESTATED NOTE 8)                    780,815          781     3,970,950    (4,397,003)     (425,272)

Stock exchanged for debt (Note 7)        95,170           95        95,076             -        95,171

Stock exchanged for
     services (Note 7)                    1,884            2         2,258             -         2,260

Net income for the year ended                                                    318,980       318,980
--------------------------------------------------------------------------------------------------------
 BALANCE JULY 31, 1997                  877,869        $ 878   $ 4,068,284  $ (4,078,023)   $   (8,861)
========================================================================================================
SEE ACCOMPANYING NOTES.



</TABLE>












                                     -F-5-
<PAGE>

<TABLE>
<CAPTION>


ENERGY OPTICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
=====================================================================================================
                                                                                         (RESTATED
                                                                                         NOTE 8)
 FOR THE YEARS ENDED JULY 31,                                              1997            1996
-----------------------------------------------------------------------------------------------------
<S>                                                                        <C>             <C>       
 CASH FLOWS FROM OPERATING ACTIVITIES:

        Net income (loss)                                                  $ 318,980       $ (36,025)
        Adjustments to reconcile net income (loss) to net
           cash used provided by operating activities:
           Amortization                                                            -           7,007
           Forgiveness of debt                                              (337,218)              -

        Increase (decrease) in liabilities:
           Accounts payable                                                    (7,991)         1,876
           Interest payable, unrelated parties                                      -         (7,102)
           Accrued expenses and other liabilities                                7,89         (5,763)
           Due to officers/stockholders                                             -         23,301
           Stock exchanged for interest on note payable                         3,743              -
           Stock exchanged for payment of operating expenses
                                                                                2,260              -
-----------------------------------------------------------------------------------------------------
            NET CASH USED BY OPERATING ACTIVITIES
                                                                              (12,329)       (16,706)
----------------------------------------------------------------------------------------------------

 CASH FLOWS FROM FINANCING ACTIVITIES:
 Receipts
     Proceeds from related parties                                             16,400         16,850
-----------------------------------------------------------------------------------------------------
        RECEIPTS FROM FINANCING ACTIVITIES                                     16,400          16,850
-----------------------------------------------------------------------------------------------------
 Disbursements
     Principal payments on note payable to Small Business Administration        4,000              -
-----------------------------------------------------------------------------------------------------
        DISBURSEMENTS FROM FINANCING ACTIVITIES                                 4,000              -
-----------------------------------------------------------------------------------------------------
            NET CASH PROVIDED BY FINANCING ACTIVITIES                          12,400         16,850
-----------------------------------------------------------------------------------------------------

 NET INCREASE IN CASH AND EQUIVALENTS                                              71            144

 CASH  AND EQUIVALENTS - BEGINNING                                                465            321
-----------------------------------------------------------------------------------------------------

 CASH AND EQUIVALENTS - ENDING                                             $      536      $     465
=====================================================================================================

 SUPPLEMENTAL DISCLOSURES:

     Common stock issued for settlement of debt to Small
        Business Administration                                            $   40,000      $       -
     Common stock issued in exchange for note payable to
        officer/stockholder                                                $   55,170      $  60,000
     Capitalized debt to officer/director                                  $        -      $  18,077
=====================================================================================================
 SEE ACCOMPANYING NOTES.

</TABLE>


                                     -F-6-
<PAGE>


                               ENERGY OPTICS, INC
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JULY 31, 1997 AND 1996


NOTE 1.   BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

          BUSINESS ACTIVITY

          Energy Optics, Inc. (EOI), a New Mexico Corporation, was organized in
          1979 and has provided engineering services relating to research and
          development activities for outside parties as well as internal product
          development. A controlling interest (80%) of Material Sciences, Inc.
          (MSI) was acquired through an EOI stock issuance in November 1993.
          Quantum Research, Inc. (QRI) was incorporated in May 1994, with EOI
          owning 80% and the 20%-minority shareholder in MSI owing 20%. The
          initial business of MSI and QRI was to include the development and
          licensing of new technical products, however, these companies have
          been dormant in recent years.

          Additionally, EOI owns 27.5% of International Diagnostics, Inc. (IDI),
          a New Mexico corporation, which was organized to develop and market
          diagnostic applications in science, medicine and industry. Edward N.
          Laughlin, president, director and major stockholder of EOI, controls
          47% of the outstanding stock of IDI. IDI has not engaged in any
          business activities since the assets of IDI were charged-off in July
          31, 1993.

          BASIS OF CONSOLIDATION

          The consolidated financial statements include the accounts of Energy
          Optics, Inc. and its subsidiaries, Material Sciences, Inc. and Quantum
          Research, Inc. All significant intercompany transactions and balances
          of Energy Optics and subsidiaries (the Company) have been eliminated
          in consolidation.

          CASH AND CASH EQUIVALENTS

          For purposes of the statements of cash flows, the Company considers
          all liquid debt instruments purchased with a maturity of three months
          or less to be cash equivalents.

          PROPERTY AND EQUIPMENT

          Equipment and leasehold improvements are stated at cost. Depreciation
          of equipment and leasehold improvements are provided over estimated
          useful lives ranging from five years to seven years, using
          straight-line and declining balance methods.

          PATENT RIGHT COSTS AND RELATED AMORTIZATION

          Costs for patent rights including patent application costs were
          recorded at cost. Patent right costs and prior patent costs were
          amortized over periods approximating seventeen years using the
          straight-line method. During the year ended July 31, 1996, the Company
          charged-off all remaining patent application costs attributable to a
          driver fatigue indicator and alarm as amortization expense.

          INCOME TAXES

          Income taxes are computed under the provisions of the Financial
          Accounting Standards Board (FASB) Statement No. 109, Accounting for
          Income Taxes. The Companies file separate, not consolidated income tax
          returns with its subsidiaries. MSI filed a final income tax return for
          the year ended December 31, 1995. QRI has not filed tax returns and
          has had no significant activity.



                                     -F-7-
<PAGE>


                               ENERGY OPTICS, INC
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JULY 31, 1997 AND 1996


NOTE 1.   BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

          INVESTMENT TAX AND RESEARCH TAX CREDITS

          Investment tax and research tax credits are recognized as a reduction
          of the provision for income taxes in the year in which utilized.

          RESEARCH AND DEVELOPMENT COSTS

          Research and development costs are expensed as incurred.

          NET INCOME (LOSS) PER SHARE

          Income (loss) per share of common stock is based on the weighted
          average number of shares and common share equivalents (if dilutive)
          outstanding during each period. Available stock options at July 31,
          1997 and 1996, were anti-dilutive and not considered common stock
          equivalents for purposes of computing income or loss per common share
          (see Note 6). Outstanding common shares were retroactively adjusted to
          give the effect to the 1 for 10 reverse stock split more fully
          described in Note 10.

          USE OF ESTIMATES

          The preparation of financial statements in conformity with generally
          accepted accounting principles requires management to make estimates
          and assumptions. These estimates and assumptions 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.

          RECLASSIFICATION

          Certain amounts in the prior year financial statements have been
          reclassified for comparative purposes to conform to the presentation
          of the current year financial statements.

NOTE 2.   BORROWINGS

          The note payable to the Small Business Administration (SBA), which
          matured February 1995, provided for annual interest at 8% and was
          secured by cash, accounts receivable, inventories, equipment, and
          patents. Lacking working capital to repay the note, in August 1996,
          the Company made an offer to the SBA to compromise the outstanding
          debt.

          In October 1996, the SBA accepted the offer to compromise the
          outstanding debt in the amount of $152,561 plus interest of $30,792,
          for $4,000 plus 40,000 restricted shares of the Company's common stock
          in full satisfaction of the debt. The balance in excess of the market
          value of the stock issued and payment made in the aggregate amount of
          $139,354 has been recognized as a gain on extinguishment of debt and
          is included in the income statement for the year ended July 31, 1997,
          as an extraordinary item, net of related income taxes.

NOTE 3.   FAIR VALUE OF FINANCIAL INSTRUMENTS

          The carrying amount of the Company's financial assets and note payable
          to officer/stockholder at July 31, 1997, approximate fair value due to
          the short maturity of the instruments.

                                     -F-8-
<PAGE>


                               ENERGY OPTICS, INC
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JULY 31, 1997 AND 1996


NOTE 4.   INCOME TAXES

          Deferred income taxes (benefits) are provided for certain income and
          expenses which are recognized in different periods for tax and
          financial reporting purposes. Sources of temporary differences and the
          resulting assets and liabilities are as follows:
<TABLE>
<CAPTION>

                                                             1996        CURRENT        1997
                                                         DEFERRED TAX     PERIOD    DEFERRED TAX
                                                            ASSETS       CHANGES       ASSETS
                                                        -------------  -----------  ------------

<S>                                                     <C>             <C>         <C>         
          Net operating loss carryforwards              $   3,684,926   ($915,887)  $  2,769,059
          Applicable tax rate                                      34%         34%            34%
                                                        -------------  -----------  ------------
                                                            1,252,875   ( 311,401)       941,480
          Investment credit carryforwards                      14,326   (   8,986)         5,340
          Research credit carryforwards                        61,799   (  44,256)        17,543
                                                        -------------  -----------  ------------
                                                            1,329,000   ( 364,643)       964,363
          Valuation allowance                           (   1,329,000)     364,643  (    964,363)
                                                        -------------  -----------  ------------

                                                        $          -   $        -   $          -
                                                        =============  ===========  ============

          Statement of Financial Accounting Standards No. 109 requires the use
          of an asset and liability method of accounting for income taxes.
          Statement No. 109 provides for the recognition and measurement of
          deferred income tax benefits based on the likelihood of their
          realization in future years. A valuation allowance has been
          established since it is likely that a portion of the deferred income
          tax benefits will not be realized.

          Differences in pretax accounting losses and income tax losses are
          attributable to the following for the years ending July 31, 1997 and
          1996:

                                                                     1997              1996
                                                               -------------     -------------

          Debt forgiveness                                     $           -     $      18,077
          Nondeductible expenses for income tax reporting                  -             2,716
                                                               -------------     -------------

                                                               $           -     $      20,793
                                                               =============     =============
</TABLE>







                                     -F-9-
<PAGE>


                               ENERGY OPTICS, INC
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JULY 31, 1997 AND 1996


NOTE 4.   INCOME TAXES (CONTINUED)

          At July 31, 1997, the Company has, for income tax reporting purposes,
          unused credits and operating loss carryforwards, which may be applied
          against future income and income tax that expire as follows:

                                                                      NET
          YEAR                    INVESTMENT        RESEARCH       OPERATING
          EXPIRING                  CREDIT           CREDIT          LOSS
          --------                -----------       ---------     -----------
          1998                    $       417       $      -      $   696,127
          1999                          1,087              -          149,587
          2000                          3,836              -                -
          2001                              -              -          415,478
          2003                              -          2,070          236,398
          2004                              -          3,080          184,928
          2005                              -         12,393           63,564
          2006                              -              -          199,030
          2007                              -              -          332,429
          2008                              -              -          394,641
          2009                              -              -           38,252
          2010                              -              -           24,086
          2011                              -              -           34,539
                                  -----------      ---------      -----------

                                  $     5,340      $  17,543      $ 2,769,059
                                  ===========      =========      ===========

          There were ownership changes in the Company subsequent to year-end
          (see Note 10), as defined in Section 382 of the Internal Revenue Code.
          These changes will materially limit the Company's net operating loss
          carryforwards based upon the change in control.

NOTE 5.   COMMON STOCK

          During the year ended July 31, 1996, the shareholders of the Company
          approved the increase of the Company's authorized common stock from
          10,000,000 shares to 25,000,000 shares. The Company has since filed
          with the State of New Mexico amended articles of incorporation
          identifying such increase.

          In October 1996, the Company issued 40,000 restricted shares of common
          stock at $3.71 per share to the SBA to satisfy a note payable in the
          amount of $148,561, plus accrued and unpaid interest on the note in
          the amount of $30,792 (See Note 2). The Company also issued 55,171
          restricted shares of common stock at $3.80 per share to officers and
          stockholders of the Company to satisfy $210,422 of notes payable plus
          accrued interest of $3,869 (See Note 8). The Company issued 1,884
          shares of common stock as payment for $2,260 of patent costs.

          The Company contracted with a corporate minority shareholder to
          provide promotional services and marketing counsel as well as
          management, public relations and marketing services to MSI and QRI
          (See Note 7). The president of this corporate minority shareholder
          also serves as president of MSI and QRI.

          As more fully described in Note 10, on August 18, 1997, the Company
          reverse split its common stock 1 share for 10 shares. These
          consolidated financial statements reflect the retroactive effect of
          the reverse stock split.




                                     -F-10-
<PAGE>


                               ENERGY OPTICS, INC
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JULY 31, 1997 AND 1996


NOTE 6.   STOCK OPTIONS

          The Company had granted to Edward N. Laughlin, president, director and
          majority shareholder, stock options in return for advancing working
          capital to the Company and providing prior year bank loan guarantees.
          At July 31, 1997, there are 16,500 shares under option at an exercise
          price of $2.50 per share which expire April 5, 1999.

          In connection with the issuance of 19,608 shares of common stock to
          Mr. Laughlin during the year ended July 31, 1995, the Company granted
          an option to purchase an additional 19,608 shares of common stock of
          which 2,941 shares could be purchased at $6.80 per share which expired
          in August 1996, and 16,667 shares could be purchased at $1.90 per
          share which expired in November 1996.

NOTE 7.   RELATED PARTY TRANSACTIONS

          Notes payable to officers/stockholders consisted of the following:
<TABLE>
<CAPTION>

                                                                            1997            1996
                                                                        -----------      ----------
<S>                                                                     <C>              <C>       
          Note payable - Edward N. Laughlin                             $    1,500       $  185,675
          Note payable - Molesworth and Associates                               -            3,000
          Note payable - Steven Ward                                             -            1,750
                                                                        -----------      ----------

                                                                        $     1,500      $ 190,425
                                                                        ===========      ==========
</TABLE>

          Notes payable to officers/stockholders, were unsecured, due on demand
          and provided for annual interest at 8%. In October 1996, the Company
          issued restricted shares its common stock in partial settlement of
          notes payable to Edward N. Laughlin, Molesworth and Associates, Inc.
          (Gordon Molesworth) and Steven M. Ward in the amount of 48,787 shares,
          4,286 shares and 2,097 shares, respectively. The balance of the notes
          payable in excess of the market value of the stock issued totaling
          $159,120, including $3,869 of unpaid accrued interest, was forgiven.
          This amount is included in the income statement for the year ended
          July 31, 1997, as an extraordinary item "Gain on extinguishment of
          debt related parties", net of related income taxes.

          For the years ended July 31, 1997 and 1996, officers and stockholders
          of the Company continued to advance funds to the Company. Gross
          advances amounted to $14,400 and $16,600, respectively. The Company
          incurred unpaid accrued interest of $224 and $127, respectively.

          In October 1996, the Company and Edward N. Laughlin agreed that
          $38,744 in accrued rent and other expenses would be forgiven. For the
          year ended July 31, 1996, the Company had capitalized indebtedness of
          the Company resulting from unpaid accrued interest in the amount of
          $18,077.

          The Company contracts with a corporate minority shareholder to provide
          promotion services and marketing counsel, as well as management,
          public relations and marketing services to MSI and QRI. The president
          of this corporate minority shareholder also serves as president of MSI
          and QRI. During the year ended July 31, 1996, the Company incurred
          expenses of $5,097.

          As described in Note 5, these expenses have been paid through the
          issuance of stock. During the year ended July 31, 1996, this corporate
          minority shareholder advanced QRI $250.




                                     -F-11-
<PAGE>


                               ENERGY OPTICS, INC
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JULY 31, 1997 AND 1996


NOTE 7.   RELATED PARTY TRANSACTIONS (CONTINUED)

          At July 31, 1997 and 1996, advances from officers/stockholders of the
          Company other than notes payable were as follows:

                                                         1997         1996
                                                      ---------     ---------

          Due to Edward N. Laughlin for:
          Office rent and mileage reimbursement      $       -      $  38,744

          Due to other minority stockholders for:
          Promotion expense                                  -          5,097
          Accrued interest                                   -            127
                                                      ---------     ---------

                                                      $      -      $  43,968
                                                      =========     =========

NOTE 8.   PRIOR PERIOD ADJUSTMENT

          An excess accrual of interest was recorded on the note payable
          resulting in the overstatement of accrued liabilities and interest
          expense of the prior year. This overstatement has been corrected,
          resulting in the following changes to accumulated deficit as of July
          31, 1996, and the related Statement of Income for the year then ended:
<TABLE>
<CAPTION>

                                                                   ACCUMULATED           NET
                                                                     DEFICIT            LOSS

<S>                                                             <C>                <C>        
          As previously reported                                $   4,416,310      $    55,332
          Overstatement of accrued interest on note
             payable to the Small Business Administration       (      19,307)         (19,307)
                                                                 ------------      -----------

          Adjusted balance                                      $   4,397,003      $    36,025
                                                                =============      ===========
</TABLE>

NOTE 9.   OPERATING AND ECONOMIC CONDITIONS AND MANAGEMENT'S PLANS

          The Company's consolidated financial statements for the year ended
          July 31, 1997, have been prepared on a going concern basis, which
          contemplates the realization of assets and the settlement of
          liabilities and commitments in the normal course of business. The
          Company has suffered recurring losses before forgiveness of debt,
          consequently there is an accumulated deficit at July 31, 1997, as well
          as a working capital deficiency. Furthermore, liquidity conditions
          have limited the ability of the Company to market its products and
          services at amounts sufficient to recover its operating and
          administrative costs. As a result, the Company has incurred losses
          before extraordinary items of $18,238 and $36,025 for the years ending
          July 31, 1997 and 1996, respectively.

          In addition, the Company has used substantial working capital in its
          operations. As of July 31, 1997, current liabilities exceed current
          assets by $8,861. Cash used by operations of the Company for the years
          ended July 31, 1997 and 1996 amounted to $12,329, and $16,706,
          respectively. The consolidated financial statements do not include any
          adjustments relating to the recoverability and classification of
          recorded assets, or the amounts or classifications of liabilities that
          might be necessary in the event the Company cannot continue in
          existence.

          Management planned for dealing with the conditions described above and
          the Company pursued the acquisitions described in Note 10 "Subsequent
          Events". These recent acquisitions and changes in the Company's
          business may significantly affect the Company's deficiency in assets
          and result in a more favorable outcome if management is successful in
          implementing the changes to the Company's business.



                                     -F-12-
<PAGE>


                               ENERGY OPTICS, INC
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JULY 31, 1997 AND 1996


NOTE 10.  SUBSEQUENT EVENTS

          REVERSE STOCK SPLIT

          On August 18, 1997, the Board of Directors authorized a 1 for 10
          reverse stock split for all of the then issued and outstanding shares
          of the Company's common stock. As a result of the reverse stock split,
          the Company's issued and outstanding shares of common stock were
          reduced from 8,778,694 to 877,869. As a requirement of the reverse
          stock split, all shares must be returned by the existing shareholders
          and new shares will be issued no later than November 20, 1997. Any
          fractional shares will be redeemed for a cash payment based upon the
          average closing price of the Company's common stock for the immediate
          week. The consolidated financial statements give retroactive effect to
          this reverse stock split.

          STOCK AND ASSET PURCHASE

          Pursuant to a Stock and Asset Purchase Agreement, dated August 20,
          1997, as amended on October 10, 1997, the Company acquired certain
          assets from ABAC Services, Inc., a Nevada corporation (ABAC), American
          Global Equity Services, an unincorporated business trust located in
          Tavares, Florida (Ages) and three individual holders (Holders) of
          common stock of Lean Protein Foods, Inc., a Delaware corporation
          (LPF), in exchange for the issuance of 5,263,145 shares of the
          Company's common stock. The assets were comprised of the following:

          1.        Real estate valued at $1,700,000, originally conveyed by
                    Ages to ABAC on August 1, 1997, in connection with an
                    agreement for deed signed on that date. The agreement for
                    deed provided that Ages will transfer certain real estate in
                    Lake County, Florida in fee simple, once ABAC provided
                    1,591,000 shares of the Company (Energy Optics, Inc.) as a
                    down payment and satisfies a promissory note in the original
                    principal amount of $258,900, with interest payable
                    quarterly at ten percent (10%) per annum. Principal payments
                    of $64,725 are payable in annual installments on December
                    31st of each calendar year. The note is without recourse to
                    any individual and is secured solely by the assets of ABAC.
                    However, in the event of default, clear title to the
                    property could not be obtained. The Company issued the
                    1,591,000 shares of its common stock to Global Investments
                    Ltd., Trustee, as instructed by Ages, and agreed to accept
                    the assignment and the financial responsibility to satisfy
                    the note payable. The assets were valued based upon an
                    independent valuation for the real estate.

          2.        Property and equipment valued at $88,708 was conveyed by
                    ABAC. As instructed by ABAC, the Company issued 634,550
                    shares of its common stock to the three shareholders,
                    officers and directors of ABAC, who were immediately named
                    officers and directors of the Company. The shares issued
                    included a portion for finding and acquiring the other
                    properties as described in the paragraph above.

          3.        A transfer of 2,800,000 shares of LPF (an 80% interest). The
                    total value of LPF was estimated at $2,609,800, resulting in
                    a value of approximately $2,087,840 being conveyed by the
                    Holders. The assets were valued at a negotiated amount in
                    the case of the common stock of LPF, whose principal asset
                    is its wholly-owned subsidiary, Wildwood Ostrich Ranches,
                    Inc. The Company issued 3,037,495 shares of its common stock
                    to the Holders or their assigns as a result of this portion
                    of the acquisition.

          No affiliated relationships existed among the management or affiliates
          of the Company and the management or affiliates of Ages, ABAC or the
          LPF Holders at the time of acquisition.

                                     -F-13-
<PAGE>


                               ENERGY OPTICS, INC
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JULY 31, 1997 AND 1996


NOTE 10.  SUBSEQUENT EVENTS (CONTINUED)

          As a result of the issuance of the 5,263,145 shares of the Company's
          common stock to purchase the assets, a change in control occurred.
          After the closing of the acquisition of the assets, the original
          stockholders of the Company owned 877,869 shares (i.e., approximately
          14% of the total issued and outstanding shares), and Global
          Investments, Ltd., ABAC and the LPF Holders collectively owned
          5,263,145 shares (i.e., approximately 86% of the total issued and
          outstanding shares). Also upon closing the acquisition of the
          assets, the original Board of Directors of the Company appointed the
          new members to the Board of Directors then resigned. As a result of
          the change in control and acquisition of the facility, the executive
          offices of the Company were moved from Las Cruces, New Mexico to
          Tavares, Florida.

          REGISTRATION OF SHARES

          The Company is in the process of completing and filing Form SB-2 with
          the United States Securities and Exchange Commission for registration
          and sale to the general public of 1,250,000 shares of its common
          stock. The proceeds from the sale of these securities would be used to
          continue funding the Company's subsidiaries' developmental efforts.

          ACQUISITION OF MICROGRAVITY AVIATION COMPANY, INC.

          Based upon negotiations which began in July 1997, on October 10, 1997,
          the Company acquired 2,000,000 shares (valued at approximately
          $531,160) representing a 20% interest in Microgravity Aviation Company
          (MAC) from Harto Ltd., a 39% shareholder of the Company at that time,
          in exchange for 1,000,000 shares of the Company's common stock. MAC, a
          Florida corporation, is a subsidiary of Casey Holdings, Inc., (CHI)
          and is scheduled to operate the flight portion of a three-day
          high-adventure space-flight experience package. MAC will also offer
          the use of the DC-9 aircraft to the film and movie production
          community as a flying film studio for producing weightless scenes for
          use in movies, commercials, and corporate videos. The MAC aircraft may
          also be used for conducting microgravity research performed by
          universities and research companies. The executive management and
          consulting staff of CHI and MAC is comprised of highly credentialed
          professionals including former NASA astronauts as well as former
          airline, Federal Aviation Administration (FAA), and NASA executives.
          The management of MAC has leased a specially NASA equipped aircraft
          and the effective operation of the company is predicated upon MAC's
          ability to take possession of this aircraft.

          ACQUISITION OF AMERICAN MILLENNIUM CORPORATION

          As a result of negotiations begun in July 1997, on October 9, 1997,
          the Company contracted to purchase 8,000,000 shares (valued at
          approximately $3,500,000) representing 80% of the issued and
          outstanding stock of American Millennium Corporation (AMC), a Delaware
          corporation, primarily from Global Investments, Ltd., a 30%
          shareholder of the Company, in exchange for 5,100,000 shares of the
          Company's common stock. The products designed by AMC have several
          distinct similarities to certain of the former products developed by
          the Company. Several of the commercial applications of products
          developed by AMC may possibly have mutual compatibilities with certain
          patented technologies developed by the Company in prior years.

          Additionally, AMC has entered into a reseller agreement with Orbcomm
          who has successfully launched the first two of its expected 26 to 28
          low earth orbit (LEO) satellites scheduled to be in orbit by fall of
          1998. AMC is one of approximately thirty companies chosen by Orbcomm
          as resellers to date. Since the Orbcomm LEO's are launched from a
          Pegasus rocket from underneath the wing of a McDonnell Douglas DC-10,
          which is considerably less expensive than a ground based launch, AMC
          anticipates the ability to offer highly competitive data transmission
          services. This should allow AMC to globally expand its monitoring
          service to a wide range of applications including remote oil and gas
          wells and offshore platforms, as well as truck fleets and ocean going
          cargo ships and individual

                                     -F-14-
<PAGE>


                               ENERGY OPTICS, INC
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JULY 31, 1997 AND 1996


NOTE 10.  SUBSEQUENT EVENTS (CONTINUED)

          containers aboard those vessels. The Orbcomm reseller contract will
          also allow for AMC's utilization of satellite transponder space to
          offer other competitively priced wireless communications services.

          AMC has other proprietary products that are under sensitive
          requirements of nondisclosure by the party negotiating purchase of the
          devices.

          CASEY HOLDINGS, INC.

          On October 10, 1997, the Company concluded discussions with Ages on
          the acquisition of up to 40% of the authorized stock of Casey
          Holdings, Inc. (CHI) in a non-binding contract. The primary business
          of CHI and its subsidiaries, as a late stage start-up company, is to
          provide a three-day, high adventure, total immersion educational and
          space flight experience program similar to that provided by the
          National Aeronautics and Space Administration (NASA) to astronauts
          training for space flight.

          The Company expected to finalize the acquisition of CHI (or successor)
          later in 1997.

          STOCK  ISSUED FOR SERVICES

          In September 1997, the Company executed a two-year agreement with
          Internet Stock Maket, Inc. (ISM) to provide to the Company, on a
          non-exclusive basis, financial and investor relations services, public
          relations services and corporate communications services. The
          agreement provides for a fee to ISM in the amount of $60,000 per year
          payable $5,000 upon execution and $5,000 the first day of each month
          beginning October 1, 1997. Should the Company decide to terminate this
          agreement for any reason, the Company shall give 10 days written
          notice to ISM. The Company further agreed to issue to ISM warrants to
          purchase 150,000 shares of common stock at $.46 per share. The
          warrants were exercisable for a period of five years, and on November
          7, 1997, the warrants were excercised. In accordance with the
          agreement, the Company filed an S-8 registration on behalf of ISM.

          On October 15, 1997, the Board of Directors authorized the issuance of
          898,000 shares of common stock under a Consultant Services Plan as
          compensation for consultation services in connection with new business
          opportunities, promotion of the Company to the public and
          professionals, personnel recruitment, acquisition opportunities,
          spin-off transactions, restructuring the capitalization of the
          Company, and other matters as requested. The Consultant Services Plan
          is not subject to any of the provisions of the Employee Retirement
          Income Security Act of 1974 and is not qualified under Sec. 401 of the
          Internal Revenue Code of 1986, as amended. Form S-8 was filed with the
          Securites and Exchange Commission on October 24, 1997, relative to
          this offering of stock.















                                     -F-15-
<PAGE>




ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURES

The Company changed auditors as reported in Form 8-K dated July 18, 1997,
subsequently amended on July 24, 1997. At a special board meeting on July 24,
1997, the Board of Directors accepted the resignation of its auditors, Mackie,
Reid & Company, P.A. (auditor) who stated that they could no longer serve as
auditors of record because of their lack of compliance with the quality review
requirements of the SEC Practice Section of the American Institute of CPAs.

In connection with its audits for the two most recent years, there have been no
disagreements between the Company and the auditor on any matters of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedures.

The auditor's report on the financial statements for the past two years
contained no adverse opinion or disclaimer of opinion and was not qualified or
modified as to the audit scope or accounting principles. The reports have
contained explanatory language regarding the Company's ability to continue as a
going concern.

PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
        WITH SECTION 16(A) OF THE EXCHANGE ACT

The Executive Officers of the Company as of July 31, 1997 were as follows:

NAME                     TITLE/POSITION                             AGE
----                     --------------                             ---

Edward N. Laughlin       President, Treasurer and Director          59 (1)
Steven M. Ward           Director                                   47 (2)
Gordon Molesworth        President (Quantum Research), Director     80 (1)
James Sudduth            Vice President                             73 (1)

(1)   Resigned on August 20, 1997
(2)   Resigned on August 29, 1996

Mr. Laughlin was a co-founder of the Company and had been President, Chief
Executive Officer, Treasurer and Chairman of the Board of Directors since 1979.
Mr. Laughlin retired from the U.S. Air Force in 1979 after twenty years of
military service. From 1970 to 1977, he served as a Director of MITS, Inc., the
company, which introduced an electronic calculator in 1971, and the first
personal computer (Altair I) in 1975.

                                       -9-
<PAGE>


Mr. Molesworth founded Quantum Research Inc. and became a director of Energy
Optics, Inc. in 1995. He founded and has served as the president of Molesworth
and Associates, Inc. for more than thirty years. That company has provided
financial and technical communications counsel to more than 60 companies and has
served as technology investment consultant to many brokerage firms, banks,
mutual funds and other investor groups. He has served as a consultant to the
Company for more than a decade. After 27 years in New York City, Molesworth is
now based in Green Valley, Arizona.

Mr. Sudduth had been the Company's Vice President of Marketing since 1995. After
he retired as a Vice President of International Sales and Marketing for Allis
Chalmers in 1986 and moved to Tucson, Arizona, he was associated with Spectrum
International Associates (a consulting company). He has 40 years experience
dealing with the heavy industries in the U.S. and most international markets.

In connection with the acquisition of August 20, 1997, described the above, the
officers and directors immediately resigned. New directors were elected who then
appointed the following as corporate officers:
<TABLE>
<CAPTION>

NAME                         TITLE/POSITION                                                   AGE
----                         --------------                                                   ---

<S>                           <C>                                                             <C>
Jacques Desroches            President, Director (Resigned on September 5, 1997)              N/A
Rudy De La Garza             Vice-President, Director (Resigned on September 5, 1997)         N/A
James C. Statham             President, CEO, Director                                         43
Mary C. Adkins               Secretary, Treasurer, Director                                   48
Shirley M. Harmon            Director                                                         51
</TABLE>

Mr. Statham has been associated with the food industry for over 20 years and has
gained expertise in specialty food product development and marketing, now
implementing those skills in the emerging ostrich industry. He has met with USDA
officials in Washington, DC regarding labeling and handling procedure issues,
attended several technical seminars regarding the Hazard Analysis Critical
Control Point (HACCP) program being implemented by the USDA in processing
plants, and worked with product development of marinades and spice profiles for
ostrich steaks, fillets and fajitas. He recently conducted successful field
tests with Dr. Fred Leak at the University of Florida USDA meat processing
facility.

Mr. Statham is well respected within the ostrich industry as knowledgeable in
both food chemistry and marketing and receives requests to speak to trade
groups, co-operatives and other processors on ostrich processing and marketing.

He completed the Hotel and Restaurant Administration curriculum at Florida State
University in Tallahassee, Florida and Leysin, Switzerland. He currently holds
the position of President, Chief Executive Officer and Director for the Company.

Mary C. Adkins has been employed in the financial industry for the past nineteen
years. Her main area of expertise has been in the operation and business
development of existing and new institutions. Her responsibilities have included
the establishment and monitoring of new products and the implementation of fee
schedules for maximum profit. She created and implemented policies and
procedures manuals for daily operations and personnel issues that addressed
regulatory compliance issues. Additional responsibilities included the
management, hiring, and training of new personnel. 


                                      -10-
<PAGE>


She has held numerous titles during her career that include the following: 
<TABLE>

<S>                                                                          <C>  <C>  
Assistant Branch Manager for Firstate Financial                              1981-1983 
Savings Operation Officer for First Federal of Seminole S&L                  1983-1985 
Assistant VP, Vice President/Corporate Secretary for Lochaven Federal S &L   1985-1996
</TABLE>

After leaving the financial industry, she assumed a position in operations and
investment acquisitions for a private trust. She currently holds the position of
Secretary, Treasurer and Director for the Company.

Shirley M. Harmon retired from the United States Department of Navy in 1995. She
was a civilian employee with twenty-eight years in the financial division. She
has held various positions and titles during this employment, which include the
following: Budget Analyst, and Management and Program Analyst for the Ship Parts
Control Center, financial evaluating and executing various budget programs.
Additional responsibilities included establishing and maintaining payroll
records for over 7,000 government employees throughout the United States and
overseas.

After leaving the Department of Navy, Ms. Harmon took a position with a private
trust. Her responsibilities included the establishment and maintenance of the
trust's financial records.

Her current position is as Director of the Company.

ITEM 10.  EXECUTIVE COMPENSATION

A summary of compensation for all officers and directors serving for the fiscal
years ended July 31, 1997 and 1996, is as follows:
<TABLE>
<CAPTION>

        NAME OF OFFICER               CAPACITY IN             FISCAL     TOTAL CASH       ACCRUED
          OR DIRECTOR                 WHICH SERVED            YEAR      REMUNERATION      NOT PAID
        ---------------             ------------------       -------    ------------      ---------

<S>                                                           <C>            <C>           <C>
        Edward N. Laughlin          President/Director        1997           $ 0           $ 0
                                                              1996             0             0

        Steven M. Ward              Director                  1997             0             0
                                                              1996             0             0

        James A. Sudduth            Vice President            1997             0             0
                                                              1996             0             0

        Gordon Molesworth           President, Quantum        1997             0             0
                                    Research & Consultant     1996             0             0
                                    Director
</TABLE>

Total all Officers and Directors as a group (4) persons


                                      -11-
<PAGE>


ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information as of November 14, 1997, regarding
ownership control of the Company's common stock by each person who beneficially
owns 5% or more of the common stock of the Company, by each of the Company's
directors, and by all the officers and directors as a group.
<TABLE>
<CAPTION>

NAME AND ADDRESS OF                         SHARES BENEFICIALLY                        PERCENT
BENEFICIAL OWNER                                    OWNED *                            OF CLASS
-----------------------------------------------------------------------------------------------

<S>                                                 <C>                                <C>
Edward N. Laughlin
1500 Rayos de Luna
Las Cruces, New Mexico 88005                       260,899                             1.963 %

Steven M. Ward
8101 Dogwood Lane
Montgomery, Alabama                                 15,141                             0.114 %

Gordon R. Molesworth and
   Molesworth Associates
Financial Center
81 W. Esperanza Blvd., Suite E
Green Valley, Arizona 85614                         65,110                             0.490 %

James A. Sudduth
6850 E. Loma Del Bribon
Tucson, Arizona 85750                                2,500                             0.019 %

James C. Statham
P.O. Box 211
Cedar Key, FL 32625                                400,000                             3.010 %

Mary C. Adkins
609 Albany Court
Longwood, FL 32779                                 400,000                             3.010 %

Harto (Hartlo) Ltd.
Victoria House, P.O. Box 1090
The Valley, Anguilla, BWI                        3,387,495                            25.489 %

Shirley M. Harmon
P.O. Box 804
Wildwood, FL 34785                                 200,000                             1.505 %



                                      -12-
<PAGE>


NAME AND ADDRESS OF                         SHARES BENEFICIALLY                        PERCENT
BENEFICIAL OWNER                                    OWNED *                            OF CLASS
-----------------------------------------------------------------------------------------------

Global Investments Ltd., Trustee
Victoria House P.O. Box 1066
The Valley, Anguilla BWI                         4,063,307                            30.575 %

Mali-Suisse Mining Holdings, S.A.
28 Old Brompton Road, Suite 1119
London, England SW7 3DL                          2,193,076                            16.502 %

All Officers, Directors, and 5% Shareholders
   as a Group (11 persons)                      10,987,528                            82.676 %

</TABLE>

* These shares reflect the 1 for 10 reverse stock split effective August 18,
  1997.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

See footnotes 5, 6, and 10 of the 1997 Consolidated Financial Statements of this
report.

PART IV

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K

a. The following documents are filed as part of this report:

        Exhibits - 27.1 Financial Data Schedule

b.  Forms 8-K and 8 K/A filed during the last quarter of fiscal year 1997 are
    incorporated herein by reference as follows:

    (1)    8-K July 25, 1997 - changes in registrant's certifying accountant

c. Not applicable







                                      -13-
<PAGE>


Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, hereunto duly authorized.

<TABLE>

                                                       ENERGY OPTICS, INC.

<S>                                <C>
DATED: November 14, 1997           By:    /S/  JAMES C. STATHAM
                                          ------------------------------------------------
                                          James C. Statham, President
                                          (Principal Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.

DATED: November 14, 1997           By:    /S/ JAMES C. STATHAM
                                          --------------------
                                          James C. Statham, President, Director and
                                          Chief Executive Officer
                                          (Principal Executive Officer)

DATED: November 14, 1997           By:    /S/ MARY ADKINS
                                          ---------------
                                          Mary Adkins, Secretary, Treasurer and Director
                                          (Principal Financial Officer)

DATED: November 14, 1997           By:    /S/ SHIRLEY HARMON
                                          ------------------
                                          Shirley Harmon, Director
</TABLE>






                                      -14-
<PAGE>


                                 EXHIBIT INDEX




EXHIBIT
NUMBER                        DESCRIPTION
-------                       ------------


27.1                     Financial Data Schedule