U. S. SECURITIES AND EXCHANGE COMMISSION

                              Washington, DC 20549

                                   FORM 10-QSB


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

                         SECURITIES EXCHANGE ACT OF 1934


                 For the quarterly period ended: June 30, 2006


                          Commission file No.333-90738
                                    ---------


                                  Biomoda, Inc.
           (Name of small business issuer as specified in its charter)


                  New Mexico                           85-0392345
           (State of incorporation)          (IRS Employer Identification No.)

           8301 Washington NE, Suite 6, Albuquerque, New Mexico 87113
           (Address of principal executive offices including zip code)

                    Issuer's telephone number: (505) 821-0875

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

The number of issuer's shares of Common Stock  outstanding as of August 14, 2006
was 7,187,282.

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




<PAGE>




                                TABLE OF CONTENTS

PART I. Financial Information

Item 1. Consolidated Financial Statements.............................F-1 to F-7

Item 2. Management's Discussion and Analysis or Plan of Operation..............4

Item 3. Controls and Procedures................................................6

PART II. Other Information

Item 1. Legal Proceedings......................................................7

Item 2. Changes in Securities..................................................7

Item 3. Defaults Upon Senior Securities........................................7

Item 4. Submission of Matters to a Vote of Security Holders....................7

Item 5. Other Information......................................................7

Item 6. Exhibits...............................................................7

Signatures



                                        2



<PAGE>


                          PART I: FINANCIAL INFORMATION

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

This  Form  10-QSB  contains  forward-looking  statements  about  the  business,
financial  condition and prospects of the Company that reflect  assumptions made
by management and management's beliefs based on information  currently available
to it. The Company can give no assurance that the expectations indicated by such
forward-looking  statements will be realized. If any of management's assumptions
should prove incorrect, or if any of the risks and uncertainties underlying such
expectations  should  materialize,  the  Company's  actual  results  may  differ
materially from those indicated by the forward-looking statements.

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

There may be other risks and circumstances that management is unable to predict.
When used in this Form 10-QSB, words such as, "believes,"  "expects," "intends,"
"plans,"  "anticipates"  "estimates"  and similar  expressions  are  intended to
identify   forward-looking   statements,   although   there   may   be   certain
forward-looking   statements   not   accompanied   by  such   expressions.   All
forward-looking statements are intended to be covered by the safe harbor created
by Section 21E of the Securities Exchange Act of 1934.

                                        3


<PAGE>

ITEM 1:  CONSOLIDATED FINANCIAL STATEMENTS


                          BIOMODA, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

                                                                     June 30,     December 31,
                                                                      2006            2005
                                                                   (UNAUDITED)
                                                                   -----------    -----------
<S>                                                                <C>            <C>
                             ASSETS

Current Assets
       Cash                                                        $       112    $        24
       Cash, restricted                                                 30,000           --
       Prepaid expenses                                                  3,241          6,436
                                                                   -----------    -----------
       Total Current Assets                                             33,353          6,460

Patents, net of accumulated amortization
    of $80,115 and $71,900                                             217,638        225,853

Property and Equipment, net of accumulated
    depreciation of $8,144 and $6,666                                    7,900          9,378
                                                                   -----------    -----------

                                                                   $   258,891    $   241,691
                                                                   ===========    ===========


             LIABILITIES AND STOCKHOLDERS' DEFICIT

Current Liabilities
       Accounts payable and accrued liabilities                    $   443,180    $   331,715
       Common stock payable                                             30,000           --
       Advances from stockholders                                      156,652        149,002
       Line of credit from an affiliated entity                      1,838,091      1,491,523
                                                                   -----------    -----------
       Total Current Liabilities                                     2,467,923      1,972,240
                                                                   -----------    -----------

Commitments and Contingencies

Stockholders' Deficit
       Class A  redeemable  preferred  stock;  no  par  value
         2,000,000  shares authorized;  cumulative  and
         convertible;  liquidation  and redemption values
         of $1.50 and $1.80 per share; no shares issued
         and outstanding                                                  --             --
       Undesignated preferred stock; 2,000,000 shares
         authorized; no shares issued and outstanding                     --             --
       Common stock, no par value, 100,000,000 shares
         authorized; 7,187,282 issued and outstanding                1,377,196      1,370,696
       Treasury stock                                                   (9,000)             0
       Deficit accumulated during development stage                 (3,577,228)    (3,101,245)
                                                                   -----------    -----------

       Total Stockholders' Deficit                                  (2,209,032)    (1,730,549)
                                                                   -----------    -----------

                                                                   $   258,891    $   241,691
                                                                   ===========    ===========


See accompanying notes to these consolidated financial statements

</TABLE>

                                      F-1
<PAGE>


                          BIOMODA, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)
                      CONSOLIDATED STATEMENTS OF OPERATIONS
             FOR THE SIX-MONTHS PERIOD ENDED JUNE 30, 2006 AND 2005
      AND FOR THE PERIOD FROM JANUARY 3, 1990 (INCEPTION) TO JUNE 30, 2006
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                            January 3, 1990
                                                 Six Months Ended June 30    (Inception)
                                               --------------------------     to June 30,
                                                   2006           2005           2006
                                               -----------    -----------    -----------
<S>                                            <C>           <C>            <C>
Revenue                                        $      --      $      --      $        23
                                               -----------    -----------    -----------

Operating expenses
 Professional fees                                  21,643         13,256        537,956
 General and administrative                        137,844         67,432        612,055
 Licensing fees                                     15,000         15,000        118,918
 Research and development                          258,725        148,534      1,957,475
 Depreciation and amortization                       9,693          9,264         91,373
                                               -----------    -----------    -----------
    Total Operating Expenses                       442,905        253,486      3,317,777
                                               -----------    -----------    -----------

Loss from operations                              (442,905)      (253,486)    (3,317,754)

Other Income (Expenses)
 Gain on forgiveness of debt                        16,064           --           53,035
 Interest income                                      --             --            3,870
 Interest expense                                  (49,142)       (50,436)      (316,379)
                                               -----------    -----------    -----------
    Total Other Expenses                           (33,078)       (50,436)      (259,474)
                                               -----------    -----------    -----------

Net loss                                       $  (475,983)   $  (303,922)   $(3,577,228)
                                               ===========    ===========    ===========

Basic and diluted weighted average               7,187,282      7,131,128
    number of shares outstanding
                                               ===========    ===========

Basic and diluted loss per common share        $     (0.07)   $     (0.04)
                                               ===========    ===========


See accompanying notes to these consolidated financial statements.

</TABLE>


                                      F-2
<PAGE>


                          BIOMODA, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)
                      CONSOLIDATED STATEMENTS OF OPERATIONS
            FOR THE THREE-MONTHS PERIOD ENDED JUNE 30, 2006 AND 2005
                                   (UNAUDITED)

                                                      Three Months Ended June 30
                                                    ---------------------------
                                                         2006            2005
                                                    -----------    ------------


Revenue                                               $      --       $      --
                                                    -----------     -----------
Operating expenses
 Professional fees                                        8,143          11,355
 General and administrative                              24,262          52,514
 Licensing fees                                          15,000          15,000
 Research and development                               146,447          82,565
 Depreciation and amortization                            4,846           4,942
                                                    -----------     -----------
Total Operating Expenses                                198,698         166,376
                                                    -----------     -----------

Loss from operations                                   (198,698)       (166,376)

Other Income (Expenses)
 Gain on debt settlement                                 16,064            --
 Interest income                                             --              --
 Interest expense                                       (24,586)        (31,253)
                                                    -----------     -----------
Total Other Expenses                                     (8,522)        (31,253)
                                                    -----------     -----------

Net loss                                            $  (207,220)    $  (197,629)
                                                    ===========     ===========

Basic and diluted weighted average number of          7,187,282       7,147,282
    shares outstanding
                                                    ===========     ===========

Basic and diluted loss per common share             $     (0.03)    $     (0.03)
                                                    ===========     ===========


See accompanying notes to these consolidated financial statements.


                                      F-3
<PAGE>


                          BIOMODA, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
             FOR THE SIX MONTH PERIODS ENDED JUNE 30, 2006 AND 2005
      AND FOR THE PERIOD FROM JANUARY 3, 1990 (INCEPTION) TO JUNE 30, 2006
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                             Six-Months       Six-Months      January 3, 1990
                                                               Ended            Ended        (Inception) to
                                                            June 30, 2006    June 30, 2005    June 30, 2006
                                                           --------------   --------------   --------------
<S>                                                        <C>              <C>              <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES

Net loss                                                   $     (475,983)  $     (303,922)  $   (3,577,228)
Adjustments to reconcile net loss to
     net cash used in operating activities:
 Stock options expense                                              6,500             --            153,500
 Issuance of common stock for services                               --               --             51,746
 Issuance of common stock for bonuses to employees                   --              4,500           17,250
 Loss on sale of assets                                              --               --                358
 Foreign currency transactions                                       --               --              3,247
 Gain on debt settlement                                          (16,064)            --            (11,171)
 Depreciation and amortization                                      9,693            9,264           91,373
Changes in operating assets and liabilities:
 Accounts receivable                                                 --               --             (7,620)
 Other Assets                                                       3,195             --              4,379
 Accounts payable and accrued liabilities                         127,529           43,737          565,202
 Advances from stockholders                                          --               --              9,564
                                                           --------------   --------------   --------------
Net cash flows used in operating activities                      (345,130)        (246,421)      (2,699,400)

CASH FLOWS FROM INVESTING ACTIVITIES
 Purchase of property and equipment                                  --               --            (24,179)
 Sale of property and equipment                                      --               --              1,139
 Investment in restricted cash                                    (30,000)            --            (30,000)
 Organizational costs                                                --               --               (560)
 Patent, trademark and license fee                                   --            (41,461)        (297,753)
                                                           --------------   --------------   --------------
Net cash flows used in investing activities                       (30,000)         (41,461)        (351,353)

CASH FLOWS FROM FINANCING ACTIVITIES
 Proceeds from stockholders' advances                               7,650             --            107,678
 Proceeds from line of credit from an affiliated entity           346,568          286,704        1,838,091
 Purchase of treasury stock                                        (9,000)            --             (9,000)
 Proceeds from common stock subscriptions                          30,000             --             30,000
 Issuance of common stock for cash                                   --               --          1,084,096
                                                           --------------   --------------   --------------
Net cash flows provided by financing activities                   375,218          286,704        3,050,865

Net (decrease) increase in cash                                        88           (1,178)             112

Cash, beginning of period                                              24            1,360             --

                                                           --------------   --------------   --------------
Cash, end of period                                        $          112   $          182   $          112
                                                           ==============   ==============   ==============

See accompanying notes to consolidated financial statements.

</TABLE>

                                      F-4
<PAGE>
--------------------------------------------------------------------------------
                                 BIOMODA, INC.
                         (A Development Stage Company)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)
--------------------------------------------------------------------------------

1. BASIS OF PRESENTATION

The  accompanying  unaudited  interim  financial  statements  of  Biomoda,  Inc.
("Biomoda")  have  been  prepared  in  accordance  with  accounting   principles
generally  accepted  in the  United  States of  America  for  interim  financial
information and with the instructions to Form 10-QSB.  Accordingly,  they do not
include  all of  the  information  and  notes  required  by  generally  accepted
accounting  principles for complete  financial  statements and should be read in
conjunction  with the  Management's  Discussion  and  Analysis  and the  audited
financial statements and notes thereto contained in Biomoda's 2005 Annual Report
filed with the Securities and Exchange Commission on Form 10-KSB. In the opinion
of management,  all  adjustments,  consisting of normal  recurring  adjustments,
necessary  for a fair  presentation  of  financial  position  and the results of
operations for the interim  periods  presented have been reflected  herein.  The
results of operations for the interim periods are not necessarily  indicative of
the results to be expected for the full year. Notes to the financial  statements
which would  substantially  duplicate  the  disclosure  contained in the audited
financial statements for 2005 as reported in the 10-KSB have been omitted.

Pursuant to a registration statement on Form SB-2 (the "Registration Statement")
under the Securities Act of 1933, as amended, Biomoda is offering for sale up to
6,000,000  shares  of  its  common  stock  at a  price  of  $3  per  Share.  The
Registration Statement was declared effective on February 11, 2005. The Offering
will  terminate  on the  earlier of  February  11, 2008 or the date on which the
maximum  number of shares have been sold.  Biomoda had not sold any shares under
such Registration Statement as of June 30, 2006.

2. DEVELOPMENT STAGE AND GOING CONCERN

Biomoda has been in the development  stage since it began  operations on January
3, 1990 and has not  generated  any  revenues  from  operations  and there is no
assurance  of  any  future  revenues.  As of  June  30,  2006,  Biomoda  had  an
accumulated deficit of $3,547,228 and a working capital deficit of $2,434,570.

In addition,  Biomoda did not generate any cash from  operations and had no cash
reserve dedicated to fund expenditures. These factors create a substantial doubt
as to Biomoda's ability to continue as a going concern.

Biomoda will require substantial  additional funding for continuing research and
development,  obtaining regulatory approval and for the commercialization of its
products.  Management  expects  to be able to  raise  enough  funds  to meet its
working capital  requirements through the sale of Biomoda's common stock offered
in its  Registration  Statement.  Advanced  Optics  Electronics,  Inc.  ("ADOT")
continues to provide Biomoda with bridge financing needed to fund the day-to-day
operations until Biomoda has raised sufficient capital to fund its operations.

                                    Page F-5


<PAGE>

--------------------------------------------------------------------------------
                                 BIOMODA, INC.
                         (A Development Stage Company)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)
--------------------------------------------------------------------------------

There is no assurance that Biomoda will be able to obtain sufficient  additional
funds when needed, or that such funds, if available, will be obtainable on terms
satisfactory to Biomoda.  The consolidated  financial  statements do not include
any adjustments  that might be necessary should Biomoda be unable to continue as
a going concern.

3. STOCK - BASED COMPENSATION

On January 1, 2006, Biomoda adopted SFAS No. 123(R), "Share-Based Payment". SFAS
123(R)  replaced  SFAS No. 123 and  supersedes  APB  Opinion No. 25. SFAS 123(R)
requires all  share-based  payments to employees,  including  grants of employee
stock options, to be recognized in the financial  statements based on their fair
values.  The pro forma  disclosures  previously  permitted under SFAS 123 are no
longer an alternative to financial statement  recognition.  Biomoda adopted SFAS
123(R) using the modified  prospective  method which requires the application of
the  accounting  standard  as of  January 1, 2006.  The  consolidated  financial
statements  as of and for the six month  period  ended June 30, 2006 reflect the
impact of adopting  SFAS 123(R).  In  accordance  with the modified  prospective
method,  the consolidated  financial  statements for prior periods have not been
restated to reflect, and do not include, the impact of SFAS 123(R).

Prior to 2006,  Biomoda accounted for stock-based  compensation to employees and
directors  under the intrinsic value method under APB Opinion No. 25. Under this
method,  Biomoda  recognized no compensation  expense for stock granted when the
underlying  number of shares is known and the  exercise  price of the  option is
greater  than or equal to the fair market  value of the stock on the grant date.
Had Biomoda  determined  compensation  expense for stock option  grants based on
their estimated fair value at their grant date,  Biomoda's net loss and net loss
per share would have been as follows:

<TABLE>
<CAPTION>

                                                     Six Months Ended   Three Months Ended
                                                       June 30, 2005      June 30, 2005
                                                       ------------       ------------
<S>                                                    <C>               <C>
Net loss, as reported                                  $   (303,922)      $   (197,629)

Add: stock-based compensation expense determined
         under intrinsic value method                          --                 --

Deduct: stock-based compensation expense determined
            under fair value based method                    (1,404)              (702)
                                                       ------------       ------------
Pro forma net loss                                     $   (305,326)      $   (198,331)
                                                       ------------       ------------

Net loss per share, basic and diluted:
As reported                                            $      (0.04)      $      (0.03)
Pro forma                                                     (0.04)             (0.03)

</TABLE>


--------------------------------------------------------------------------------
                                    Page F-6


<PAGE>

--------------------------------------------------------------------------------
                                 BIOMODA, INC.
                         (A Development Stage Company)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)
--------------------------------------------------------------------------------

The weighted  average  fair value of the stock  options  granted  during the six
months ended June 30, 2006 and 2005 was $0.15 and $0.15, respectively. Variables
used in the Black-Scholes  option-pricing  model include (1) risk-free  interest
rates of 4.4% and 4.4%, (2) expected option life is the actual remaining life of
the options as of each period end, (3) expected  volatility  is 264% to 835% and
(4) zero expected dividends.

4. SETTLEMENT OF CLAIM

On June 15, 2006,  Biomoda settled a claim with a former employee.  Biomoda paid
$50,000 and agreed to pay $10,000 per month for eight months,  beginning on June
30, 2006. The former  employee gave 60,000 shares of Biomoda common stock valued
at $9,000  back to  Biomoda.  As of the  settlement  date,  Biomoda  had accrued
$137,064 as potential liability in the matter. The settlement resulted in a gain
of $16,064.


--------------------------------------------------------------------------------
                                    Page F-7




<PAGE>




ITEM 2:  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

COMPANY OVERVIEW

Biomoda, Inc. (the "Company") is a development stage company incorporated in the
state of New  Mexico on  January  3, 1990.  The  Company's  general  focus is on
discovery,  development,   manufacture  and  marketing  of  proprietary  medical
diagnostic  and  treatment  products  used to treat life  threatening  and other
serious diseases.  Our primary focus is creating diagnostic  solutions for early
detection and clinical management of cancer.

Pursuant to a registration statement on Form SB-2 (the "Registration Statement")
under the Securities  Act of 1933, as amended,  the Company is offering for sale
up to  6,000,000  shares of its  common  stock at a price of $3 per  share.  The
Registration Statement was declared effective on February 11, 2005. The Offering
will  terminate  on the  earlier of  February  11, 2008 or the date on which the
maximum  number of shares have been sold. The Company had not sold any shares as
of June 30, 2006, but had received $30,000 in stock subscription funds.


PLAN OF OPERATION

Our plan of  operation  for the next six months is: to complete  the  validation
studies for our cancer assay, design our diagnostic product, choose our contract
manufacturing  partner,  manufacture our initial  batches,  register our product
with the FDA and then  with  European  authorities  for our CE mark,  and  begin
marketing to reference labs in the US and Europe.  We intend to have revenues in
the  third  quarter  of 2007.  The  Company  is  relying  on a bridge  financing
arrangement  with  Advanced  Optics  Electronics,  Inc.,  an  affiliated  public
company, and also intends to raise additional funds from its effective Form SB-2
Registration  Statement  during the next three months.  The Company is currently
leasing Laboratory  equipment from Advanced Optics Electronics,  Inc. on a month
to month basis and intends to purchase this  equipment  when adequate  funds are
raised.

Our initial  product is a  diagnostic  test for cancer that will be performed in
vitro using  samples  from the  patient.  Our test does not require any invasive
sample harvesting. The sample will be sent to a clinical lab where the procedure
will be performed to determine the presence,  or not, of cancer or  precancerous
cells.  Our diagnostic test can be used in various cell samples and we intend to
create and market  products to diagnose  and screen for many  prevalent  cancers
such as breast, cervical,  bladder, and colorectal.  We have determined that our
initial  markets  will be the  developed  nations of Europe,  North  America and
Japan.  This has been determined on the basis of available  healthcare  delivery
and payer  infrastructure.  Japan is leading  the  world,  having  instituted  a
nationwide  cancer-screening  program.  We also  intend to sell our  product  in
additional  markets  throughout  the world.  We will  market  different  product
formats based on the region of the world.

In addition to augmenting laboratory research and development,  management plans
to further strengthen the corporate  infrastructure of the Company to adequately
manage the future growth and success of our  operations.  Management  expects to
hire  additional   personnel  and  enter  into   consulting  and   collaborative
arrangements over the next twelve months as needed to continue to strengthen and
enhance the effectiveness of implementing our plan as we grow.

The Company's  Research and  Development  facilities are located on Kirtland Air
Force Base in  Albuquerque,  New  Mexico.  R&D is housed in  approximately  2500
square  feet that  includes  two  state-of-the-art  laboratories  where  primary
research, assay validation and commercialization work is being conducted.

Over the next twelve months management will continuously evaluate and refine our
business plan which includes assessing the technology we utilize and the markets
we intend to serve and  evaluating  the  prospect of expanding  into  additional
products and markets as business  conditions  warrant.  In connection  with this
continual  evaluation,  management will also look at taking actions  designed to
mitigate any and all risks associated with our business plan.

In January 2005, the U.S. Patent Office awarded a Patent to Biomoda  researchers
entitled  "Compositions  and Methods for  Detecting  Precancerous  Conditions in
Cells and Tissue Samples using 5, 10, 15, 20 Tetrakis (Carboxyphenyl) Porphine".
The Company believes its goal to further  strengthen and expand its intellectual
property portfolio will be significantly enhanced by these developments.

                                        4
<PAGE>


RESULTS OF OPERATIONS

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

Comparison of the three and six month periods Ended June 30, 2006 and 2005
--------------------------------------------------------------------------

REVENUE.  As of June 30, 2006,  there have been no  significant  revenues  since
inception.

PRODUCT DEVELOPMENT. Product development expenses consist primarily of personnel
expenses and consulting fees. Research and development,  including payroll costs
and other  technical  costs  increased  to  approximately  $146,000 in the three
months ended June 30, 2006 from approximately  $83,000 in the three months ended
June 30, 2005 and to  $259,000  in 2006 from  $149,000 in 2005 for the six month
periods then ended,  due to increased  personnel  expense.  The Company believes
that  continued  investment in product  development is critical to attaining our
strategic  objectives  and,  as a result,  we expect  expenses  such as clinical
studies  and  collaborations  to  increase  significantly  in the next year.  We
expense product development costs as they are incurred.

GENERAL  AND  ADMINISTRATIVE  General  and  administrative  expenses  consist of
expenses for  executive and  administrative  personnel,  facilities,  travel and
general  corporate  activities.  General and  administrative  costs decreased to
approximately  $24,000 in the three  months  ended June 30, 2006 from $53,000 in
the three  months  ended June 30,  2005 but  increased  to $138,000 in 2006 from
$67,000 in 2005 for the six month  periods.  The increase  was due  primarily to
approximately  $75,000  additional  public  relations  expense  related  to  the
Company's  current  stock  offering in the first quarter and the decrease in the
three month period is due to timing of recognition of certain overhead  charges.
We expect  general  and  administrative  costs to  increase in the future as our
business  prospects develop and we will require more staff. The costs associated
with being a publicly traded company and future strategic acquisitions will also
be a contributing factor to increases in this expense.

OTHER INCOME  (EXPENSE)  Other income  (expense)  consists of interest and other
income and expense.  Interest expense decreased to approximately  $25,000 in the
three months ended June 30, 2006 from approximately  $31,000 in the three months
ended June 30, 2005 from not accruing interest on a contingency that was settled
in  June  2006  and  stayed  relatively   constant  for  the  year  to  date  at
approximately  $50,000 due to larger balances in intercompany debt. $16,000 gain
on settlement of debt appears in 2006 but not in 2005.

LIQUIDITY AND CAPITAL RESOURCES

Since  inception,  we have  funded  our  operations  primarily  through  private
placement of equity securities and loans from Advanced Optics Electronics,  Inc.
("ADOT").  As of June 30,  2006 we have  raised net  proceeds  of  approximately
$3,215,000 from these sources.

Product  development  expenditures,  including  personnel expense,  approximated
$259,000 for the six months ended June 30, 2006.  Funds for operations,  product
development  and  capital  expenditures  were  provided  from a line  of  credit
agreement with ADOT. The Company will require substantial additional funding for
continuing research and development,  obtaining  regulatory approval and for the
commercialization of its products.

Management believes that sales of securities will provide adequate liquidity and
capital resources to meet the anticipated development stage requirements through
the middle of 2007. In addition,  ADOT will continue to provide the Company with
bridge financing needed to fund the day-to-day  operations until the Company has
raised sufficient capital to fund its operations. At that time it is anticipated
that  sales of our  initial  screening  product  will  begin and  contribute  to
operating  revenues.  It is  anticipated  that  these  sales  will  provide  the
additional capital resources to fund the proportionately  higher working capital
requirements  of  production  and  sales   initiatives  and  continued   product
development for second-generation diagnostic and therapeutic products.

There  is no  assurance  that  the  Company  will be able to  obtain  sufficient
additional  funds  when  needed,  or that  such  funds,  if  available,  will be
obtainable on terms  satisfactory  to the Company.  The  consolidated  financial
statements  do not include any  adjustments  that might be necessary  should the
Company be unable to continue as a going concern.

INFLATION

Management  believes  that  inflation  has  not  had a  material  effect  on the
Company's results of operations.

                                        5
<PAGE>

ITEM 3:  CONTROLS AND PROCEDURES

Under the supervision and with the  participation  of our management,  including
our Chief  Executive  Officer ("CEO") and Chief Financial  Officer  ("CFO"),  we
evaluated  the  effectiveness  of the design  and  operation  of our  disclosure
controls  and  procedures  (as defined in Rule  13a-15(e)  and  15d-15(e) of the
Exchange Act as of the end of the period covered by this report, June 30, 2006).
Based  upon  that  evaluation,  the CEO and CFO  concluded  that  the  Company's
disclosure controls and procedures were effective.

CHANGES IN CONTROLS AND PROCEDURES

There were no significant  changes made in our internal  controls over financial
reporting  during  the three  months  ended June 30,  2006 that have  materially
affected or are reasonably likely to materially affect these controls.  Thus, no
corrective   actions  with  regard  to  significant   deficiencies  or  material
weaknesses were necessary.

LIMITATIONS ON THE EFFECTIVENESS OF INTERNAL CONTROL

The Company's management, including the CEO, does not expect that our disclosure
controls and procedures or our internal  control over  financial  reporting will
necessarily  prevent all fraud and material errors.  An internal control system,
no matter how well  conceived and  operated,  can provide only  reasonable,  not
absolute,  assurance that the objectives of the control system are met. Further,
the design of a control  system must  reflect  the fact that there are  resource
constraints,  and the benefits of controls must be considered  relative to their
costs.  Because of the inherent  limitations on all internal control systems, no
evaluation of controls can provide  absolute  assurance  that all control issues
and instances of fraud,  if any,  within the Company have been  detected.  These
inherent limitations include the realities that judgments in decision-making can
be faulty,  and that  breakdowns  can occur  because of simple error or mistake.
Additionally,  controls  can be  circumvented  by the  individual  acts  of some
persons, by collusion of two or more people,  and/or by management's override of
the controls. The design of any system of internal control is also based in part
upon certain assumptions about the likelihood of future events, and there can be
no assurance  that any design will  succeed in achieving  its stated goals under
all  potential  future  conditions.  Over time,  controls may become  inadequate
because of changes in  circumstances,  and/or the degree of compliance  with the
policies and procedures may deteriorate.  Because of the inherent limitations in
a cost-effective internal control system,  financial reporting misstatements due
to error or fraud may occur and not be detected on a timely basis.

                                        6

<PAGE>

                           PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

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

ITEM 2.  CHANGES IN SECURITIES -  None

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES - None

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - None

ITEM 5.  OTHER INFORMATION - None.

ITEM 6.  EXHIBITS

(a)      Exhibits

31.1  Certification  of  Principal  Executive  Officer  pursuant  to  Securities
Exchange  Act rules 13a-15 and  15d-15(c) as adopted  pursuant to section 302 of
the Sarbanes-Oxley act of 2002.

31.2  Certification  of  Principal  Financial  Officer  pursuant  to  Securities
Exchange  Act rules 13a-15 and  15d-15(c) as adopted  pursuant to section 302 of
the Sarbanes-Oxley act of 2002.

32.1  Certification of Principal Executive and Accounting Officer pursuant to 18
U.S.C.  section 1350, as adopted  pursuant to section 906 of the  Sarbanes-Oxley
act of 2002.


                                        7
<PAGE>



SIGNATURES


In  accordance  with  Section 13 or 15(d) of the Exchange  Act,  the  registrant
caused this report on Form 10QSB to be signed on its behalf by the  undersigned,
thereunto duly authorized.


Dated: August 14, 2006

BIOMODA, INC. and Subsidiary

                                     By:/s/John J. Cousins
                                     ---------------------
                                     John J. Cousins
                                     President
                                    (Principal Executive and Accounting Officer)