UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, DC 20549








FORM 10-Q








x  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE


SECURITIES EXCHANGE ACT OF 1934





For the quarterly period ended June 30, 2009





rTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





For the transition period from __________ to __________





Commission file No. 333-90738





Biomoda, Inc.


(Exact name of registrant as specified in its charter)




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





P.O. Box 11342, Albuquerque, New Mexico 87192


(Address of principal executive offices including zip code)





Registrant'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 Securities Exchange Act of 1934 during the preceding 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 r




Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this Chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files). Yes o No o




Indicate by check mark whether the registrant is a large accelerated filer, and accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.





Large accelerated filerr
Accelerated filer  rNon-accelerated filerr
Smaller reporting company  x





Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes r No x





The number of issuer’s shares of Common Stock outstanding as of August 14, 2009 was 77,514,589.




Table of Contents





TABLE OF CONTENTS





PART I. Financial Information





PageItem 1. Financial Statements
3Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
10Item 3. Quantitative and Qualitative Disclosures About Market Risk
13Item 4. Controls and Procedures
13PART II. Other InformationItem 1. Legal Proceedings
14Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
14Item 3. Defaults Upon Senior Securities
14Item 4. Submission of Matters to a Vote of Security Holders
14Item 5. Other Information
14Item 6. Exhibits
14Signatures
15






Table of Contents




PART I: FINANCIAL INFORMATION





Forward - Looking Statements





This Form 10-Q 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. We 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, our actual results may differ materially from those indicated by the forward-looking statements.





The key factors that are not within our control and that may have a direct bearing on operating results include, but are not limited to, the acceptance by customers of our products, our ability to develop new products cost-effectively, our ability 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-Q, 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
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BIOMODA, INC. AND SUBSIDIARY
 (A DEVELOPMENT STAGE COMPANY)
 CONSOLIDATED BALANCE SHEETS
 (UNAUDITED)


June 30,
2009


December 31,
2008ASSETSCURRENT ASSETSCash

$
147,041


$
36,854Grants receivable


214,071



184,124Deferred charges


9,573



-Total current assets


370,685



220,978Accounts receivable - unbilled


-



81,797Property and equipment, net of accumulated depreciation


-



1,984of $17,436 and $16,019Deferred Charges


31,111



-Patents and trademarks, net of accumulated amortizationof $404,065 and $303,249


100,816



114,576Total assets

$
502,612


$
419,335LIABILITIES AND STOCKHOLDERS' DEFICITCURRENT LIABILITIESAccounts payable and accrued liabilities

$
378,383


$
289,199Advances from stockholders


208,392



201,643Short-term debt


91,465



90,873Advances from research grants


213,234



-Total current liabilities


891,474



581,715LONG-TERM DEBT


138,592



162,110Total liabilities


1,030,066



743,825STOCKHOLDERS' DEFICITClass A redeemable preferred stock; no par value; 2,000,000shares authorized; cumulative and convertible;liquidation and redemption values of $1.50 and $1.80per share, respectively; no shares issued or outstanding


-



-Undesignated preferred stock; 2,000,000 shares authorized; noshares issued and outstanding


-



-Common stock, no par value, 100,000,000 share authorized;77,064,589 and 77,004,589 issued; 77,004,589 and 76,944,589outstanding


7,217,781



7,215,381Treasury stock, at cost 60,000 shares


(9,000
)


(9,000
)Deficit accumulated during development stage


(7,736,235
)


(7,530,871
)Total stockholders' deficit


(527,454
)


(324,490
)Total liabilities and stockholders' deficit

$
502,612


$
419,335





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


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BIOMODA, INC. AND SUBSIDIARY
 (A DEVELOPMENT STAGE COMPANY)
 CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)


3 Months Ended June 30


6 Months Ended June 30


January 3, 1990 (Inception) to2009


2008


2009


2008


June 30, 2009Revenue


-



-



-



-



23Operating ExpensesProfessional fees


27,452



13,062



68,380



102,839



1,068,882General and administrative


52,394



187,958



95,006



587,754



4,447,733Research and development, net of grants received


16,389



(119,160
)


11,330



29,062



2,728,053Depreciation and amortization


7,168



8,953



23,282



22,071



323,300Total operating expenses


103,403



90,813



197,998



741,726



8,567,968Loss from operations


(103,403
)


(90,813
)


(197,998
)


(741,726
)


(8,567,945
)Other Income (Expense)Gain on extinguishment of debt


-



-



-



-



1,326,028Other income


-



-



-



-



34,037Interest income


-



-



-



-



3,870Interest expense


(3,967
)


(14,306
)


(7,366
)


(28,758
)


(532,225
)Total other income (expense)


(3,967
)


(14,306
)


(7,366
)


(28,758
)


831,710Loss before provision for income taxes


(107,370
)


(105,119
)


(205,364
)


(770,484
)


(7,736,235
)Provision for income taxes


-



-



-



-



-Net income (loss)


(107,370
)


(105,119
)


(205,364
)


(770,484
)


(7,736,235
)Basic and diluted loss per common share

$
(0.00
)

$
(0.00
)

$
(0.00
)

$
(0.01
)Basic and diluted weighted average number of common shares outstanding

77,023,153



76,253,405



77,037,226



67,886,082





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




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BIOMODA, INC. AND SUBSIDIARY


(A DEVELOPMENT STAGE COMPANY)
 CONSOLIDATED STATEMENTS OF CASH FLOWS


(UNAUDITED)




For the Six Months


January 3, 1990Ended June 30,


(inception) to2009


2008


June 30, 2009CASH FLOWS FROM OPERATING ACTIVITIESNet Income (loss)

$
(205,364
)

$
(770,484
)

$
(7,736,235
)Adjustments to reconcile net earnings to netcash used in operating activitiesStock-based compensation


2,400



285,322



2,876,276Depreciation and amortization


23,282



22,071



323,300Write-off of license fee


-



-



1,250Loss on sale of assets


-



-



358Foreign currency translation adjustments


-



-



3,247Gain on extinguishment of debt


-



-



(1,283,964
)Changes in operating assets and liabilitiesAccounts receivable


8,772



(298,148
)


(39,849
)Other assets


2,393



(687
)


10,013Advances on research grants


213,234



-



213,234Accounts payable and accrued liabilities


81,941



73,473



965,080Net cash provided by (used in) operating activities


126,658



(688,453
)


(4,667,290
)CASH FLOWS FROM INVESTING ACTIVITIESPurchase of equipment


-



(95,802
)


(25,571
)Sales of property and equipment


-



-



1,139Purchases of patents, trademarks and licenses


(7,537
)


(23,831
)


(421,063
)Organizational costs


-



-



(560
)Net cash used in investing activities


(7,537
)


(119,633
)


(446,055
)CASH FLOWS FROM FINANCING ACTIVITIESIssuance of common stock for cash


-



710,486



2,897,883Proceeds from  line-of-credit from affiliated entity


-



19,393



2,680,882Proceeds from stockholders' advances


6,750



9,365



168,983Repayments of line-of-credit from affiliated entity


-



(65,304
)


(341,107
)Repayments of short-term debt


592



(64,260
)


(109,100
)Repayments of long-term debt


(16,276
)


-



(28,155
)Acquisition of treasury stock


-



-



(9,000
)Net cash provided by (used in) financing activities


(8,934
)


609,680



5,260,386NET (DECREASE) INCREASE IN CASH


110,187



(198,406
)


147,041Cash at beginning of year


36,854



479,800



-Cash at end of year

$
147,041


$
281,394


$
147,041Supplemental cash flow information:Interest expense paid in cash

$
-


$
-


$
-Income taxes paid in cash

$
-


$
-


$
-Non-cash investing and financing activities:Accrued salaries converted to notes payable

$
-


$
-


$
479,484Interest converted to note payable

$
-


$
19,393


$
159,462Common stock issued to extinguish related party debt

$
-


$
-


$
1,418,768




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


6
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_____________________________________________


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. 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-Q. 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 our 2008 Annual Report filed with the Securities and Exchange Commission on Form 10-K. 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 2008 as reported on Form 10-K have been omitted.




The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, as well as certain financial statement disclosures.  While management believes that the estimates and assumptions used in the preparation
of the financial statements are appropriate, actual results could differ from these estimates.




2.  DEVELOPMENT STAGE





We have been in the development stage since we began operations on January 3, 1990. We have a continuing government contract for fiscal year ended June 30, 2009, of $1.3 million of which approximately $1,216,678 has been already reimbursed, leaving approximately $83,332 due as of the end of June 2009.  As of June 30, 2009, we
had an accumulated deficit of $7,736,235 and a working capital deficit of $520,789.





In addition, we have historically not generated any cash from operations.  These factors create a substantial doubt as to our ability to continue as a going concern.





We will require additional funding for continuing research and development, obtaining regulatory approval and commercialization of our products. Management expects to be able to raise enough funds to meet our working capital requirements through the sale of our common stock or other means of financing.





There is no assurance that we will be able to obtain sufficient additional funds when needed, or that such funds, if available, will be obtainable on terms satisfactory to us.





3.  EARNINGS PER SHARE
  Basic earnings per share excludes dilution and is computed by dividing net income (loss) by the weighted-average common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the earnings of the entity.  Potentially dilutive securities have been excluded from the net loss per common share calculation as the effects would be anti-dilutive.
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 Table of Contents


_____________________________________________


BIOMODA, INC.


(A Development Stage Company)


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


_____________________________________________





4.  COMMON STOCK





During the three months ended June 30, 2009, we issued 30,000 common shares for services valued at $1,200.





During the three months ended March 31, 2009, we issued 30,000 common shares for services valued at $1,200.





During the three months ended June 30, 2008, we issued 262,237 common shares for services valued at $19,029. We also sold 1,328,142 common shares for $123,956, incurring $90,688 in costs related to the Regulation S offering.





During the three months ended March 31, 2008, we issued 3,225,860 common shares for services valued at $266,293. We also sold 23,426,179 common shares for $2,535,255, incurring $1,858,037 in costs related to the Regulation S offering.





5.  STOCK OPTIONS





No options were granted during the six months ended June 30, 2009 or 2008.





A summary of the changes in options outstanding during the six months ended June 30, 2009, is as follows:





Number of Shares


Weighted Average Exercise PriceOutstanding at 12/31/08

$
1,586,768


$
0.45Exercised


-Cancelled/Expired


(448,000
)


0.66Outstanding at 12/31/07

$
1,138,768


$
0.36





At June 30, 2009, all compensation expense related to outstanding options had been recognized and all options were fully vested.  At June 30, 2009, all options had zero intrinsic value and a weighted average remaining contractual term of 1.05 years.





6.  REIMBURSEMENT OF R&D EXPENSES AND ADVANCES FROM RESEARCH GRANTS





During the six months ended June 30, 2009, we received a reimbursement of allowable research and development expenses through a clinical program funded through the New Mexico Department of Veterans Services and administered by the New Mexico Institute of Mining and Technology to screen New Mexican veterans for lung cancer.  For
the three and six months ended June 30, 2009, we recorded $248,193 and $456,046, respectively, as a reduction of operating expenses related to this clinical study program.





Pursuant to the clinical program, the Company billed reimbursable amounts for tasks and milestones in progress as of June 30, 2009.  These billings totaled $213,234 at June 30, 2009, and are shown as ‘Advances from Research Grants’ in the accompanying balance sheet. Activities under the clinical program are expected to
be completed in the next three months.





7. LEGAL UPDATE





On April 22, 2009, Biomoda, Advanced Optics Electronics, Inc. (“ADOT”), and Leslie S. Robins (“Robins”) entered into a Settlement Agreement and Release (“Settlement”) to resolve all claims in the pending federal lawsuit entitled Advanced Optics Electronics,
Inc., et al. v. Leslie S. Robins, et al.No. CIV-2007-00855, JB/DJS, U.S. District Court for the District of New Mexico and two related suits.  As described below, the Settlement effectively separates Biomoda from ADOT and Robins and cedes control of ADOT to Robins.





Pursuant to the Settlement, in addition to executing a release in favor of Biomoda, Robins took the following action:





(a) paid $10,000 to Biomoda and delivered to Biomoda all Biomoda documents within his possession or control;





(b) resigned from any position he may claim to hold or claim he should hold as an officer or director of Biomoda;





(c) transferred all shares of Biomoda stock currently held by Robins or by any family member or other person, corporation or entity in which he has any control, which consisted of 747,000 shares; and





(d) agreed not to acquire any Biomoda shares in the future.





In addition, on April 22, 2009, our President and current board member, John J. Cousins, resigned as a director and officer of ADOT, and Robins was appointed Chairman, Chief Executive Officer and President of ADOT.  Pursuant to the Settlement, ADOT also transferred 1,231,575 Biomoda shares to the Company and released Biomoda from
all ADOT claims, including claims related to an alleged promissory note dated May 1, 2002, in the amount of $1,030,748, which was disputed and previously written off by Biomoda as of the year ended December 31, 2008.





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_____________________________________________


BIOMODA, INC.


(A Development Stage Company)


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


_____________________________________________








The pending federal lawsuit against Robins was dismissed with prejudice.





The two remaining Defendants in the Federal RICO lawsuit are Alvin Robins (brother of Leslie Robins) and John Kearns (attorney for Leslie Robins). A default judgment has been rendered by the Court against Alvin Robins and John Kearns on all counts alleged and in favor of Biomoda and ADOT. The damages portion of the judgment will
be heard at the Court's convenience. Both ADOT and Biomoda have alleged in court documents damages in the tens of millions of dollars. The remaining two defendants have yet to file a responsive pleading before the Court. Biomoda intends to aggressively pursue collection of damages against the remaining defendants.





8.  SUBSEQUENT EVENTS





In July 2009, the Company entered into an agreement to sell 2,000,000 shares of Biomoda’s common stock to a member of Biomoda’s board of directors for total cash consideration of $100,000, or $0.05 per share.  The agreement allows the purchaser until December 31, 2009, to remit the full purchase price to Biomoda. 
The purchaser agreed to remit $5,000 at the date the agreement was executed as a down payment for the common stock.  In the event the purchaser is unable to pay the full amount by December 31, 2009, Biomoda will issue common stock in an amount equal to the cash actually received, divided by $0.05 per share. In August, 2009, Biomoda issued 100,000 shares of its common stock pursuant to this agreement.


In August 2009, Biomoda issued 250,000 shares of its restricted common stock to a consultant as partial payment for services to be rendered in the future.


Also in August, 2009, Biomoda issued 100,000 of its restricted shares to an employee in lieu of cash wages.


9
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS





COMPANY OVERVIEW





Biomoda, Inc. is a development stage company incorporated in the State of New Mexico on January 3, 1990. Our 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.  Our research and development laboratories are located at 609 Broadway NE in Albuquerque, New Mexico, in a LEEDS-certified building.





PLAN OF OPERATION





Our plan of operation for the next 18 months is to complete our Phase I, II and III Clinical Trials for our lung cancer assay.  We are currently conducting a program to screen veterans for lung cancer in New Mexico.  This program is being funded by the State of New Mexico Department of Veteran Services.
 
 Our initial product is a diagnostic test for lung cancer that will be performed out of body by using a sputum sample from the patient.  Our test does not require any invasive sample taking.  The sample will be sent to a clinical lab where the procedure will be performed to determine the presence, or not, of lung
cancer or precancerous cells.  Our diagnostic test can be used for other cell samples, and we intend to create and market products to diagnose and screen for other prevalent cancers, including breast, cervical, bladder and colorectal.  We have determined that our initial markets will build upon established relationships with prominent hospitals and the U.S. Veterans Administration hospitals and laboratory infrastructure .  Such relationships will ensure timely initial commercial
sales.  This initial commercial acceptance within the VA system can be efficiently leveraged through the VA infrastructure.  The VA also is the product approval channel for U.S. Agency for International Development (AID) conditional on FDA approval.  Ongoing published results and presentations at appropriate medical symposia will help accelerate sales growth.




In addition to augmenting laboratory research and development, management plans to further strengthen our corporate infrastructure 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 12
months as needed to continue to strengthen and enhance the effectiveness of implementing our plan as we grow.





CLINICAL STUDY UPDATE




On March 5, 2009, we received approval from an independent Institutional Review Board (IRB) to begin Phase II clinical trials of our cytology-based screening technology for early detection of cancer. Biomoda’s proprietary technology had previously shown 100 percent accuracy and 100 percent specificity during internal testing on a
small sample of patients.  The Phase II study currently underway will expand that sample to a statistically significant number of patients.




Dr. Thomas L. Bauer, thoracic surgeon and cancer researcher with the Christiana Care Health System in Delaware, is the national Principal Investigator (PI) overseeing the Biomoda study.  Bauer has led several lung and esophageal cancer studies and heads up Christiana’s participation in the International Early Lung Cancer
Action Program (I-ELCAP).  Bauer is working with Dr. Lara Patriquin, a diagnostic radiologist in Albuquerque, who serves as the local PI for the study.




The Phase II study is focused on veterans because they are at least 25 percent more likely to develop lung cancer and die from the disease than the general population.  As of August 14, 2009, we had recruited more than 500 veterans for the Phase II study and completed screening on 130 individuals.  Results will
be published at the end of the study period after patient data has been recorded and analyzed. We anticipate the completion of the Phase II study by September 30, 2009.
  The Company has conducted several outreach campaigns to New Mexico veterans and local media to raise awareness of the Phase II study and the benefits of early detection.


Response to the screening program has been positive.  Interested veterans living in New Mexico may still sign up online at our website, www.biomoda.com, by clicking “sign up for the study”
at the bottom of the Home page.  The non-invasive in-vitro test requires volunteers to provide a deep-lung sputum sample under the guidance of a respiratory therapist.  The sample is processed and screened for cancer cells in the Biomoda lab.





We have a continuing government contract for fiscal year ended June 30, 2009, of $1.3 million, of which approximately $1,216,678 has been already reimbursed leaving approximately $83,332 remaining to be reimbursed as of June 30, 2009.





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OTHER INITIATIVES





Sales


Management plans to implement an “Investigational Use Only” (“IUO”) program to allow interested parties to be screened for lung cancer and for the company to recoup product development costs.





Sputum Bank


Through our Phase II Clinical Trial, Biomoda has developed a bio-bank based on surplus sputum from the participant collections.  Each sample has comprehensive data related to demographics, cytology and radiology results.  This sputum bank represents potential sales and/or leverage to gain other samples to expedite, in
time and cost savings, the completion of our upcoming Phase III Clinical Trial.





Government Contracts


Subsequent to the quarter ended June 30, 2009, Biomoda President John Cousins testified before the New Mexico State Legislature on the progress of the ongoing clinical study for the early detection of lung cancer in New Mexico veterans.  Management believes the legislators’ response to the report was positive.





Grants


We have engaged Corporate Capital Team, Inc. to seek grant funding for our early detection of cancer assay.





Scientific Presentation


The New Mexico Institute of Mining and Technology (“NM Tech”) presented data on the Biomoda technology at the 13th World Conference on Lung Cancer in San Francisco, California, on August 2, 2009.  Titled “Non-Intrusive and Extremely
Early Detection of Lung Cancer Using TCPP (Biomoda Lab Cultured Lung Cancer Data),” the NM Tech abstract was presented in poster format to the 7,000 lung cancer professionals who attended the conference.  TCPP, or meso-tetra (4 carboxyphenyl) porphine, is the chemical compound underlying Biomoda’s patented diagnostic assay.  A copy of the abstract is available on the Biomoda website, www.biomoda.com.




Additional Diagnostic Assay Development


We intend to start development of our cervical cancer diagnostic assay upon receipt of adequate funding for development.


Additional Equity Capital


In July 2009, the Company entered into an agreement to sell 2,000,000 shares of Biomoda’s common stock to a member of Biomoda’s board of directors for total cash consideration of $100,000, or $0.05 per share.  The agreement allows the purchaser until December 31, 2009, to remit the full purchase price to Biomoda. 
The purchaser agreed to remit $5,000 at the date the agreement was executed as a down payment for the common stock.  In the event the purchaser is unable to pay the full amount by December 31, 2009, Biomoda will issue common stock in an amount equal to the cash actually received, divided by $0.05 per share.


Online Networking


Biomoda provides public updates through both Twitter and Facebook.  Interested parties may also register on the Biomoda website atwww.biomoda.comto
receive updates about the Company.





PATENTS AND TRADEMARKS





In January 2005, the U.S. Patent Office awarded a Patent to Biomoda entitled "Compositions and Methods for Detecting Precancerous Conditions in Cells and Tissue Samples using 5, 10, 15, 20 Tetrakis (Carboxyphenyl) Porphine." This Patent represented a significant addition to our patent portfolio and expanded our intellectual property
to include cancer screening as a compliment to the existing technology. We filed for a continuation of this Patent based on research currently underway by researchers at Biomoda.
  In April 2008, the U.S. Patent Office awarded a Divisional Patent to Biomoda entitled “Method of Prognosing Response to Cancer Therapy with 5, 10, 15, 20 - Tetrakis (Carboxyphenyl) Porphine.”  Subsequently, Biomoda has filed two additional patent applications, “Compositions and Methods for Making 5, 10,
15, 20 Tetrakis (4-Carboxyphenyl) Porphine” related to the making of TCPP and “System and Method for Analyzing Samples Labeled with 5, 10, 15, 20 Tetrakis (4-Carboxyphenyl) Porphine (TCPP)” which provides a quantitative method for reading tissue samples for signs of malignant cells based on flow cytometry and dark-field microscopy.
  The U.S. Patent and Trademark Office has registered the marks CyPath® and CyDx®.
  11
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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 months ended June 30, 2009 and 2008
 
 REVENUE.  As of June 30, 2009, there have been no significant revenues since inception.




RESEARCH AND DEVELOPMENT.  Product development expenses consist primarily of personnel expenses and consulting fees. Research and development, including payroll costs and other technical costs, decreased to $16,389 for the three months ended June 30, 2009, from income of $119,160 in the three months ended June 30, 2008. We
believe 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.  During the quarters ended June 30, 2009 and 2008, we received a reimbursement of allowable research and development expenses through a clinical study funded through the New Mexico Department of Veterans Services
and administered by the New Mexico Institute of Mining and Technology to screen New Mexican veterans for lung cancer.  For the three months ended June 30, 2009, we recorded $248,193 as a reduction of research and development expenses related to this clinical study program





GENERAL AND ADMINISTRATIVE.  General and administrative expenses consist of expenses for executive and administrative personnel, facilities, professional services, travel and general corporate activities.  General and administrative costs, taken together with professional fees, decreased to $79,846 in the three months
ended June 30, 2009, from $201,020 in the three months ended June 30, 2008.  The decrease was primarily related to reduced overhead costs in 2009.  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) in these periods is composed of interest expense, which decreased to $3,967 in the three months ended June 30, 2009, from $14,306 in the three months ended June 30, 2008, due to extinguishment in related party debt as of December 31, 2008.





Comparison of the six months ended June 30, 2009 and 2008





RESEARCH AND DEVELOPMENT.  Product development expenses consist primarily of personnel expenses and consulting fees. Research and development, including payroll costs and other technical costs, decreased to $11,330 in the six months ended June 30, 2009, from $29,062
in the six months ended June 30, 2008. We believe 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.  During the quarter ended June 30, 2009, we received a reimbursement of allowable research and development expenses through a clinical study funded through the New Mexico
Department of Veterans Services and administered by the New Mexico Institute of Mining and Technology to screen New Mexican veterans for lung cancer.  For the six months ended June 30, 2009, we recorded $456,046 as a reduction of research and development expenses related to this clinical study program.
  GENERAL AND ADMINISTRATIVE.  General and administrative expenses consist of expenses for executive and administrative personnel, facilities, professional services, travel and general corporate activities.  General and administrative costs, taken together
with professional fees, decreased to $163,386 in the six months ended June 30, 2009, from $690,593 in the six months ended June 30, 2008.  The decrease was primarily related to reduced overhead costs in 2009.  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.


GENERAL AND ADMINISTRATIVE.  General and administrative expenses consist of expenses for executive and administrative personnel, facilities, professional services, travel and general corporate activities.  General and administrative costs, taken together with professional fees, decreased to $163,386 in the six months
ended June 30, 2009 from $690,593 in the six months ended June 30, 2008.  The decrease was primarily related to reduced overhead costs in 2009.  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) in these periods is comprised of interest expense, which decreased to $7,366 in the six months ended June 30, 2009, from $28,758 in the six months ended June 30, 2008, due to extinguishment in related party debt as of December 31, 2008.


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LIQUIDITY AND CAPITAL RESOURCES





We have funded our operations with sales of equity for cash, issuance of equity for services in lieu of cash and government funding.  In the next 18 months, it is our intent to generate revenues from product sales and to begin partially funding operations from revenues which will be subject to clinical trials and FDA approval.





Product development expenditures, including personnel expense and general and administrative expense, was $163,388 for the six months ended June 30, 2009.  Funds for operations, product development and capital expenditures were provided from the sale of restricted company stock and the reimbursement grant we received.  We
will require substantial additional funding for continuing research and development, obtaining regulatory approval and the commercialization of our products.





Management believes that sales of securities and government contracts will provide adequate liquidity and capital resources to meet the anticipated development-stage requirements through the end of 2010.  In addition, it is anticipated that sales of our initial screening product will begin in 2010, pending FDA approval, and generate
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 we will be able to obtain sufficient additional funds when needed, or that such funds, if available, will be obtainable on terms satisfactory to us.  The consolidated financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern.





INFLATION





Management believes that inflation has not had a material effect on our results of operations.





Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





There has been no material change in our market risks since the end of the fiscal year 2008.





Item 4. CONTROLS AND PROCEDURES





Under the supervision and with the participation of our management, 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, 2009.  Based upon that evaluation,
we concluded that our disclosure controls and procedures were not effective.





We are in the development stages of our business operations and have limited resources available to plan, develop, and implement disclosure and procedure controls and other procedures that are designed to ensure that information required to be disclosed in our periodic reports filed or submitted under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our periodic reports filed under the Exchange Act is accumulated and communicated to management to allow timely decisions regarding required disclosure.




We are re-evaluating and revising our existing control policies and procedures. As part of such plan and implementation, we are re-evaluating, re-designing and documenting policies and procedures, putting such procedures into operation and monitoring the effectiveness of the procedures.





CHANGES IN CONTROLS AND PROCEDURES





Significant changes have been made to improve our internal controls over financial reporting during the six months ended June 30, 2009.  We have employed additional accounting personnel, which has helped us increase the segregation of duties.  We have completed an accounting manual and are implementing a review process
over significant business transactions.





LIMITATIONS ON THE EFFECTIVENESS OF INTERNAL CONTROL





Our 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.




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PART II. OTHER INFORMATION





Item 1.  LEGAL PROCEEDINGS





On April 22, 2009, Biomoda, Advanced Optics Electronics, Inc. (“ADOT”), and Leslie S. Robins (“Robins”) entered into a Settlement Agreement and Release (“Settlement”) to resolve all claims in the pending federal lawsuit entitled Advanced Optics Electronics,
Inc., et al. v. Leslie S. Robins, et al.No. CIV-2007-00855, JB/DJS, U.S. District Court for the District of New Mexico and two related suits.  As described below, the Settlement effectively separates Biomoda from ADOT and Robins and cedes control of ADOT to Robins.





Pursuant to the Settlement, in addition to executing a release in favor of Biomoda, Robins took the following action:





(a) paid $10,000 to Biomoda and delivered to Biomoda all Biomoda documents within his possession or control;





(b) resigned from any position he may claim to hold or claim he should hold as an officer or director of Biomoda;





(c) transferred all shares of Biomoda stock currently held by Robins or by any family member or other person, corporation or entity in which he has any control, which consisted of 747,000 shares; and





(d) agreed not to acquire any Biomoda shares in the future.





In addition, on April 22, 2009, our President and current board member, John J. Cousins, resigned as a director and officer of ADOT, and Robins was appointed Chairman, Chief Executive Officer and President of ADOT.  Pursuant to the Settlement, ADOT also transferred 1,231,575 Biomoda shares to the Company and released Biomoda from
all ADOT claims, including claims related to an alleged promissory note dated May 1, 2002, in the amount of $1,030,748, which was disputed and previously written off by Biomoda as of the year ended December 31, 2008.





The pending federal lawsuit against Robins was dismissed with prejudice.





The two remaining Defendants in the Federal RICO lawsuit are Alvin Robins (brother of Leslie Robins) and John Kearns (attorney for Leslie Robins). A default judgment has been rendered by the Court against Alvin Robins and John Kearns on all counts alleged and in favor of Biomoda and ADOT. The damages portion of the judgment will
be heard at the Court's convenience. Both ADOT and Biomoda have alleged in court documents damages in the tens of millions of dollars. The remaining two defendants have yet to file a responsive pleading before the Court. Biomoda intends to aggressively pursue collection of damages against the remaining defendants.





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





31Certification 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.





32Certification 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.





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SIGNATURES




Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.








Dated: August 14, 2009





BIOMODA, INC.





By: /s/ John J. Cousins


John J. Cousins


President


(Principal Executive and Accounting Officer)














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