U. S. SECURITIES AND EXCHANGE COMMISSION

                          WASHINGTON, DC 20549

                               FORM 10-QSB

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

                     SECURITIES EXCHANGE ACT OF 1934

             For the quarterly period ended: March 31, 2004

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

                      BIOMODA, INC. AND SUBSIDIARY
       (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 March
     31, 2004 was 6,832,282.

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

<PAGE>

                                TABLE OF CONTENTS

PART I. Financial Information

   Item 1. Condensed Consolidated Financial Statements...............F-1 to F-9
   Item 2. Management's Discussion and Analysis of Financial
           Condition and Results of Operations................................4
   Item 3. Controls and Procedures............................................7

PART II. Other Information

   Item 1. Legal Proceedings..................................................9
   Item 2. Changes in Securities and Use of Proceeds..........................9
   Item 3. Defaults Upon Senior Securities....................................9
   Item 4. Submission of Matters to a Vote of Security Holders................9
   Item 5. Other Information.................................................10
   Item 6. Exhibits and Reports On Form 8-K..................................10

Signatures...................................................................11

                                                                               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:  Condensed Consolidated Financial Statements


                          BIOMODA, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)
                      CONDENSED CONSOLIDATED BALANCE SHEET
                                 March 31, 2004
                                    UNAUDITED


                                     ASSETS


Current Assets
       Cash                                                         $       198
       Prepaid expenses                                                   3,241
                                                                    -----------
              Total Current Assets                                        3,439

Patents, net                                                            170,144

Property and Equipment, net                                              15,350
                                                                    -----------

                                                                    $   188,933
                                                                    ===========
                 LIABILITIES AND STOCKHOLDERS' DEFICIT

Current Liabilities
       Bank overdraft                                               $     5,744
       Accounts payable and accrued liabilities                         190,653
       Advances from stockholders                                       130,543
       Line of credit from an affiliated entity                         421,945
                                                                    -----------
              Total Current Liabilities                                 748,885

Commitments and Contingencies

Stockholders' Deficit
       Common stock, no par value, 15,000,000 shares
         authorized; 6,832,282 issued and outstanding                 1,329,696
       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
       Deficit accumulated during development stage                  (1,889,648)
                                                                    -----------

       Total Stockholders' Deficit                                     (559,952)
                                                                    -----------
                                                                    $   188,933
                                                                    ===========


  See accompanying notes to these condensed consolidated financial statements.

F-1
<PAGE>

                          BIOMODA, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
            FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2004 AND 2003
      AND FOR THE PERIOD FROM JANUARY 3, 1990 (INCEPTION) TO MARCH 31, 2004
                                    UNAUDITED

<TABLE>
<CAPTION>
                                                                                      JANUARY 3, 1990
                                                                                        (INCEPTION)
                                                                                        TO MARCH 31,
                                                             2004           2003           2004
                                                         -----------    -----------    -----------
<S>                                                      <C>            <C>            <C>
Revenue                                                  $        --    $        --    $        23
                                                         -----------    -----------    -----------
Operating expenses
  Payroll and related taxes                                       --             --        856,161
  Professional fees                                           21,364          9,150        320,285
  General and administrative                                   9,703          1,934        236,491
  Licensing fees                                                  --             --         73,017
  Research and development                                   131,435             --        259,075
  Depreciation and amortization                                3,412          2,339         48,822
                                                         -----------    -----------    -----------
Total Operating Expenses                                     165,914         13,423      1,793,851
                                                         -----------    -----------    -----------

Loss from operations                                        (165,914)       (13,423)    (1,793,828)

Other Income (Expenses)
  Gain on forgivness of debt                                      --             --         24,721
  Interest income                                                 --             --          3,870
  Interest expense                                            (6,190)        (8,392)      (124,411)
  Foreign currency transaction gain                               --            467             --
                                                         -----------    -----------    -----------
       Total Other Expenses                                   (6,190)        (7,925)       (95,820)
                                                         -----------    -----------    -----------

Loss Before Provision For Income Taxes                      (172,104)       (21,348)    (1,889,648)

Provision for income taxes                                        --             --             --
                                                         -----------    -----------    -----------
Net Loss and Losses Accumulated
  During the Development Stage                           $  (172,104)   $   (21,348)   $(1,889,648)
                                                         ===========    ===========    ===========

Basic and diluted weighted average number of
    shares outstanding                                     6,790,522      6,228,060
                                                         ===========    ===========

Basic and diluted loss per common share                  $     (0.03)   $    (0.003)

F-2                                                      ===========    ===========
</TABLE>

  See accompanying notes to these condensed consolidated financial statements

<PAGE>

                          BIOMODA, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
            FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2004 AND 2003
      AND FOR THE PERIOD FROM JANUARY 3, 1990 (INCEPTION) TO MARCH 31, 2004
                                    UNAUDITED

<TABLE>
<CAPTION>
                                                                                                   JANUARY 3, 1990
                                                                                                   (INCEPTION) TO
                                                                           2004           2003      MARCH 31, 2004
                                                                       -----------    -----------    -----------
<S>                                                                  <C>            <C>             <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES

  Net loss                                                             $  (172,104)   $   (21,348)    (1,889,648)
  Adjustments to reconcile net loss to
      net cash used in operating activities:
    Stock options expense                                                       --             --        147,000
    Issuance of common stock for services                                   17,500             --         17,500
    Loss on sale of assets                                                      --             --            358
    Foreign currency transactions                                               --             --          3,247
    Deprecation and amortization                                             3,412          2,339         48,823
  Changes in operating assets and liabilities:                                  --             --             --
    Accounts receivable                                                         --             --         (4,425)
    Other Assets                                                                --             --          1,184
    Patents                                                                (16,690)            --        (16,690)
    Bank overdraft                                                           5,744             --          5,744
    Accounts payable and accrued liabilities                                36,119          8,156        277,554
    Advances from stockholders                                                  --             --          9,564
                                                                       -----------    -----------    -----------
Net cash flows used in operating activities                               (126,019)       (10,853)    (1,399,789)

CASH FLOWS FROM INVESTING ACTIVITIES
    Purchase of property and equipment                                     (14,020)            --        (24,019)
    Sale of property and equipment                                              --             --          1,139
    Organizational costs                                                        --             --           (560)
    Patent, trademark and license fee                                           --             --       (198,628)
                                                                       -----------    -----------    -----------
Net cash flows used in investing activities                                (14,020)            --       (222,068)

CASH FLOWS FROM FINANCING ACTIVITIES
    Proceeds from stockholders' advances                                        --             --         86,014
    Proceeds from line of credit from an affiliated entity                 135,490         11,458        451,945
    Issuance of common stock for cash                                           --             --      1,084,096
                                                                       -----------    -----------    -----------
Net cash flows provided by financing activities                            135,490         11,458      1,622,055

Net (decrease) increase in cash                                             (4,549)           605            198

Cash, beginning of year                                                      4,747            155          4,747
                                                                       -----------    -----------    -----------

Cash, end of period                                                    $       198    $       760    $     4,945
                                                                       ===========    ===========    ===========
Supplemental  disclosure  of cash flow  information  -
   Cash paid during the period for:

Interest                                                               $        --    $        --    $        --
                                                                       ===========    ===========    ===========
Income taxes                                                           $        --    $        --    $        --
                                                                       ===========    ===========    ===========
</TABLE>

See accompanying notes to consolidated financial statements for more information
on non-cash  investing and financing  activities  during the periods ended March
31, 2004 and 2003, and for the period from January 3, 1990  (Inception)  through
March 31, 2004.

  See accompanying notes to these condensed consolidated financial statements.

F-3
<PAGE>

--------------------------------------------------------------------------------
                                  BIOMODA, INC.
                          (A DEVELOPMENT STAGE COMPANY)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                             MARCH 31, 2004 AND 2003
--------------------------------------------------------------------------------

1.  NATURE OF BUSINESS AND BASIS OF PRESENTATION

Formation and Nature of Business
--------------------------------

Biomoda,  Inc.  ("Biomoda") is a development  stage company  incorporated in the
state of New Mexico on January 3, 1990 (Inception). In 2002, the Chief Executive
Officer  ("CEO") and the Chief  Financial  Officer  ("CFO") of  Advanced  Optics
Electronics,  Inc.  ("ADOT")  replaced  Biomoda's  management team,  affecting a
change in control.  ADOT also owns  approximately  17% of Biomoda's  outstanding
common  stock.  In  2003,  the  CEO  and  the CFO  each  acquired  7.27%  of the
outstanding  common stock of Biomoda.  On August 13, 2003, Biomoda formed a 100%
owned subsidiary known as Biomoda Holdings, Inc., a Nevada corporation,  for the
purpose of  research,  development,  production  and  marketing  of medical  and
biomedical  products.   Biomoda  and  Biomoda  Holdings,  Inc.  are  hereinafter
collectively referred to as the "Company".

The  Company's  primary  focus  is on early  cancer  detection  technology.  The
Company's novel cell-targeting technology is globally patented for the detection
of pre-cancerous and cancerous  conditions in all human tissue. This technology,
based  on a  compound  called  Tetrakis  Carboxy  Phenyl  Porphine  (TCPP),  was
developed at St. Mary hospital in Colorado and Los Alamos National Laboratories.
The Company obtained a worldwide  exclusive  license to the TCPP technology from
the University of California in late 1995, and began new research broadening the
scope of the original patent and technology. In November 2000, the Company filed
a new U.S.  provisional patent application defining the ability of the Company's
version of the TCPP to detect  pre-cancerous  and  cancerous  conditions  in all
human tissue.  The Company began the  commercialization  process by trademarking
the technology as Porvidx (TM).  Management expects to start pre-clinical trials
in the  fall of 2004 and  clinical  trials  in 2005,  which  will  culminate  in
applying for the United States Food and Drug Administration ("FDA") approval.

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  5,000,000  shares of its  common  stock at a price of $6 per  Share.  The
Registration  Statement  was declared  effective on July 11, 2003.  The Offering
will  terminate on the earlier of July 11, 2005 or the date on which the maximum
number of shares have been sold.  The Company has not sold any shares under such
Registration Statement as of March 31, 2004.

Development Stage and Going Concern
-----------------------------------

The  Company 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 March 31, 2004,  the Company had an
accumulated deficit of approximately $1,890,000 and a working capital deficit of
approximately $745,000.


--------------------------------------------------------------------------------
F-4

<PAGE>

--------------------------------------------------------------------------------
                                  BIOMODA, INC.
                          (A DEVELOPMENT STAGE COMPANY)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                             MARCH 31, 2004 AND 2003
--------------------------------------------------------------------------------

1. NATURE OF BUSINESS AND BASIS OF PRESENTATION (continued)

Development Stage and Going Concern (continued)
-----------------------------------------------


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

The Company 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 the  Company's  common stock
offered in its Registration Statement. 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 (See Note 4).

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.

Basis of Presentation
---------------------

The  management  of  the  Company,   without   audit,   prepared  the  condensed
consolidated  financial  statements for the three-month  periods ended March 31,
2004 and 2003. The  information  furnished has been prepared in accordance  with
accounting  principles  generally  accepted  in the  United  States  of  America
("GAAP") for interim financial reporting.  Accordingly,  certain information and
disclosures  normally  included in financial  statements  prepared in accordance
with GAAP have been  condensed  or omitted.  In the opinion of  management,  all
adjustments  considered  necessary  for the fair  presentation  of the Company's
financial position,  results of operations and cash flows have been included and
are only of a normal recurring nature. The results of operations for the quarter
ended March 31, 2004 are not necessarily indicative of the results of operations
for the year ending December 31, 2004.

These condensed  consolidated financial statements should be read in conjunction
with the Company's audited consolidated  financial statements as of December 31,
2003, which are included in the Company's Form 10-KSB,  which was filed on March
30, 2003.

--------------------------------------------------------------------------------
F-5

<PAGE>

--------------------------------------------------------------------------------
                                  BIOMODA, INC.
                          (A DEVELOPMENT STAGE COMPANY)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                             MARCH 31, 2004 AND 2003
--------------------------------------------------------------------------------

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Accounting for Stock-based Compensation
---------------------------------------

The Company accounts for stock-based  compensation issued to employees using the
intrinsic value method as prescribed by Accounting  Principles Board Opinion No.
25 "Accounting  for Stock Issued to Employees"  ("APB 25").  Under the intrinsic
value method, compensation is the excess, if any, of the fair value of the stock
at the grant date or other measurement date over the amount an employee must pay
to acquire the stock.  Compensation,  if any, is recognized  over the applicable
service period,  which is usually the vesting period.  The Financial  Accounting
Standards Board ("FASB") has issued Statement of Financial  Accounting Standards
("SFAS") No. 123 "Accounting for Stock-Based  Compensation",  as amended by SFAS
No. 148,  "Accounting for Stock-Based  Compensation - Transition and Disclosure,
an amendment of FASB Statement No. 123" and  interpreted by FASB  Interpretation
No. 44, "Accounting for Certain  Transactions  Involving Stock Compensation,  an
Interpretation of APB 25." This standard,  if fully adopted,  changes the method
of accounting for all  stock-based  compensation  to the fair value method.  For
stock options and warrants,  fair value is  determined  using an option  pricing
model that takes into  account the stock price at the grant date,  the  exercise
price,  the  expected  life of the  option or  warrant  and the  annual  rate of
quarterly  dividends.  Compensation  expense,  if any,  is  recognized  over the
applicable service period, which is usually the vesting period.

The  adoption of the  accounting  methodology  of SFAS No. 123 for  employees is
optional  and the Company has elected to  continue  accounting  for  stock-based
compensation  issued to employees using APB 25; however,  pro forma disclosures,
as if the Company adopted the cost recognition  requirements under SFAS No. 123,
are required to be presented.

In December 2002, the Financial  Accounting Standards Board ("FASB") issued SFAS
No. 148 ("SFAS 148"),  "Accounting for Stock-Based Compensation - Transition and
Disclosure - an Amendment of FASB  Statement  No. 123." SFAS 148 amends SFAS 123
to provide  alternative  methods of  transition  for an entity that  voluntarily
changes to the  fair-value-based  method of accounting for stock-based  employee
compensation.  It also amends the  disclosure  provisions  of that  statement to
require  prominent  disclosure  about the  effects  on  reported  net income and
earnings per share and the entity's  accounting policy decisions with respect to
stock-based employee  compensation.  Certain of the disclosure  requirements are
required  for all  companies,  regardless  of whether  the fair value  method or
intrinsic value method is used to account for stock-based employee  compensation
arrangements.  The Company continues to account for its employee incentive stock
option plans using the intrinsic value method in accordance with the recognition
and  measurement  principles  of APB 25.  SFAS 148 is  effective  for  financial
statements  for fiscal  years  ended  after  December  15,  2002 and for interim
periods beginning after December 15, 2002. As of March 31, 2004, the Company has
not established a formal stock option plan.

--------------------------------------------------------------------------------
F-6

<PAGE>

--------------------------------------------------------------------------------
                                  BIOMODA, INC.
                          (A DEVELOPMENT STAGE COMPANY)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                             MARCH 31, 2004 AND 2003
--------------------------------------------------------------------------------

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Earnings Per Share
------------------

The Company has adopted  Statement of  Financial  Accounting  Standards  No. 128
("SFAS 128"),  "Earnings Per Share" Under SFAS 128,  basic earnings per share is
computed by dividing  income  available to common  stockholders  by the weighted
average  number  of  shares  assumed  to be  outstanding  during  the  period of
computation.  Diluted  earnings per share is computed  similar to basic earnings
per share  except that the  denominator  is  increased  to include the number of
additional  common  shares  that would have been  outstanding  if the  potential
common shares had been issued and if the additional common shares were dilutive.
Because  the Company has  incurred a net loss in the three month  periods  ended
March  31,  2004 and  2003,  basic  and  diluted  loss per share are the same as
additional potential common shares would be anti-dilutive.

Patent
------

Costs incurred in connection with securing a patent,  as well as attorneys fees,
have been  capitalized  and amortized  over  seventeen  years using the straight
line-method and are included in other assets on the accompanying  balance sheet.
Costs related to patents  pending are amortized  beginning  upon issuance of the
related patents.

3.  ADVANCES FROM STOCKHOLDERS

As of March 31, 2004, the Company had advances of approximately $131,000 payable
to three of its  stockholders.  Such advances  historically bore interest at 10%
per annum and are due on  demand.  Management  and the  board of  directors  are
reevaluating  the  current  market  trends and terms and  expect to reduce  such
interest  rate in 2004.  No interest  expense  related to such  advances for the
three-month  period  ended  March 31,  2004 was  accrued  for as the  Company is
negotiating  the pay off of such  advances  with  these  stockholders.  Interest
expense related to such advances for the three-month period ended March 31, 2004
and for the period  from  Inception  through  March 31,  2004 was  approximately
$13,000 and $27,000, respectively.

--------------------------------------------------------------------------------
F-7

<PAGE>

--------------------------------------------------------------------------------
                                  BIOMODA, INC.
                          (A DEVELOPMENT STAGE COMPANY)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                             MARCH 31, 2004 AND 2003
--------------------------------------------------------------------------------

4.  LINE OF CREDIT FROM AN AFFILIATED ENTITY

On May 1, 2002,  the Company  entered into a one-year  line of credit  agreement
(the  "Agreement")  with ADOT with an annual interest rate of 5%. On May 1, 2003
the Agreement was amended to be payable on demand.  Interest  expense related to
such a line of credit for the  three-month  period ended March 31, 2004, and for
the period from Inception through March 31, 2004 was approximately  $6,000   and
$13,000, respectively.

5. EQUITY TRANSACTIONS

In February 2004, the Company issued 35,000 shares of restricted common stock to
an employee as a bonus valued at $17,500 (estimated by management to be the fair
value on the date of grant). In addition, in January 2004 ADOT purchased options
to purchase 60,000 shares of the company's  restricted  common stock from two of
the company's former  employees.  Subsequently,  ADOT exercised such options for
$30,000  (estimated by management to be the fair value).  The purchase price was
offset against the line of credit payable to ADOT.

6.  OTHER RELATED PARTY TRANSACTION

On May 1, 2002,  the Company  entered  into a subleases  agreement  with ADOT to
sublease  an  office  space for $300 a month.  The lease is on a  month-to-month
basis and the  Company is to abide  with all  relevant  covenants  of the master
lease.

On December 1, 2003,  the Company  entered into a lease  agreement  with ADOT to
lease certain lab equipment for $500 a month.  The lease is on a  month-to-month
basis and the  Company is to abide  with all  relevant  covenants  of the master
lease.

Rental  expense  related to the above  leases for the  three-month  period ended
March 31,  2004 and for the period  from  Inception  through  March 31, 2004 was
approximately $2,400, and $8,900, respectively.

--------------------------------------------------------------------------------
F-8

<PAGE>

--------------------------------------------------------------------------------
                                  BIOMODA, INC.
                          (A DEVELOPMENT STAGE COMPANY)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                             MARCH 31, 2004 AND 2003
--------------------------------------------------------------------------------

7.  RECENT ACCOUNTING PRONOUNCEMENTS

Significant recent accounting pronouncements include:

<TABLE>
<CAPTION>
                                                                                         ADOPTION/ EFFECTIVE
      PRONOUNCEMENT                                  TITLE                                      DATE
-------------------------    -------------------------------------------------------    ----------------------
<S>                          <C>                                                        <C>
SFAS No. 141                 BUSINESS COMBINATIONS                                         January 1, 2002

SFAS No. 142                 GOODWILL AND OTHER INTANGIBLE ASSETS                          January 1, 2002

SFAS No. 143                 ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS                   January 1, 2003

SFAS No. 145                 RESCISSION  OF FASB  STATEMENTS  NO.  4,  44,  AND 64,          May 15, 2002
                             AMENDMENT  OF FASB  STATEMENT  NO. 13,  AND  TECHNICAL
                             CORRECTIONS

SFAS No. 146                 ACCOUNTING FOR COSTS  ASSOCIATED WITH EXIT OR DISPOSAL        January 1, 2003
                             ACTIVITIES

SFAS No. 148                 ACCOUNTING FOR  STOCK-BASED  COMPENSATION - TRANSITION       December 31, 2002
                             AND DISCLOSURE, AN AMENDMENT OF FASB STATEMENT NO. 123

SFAS No. 150                 ACCOUNTING  FOR  CERTAIN  FINANCIAL  INSTRUMENTS  WITH          May 31, 2003
                             CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY.

FIN 45                       GUARANTOR'S  ACCOUNTING  AND  DISCLOSURE  REQUIREMENTS       December 31, 2002
                             FOR  GUARANTEES,   INCLUDING  INDIRECT  GUARANTEES  OF
                             INDEBTEDNESS  OF  OTHERS - AN  INTERPRETATION  OF FASB
                             STATEMENTS  NO. 5, 57, AND 107 AND  RESCISSION OF FASB
                             INTERPRETATION NO. 34

FIN 46                       CONSOLIDATION OF VARIABLE INTEREST ENTITIES                   January 31, 2003

</TABLE>

In the opinion of management,  recent accounting  pronouncements did not or will
not have a material affect on the financial statements.

--------------------------------------------------------------------------------
F-9

<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  primary  focus is on
discovery,  development,   manufacture  and  marketing  of  proprietary  medical
diagnostic  and  treatment  products  used to treat life  threatening  and other
serious diseases.

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  5,000,000  shares of its  common  stock at a price of $6 per  Share.  The
Registration  Statement  was declared  effective on July 11, 2003.  The Offering
will  terminate on the earlier of July 11, 2005 or the date on which the maximum
number of shares have been sold.  The Company is in  negotiations  with  several
investor  groups who have  expressed a very strong  interest in a portion of the
offering, however no shares have been sold as of March 31, 2004.

PLAN OF OPERATION

Our plan of  operations  for the next twelve  months is to verify and refine our
assay, design our kit, prepare for clinical trials, and initiate a dialogue with
the FDA relative to our approval  submission.  The Company,  in the interim,  is
relying on a bridge financing arrangement with Advanced Optics Electronics, Inc.
and also  intends  to  raise  additional  funds  from its  effective  Form  SB-2
Registration  Statement during the next twelve 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 if and when adequate funds
are raised.

Our initial  product is a diagnostic test for lung cancer that will be performed
out of the  body by using a spit  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.  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
such as breast,  cervical and colon-rectal.  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, and has instituted a nationwide lung
cancer-screening program.

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

                                                                               4
<PAGE>

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 pre-clinical  work is being conducted.  We have
contracted  with several top tier  consulting  firms in the areas of  regulatory
affairs,  insurance reimbursement,  medical affairs, and European regulatory and
business  affairs  in order to move  forward  our  initiatives  in each of these
areas.

Over the next twelve months  management will  continuously  evaluate and develop
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 risks associated with our business plan.

RESULTS OF CONTINUING OPERATIONS

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

Comparison of the Three-month Periods Ended March 31, 2004 and 2003
-------------------------------------------------------------------

REVENUE. As of March 31, 2004, there have been no revenues.

PRODUCT DEVELOPMENT. Product development expenses consist primarily of personnel
expenses,  consulting  fees,  licensing fees and  depreciation  of the equipment
associated with the  development and enhancement of our disease  screening tool.
Research and development  increased to  approximately  $131,000 during the three
months ended March 31, 2004. The Company had no research and  development  costs
during  the three  months  ended  March 31,  2003.  The  Company  believes  that
continued  investment  in product  development  is  critical  to  attaining  our
strategic objectives and, as a result, we expect product development expenses to
increase  significantly in future periods.  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,  professional
services,  travel,  general  corporate  activities,  and  the  depreciation  and
amortization  of  office  furniture  and  leasehold  improvements.  General  and
administrative  costs  decreased  to  approximately  $10,000 in the three months
ended March 31, 2004 from $12,000 in the three  months ended March 31, 2003.  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.

                                                                               5
<PAGE>

OTHER INCOME  (EXPENSE).  Other income (expense)  consists of interest and other
income and expense.  Other (expense)  decreased to  approximately  $6,000 in the
three months ended March 31, 2004 from approximately  $8,000 in the three months
ended March 31, 2003

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 March 31,  2004 we have raised net  proceeds  of  approximately
$1,100,000.

Product  development  expenditures were  approximately  $131,000 for the quarter
ended March 31, 2004.  Funds for  operations,  product  development  and capital
expenditures were provided from a bridge financing arrangement. The Company will
require substantial  additional funding for continuing research and development,
obtaining regulatory approval and for the commercialization of its products. The
Company's  cash  was  $198 as of  March  31,  2004.  The  decrease  compared  to
approximately  $4,747 as of December 31, 2003 is  primarily  due to research and
development expenditures.

Management believes that sales of securities will provide adequate liquidity and
capital resources to meet the anticipated development stage requirements through
the end of the second  quarter 2005. 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.

                                                                               6
<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 a date (the "Evaluation Date") within 90 days prior to filing
the Company's March 31, 2004 Form 10-QSB.  Based upon that  evaluation,  the CEO
and CFO  concluded  that,  as of March 31,  2004,  our  disclosure  controls and
procedures were of limited effectiveness.

The Company was in the infancy stages of its business operations and had 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 the  Company's  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
the Company's  periodic  reports filed under the Exchange Act is accumulated and
communicated to management,  including the Company's Chief Executive Officer and
Chief  Financial   Officer,   to  allow  timely  decisions   regarding  required
disclosure.

In March 2003,  the Company has hired an independent  third party  consultant to
re-evaluate  and revise its  existing  control  policies and  procedures  and to
implement  new  disclosure  controls  and  procedures.  As part of such plan and
implementation,  the Company is  re-evaluating  and re-designing and documenting
policies and procedures,  putting such  procedures in operation,  and monitoring
the effectiveness of the procedures.

Changes in Controls and Procedures
----------------------------------

There were no significant  changes made in our internal  controls over financial
reporting during the quarter ended March 31, 2004 that have materially  affected
or are reasonably likely to materially affect these controls.

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

                                                                               7
<PAGE>

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 override of the control. 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.

                                                                               8
<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

In February 2004, the Company issued 35,000 shares of restricted common stock to
an employee as a bonus valued at $17,500 (estimated by management to be the fair
value on the date of grant). In addition, in January 2004 ADOT purchased options
to purchase 60,000 shares of the company's  restricted  common stock from two of
the company's former  employees.  Subsequently,  ADOT exercised such options for
$30,000  (estimated by management to be the fair value).  The purchase price was
offset against the line of credit payable to ADOT.

Item 3.  DEFAULTS UPON SENIOR SECURITIES - NONE

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

There were no matters  submitted  to a vote of the  Company's  security  holders
during the first quarter of fiscal year 2004.

                                                                               9
<PAGE>

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  Executive  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.

(b) Reports on Form 8-K

No reports on Form 8-K was filed during the first quarter of 2004.

                                                                              10
<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:  May 17, 2004

BIOMODA, INC. AND SUBSIDIARY

                                   BY:/S/ John J. Cousins
                                   ---------------------------------------
                                   John J. Cousins
                                   President
                                   (Principal Executive and Accounting Officer)


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