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: September 30, 2006


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


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


             New Mexico                             85-0392345
              (State of                           (IRS Employer
            incorporation)                      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
    ---       ---

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

The number of issuer's  shares of Common  Stock  outstanding  as of November 10,
2006 was 9,053,753.

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


<PAGE>





                                TABLE OF CONTENTS

PART I. Financial Information

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

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

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

PART II. Other Information

Item 1. Legal Proceedings......................................................6

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

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

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

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

Item 6. Exhibits...............................................................8

Signatures

                                      -2-
<PAGE>



                          PART I: FINANCIAL INFORMATION

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

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

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

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

                                      -3-
<PAGE>





ITEM 1:  CONSOLIDATED FINANCIAL STATEMENTS

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

<TABLE>
<CAPTION>

                                                                            September 30,  December 31,
                                                                               2006           2005
                                                                            -----------    -----------
<S>                                                                         <C>            <C>
                             ASSETS

Current Assets
       Cash                                                                 $        35    $        24
       Cash, restricted                                                             100           --
       Prepaid expenses                                                           3,241          6,436
                                                                            -----------    -----------
       Total Current Assets                                                       3,376          6,460

Patents, net of accumulated amortization
    of $84,288 and $71,900                                                      217,198        225,853

Property and Equipment, net of accumulated depreciation
    of $8,882 and $6,666                                                          7,162          9,378
                                                                            -----------    -----------

                                                                            $   227,735    $   241,691
                                                                            ===========    ===========


             LIABILITIES AND STOCKHOLDERS' DEFICIT

Current Liabilities
       Accounts payable and accrued liabilities                             $   464,476    $   331,715
       Common stock payable                                                      30,000           --
       Advances from stockholders                                               160,690        149,002
       Line of credit from an affiliated entity                               2,034,426      1,491,523
                                                                            -----------    -----------
       Total Current Liabilities                                              2,689,593      1,972,240
                                                                            -----------    -----------

Commitments and Contingencies

Stockholders' Deficit
       Class A redeemable preferred stock; no par value                            --             --
         2,000,000 shares authorized; cumulative and
         convertible; liquidation and redemption values
         of $1.50 and $1.80 per share; no shares issued
         and outstanding
       Undesignated preferred stock; 2,000,000 shares                              --             --
         authorized; no shares issued and outstanding
       Common stock, no par value, 100,000,000 shares
         authorized; 7,187,282 issued and 7,127,282 and
         7,187,282 shares outstanding, respectively                           1,375,729      1,370,696
       Deficit accumulated during development stage                          (3,828,587)    (3,101,245)
       Treasury stock, 60,000 shares                                             (9,000)          --
                                                                            -----------    -----------

       Total Stockholders' Deficit                                           (2,461,858)    (1,730,549)
                                                                            -----------    -----------

                                                                            $   227,735    $   241,691
                                                                            ===========    ===========
</TABLE>


       See accompanying notes to these consolidated financial statements.

--------------------------------------------------------------------------------
Page F-1
<PAGE>

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

                                          Nine Months Ended      January 3, 1990
                                             September 30         (Inception) to
                                      --------------------------   September 30,
                                          2006          2005          2006
                                      -----------    -----------    -----------


Revenue                               $      --      $      --      $        23
                                      -----------    -----------    -----------


Operating expenses
Professional fees                         101,035         19,724        617,348
General and administrative                166,581         97,499        640,792
Licensing fees                             15,125         15,125        119,043
Research and development                  369,602        229,691      2,068,352
Depreciation and amortization              14,604         15,225         96,284
                                      -----------    -----------    -----------
Total Operating Expenses                  666,947        377,264      3,541,819
                                      -----------    -----------    -----------

Loss from operations                     (666,947)      (377,264)    (3,541,796)

Other Income (Expenses)
Gain on forgiveness of debt                16,064           --           53,035
Interest income                              --             --            3,870
Interest expense                          (76,459)       (63,708)      (343,696)
                                      -----------    -----------    -----------
Total Other Expenses                      (60,395)       (63,708)      (286,791)
                                      -----------    -----------    -----------

Net loss                              $  (727,342)   $  (440,972)   $(3,828,587)
                                      ===========    ===========    ===========

Basic and diluted weighted average
    number of shares outstanding        7,187,282      7,120,734
                                      ===========    ===========

Basic and diluted loss per
    common share                      $     (0.10)   $     (0.06)
                                      ===========    ===========

       See accompanying notes to these consolidated financial statements.

--------------------------------------------------------------------------------
Page F-2
<PAGE>

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

                                     Three Months Ended September 30
                                      --------------------------
                                        2006             2005
                                      -----------    -----------


Revenue                               $      --        $    --
                                      -----------    -----------


Operating expenses
Professional fees                          79,392          6,468
General and administrative                 28,737         30,067
Licensing fees                                125            125
Research and development                  110,877         81,157
Depreciation and amortization               4,911          5,961
                                      -----------    -----------
Total Operating Expenses                  224,042        123,778
                                      -----------    -----------

Loss from operations                     (224,042)      (123,778)

Other Income (Expenses)
Gain on debt settlement                      --             --
Interest income                              --             --
Interest expense                          (27,317)       (13,272)
                                      -----------    -----------
Total Other Expenses                      (27,317)       (13,272)
                                      -----------    -----------

Net loss                              $  (251,359)   $  (137,050)
                                      ===========    ===========

Basic and diluted weighted average
    number of shares outstanding        7,187,282      7,120,734
                                       ===========    ===========
Basic and diluted loss per
    common share                      $     (0.03)   $     (0.02)
                                       ===========    ===========



       See accompanying notes to these consolidated financial statements.

--------------------------------------------------------------------------------
Page F-3
<PAGE>

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

<TABLE>
<CAPTION>

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

Net loss                                                 $  (727,342)   $  (440,972)   $(3,828,587)
Adjustments to reconcile net loss to
     net cash used in operating activities:
Stock-based compensation                                       5,033          4,500        221,029
Loss on sale of assets                                          --             --              358
Foreign currency transactions                                   --             --            3,247
Gain on debt settlement                                      (16,064)          --          (11,171)
Depreciation and amortization                                 14,604         15,225         96,284
Changes in operating assets and liabilities:
   Accounts receivable                                          --             --           (7,620)
   Other assets                                                3,195           --            4,379
   Accounts payable and accrued liabilities                  148,826         61,779        586,499
                                                         -----------    -----------    -----------
Net cash flows used in operating activities                 (571,747)      (359,468)    (2,935,581)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment                            (3,733)          --          (27,912)
Proceeds from sale of property and equipment                    --             --            1,139
Organizational costs                                            --             --             (560)
Investment in restricted cash                                   (100)          --             (100)
Patent, trademark and license fee                               --          (41,460)      (297,753)
                                                         -----------    -----------    -----------
Net cash flows used in investing activities                   (3,833)       (41,460)      (325,186)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from stockholders' advances                          11,688         11,695        121,280
Proceeds from line of credit from an affiliated entity       542,903        388,071      2,034,426
Purchase of treasury stock                                    (9,000)          --           (9,000)
Proceeds from common stock subscriptions                      30,000           --           30,000
Issuance of common stock for cash                               --             --        1,084,096
                                                         -----------    -----------    -----------
Net cash flows provided by financing activities              575,591        399,766      3,260,802

Net increase (decrease) in cash                                   11         (1,162)            35

Cash, beginning of period                                         24          1,360           --

                                                         -----------    -----------    -----------
Cash, end of period                                      $        35    $       198    $        35
                                                         ===========    ===========    ===========
</TABLE>


       See accompanying notes to these consolidated financial statements.

--------------------------------------------------------------------------------
Page F-4
<PAGE>

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

1.  BASIS OF PRESENTATION

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

2.  DEVELOPMENT STAGE AND GOING CONCERN

Biomoda has been in the development  stage since it began  operations on January
3, 1990 and has not  generated  any  revenues  from  operations  and there is no
assurance  of any future  revenues.  As of September  30,  2006,  Biomoda had an
accumulated deficit of $3,828,587 and a working capital deficit of $2,686,217.

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

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

--------------------------------------------------------------------------------
Page F-5
<PAGE>
--------------------------------------------------------------------------------
                                  BIOMODA, INC.
                          (A Development Stage Company)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)
--------------------------------------------------------------------------------
There is no assurance that Biomoda will be able to obtain sufficient  additional
funds when needed, or that such funds, if available, will be obtainable on terms
satisfactory to Biomoda.  The consolidated  financial  statements do not include
any adjustments  that might be necessary should Biomoda be unable to continue as
a going concern.

3.  STOCK - BASED COMPENSATION

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

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


<TABLE>

                                                         Nine Months Ended    Three Months Ended
                                                         September 30, 2005   September 30, 2005
                                                        -------------------   ------------------
<S>                                                     <C>                   <C>
Net loss, as reported                                   $      (440,972)      $      (137,050)

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

Deduct: stock-based compensation expense
  determined under fair value based method                       (5,033)               (1,491)
                                                        -------------------   ------------------
Pro forma net loss                                          $  (446,005)          $  (138,541)
                                                        ===================   ==================

Net loss per share, basic and diluted:
As reported                                                    $  (0.06)             $  (0.02)
Pro forma                                                         (0.06)                (0.02)

</TABLE>

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

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

The weighted  average fair value of the stock  options  granted  during the nine
months ended September 30, 2005 was $0.15. No options have been granted in 2006.
Variables used in the Black-Scholes  option-pricing  model include (1) risk-free
interest rates of 4.4%, (2) expected option life is the actual remaining life of
the options, (3) expected volatility of 835% and (4) zero expected dividends.

4. NON-RECURRING GAIN

A gain of $16,064 was recorded for the settlement of a declaratory  action filed
in 2005 by  Biomoda,  as  plaintiff  and  others  against a former  employee  of
Biomoda.  A settlement in June 2006  required the defendant and the  defendant's
spouse to transfer  60,000  shares of  Biomoda's  common  stock to Biomoda.  The
settlement  also required that the former employee accept $80,000 out of $96,064
that Biomoda had accrued for the defendant former employee.  At October 2, 2006,
the remaining  balance to be paid to the defendant  former employee was $40,000,
payable $10,000 per month without interest.

5. SUBSEQUENT EVENTS

On  October  23 2006,  Biomoda  issued  60,000  shares of its  common  stock for
services from third parties and 1,806,471  shares in conversion of debt to ADOT.
These transactions were valued at $0.85 per share.

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

<PAGE>

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

COMPANY OVERVIEW

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

On July 19, 2006, the Company  closed its offering of up to 6,000,000  shares of
its  common  stock  pursuant  to a  registration  statement  on Form  SB-2  (the
"Registration Statement") under the Securities Act of 1933, as amended, declared
effective on February 11, 2005.  The Company's  market maker filed Form 211 with
NASD  Regulation to initiate  quotations in its common stock on the OTC Bulletin
Board. The request was cleared on October 19, 2006.

PLAN OF OPERATION

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

Our initial  product is a diagnostic test for 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 such as breast,  cervical,  bladder,  and colorectal.  We have
determined  that our initial  markets will be the  developed  nations of Europe,
North  America and Japan.  This has been  determined  on the basis of  available
healthcare  delivery and payer  infrastructure.  Japan is leading the world, and
has instituted a nationwide  lung  cancer-screening  program.  We also intend to
sell our  product  in  additional  markets  throughout  the world such as India,
Brazil and South  America,  Asia and Russia.  We will market  different  product
formats based on the region of the world.

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

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

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

In January 2005, the U.S. Patent Office awarded a Patent to Biomoda  researchers
entitled  "Compositions  and Methods for  Detecting  Precancerous  Conditions in
Cells and Tissue Samples using 5, 10, 15, 20 Tetrakis (Carboxyphenyl) Porphine".
This Patent  brings a  significant  addition to Biomoda's  Patent  portfolio and
expands the Company's  intellectual  property to include  cancer  screening as a
compliment to Biomoda's  existing  technology.  Biomoda is completing the formal
filing for a continuation for this Patent based on research  currently  underway
by researchers at Biomoda.  The Company believes its goal to further  strengthen
and expand its intellectual property portfolio will be significantly enhanced by
these developments.  Biomoda, Inc.'s R&D Division has successfully completed the
first  clinical  validation  of the company's  development  stage assay for lung
cancer.  These  results  indicate  its  ability  to  differentiate  lung  cancer
patients, heavy smokers, and normal individuals.

                                      -4-
<PAGE>


RESULTS OF OPERATIONS

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

Comparison of the three and nine month periods Ended September 30, 2006 and 2005
-------------------------------------------------------------------

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

PRODUCT DEVELOPMENT. Product development expenses consist primarily of personnel
expenses and consulting fees. Research and development,  including payroll costs
and other  technical  costs  increased  to  approximately  $116,000 in the three
months ended September 30, 2006 from  approximately  $81,000 in the three months
ended  September  30, 2005 and to $374,000 in 2006 from $230,000 in 2005 for the
nine month periods then ended, due to increased  personnel expense.  The Company
believes  that  continued  investment  in product  development  is  critical  to
attaining our strategic  objectives and, as a result, we expect expenses such as
clinical studies and collaborations to increase  significantly in the next year.
We expense product development costs as they are incurred.

GENERAL  AND  ADMINISTRATIVE  General  and  administrative  expenses  consist of
expenses for executive and administrative  personnel,  facilities,  professional
services,  travel and general corporate  activities.  General and administrative
costs,  including  professional fees, increased to approximately $108,000 in the
three  months  ended  September  30, 2006 from $37,000 in the three months ended
September  30,  2005,  and to $268,000 in 2006 from  $117,000 for the nine month
periods then ended.  This  increase was due primarily to  approximately  $75,000
additional  public  relations  expense  related to the  Company's  current stock
offering and increased  legal fees in the third  quarter.  We expect general and
administrative costs to increase in the future as our business prospects develop
and we will  require  more  staff.  The costs  associated  with being a publicly
traded  company and future  strategic  acquisitions  will also be a contributing
factor to increases in this expense.

OTHER INCOME  (EXPENSE)  Other income  (expense)  consists of interest and other
income and expense.  Interest expense increased to approximately  $27,000 in the
three months ended  September 30, 2006 from  approximately  $13,000 in the three
months ended September 30, 2005 due to larger balances in intercompany  debt and
increased  to $76,000  from  $64,000  for the nine  month  periods  then  ended.
Additionally, we recorded a $16,000 gain on forgiveness of debt.

LIQUIDITY AND CAPITAL RESOURCES

Since  inception,  we have funded our operations  through  private  placement of
equity securities and loans from Advanced Optics Electronics,  Inc ("ADOT").  As
of September  30, 2006 we have raised net proceeds of  approximately  $3,415,000
from these sources.

Product  development  expenditures,  including  personnel expense,  approximated
$374,000 for the nine months ended  September  30, 2006.  Funds for  operations,
product development and capital expenditures were provided from a line of credit
agreement with ADOT. The Company will require substantial additional funding for
continuing research and development,  obtaining  regulatory approval and for the
commercialization of its products.

Management believes that sales of securities will provide adequate liquidity and
capital resources to meet the anticipated development stage requirements through
the end of 2006.  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.

                                      -5-
<PAGE>

INFLATION

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

ITEM  3: CONTROLS AND PROCEDURES

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

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 CEO and CFO, to allow timely
decisions regarding required disclosure.

In 2004, the Company 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,  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 nine months ended  September 30, 2006 that have materially
affected or are reasonably likely to materially affect these controls.  Thus, no
corrective   actions  with  regard  to  significant   deficiencies  or  material
weaknesses were necessary.

LIMITATIONS ON THE EFFECTIVENESS OF INTERNAL CONTROL

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

                           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.

                                      -6-
<PAGE>

Item 2.  CHANGES IN SECURITIES -  None

Item 3.  DEFAULTS UPON SENIOR SECURITIES - None

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

Item 5.  OTHER INFORMATION - None.

Item 6.  EXHIBITS

(a)      Exhibits

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

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

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

                                      -7-
<PAGE>


SIGNATURES


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


Dated: November 14, 2006

BIOMODA, INC. and Subsidiary

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

                                      -8-