UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2012

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

For the transition period from __________ to __________

Commission file No. 333-90738

BIOMODA, INC.

(Exact name of registrant as specified in its charter)

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

609 Broadway NE #215, Albuquerque, New Mexico 87102

(Address of principal executive offices including zip code)

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

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

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

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

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o	Smaller reporting company x

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

The number of issuer’s shares of Common Stock outstanding as of August 14 2012, was 176,363,963.

Table of Contents

TABLE OF CONTENTS

PART I. Financial Information	Page

Item 1. Financial Statements (Unaudited)	3
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3. Quantitative and Qualitative Disclosures About Market Risk	27
Item 4. Controls and Procedures	27

PART II. Other Information

Item 1. Legal Proceedings	29
Item 2. Changes In Securities	29
Item 3. Defaults Upon Senior Securities	29
Item 4. Removed and Reserved	29
Item 5. Other Information	29
Item 6. Exhibits	29

Signatures	30

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS (UNAUDITED)

Forward-Looking Statements

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

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

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

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BIOMODA, INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

	June 30,			December 31,
	2012			2011
ASSETS
CURRENT ASSETS
Cash		720			1,073
Prepaid expenses		3,705			1,271
TOTAL CURRENT ASSETS		4,425			2,344

Deferred charges		-			750
Fixed assets, net of accumulated depreciation of $20,043 and $19,627		7,108			10,080
Patents and trademarks, net of accumulated amortization of $370,738 and $357,013		288,001			192,126

TOTAL ASSETS		299,534			205,300

LIABILITIES & STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable		570,222			506,323
Accrued liabilities		548,191			404,744
Advances from stockholders		269,065			263,815
Short-term debt		181,558			180,373
Convertible debt, net of discount of $57,378		192,622			-

TOTAL CURRENT LIABILITIES		1,761,658			1,355,255
LONG-TERM DEBT
Derivative liabilities - warrant instruments		29,472			32,731

TOTAL LIABILITIES		1,791,130			1,387,986

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, respectively; no shares issued or outstanding		-			-
Undesignated preferred stock; 2,000,000 shares authorized; no shares issued and outstanding		-			-
Preferred Shares Series B; no par value; 100 shares authorized; liquidation and redemption values of $6.00; 100 shares issued and outstanding		60,000			60,000
Common stock, no par value, 700,000,000 share authorized; 176,363,963 and 130,314,363 issued and 175,972,388 and 129,922,788 outstanding, respectively		8,761,836			8,080,960
Treasury stock, at cost, 391,575 shares		(1,233	)		(1,233	)
Deficit accumulated during development stage		(10,312,199	)		(9,322,413	)
TOTAL STOCKHOLDERS' DEFICIT		(1,491,596	)		(1,182,686	)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT		299,534			205,300

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

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BIOMODA, INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	For the six months ended June 30,						For the three months ended June 30,						January 3, 1990 (Inception) to
	2012			2011			2012			2011			June 30, 2012

Revenue	$	-		$	-		$	-		$	-		$	23

Operating expenses
Professional fees		75,838			72,291			67,231			(7,247	)		1,691,376
General and administrative		823,252			388,800			170,467			171,273			7,823,991
Research and development, net of grants received		8,916			220,833			8,916			66,704			3,395,617
Depreciation and amortization		14,540			18,278			8,685			9,462			399,229

Total operating expenses		922,546			700,202			255,299			240,192			13,310,213

Loss from operations		(922,546	)		(700,202	)		(255,299	)		(240,192	)		(13,310,190	)

Other income (expense)
Gain on extinguishment of debt		-			-			-			-			1,326,028
Gain of sale of assets		-			3,000			-			3,000			39,225
Unrealized gain (loss) on derivative liabilities - warrant instruments		2,628			(2,896,477	)		350			(2,802,732	)		2,708,946
Unrealized gain on derivative liabilities - options		-			4,127			-			4,568			24,568
Unrealized loss on derivative liability-note conversion liability		-			210,587			-			401,319			569,150
Other income		-			-			-			-			244,479
Interest income		-			84			-			-			4,501
Interest expense		(69,868	)		(415,254	)		(65,901	)		(247,289	)		(1,918,906	)

Total other income (expense)		(67,240	)		(3,093,933	)		(65,551	)		(2,641,134	)		2,997,991

Gain (Loss) before provision for income taxes		(989,786	)		(3,794,135	)		(320,850	)		(2,881,326	)		(10,312,199	)

Provision for income taxes		-			-			-			-			-

Net loss	$	(989,786	)	$	(3,794,135	)	$	(320,850	)	$	(2,881,326	)	$	(10,312,199	)

Basic and diluted earnings per common share	$	(0.01	)	$	(0.04	)	$	0.00		$	(0.03	)

Basic and diluted weighted average number of common shares outstanding		156,760,286			98,013,073			176,193,631			103,015,895

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

Table of Contents

BIOMODA, INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY

FOR THE PERIOD FROM JANUARY 3, 1990 (INCEPTION) TO June 30, 2012

(UNAUDITED)

											Accumulated			Total
											Deficit During			Stockholders'
	Common Stock				Preferred Stock				Treasury		Development			Equity
	Shares		Amount		Shares		Amount		Stock		Stage			(Deficit)
Inception		-	$	-		-	$	-	$	-	$	-		$	-
Issuance of Common Stock, June 26, 1991		2,997,000		18,433											18,433
Cumulative Net Loss for the period from January 3, 1990 (date of inception) to December 31,1996												(60,010	)		(60,010	)
Balance, December 31, 1996		2,997,000		18,433		-		-				(60,010	)		(41,577	)
Issuance of Common Stock Warrants on December 31, 1997 (100,952 warrants at exercise price of $.20)		-		-											-
Net loss												(32,914	)		(32,914	)
Balance, December 31, 1997		2,997,000		18,433		-		-				(92,924	)		(74,491	)
Issuance of Common Stock, January 20, 1998		59,940		10,000											10,000
Exercise of Common Stock Warrants on March 17, 1998		100,952		20,190											20,190
Issuance of Common Stock, April 15, 1998, net of stock issuance costs		631,578		276,350											276,350
Issuance of Common Stock Options, April 15, 1998				23,650											23,650
Exercise of Common Stock Options, November 2, 1998		62,237		23,670											23,670
Net loss												(295,948	)		(295,948	)
Balance, December 31, 1998		3,851,707		372,293		-		-				(388,872	)		(16,579	)
Issuance of Common Stock, January 30, 1999		180,000		87,300											87,300
Issuance of Common Stock, for the month of March, 1999		310,000		150,300											150,300
Issuance of Common Stock, May 29, 1999		51,546		25,000											25,000
Issuance of Common Stock, June 2, 1999		95,092		50,000											50,000
Issuance of Common Stock, September 30, 1999		51,546		25,000											25,000
Issuance of Common Stock, December 29, 1999		92,005		50,143											50,143
Net loss												(303,956	)		(303,956	)
Balance, December 31, 1999		4,631,896		760,036		-		-				(692,828	)		67,208
Exercise of Common Stock Options, February 24, 2000		166,535		80,770											80,770
Issuance of Common Stock, May 12, 2000		253,609		56,000											56,000
Exercise of Common Stock Options, June 8, 2000		62,497		30,312											30,312
Issuance of Common Stock, for the month of September, 2000		96,745		21,086											21,086
Exercise of Common Stock Options, November 3, 2000		66,000		7,491											7,491
Issuance of Common Stock for Services, December 8, 2000		40,000		19,400											19,400
Net loss												(257,139	)		(257,139	)
Balance, December 31, 2000		5,317,282		975,095		-		-				(949,967	)		25,128

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

Table of Contents

BIOMODA, INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY

FOR THE PERIOD FROM JANUARY 3, 1990, (INCEPTION) TO June 30, 2012

(Continued)

											Accumulated			Total
											Deficit During			Stockholders'
	Common Stock				Preferred Stock				Treasury		Development			Equity
	Shares		Amount		Shares		Amount		Stock		Stage			(Deficit)
Issuance of Common Stock for Services, January 25, 2001		5,000		2,425											2,425
Issuance of Common Stock, January 31, 2001		160,000		24,000											24,000
Issuance of Common Stock for Services, April 6, 2001		15,000		7,276											7,276
Issuance of Common Stock, for the month of April, 2001		120,000		58,200											58,200
Issuance of Common Stock, June 28, 2001		20,000		9,700											9,700
Issuance of Common Stock, for the month of August, 2001		110,000		53,500											53,500
Issuance of Common Stock, November 7, 2001		10,000		5,000											5,000
Net loss												(372,655	)		(372,655	)
Balance, December 31, 2001		5,757,282		1,135,196		-		-				(1,322,622	)		(187,426	)
Net loss												(83,689	)		(83,689	)
Balance, December 31, 2002		5,757,282		1,135,196		-		-				(1,406,311	)		(271,115	)
Exercise of stock options, July 11, 2003		980,000		147,000											147,000
Net loss												(311,233	)		(311,233	)
Balance, December 31, 2003		6,737,282		1,282,196		-		-				(1,717,544	)		(435,348	)
Issuance of Common Stock for Services, February 9, 2004		35,000		5,250											5,250
Exercise of Common stock Options, February 9, 2004		60,000		30,000											30,000
Issuance of Common Stock for Services, August 5, 2004		85,000		12,750											12,750
Exercise of Common stock Options, September 27, 2004		200,000		30,000											30,000
Net loss, December 31, 2004												(758,945	)		(758,945	)
Balance, December 31, 2004		7,117,282		1,360,196		-		-				(2,476,489	)		(1,116,293	)
Issuance of Common Stock for Services, May 27, 2005		30,000		4,500											4,500
Issuance of Common Stock for Services, October 12, 2005		40,000		6,000											6,000
Net loss, December 31, 2005												(624,756	)		(624,756	)
Balance, December 31, 2005		7,187,282		1,370,696		-		-				(3,101,245	)		(1,730,549	)
Issuance of Common Stock for Services, October 23, 2006		690,000		544,500											544,500
Issuance of Common Stock in exchange for Debt, October 23, 2006		1,176,471		1,000,000											1,000,000
Issuance of Common Stock for Services, November 30, 2006		7,500		28,125											28,125
Issuance of Common Stock for Services, December 15, 2006		10,000		29,000											29,000
Issuance of Common Stock for Services, December 26, 2006		15,000		44,850											44,850
Acquisition of Treasury Stock, June 30, 2006									(9,000	)					(9,000	)
Stock-Based Compensation				35,042											35,042
Net loss, December 31, 2006												(1,807,312	)		(1,807,312	)
Balance, December 31, 2006		9,086,253		3,052,213		-		-	(9,000	)		(4,908,557	)		(1,865,344	)

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

Table of Contents

BIOMODA, INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY

FOR THE PERIOD FROM JANUARY 3, 1990, (INCEPTION) TO June 30, 2012

(Continued)

												Accumulated			Total
												Deficit During			Stockholders'
	Common Stock				Preferred Stock				Treasury			Development			Equity
	Shares		Amount		Shares		Amount		Stock			Stage			(Deficit)
Issuance of Common Stock for Services, January 2007		131,000		259,500												259,500
Issuance of Common Stock, January 2007		30,000		30,000												30,000
Issuance of Common Stock for Services, February 2007		150,000		157,500												157,500
Issuance of Common Stock for Services, March 2007		445,000		375,500												375,500
Issuance of Common Stock in exchange for Debt, March 2007		86,786		73,768												73,768
Exercise of Options, March 2007		2,000		1,000												1,000
Issuance of Common Stock for Services, April 2007		724,062		455,559												455,559
Issuance of Common Stock in exchange for Debt, April 2007		500,000		315,000												315,000
Issuance of Common Stock for Services, June 2007		920,000		154,600												154,600
Issuance of Common Stock, June 2007		343,000		41,667												41,667
Issuance of Common Stock for Services, July 2007		141,000		15,700												15,700
Issuance of Common Stock, July 2007		1,466,635		84,985												84,985
Issuance of Common Stock, August 2007		1,636,166		53,943												53,943
Issuance of Common Stock for Services, September 2007		160,000		12,800												12,800
Issuance of Common Stock, September 2007		2,416,248		54,819												54,819
Issuance of Common Stock, October 2007		1,557,730		36,457												36,457
Issuance of Common Stock in exchange for Debt, October 2007		165,000		16,500												16,500
Issuance of Common Stock for Services, November 2007		770,000		100,100												100,100
Issuance of Common Stock, November 2007		16,190,967		445,674												445,674
Issuance of Common Stock for Services, December 2007		90,140		21,634												21,634
Issuance of Common Stock, December 2007		11,303,996		385,250												385,250
Stock-Based Compensation				55,416												55,416
Net loss, December 31, 2007													(2,307,051	)		(2,307,051	)
Balance, December 31, 2007		48,315,983		6,199,585		-		-		(9,000	)		(7,215,608	)		(1,025,023	)
Issuance of Common Stock, January 2008		3,887,100		155,077												155,077
Issuance of Common Stock for Services, February 2008		11,128,967		312,244												312,244
Issuance of Common Stock for Services, February 2008		1,500,000		180,000												180,000
Issuance of Common Stock for Services, March 2008		1,725,860		86,293												86,293
Issuance of Common Stock, March 2008		8,410,112		209,897												209,897
Issuance of Common Stock, April 2008		1,328,142		33,268												33,268
Issuance of Common Stock for Services, April 2008		25,000		1,250												1,250
Issuance of Common Stock for Services, June 2008		237,237		17,779												17,779
Issuance of Common Stock for Services, July 2008		244,000		12,200												12,200
Issuance of Common Stock for Services, September 2008		125,000		5,000												5,000
Issuance of Common Stock for Services, October 2008		47,188		1,888												1,888
Issuance of Common Stock for Services, December 2008		30,000		900												900
Net loss, December 31, 2008													(315,263	)		(315,263	)
Balance, December 31, 2008		77,004,589		7,215,381		-		-		(9,000	)		(7,530,871	)		(324,490	)

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

Table of Contents

BIOMODA, INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY

FOR THE PERIOD FROM JANUARY 3, 1990, (INCEPTION) TO June 30, 2012

(Continued)

													Accumulated			Total
													Deficit During			Stockholders'
	Common Stock					Preferred Stock				Treasury			Development			Equity
	Shares		Amount			Shares		Amount		Stock			Stage			(Deficit)
Issuance of Common Stock for Services, January 2009		30,000		1,200													1,200
Issuance of Common Stock for Services, June 2009		30,000		1,200													1,200
Adjustment to Treasury Shares on June 30, 2009				(9,000	)						9,000						-
Addition to Treasury Shares September 30, 2009											(4,617	)					(4,617	)
Issuance of Common Stock for Services, July 2009		250,000		12,500													12,500
Issuance of Common Stock for Cash, August 2009		100,000		5,000													5,000
Issuance of Common Stock for Services, August 2009		100,000		7,000													7,000
Issuance of Treasury Shares for Services August 2009				220,000													220,000
Issuance of Common Stock for Cash, December 2009		2,000,000		100,000													100,000
Issuance of Treasury Shares for Services October 2009				72,885							2,115						75,000
Net loss, December 31, 2009														(905,289	)		(905,289	)
Balance, December 31, 2009		79,514,589		7,626,166			-		-		(2,502	)		(8,436,160	)		(812,496	)
Issuance of Common Stock for cash January 2010		400,000		20,000													20,000
Issuance of Common Stock for cash February 2010		800,000		40,000													40,000
Issuance of Common Stock for services February 2010		480,000		105,600													105,600
Issuance of Treasury Shares for Services February 2010				58,731							1,269						60,000
Issuance of Common Stock and Warrants for Cash March 2010		6,250,001		820,000													820,000
Derivative liabilities on debt, warrants and non-employee options				(2,312,922	)												(2,312,922	)
Issuance of Common Stock for cash June 2010		335,000		53,600													53,600
Issuance of Common Stock for services June 2010		625,000		100,000													100,000
Issuance of Common Stock for services to Directors June 2010		200,000		50,000													50,000
Issuance of Common Stock for cash July 2010		471,184		66,956													66,956
Issuance of Common Stock for Series II Warrants July 2010		589,712		-													-
Issuance of Common Stock for services July 2010		2,005,000		384,700													384,700
Issuance of Common Stock for cash August 2010		666,400		94,696													94,696
Issuance of Common Stock for services to Directors August 2010		100,000		17,000													17,000
Issuance of Common Stock for services October 2010		500,000		65,000													65,000
Net loss December 31, 2010														(655,781	)		(655,781	)
Balance, December 31, 2010		92,936,886		7,189,527			-		-		(1,233	)		(9,091,941	)		(1,903,647	)
Issuance of Common Stock for Services March 2011		100,000		25,000													25,000
Issuance of Common Stock for Conversion of Debt April, 2011		4,681,128		226,997													226,997
Issuance of Common Stock for Series I Warrants April 2011		1,560,000		79,872													79,872
Issuance of Common Stock for Conversion of Debt May, 2011		4,202,961		112,037													112,037
Issuance of Common Stock for Conversion of Debt June, 2011		12,876,443		204,332													204,332
Issuance of Common Stock for Conversion of Debt July, 2011		5,415,278		54,153													54,153
Issuance of Common Stock for Series I Warrants July 2011		4,000,000		40,000													40,000
Issuance of Common Stock for Cash August 2011		2,500,000		25,000													25,000
Issuance of Common Stock for Series I cashless Warrants August 2011		2,041,667		-													-
Issuance of Preferred Stock for Conversion of Accrued Liabilities				-			100		60,000								60,000
Derivative liabilities on debt, warrants and non-employees options				124,042													124,042
Net loss, December 31, 2011														(230,472	)		(230,472	)
Balance, December 31, 2011		130,314,363	$	8,080,960			100	$	60,000	$	(1,233	)	$	(9,322,413	)	$	(1,182,686	)
Issuance of Common Stock for Series I Warrants February 2012		2,000,000	$	20,000													20,000
Issuance of Common Stock for Services March 2012		40,749,600	$	529,745													529,745
Derivative liabilities on debt, warrants and non-employee options			$	631													631
Discount on convertible debt			$	97,500													97,500
Issuance of Common Stock for Cash March 2012		2,800,000	$	28,000													28,000
Issuance of Common Stock for Cash May 2012		500,000	$	5,000													5,000
Net loss, June 30, 2012													$	(989,786	)		(989,786	)
Balance, June 30, 2012		176,363,963	$	8,761,836			100	$	60,000	$	(1,233	)	$	(10,312,199	)	$	(1,491,596	)

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

Table of Contents

BIOMODA, INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	For the six Months Ended						January 3, 1990
	June 30,						(inception) to
	2012			2011			June 30, 2012
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(989,786	)	$	(3,794,135	)	$	(10,312,199	)
Adjustments to reconcile net earnings to net Cash used in operating activities
Depreciation and amortization		14,540			18,278			399,229
Amortization of beneficial conversion feature discount		40,122			379,509			600,122
Amortization of deferred financing costs		-			10,000			29,573
Gain on sale of assets		-			(3,000	)		(39,225	)
Stock based compensation		529,745			25,000			4,527,821
Unrealized gain (loss) on derivative liabilities - warrant instruments		(2,628	)		2,896,477			(2,708,946	)
Unrealized gain on derivative liabilities - options		-			(4,127	)		(24,568	)
Unrealized gain on derivative liabilities - note conversion feature		-			(210,587	)		(569,150	)
Interest expense incurred on issuance of convertible debt		-			-			643,886
Write-off of license fee		-			-			1,250
Write-off of legal fee		(32,654	)		-			(32,654	)
Foreign currency translation adjustments		-			-			3,247
Gain on extinguishment of debt		-			-			(1,326,028	)
Changes in operating assets and liabilities:
Accounts receivable		-			(35,000	)		-
Prepaid expenses and other current assets		(1,684	)		6,222			(3,705	)
Other assets								-
Accounts payable and accrued liabilities		250,092			414,499			1,807,916

Net cash used in operating activities		(192,253	)		(296,864	)		(7,003,431	)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of patents, trademarks and licenses		(109,600	)		(29,880	)		(675,736	)
Purchase of equipment		-			-			(37,443	)
Organizational costs		-			-			(560	)
Proceeds from sale of equipment		-			3,000			6,327

Net cash used in investing activities		(109,600	)		(26,880	)		(707,412	)

CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock for cash		53,000			79,872			4,296,008
Proceeds/(repayments) of short-term debt		-			1,184			181,558
Proceeds from convertible short-term debt, net		250,000			-			730,000
Proceeds/(repayments) of stockholders' advances, net		(1,500	)		3,375			269,065
Proceeds from line of credit from affiliated company		-			-			2,680,882
Repayment of line of credit from affiliated entity		-			-			(341,107	)
Acquisition of treasury stock		-			-			(13,617	)
Proceeds/(repayments) of long-term debt, net		-			(3,627	)		(91,226	)

Net cash provided by financing activities		301,500			80,804			7,711,563

NET INCREASE IN CASH		(353	)		(242,940	)		720

Cash at beginning of period		1,073			248,770			-

Cash at end of period	$	720		$	5,830		$	720

Supplemental cash flow information:
Interest expense paid in cash	$	-		$	-		$	-
Income taxes paid in cash	$	-		$	-		$	-

Non-cash investing and financing activities:
Accrued salaries converted to notes payable	$	-		$	-		$	479,484
Accrued salaries converted to preferred stock	$	-		$	-		$	65,504
Derivative liability incurred through issuance of warrants	$	-		$	-		$	3,370,622
Settlement of derivative liabilities	$	631		$	-		$	1,182,372
Interest converted to note payable	$	-		$	-		$	159,462
Common stock issued to extinguish related party debt	$	-		$	-		$	1,418,768
Common stock issued to extinguish related party debt	$	-		$	-		$	50,000
Discount on note payable related to deferred financing costs	$	-		$	-		$	60,000
Discount on note payable related to conversion feature	$	97,500		$	-		$	597,500
Conversion of notes payable and accrued interest to common stock	$	-		$	543,366		$	597,519
Derivative liability settled with warrant exercise	$	-		$	94,235		$	94,235
Derivative liability settled with note conversion	$	-		$	495,864		$	495,864
Fixed asset used to settle accounts payable	$	2,157		$	-		$	2,157

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

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__________________________________________

BIOMODA, INC. AND SUBSIDIARY

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

_____________________________________________

1. BASIS OF PRESENTATION

The accompanying unaudited interim financial statements of Biomoda, Inc. have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles (“GAAP”) for complete financial statements and should be read in conjunction with Management's Discussion and Analysis and the audited financial statements and notes thereto contained in our 2011 Annual Report filed with the Securities and Exchange Commission on Form 10-K. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosures contained in the audited financial statements for 2011 as reported on Form 10-K have been omitted.

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, as well as certain financial statement disclosures. While management believes that the estimates and assumptions used in the preparation of the financial statements are appropriate, actual results could differ from these estimates. Significant estimates effecting the financial statements include those with respect to the valuation of the derivative liability related to our warrants and options and the conversion feature in our outstanding convertible note, and the realizability of our investment in patents and trademarks.

2. DEVELOPMENT STAGE AND GOING CONCERN

We have been in the development stage since we began operations on January 3, 1990, and have not generated any significant revenues from operations and there is no assurance of any future revenues. As of June 30, 2012, we had an accumulated deficit of $10,312,199, cash on hand of $720 and a working capital deficit of $1,757,233. For the six months ended June 30, 2012, we incurred a net loss of $989,786. Due to the contractual obligations associated with the issuance of the March 17, 2010, Series I Warrants and the September 15, 2010, 5-Year Warrants, as of June 30, 2012, the Company has a total potential obligation to issue up to 201,996,493 shares of common stock upon the exercise of outstanding warrants and options. The dilutive effect of these potential share issuances greatly impacts our ability to secure new funding.

These factors raise substantial doubt as to our ability to continue as a going concern.

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

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

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BIOMODA, INC. AND SUBSIDIARY

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

_____________________________________________

3. CRITICAL ACCOUNTING POLICIES

FAIR VALUES OF FINANCIAL INSTRUMENTS

The Company’s financial instruments consist of cash and cash equivalents, derivative liabilities, accounts payable, accrued expenses and short-term debt. The carrying values of the Company’s cash and cash equivalents, accounts payable, accrued expenses and short-term debt approximate their fair values due to their short-term nature. The derivative liabilities are stated at their fair value. See Note 9 for the Company’s assumptions used in determining the fair value of these derivative financial instruments.

RECENT ACCOUNTING PRONOUNCEMENTS

Recently issued or adopted accounting pronouncements are not expected to have, or did not have, a material effect on our financial position or results from operations.

SUBSEQUENT EVENTS

In accordance with ASC 855-10, the Company’s management reviewed all material events from June 30, 2012, through the issuance date of this report, for disclosure.

4. EARNINGS PER SHARE

Basic earnings per share is computed by dividing net income (loss) by the weighted-average common shares outstanding for the period. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. Biomoda reported a net loss for the six months ended June 30, 2012 and 2011. As a result, shares of common stock issuable upon conversion of debt and accrued interest of 29,500,000, exercise of 108,768 stock options, exercise of 153,887,725 warrants under the March 2010 funding and 48,000,000 under the September 2010 financing, have been excluded from the calculation of diluted loss per common share for the respective years because the inclusion of such securities would be anti-dilutive.

5. RELATED PARTY TRANSACTIONS

As of June 30, 2012, and December 31, 2011, Biomoda had advances and accrued interest of $269,065 and $263,815, payable to two of its stockholders and Biomoda’s Chief Executive Officer. The advances by stockholders bear interest at 10% per annum and are due on demand. The Company is in the process of contesting the validity of the two note obligations to the stockholders who were formerly related to the Company. Pending the resolution of this process, the Company continues to reflect the obligation in the accompanying financial statements and continues to accrue interest. The advances from Biomoda’s Chief Executive Officer were due on April 17, 2012 and bear interest at 10% per annum. Interest expense related to all related party advances for the quarter ended June 30, 2012, and for the period from inception through June 30, 2012, was approximately $7,000, and $128,500, respectively.

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BIOMODA, INC. AND SUBSIDIARY

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

_____________________________________________

6. CONVERTIBLE NOTES

On September 15, 2010, Biomoda, Inc. entered into a Securities Purchase Agreement with two institutional investors (collectively, the “Purchasers”), pursuant to which the Company sold in a private placement transaction (the “Financing”) for $500,000 in cash (i) $560,000 in principal amount of convertible notes (“Notes”) that matured on August 31, 2011, with a conversion price equal to the lesser of $0.25 or 80% of the average of the three lowest daily value weighted average prices (“VWAP”) for the 20 consecutive trading days prior to the date on which a Purchaser elects to convert all or part of its Note and (ii) 5-Year Warrants to purchase an aggregate of 2,000,000 shares of common stock with an exercise price of $0.25 per share. The Notes also included a provision that protected the holders from declines in the Company’s stock price. The interest rate was 10% per annum and accrued until either maturity date or conversion of the Notes into shares of Biomoda common stock.

The 2,000,000 warrants included provisions that protect the holders from declines in the Company’s stock price that could result in modification of the exercise price under the warrant based on a variable that is not an input to the fair value of a “fixed-for-fixed” option as defined under FASB ASC Topic No. 815-40. As a result, these warrants were not indexed to the Company’s own stock. See Note 9 for further discussion of the treatment of these warrants.

In connection with conversion features, the Notes were originally discounted by $560,000 and the discount on the Notes was accreted over their term. During the six months ended June 30, 2011, the Company recognized $233,845 of interest expense related to the accretion of the discount.

In March 2011, the Company and the Note holders agreed to extend the look-back provision of the VWAP from 20 days to 40 days from the date of any conversion notice. This extended look-back period was in effect until April 15, 2011.

On July 12, 2011, the entire Notes’ principal of $560,000, together with accrued interest of $37,519, was converted into 27,175,810 shares of the Company’s common stock.

In April 2012, the Company entered into a convertible loan agreement for $250,000 secured by a Uniform Commercial Code security interest in Biomoda’s awarded and pending patents in the United States and the European Union. The Lenders agreed to lend Biomoda $250,000 for a term not to exceed six (6) months. The terms of the loan agreement provide that Biomoda repay the Lenders the principal amount of $250,000 plus $45,000 in interest and any loan origination fee and expense reimbursement at the end of the Term or at an earlier time. The amount of repayment is fixed at $295,000 to include the principal amount of $250,000 plus interest. There was no loan origination fee or any expense reimbursement. The Lenders have the option of receiving i) repayment of $270,000 in cash and 2,500,000 shares of restricted common stock or ii) 29,500,000 shares of restricted common stock at an agreed share price of one cent ($0.01) per share. The Lenders also have the right after three months to convert into restricted common shares at a share price of one cent ($0.01) per share for a total of 29,500,000 shares. Any such conversion is required to be for the entire loan. Biomoda has the right to prepay the loan at any time; however, the Lenders when notified of Biomoda’s election to prepay, have the right to determine the form of repayment whether by cash or conversion to stock at an agreed share price of one cent ($0.01) per share.

In accordance with ASC 470-20 “Debt with Conversion and Other Options”, Biomoda evaluated the conversion feature of the notes and determined that the conversion rate was lower than the market value of the common stock which resulted in the recognition of a beneficial conversion feature. A debt discount of $97,500 was recorded as the intrinsic value of the beneficial conversion feature and reduced the face value of the convertible loan. The discount is being amortized over the term of the convertible loan. During the period ended June 30, 2012, Biomoda recognized $40,122 of interest expense related to the accretion of the discount.

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BIOMODA, INC. AND SUBSIDIARY

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

_____________________________________________

7. COMMON, TREASURY AND SERIES B PREFERRED STOCK

PREFERRED STOCK

On August 22, 2011, the board of directors designated a series of Preferred Stock of the Corporation designated as Series B Preferred Stock. The authorized number of shares of Series B Preferred Stock is 100 shares at a value of $600 per share. Each share of Series B Preferred Stock provides the holder with voting rights only and entitles the holder to cast such number of votes equal to 0.51% of the total number of votes entitled to be cast at any shareholder meeting of the Company. The Series B Preferred Stock is not entitled to dividends. The Company has the right to redeem the outstanding shares of Series B Preferred Stock at $600 per share. The issuance of the Series B shares results in the shareholders of the Series B preferred stock holding 51% of the voting rights on all Company matters.

During the year ended December 31, 2011, we issued an aggregate of 100 shares of Series B Preferred Stock (50 shares to each of Maria Zannes, our Chief Executive Officer, and John Cousins, our Chief Financial Officer) in satisfaction of $60,000 of accrued salaries due as of September 30, 2011.

COMMON STOCK

2012 Activity

During the three months ended June 30, 2012, Biomoda issued 500,000 restricted common shares to a Director for cash proceeds of $5,000 at a stock price of $0.01 per share.

During the three months ended March 31, 2012, Biomoda issued 2,000,000 common shares pursuant to an exercise of 5-Year Warrants in exchange for cash proceeds of $20,000 at $0.01 per share.

During the three months ended March 31, 2012, Biomoda issued 40,749,600 restricted common shares for services. These shares were valued at $529,745 based upon the Company’s stock price of $0.013 per share on the date of grant.

During the three months ended March 31, 2012, Biomoda issued 2,800,000 shares for cash proceeds of $28,000 at $0.01 per share.

2011 Activity

During the three months ended September 30, 2011, Biomoda issued 4,000,000 shares pursuant to an exercise of Series I warrants in exchange for cash proceeds of $40,000 ($0.01 per share).

During the three months ended September 30, 2011, Biomoda issued 2,500,000 shares pursuant to an exercise of Series I warrants in exchange for cash proceeds of $25,000 ($0.01 per share).

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BIOMODA, INC. AND SUBSIDIARY

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

_____________________________________________

During the three months ended September 30, 2011, Biomoda issued 2,041,667 shares pursuant to a cashless exercise of 3,500,000 Series I warrants.

During the three months ended September 30, 2011, Biomoda issued 5,415,278 common shares related to the conversion of $54,153 of principal and accrued interest.

During the three months ended June 30, 2011, Biomoda issued 21,760,532 common shares related to the conversion of $543,366 of principal and accrued interest.

During the three months ended June 30, 2011, Biomoda issued 1,560,000 common shares related to the exercise of Series I warrants for cash proceeds of $79,872 ($0.051 per share).

During the three months ended March 31, 2011, Biomoda issued 100,000 restricted common shares to Directors. These shares were valued at $25,000 based upon the Company’s stock price of $0.25 per share on the date of grant.

During the three months ended June 30, 2012, Biomoda issued 500,000 restricted common shares to a Director for $5,000 at a stock price of $0.01 per share.

TREASURY STOCK

We account for treasury stock as a reduction in capital stock based upon the cost of the shares acquired. Our treasury stock consists of shares returned pursuant to the settlement of a lawsuit, shares returned to the Company and shares purchased by the Company in the market.

2012 Activity

The Company had no activity in Treasury Stock during the three months ended June 30, 2012. As of June 30, 2012, Biomoda had 391,575 treasury shares remaining, acquired at a cost of $1,233.

2011 Activity

The Company had no activity in Treasury Stock during the year ended December 31, 2011.

OTHER

In 2012, as noted above, the Company issued shares of common stock through the exercise of outstanding Series II Warrants. Accordingly, the Company reduced the derivative liability associated with the Warrants in the amount of $631 to record additional stockholders’ equity for the three months ended March 31, 2012. See Note 9 for further discussion.

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BIOMODA, INC. AND SUBSIDIARY

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

_____________________________________________

8. STOCK OPTIONS AND WARRANTS

Options

No options were granted during the three months ended June 30, 2012 and 2011, respectively. All options outstanding are fully vested and exercisable, and there was no unrecognized stock-based compensation expense as of June 30, 2012 and 2011, respectively.

	Number of Shares		Weighted Average Exercise Price
Outstanding at December 31, 2010		108,768	$	2.34
Issued		-		-
Exercised		-		-
Cancelled/expired		-		-
Outstanding at December 31, 2011		108,768	$	2.34
Issued		-		-
Exercised		-		-
Cancelled/expired		-		-
Outstanding at June 30, 2012		108,768	$	2.34

Outstanding and exercisable options had a weighted average remaining life of 1.97 years and no intrinsic value as of June 30, 2012. The conversion of the remaining Notes into shares of the Company’s common stock on July 13, 2011, eliminated liability accounting for these non-employee options; however, at that time, the options had a derivative valuation of zero.

Warrants

A summary of the changes in warrants outstanding during the six months ended June 30, 2012, and the year ended 2011, is as follows:

	Number of Shares			Weighted Average Exercise Price
Outstanding at December 31, 2010*		8,875,001		$	0.25
Issued		-			-
Exercised		(11,560,000	)		0.01
Warrants issued pursuant to anti-dilution provisions		206,572,724			0.01
Outstanding at December 31, 2011*		203,887,725		$	0.01

Issued		-			-
Exercised		2,000,000			0.01
Warrants issued pursuant to anti-dilution provisions		-			-
Cancelled/expired		-			-
Outstanding at June 30, 2012		201,887,725		$	0.01

*As a result of the conversion of the Notes, due to contractual provisions contained in the Series I Warrants and the 5-Year Warrants discussed further in Note 8 below, the exercise price of those warrants was reduced from $0.25 per share to $0.01 and the number of shares issuable upon exercise of those warrants increased from approximately 8,875,001 shares to as many as 203,887,725, net of warrants exercised.

As of June 30, 2012, outstanding warrants had an intrinsic value of $100,944 and a weighted average remaining contractual term of 2.83 years.

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BIOMODA, INC. AND SUBSIDIARY

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

_____________________________________________

9. DERIVATIVE LIABILITIES – WARRANTS, OPTIONS AND NOTES

Series I Warrants

In connection with the issuance of Series I warrants in March 2010, the Company determined that Series I Warrants to initially purchase a total of 6,875,004 shares of common stock issued pursuant to the March 2010 private placement contained provisions that protect holders from declines in Biomoda’s stock price that could result in modification of the exercise price under the warrant based on a variable that is not an input to the fair value of a “fixed-for-fixed” option as defined under FASB ASC Topic No. 815-40. As a result, these warrants were not indexed to the Company’s own stock. The fair value of these warrants at inception was recognized as derivative warrant instruments and will be measured at fair value at each reporting period. Accordingly, during the period ended March 31, 2010, the Company charged the amount of $1,780,583 to stockholders' equity.

The Company measured the fair value of these instruments as of June 30, 2012, and recorded an unrealized gain for the six months ended June 30, 2012, of $525. The Company determined the fair values of these securities during the period using a lattice and Black-Scholes valuation model.

The fair value of the derivative warrant instruments was estimated using the following assumptions as of June 30, 2012:

	Assumptions at June 30, 2012			Assumptions at December 31, 2011
Common stock issuable upon exercise of warrants		153,887,725			153,887,725
Estimated market value of common stock on measurement date	$	0.01		$	0.014
Exercise price	$	0.01		$	0.01
Risk-free interest rate (1)		0.41	%		0.84	%
Warrant lives in years		2.71			3.21
Expected volatility (2)		253.27	%		196.99	%
Expected dividend yield (3)	None			None
Probability of reset to conversion price (4)		40	%		40	%

(1)	The risk-free interest rate was determined by reference to the yield of U.S. Treasury securities with a term of five years.
(2)	The volatility factor is based upon the historical volatility of the Company’s common stock.
(3)	Management determined the dividend yield to be 0% based upon its expectation that it will not pay dividends in the near term.
(4)	This represents management’s estimate of the probability that the Company will issue stock at a price lower that the warrants’ exercise price.

At June 30, 2012, the derivative liability associated with the remaining Series I Warrants was $17,403.

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BIOMODA, INC. AND SUBSIDIARY

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

_____________________________________________

9. DERIVATIVE LIABILITIES – WARRANTS, OPTIONS AND NOTES (Continued)

5-Year Warrants

The Company determined that the 5-Year Warrants issued in connection with the sale of the Notes discussed in Note 6 to initially purchase 2,000,000 shares of common stock with an exercise price of $0.25 per share contain provisions that protect the holders from declines in the Company’s stock price that could result in modification of the exercise price of the warrant based on a variable that is not an input to the fair value of a “fixed-for-fixed” option as defined under FASB ASC Topic No. 815-40. As a result, these warrants were not indexed to the Company’s own stock. The fair value of the 5-Year Warrants was recognized as a derivative warrant instrument and will be measured at fair value at each reporting period. Accordingly, on September 15, 2010, the Company established a derivative liability for the 5-Year Warrants of $492,518.

During the three months ended March 31, 2012, 2,000,000 5-Year Warrants were exercised at a price per share of $0.01 for cash proceeds of $20,000. The derivative liability value associated with the warrants exercised as of the date of conversion was $631; the Company credited the derivative liability associated with the exercised warrants to stockholders’ equity.

The Company measured the fair value of these instruments as of June 30, 2012, and recorded an unrealized gain for the six months ended March 31, 2012, of $2,103. The Company determined the fair values of these securities using a lattice and Black-Scholes valuation model.

The fair value of the derivative warrant instruments was estimated using the following assumptions as of June 30, 2012:

	Assumptions at June 30, 2012			Assumptions at December 31, 2011
Common stock issuable upon exercise of warrants		48,000,000			50,000,000
Estimated market value of common stock on measurement date	$	0.01		$	0.014
Exercise price	$	0.01		$	0.01
Risk-free interest rate (1)		0.41	%		1.03	%
Warrant lives in years		3.21			3.71
Expected volatility (2)		253.27	%		196.99	%
Expected dividend yield (3)	None			None
Probability of reset to conversion price (4)		40	%		40	%

(1)	The risk-free interest rate was determined by reference to the yield of U.S. Treasury securities with a term of one year.
(2)	The volatility factor is based upon the historical volatility of the Company’s common stock.
(3)	Management determined the dividend yield to be 0% based upon its expectation that it will not pay dividends in the near term.
(4)	This represents management’s estimate of the probability that the Company will issue stock at a price lower that the warrants’ exercise price.

At June 30, 2012, the derivative liability associated with the 5-year Warrants was $12,069.

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BIOMODA, INC. AND SUBSIDIARY

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

_____________________________________________

9. DERIVATIVE LIABILITIES – WARRANTS, OPTIONS AND NOTES (Continued)

Activity for derivative instruments during the three months ended June 30, 2012, was as follows:

	Balance at March 31, 2012		Derivative liability settled during the period		Increase (Decrease) in Fair Value of Derivative Liability		Balance at June 30, 2012
Derivative warrant instruments – Series I	$	17,497	$	-	$	(94)	$	17,403
Derivative warrant instruments –5-year Warrants issued with Notes		12,325		-		(256)		12,069
Total	$	32,731	$	-	$	(350)	$	29,472

Activity for derivative instruments during the six months ended June 30, 2012, was as follows:

	Balance at December 31, 2011		Derivative liability settled during the period		Increase (Decrease) in Fair Value of Derivative Liability		Balance at June 30, 2012
Derivative warrant instruments – Series I	$	17,928	$	-	$	(525)	$	17,403
Derivative warrant instruments –5-year Warrants issued with Notes		14,803		(631)		(2,103)		12,069
Total	$	32,731	$	-	$	(2,628)	$	29,472

10. FAIR VALUE MEASUREMENTS

As defined in FASB ASC Topic No. 820-10 (formerly SFAS 157), fair value is the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB ASC Topic No. 820-10 requires disclosure that establishes a framework for measuring fair value and expands disclosure about fair value measurements. The statement requires fair value measurements be classified and disclosed in one of the following categories:

Level 1:		Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. The Company considers active markets as those in which transactions for the assets or liabilities occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2:		Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability. This category includes those derivative instruments that the Company values using observable market data. Substantially all of these inputs are observable in the marketplace throughout the term of the derivative instruments, can be derived from observable data, or supported by observable levels at which transactions are executed in the marketplace.

Level 3:		Measured based on prices or valuation models that require inputs that are both significant to the fair value measurement and less observable from objective sources (i.e., supported by little or no market activity). The Company’s valuation models are primarily industry-standard models. Level 3 instruments include derivative warrant instruments. The Company does not have sufficient corroborating evidence to support classifying these assets and liabilities as Level 1 or Level 2.

As required by FASB ASC Topic No. 820-10 (formerly SFAS 157), financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels. The estimated fair value of the derivative warrant instruments was calculated using the Black-Scholes valuation model (see Note 9 for the assumptions) for the Company’s Series I Warrants and 5-year Warrants and for all other warrants and non-employee options and for the conversion feature contained in the Note.

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BIOMODA, INC. AND SUBSIDIARY

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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10. FAIR VALUE MEASUREMENTS (Continued)

Fair Value on a Recurring Basis

The following table sets forth, by level within the fair value hierarchy, the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of June 30, 2012:

	Fair Value Measurements at June 30, 2012
Description	Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Carrying Value as of June 30, 2012
Derivative warrant instruments	$	--	$	--	$	29,472	$	29,472
Total	$	--	$	--	$	29,472	$	29,472

The following table sets forth a reconciliation of changes in the fair value of financial assets and liabilities classified as Level 3 in the fair value hierarchy:

	Significant Unobservable Inputs (Level 3) Three Months Ended June 30,
	2012			2011
Beginning balance	$	29,822		$	(1,819,563	)
Total gains/(losses)		(350	)		(2,396,845	)
Settlements		-			590,099
Additions		-			-
Transfers					-
Ending balance	$	29,472		$	(3,626,309	)
Change in unrealized losses included in earnings relating to derivatives still held as of June 30, 2012 and 2011	$	(350	)	$	(2,396,845	)

	Significant Unobservable Inputs (Level 3) Six Months Ended June 30,
	2012			2011
Beginning balance	$	32,731		$	(1,534,645	)
Total gains/(losses)		(2,628	)		(2,681,763	)
Settlements		(631	)		590,099
Additions		-			-
Transfers					-
Ending balance	$	29,472		$	(3,626,309	)
Change in unrealized losses included in earnings relating to derivatives still held as of June 30, 2012 and 2011	$	(2,628	)	$	(2,681,763	)

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BIOMODA, INC. AND SUBSIDIARY

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

_____________________________________________

11. LEGAL UPDATE

In Biomoda, Inc. v. Robins, U.S. Dist. Ct., D.N.M., No. CIV 07-0855 JB/GBW, the Court entered its Amended Final Judgment on March 16, 2011, for $35,000, with post-judgment interest, in favor of Biomoda and against Alvin D. Robins. No appeal from the Amended Final Judgment has been filed, and the deadline for doing so has passed. The judgment is therefore final and no longer reviewable on appeal. Biomoda has hired a law firm in Texas that currently is pursuing collection of the judgment.

12. SUBSEQUENT EVENTS

In July 2012, the Lenders and Biomoda terminated the April 2012 convertible loan agreement (“Loan”) and the Lenders agreed to void and terminate the Uniform Commercial Code security interest in Biomoda’s awarded and pending U.S. and European patents in consideration of entering into a new loan agreement with additional Lenders for a total amount of $395,000 secured by a Uniform Commercial Code security interest in Biomoda’s awarded patents in the U.S., European Union, Japan, Canada, Australia and Mexico. The Lenders agreed to lend Biomoda $395,000 of which $295,000 was comprised of the April 2012 loan amount and $100,000 in additional cash proceeds, for a period of two years. The Loan shall bear interest, from the date on which it was transferred to the Company, at a rate of eight percent (8%) per annum, compounded annually. Biomoda has the right to prepay the loan at any time. Furthermore, Lenders have the right to convert their loan to equity in Biomoda in the event the Company restructures its business. The conversion shall be at a value in the restructured Company equal to three times the value of the loan amount. In the event that either a board member or officer resigns before repayment, the Lenders may demand acceleration of repayment of the loan.

In accordance with ASC 470-50 “Debt Modification and Extinguishments”, Biomoda evaluated the change in the terms of the loan agreement and determined that the Loan had been extinguished due to the significant change in the conversion feature which resulted in a change in fair value that was greater than 10%. Biomoda has not calculated any gains or losses resulting from the extinguishment of the debt as of the date of this filing.

On August 1, 2012, Biomoda entered into an Employment Agreement to hire a Business Development Manager with a three year term and an automatic renewal period of one year unless terminated. In addition to his salary, employee shall be issued 8,900,000 of Biomoda’s common stock as a signing bonus, which is equal to 3.75% of the equity ownership of the Company. The employee shall be paid an annual stock bonus that, in the aggregate, will total an amount that equals 3.75% equity ownership in the Company’s common stock. The stock bonus provision shall be in force only for the initial 3-year term of the agreement and the parties agree specifically to renegotiate this term of the Agreement at the time of renewal, or no later than three years after signing.

On August 9, 2012 the Beckman Coulter Company (“Beckman”) filed a lawsuit against Biomoda and New Mexico Tech alleging breach of contract on a lease for Flow Cytometer equipment. The suit alleges damages in the amount of $57,685 and includes a writ of replevin for the return of a flow cytometer machine currently in the possession of New Mexico Tech. Biomoda intends to actively pursue a settlement of the lawsuit but there can be no assurance that such settlements will be accepted by Beckman. As of June 30, 2012, Biomoda had accrued the full lease obligation of $125,892 relating to the Flow Cytometer equipment.

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

Company Overview

Biomoda is an in-vitro diagnostics company that develops assays, or tests, to detect cancer. These assays are performed in clinical reference laboratories using body-fluid samples. The technology is based on scientific work originally done at Los Alamos National Laboratory. The technology is based on a porphyrin molecule that has an affinity to bind with cancer cells in high concentrations and cause them to fluoresce under specific frequencies of light. The porphyrin molecule is easy to obtain, manufacture and use.

Our first product, trademarked under the name CyPath®, is an assay for the detection of early-stage lung cancer. Lung cancer represents a large market with unmet diagnostic needs. The five-year survival rates for lung cancer are dismal, due in large part to the fact that this disease is typically diagnosed late in its progression. Our lung cancer assay tests deep-lung sputum which is collected from the patient, processed and incubated in the CyPath® molecular marker labeling solution, and then scored for cancer cells. This technology has the potential to diagnose other cancers as well.

Biomoda has been in the development stage since it began operations on January 3, 1990, and has not generated any significant revenues from operations. There is no assurance of any future revenues. As of June 30, 2012, Biomoda had an accumulated deficit of $10,312,190 and a working capital deficit of $1,757,233. For the six-months ended June 30, 2012, we incurred net losses of $991,713. 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 our ability to continue as a going concern.

On September 16, 2011, Biomoda held an Annual Meeting of Shareholders at which a majority of shareholders elected John J. Cousins, Maria Zannes, Lewis White and David Lambros to the board of directors, approved an amendment to the Company’s Articles of Incorporation to increase the number of authorized shares of common stock from 150,000,000 to 700,000,000, and ratified the appointment of GBH CPAs, PC as the Company’s independent registered public accounting firm as our auditors.

The increase in authorized shares was necessitated by contractual obligations associated with the issuance of the March 17, 2010, Series I Warrants and the September 15, 2010, Warrants and Convertible Debt, which carry a total potential obligation to issue up to 201,996,493 shares of common stock upon the exercise of outstanding warrants, options and convertible rights held by non-employees.

Plan of Operation

We are currently considering several options to raise sufficient capital to meet operating expenses. Assuming we receive additional funding, our plan of operation for the next 48 months is to complete research to optimize the CyPath® diagnostic assay, conduct the pivotal clinical trial and submit clinical study results to the U.S. Food and Drug Administration ("FDA") for a Class III approval of the CyPath® assay as a medical device for the detection of lung cancer. Completed in the first quarter of 2011, the pilot clinical study showed that CyPath® is a significant new biomarker for lung cancer. The pilot study demonstrated CyPath®’s ability to discriminate between cancer and non-cancer cohorts by identifying and quantifying cellular characteristics that differ between groups of individuals at high risk for developing cancer and those who already have the disease. The pilot clinical trial consisted of two cohorts: patients with a confirmed diagnosis of cancer that had not begun treatment for the disease and high-risk participants, including military veterans in New Mexico, with a history of heavy smoking.

We plan to conduct optimization studies, both independently and in partnership with other scientific and medical institutions, to prepare for the multi-site pivotal clinical study and enhance commercialization of the CyPath® assay. Optimization will include automating the process for reading CyPath®-labeled cells in tissue and body fluid samples, improving methods for the non-invasive collection of sputum samples and refining the use of fluorescent microscopy to identify cancer and pre-cancerous cells. We are also developing strategies to enter the European market, including filing for approval of a CE mark. In April 2012, we validated the grant of patents from the European Patent Office in fourteen countries, the UK, Germany, France, Spain, Italy, Ireland, Switzerland, Netherlands, Luxembourg, Belgium, Sweden, Finland, Denmark, and Greece. In July 2012, we submitted a U.S. patent application for targeted cancer therapy conjugates using porphyrins and porphyrin-like molecules and various cytotoxic agents.

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Our initial product is an in-vitro diagnostic test for lung cancer that will be used to evaluate sputum samples obtained non-invasively from patients. The samples will be sent to a Biomoda laboratory where they will be analyzed with the CyPath® labeling solution to determine the presence, or absence, of lung cancer or precancerous cells. The Company anticipates conducting a series of feasibility studies to select cancers for which CyPath® may be developed as a diagnostic and/or screening technology.

We have determined that our initial markets will build upon established relationships with prominent hospitals, laboratories and the U.S. Veterans Administration ("VA") hospitals. Such relationships will ensure timely initial commercial sales. This initial commercial acceptance within the VA system can be efficiently leveraged through the VA infrastructure. The VA also is the product approval channel for the U.S. Agency for International Development ("AID"), conditional on FDA approval. Ongoing published results of test data and clinical studies and presentations at appropriate medical symposia will help accelerate sales growth.

Management plans to augment laboratory research and development by expanding the clinical and research team, both internally and by partnering with major medical and scientific research institutions. In the first quarter of 2012, Biomoda contracted with Medi-Pharm Consulting, LLC, for strategic business development services. The professionals on the Medi-Pharm team jointly have more than 100 years of management experience in the biomedical/biotechnology sector. Medi-Pharm will assist Biomoda with strategic planning, technology commercialization and business development.

Biomoda is seeking FDA approval of its cytology-based screening technology as a Class III medical device under the Pre-Market Approval ("PMA") process. When pilot clinical trial results are complete, the Company intends to file a report with the FDA informing the agency of study findings and submit a pre-IDE (“Investigational Device Exemption”) filing.

OTHER INITIATIVES

Internal Studies

We will be conducting optimization studies, both independently and in partnership with other scientific and medical institutions, to prepare for the multi-site pivotal clinical study and commercialization of the CyPath® assay. Optimization will include automating the process for reading CyPath®-labeled cells in tissue and body fluid samples, improving methods for the non-invasive collection of sputum samples and refining the use of fluorescent microscopy to identify cancer and pre-cancerous cells. We are also developing strategies to enter the European market, including filing for approval of a CE mark. In 2011, the European Patent Office granted our patent application, and in April 2012, we validated the patent in fourteen European Union countries.

On November 2, 2011, we filed an application for a new U.S. Patent. It is a Utility Patent describing systems and methods for an innovative stable, narrow-band light source to excite fluorophores such as TCPP. This narrow-band fluorophore exciter will increase the accuracy, sensitivity and specificity of the CyPath® diagnostic assay for lung cancer in both epifluorescent microscopy and flow cytometry.

In 2011, we also submitted two applications for Small Business Innovation Research (SBIR) grants in response to National Institutes of Health solicitation PHS 2012-1 #309: “Development of Low-Cost, Small Multi-Analyte Technologies for Cancer Diagnosis, Prognosis and Early Detection” to implement this new light source as part of our optimization work and initiatives, and “Development of Low-Cost, Small Multi-Analyte Technologies for Cancer Diagnosis, Prognosis and Early Detection” to develop and refine a liquid-based assay for flow cytometry. In July 2012, we received notification that we were not awarded these SBIR grants.

In July 2012, we submitted a U.S. patent application for targeted cancer therapy conjugates using porphyrins and porphyrin-like molecules and various cytotoxic agents.

Our diagnostic test may be adaptable for use on other tissue and body fluid samples, and we intend to create and market products to diagnose and screen for other prevalent cancers.

Online Networking

Biomoda provides public updates through email updates. Interested parties may register on the Biomoda website at www.biomoda.com to receive email updates about the Company.

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PATENTS AND TRADEMARKS

Biomoda owns the following:

1.	U.S. Patent 6,838,248, titled “Compositions and Methods for Detecting Pre-Cancerous Conditions in Cell and Tissue Samples Using 5, 10, 15, 20-Tetrakis (Carboxyphenyl) Porphine” which was issued on January 4, 2005.

2.	U.S. Patent 7,384,764, titled “Method for Prognosing Response to Cancer Therapy with 5,10,15,20 - Tetrakis (Carboxyphenyl) Porphine” which was issued June 10, 2008, a divisional application of U.S. Patent 6,838,248.

3.	U.S. Patent 7,670,799 titled “Method for Making 5, 10, 15, 20-Tetrakis (Carboxyphenyl) Porphine (TCPP) Solution and Composition Comprising TCPP” which was issued on March 2, 2010, a divisional application of U.S. Patent 7,384,764;

4.	U.S. Patent 7,960,138 titled “Method for Prognosing Response to Cancer Therapy with 5,10,15,20 - Tetrakis (Carboxyphenyl) Porphine” issued June 14, 2011, a Continuation of U.S. Patent 7,670,799.

5.	Foreign equivalents of U.S. Patent 6,838,248 were granted in Canada, Japan, Mexico, and Australia and the European Union countries of: the United Kingdom, Germany, France, Spain, Italy, Ireland, Switzerland, Netherlands, Luxembourg, Belgium, Sweden, Finland, Denmark and Greece.

U.S. Patent Application 12/839,283 titled “System and Method for Analyzing Samples Labeled with 5, 10, 15, 20 Tetrakis (4-Carboxyphenyl) Porphine (TCPP)” which provides a quantitative method for reading tissue samples for signs of malignant cells based on flow cytometry and dark-field microscopy which was filed on July 19, 2010.

7.	U.S. Patent Application 13/158,595 titled “Method for Prognosing Response to Cancer Therapy with 5,10,15,20 - Tetrakis (Carboxyphenyl) Porphine” published June 13, 2011, a divisional application of U.S. Patent 7,960,138;

U.S. Patent Application 13/373,032 titled “Narrow Band Fluorophore Exciter” which describes an excitation light source for fluorescent microscopy and flow cytometry applications as an efficient and stable alternative to existing light sources such as broadband mercury vapor bulbs and plasma-based light sources, submitted November 3, 2011 and pending;

9.	Patent Cooperation Treaty (“PCT”) Application PCT/US10/42482 titled “System and Method for Analyzing Samples Labeled with 5, 10, 15, 20 Tetrakis (4-Carboxyphenyl) Porphine (TCPP)” filed July 19, 2010 is related to U.S. Patent Application 12/839,283.

10.

U.S. Patent Application 13/544,137 titled “Targeted Cancer Therapy Conjugates Using Porphyrins and Porphyrin-like Molecules and Various Cytotoxic Agents” based on creating conjugate combinations of a delivery vehicle or vector, coupled with a cytotoxic agent that is released upon binding to a tumor site, submitted July 9, 2012 and pending.

11.	U.S. registrations for the marks CyPath®, CyDx® and Biomoda®®.

12.	Foreign registrations for the marks Biomoda®, CyPath® and CyDx® in the European Union.

13.	World Intellectual Property Organization has registered “Biomoda” as a world trademark as of November 10, 2010.

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RESULTS OF CONTINUING OPERATIONS

We have recorded no significant revenue from inception through June 30, 2012.

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

Comparison of the three months ended June 30, 2012 and 2011

REVENUE. As of June 30, 2012, there have been no significant revenues since inception.

RESEARCH AND DEVELOPMENT. Product development expenses consist primarily of personnel expenses and consulting fees. Research and development, including payroll costs and other technical costs, decreased to $8,916 for the three months ended June 30, 2012, from $66,704 for the three months ended June 30, 2011, due to our limited funding. We believe that continued investment in product development is critical to attaining our strategic objectives and, as a result, we expect expenses such as clinical studies and collaborations to increase significantly in the next year. We expense product development costs as they are incurred.

GENERAL AND ADMINISTRATIVE. General and administrative expenses consist of expenses for executive and administrative personnel, facilities, professional services, travel and general corporate activities. General and administrative costs, taken together with professional fees, increased to $237,698 for the three months ended June 30, 2012, from $164,026 for the three months ended June 30, 2011. The increase was primarily related to stock issuances for services in 2012. We expect general and administrative costs to increase in the future as our business prospects develop and we require more staff. The costs associated with being a publicly traded company and future strategic acquisitions will also be a contributing factor to increases in this expense.

OTHER INCOME (EXPENSE). Other income (expense) in these periods is composed of interest expense, gain on sale of assets and unrealized gains/losses related to changes in the fair value of the derivative liabilities associated with our outstanding warrants, options and convertible note instruments. Interest expense decreased for the three months ended June 30, 2012, to $65,901 from $247,289 for the three months ended June 30, 2011. This decrease is attributable to the accelerated amortization of the discount on the convertible notes issued on September 15, 2010, due to their conversion into common shares during the 2011 period. Also, during the three months ended June 30, 2012, we recognized an unrealized non-cash gain of $350 from the decrease in the fair value of the derivative liability related to our outstanding warrants compared to an unrealized loss of $2,802,732 for the three months ended June 30, 2011. An unrealized gain on decrease in the fair value of the derivative liability related to our non-employee options and convertible debt of $4,568 and $401,319, respectively, was recorded in the three months ended June 30, 2011 compared to $0 and $0, respectively, for the three months ended June 30, 2012.

Comparison of the six months ended June 30, 2012 and 2011

REVENUE. As of June 30, 2012, there have been no significant revenues since inception.

RESEARCH AND DEVELOPMENT. Product development expenses consist primarily of personnel expenses and consulting fees. Research and development, including payroll costs and other technical costs, decreased to $8,916 for the six months ended June 30, 2012, from $220,833 for the six months ended June 30, 2011, due to our limited funding. We believe that continued investment in product development is critical to attaining our strategic objectives and, as a result, we expect expenses such as clinical studies and collaborations to increase significantly in the next year. We expense product development costs as they are incurred.

GENERAL AND ADMINISTRATIVE. General and administrative expenses consist of expenses for executive and administrative personnel, facilities, professional services, travel and general corporate activities. General and administrative costs, taken together with professional fees, increased to $899,090 for the six months ended June 30, 2012, from $461,091 for the six months ended June 30, 2011. The increase was primarily related to stock issuances for services in 2012. We expect general and administrative costs to increase in the future as our business prospects develop and we require more staff. The costs associated with being a publicly traded company and future strategic acquisitions will also be a contributing factor to increases in this expense.

OTHER INCOME (EXPENSE). Other income (expense) in these periods is composed of interest expense, gain on sale of assets and unrealized gains/losses related to changes in the fair value of the derivative liabilities associated with our outstanding warrants, options and convertible note instruments. Interest expense decreased for the six months ended June 30, 2012, to $69,868 from $415,254 for the six months ended June 30, 2011. This decrease is attributable to the accelerated amortization of the discount on the convertible notes issued on September 15, 2010, due to their conversion into common shares during the 2011 period. Also, during the six months ended June 30, 2012, we recognized an unrealized non-cash gain of $2,628 from the decrease in the fair value of the derivative liability related to our outstanding warrants compared to an unrealized loss of $2,896,477 for the six months ended June 30, 2011. An unrealized gain on decrease in the fair value of the derivative liability related to our non-employee options and convertible debt of $4,127 and $210,587, respectively, was recorded in the six months ended June 30, 2011 compared to $0 and $0, respectively, for the six months ended June 30, 2012.

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LIQUIDITY AND CAPITAL RESOURCES

We have funded our operations with sales of equity for cash, convertible notes, issuance of equity for services in lieu of cash and government funding. We are currently considering several options to raise sufficient capital to meet operating expenses through the pivotal clinical trial and FDA approval. Subject to the outcome of these efforts, it is our intent to generate revenues from product sales and to begin partially funding operations from revenues.

Contractual obligations associated with the issuance of the March 17, 2010, Series I Warrants and the September 15, 2010, 5-Year Warrants and options, carry a total potential obligation to issue up to 201,996,493 shares of common stock upon the exercise of outstanding warrants, options and convertible rights held by non-employees. That obligation exceeded the Company’s 150,000,000 authorized shares of common stock. Consequently, shareholders were asked to approve an amendment to the Company’s Articles of Incorporation increasing the number of authorized shares of common stock to 700,000,000. A majority of shareholders approved the amendment at the Annual Meeting of Shareholders on September 16, 2011.

On March 17, 2010, the Company entered into a securities purchase agreement by and between the Company and several institutional investors (collectively, the “March Purchasers”), as detailed in the Company’s Form 8-K filed March 17, 2010. The Purchase Agreement as detailed in the aforementioned 8-K filing provided for, among other provisions, Series I warrants to purchase an additional 6,250,001 shares of common stock with an exercise price of $0.25 per share, subject to adjustment should a subsequent financing result in issuance of shares at a price lower than the exercise price of $0.25 per share.

On September 15, 2010, the Company entered into a securities purchase agreement with two institutional investors (collectively, the “September Purchasers”), as detailed in a Form 8-K filed September 21, 2010, pursuant to which the Company agreed to sell in a private placement transaction (i) an aggregate of $560,000 in principal amount of convertible notes (the “Note”), with a conversion price equal to the lesser of $0.25 or 80% of the average of the three lowest daily value weighted average prices (“VWAP”) of the common stock for the 20 consecutive trading days prior to the date on which a September Purchaser elects to convert all or part of its Note, and (ii) 5-Year Warrants to purchase an aggregate of 2,000,000 shares of common stock with an exercise price of $0.25 per share, subject to adjustment should a subsequent financing result in issuance of shares at a price lower than the exercise price of $0.25 per share.

The September Purchasers contacted the Company to notify it of their intention to convert their Notes at the VWAP price that at the time of contact was calculated at $0.0501, and on March 11, 2011, the Company and the September Purchasers agreed to extend the look-back provision of the VWAP from 20 days to 40 days from the date of conversion. This extended look-back was intended to avert an immediate conversion of the note and provide time for the Company to negotiate an agreement that would not result in significant increases in warrants that was threatened by the terms of current agreements with March Purchasers and September Purchasers. The Parties did not reach a mutually acceptable agreement to modify existing provisions and avert substantial increases in warrant holdings.

On September 28, 2011, Biomoda filed a Form S-1 Registration Statement with the U.S. Securities and Exchange Commission (“SEC”) for the resale of up to 206,387,725 shares of our common stock, including 201,887,725 shares of common stock issuable upon exercise of outstanding common stock purchase warrants currently exercisable at $0.01 per share. The selling stockholders may sell common stock from time to time in the principal market on which the stock is traded at the prevailing market price or in negotiated transactions. The selling stockholders may be deemed underwriters of the shares of common stock which they are offering.

In April 2012, the Company entered into a convertible loan agreement for $250,000 secured by a Uniform Commercial Code security interest in Biomoda’s awarded and pending patents in the United States and the European Union. The Lenders agreed to lend Biomoda $250,000 for a term not to exceed six (6) months. Terms of the loan agreement provided that Biomoda repay the Lenders the principal amount of $250,000 plus $45,000 in interest and any loan origination fee and expense reimbursement at the end of the Term or at an earlier time. The amount of repayment was fixed at $295,000 to include the principal amount of $250,000 plus interest. There was no loan origination fee or any expense reimbursement. The Lenders had the option of receiving i) repayment of $270,000 in cash and 2,500,000 shares of restricted common stock or ii) 29,500,000 shares of restricted common stock at an agreed share price of one cent ($0.01) per share. Lenders also had the right after three months to convert into restricted common shares at a share price of one cent ($0.01) per share for a total of 29,500,000 shares. Any such conversion was required to be for the entire loan. Biomoda had the right to prepay the loan at any time; however, the Lenders when notified of Biomoda’s election to prepay had the right to determine the form of repayment whether by cash or conversion to stock at an agreed share price of one cent ($0.01) per share.

In July 2012, the Lenders and the Company terminated the April 2012 convertible loan agreement and the Lenders agreed to void and terminate the Uniform Commercial Code security interest in Biomoda’s awarded and pending U.S. and European patents in consideration of entering into a new loan agreement with additional Lenders for a total amount of $395,000 secured by a Uniform Commercial Code security interest in Biomoda’s awarded patents in the U.S., European Union, Japan, Canada, Australia and Mexico. The Lenders agreed to lend Biomoda $395,000 of which $295,000 was comprised of the April 2012 loan amount and $100,000 in additional cash proceeds, for a period of two years. The Loan shall bear interest, from the date on which it was transferred to the Company, at a rate of eight percent (8%) per annum, compounded annually. Biomoda has the right to prepay the loan at any time. Furthermore, Lenders have the right to convert their loan to equity in Biomoda in the event the Company restructures its business. The conversion shall be at a value in the restructured Company equal to three times the value of the loan amount. In the event that either a board member or officer resigns before repayment, the Lenders may demand acceleration of repayment of the loan.

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We will require additional funding for continuing research and development, obtaining regulatory approval and commercialization of our products. Management is investigating all options and structures to raise sufficient funds to meet our working capital requirements.

In addition to funding normal operating expenses, proceeds of new funding are targeted for the following:

1.	Completion of optimization and bench studies related to increasing the accuracy of our lung cancer assay.

2.	Design of the pivotal study.

3.	Investigation of CyPath®’s suitability as a diagnostic for additional cancers.

4.	Development of strategies to enter the European market, including filing for approval of a CE mark.

Product development expenditures, including personnel expense and general and administrative expense were $8,916 for the six months ended June 30, 2012. Funds for operations, product development and capital expenditures were provided from the sale of company stock, warrants and a convertible debenture. We will require substantial additional funding for continuing research and development, obtaining regulatory approval and the commercialization of our products.

Biomoda currently is insolvent and will remain insolvent until new funding is secured. The Company is investigating all means of funding, including restructuring. Management believes that Biomoda’s technology is sound and can be developed to commercialization if funding for research and clinical trials can be secured. Management continues to work without pay to procure investment, and the Company is in conversations with several potential investors to resolve the current financial situation and continue with technology and commercial development. Biomoda currently has obligations of approximately $1,000,000. The anticipated capital needs for the next 12 months are $2,000,000, for a total capital raise of $3,000,000. This amount is planned to fund the optimization work leading to the pivotal trial.

INFLATION

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

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There has been no material change in our market risks since the end of fiscal year 2011.

Item 4. CONTROLS AND PROCEDURES

Under the supervision and with the participation of our management, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this report, June 30, 2012. Based upon that evaluation, we concluded that our disclosure controls and procedures were not effective.

Management noted that there were no material weaknesses related to the policies and procedures that:

•	Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and dispositions of our assets;

•	Provide reasonable assurance that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

•	Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

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The Company’s material weaknesses exist in its period-end closing procedures and specifically relate to the procedures designed to identify, measure and classify imbedded derivative liabilities arising from complex financial contracts and instruments.

To remedy these material weaknesses, the Company has modified its monthly closing procedures to allow for additional levels of management review to ensure that a detailed review of all financial contracts and instruments occurs on a periodic basis with the objective of identifying, measuring and properly reporting all derivative liabilities at the time of the period-end closing. The Company will also utilize additional resources and has engaged outside consultants to assist with the timely and correct accounting for these transactions. Biomoda management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting for external purposes in accordance with accounting principles generally accepted in the United States of America. Internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; provide reasonable assurance that transactions are recorded as necessary for preparation of our financial statements; provide reasonable assurance that receipts and expenditures of Company assets are made in accordance with management authorization; and provide reasonable assurance that unauthorized acquisition, use or disposition of Company assets that could have a material effect on Biomoda’s financial statements would be prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected.

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

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

CHANGES IN CONTROLS AND PROCEDURES

No significant changes were made to improve our internal controls over financial reporting during the three months ended June 30, 2012. We have implemented checklists for beginning-of-month, mid-month and end-of-month activities which are reviewed by management. Management continues to address the deficiencies in our control and procedures. We have completed an Accounting Manual and Employee Manual and implemented a review process over significant business transactions.

LIMITATIONS ON THE EFFECTIVENESS OF INTERNAL CONTROL

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

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PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

In Biomoda, Inc. v. Robins, U.S. Dist. Ct., D.N.M., No. CIV 07-0855 JB/GBW, the Court entered its Amended Final Judgment on March 16, 2011, for $35,000, with post judgment interest, in favor of Biomoda and against Alvin D. Robins. No appeal from the Amended Final Judgment has been filed and the deadline for doing so has passed. The judgment is therefore final and no longer reviewable on appeal. Biomoda has hired a law firm in Texas that currently is pursuing collection of the judgment.

On August 9, 2012 the Beckman Coulter Company (“Beckman”) filed a lawsuit against Biomoda and New Mexico Tech alleging breach of contract on a lease for Flow Cytometer equipment. The suit alleges damages in the amount of $57,685 and includes a writ of replvein for the return of a flow cytometer machine currently in the possession of New Mexico Tech. Biomoda intends to actively pursue a settlement of the lawsuit but there can be no assurance that such settlements will be accepted by Beckman. As of June 30, 2012, Biomoda had accrued the full lease obligation of $125,892 relating to the Flow Cytometer equipment.

Item 2. CHANGES IN SECURITIES

Registered Securities Sales

Warrant holders exercised 2,000,000 warrants during the six months ended June 30, 2012.

Unregistered Security Sales

From April 2011 through July 2011, the holders of the Notes converted Note principal amounts to common shares at conversion prices ranging from $0.0512 per share to $0.01.

Each conversion was accompanied by a legal opinion that the shares had met the Rule 144(c) (1) time restriction of being held for at least six months, and that the holders are not an affiliate of the Company.

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

31.1		CERTIFICATION OF CEO PURSUANT TO 15 U.S.C. SECTION 10A, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
31.2		CERTIFICATION OF CFO PURSUANT TO 15 U.S.C. SECTION 10A, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
32.1		CERTIFICATION OF CEO PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
32.2		CERTIFICATION OF CFO PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

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SIGNATURES

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

	BIOMODA, INC.

Dated: August 20, 2012
	By:	/s/ Maria Zannes
		Maria Zannes Chief Executive Officer
		/s/ John J. Cousins
		John J. Cousins
		President and Chief Financial Officer (Principal Accounting Officer)

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BIOMODA INC/NM 10-Q