UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x	ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended: December 31, ~~2010~~2011

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

Commission file No. 333-90738

BIOMODA, INC.

(Exact name of registrant as specified in its charter)

NEW MEXICO	85-0392345
(State of incorporation)	(IRS Employer Identification No.)

~~P.O.~~609 ~~Box~~Broadway ~~11342~~NE, Albuquerque, New Mexico ~~87192~~87102

(Address of principal executive offices including zip code)

Issuer’s telephone number, including area code: (505) 821-0875

Securities registered under Section 12(b) of the Exchange Act:	None
Securities registered under Section 12(g) of the Exchange Act:	None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x

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

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 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	¨		Accelerated filer	¨
Non-accelerated filer	¨		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 aggregate market value of the voting stock held by non-affiliates as of ~~June~~December 3031, ~~2010~~2011, based upon the closing price of the registrant’s common stock on that date was $181,~~409~~337,~~290~~052.

The number of issuer’s shares of Common Stock outstanding as of ~~March~~April 1518, ~~2011~~2012, was 92175,~~936~~863,~~886~~963 shares.

Table of Contents

		Page
Forward Looking Statements
PART I
Item 1.	Business	4
Item 1A.	Risk Factors	12
Item 2.	Properties	13
Item 3.	Legal Proceedings	13
Item 4.	(Removed and Reserved)	13
PART II
Item 5	Market for Common Equity and Related Stockholder Matters	14
Item 6.	Selected Financial Data	15
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	15
Item 8.	Financial Statements	20
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	4850
Item 9A.	Controls and Procedures	4850
Item 9B.	Other Information	4951
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	5052
Item 11.	Executive Compensation	5253
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	5355
Item 13.	Certain Relationships and Related Transactions, and Director Independence	5456
Item 14.	Principal Accounting Fees and Services	5456
Item 15.	Exhibits, Financial Statement Schedules	5557
Signatures		5658

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Forward - Looking Statements

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

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

There may be other risks and circumstances that management is unable to predict. When used in this Form 10-K, 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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PART I

ITEM 1. BUSINESS

General

Biomoda, Inc. (“Biomoda”) is a development stage company incorporated in the state of New Mexico on January 3, 1990 (inception). Biomoda is hereafter referred to as the “Company.”

The Company has laboratories and offices at 609 Broadway NE, in Albuquerque, New Mexico, that are used for corporate operations and research and development activities. The mailing address is 609 Broadway NE, Albuquerque, NM 87102. The telephone number is (505) 821-0875~~, and the fax number is (866) 519-6156~~. Our website is www.biomoda.com.

On January 8, 2010, the Company dissolved Biomoda Holdings, Inc., a Nevada corporation incorporated August 12, 2003, as no longer necessary or useful for operations.

The Company

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. Biomoda was issued a patent in January 2005, and has received a Divisional and a Continuation-In-Part (“CIP”) extension of that owned patent. 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. This is a broad-based technology that works with a variety of cancers.

The Company is developing a product line of assays for a variety of cancers based on adaptations of this technology. While we believe the technology has great potential as a cancer screening tool for large populations, the true breakthrough may be its potential as a non-invasive diagnostic for multiple cancers.

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 identified breast, circulating tumor cells (CTC), cervical, bladder, colorectal, oral, and prostate cancers as potentially significant business opportunities for the Company.

Market Need

According to the Centers for Disease Control, cancer is a leading cause of death in the United States, second only to heart disease. In 2010, nearly 600,000 Americans and more than 7 million people around the world lost their lives to cancer. In the United States, one in three women and one in two men will develop cancer during their lifetime. A quarter of all American deaths and about 15 percent of all deaths worldwide will be attributed to cancer. In some nations, cancer will surpass heart disease to become the most common cause of death.

Lung cancer claims more lives than the next four biggest cancers – colon, breast, prostate and pancreatic – combined. Survivability of lung cancer is extremely low. Only 40 percent of patients diagnosed with lung cancer survive one year after being diagnosed. The five-year survival rate for lung cancer is a dismal 15 percent while five-year survival rates for breast and prostate cancer have improved to 87 percent and 99 percent, respectively, primarily due to early detection. Early-stage diagnosis for lung cancer will improve the survivability of the disease.

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World of Medicine

Technological advances are shifting medicine to an individualized approach to treatment of disease. Personalized Disease Management is an overall direction being adopted within the medical community to address risk assessment, diagnosis, treatment and individual response to therapies. Biomoda’s technology will enhance this new paradigm in medicine with improvements in early-stage diagnosis based on risk stratification.

Within Personalized Disease Management, our CyPath® assay has the potential for widespread adoption by the medical community for the screening, diagnosis, monitoring and surveillance of cancers. The global market for an inexpensive, non-invasive, and accurate screening and diagnostic tool for early cancer diagnosis is largely unmet. Biomoda anticipates that our technology will also be used to monitor treatment and gauge patient responses to the efficacies of various therapies.

Business Model

The Company’s end customers are patients who should be screened for a cancer diagnosis based on their risk profile, whether they present with symptoms or not, and doctors that prescribe screening and diagnostic tests. The Company plans to develop assays for the screening and detection of multiple cancers including lung, breast, cervical, CTC, bladder, colorectal, oral and prostate cancers. Patient samples would be delivered to Biomoda clinical reference laboratories certified under the federal Clinical Laboratory Improvement Amendments (“CLIA”). Company laboratories will receive the sample, perform the assay, and deliver the test result to the physician who can then inform the patient of the diagnostic conclusion. Our business model utilizes Company central laboratories to perform testing to maximize profits and minimize risk to our intellectual property (“IP”) and patents. As sales and revenues grow, Biomoda may seek a strategic partnership with national and international clinical laboratories to leverage each entity’s operations and expand Company sales and services.

Biomoda’s future clinical reference laboratories will seek reimbursement from Medicare/Medicaid and private insurers based on existing reimbursement codes. Biomoda performed a reimbursement code study in 2003, and determined that current codes exist and are economically feasible under Centers for Medicare & Medicaid Services (“CMS”) codes. The CMS is a Federal agency within the U.S. Department of Health and Human Services.

Initial sales and revenues forecasts are based on development of an internal sales and manufacturing workforce that will take advantage of public monies available for economic development and job creation. This business model anticipates greater revenues than would be obtained through contract sales and manufacturing and provides for non-dilutive funding during the Company’s research and development phase when risks are greater.

Customers

Sales will be driven by physician referrals. Our initial marketing strategy is focused on creating a high profit margin on a relatively low-cost product ~~which~~that will benefit Biomoda and its strategic laboratory partners. This model offers significant economic incentives for our customers and partners to adopt the Biomoda technology.

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The Company is establishing visibility and credibility within the medical community by actively raising awareness of our CyPath® assay. Biomoda has begun coordinated scientific collaborations and will follow completion of clinical testing by publishing results in research and clinical journals and presenting our findings at medical conferences. Biomoda is currently working with Christiana Care Health Services in Newark, Delaware, Waterbury Pulmonary Associates in Waterbury, Connecticut, Radiology Associates of Albuquerque in Albuquerque, New Mexico, the University of Texas Health Science Center at San Antonio in San Antonio, Texas, and the Saccomanno Research Institute at St. Mary’s Hospital and Medical Center in Grand Junction, Colorado. The Company hopes to engage in collaborations and collaborative studies with preeminent lung cancer researchers throughout the world. In 2011, Biomoda joined the Early Detection Research Network, an initiative of the National Cancer Institute at the National Institutes of Health, which provides an opportunity to collaborate with other researchers focused on the development of molecular technologies for the screening, early diagnosis and target-based treatment of cancer.

The Company will use detailing agents (specialized sales agents) to provide direct marketing efforts to physicians.

IPThe Company’s proprietary Intellectual Property will be protected by ~~the~~using ~~use of~~ Biomoda’s clinical laboratories and through active, licensed-based strategic partnerships with national and international reference laboratories with emphasis on identifying laboratory partners that have business relationships with provider networks. This will enable us to develop strategic relationships with customer groups who have formal relationships with those who drive sales.

Competition

~~Competition~~There ~~falls~~is ~~into~~no ~~several~~commercial ~~segments:~~early ~~biomarkers~~lung cancer diagnostic on the market today. In November, ~~radiology~~2011, ~~genomics~~the National Comprehensive Cancer Network (NCCN) issued guidelines for use of low-dose spiral computed tomography (LDCT) to screen for lung cancer in high-risk individuals. LDCT can be expensive, exposes patients to radioactivity, and ~~proteomics~~can have a false-positive rate of greater than 96% for a single imaging. ~~The~~Screening ~~Company~~must ~~anticipates~~be ~~that~~done ~~CyPath®~~as ~~will~~part beof a ~~complement~~series toand with other diagnostic ~~tools~~procedures ~~described~~to ~~below~~improve asaccuracy. A ~~well~~high asfalse-positive arate ~~stand~~can lead to emotional and financial costs associated with false positive results and increases the physical harm to high-~~alone~~risk ~~diagnostic~~individuals from surgical resection of benign lesions. LDCT ~~Biomoda~~also ~~products~~is ~~should~~the befirst ~~well~~step ~~positioned~~in diagnosis of lung cancer. A more accurate, less costly and less invasive diagnostic is needed to ~~work~~detect ~~synergistically~~lung ~~with~~cancer ~~new~~in ~~products~~the ~~entering~~early stages of the ~~marketplace~~disease.

~~Biomarkers~~Competition ~~represent~~falls ~~the~~into ~~closest~~several ~~competitors~~segments: inbiomarkers, ~~terms~~radiology, ofgenomics, proteomics ~~market introduction. Biomarkers are used to indirectly identify cellular aberrations~~ and ~~disease~~methylation. The Company isanticipates ~~monitoring~~that ~~the~~CyPath® ~~activity~~will ofbe ~~companies~~a incomplement ~~this~~to ~~space,~~diagnostic ~~and~~tools ~~Biomoda~~described ~~believes~~below ~~our~~as ~~technology~~well ~~offers inherent~~as ~~commercial~~a ~~advantages~~stand-alone ~~over biomarkers~~diagnostic. ~~CyPath®~~Biomoda isproducts ~~cheaper~~should tobe ~~make,~~well ~~more~~positioned ~~stable,~~to ~~and~~work ~~simpler~~synergistically towith ~~use~~new inproducts entering the ~~commercial laboratory environment~~marketplace.

~~Radiology~~Biomarkers ~~technology~~are isused ~~not as sensitive~~ to ~~the~~indirectly ~~earliest~~identify ~~stages~~cellular ofaberrations ~~cancer~~and asdisease. Biomoda ~~believes the Company~~’s ~~technology~~pilot ~~will~~clinical ~~prove~~trial todemonstrated bethat ~~after~~CyPath® ~~clinical~~is ~~testing,~~a ~~and~~significant ~~there~~new ~~are~~biomarker ~~health~~for ~~limits~~lung tocancer. ~~radiation~~The ~~exposure~~Company ~~for~~is monitoring ~~and~~the ~~surveillance~~activity of ~~cancer. Radiology~~other ascompanies ain ~~testing~~this ~~method~~space, ~~also~~and iswe ~~more~~believe ~~expensive~~our ~~than~~technology ~~the~~offers inherent ~~anticipated~~commercial ~~cost~~advantages ofover ~~our~~other ~~assay~~products. ~~The~~ ~~Company~~CyPath® ~~believes~~is ~~our~~cheaper ~~technology~~to ~~will~~make, ~~work~~more instable, ~~tandem~~and ~~with~~simpler ~~imaging diagnostics~~ to ~~deliver~~use ~~superior~~in ~~diagnosis~~the ~~and~~commercial ~~treatment~~laboratory ~~of cancer~~environment.

~~Genomics~~Radiology ~~and~~technology ~~proteomics~~including ~~are leading~~low-~~edge~~dose ~~science. These~~spiral ~~technologies~~computed ~~are~~tomography ~~not~~(LDCT), ~~ready~~recently ~~for~~received ~~commercialization,~~medical ~~and~~attention ~~details~~as onthe ~~specificity~~recommended ~~and~~screening ~~sensitivity~~tool for ~~specific~~individuals ~~cancer~~at ~~diagnosis~~high ~~are~~risk ~~unavailable~~for ~~because~~lung ofcancer. Studies ~~the~~reveal ~~early~~a ~~stage~~very ofhigh ~~the~~(up ~~technologies. Biomoda~~to ~~believes~~97%) ~~genomic~~false ~~and~~positive ~~proteomic~~rate ~~technologies~~in ~~will~~single beimaging. The ~~used~~high ~~most~~false ~~often~~positive torates ~~define~~in andetecting ~~individual’s~~lung ~~risk~~cancer ~~profile~~in ~~for~~heavy ~~contracting~~smokers ~~cancer~~using ~~and~~LDCT ~~may~~confirms ~~work~~a asneed ~~tools~~for toa ~~determine~~simple, ~~which~~non-invasive ~~patients~~and ~~can~~inexpensive ~~benefit~~testing ~~from~~method ~~Biomoda’s~~used ~~diagnostic~~in ~~technology. Accurate~~conjunction ~~risk~~with ~~stratification~~LDCT isto aminimize ~~critical~~emotional ~~component~~and offinancial ~~any~~costs ~~effective~~associated ~~screening~~with ~~protocol,~~false ~~and~~positive ~~advances~~results ~~in genomics~~ and ~~proteomics~~lessen ~~are~~physical ~~expected~~harm tofrom ~~greatly~~surgical ~~enhance~~resection ~~this~~of ~~capability~~benign lesions.

Genomics, proteomics and methylation are leading-edge science. Researchers have recently announced advancement in these technologies and anticipation that diagnostic tests may be available for commercialization with five years. Biomoda believes genomic, proteomic and methylation technologies will be used most often to define an individual’s risk profile for contracting cancer and may work as tools to determine which patients can benefit from Biomoda’s diagnostic technology. Accurate risk stratification is a critical component of any effective screening protocol, and advances in genomics and proteomics are expected to greatly enhance this capability.

CyPath® will be a stand-alone early-stage diagnostic tool as well as a complementary product to diagnostic tools currently used to detect cancer. Its clear advantage over current diagnostics is the non-invasive collection of body fluids to retrieve adequate cells for incubation in the CyPath® labeling solution. CyPath® is a front-end diagnostic and screening tool and an aid in determining whether or not more expensive and specialized tests are warranted. Our product can be highly valuable to physicians by optimizing and expanding current medical practices by offering a simple, non-invasive diagnostic test to detect cancer.

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Patents

Biomoda,’s ~~Inc. owns~~ U.S. Patent ~~6,838,248,~~portfolio ~~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;~~ includes:

· U.S. Patent 76,~~384~~838,~~764~~248, titled “~~Method~~Compositions and Methods for ~~Prognosing~~Detecting ~~Response~~Pre-Cancerous toConditions ~~Cancer~~in ~~Therapy~~Cell ~~with~~and Tissue Samples Using 5, 10, 15,20 20- Tetrakis (Carboxyphenyl) Porphine” which was issued ~~June~~on 10January 4, ~~2008~~2005;

· U.S. Patent 7,~~670~~384,~~799~~764, titled “Method for ~~Making~~Prognosing Response to Cancer Therapy with 5, 10, 15, 20-Tetrakis (Carboxyphenyl) Porphine” ~~(TCPP)~~which ~~Solution~~was issued June 10, 2008 and ~~Composition~~its ~~Comprising~~Continuation-in-Part ~~TCPP”~~patent ~~which~~with ~~was~~the ~~issued~~same onname, ~~March~~7,960,138 2issued June 14, ~~2010~~2011;

~~Allowed~~· U.S. Patent ~~Application 12/715~~7,~~627~~670,799 titled “Method for ~~Prognosing~~Making ~~Response to Cancer Therapy with~~ 5, 10, 15, 20-Tetrakis (Carboxyphenyl) Porphine (TCPP) Solution and Composition Comprising TCPP” ~~filed~~ which was issued on March 2, 2010; ~~and~~

~~Foreign~~· ~~equivalents~~Allowed ofU.S ~~these~~Patent ~~inventions~~Application ~~were~~12/715,627 ~~granted~~titled in“Method ~~Canada~~for Detecting and Prognosing Pre-Cancerous cells with 5, ~~Japan~~10, ~~Mexico~~15, ~~and~~20-Tetrakis ~~Australia~~(Carboxyphenyl) ~~and~~Porphine” isfiled ~~pending~~March in2, ~~Europe.~~2010; and

~~Biomoda~~· ~~owns~~Pending ~~pending~~ 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; ~~and~~

~~Patent~~On ~~Cooperation~~November ~~Treaty~~2, ~~(“PCT”)~~2011, ~~Application~~we ~~PCT/US10/42482~~filed ~~titled~~an ~~“System~~application for a new U.S. Patent. The Utility Patent describes systems and ~~Method~~methods for ~~Analyzing~~an ~~Samples~~innovative ~~Labeled~~stable, ~~with~~narrow-band 5,light ~~10,~~source ~~15,~~to 20excite ~~Tetrakis~~fluorophores ~~(4-Carboxyphenyl)~~such ~~Porphine~~as (TCPP)”. This ~~filed~~narrow-band ~~July~~fluorophore 19exciter will increase the accuracy, ~~2010~~sensitivity and specificity of the CyPath® diagnostic assay for lung cancer in both epifluorescent microscopy and flow cytometry.

~~Biomoda~~On ~~owns~~March ~~U.S.~~15, ~~registrations~~2011, ~~for~~ the ~~marks~~Canadian ~~CyPath®~~Intellectual ~~and~~Property ~~CyDx®~~Office ~~and~~awarded aBiomoda ~~U.S.~~Canadian ~~registration~~patent is2,429,526 ~~pending~~entitled ~~for~~"Compositions ~~the~~and ~~mark~~Methods ~~“Biomoda”.~~for ~~The~~Detecting ~~Company~~Precancerous ~~has~~Conditions ~~also~~in ~~received~~Cells ~~registrations~~and ~~for~~Tissue ~~the~~Samples ~~marks~~using ~~Biomoda®~~5, 10, ~~CyPath®~~15, ~~and~~20 ~~CyDx®~~Tetrakis in(Carboxyphenyl) Porphine." This patent is similar to the ~~European~~U.S. ~~Union~~Patent awarded in 2005.

On June 20, 2011, the Japan Patent Office granted Patent Application No. 2008-266490, “Compositions and Methods for Detecting Pre-Cancerous Conditions In Cell And Tissue Samples Using 5, 10, 15, 20-Tetrakis (Carboxyphenol) Porphine,” which is similar to Biomoda’s U.S. patent 6,838,248.

In January 2012, the European Patent Office (“EPO”) granted Biomoda’s patent application for using the proprietary CyPath® technology to detect cancer and pre-cancerous cells in body fluid and tissue samples. Titled “Composition and Methods for Detecting Pre-Cancerous Conditions In Cell And Tissue Samples Using 5, 10, 15, 20-Tetrakis (Carboxyphenol) Porphine,” EPO patent 1364044 is similar to Biomoda’s U.S. patent 6,838,248, which was issued in 2005. Foreign equivalents are now effective in Canada, Mexico, Japan, Australia and Europe.

Biomoda filed 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)” on July 19, 2010. The PCT process provides a standard patent application for the countries that are signatories to the treaty.

Biomoda owns U.S. registrations for the marks CyPath®, CyDx® and “Biomoda.” The Company has also received registrations for the marks Biomoda®, CyPath® and CyDx® in the European Union, and the World Intellectual Property Organization has registered “Biomoda” as a world trademark as of November 10, 2010.

Suppliers

The Company has identified several suppliers for all key components of our lung cancer diagnostic assay that can provide sufficient quantities for commercialization of the assay. Discussions continue with these suppliers based on the current stage of our development.

Research and Development Activities

Biomoda’s research is undertaken in collaboration with universities, scientists, research institutions, and medical facilities domestically. The Company is working toward further research and clinical trials which Biomoda anticipates will expand upon current and future collaborations. Biomoda’s diagnostic test can be used for other tissue and body fluid samples, and Biomoda intends to create and market products to diagnose and screen for other prevalent cancers, including breast, cervical, CTC, bladder, oral, colorectal and prostate. Toward that end, Biomoda isanticipates developing protocols and assembling a study team for feasibility studies on the use of CyPath® to ~~diagnose~~address ~~breast~~other ~~cancer~~cancers.

The Company is also conducting internal optimization studies prior to launching the pivotal clinical study to enhance the commercial utility of the CyPath® diagnostic assay. This research and development (“R&D”) includes automation of sample reading, improving methods for the non-invasive collection of sputum samples, advancing understanding and application of fluorescent microscopy in relation to its ability to identify cancer cells, and developing strategies to enter the European market, including filing for approval of a CE mark. Optimizing the assay and automating the process for reading CyPath®-labeled cells will lead to lower cost and greater accuracy in a high-throughput clinical setting. This research will be supported by cooperative agreements between the Company and major medical and scientific research institutions with the assistance of medical and scientific experts on our research team.

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~~Subsequent~~The Company plans to ~~December~~complete ~~31,~~internal ~~2010,~~optimization ~~Biomoda~~studies ~~received~~prior ~~notification~~to ~~that~~launching ~~its~~the ~~application~~pivotal clinical study to ~~become~~enhance anthe ~~Associate~~commercial ~~Member~~utility of the ~~Early~~CyPath® ~~Detection~~diagnostic ~~Research~~assay. ~~Network~~This research and development (“~~EDRN~~R&D”), anincludes ~~initiative~~automation of ~~the~~sample ~~National~~reading, ~~Cancer~~improving ~~Institute~~methods ~~(“NCI”)~~for at the ~~National~~non-invasive ~~Institutes~~collection of ~~Health~~sputum ~~(“NIH”)~~samples, ~~had~~advancing ~~been~~understanding ~~accepted.~~and ~~The~~application ~~EDRN~~of isfluorescent ~~focused~~microscopy onin ~~the~~relation ~~development~~to ofits ~~molecular~~ability ~~technologies~~to ~~for~~identify cancer cells, and developing strategies to enter the ~~screening~~European market, ~~early~~including ~~diagnosis~~filing for approval of a CE mark. Optimizing the assay and ~~target~~automating the process for reading CyPath®-~~based~~labeled ~~treatment~~cells ofwill ~~cancer.~~lead ~~The~~to ~~EDRN~~lower ~~membership~~cost and greater accuracy in a high-throughput clinical setting. This research will ~~provide~~be ~~Biomoda~~supported ~~with~~by ~~additional~~cooperative ~~opportunities~~agreements ~~for~~between ~~collaborative~~the Company and major medical and scientific research ~~related~~institutions towith ~~biomarker~~the ~~development,~~assistance ~~clinical~~of ~~testing~~medical and ~~validation~~scientific experts on our research team.

Employees

As of December 31, ~~2010~~2011, the Company had ~~ten~~four full-time employees. Biomoda has contracts for services on various projects on an ongoing or as-needed basis.

Maria Zannes is Chief Executive Officer and Chairman of the Board. Ms. Zannes has more than 30 years of management experience in business and industry. After serving as President of the Energy Recovery Council, a national waste-to-energy trade group in Washington, D.C., for 10 years, Ms. Zannes began a consulting practice for private clients in the medical, environmental and energy industries. She is a research associate with Columbia University Earth Engineering Center and co-founder of two research centers at Columbia. Ms. Zannes is a director and founder of American Homecoming Foundation, a non-profit organization directed at helping homeless veterans~~, and Standard Alcohol Company of America, an alternative energy company~~. Previously, she worked as General Manager for ECOS Corporation, a subsidiary of Burlington Environmental, and Project Manager for Wheelabrator Technologies, Inc., a subsidiary of Waste Management. Ms. Zannes began her career as a journalist before joining the office of Congressman Charles Wilson (D-Texas) as legislative aide and press secretary. Ms. Zannes is licensed to practice law in ~~Washington~~New ~~State~~Mexico and ~~New~~is ~~Mexico~~an inactive member of the Washington State Bar Association.

John J. Cousins is President, Treasurer, CFO, Controller and Director. Mr. Cousins holds undergraduate degrees from Boston University and the Lowell Institute School at the Massachusetts Institute of Technology and earned an MBA from the Wharton School, University of Pennsylvania. He began his business career as a design engineer for Ampex Corporation, a manufacturer of broadcast and computer equipment, and the American Broadcasting Company television network. He was named vice president of Cimarron Business Development Corporation, a southwest regional merchant and investment banking operation in 1990. In 1996, Mr. Cousins became president of Terra Firm, a business consulting firm. Mr. Cousins is a Director of American Homecoming Foundation, a non-profit organization created to help homeless veterans. Mr. Cousins is also a Director and Vice President of New Mexico Biotechnology and Biomedical Association (NMBio), an affiliate of the national Biotechnology Industry Organization. Mr. Cousins has been President, Treasurer, Controller and a Director of Biomoda since 2002.

~~Constance~~Timothy ~~Dorian~~Peter Zannes is Vice President ofand ~~Technical~~General ~~Operations. Ms.~~Legal ~~Dorian~~Counsel ~~earned~~and aCorporate BSecretary.~~S. in Biology from San Diego~~ ~~State University~~Mr. ~~She~~ ~~has~~Zannes 20holds ~~years~~a ~~experience~~law ~~with~~degree ~~start-ups~~from ~~and small- to medium-sized companies in~~ the ~~biotechnology~~University ~~sector.~~of ~~Ms.~~New ~~Dorian has directly managed the day-to-day activities required for production and manufacturing operations~~Mexico, ~~quality~~is ~~control~~a ~~and~~member ~~quality assurance systems, product support and improvement programs, and cost reduction programs~~ in ~~accordance~~good ~~with~~standing ~~FDA~~of ~~guidelines.~~the InNew ~~addition,~~Mexico MsBar ~~Dorian has designed~~ and ~~developed~~contributes ~~diagnostic~~19 ~~assays,~~years ~~designed~~experience ~~and~~as ~~conducted~~a ~~clinical studies, and managed the regulatory approval process~~lawyer.

Timothy Peter Zannes is General Legal Counsel. Mr. Zannes holds a law degree from the University of New Mexico, is a member in good standing of the New Mexico Bar and contributes 19 years experience as a lawyer.

Angela Dayile is Technical Operations Laboratory Supervisor. Ms. Dayile earned a B.S. in Biology and a B.A. in Spanish and an M. S. in Health Education from the University of New Mexico. Her experience lies in the coordination, conduct and analysis of environmental and clinical research.

Verrity Gershin is Office Manager. Ms. Gershin graduated from the University of New Mexico with a B.U.S. degree in May 2008. With 12 years experience in accounting, corporate filings and corporate administrative support, Ms. Gershin assisted with the Company’s initial public offering and helps maintain regulatory compliance.

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Board of Directors

Maria Zannes, Chairman.

John J. Cousins, Director.

David Lambros is a Director. Mr. Lambros was the elected law director of Brook Park, Ohio, and presently serves as the law director of the Village of Valley View and the Village of Kelley’s Island, Ohio. As law director, he serves as the chief legal counsel to cities negotiating with corporations and business, and is an expert in municipal law. Mr. Lambros has practiced law for more than 25 years and served on various boards, including Commerce Exchange Bank and Southwest General Hospital. He presently is a director on the Systems Board at Southwest General Hospital, a multi-million dollar company.

Lewis White is a Director. Mr. White is a major shareholder of Biomoda and serves as director and CEO of New Energies Nebraska, LLC, a subsidiary of Standard Alcohol Company. He has also been a real estate investor, principal of a food services business catering to niche markets and an employee of the State of Nebraska. Mr. White attended the University of Nebraska at Omaha where he majored in Business Administration.

Contracts

The Company has contracted with Medi-Pharm Consulting, LLC, of New York, New York, for strategic business development and growth services. Medi-Pharm Consulting is a strategic business company whose team consists of the experienced and respected professionals in the healthcare industry who together represent more than 100 years of experience involving pharmaceuticals, biotechnology, healthcare services and technology, medical devices and equipment. Medi-Pharm will assist the Company with strategic partnerships and positioning for investment and growth.

The Company has contracted with Gordon Bennett of Albuquerque, New Mexico, for fluorescent microscopy services. Mr. Bennett has a B.S. in Physics as well as a J.D. from the University of New Mexico. His background is in photonics and electronics. He has been adjunct faculty at the College of Santa Fe and has held the Chair in Photonics and Biophotonics at Central New Mexico Community College. He is currently a member of the Optical Society of America and the New Mexico State Bar.

The Company has contracted with Christiana Care Health Services of Newark, Delaware, for the services of Thomas L. Bauer, MD, thoracic surgeon and cancer researcher, to be the national Principal Investigator (“PI”) overseeing the Biomoda clinical studies for early lung cancer detection. Dr. Bauer has led several lung and esophageal cancer studies. Dr. Bauer partners with Dr. Lara Patriquin, a diagnostic radiologist in Albuquerque, who is serving as the local PI for the ~~current~~Company’s ~~study~~clinical studies.

The Company has contracted with Christiana Care Health Services for sample procurement and assay research and development. The Helen F. Graham Cancer Center associated with Christiana Care Health System recruited a cohort of patients diagnosed with lung cancer to participate in the final stage of the pilot clinical study of the investigational CyPath® assay. Christiana Care’s Institutional Review Board reviewed the Biomoda study protocol to ensure compliance with scientific, regulatory and ethical standards.

The Company has contracted with Quintiles Consulting in Rockville, Maryland, for regulatory consulting and the design of clinical studies of Biomoda’s proprietary test for detection of early-stage lung cancer. Quintiles Consulting (www.quintiles.com) is the regulatory consulting unit of Quintiles Transnational Corp., a global corporation that provides a broad range of professional services in product development, financial partnering and commercialization for the pharmaceutical, biotechnology and medical device industries.

The Company has contracted with Radiology Associates of Albuquerque in Albuquerque, New Mexico to be the collection site for the high-risk cohort of the current clinical trial. Under the terms of that contract, Radiology Associates of Albuquerque performs computed tomography (“CT”) scans of patients participating in the clinical studies and provides results to their primary care providers and to Biomoda.

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The Company has contracted with Regulatory & Clinical Research Institute (“RCRI”), Inc. in Minneapolis, Minnesota, to serve as the Contract Research Organization (“CRO”) for the ongoing clinical studies of the CyPath® assay. RCRI (www.rcri-inc.com) provides medical device, in-vitro diagnostic and biologics companies with expertise in regulatory affairs, clinical trial design and management, database development, reimbursement strategy, health economics, quality systems and compliance, biostatistics and venture capital due diligence.

The Company has ~~contracted~~signed ~~with~~a ~~the~~Memorandum ~~Saccomanno~~of ~~Research~~Understanding ~~Institute~~with atthe ~~St.~~University ~~Mary’s~~of ~~Hospital~~Texas ~~and~~Health ~~Medical~~Science Center at San Antonio in ~~Grand~~San ~~Junction~~Antonio, ~~Colorado~~Texas, to collaborate on research to ~~advance~~optimize ~~Biomoda’s patented system for measuring~~ the ~~photon~~CyPathâ ~~emission rate of CyPath®-stained cells for the early detection of lung cancer~~assay.

The Company has contracted with Waterbury Pulmonary Associates Research, the active clinical research arm of a large single-specialty private practice pulmonary and critical care group in Waterbury, Connecticut, for sample procurement for the positive control cohort of the clinical studies of the CyPath® diagnostic for lung cancer. David G. Hill, MD, is the local PI for Waterbury’s participation in the Biomoda studies.

The Company has hired a CPA firm, Clifton Gunderson LLP (formerly Meyers and Company) in Albuquerque, New Mexico, to help oversee accounting, create financial statements and liaison with auditors.

The Company has contracted with Integritas, LLC of San Antonio, Texas, for business development in the state of Texas.

The Company has contracted with ~~Keleher~~Patrick ~~and~~Sweeney ~~McLeod~~ of ~~Albuquerque~~Cleveland, ~~New Mexico~~Ohio, tofor ~~provide~~business ~~general~~development ~~legal~~in ~~counsel~~the state of Ohio.

The Company has contracted with SA Valuations, Inc. of Houston, Texas, to provide accounting valuations relative to imbedded derivatives in securities instruments.

The Company has retained Sichenzia Ross Friedman & Ference, LLP in New York, New York, to provide legal counsel on securities law and SEC-related matters.

The Company has contracted with Slone Partners of Miami Beach, Florida, a national recruitment firm, to assist with scientific staffing.

The Company has contracted with Taylor Associates, Inc. of Lexington, Massachusetts, a media relations firm, for a public awareness campaign.

The Company has contracted with Torrey Hills Capital of San Diego, California, for investment and strategic planning.

Pilot Clinical Study Update

Biomoda is seeking U.S. Food and Drug Administration (“FDA”) approval of its cytology-based diagnostic technology as a Class III medical device under the Pre-Market Approval ("PMA") process.

An early-stage lung cancer screening program for New Mexico veterans based on the Biomoda technology was funded by the New Mexico State Legislature and administered by the New Mexico Department of Veterans Services and the New Mexico Institute of Mining and Technology. The screening program, the first large-scale study of Biomoda’s CyPath® investigational-use-only (not yet FDA-approved) diagnostic, iswas the foundation of the pilot clinical trial. Biomoda received full payment of a government contract for reimbursement of research and development costs of $1.3 million for fiscal year ended June 30, 2009, related to this study.

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On March 5, 2009, the Company received approval for the pilot clinical trial from an independent Institutional Review Board ("IRB"). Biomoda’s cytology-based diagnostic technology had previously shown 100 percent sensitivity and 100 percent specificity during internal testing on a small sample of patients.

Thomas L. Bauer, MD, cancer researcher and chief thoracic surgeon with the Christiana Care Health System in Delaware, is the national Principal Investigator (“PI”) overseeing the pilot clinical study. Dr. Bauer has led several lung and esophageal cancer studies. Dr. Bauer is working with Lara Patriquin, MD, a diagnostic radiologist in Albuquerque, who serves as the Albuquerque PI for the pilot clinical study, and David Hill, MD, the PI for the site in Waterbury, Connecticut. The team of experts ~~working~~that worked with Biomoda on the clinical study ~~includes~~included representatives from Quintiles, RCRI and Radiology Associates of Albuquerque. The New Mexico Department of Veterans Services and Black Veterans Association of New Mexico assisted with outreach and recruitment.

Study ~~volunteers~~participants ~~provide~~provided deep-lung sputum samples to be screened for the presence or absence of cancer cells. Sputum samples ~~are~~were processed onto microscope slides and incubated in the CyPath® labeling solution which binds to cancer cells. Cells on the slides labeled with CyPath® ~~are~~were analyzed under a microscope for unique fluorescent signature and intensity. Sample adequacy iswas determined ~~using~~by ~~the~~ Pap stain analysis, and study participants ~~undergo~~underwent CT scans which ~~are~~were read by independent radiologists under the International Early Lung Cancer Action Program (“I-ELCAP”) Enrollment and Screening Protocol. Results ~~determined~~based on analysis of the sputum samples labeled with the investigational CyPath® assay in the Biomoda lab ~~are~~were ~~then~~ compared to the CT scan diagnostic results of high-risk participants and CT scan and other diagnostic results of cancer patients.

Veterans recruited for the pilot study were “20 pack year” smokers, individuals who have smoked the equivalent of one pack a day for 20 years or two packs a day for 10 years. In September 2009, Biomoda added a longitudinal component to the pilot clinical trial, which will provide additional data on the efficacy of the Biomoda diagnostic. The pilot clinical study is focused on screening military veterans because they may be at least 25 percent more likely to develop lung cancer and die from the disease than the general population, according to a U.S. Department of Defense report.

The pilot clinical trial also ~~includes~~included analysis of a cohort of patients with a confirmed diagnosis of lung cancer who had not yet begun treatment for the disease. Biomoda contracted with Christiana Care Health Services and Waterbury Pulmonary Associates Research for sputum sample procurement for the clinical trial’s positive control group. In October 2010, Biomoda reopened patient enrollment and sample collection for the cancer cohort of the pilot study after comprehensive analysis by the medical team of CT scans of patients revealed that some patients enrolled in the study who were suffering from recurrence of lung cancer did not display tumors inside the lung cavity as required by the study protocol.

Enrollment and sample collection for the positive control cohort was completed in February 2011. Top-line results for the pilot study ~~are~~released ~~expected~~on toMarch be30, ~~released~~2011, indemonstrated ~~March~~that ~~2011.~~CyPathâ ~~The~~is ~~Company~~a ~~believes~~significant ~~initial~~new ~~results~~biomarker ~~will~~for ~~show~~lung ~~that~~cancer. ~~the~~Sensitivity ~~CyPath®~~of the assay ~~can~~was ~~both~~determined ~~identify~~at 77% with specificity at 58% accounting for patient factors, and ~~quantify~~an ~~lung~~overall ~~cell~~accuracy ~~characteristics~~of ~~that~~81.3% ~~differ~~in ~~between~~the ability to correctly classify groups of ~~individuals~~study atparticipants ~~high~~into the cancer or high-risk ~~for~~cohorts. A ~~developing~~Receiver ~~cancer~~Operating Characteristic (ROC) analysis of the sensitivity and ~~those~~specificity ~~who~~was ~~already~~shown to have ~~the~~an ~~disease~~associated “p value” of less than . 001, resulting in a statistically significant finding of CyPath®’s ability to discriminate between high-risk and cancer groups. Complete data from the pilot study ~~will~~has bebeen ~~published~~submitted for publication in accordance with standard peer review ~~and publishing guidelines for studies of this type~~. Dr. Bauer expects to present findings and results at appropriate medical conventions and events.

Biomoda has begun preliminary design and coordination for the pivotal clinical trial of our in-vitro diagnostic for early-stage lung cancer. The multi-site pivotal trial will include up to 3,500 patients and will be designed to yield data and analysis sufficient for FDA approval of the assay for commercial use in the United States. The Company expects to complete internal studies focused on optimization of the assay prior to opening pivotal clinical trial sites. These studies include automation using flow cytometry to read the entire sputum sample efficiently, improving methods for the non-invasive collection of sputum samples, and advancing understanding and application of fluorescent microscopy in relation to its ability to identify cancer cells.

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Available Information

The Company files annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and proxy and information statements and amendments to reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended. The public may read and copy these materials at the ~~SEC’s~~ Public Reference Room of the Securities and Exchange Commission (“SEC”) at 450 Fifth Street NW, Washington, DC 20549. The public may obtain information on the operation of the public reference room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding the Company and other companies that file materials with the SEC electronically. The Company’s headquarters are located at 609 Broadway NE, Albuquerque, New Mexico. Its telephone number is (505) 821-0875 ~~and its fax number is (866) 519-6156~~. The mailing address is ~~P.O.~~609 ~~Box~~Broadway ~~11342~~NE, Albuquerque, NM ~~87192~~87102.

ITEM 1A. RISK FACTORS

The Company is competing against companies with the financial and intellectual resources and expressed intent of performing rapid technological innovation and substantial scientific research. The Company's resources are limited and must be allocated to focused objectives in order to succeed.

The area of biopharmaceutical research is subject to rapid and significant technological changes. Developments and advances in the medical industry by either competitors or neutral parties can affect the Company's business in either a positive or negative manner.

Developments and changes in technology that are favorable to the Company may significantly advance the potential of the Company's research, while developments and advances in research methods outside of the methods the Company uses may severely hinder or halt completely the Company's development.

Before marketing any of its products, the Company will need to complete multiple clinical investigations of each product. There can be no assurance that the results of such clinical investigations will be favorable to the Company. During each investigative study and prior to its completion, the results of the investigations will remain blinded to ensure the integrity of the study. The Company will not know the results of any study, favorable or unfavorable to the Company, until the study has been completed. Such data must be submitted to the FDA as part of any regulatory filing seeking approval to market the product. Even if the results are favorable, the FDA may dispute the claims of safety, efficacy, or clinical utility and not allow the product to be marketed. The sale price of the product may not be enough to recoup the amount of our investment in conducting the investigative studies.

Biomoda is a small company in terms of employees, technical and research resources, and capital. These factors could hinder the Company's ability to meet changes in the medical industry as rapidly or effectively as competitors with substantially more resources.

Costs of complying with regulatory and legislative matters such as the Clinical Laboratory Improvement ~~Amendment~~Amendments (“CLIA”), which regulates the quality and reliability of medical testing in the United States, and changes to regulations governing FDA approval of clinical devices, as well as adverse changes in zoning laws, tax laws, or other laws affecting the medical and diagnostic industry may prove to be a major obstacle, with respect to both time and costs, in the Company's research and development.

The timing of regulatory filings and approvals, if any, for the Company's products are made less certain by the Company’s intention to market its products throughout the world. Numerous regulatory agencies regulate the sale of diagnostic and therapeutic products, and these agencies may be affected or influenced by criteria materially different than those of the FDA. The sale of the Company's products may be materially affected by the policies of these regulatory agencies or the domestic politics of the countries involved. Biomoda has not applied for and dodoes not now have the approval of any foreign country to sell our products for diagnostic or therapeutic use.

Our products are subject to FDA approval and to post-approval FDA reporting requirements.

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ITEM 2. PROPERTIES

The Company’s Research and Development facilities are located in Albuquerque, New Mexico, under a month-to-month lease at approximately $43,~~900~~700 per month. R&D is housed in approximately 1,300 square feet that includes two state-of-the-art laboratories, where primary research, assay validation and pre-clinical work iswas ~~being~~ conducted, and four administrative offices. ~~Biomoda~~Pending ~~intends~~additional tofinancing, Biomoda will expand its laboratory facilities in ~~2011~~2012 in order to provide reproducibility for our clinical pivotal trial and thereafter as needed to respond to research and sales demand. For the expanded development phase, no manufacturing facilities will be needed. For the production phase, Biomoda plans to utilize contract manufacturers and suppliers and expects to expand to allow for the manufacture of patient collection kits as appropriate.

ITEM 3. LEGAL PROCEEDINGS

In On ~~January~~April ~~2010~~22, 2009, Biomoda, ~~received~~Advanced ~~100~~Optics Electronics,~~000~~ ~~restricted~~Inc. ~~Biomoda~~(“ADOT”), ~~shares~~and Leslie S. Robins (“Robins”) entered into a Settlement Agreement and Release (“Settlement”) to resolve all claims in the pending federal lawsuit entitled Advanced Optics Electronics, Inc., et al. v. Leslie S. Robins, et al. No. CIV-2007-00855, JB/DJS, U.S. District Court for the District of New Mexico and two related suits. As described below, the Settlement effectively separates Biomoda from ~~Seacoast~~ADOT ~~Advisors~~and ~~LLC~~Robins asand ~~part~~cedes control of anADOT ~~arbitration~~to ~~decision~~Robins.

AsPursuant ~~the~~to ~~result of a federal lawsuit entitled Advanced Optics Electronics, Inc., et al. v. Leslie S. Robins, et al. No. CIV-2007-00855, JB/DJS, U.S. District Court for~~ the ~~District of New Mexico and two related suits~~Settlement, ~~Biomoda won default judgments against two Defendants, Alvin Robins and John Kearns, on all counts alleged and~~ in ~~favor~~addition ~~of Biomoda. Biomoda submitted a final statement of damages~~ to ~~the~~executing ~~Court in November 2009. Defendant Alvin Robins failed to appear at~~ a ~~hearing~~release on August 4, 2010, and the Court allowed Biomoda's counsel to proceed with oral argument on the motion for a damages amount to be awarded to Biomoda. At a hearing on October 6, 2010, Mr. Robins again failed to appear. On November 12, 2010, the Court held a hearing in ~~the~~favor ~~matter~~ of ~~Biomoda’s~~ ~~motion for summary judgment for default damages. Mr. Robins appeared and was given opportunity to argue only to the merits of the amount of the damages claimed by~~ Biomoda~~. On December 15~~, ~~2010, Judge James O. Browning ruled that Biomoda was entitled to $35,000 in damages from Mr.~~ Robins. ~~Biomoda~~took ~~subsequently filed a motion with~~ the ~~Court~~following to dismiss all claims against Mr. Robins with the exception of the $35,000 judgment already rendered. Mr. Robins has moved the Court to vacate the judgment for $35,000 rendered against him along with the 52-page ruling made by the Court. Defendant John Kearns is deceased. Biomoda has waived the right to pursue damages against Mr. Kearns' estate.action:

On March 11 2011, Judge James O. Browning entered a final judgment in the case of Biomoda vs. Leslie Robins, Alvin Robins and John Kearns (No. CIV07-0855 JB/GBW). Within that final judgment Judge Browning ordered that plaintiff Biomoda Inc. be awarded damages in the amount of $35,000.00 with post-judgment interest against Defendant Alvin D. Robins, thereby ending all matters related to this case within his court.

(a)	paid $10,000 to Biomoda and delivered to Biomoda all Biomoda documents within his possession or control;
(b)	resigned from any position he may claim to hold or claim he should hold as an officer or director of Biomoda;

(c)	transferred all shares to the Company of Biomoda stock currently held by Robins or by any family member or other person, corporation or entity in which he has any control, which consisted of 747,000 shares; and
(d)	agreed not to acquire any Biomoda shares in the future.

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

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. We intend to pursue collection of the judgment.

Biomoda does not know of any environmental liability affecting our Company that would have a materially adverse effect on our business. However, various federal, state and local environmental laws make our Company liable for the costs of removal or remediation of certain hazardous or toxic substances. These laws often impose environmental liability regardless of whether the owner was responsible for or knew of the presence of hazardous substances. The presence of hazardous substances, or the failure to properly remediate them, may adversely affect our ability to sell or rent a property or to borrow using the property as collateral. No assurance can be given that the environmental assessments of our property revealed all environmental liabilities, or that a material, adverse environmental condition does not exist on property leased by us.

Employees of the Company dealing with human blood and tissue specimens may be exposed to risks of infection from HIV, hepatitis, tuberculosis, and other blood- and specimen-borne diseases if appropriate laboratory practices are not followed. Although no infections of this type have been reported in the Company’s history, there can be no assurance that such infections will not occur in the future and result in liability to the Company

The testing, marketing, manufacturing, distribution, and sale of health care products could expose the Company to the risk of product liability claims. A product liability claim could have a material adverse effect on the business or financial condition of the Company. The Company does not currently maintain product liability insurance coverage. The Company intends to evaluate, depending on the circumstances that exist at the time, whether to obtain any product liability insurance coverage prior to the time that the Company engages in any marketing of its products. Even if the Company should elect to attempt to obtain such coverage in the future, there can be no assurance that product liability insurance will be available to the Company in the future on acceptable terms, if at all, or that such insurance will be sufficient to protect the Company against claims. Therefore, any uninsured loss could adversely affect our financial condition and results of operation.

ITEM 4. (REMOVED AND RESERVED)

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PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information

The Company’s stock began trading on November 21, 2006, on the OTC Bulletin Board under the symbol "BMOD" and closed on December 31, ~~2010~~2011, at $0.08011 per share.

For the periods indicated, the following table sets forth the high and low bid prices per share of common stock. These prices represent inter-dealer quotations without retail markup, markdown, or commission and may not necessarily represent actual transactions.

	Fiscal Year 2008
	Fiscal Year 2010
	High		Low
First Quarter	$	0.2047	$	0.0418
Second Quarter	$	0.1131	$	0.0414
Third Quarter	$	0.0825	$	0.0215
Fourth Quarter	$	0.0818	$	0.0106

	Fiscal Year 2009
	Fiscal Year 2011
	High		Low
First Quarter	$	0.0727	$	0.0406
Second Quarter	$	0.0710	$	0.0302
Third Quarter	$	0.5304	$	0.0201
Fourth Quarter	$	0.2802	$	0.1201

	Fiscal Year 2010
	High		Low
First Quarter	$	0.47	$	0.13
Second Quarter	$	0.31	$	0.14
Third Quarter	$	0.25	$	0.15
Fourth Quarter	$	0.18	$	0.06

Holders of our Common Stock

As of March 115, ~~2011~~2012, the Company estimates that there were approximately 12,~~500~~100 shareholders.

Dividends

Biomoda has never paid cash dividends on our Common Stock and does not anticipate paying cash dividends in the near future.

Stock Option Grants

No stock options were granted in ~~2010~~2011. Warrants were issued and are detailed in the appropriate section.

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Penny Stock

Until Biomoda’s shares qualify for inclusion in the NASDAQ system, the public trading, if any, of our common stock will be on the OTC Bulletin Board. As a result, an investor may find it more difficult to dispose of, or to obtain accurate quotations as to the price of, the common stock offered. Our common stock is subject to provisions of Section 15(g) and Rule 15g-9 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), commonly referred to as the "penny stock rule." Section 15(g) sets forth certain requirements for transactions in penny stocks, and Rule 15g-9(d) incorporates the definition of "penny stock" that is found in Rule 3a51-1 of the Exchange Act. The ~~Securities and Exchange Commission (“~~SEC”) generally defines "penny stock" to be any equity security that has a market price less than $5.00 per share, subject to certain exceptions. If our common stock is deemed to be a penny stock, trading in the shares will be subject to additional sales practice requirements on broker-dealers who sell penny stocks to persons other than established customers and accredited investors. "Accredited investors" are persons with net assets in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 together with their spouse. For transactions covered by these rules, broker-dealers must make a special suitability determination for the purchase of such security and must have the purchaser's written consent to the transaction prior to the purchase. Additionally, for any transaction involving a penny stock, unless exempt, the rules require the delivery, prior to the first transaction, of a risk disclosure document, prepared by the SEC, relating to the penny stock market. A broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative, and current quotations for the securities. Finally, monthly statements must be sent disclosing recent price information for the penny stocks held.

Equity Compensation Plans

Currently there is no Equity Compensation Plan.

ITEM 6. SELECTED FINANCIAL DATA

As a smaller reporting company, Biomoda is not required to provide the information required by this Item.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION

Company Overview

Biomoda has been in the development stage since it began operations on January 3, 1990, and has not generated any revenues from operations. There is no assurance of any future revenues. As of December 31, ~~2010~~2011, Biomoda had an accumulated deficit of $9,~~091~~322,~~941~~413 and a working capital deficit of $~~486~~1,~~308~~352,911. In addition, Biomoda did not generate any cash from operations and had no cash reserve dedicated to fund expenditures. These factors create an uncertainty as to Biomoda’s ability to continue as a going concern.

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

Liquidity and Capital Resources

As of December 31, ~~2010~~2011, the Company had cash of $~~248~~1,~~770~~073.

~~The~~Commercialization ~~Company~~of ~~plans~~Biomoda’s toinitial ~~raise~~lung ~~capital~~cancer ~~during~~assay in the ~~twelve~~United ~~months~~States ~~ending~~will ~~December~~require ~~31,~~funding ~~2011~~of ~~through~~$10 amillion ~~public~~for ~~offering~~continuing research and ~~through~~development, ~~non-dilutive~~obtaining ~~government~~regulatory ~~grants~~approval and ~~program~~commercialization ~~awards~~of our products. ~~The~~This ~~additional~~includes ~~capital~~an ~~will~~investment beof ~~used~~approximately $2 million to ~~continue~~complete ~~development~~optimization ofprograms designed to increase the ~~CyPath®~~sensitivity and specificity of its lung cancer assay. Because toBiomoda ~~optimize~~holds ~~and~~patents ~~ready~~in the ~~technology~~European Union, the Company plans to pursue a CE Mark in Europe that may provide for commercialization of CyPath® a year or more earlier than anticipated in the United States. In ~~and~~order ~~Europe~~to execute our business plan for the next twelve months, ~~and~~the ~~expand~~Company ~~application~~needs to obtain funding of ~~the~~$1,000,000 ~~assay~~to continue operations and $2,000,000 to ~~other~~fully ~~cancers~~fund our planned expenditures in 2012.

Funding will be sought from both private and public sources. Management is investigating all options to raise funding to meet our working capital requirements, including non-dilutive government grants and program awards. In the past, Biomoda was successful in obtaining government funding totaling $1.6 million from the State of New Mexico to assist in funding the pivotal clinical trial. Our strategy includes securing similar non-dilutive funding and we are actively pursuing such funding at the federal and state levels in Ohio, Texas, Kansas and Missouri. There can be no assurance that such funding will be available and we presently have no commitments from parties to provide funding.

The additional capital will be used to continue optimization studies of the CyPath® assay, launch the pivotal clinical trial, prepare the technology for commercialization in the United States and Europe, and expand application of the assay to other cancers.

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On March 17, 2010, the Company entered into a securities purchase agreement (the “Purchase Agreement”) by and between the Company and each purchaser identified on the signature pages thereto (collectively, the “March Purchasers”), pursuant to which Biomoda agreed to sell in a private placement transaction (i) 6,250,001 shares of our common stock, at a purchase price of $0.16 per share (the “Shares”), (ii) 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 anti-dilution protection that could, in certain circumstances, reduce the exercise price and increase the number of shares issuable upon exercise of the warrant. (the “Series I Warrants”), (iii) Series II warrants to purchase up to an additional 3,750,001 shares of common stock, subject to adjustment as described in the related warrant agreement, on an automatic cashless exercise basis with an exercise price of $0.01 per share (the “Series II Warrants”), and (iv) Series III warrants to purchase an additional 6,250,001 shares of common stock with an exercise price of $0.16 per share (the “Series III Warrants” and together with the Series I Warrants and the Series II Warrants, the “Warrants”).

The Company received aggregate gross proceeds of $1,000,000 (net proceeds of $820,000 after the fees discussed below) from the sale of the Shares and the Warrants. The Shares and the shares of common stock issuable upon exercise of the Warrants are registered pursuant to a registration statement filed with the ~~Securities~~SEC ~~and Exchange Commission~~ (the “Registration Statement”) on April 9, 2010.

In connection with the private placement, the Company paid Lifetech, our placement agent, a cash fee of $100,000. LifeTech also received 625,000 Series I Warrants, 375,000 Series II Warrants and 625,000 Series III Warrants. In addition, LifeTech will receive 10% of the exercise price of all Series III Warrants which are exercised. The Company also paid legal fees of approximately $80,000 related to the private placement.

On June 22, 2010, the Company filed an Amended Form S-1 Registration Statement to cover 7,500,001 shares pursuant to the Purchase Agreement by and between the Company and the March Purchasers, pursuant to which Biomoda agreed to sell in a private placement transaction (i) 625,000 shares of our common stock, at a purchase price of $0.16 per share, and (ii) Series I warrants to purchase an additional 6,875,001 shares of common stock with an exercise price of $0.25 per share, subject to adjustment as further described below. The Amended Form S-1 Registration Statement became effective June 30, 2010.

Series I Warrants to 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 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 for the initial value of the derivative instruments.

~~stockholders'~~During ~~equity~~the ~~for~~third quarter of 2010, the ~~initial~~Company ~~value~~issued common shares pursuant to the cashless exercise of 589,712 Series II Warrants, and as of December 31, 2010, no Series II Warrants remain outstanding. On August 6, 2010, the ~~derivative~~Series ~~instruments~~III Warrants expired without exercise.

During the ~~Company’s~~three ~~third~~months ~~quarter~~ended June 30, ~~the~~2011, ~~Company~~Biomoda issued 1,560,000 common shares ~~pursuant~~related to the ~~cashless~~ exercise of ~~589,712~~ Series III ~~Warrants~~warrants ~~and~~for ascash proceeds of ~~December 31~~$79,872 ~~2010,~~at noa ~~Series~~diluted IIexercise ~~Warrants~~price ~~remain~~of ~~outstanding~~$0. On0512 ~~August~~per ~~6, 2010, the Series III Warrants expired without exercise~~share.

OnDuring ~~September~~the ~~15,~~three ~~2010,~~months ~~Biomoda,~~ended ~~Inc.~~September ~~entered into a securities purchase agreement with two institutional investors (collectively~~30, ~~the “Purchasers”)~~2011, ~~pursuant~~Biomoda toissued ~~which the Company sold in a private placement transaction (the “Financing”) for $~~6,500,000 inshares ~~cash~~pursuant ~~(i) $560,000 in principal amount of convertible notes (“Notes”), that mature on August 31, 2011, with a conversion price equal~~ to ~~the~~an ~~lesser~~exercise of ~~$0.25~~Series orI ~~80%~~warrants ofin ~~the~~exchange ~~average of the three lowest daily VWAPs~~ for ~~the~~cash 20proceeds ~~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~~$65,000~~,000 shares~~ ofat ~~common~~a ~~stock~~diluted ~~with an~~ exercise price of $0.2501 per share. The Notes also include provisions that protect the holders from declines in the Company’s stock price. The interest rate is 10% per annum and accrues until either the maturity date or conversion of the Notes into shares of Biomoda common stock.

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.

As of December 31, 2011, the Company had 153,887,725 Series I Warrants outstanding due to the anti-dilution protection provisions.

On September 15, 2010, Biomoda, Inc. entered into a securities purchase agreement with two institutional investors (collectively, the “September 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 VWAPs 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 include provisions that protect the holders from declines in the Company’s stock price. The interest rate is 10% per annum and accrues until either the maturity date or conversion of the Notes into shares of Biomoda common stock.

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~~Biomoda~~The ~~paid~~September anPurchasers ~~origination~~contacted ~~fee~~the Company to notify it of ~~$15,000~~their intention to ~~the~~convert ~~Purchasers~~their ~~and~~Notes anat ~~additional~~the ~~$5,000~~VWAP toprice that at the ~~Purchasers~~time ~~for~~of ~~their~~contact ~~legal~~was ~~fees,~~calculated ~~which~~at ~~has~~$0.0501, ~~been~~and ~~treated~~on asMarch a11, ~~deferred~~2011, ~~financing~~the ~~cost~~Company and ~~will~~the beSeptember ~~amortized~~Purchasers ~~over~~agreed to extend the ~~term~~look-back provision of the ~~Notes~~VWAP from 20 days to 40 days from the date of conversion. The ~~proceeds~~subsequent ~~from~~conversions of the ~~Notes~~Note ~~cannot~~took beplace ~~used~~between toApril ~~pay~~1, ~~off~~2011 ~~any~~and ~~debt~~July or12, ~~advances~~2011 ~~from~~at ~~shareholders~~which time the Note was fully converted and extinguished.

~~The~~Beginning ~~2,000,000~~on ~~warrants~~April ~~issued~~1, in2011 ~~connection~~and ~~with~~continuing ~~the~~through ~~Financing~~July ~~include~~12, ~~provisions~~2011 ~~that~~the ~~protect~~September ~~the~~Purchasers ~~holders~~exercised ~~from~~their ~~declines~~conversion rights in ~~the~~their ~~Company’s~~Notes. Due ~~stock~~to the price ~~that~~protection ~~could~~provision ~~result~~ in ~~modification~~the ofNotes, the exercise price ~~under~~of ~~the~~each ~~warrant~~conversion ~~based~~was onreduced. The aexercise ~~variable~~price ~~that~~of isthe ~~not~~conversion anon ~~input~~April to1, ~~the~~2011 ~~fair~~was ~~value~~at of$0.0501 aper ~~“fixed-for-fixed”~~share ~~option~~and asthe ~~defined~~exercise ~~under~~price ~~FASB~~of ~~ASC~~the ~~Topic~~final ~~No.~~conversion ~~815-40. As~~on aJuly ~~result~~12, ~~these~~2011 ~~warrants~~was ~~were~~at ~~not~~$0.01 ~~indexed~~per ~~to the Company’s own stock~~share. ~~The~~ All ~~fair value~~ of the ~~5-Year~~outstanding ~~Warrants~~convertible ~~was~~notes ~~recognized as a derivative warrant instrument~~ and ~~will~~interest bewere ~~measured~~converted atas ~~fair~~of ~~value~~July ~~at each reporting period. Accordingly~~12, ~~on September 15~~2011, ~~2010,~~resulting ~~the~~in ~~Company~~a ~~recognized~~total anissuance ~~initial derivative liability for the 5-year warrants~~ of ~~$493~~27,~~000~~175,810 common shares.

~~Due~~As toof ~~the~~December ~~Notes’ conversion features~~31, the actual number of shares of common stock that would be required if a conversion of the Notes was made through the issuance of common stock cannot be predicted and Biomoda could be required to issue an amount of shares that may cause it to exceed its authorized common share amount. As a result2011, the ~~conversion feature requires derivative accounting treatment and will be bifurcated from the Note and “marked to market” each reporting period through the income statement. The~~ Company ~~recognized~~had an50,000,000 ~~initial~~5-Year ~~derivative~~Warrants ~~liability~~outstanding ofdue ~~$651,368 related~~ to the ~~conversion~~anti-dilution ~~feature~~protection ~~of the Notes~~provisions.

~~The~~On ~~fair~~September ~~value~~28, of2011, Biomoda filed a Form S-1 Registration Statement with the ~~warrants~~SEC ~~and~~for the ~~conversion~~resale ~~option~~of inup ~~excess~~to 206,387,725 shares of ~~the~~our ~~principal~~common ~~amount~~stock, including 203,887,725 shares of ~~the~~common ~~Notes~~stock issuable upon exercise of outstanding common stock purchase warrants currently exercisable at $~~643,886~~0.01 per share. This S-1 registration statement was ~~expensed~~declared ~~immediately~~effective ason ~~additional~~October ~~interest~~11, ~~expense~~2011. ~~during~~The selling stockholders may sell common stock from time to time in the ~~2010~~principal ~~third~~market ~~quarter~~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.

~~The~~In ~~shares~~November of2011, ~~common~~the ~~stock~~Company ~~issuable~~filed ~~upon~~two ~~conversion~~applications offor funding under the ~~Notes~~Small Business Innovation Research (“SBIR”) program, a federal program that provides support for research and ~~exercise~~development of new or improved technologies with the ~~Warrants~~potential ~~are~~to ~~restricted~~succeed ~~securities~~as commercial products. To ~~date~~If our applications are approved, noany ~~shares~~SBIR ~~have~~funding ~~been~~will ~~converted~~be used to continue our optimization research to increase the sensitivity and specificity of the CyPath® assay for the detection and diagnosis of lung cancer in its early stages. ~~Please~~ ~~see~~The SBIR proposals are focused on adapting the ~~Form~~CyPathâ 8technology to a liquid-Kbased ~~filed~~assay ~~September~~that ~~21,~~can ~~2010,~~be ~~for~~read ~~details~~in a flow cytometry system and refining the use of fluorescent microscopy to stabilize the mechanism that excites the active ingredient in CyPathâ.

OnOverall, ~~July~~the ~~20,~~Company ~~2010,~~decreased ~~Biomoda~~its ~~submitted~~cash anposition ~~application~~by $247,697 for athe ~~grant~~year ~~under~~ended ~~the~~December ~~Qualifying~~31, ~~Therapeutic~~2011 ~~Discovery~~(compared ~~Project~~to ~~provided~~a ~~under~~increase ~~new~~in ~~section~~its ~~48D~~cash position of $228,729 for the ~~Internal~~year ~~Revenue~~ended ~~Code~~December ~~(“IRC”~~31, 2010), ~~enacted~~resulting asfrom ~~part~~$366,329 ofused in the ~~Patient~~Company’s ~~Protection~~operating ~~and~~activities ~~Affordable~~(compared ~~Care~~to ~~Act~~$1,237,675 of ~~2010~~cash ~~(P.L.~~used ~~111-148~~in 2010)., ~~The~~$54,161 used in the Company’s ~~was~~investing ~~notified~~activities on(compared ~~November~~to 1$72,521 used in 2010), ~~that~~and ~~it was awarded~~ $~~244~~172,~~479~~793 in ~~federal~~cash ~~grant~~provided ~~funding~~by ~~under~~financing ~~section~~activities ~~48D. The~~(compared ~~federal~~to ~~grant~~$1,538,925 ~~funding~~provided ~~was received by the Company~~ in ~~November~~ 2010).

~~Overall,~~Cash ~~the~~Flows ~~Company~~from ~~increased~~Operating ~~its~~Activities ~~cash~~- ~~position~~Net bycash ~~$228,729 for~~used ~~the year ended December 31, 2010 (compared to a decrease~~ in ~~its~~operating ~~cash~~activities ~~position~~ of $16366,~~813~~329 for the year ended December 31, ~~2009)~~2011, ~~resulting~~decreased ~~from~~primarily ~~$1,237,675~~due ~~used~~to in the ~~Company’s~~reduction ~~operating activities (compared to $80,555~~ of ~~cash used in 2009), $72,521 used in~~ the Company’s ~~investing~~operations ~~activities (compared to $32,612 used~~ in ~~2009),~~2011 ~~and~~due ~~$1,538,925~~to inthe limited cash ~~provided~~holdings byof ~~financing~~the ~~activities (compared to $96,354 provided in 2009)~~Company.

Cash Flows from ~~Operating~~Investing Activities - Net cash used in ~~operating~~investing activities of $154,~~237,675~~161 for the year ended December 31, ~~2010~~2011, ~~increased~~decreased ~~primarily~~ due to ~~increased~~payments ~~R&D~~for ~~efforts~~equipment, patents and ~~no revenues to offset those development costs~~trademarks.

Cash Flows from ~~Investing~~Financing Activities - Net cash ~~used~~provided inby ~~investing~~financing activities of $72172,~~521~~793 for the year ended December 31, ~~2010~~2011, ~~increased~~decreased primarily due to ~~payments~~the ~~for~~proceeds ~~patents~~from issuances of common stock and ~~trademarks~~proceeds from issuance of convertible short term debt during the prior year.

Cash Flows from Financing Activities - Net cash provided by financing activities of $1,538,925 for the year ended December 31, 2010, increased primarily due to the proceeds from issuances of common stock and proceeds from issuance of convertible short term debt during the year.

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Results of Continuing Operations

Biomoda has recorded no significant revenue from inception through December 31, ~~2010~~2011.

Operating expenses ~~increased~~decreased by $1828,~~084,141~~776 to $1,~~973~~154,~~538~~762 during the year ended December 31, ~~2010~~2011, compared to $~~889~~1,~~397~~973,538 for the year ended December 31, ~~2009~~2010. This ~~increase~~decrease was primarily due to ~~increased~~decreased payroll, investor relations and public relations costs during ~~2010~~2011.

General and administrative expenses consist of expenses for executive and administrative personnel, facilities, consulting services, travel and general corporate activities. The ~~increase~~decrease inof these costs resulted from ~~increased~~decreased payroll, investor relations and public relations costs. The Company expects general and administrative costs to increase in the future as our business matures and develops. Such costs were primarily funded through the issuance of our common stock and debt to conserve our cash resources.

Research and development expenses consist primarily of personnel expenses, consulting fees and lab expenses. Research and development costs ~~increased~~decreased ~~due~~by ~~to the 2009 period including~~ $~~640~~155,~~970~~584 ~~received~~due ~~by the Company as a reimbursement of research and development costs related~~ to ~~a research study under~~ the ~~New~~completion ~~Mexico Department~~ of ~~Veterans Services, which reduced research and development costs for~~ the ~~2009~~pilot ~~year. No~~clinical ~~such reimbursement was received in during 2010~~study. Biomoda believes that continued investment in product development is critical to attaining our strategic objectives and, as a result, expects product development expenses to increase significantly in future periods. Biomoda expenses product development costs as they are incurred.

Professional fees ~~increased~~decreased from $~~231~~260,~~448~~933 in ~~2009~~2010 to $~~260~~122,~~933~~655 in ~~2010~~2011 due to ~~increased~~decreased ~~accounting~~legal and ~~compliance~~other ~~costs~~professional ~~arising~~fees ~~from fundraising efforts~~ during ~~2010~~2011.

Other income (expense) ~~increased~~decreased to ~~income of~~ $1924,~~317,757~~290 in ~~2010~~2011 compared to an expense of $151,~~892~~317,757 in ~~2009~~2010. Other income (expense) consists of interest, unrealized gains/losses on derivative liabilities and other income and expense. Interest expense ~~increased~~decreased to $~~851~~456,~~621~~666 in ~~2010~~2011 from $15851,~~892~~621 in ~~2009~~2010. The ~~increase~~decrease in interest expense was primarily related to the accretion of the discount on the Notes issued in September 2010, as well as the immediate expensing of $643,886 as additional interest expense in 2010, which represented the amount by which the fair value of the warrants issued in connection with the Notes and the Notes conversion option exceeded the principal amount. The Company also recognized $1,~~922~~371,~~163~~896 of unrealized (noncash) gain associated with the change in the fair value of the warrant and conversion derivative liabilities discussed above. There was $0 in Other ~~income~~Income ~~for~~in ~~2010~~2011 ~~includes~~as compared to $244,479 in federal grant funding received by the Company under IRC section 48D in 2010 and which related to research and development expenses incurred during the Company’s 2009 fiscal year.

The Company had a net loss of $~~655~~230,~~781~~472 or $0.0100 loss per share, and a net loss of $~~905~~655,~~289~~781 or $0.01 loss per share, for the years ended December 31, ~~2010~~2011 and ~~2009~~2010, respectively, due to items discussed above.

Inflation

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

Off-Balance Sheet Arrangements

There are no off-balance sheet financing arrangements.

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Critical Accounting Policies

Estimates

Critical estimates made by management are, among others, estimates for current and deferred taxes, recoverability of intangible assets, collectability of contract receivables, estimation of costs for long-term contracts, allowance for loss on contracts, value of patents and other intangibles, the valuation of derivative liabilities and the valuation of other assets. Actual results could materially differ from those estimates.

Research and Development

Research and development costs are charged to operations as incurred. The Company incurred approximately $~~411~~255,000, $4411,000 and $3,~~132~~387,000 of research and development expenses (after study reimbursements) for the years ended December 31, ~~2010~~2011 and ~~2009~~2010, and for the period from inception through December 31, ~~2010~~2011.

Long-Lived Assets

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. If the cost basis of a long-lived asset is greater than the projected future undiscounted net cash flows from such asset (excluding interest), an impairment loss is recognized. Impairment losses are calculated as the difference between the cost basis of an asset and its estimated fair value. There can be no assurance, however, that market conditions will not change which could result in impairment of long-lived assets in the future.

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ITEM 8. FINANCIAL STATEMENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders

Biomoda, Inc.

(A Development Stage Company)

Albuquerque, New Mexico

We have audited the accompanying consolidated balance sheets of Biomoda, Inc. (a development stage company) as of December 31, ~~2010~~2011 and ~~2009~~2010, and the related consolidated statements of operations, stockholders’ deficit and cash flows for the years ended December 31, ~~2010~~2011 and ~~2009~~2010 and the period from January 3, 1990 (inception) to December 31, ~~2010~~2011. These financial statements are the responsibility of Biomoda, Inc.'s management. Our responsibility is to express an opinion on these financial statements based on our audits. The consolidated financial statements for the period from January 3, 1990 (inception) through December 31, 2005 were audited by other auditors whose reports expressed unqualified opinions on those statements. The consolidated financial statements for the period from January 3, 1990 (inception) through December 31, 2005 include total revenues and net loss of $23 and $3,101,245, respectively. Our opinion on the consolidated statements of operations, stockholders' deficit and cash flows for the period from January 3, 1990 (inception) through December 31, ~~2010~~2011, insofar as it relates to amounts for prior periods through December 31, 2005, is based solely on the reports of other auditors.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Biomoda, Inc. as of December 31, ~~2010~~2011 and ~~2009~~2010, and the results of ~~its~~their operations and ~~its~~their cash flows for each of the two years then ended and for the period from January 3, 1990 (inception) to December 31, ~~2010~~2011, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company is a development stage company which has experienced significant losses since inception with no significant revenues. Also discussed in Note 2 to the consolidated financial statements, a significant amount of additional capital will be necessary to advance the development of the Company's products to the point at which they may become commercially viable. Those conditions, among others, raise substantial doubt about the Company's ability to continue as a going concern. Management's plans regarding these matters are also described in Note 2. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

GBH CPAs, PC

www.gbhcpas.com

Houston, Texas

~~March~~April 1418, ~~2011~~2012

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BIOMODA, INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED BALANCE SHEETS

	December 31,			December 31,
	2010			2009
	2011			2010
ASSETS
CURRENT ASSETS
Cash	$	~~248~~1,~~770~~073		$	20248,~~041~~770
Prepaid expenses		21,~~708~~271			-2,708
Deferred charges		~~23,740~~-			923,~~573~~740
Total current assets		275,218			29,614
TOTAL CURRENT ASSETS		2,344			275,218
Deferred charges		~~16,752~~750			2616,~~325~~752
Fixed assets, net of accumulated depreciation of
Fixed assets, net of accumulated depreciation of $19,228 and $17,459		10,080			11,849
$17,459 and $17,436		11,849			-
Patents and trademarks, net of accumulated amortization of $357,013 and $330,163		192,126			161,815
Patents and trademarks, net of accumulated amortization
TOTAL ASSETS	$	205,300		$	465,634
of $330,163 and $315,495		161,815			113,645
Total Assets	$	465,634		$	169,584
LIABILITIES & STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued liabilities	$	250,425		$	506,068
Accounts payable	$	506,323		$	166,276
Advances from stockholders		228,640			215,142
Accrued liabilities		404,744			84,149
Short-term debt		112,520			114,978
Advances from stockholders		263,815			228,640
Convertible debt		169,942			-
Short-term debt		180,373			112,520
Deferred liability		-			25,415
Convertible debt (net of discount of $0 and $461,271)		-			169,942
Total current liabilities		761,527			861,603
TOTAL CURRENT LIABILITIES		1,355,255			761,527
LONG-TERM LIABILITIES
Long-term debt		73,109			120,477
Note payable		-			73,109
Derivative liabilities - Warrant instruments		787,081			-
Derivative liabilities - warrant instruments		32,731			787,081
Derivative liabilities - Option Instruments		5,975			-
Derivative liabilities - option instruments		-			5,975
Derivative liabilities - Note conversion feature		741,589			-
Derivative liabilities - note conversion features		-			741,589
Total Liabilities		2,369,281			982,080
TOTAL LIABILITIES		1,387,986			2,369,281
COMMITMENTS AND CONTINGENCIES		-			-
STOCKHOLDERS' DEFICIT
Class A redeemable preferred stock; no par value; 2,000,000
Redeemable preferred stock- Series A; 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		-			-
shares authorized; cumulative and convertible;
Redeemable preferred- Series B; no par value; 100 shares authorized; liquidation and redemption values of $600; 100 shares issued and outstanding		60,000			-
liquidation and redemption values of $1.50 and $1.80
Undesignated preferred stock; 2,000,000 shares authorized; no shares issued and outstanding		-			-
per share, respectively; no shares issued or outstanding		-			-
Common stock, no par value, 700,000,000 shares authorized; 130,314,363 and 92,936,886 issued and 129,922,786 and 92,545,311 outstanding, respectively		8,080,960			7,189,527
Undesignated preferred stock; 2,000,000 shares authorized; no
Treasury stock, at cost, 391,575 shares		(1,233	)		(1,233	)
shares issued and outstanding		-			-
Deficit accumulated during development stage		(9,322,413	)		(9,091,941	)
Common stock, no par value, 150,000,000 share authorized;
Total stockholders' deficit		(1,182,686	)		(1,903,647	)
92,936,886 and 79,514,589 issued and 92,545,311 and
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$	205,300		$	465,634
78,923,014 outstanding, respectively		7,189,527			7,626,166
Treasury stock, at cost 391,575 and 591,575 shares, respectively		(1,233	)		(2,502	)
Deficit accumulated during development stage		(9,091,941	)		(8,436,160	)
Total stockholders' deficit		(1,903,647	)		(812,496	)
Total liabilities and stockholders' deficit	$	465,634		$	169,584
The accompanying notes are an integral part of these consolidated financial statements.

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

FOR THE YEARS ENDED DECEMBER 31, ~~2010~~2011 AND ~~2009~~2010 AND

FOR THE PERIOD FROM JANUARY 3, 1990 (INCEPTION) TO DECEMBER 31, ~~2010~~2011

	Year Ended December 31,	~~Year Ended December 31,~~							January 3, 1990 (Inception) to	~~January 3, 1990 (Inception) to~~
		2010				2009				December 31, 2010
	2011				2010					December 31, 2011
Revenue		$	-			$	-			$	23
Operating Expenses
Operating expenses
Professional fees			~~260~~122,~~933~~655				~~231~~260,~~448~~933				1,~~492~~615,~~883~~538
General and administrative			1748,~~281,440~~431				~~618~~1,~~141~~281,440				67,~~252~~000,~~308~~739
Research and development, net of grants received			~~410~~255,~~641~~057				4410,~~280~~641				3,~~131~~386,~~644~~701
Depreciation and amortization			2028,~~524~~619				3520,~~528~~524				~~356~~384,~~070~~689
Total operating expenses			1,~~973~~154,~~538~~762				~~889~~1,~~397~~973,538				1112,~~232~~387,~~905~~667
Loss from operations			(1,~~973~~154,~~538~~762	)			(~~889~~1,~~397~~973,538	)			(1112,~~232~~387,~~928~~644	)
Other income (expense)
Gain on extinguishment of debt			-				-				1,326,028
Gain of sale of assets			23,~~188~~000				-2,188				3639,225
Unrealized gain on derivative liabilities- warrant instruments			1,993,792				-				1,993,792
Unrealized gain (loss) on derivative liabilities- warrant instruments			712,526				1,993,792				2,706,318
Unrealized gain on derivative liabilities- options			18,592				-				18,592
Unrealized gain (loss) on derivative liabilities- option intruments			5,975				18,592				24,568
Unrealized loss on derivative liability- note conversion feature			(90,221	)			-				(90,221	)
Unrealized loss on derivative liability-note conversion features			659,371				(90,221	)			569,150
Other income			~~244,479~~-				-244,479				244,479
Interest income			~~548~~84				-548				4,~~417~~501
Interest expense			(~~851~~456,~~621~~666	)			(15851,~~892~~621	)			(1,~~392~~849,~~372~~038	)
Total other income (expense)			1924,~~317,757~~290				~~(15~~1,~~892~~317,757	)			23,~~140~~065,~~941~~231
Loss before provision for income taxes			(~~655~~230,~~781~~472	)			(~~905~~655,~~289~~781	)			(9,~~091~~322,~~987~~413	)
Provision for income taxes			-				-				-
Net loss		$	(~~655~~230,~~781~~472	)		$	(~~905~~655,~~289~~781	)		$	(9,~~091~~322,~~987~~413	)
Basic and diluted loss per common share		$	(0.01	)		$	(0.01	)
Basic and diluted earnings per common share		$	0.00			$	(0.01	)
Basic and diluted weighted average number of common shares outstanding			88113,~~366~~304,~~234~~382				7688,~~690~~366,~~417~~234
The accompanying notes are an integral part of these consolidated financial statements.

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 CASH FLOWS

	For the Years Ended						January 3, 1990
							January 3, 1990
	December 31,						(inception) to
	2010			2009			December 31, 2010
	2011			2010			December 31, 2011
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(~~655~~230,~~781~~472	)	$	(~~905~~655,~~289~~781	)	$	(9,~~091~~322,~~987~~413	)
Adjustments to reconcile net earnings to net
Adjustments to reconcile net earnings to net cash used in operating activities
cash used in operating activities
Depreciation and amortization		28,619			14,691			378,856
Stock based compensation		732,300			366,900			3,973,076
Amortization of debt discount		390,058			169,942			560,000
Depreciation and amortization		14,691			35,527			350,237
Amortization of deferred financing costs		23,740			5,833			29,573
Unrealized gain on derivative liabilities - warrant instruments		(1,993,792	)		-			(1,993,792	)
(Gain)/loss on sale of assets		(3,000	)		(2,188	)		(4,830	)
Unrealized gain on derivative liabilities - options		(18,592	)		-			(18,592	)
Stock based compensation		25,000			732,300			3,998,076
Unrealized gain on derivative liabilities - debt conversion feature		90,221			-			90,221
Unrealized gain on derivative liabilities - warrant instruments		(712,526	)		(1,993,792	)		(2,706,318	)
Amortization of debt discount		169,942			-			169,942
Unrealized gain on derivative liabilities - options		(5,975	)		(18,592	)		(24,567	)
Amortization of deferred financing costs		5,833			-			5,833
Unrealized gain on derivative liabilities - note conversion feature		(659,371	)		90,221			(569,150	)
Write off of license fee		-			-			1,250
Write-off of license fee		-			-			1,250
Gain/loss on sale of assets		(2,188	)		-			(1,830	)
Foreign currency translation adjustments		-			-			3,247
Gain on extinguishment of debt		-			-			(1,283,964	)
Interest expense incurred on issuance of convertible debt		~~643,886~~-			-643,886			643,886
Changes in operating assets and liabilities
Accounts receivable		-			222,844			174,222
Prepaid expenses and other current assets		1,437						1,437
Other assets		6,863			7,179			21,662
Accounts receivable		-			-			174,222
Advances on research grants		(25,415	)		25,415			-
Other assets		16,002			6,863			37,664
Accounts payable and accrued liabilities		(205,643	)		166,868			844,365
Advances on research grants		-			(25,415	)		-
Net cash used in operating activities		(1,237,675	)		(80,555	)		(6,112,224	)
Accounts payable and accrued liabilities		760,159			(205,643	)		1,604,524
Net cash used in operating activities		(366,329	)		(1,237,675	)		(6,478,507	)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of equipment		23,~~188~~000			-2,188			36,327
Purchase of equipment		~~(11,872~~-	)		-(11,872	)		(37,443	)
Organizational costs		-			-			(560	)
Purchases of patents, trademarks and licenses		(62,837	)		(32,612	)		(508,975	)
Expenditures for patents, trademarks and licenses		(57,161	)		(62,837	)		(566,136	)
Net cash used in investing activities		(7254,~~521~~161	)		(3272,~~612~~521	)		(~~543~~597,~~651~~812	)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock for cash		1144,~~095,253~~872			~~105~~1,~~000~~095,253			4,~~098~~243,~~136~~008
Proceeds from stockholders' advances		1335,~~499~~175			13,499			~~189~~224,~~231~~406
Repayment of line of credit from affiliated entity		-			-			(341,107	)
Proceeds/repayments of short-term debt		~~2,369~~-			2,369			(104,954	)
Proceeds/repayments of convertible short-term debt, net		~~480,000~~-			-480,000			480,000
Proceeds from line of credit from affiliated company		-			-			2,680,882
Proceeds/repayments of long-term debt, net		(527,~~196~~254	)		(1952,~~897~~196	)		(8391,~~972~~226	)
Acquisition of treasury stock		-			~~(4,617~~-	)		(13,617	)
Net cash provided by financing activities		1172,~~538,925~~793			961,~~354~~538,925			67,~~904~~077,~~599~~392
NET INCREASE IN CASH		~~228~~(247,~~729~~697	)		~~(16~~228,~~813~~729	)		~~248~~1,~~724~~073
Cash at beginning of year		20,041			36,854			-
Cash at beginning of period		248,770			20,041			-
Cash at end of year	$	248,770		$	20,041		$	248,724
Cash at end of period	$	1,073		$	248,770		$	1,073
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
Derivative liability incurred through issuance of warrants	$	3,370,622		$	-		$	3,370,622
Accrued salaries converted to preferred stock	$	60,000		$	-		$	65,504
Settlement of derivative liabilities	$	1,057,699		$	-			1,057,699
Derivative liability incurred through issuance of warrants	$	-		$	3,370,622		$	3,370,622
Settlement of derivative liabilities	$	124,042		$	1,057,699		$	1,181,741
Interest converted to note payable	$	-		$	-		$	159,462
Common stock issued to extinguish related party debt	$	50,000		$	-		$	50,000
Common stock issued to extinguish related party debt	$	-		$	-		$	1,418,768
Discount on note payable related to deferred financing costs	$	60,000		$	-		$	60,000
Common stock issued to extinguish related party debt	$	-		$	50,000		$	50,000
Discount on note payable related to derivative conversion feature	$	500,000		$	-		$	500,000
Discount on note payable related to deferred financing costs	$	-		$	60,000		$	60,000
The accompanying notes are an integral part of these consolidated financial statements.
Discount on note payable related to derivative conversion feature	$	-		$	500,000		$	500,000
Conversion of notes payable and accrued interest to common stock	$	597,519		$	-		$	597,519

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 DECEMBER 31, ~~2010~~2011

							~~Accumulated~~			~~Total~~			Accumulated			Total
							~~Deficit During~~			~~Stockholders'~~			Deficit During			Stockholders'
	Common Stock				~~Treasury~~Preferred Stock		~~Development~~			~~Equity~~Treasury			Development			Equity
	Shares		Amount		~~Stock~~Shares		~~Stage~~Amount			~~(Deficit)~~Stock			Stage			(Deficit)
Inception		-	$	-	$	-	$	-		$	-		$	-		$	-
Issuance of Common Stock, June 26, 1991		2,997,000		18,433							~~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~~	)		(60,010	)		(60,010	)
Balance, December 31, 1996		2,997,000		18,433		-		~~(60,010~~-	)		~~(41,577~~	)		(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~~	)		(32,914	)		(32,914	)
Balance, December 31, 1997		2,997,000	$	18,433		-		~~(92,924~~-	)		~~(74,491~~	)		(92,924	)		(74,491	)
Issuance of Common Stock, January 20, 1998		59,940	$	10,000							~~10,000~~						10,000
Exercise of Common Stock Warrants on March 17, 1998		100,952	$	20,190							~~20,190~~						20,190
Issuance of Common Stock, April 15, 1998, net of stock issuance costs		631,578	$	276,350							~~276,350~~						276,350
Issuance of Common Stock Options, April 15, 1998			$	23,650							~~23,650~~						23,650
Exercise of Common Stock Options, November 2, 1998		62,237	$	23,670							~~23,670~~						23,670
Net loss								~~(295,948~~	)		~~(295,948~~	)		(295,948	)		(295,948	)
Balance, December 31, 1998		3,851,707	$	372,293		-		~~(388,872~~-	)		~~(16,579~~	)		(388,872	)		(16,579	)
Issuance of Common Stock, January 30, 1999		180,000	$	87,300							~~87,300~~						87,300
Issuance of Common Stock, for the month of March, 1999		310,000	$	150,300							~~150,300~~						150,300
Issuance of Common Stock, May 29, 1999		51,546	$	25,000							~~25,000~~						25,000
Issuance of Common Stock, June 2, 1999		95,092	$	50,000							~~50,000~~						50,000
Issuance of Common Stock, September 30, 1999		51,546	$	25,000							~~25,000~~						25,000
Issuance of Common Stock, December 29, 1999		92,005	$	50,143							~~50,143~~						50,143
Net loss								~~(303,956~~	)		~~(303,956~~	)		(303,956	)		(303,956	)
Balance, December 31, 1999		4,631,896	$	760,036		-		~~(692,828~~-	)		~~67,208~~			(692,828	)		67,208
Exercise of Common Stock Options, February 24, 2000		166,535	$	80,770							~~80,770~~						80,770
Issuance of Common Stock, May 12, 2000		253,609	$	56,000							~~56,000~~						56,000
Exercise of Common Stock Options, June 8, 2000		62,497	$	30,312							~~30,312~~						30,312
Issuance of Common Stock, for the month of September, 2000		96,745	$	21,086							~~21,086~~						21,086
Exercise of Common Stock Options, November 3, 2000		66,000	$	7,491							~~7,491~~						7,491
Issuance of Common Stock for Services, December 8, 2000		40,000	$	19,400							~~19,400~~						19,400
Net loss								~~(257,139~~	)		~~(257,139~~	)		(257,139	)		(257,139	)
Balance, December 31, 2000		5,317,282	$	975,095		-		~~(949,967~~-	)		~~25,128~~			(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 DECEMBER 31, ~~2010~~2011

(Continued)

Accumulated Total Deficit During Stockholders' Common Stock Treasury Development Equity Shares Amount Stock Stage (Deficit)

											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	)

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 DECEMBER 31, ~~2010~~2011

(Continued)

Accumulated Total Deficit During Stockholders' Common Stock Treasury Development Equity Shares Amount Stock Stage (Deficit)

												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	)

Issuance of Common Stock for Services, January 2007	131,000.0	$	259,500								259,500
Issuance of Common Stock, January 2007	30,000.0	$	30,000								30,000
Issuance of Common Stock for Services, February 2007	150,000.0	$	157,500								157,500
Issuance of Common Stock for Services, March 2007	445,000.0	$	375,500								375,500
Issuance of Common Stock in exchange for Debt, March 2007	86,786.0	$	73,768								73,768
Exercise of Options, March 2007	2,000.0	$	1,000								1,000
Issuance of Common Stock for Services, April 2007	724,062.0	$	455,559								455,559
Issuance of Common Stock in exchange for Debt, April 2007	500,000.0	$	315,000								315,000
Issuance of Common Stock for Services, June 2007	920,000.0	$	154,600								154,600
Issuance of Common Stock, June 2007	343,000.0	$	41,667								41,667
Issuance of Common Stock for Services, July 2007	141,000.0	$	15,700								15,700
Issuance of Common Stock, July 2007	1,466,635.0	$	84,985								84,985
Issuance of Common Stock, August 2007	1,636,166.0	$	53,943								53,943
Issuance of Common Stock for Services, September 2007	160,000.0	$	12,800								12,800
Issuance of Common Stock, September 2007	2,416,248.0	$	54,819								54,819
Issuance of Common Stock, October 2007	1,557,730.0	$	36,457								36,457
Issuance of Common Stock in exchange for Debt, October 2007	165,000.0	$	16,500								16,500
Issuance of Common Stock for Services, November 2007	770,000.0	$	100,100								100,100
Issuance of Common Stock, November 2007	16,190,967.0	$	445,674								445,674
Issuance of Common Stock for Services, December 2007	90,140.0	$	21,634								21,634
Issuance of Common Stock, December 2007	11,303,996.0	$	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 DECEMBER 31, ~~2010~~2011

(Continued)

Accumulated Total Deficit During Stockholders' Common Stock Treasury Development Equity Shares Amount Stock Stage (Deficit)

													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 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 warrants and non-employee options		$	(3,351,307	)								(3,351,307	)
Issuance of Common Stock for Series III warrants 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
Derivative liabilities on warrants and non-employee options settled		$	1,057,699									1,057,699
Issuance of Common Stock for Series III warrants 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 Series III Warrants August 2010	666,400	$	94,696									94,696
Issuance of Common Stock for services to Directors August 2010	100,000	$	17,000									17,000
Derivative liabilities on warrants and non-employee options		$	(19,314	)								(19,314	)
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	)

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

Table of Contents

BIOMODA, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, ~~2010~~2011 and ~~2009~~2010

1. ORGANIZATION

FORMATION AND NATURE OF BUSINESS

Biomoda, Inc. ("Biomoda") is a development stage company incorporated in the state of New Mexico on January 3, 1990 (“inception”). On August 13, 2003, Biomoda formed a wholly- owned subsidiary known as Biomoda Holdings, Inc., a Nevada corporation, for the purpose of research, development, production and marketing of medical and biomedical products. Biomoda Holdings was subsequently dissolved on January 8, 2010. Biomoda is hereinafter referred to as the "Company."

Biomoda's primary focus is on early cancer detection technology. Biomoda's unique cell-targeting technology is globally patented for the detection of pre-cancerous and cancerous conditions in all human tissue. This technology, based on a compound called Tetrakis Carboxyphenyl Porphine (“TCPP”), was developed at St. Mary's Hospital in Colorado and the Los Alamos National Laboratory (“LANL”) in New Mexico. Biomoda obtained a worldwide exclusive license to the TCPP technology from LANL in late 1995 and began new research broadening the scope of the original patent and technology. In November 2000, Biomoda filed a new U.S. provisional patent application defining the ability of Biomoda's version of TCPP to detect pre-cancerous and cancerous conditions in all human tissue. The Company has received ~~three~~four patents and currently has athree ~~fourth~~applications ~~that has received a Notice of Allowance~~pending.

On July 19, 2010, Biomoda filed an additional patent application, “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.

Biomoda also ~~received~~holds international patent rights in Japan, Mexico, Canada, ~~and~~ Australia and ~~has applied for patent rights in~~ Europe. Biomoda began the commercialization process by trademarking the technology as CyPath®. Management expects to continue optimization research and clinical studies on the CyPath® diagnostic assay in order to submit its product registration to the U.S. Food and Drug Administration (“FDA”).

The Company successfully completed a pilot clinical lung cancer trial in March, 2011, that proved the efficacy of a non-invasive protocol for diagnosing lung cancer using CyPath®. The next stage of development in clinical trials is optimization of the lung cancer assay and is expected to take one year to complete. Commercialization of the technology is expected to take at least three years.

2. DEVELOPMENT STAGE AND GOING CONCERN

Biomoda has been in the development stage since it began operations on January 3, 1990, and has not generated any significant revenues from operations, and there is no assurance of any future revenues. Biomoda has raised approximately $4,100,000 in funding for continuing research and development, obtaining regulatory approval and for the commercialization of its products through the sale of Biomoda's common stock. As of December 31, ~~2010~~2011, Biomoda had an accumulated deficit of $9,~~091~~322,~~941~~413, ~~and~~ a working capital deficit of $~~486~~1,~~308~~352,911 and does not expect to generate revenues to sustain operations in the near term. Biomoda requires substantial additional funds to pursue its business plan and sustain its operations for the next twelve months.

~~Biomoda~~Due ~~has~~to ~~raised~~the ~~approximately~~contractual ~~$4,100,000~~obligations inassociated ~~funding~~with ~~for~~the ~~continuing~~issuance ~~research~~of ~~and~~the ~~development~~March 17, ~~obtaining~~2010, ~~regulatory~~Series ~~approval~~I Warrants and ~~for~~September ~~the~~15, ~~commercialization~~2010 ofWarrants, ~~its~~as ~~products~~of ~~through~~December ~~the~~31, ~~sale~~2011 ofand ~~Biomoda's~~outstanding ~~common~~non-employee ~~stock.~~options, ~~There~~the isCompany nohad ~~assurance~~a ~~that~~total ~~Biomoda~~potential ~~will~~obligation ~~be able~~ to ~~obtain~~issue ~~sufficient~~up ~~additional~~to ~~funds if needed~~203,996,493 orshares ~~that~~of ~~such~~common ~~funds,~~stock ifupon ~~available,~~the ~~will~~exercise beof ~~obtainable~~outstanding onwarrants ~~terms~~and ~~satisfactory to Biomoda~~options. The ~~consolidated~~dilutive ~~financial~~effect ~~statements~~of dothese ~~not~~potential ~~include~~share ~~any~~issuances ~~adjustments~~greatly ~~that~~impacts ~~might~~our beability ~~necessary should Biomoda be unable~~ to ~~continue~~secure asnew ~~a going concern~~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. There is no assurance that Biomoda will be able to obtain sufficient additional funds or that such funds, if available, will be obtainable on terms satisfactory to Biomoda. The consolidated financial statements do not include any adjustments that might be necessary should Biomoda be unable to continue as a going concern.

Table of Contents

BIOMODA, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, ~~2010~~2011 and ~~2009~~2010

2. DEVELOPMENT STAGE AND GOING CONCERN (Continued)

The Company ~~plans~~is exploring all options to raise capital during the twelve months ending December 31, ~~2011~~2012, ~~through~~including ~~a public offering and through~~ non-dilutive government grants and program awards. The additional capital will be used to continue development of the CyPath® assay to optimize and ready the technology for commercialization in the United States and Europe, and expand application of the assay to other cancers.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The summary of significant accounting policies presented below is designed to assist in understanding Biomoda's consolidated financial statements. Such consolidated financial statements and accompanying notes are the representations of Company's management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America ("GAAP") in all material respects, and have been consistently applied in preparing the accompanying consolidated financial statements.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Biomoda and its wholly -owned subsidiary, Biomoda Holdings, Inc. Biomoda Holdings, Inc. was dissolved on January 8, 2010. All significant inter-company accounts and transactions have been eliminated in consolidation.

USE OF ESTIMATES

Biomoda prepares its consolidated financial statements in conformity with GAAP, which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period.

Significant estimates made by management include, among others, realization of long-lived assets, valuation of derivative liabilities and estimates for deferred income tax asset valuation allowances. Actual results could differ from those estimates.

RISKS AND CONTINGENCIES

Biomoda has a limited operating history. Biomoda has not yet generated significant revenue from its business operations. As a new operating entity in its current form, Biomoda faces risks and uncertainties relating to its ability to successfully implement its strategy. Among other things, these risks include the ability to develop and sustain revenue growth; manage operations; competition; attract, retain and motivate qualified personnel; maintain and develop new strategic relationships; and the ability to anticipate and adapt to the changing biotechnology market and any changes in government regulations. Biomoda has no experience in obtaining regulatory clearance of these types of products. Therefore, Biomoda may be subject to the risks of delays in obtaining, or failing to obtain, regulatory clearance and other uncertainties, including financial, operational, technological, regulatory and other risks associated with an emerging business, including the potential risks of business failure.

Table of Contents

BIOMODA, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, ~~2010~~2011 and ~~2009~~2010

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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 at each reporting period. The Company ~~used~~uses a binomial lattice model to determine the fair values of these derivative liabilities. See Note 10 for the Company’s assumptions used in determining the fair value of these financial instruments.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost and are being depreciated using the straight-line method over the estimated useful lives of the related assets, which generally range between three and ten years. Leasehold improvements are amortized on a straight-line basis over the shorter of the estimated useful lives of the assets or the remaining lease terms. Biomoda has assumed that leases with terms of less than five years will be renewed and has used the estimated renewal time frame for amortization purposes. Maintenance and repairs are charged to expense as incurred. Significant renewals and betterments are capitalized. At the time of retirement, other disposition of property and equipment or termination of a lease, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in results of operations.

LONG-LIVED ASSETS

Long-lived assets, including intangible assets such as patents and trademarks, are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. If the cost basis of a long-lived asset is greater than the projected future undiscounted net cash flows from such asset (excluding interest), an impairment loss is recognized. Impairment losses are calculated as the difference between the cost basis of an asset and its estimated fair value. No impairments of long-lived assets were recognized in ~~2010~~2011 or ~~2009~~2010; however, there can be no assurance that market conditions will not change which could result in impairment of long-lived assets in the future.

PATENTS

Costs incurred in connection with securing a patent, including attorney’s fees, have been capitalized and are amortized over 20 years from the date of application using the straight ~~line~~-line method. See Note 4 for additional information about patents. Costs related to patents pending are amortized beginning upon issuance of the related patents.

RESEARCH AND DEVELOPMENT

Research and development costs, net of grants received, are expensed as incurred. Biomoda incurred approximately $~~411~~255,000, $4411,000 and $3,~~132~~387,000 of research and development expenses for the years ended December 31, ~~2010~~2011 and ~~2009~~2010, and for the period from inception through December 31, ~~2010~~2011. Grants received in the period in which the associated research and development activities occur are recorded as a reduction in research and development expense.

Table of Contents

BIOMODA, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, ~~2010~~2011 and ~~2009~~2010

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

On July 20, 2010, Biomoda submitted an application for a grant under the Qualifying Therapeutic Discovery Project provided under new section 48D of the Internal Revenue Code (“IRC”), enacted as part of the Patient Protection and Affordable Care Act of 2010 (P.L. 111-148). The Company was notified on November 1, 2010, that it was awarded $244,479 in federal grant funding under section 48D related to research and development costs incurred during the fiscal year ended 2009. The grant funding was received on November 24, 2010 and, accordingly, has been shown as other income in the accompanying consolidated income statement.

INCOME TAXES

Biomoda accounts for income taxes under the provisions of ASC 740 – Income Taxes (formerly SFAS No. 109, "Accounting for Income Taxes"). ASC 740 requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns.

Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates for the year in which the differences are expected to reverse. A valuation allowance is established for any portion of the deferred tax asset that will likely not be realized.

STOCK-BASED COMPENSATION

All share-based payments to employees or consultants, including grants of employee stock options, are recognized in the financial statements based on their fair values on the grant date.

BASIC AND DILUTED LOSS PER COMMON SHARE

Basic loss per share is computed by dividing net loss available to common shareholders by the weighted average number of common shares outstanding for the reporting period. Diluted loss per share reflects the potential dilution that could occur if securities or other contracts, such as stock options and warrants to issue common stock, were exercised or converted into common stock. Biomoda reported a net loss for the years ended December 31, ~~2010~~2011 and ~~2009~~2010. As a result, shares of common stock issuable upon exercise of ~~convertible debt~~108,768 stock options and 153,887,725 warrants under the March, 2010 funding and 50,000,000 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.

RECENT ACCOUNTING PRONOUNCEMENTS

InRecent ~~January~~accounting ~~2010,~~pronouncements ~~the~~did ~~FASB~~not ~~issued~~or revised authoritative guidance that requires more robust disclosures about the different classes of assets and liabilities measured at fair value, the valuation techniques and inputs used, the activity in Level 3 fair value measurements, and the transfers between Levels 1, 2 and 3. This guidance was effective for interim and annual reporting periods beginning after December 15, 2009 (which is January 1, 2010 for the Company) except for the disclosures about purchases, sales, issuances, and settlements in the roll forward activity in Level 3 fair value measurements. Those disclosures are ~~effective~~not ~~for~~believed ~~fiscal~~by ~~years~~management ~~beginning~~to after December 15, 2010, and for interim periods within those fiscal years (which is January 1, 2011 for the Company). Early application is encouraged. The revised guidance was adopted as of January 1, 2010. The adoption of this guidance did not have a material impact on ~~the Company’~~Biomoda's ~~consolidated~~present ~~financial~~or ~~position,~~future ~~results~~consolidated offinancial ~~operations or cash flows~~statements.

Other recent accounting pronouncements did not or are not believed by management to have a material impact on Biomoda's present or future consolidated financial statements.

Table of Contents

BIOMODA, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, ~~2010~~2011 and ~~2009~~2010

4. PATENTS

The Company amortizes patent expense over the useful life of the patent, which is twenty years from the date of application, using a straight-line method. This represents a change from the estimated useful life applied in previous years, which was seventeen years from the date of issuance.

~~Biomoda, Inc~~5. ~~owns~~RELATED ~~U.S.~~PARTY 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; TRANSACTIONS

~~U.S.~~On ~~Patent~~August 722,~~384~~ 2011,~~764,~~ ~~titled~~the ~~“Method~~Company ~~for~~adopted ~~Prognosing~~a ~~Response~~Statement of Resolutions, pursuant to ~~Cancer~~the ~~Therapy~~provisions ~~with~~of 5NMSA 1978,~~10,15,20~~ Section 53-11-16 ~~Tetrakis~~ (~~Carboxyphenyl~~2001) ~~Porphine”~~and ~~which~~Article ~~was~~4 ~~issued~~of ~~June~~the 10Articles of Incorporation, ~~2008;~~as amended, establishing a Series of Preferred Stock of the Company, consisting of 100 shares designed as Series B Preferred Stock. Each share of Series B Preferred Stock has a liquidation preference of $0.01 and does not accrue any dividends. Each share of Series B Preferred Stock may be redeemed by the Company at a price of $600.00 per share. Each share of Series B Preferred Stock shall entitle the holder thereof to cast such number of votes equal to 0.51% of the total number of votes entitled to be cast at a meeting of shareholders. As a result, the 100 shares of Series B Preferred Stock are entitled to cast 51% of the number of votes entitled to be cast at a meeting of shareholders.

~~U.S.~~On ~~Patent~~August 722,~~670~~ 2011,~~799~~ ~~titled~~the ~~“Method~~Company ~~for~~issued ~~Making~~50 5,shares ~~10,~~of 15the Series B Preferred Stock to each of Maria Zannes, ~~20-Tetrakis~~the ~~(Carboxyphenyl)~~Company’s ~~Porphine~~Chief ~~(TCPP)~~Executive ~~Solution~~Officer and ~~Composition~~John ~~Comprising~~Cousins, ~~TCPP”~~the ~~which~~Company’s ~~was~~President, ~~issued~~in onexchange ~~March~~for 2the retirement of $30,000 ~~2010;~~in accrued but unpaid compensation to each person.

~~Allowed~~As ~~U.S~~of ~~Patent~~December ~~Application~~31, ~~12/715~~2011 and 2010,~~627~~ ~~titled~~Biomoda ~~“Method~~had ~~for~~advances ~~Prognosing~~and ~~Response~~accrued interest of $263,815 and $228,640, respectively, payable to ~~Cancer~~two ~~Therapy~~of ~~with~~its 5stockholders and Biomoda’s Chief Executive Officer. The advances by stockholders bore interest at 10% per annum and are due on demand. The advances from Biomoda’s Chief Executive Officer are due on April 17, 2012 and bear interest at 10% per annum. Interest expense related to such advances for the years ended December 31, 152011 and 2010, ~~20-Tetrakis~~and ~~(Carboxyphenyl)~~for ~~Porphine” filed~~the ~~March~~period 2from inception through December 31, ~~2010;~~2011, was approximately $13,000, $13,000 and $107,000, respectively.

~~Foreign~~The ~~equivalents~~Company is in the process of ~~these~~contesting ~~inventions~~the validity of the two note obligations to the stockholders who were ~~granted~~formerly inrelated ~~Canada,~~to ~~Japan,~~the ~~Mexico~~Company. Pending the resolution of this process, ~~and~~the ~~Australia~~Company has left the obligation on the books and iscontinues ~~pending~~to accrue interest in ~~Europe~~order to show the worst case scenario in possible payment by the Company.

Biomoda owns pending 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; and

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.

Biomoda owns U.S. registrations for the marks CyPath® and CyDx® and a U.S. registration is pending for the mark “Biomoda”. The Company has also received registrations for the marks Biomoda® , CyPath® and CyDx® in the European Union.

5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities consisted of the following as of December 31, 2010 and 2009:

	2010		2009
Trade accounts payable	$	166,276	$	264,780
Accrued expense – salary and other		83,949		235,497
Accrued taxes payable		200		5,791
Total	$	250,425	$	506,068

6. RELATED PARTY TRANSACTIONS

As of December 31, 2010 and 2009, Biomoda had advances and accrued interest of $228,640 and $215,142, respectively, payable to two of its stockholders. Such advances bore interest at 10% per annum and are due on demand. Interest expense related to such advances for the years ended December 31, 2010 and 2009, and for the period from inception through December 31, 2010, was approximately $13,000, $13,000 and $94,000, respectively.

The Company is in the process of contesting the validity of the two note obligations to these stockholders who were formerly related to the Company. Pending the resolution of this process, the Company has left the obligation on the books and continues to accrue interest in order to show the worst case scenario in possible payment by the Company.

Table of Contents

BIOMODA, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, ~~2010~~2011 and ~~2009~~2010

76. SHORT- AND LONG-TERM DEBT

Biomoda entered into two, 60-month leases with Beckman Coulter for two flow cytometers related to the New Mexico Department of Veterans Services study. The total monthly payment for both leases is $3,627. As of December 31, ~~2010~~2011 and ~~2009~~2010, the total lease obligation was $~~133~~125,~~516~~892 and $~~185~~133,~~711~~516, respectively, of which $60125,~~407~~892 and $6560,~~234~~407 were classified as short-term- debt. In January 2012, Beckman Coulter sought return of the leased flow cytometer held by Biomoda and the equipment was returned to the distributor due to payment default on the leasing agreement. Biomoda and Beckman Coulter currently are in negotiation for payment of the full amount due under the lease agreements. The distributor also is seeking return of the second flow cytometer should the parties be unable to settle on the amount due under the lease payments.

The Company also has a promissory note payable to a former employee of Biomoda. The note was originally due on December 31, 2008, subject to the availability of funds, and accrues interest at 5% after that date. The current balance is $5254,~~113~~481, all of which has been classified as short-term debt in the accompanying consolidated balance sheet.

87. CONVERTIBLE DEBT

On September 15, 2010, Biomoda 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 ~~mature~~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 VWAPs 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 include provisions that protect the holders from declines in the Company’s stock price. The interest rate is 10% per annum and accrues until either the maturity date or conversion of the Notes into shares of Biomoda common stock.

Biomoda paid an origination fee of $15,000 to the Purchasers and an additional $5,000 to the Purchasers for their legal fees, which has been treated as a deferred financing cost and ~~will~~was be amortized over the term of the Notes. The proceeds ~~amounts~~ from the Notes cannot be used to pay off any debt or advances from shareholders.

The 2,000,000 warrants include 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 10 for further discussion of the treatment of these warrants.

Due to the Notes’ conversion feature, the actual number of shares of common stock that would be required if a conversion of the Notes was made through the issuance of common stock cannot be predicted, and Biomoda could be required to issue an amount of shares that may cause it to exceed its authorized common share amount. As a result, the conversion feature requires derivative accounting treatment and ~~will~~was be bifurcated from the Note and “marked to market” each reporting period through the consolidated income statement.

On the date of the transaction, the 2,000,000 warrants issued in connection with the Notes had an estimated fair value of $~~493~~492,~~000~~518. The conversion feature had an estimated value of $651,~~000~~368. See Note 10 for further discussion.

The fair value of the warrants and the conversion option in excess of the principal amount of the Notes of $643,886 was expensed immediately as additional interest expense.

The following table details the accounting for the Notes at inception

Principal amount	$	560,000
Less: original issue discount		(60,000	)
Less: discount for conversion feature and fair value of warrants		(500,000	)
Carrying amount at inception	$	-

The ~~discount~~discounts on the Notes ~~will~~were be accreted over their term. During the ~~year~~years ended December 31, 2011 and 2010, the Company recognized $390,058 and $169,942 respectively, of interest expense related to the accretion of the discounts.

The 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 Purchasers agreed to extend the look-back provision of the VWAP from 20 days to 40 days from the date of conversion.

As of December 31, 2011, the $560,000 principal balance of the convertible notes and $37,519 in accrued interest were converted into 27,175,810 shares of the Company’s common stock and the derivative liabilities were settled upon conversion.

Table of Contents

BIOMODA, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, ~~2010~~2011 and ~~2009~~2010

98. EQUITY TRANSACTIONS

PREFERRED STOCK

On June 19, 1991, Biomoda authorized the issuance of 4,000,000 shares of preferred stock. Biomoda designated 2,000,000 shares as the Series A convertible preferred stock ("Series A"). Series A has liquidation and redemption values of $1.50 and $1.80 per share, respectively. The stock is subject to redemption at the discretion of Biomoda. Prior to redemption, each share of the Series A can be converted into one share of common stock at the discretion of the stockholders. The holders of Series A will be entitled to dividends equal to the amount of dividends for the number of shares of common stock into which it is entitled to be converted. As of December 31, ~~2010~~2011, Biomoda has not issued any Series A preferred shares.

On August 22, 2011, the board of directors designated a series of Preferred Stock of the Corporation as Series B Preferred Stock (“Series B”). 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 three months ended September 30, 2011, Biomoda issued an aggregate of 100 shares of Series B Preferred Stock (50 shares to each of Maria Zannes, Chief Executive Officer, and John Cousins, Chief Financial Officer) in satisfaction of $60,000 of accrued salaries due as of September 30, 2011.

COMMON STOCK

~~During~~On ~~May~~September 2016, ~~2010~~2011, a majority of shareholders approved an increase in authorized shares of the Company’s common stock to ~~150~~700,000,000.

2011 Issuances

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, 2011, Biomoda issued 21,760,532 common shares related to the conversion of $543,366 of Notes 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.

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).

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.

2010 Issuances

During the three months ended March 31, 2010, Biomoda issued 480,000 restricted common shares to employees as additional compensation. These shares were valued at $105,600 based upon the Company’s stock price on the date of grant.

During the three months ended March 31, 2010, Biomoda issued 1,200,000 restricted common shares pursuant to an agreement with members of our ~~Board~~board of ~~Directors~~directors for total cash consideration of $60,000.

On March 17, 2010, we entered into a securities purchase agreement (the “Purchase Agreement”) by and between the Company and each purchaser (collectively, the “Purchasers”), pursuant to which we agreed to sell in a private placement transaction (i) 6,250,001 shares of our common stock, at a purchase price of $0.16 per share (the “Shares”), (ii) 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 as further described below (the “Series I Warrants”), (iii) Series II warrants to purchase up to an additional 3,750,001 shares of common stock, subject to adjustment as further described below, on an automatic cashless exercise basis with an exercise price of $0.01 per share (the “Series II Warrants”), and (iv) Series III warrants to purchase an additional 6,250,001 shares of common stock with an exercise price of $0.16 per share (the “Series III Warrants” and together with the Series I Warrants and the Series II Warrants, the “Warrants”).

We received aggregate gross proceeds of $1,000,000 (net proceeds of $820,000 after the fees discussed below) from the sale of the Shares and the Warrants. The Shares and the shares of common stock issuable upon exercise of the Warrants are registered pursuant to a registration statement filed with the Securities and Exchange Commission on April 9, 2010.

In connection with the private placement, we paid our placement agent, LifeTech Capital, a cash fee of $100,000 and issued it a five-year warrant to purchase 625,000 shares of our common stock with an exercise price of $0.16 per share. LifeTech also received 625,000 Series I Warrants, 375,000 Series II Warrants and 625,000 Series III Warrants. In addition, LifeTech will receive 10% of the exercise price of all Series III Warrants which are exercised. We also paid legal fees of approximately $80,000 related to the private placement.

Table of Contents

BIOMODA, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, ~~2010~~2011 and ~~2009~~2010

98. EQUITY TRANSACTIONS (Continued)

COMMON STOCK (Continued)

During the three months ended June 30, 2010, Biomoda issued 335,000 common shares pursuant to the exercise of Series III warrants for net cash consideration of $53,600.

During the three months ended June 30, 2010, Biomoda issued 625,000 restricted common shares to a consultant for services pursuant to a contract. These shares were valued at $100,000 or $0.16 per share based upon the Company’s stock price on the date of grant.

During the three months ended June 30, 2010, Biomoda issued 200,000 restricted common shares to Directors. These shares were valued at $50,000 based upon the Company’s stock price on the date of grant.

During the three months ended September 30, 2010, Biomoda issued 1,630,000 common shares to a consultant for services pursuant to a contract. These shares were valued at $309,700 based upon the Company’s stock price on the date of grant.

During the three months ended September 30, 2010, Biomoda issued 100,000 restricted common shares to directors. These shares were valued at $17,000 based upon the Company’s stock price on the date of grant.

During the three months ended September 30, 2010, Biomoda issued 1,137,584 common shares pursuant to the exercise of Series III Warrants for net cash consideration of $161,652 (net of placement fees of $20,361) or $0.16 per share.

During the three months ended September 30, 2010, Biomoda issued 589,712 common shares pursuant to the cashless exercise of Series II Warrants.

During the three months ended September 30, 2010, Biomoda issued 375,000 restricted common shares to employees as additional compensation. These shares were valued at $75,000 based upon the Company’s stock price on the date of grant.

During the three months ended December 31, 2010, Biomoda issued 500,000 common shares to a consultant for services pursuant to a contract. These shares were valued at $65,000 based upon the Company’s stock price on the date of the agreement.

2009 Issuances

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

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

During the three months ended September 30, 2009, Biomoda issued 250,000 common shares to a consultant for services valued at $12,500 based upon the price of our common stock on the date of agreement.

During the three months ended September 30, 2009, Biomoda issued 100,000 of our restricted shares valued at $7,000 based upon the market price of our common stock on the date of grant to an employee in lieu of cash wages.

During the three months ended September 30, 2009, Biomoda issued 100,000 shares valued at $0.05 per share for total cash consideration of $5,000.

During the three months ended December 31, 2009, Biomoda issued 2,000,000 common shares pursuant to an agreement with a member of our Board of Directors for total cash consideration of $100,000.

Table of Contents

BIOMODA, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, ~~2010~~2011 and ~~2009~~2010

98. EQUITY TRANSACTIONS (Continued)

COMMON STOCK (Continued)

Treasury Stock Activity

The Company accounts for treasury stock as a reduction in capital stock based upon the cost of the shares acquired. Our treasury stock consists of shares returned from a settlement on a lawsuit, shares returned to the Company and shares purchased by the Company in the market. During 2009, Biomoda acquired 2,091,575 shares at a cost of $4,617, of which 1,998,575 shares were acquired at zero cost as part of the litigation settlement further discussed below in Note 13 and the remaining 93,000 shares were acquired by the Company in open market transactions.

2010 Activity

During the three months ended March 31, 2010, Biomoda issued 300,000 common shares from our treasury stock for services valued at $60,000 based upon the price of our common stock on the date of agreement.

During the three months ended March 31, 2010, Biomoda acquired 100,000 shares of common stock at zero cost as part of a settlement agreement with a vendor.

~~2009~~2011 Activity

~~During~~The ~~the~~Company ~~three~~had ~~months~~no ~~ended~~activity ~~September~~in ~~30,~~Treasury ~~2009,~~Stock ~~Biomoda~~during ~~issued~~the ~~1,000,000~~year ~~common~~ended ~~shares~~December ~~from~~31, ~~our~~2011. ~~treasury~~As ~~stock~~of ~~for~~December ~~services~~31, ~~valued~~2011 atand ~~$220~~2010,~~000~~ ~~based~~Biomoda ~~upon~~had ~~the~~391,575 ~~price~~treasury ofshares ~~our~~remaining, ~~common~~acquired ~~stock~~at ona ~~the~~cost ~~date~~ of ~~agreement~~$1,233.

During the three months ended December 31, 2009, Biomoda issued 500,000 common shares from our treasury stock for services valued at $75,000 based upon the price of our common stock on the date of agreement.

As of December 31, 2010, Biomoda had 391,575 treasury shares remaining, acquired at a cost of $1,233.

Other

During the three months ended ~~March~~June 3130, 2010, as a consequence of the March 17, 2010, private placement discussed above, Biomoda recorded a charge of $1,570,724 to stockholders' equity resulting from insufficient authorized but unissued shares of common stock to meet all its common share obligations in the event all outstanding common stock equivalents were converted into shares of the Company, which triggered liability accounting for non-employee warrants and options. On September 16, 2011, Biomoda held its annual meeting of shareholders and among other things, approved an increase in authorized shares to 700,000,000 which enabled Biomoda to meet its potential common share obligations at that time.

OnDuring ~~May 29, 2010,~~ the ~~Company~~nine ~~received~~months ~~stockholder~~ended ~~approval~~September ~~for~~30, an2011, ~~increase~~as innoted ~~its~~above, ~~authorized~~the ~~shares~~convertible tonotes ~~150,000,000.~~payable ~~With~~were ~~the~~converted ~~increase~~into inshares of the Company’s ~~authorized~~common ~~shares to 150,000,000, the circumstances that triggered liability accounting for non-employee warrants and options were resolved~~stock. Accordingly, ~~on May 29, 2010,~~ the Company credited the remaining derivative liability associated with ~~these~~the ~~warrants~~convertible notes and ~~options~~accrued interest of $182,~~057,699~~218 to stockholders’ equity for the nine months ended September 30, 2011.

OnDuring ~~September~~the ~~15,~~nine ~~2010~~months ~~due~~ended toSeptember ~~the~~30, ~~conversion~~2011, ~~feature~~as ~~contained~~noted ~~in the Convertible Notes~~above, the ~~actual~~Company ~~number~~issued of shares of common stock ~~that~~through ~~would~~the beexercise ~~required if a conversion~~ of ~~the~~outstanding ~~Notes~~Series asI ~~further~~Warrants. ~~described~~Accordingly, inthe ~~Note~~Company 7credited ~~was made through~~ the ~~issuance~~derivative ofliability ~~Common~~associated ~~Stock~~with ~~cannot~~the beWarrants ~~predicted~~in ~~and~~the ~~Biomoda could be required to issue an~~ amount of ~~shares~~$41,825 ~~that may cause it~~ to ~~exceed~~stockholders’ ~~its~~equity ~~authorized share amount, which triggered liability accounting~~ for ~~non-employee~~the ~~warrants~~nine ~~and~~months ~~options. Accordingly,~~ended on September 1530, ~~2010, the Company charged the amount of $19,314 to stockholders' equity~~2011.

On May 29, 2010, the Company received stockholder approval for an increase in its authorized shares to 150,000,000. With the increase in the Company’s authorized shares to 150,000,000, the circumstances that triggered liability accounting for non-employee warrants and options were resolved. Accordingly, on May 29, 2010, the Company credited the remaining derivative liability associated with these warrants and options of $1,057,699 to stockholders’ equity.

On September 15, 2010, due to the conversion feature contained in the Convertible Notes, the actual number of shares of common stock that would be required if a conversion of the Notes as further described in Note 7 was made through the issuance of Common Stock cannot be predicted and Biomoda could be required to issue an amount of shares that may cause it to exceed its authorized share amount, which triggered liability accounting for non-employee warrants and options. Accordingly, on September 15, 2010, the Company charged the amount of $19,314 to stockholders' equity.

See Note 10 for further discussion.

Table of Contents

BIOMODA, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, ~~2010~~2011 and ~~2009~~2010

98. EQUITY TRANSACTIONS (Continued)

COMMON STOCK (Continued)

STOCK OPTIONS AND WARRANTS

No options were granted in ~~2010~~2011 or ~~2009~~2010. All options outstanding are fully vested, and there was no unrecognized stock-based compensation expense as of December 31, ~~2010~~2011 and ~~2009~~2010, respectively.

A summary of changes in outstanding options is as follows:

	Number of Shares		Weighted-Average Exercise Price
Options outstanding and exercisable at December 31, 2008		1,586,768	$	0.44
Exercised		-		-
Cancelled/forfeited		(448,000)	$	0.66
Options outstanding and exercisable at December 31, 2009		1,138,768	$	0.36
Exercised		-		-
Cancelled/forfeited		(1,030,000)	$	0.15
Options outstanding and exercisable at December 31, 2010		108,768	$	2.34
Exercised		-		-
Cancelled/forfeited		-	$	-
Options outstanding and exercisable at December 31, 2011		108,768	$	2.34

The number of outstanding and exercisable options as of December 31, 2011, is provided below:

Number of Shares		Weighted-Average Exercise Price		Weighted-Average Remaining Life (Years)
	33,768	$	0.28	1.14
	75,000	$	2.06	1.32
	108,768	$	2.34	2.46

Outstanding and exercisable options had no intrinsic value as of December 31, 2011.

The number of outstanding and exercisable options as of December 31, 2010, is provided below:

Number of Shares		Weighted-Average Exercise Price		Weighted-Average Remaining Life (Years)
	33,768	$	0.28	1.45
	75,000	$	2.06	2.01
	108,768	$	2.34	3.46

Outstanding and exercisable options had no intrinsic value as of December 31, 2011 and 2010.

Warrants

A summary of the changes in warrants outstanding during the years ended December 31, 2010 and 2009, respectively, is as follows:

	Number of Shares		Weighted Average Exercise Price
Outstanding at December 31, 2009		-	$	-
Issued		19,875,002		0.17
Exercised		2,062,296		0.16
Cancelled/expired		8,937,705		0.10
Outstanding at December 30, 2010		8,875,001	$	0.25

Table of Contents

BIOMODA, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, ~~2010~~2011 and ~~2009~~2010

~~9. EQUITY TRANSACTIONS (Continued)~~Warrants

~~COMMON~~A ~~STOCK~~summary ~~(Continued)~~of the changes in warrants outstanding during the years ended December 31, 2011 and 2010, respectively, is as follows:

As of December, 2010, outstanding warrants had no intrinsic value and a weighted average remaining contractual term of 4.32 years.

	Number of Shares			Weighted
				Average Exercise Price
Outstanding at December 31, 2009		-		$	-
Issued		19,875,002			0.17
Exercised		(2,062,296	)		0.16
Cancelled/expired		(8,937,705	)		0.10
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
Cancelled/expired		-			-
Outstanding at December 30, 2011		203,887,725			0.01

In*As ~~March~~a ~~2010,~~result ~~pursuant~~of to the ~~common~~conversion ~~stock~~of ~~private~~the ~~placement described above~~Notes, ~~Biomoda~~due ~~issued~~to ~~Series~~contractual I,provisions ~~II,~~contained ~~and~~in ~~III~~the ~~Warrants. The~~ Series I Warrants ~~are~~and ~~exercisable~~the to5-Year ~~purchase~~Warrants andiscussed ~~aggregate~~further ofin ~~6,875,001~~Note ~~shares~~9 ofbelow, the ~~Company’s common stock over a five-year term at an~~ exercise price ~~equal to 125%~~ of ~~the~~those ~~closing~~warrants ~~price~~was onreduced ~~March~~from ~~12, 2010, or~~ $0.25 per share, ~~subject~~ to ~~full-ratchet~~$0.01 ~~anti-dilution~~per ~~protection~~share ~~that~~and ~~could,~~the innumber ~~certain~~of ~~circumstances,~~shares ~~reduce~~issuable ~~the~~upon exercise ~~price and~~of ~~increase~~those ~~the~~warrants ~~number~~increased offrom approximately 8,875,001 shares ~~issuable~~to ~~upon~~as ~~exercise~~many ofas ~~the~~203,887,725, ~~Series~~net Iof ~~Warrants~~warrants previously exercised.

~~The~~As ~~Series I Warrants expire on the fifth anniversary~~ of ~~the~~December ~~closing of the Purchase Agreement. If at any time after the Initial Exercise Date~~31, as2011 ~~such~~and ~~term is defined in the warrant agreement~~2010, ~~there~~outstanding iswarrants had no ~~effective~~intrinsic ~~Registration~~value ~~Statement~~and ~~registering~~a ~~the~~weighted ~~resale~~average ofcontractual ~~the~~term ~~Warrant Shares by the Holders, then the Series I Warrants may also be exercised, in whole or in part, by means~~ of ~~a “cashless exercise~~3.”33 ~~A Registration Statement to register the Warrant Shares was filed~~ and ~~declared~~4.32 ~~effective on May 6~~years, ~~2010~~respectively.

~~The~~In ~~Series~~March II2010, ~~Warrants~~pursuant ~~allowed~~to the ~~holders~~common tostock ~~purchase~~private upplacement todescribed anin ~~additional~~Note 48 above,~~125,001~~ ~~shares~~the ofCompany ~~common~~issued ~~stock~~Series byI, ~~means~~II, ofand aIII ~~“cashless exercise~~Warrants.” The Series III Warrants were ~~intended~~exercisable to ~~provide~~initially ~~the~~purchase ~~investors~~an ~~pricing~~aggregate ~~protection for the Purchase Agreement with a floor price~~ of ~~$0.10~~6,875,001 ~~per~~shares ~~share. In the event the market price~~ of the Company’s ~~shares~~common ~~declined~~stock ~~between~~over ~~the~~a ~~closing~~five-year ofterm ~~the~~at ~~Purchase~~an ~~Agreement and Effective Date, the Series II warrants were to be automatically exercised on a cashless~~ exercise ~~basis and a number of additional shares would be issued to the investors who participated in the Financing in order to effectively reduce the per share purchase~~ price ~~paid~~equal ~~in the Purchase Agreement~~ to ~~the greater of (i) 80~~125% of the ~~45-day~~closing ~~volume weighted average trading~~ price ~~per~~on ~~share~~March of12, ~~the~~2010, ~~Company’s~~or ~~common stock immediately following the Effective Date and (ii)~~ $0.1025 per share~~. As such~~, ~~the~~subject ~~greatest~~to ~~number~~anti-dilution ofprotection ~~shares~~ that could, bein ~~issued~~certain ~~pursuant~~circumstances, toreduce the ~~Series~~exercise ~~II Warrants would be 4,125,001 shares.~~price ~~During~~and increase the ~~three~~number ~~months~~of ~~ended September 30, 2010, Biomoda issued common~~ shares ~~pursuant~~issuable toupon ~~the cashless~~ exercise of ~~589,712~~the Series III ~~Warrants~~Warrant. ~~There are no Series II Warrants outstanding as of December 31, 2010.~~

AtThe ~~the~~Series ~~Effective~~I ~~Date~~Warrants orexpire ~~May~~on ~~6, 2010,~~ the ~~Series~~fifth ~~III~~anniversary ~~Warrants~~of ~~provided~~ the ~~investors~~closing aof ~~90-day~~the ~~right,~~Purchase ~~subject~~Agreement. If toat ~~extension~~any bytime aafter ~~number~~the ofInitial ~~days~~Exercise ~~equivalent~~Date, toas ~~the~~such ~~number~~term ofis ~~days~~defined in the ~~Registration~~warrant ~~Statement~~agreement, there is ~~not~~no effective ~~during~~Registration ~~the~~Statement ~~Series~~registering ~~III~~the ~~Warrant~~resale ~~term,~~of ifthe ~~applicable, to~~Warrant ~~purchase~~Shares anby ~~additional~~the 6Holders,~~875,001~~ ~~shares~~then ~~of common stock from~~ the ~~Company~~Series atI ~~$0.16~~Warrant ~~per~~may ~~share. The~~also ~~Series~~be ~~III~~exercised, ~~Warrants~~in ~~were~~whole ~~not~~or ~~subject~~in topart, ~~any~~by ~~adjustments~~means ~~with~~of ~~respect~~a to“cashless ~~the~~ exercise.” ~~price~~A orRegistration ~~number~~Statement ofto ~~shares~~register ~~covered,~~the ~~except~~initial inamount ~~limited~~of ~~circumstances. The~~Warrant ~~Registration~~Shares ~~Statement~~ was filed and ~~became~~declared effective on May 6, 2010.

During the ~~year~~12 months ended December 31, ~~2010~~2011, ~~Biomoda issued 1~~8,~~472~~060,~~584~~000 ~~common~~Series ~~shares~~I ~~pursuant~~Warrants towere ~~the~~exercised ~~exercise~~at ofa ~~Series~~price ~~III~~per ~~Warrants~~share ~~for~~of ~~total~~$0.0179 for cash ~~consideration~~proceeds of $~~235~~144,~~613~~872. Also ~~(net~~during ~~proceeds~~the of12 ~~$215~~months ended December 31,~~242)~~ or2011, ~~$0.16~~3,500,000 ~~per~~Series ~~share.~~I ~~The~~Warrants ~~remaining~~were ~~Series~~exercised ~~III~~as cashless warrants, ~~expired~~which ~~August~~resulted 6in the issuance of 2,041,667 ~~2010~~shares.

During the three months ended September 30, 2010, the Company issued common shares pursuant to the cashless exercise of 589,712 Series II Warrants. The remaining Series II Warrants expired during 2010.

In August 2010, we issued 1,137,584 common shares pursuant to the exercise of Series III Warrants for total cash consideration of $182,013 (net proceeds of $161,642) or $0.16 per share. The remaining Series III warrants expired August 6, 2010.

In connection with the private placement, Biomoda paid our placement agent 625,000 warrants. These warrants provide the agent a five-year right to acquire shares of the Company’s stock at $0.25 per share. These warrants are not subject to any adjustments with respect to the exercise price or number of shares covered, except in limited circumstances.

On September 15, 2010, as part of the sale of a convertible debenture, Biomoda issued 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 full-~~ratchet~~ anti-dilution protection that could, in certain circumstances, reduce the exercise price and increase the number of shares issuable upon exercise of the 5-Year Warrants. None of these 5-Year Warrants have been exercised. See Note 10 for additional information.

Table of Contents

BIOMODA, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, ~~2010~~2011 and ~~2009~~2010

109. DERIVATIVE LIABILITIES – WARRANTS, OPTIONS, AND DEBT

Series I Warrants

The Company determined that Series I Warrants to 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 was recognized as derivative warrant instruments and will be measured at fair value at each reporting period. Accordingly, at the inception of the Series I Warrants, 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 December 31, ~~2010~~2011, and recorded an unrealized gain of $1537,~~183,055~~776 for the year ended December 31, ~~2010~~2011. The Company determined the fair values of these securities using a binomial lattice valuation model.

The fair value of the derivative warrant instruments iswas estimated using the binomial lattice valuation model with the following assumptions as of December 31, ~~2010~~2011:

Common stock issuable upon exercise of warrants		6153,~~875~~887,~~000~~725
Estimated market value of common stock on measurement date	$	0.08014
Exercise price	$	0.2501
Risk-free interest rate (1)		10.7784	%
Warrant lives in years		43.21
Expected volatility (2 )		190.97	%
Expected volatility (2)		196.99	%
Expected dividend yield (3)		None
Probability of reset to conversion price (4)		~~12.5~~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 than the warrants’ exercise price.

At December 31, ~~2010~~2011, the derivative liability associated with the Series I Warrants was $~~597~~17,~~528~~929.

Table of Contents

BIOMODA, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, ~~2010~~2011 and ~~2009~~2010

~~10. DERIVATIVE~~On ~~LIABILITIES~~April –1 ~~WARRANTS~~2011, ~~OPTIONS~~the holders of the Series I Warrants exercised 1,560,000 ~~AND~~warrants. Biomoda ~~DEBT~~measured ~~(Continued)~~the fair value of the warrants exercised and credited the derivative liability associated with warrants exercised in the amount of $40,246 to stockholders’ equity.

~~5-Year~~The ~~Warrants~~fair value of the derivative warrant instruments was estimated using the binomial lattice valuation model with the following assumptions as of April 1, 2011:

The Company determined that the 5-Year Warrants issued in connection with the sale of convertible notes discussed in Note 7 to 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 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 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, at the inception of the 5-Year Warrants, the Company established a derivative liability of $492,518.

Common stock issuable upon exercise of warrants		34,375,005
Estimated market value of common stock on measurement date	$	0.0832
Exercise price	$	0.0512
Risk-free interest rate (1)		2.01	%
Warrant lives in years		3.96
Expected volatility (2)		191.29	%
Expected dividend yield (3)		None
Probability of reset to conversion price (4)		40	%

The Company measured the fair value of these instruments as of December 31, 2010, and recorded an unrealized gain for the year ended December 31, 2010 of $302,965. The Company determined the fair values of these securities using a binomial lattice valuation model.

(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 than the warrants’ exercise price.

~~The~~During ~~fair~~the ~~value~~nine months ended September 30, 2011, the holders of the ~~derivative~~Series 5I ~~Year~~Warrants ~~Warrant~~made ~~instruments~~several isexercises ~~estimated~~for ~~using~~a ~~the~~total ~~binomial~~of ~~lattice~~10,000,000 ~~valuation~~warrants. Biomoda used a weighted average exercise price in a single lattice model ~~with~~to estimate the ~~following~~fair ~~assumptions~~value asof the warrants exercised. Biomoda measured the fair value of ~~December~~the 31warrants exercised and credited the derivative liability associated with warrants exercised in the amount of $1,577 ~~2010:~~to stockholders’ equity.

	Assumptions at December 31, 2010
Common stock issuable upon exercise of warrants		2,000,000
Estimated market value of common stock on measurement date	$	0.08
Exercise price	$	0.25
Risk-free interest rate (1)		2.20	%
Warrant lives in years		4.71
Expected volatility (2 )		190.97	%
Expected dividend yield (3)	None
Probability of reset to conversion price (4)		12.5	%

The fair value of the derivative warrant instruments was estimated using the binomial lattice valuation model with the following assumptions as of August 31, 2011:

(1)	The risk-free interest rate was determined by management based on the yield of U.S. Treasury securities with a five-year constant term maturity on December 31, 2010.
Common stock issuable upon exercise of warrants			163,887,725
(2)	The volatility factor is based upon the historical volatility of the Company’s common stock.
Estimated market value of common stock on measurement date		$	0.02
(3)	Management determined the dividend yield to be 0% based upon its expectation that it will not pay dividends in the near term.
Exercise price		$	0.01
(4)	This represents management’s estimate of the probability that the Company will issue stock at a price lower than the warrants’ exercise price.
Risk-free interest rate (1)			0.93	%
Warrant lives in years			3.55
Expected volatility (2)			192.91	%
Expected dividend yield (3)			None
Probability of reset to conversion price (4)			40	%

At December 31, 2010, the derivative liability associated with the 5-year Warrants was $189,553.

(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 than the warrants’ exercise price.

Table of Contents

BIOMODA, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, ~~2010~~2011 and ~~2009~~2010

109. DERIVATIVE LIABILITIES – WARRANTS, OPTIONS, AND DEBT (Continued)

~~Insufficient~~5-Year ~~Authorized but Unissued Shares of Common Stock~~Warrants

~~Series~~The ICompany determined that the 5-Year Warrants issued in connection with the sale of the Notes discussed in Note 7 to initially purchase 2,000,000 shares IIof 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 ~~III~~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.

The ~~issuance~~Company ofmeasured the ~~Series~~fair I,value ~~II and III Warrants on March 17, 2010, pursuant to the private placement described in Note 8 above, resulted in a total potential obligation to issue up to 18,165,002 shares~~ of ~~common~~these ~~stock~~instruments ~~upon~~as ~~the exercise~~ of ~~outstanding~~December ~~warrants and options held by non-employees. The Company had 87,053,015 shares of common stock outstanding at March~~ 31, ~~2010~~2011, and, ~~prior~~recorded toan ~~the~~unrealized ~~May~~loss ~~29, 2010, stockholder approval~~ for ~~an increase in~~ the ~~Company’s~~year ~~authorized~~ended ~~shares~~December 31, ~~had only 100~~2011,~~000,000~~ ~~shares~~ of ~~common stock authorized~~$174,750. IfThe ~~the~~Company ~~warrants~~determined ~~and options were fully exercised,~~ the ~~Company~~fair ~~would~~values ~~have~~of ~~exceeded~~these ~~its~~securities ~~authorized~~using ~~shares~~a bybinomial ~~6,053,361~~lattice ~~shares~~valuation model.

As we did not have sufficient shares authorized to settle all of our outstanding contracts, this triggered a change in the manner in which the Company accounted for the warrants and stock options held by non-employees. The Company began to account for these warrants and stock options utilizing the liability method. Pursuant to ASC 815-40-05, "If a contract is reclassified from permanent or temporary equity to an asset or a liability, the change in fair value of the ~~contract~~derivative ~~during~~5-Year ~~the~~Warrant ~~period~~instruments ~~the contract~~ was ~~classified~~estimated asusing ~~equity should be accounted for as an adjustment to stockholders' equity." Accordingly, during~~ the ~~period~~binomial ~~ended~~lattice ~~March~~valuation ~~31,~~model ~~2010,~~with the ~~Company~~following ~~charged~~assumptions ~~the~~as ~~amount~~ of $1December 31,~~570,724~~ ~~to stockholders' equity.~~2011:

On May 29, 2010, the Company received stockholder approval for an increase in its authorized shares to 150,000,000. Pursuant to the accounting guidance, the warrants and stock options which were a derivative liability were revalued as of May 29, 2010, and the Company recorded a gain for the three months ended June 30, 2010, of $1,240,194 for the change in the fair value of the liability associated with all warrants outstanding (other than the Series I Warrants described above) and $12,336 for stock options held by non-employees.

	Assumptions at December 31, 2011
Common stock issuable upon exercise of warrants		50,000,000
Estimated market value of common stock on measurement date	$	.014
Exercise price	$	.01
Risk-free interest rate (1)		1.03	%
Warrant lives in years		3.71
Expected volatility (2)		196.99	%
Expected dividend yield (3)	-
Probability of reset to conversion price (4)		40	%

With the increase in the Company’s authorized shares to 150,000,000, the circumstances that triggered liability accounting for non-employee warrants and options were resolved. Accordingly, on May 29, 2010, the Company credited the remaining derivative liability associated with these warrants and options of $1,057,699 to stockholders’ equity.

(1)	The risk-free interest rate was determined by management based on the yield of U.S. Treasury securities with a five-year constant term maturity on December 31, 2011.
(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 than the warrants’ exercise price.

~~Convertible~~At ~~Notes~~December 31, 2011, the derivative liability associated with the 5-year Warrants was $14,803.

On September 15, 2010, due to the conversion feature contained in the Convertible Notes issued in September 2010, the actual number of shares of common stock that would be required if a conversion of the Notes as further described in Note 7 was made through the issuance of Common Stock cannot be predicted, and Biomoda could be required to issue an amount of shares that may cause it to exceed its authorized share amount. As a result, the conversion feature requires derivative accounting treatment and will be bifurcated from the Notes and “marked to market” each reporting period through the income statement.

The fair value of the Convertible Note was recognized as a derivative liability 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 Convertible Note of $651,368.

Table of Contents

BIOMODA, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, ~~2010~~2011 and ~~2009~~2010

109. DERIVATIVE LIABILITIES – WARRANTS, OPTIONS, AND DEBT (Continued)

~~The~~Convertible Company measured the fair value of these instruments as of December 31, 2010, and recorded an unrealized loss for the year ended December 31, 2010 of $90,221. The Company determined the fair values of these liabilities using a binomial lattice valuation model.Notes

~~The~~On ~~fair~~September ~~value~~15, of2010, due to the ~~derivative~~conversion ~~warrant~~feature, ~~instruments~~the isactual ~~estimated~~number ~~using~~of shares of common stock that would be required if a conversion of the ~~binomial~~Notes ~~lattice~~as ~~valuation~~further ~~model~~described ~~with~~in Note 8 was made through the ~~following~~issuance ~~assumptions~~of asCommon Stock could not be predicted, and Biomoda could have been required to issue an amount of ~~December~~shares 31that caused it to exceed its authorized share amount. As a result, ~~2010:~~the conversion feature requires derivative accounting treatment and will be bifurcated from the Notes and “marked to market” each reporting period through the income statement.

	Assumptions at December 31, 2010
Common stock issuable upon exercise of convertible note		2,240,000
Estimated market value of common stock on measurement date	$	0.08
Exercise price	$	0.25
Risk-free interest rate (1)		2.00	%
Year until maturity		0.68
Expected volatility (2 )		190.97	%
Expected dividend yield (3)	None

The fair value of the Notes was recognized as a derivative liability instrument and is measured at fair value at each reporting period. Accordingly, on September 15, 2010, the Company established a derivative liability for the Notes of $651,368. The derivative liability related to the Notes had a carrying value of $741,589 at December 31, 2010.

(1)	The risk-free interest rate was determined by management based on the yield of U.S. Treasury Constant Maturity Six-Month Yield as of December 31, 2010, over the remaining term of the Convertible Debt Option.
(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 than the warrants’ exercise price.

During the year ended December 31, 2011, all of the Convertible Notes, together with accrued interest, had been converted into stock. The Company measured the fair value of the instruments as of May 31, 2011, and recorded an unrealized gain for the year ended December 31, 2011, of $ 659,371. The Company credited the derivative liability associated with the convertible notes of $82,218 to stockholders’ equity upon full conversion of the outstanding convertible notes.

AtThe ~~December~~accounting ~~31,~~guidance ~~2010~~states that warrants, ~~the~~stock options and conversion features which are accounted for as a derivative liability ~~associated~~should ~~with~~be revalued each reporting period until the ~~Notes~~circumstances ~~conversion~~which ~~feature~~triggered ~~was~~liability ~~$741~~accounting are resolved. The recorded value of these instruments can fluctuate significantly based on fluctuations in the market value of the issuer’s common stock,~~589~~ as well as in the volatility of the stock price during the term used for observation and the term remaining for the instruments.

As of July 13, 2011, upon conversion of the remaining portion of the Notes, the circumstances that triggered liability accounting for the outstanding non-employee options no longer applied and those options had no derivative value at that date.

Table of Contents

BIOMODA, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011 and 2010

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

As Biomoda may not have had sufficient shares authorized to settle all of the Company’s outstanding contracts as of September 15, 2010, this triggered a change in the manner in which the Company accounted for the warrants and stock options held by non-employees. The Company began to account for these warrants and stock options utilizing the liability method. Accordingly, on September 15, 2010, the Company charged the amount of $19,314 to stockholders' equity.

The Company measured the fair value of these instruments as of December 31, ~~2010~~2011, and recorded an unrealized gain for the years ended December 31, ~~2010~~2011 of $105,~~341~~975.

In accordance with FASB ASC Topic No. 815 warrants, stock options and conversion features which are accounted for as a derivative liability will be revalued each reporting period until the circumstances which triggered liability accounting are resolved. The recorded value of these instruments can fluctuate significantly based on fluctuations in the market value of the issuer’s common stock, as well as in the volatility of the stock price during the term used for observation and the term remaining for the instruments.

42Activity for derivative instruments for the years ended December 31, 2010 and 2011, respectively, was as follows:

	Balance at December 31, 2009		Initial Valuation of Derivative Liabilities during the Period		Increase (Decrease) in Fair Value of Derivative Liability			Decrease Credited to Stockholders’ Equity Upon Increase of Authorized Shares			Balance at December 31, 2010
Derivative warrant instruments – Series I	$	-	$	1,780,583	$	(1,183,055	)	$	-		$	597,528
Derivative warrant instruments –5-year Warrants issued with Notes		-		492,518		(302,965	)		-			189,553
Derivative instrument – convertible debt		-		651,368		90,221			-			741,589
Derivative warrant instruments – all others		-		1,549,690		(507,772	)		(1,041,918)			-
Derivative option instruments		-		40,349		(18,593	)		(15,781)			5,975
Total	$	-	$	4,514,508	$	(1,922,164	)	$	(1,057,699	)	$	1,534,645

Table of Contents

BIOMODA, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, ~~2010~~2011 and ~~2009~~2010

109. DERIVATIVE LIABILITIES – WARRANTS, OPTIONS, AND DEBT (Continued)

Activity for derivative instruments during the year ended December 31, 2010, was as follows:

	Balance at December 31, 2010		Initial Valuation of Derivative Liabilities during the Period		Increase (Decrease) in Fair Value of Derivative Liability			Decrease Credited to Stockholders’ Equity Upon Exercise of Warrants or Conversion of Debt			Balance at December 31, 2011
Derivative warrant instruments – Series I	$	597,528	$	1,780,583	$	(537,776	)	$	(41,824	)	$	17,928
Derivative warrant instruments –5-year Warrants issued with Notes		189,553		492,518		(174,750	)		-			14,803
Derivative instrument – convertible debt		741,589		651,368		(659,371	)		(82,218	)		-
Derivative warrant instruments – all others		-		1,549,690		-			-			-
Derivative option instruments		5,975		40,349		(5,975	)		-			-
Total	$	1,534,645,	$	4,514,508	$	(1,377,872	)	$	(124,042	)	$	32,731

	Balance at December 31, 2009		Initial Valuation of Derivative Liabilities during the Period		Increase (Decrease) in Fair Value of Derivative Liability			Decrease Credited to Stockholders’ Equity Upon Increase in Authorized Shares			Balance at December 31, 2010
Derivative warrant instruments – Series I	$	-	$	1,780,583	$	(1,183,055	)	$	-		$	597,528
Derivative warrant instruments –5-year Warrants issued with Notes		-		492,518		(302,965	)		-			189,553
Derivative instrument – convertible debt		-		651,368		90,221			-			741,589
Derivative warrant instruments – all others		-		1,549,690		(507,772	)		(1,041,918	)		-
Derivative option instruments		-		40,349		(18,593	)		(15,781	)		5,975
Total	$	-	$	4,514,508	$	(1,922,164	)	$	(1,057,699	)	$	1,534,645

The Company did not have any derivative instruments during the year ended December 31, 2010.

~~The~~10. FAIR ~~Company~~VALUE ~~did not have any derivative instruments during the year ended December 31, 2009.~~ MEASUREMENTS

11. 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.

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BIOMODA, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, ~~2010~~2011 and ~~2009~~2010

1110. FAIR VALUE MEASUREMENTS (Continued)

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 binomial lattice valuation model (see above for the assumptions) for the Company’s Series I Warrants, the 5-year Warrants and the conversion feature contained in the Notes, and the Black-Scholes valuation model for all other warrants and non-employee options.

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 December 31, 2011 and 2010:

Fair Value Measurements at December 31, 2010

Fair Value Measurements at December 31, 2011

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 December 31, ~~2010~~2011

Derivative warrant instruments

~~787~~32,~~081~~731

Derivative option instruments

~~5,975~~-

Derivative conversion Note feature

~~741,589~~-

Total

132,~~534,645~~731

132,~~5,34,645~~731

The Company did not have any financial assets or liabilities required to be accounted for under the fair value hierarchy as of December 31, 2009.

	Fair Value Measurements at December 31, 2010
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 December 31, 2011
Derivative warrant instruments	$	-	$	-	$	787,081	$	787,081
Derivative option instruments						5,975		5,975
Derivative conversion Note feature						741,589		741,589
Total	$	-	$	-	$	1,534,645	$	1,534,647

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BIOMODA, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, ~~2010~~2011 and ~~2009~~2010

1110. FAIR VALUE MEASUREMENTS (Continued)

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) Years Ended December 31,
	2010			2009
	2011			2010
Beginning balance	$	-(1,534,645	)	$	-
Total gains (losses)		~~1922~~1,~~163~~377,872			-1,922,163
Settlements		1124,~~057,699~~042			-1,057,699
Additions		~~(4,514,508~~-	)		-(4,514,508	)
Transfers		-			-
Ending balance	$	(132,~~534,645~~731	)	$	-(1,534,645	)
Change in unrealized gains (losses) included in earnings relating to derivatives still held as of December 31, 2010 and 2009	$	1,922,163		$	-
Change in unrealized gains (losses) included in earnings relating to derivatives still held as of December 31, 2011 and 2010	$	124,042		$	1,922,163

1211. INCOME TAXES

For the years ended December 31, ~~2010~~2011 and ~~2009~~2010, and the period from inception through December 31, ~~2010~~2011, Biomoda had no significant current or deferred net income tax expense. Biomoda has recorded a 100% valuation allowance on all deferred tax assets.

The net deferred income tax asset consists of the following at December 31, ~~2010~~2011 and ~~2009~~2010:

		2010			2009
		2011			2010
Net operating losses	$	3,~~442~~637,000		$	23,~~786~~442,000
Deferred income tax liabilities		-			-
Subtotal		3,~~442~~637,000			23,~~786~~442,000
Valuation allowance		(3,~~442~~637,000	)		(23,~~786~~442,000	)
Net	$	-		$	-

Based upon the net operating losses incurred since inception, management has determined that the deferred tax asset as of December 31, ~~2010~~2011, will likely not be recognized. Consequently, Biomoda has established a valuation allowance against the entire deferred tax asset.

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BIOMODA, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, ~~2010~~2011 and ~~2009~~2010

1211. INCOME TAXES (Continued)

As of December 31, ~~2010~~2011, Biomoda had various federal and state net operating loss carry forward of approximately $9,~~365~~000,000 that have initial carry-forward periods between ~~five~~four and 20 years.

The utilization of some or all of Biomoda's net operating losses may be severely restricted now or in the future by a significant change in ownership as defined under the provisions of Section 382 of the Internal Revenue Code of 1986, as amended.

A reconciliation of income taxes computed at the U.S. Federal statutory income tax rate to the provision (benefit) for income taxes for the years ended December 31, ~~2010~~2011 and ~~2009~~2010, is as follows:

	2010			2009
	2011			2010
U.S. Federal statutory tax at 35%	$	(~~887~~542,000	)	$	(~~316~~887,~~900~~000	)
State taxes, net of federal benefit		-			-
Permanent differences – primarily stock-based compensation		~~657~~473,000			~~100~~657,~~480~~000
Valuation allowance		~~230~~69,000			~~216~~230,~~420~~000
Provision (benefit) for income taxes	$	-		$	-

1312. LOSS PER COMMON SHARE

The following is a reconciliation of the numerators and denominators of the basic and diluted loss per common share computations for the years ended December 31, ~~2010~~2011 and ~~2009~~2010:

	2010			2009
	2011			2010
Numerator for basic and diluted loss per common share:
Net loss charged to common stockholders	$	(~~655~~230,~~781~~472	)	$	(~~905~~655,~~289~~781	)
Denominator for basic and diluted loss per common share:
Weighted average number of shares		88113,~~366~~304,~~234~~382			7688,~~690~~366,~~417~~234
Basic and diluted loss per common share	$	(0.0100	)	$	(0.01	)

Biomoda reported a net loss for the years ended December 31, ~~2010~~2011 and ~~2009~~2010. As a result, shares of common stock issuable upon exercise of convertible debt, stock options and warrants, ~~17,625,001~~ and 1,~~138,768,~~ respectively, 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.

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BIOMODA, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, ~~2010~~2011 and ~~2009~~2010

1413. COMMITMENTS AND CONTINGENCIES

OPERATING LEASES

On December 15, 2008, Biomoda entered into a month-to-month agreement with WESST Enterprise Center for approximately 1,200 square feet of laboratory and office space at $2,700 per month. In November, 2010, an additional office was leased for a new total of $3,~~600~~700 per month. The Company has leased additional office space as needed and had no fixed long-term lease commitments at December 31, ~~2010~~2011.

Total rent expense for the years ended December 31, ~~2010~~2011 and ~~2009~~2010, and for the period from inception through December 31, ~~2010~~2011, was approximately $4558,000, $2045,000 and $~~309~~367,000, respectively.

LEGAL MATTERS

InOn ~~January~~April ~~2010~~22, 2009, Biomoda, ~~received~~Advanced ~~100~~Optics Electronics,~~000~~ ~~restricted~~Inc. ~~Biomoda~~(“ADOT”), ~~shares~~and ~~from~~Leslie ~~Seacoast~~S. ~~Advisors~~Robins (“Robins”) entered into a Settlement Agreement and Release (“Settlement”) to resolve all claims in the pending federal lawsuit entitled Advanced Optics Electronics, ~~LLC as~~Inc., ~~part~~et al. v. Leslie S. Robins, et al. No. CIV-2007-00855, JB/DJS, U.S. District Court for the District of anNew ~~arbitration~~Mexico ~~decision~~and two related suits. As described below, the Settlement effectively separates Biomoda from ADOT and Robins and cedes control of ADOT to Robins.

(a)	paid $10,000 to Biomoda and delivered to Biomoda all Biomoda documents within his possession or control;
(b)	resigned from any position he may claim to hold or claim he should hold as an officer or director of Biomoda;

15. SUBSEQUENT EVENTS

(c)	transferred all shares to the Company of Biomoda stock currently held by Robins or by any family member or other person, corporation or entity in which he has any control, which consisted of 747,000 shares; and
(d)	agreed not to acquire any Biomoda shares in the future.

In ~~accordance~~addition, ~~with~~on ~~SFAS~~April ~~165~~22, ~~(ASC~~2009, ~~855-10)~~our President and current board member, John J. Cousins, resigned as a director and officer of ADOT, and Robins was appointed Chairman, Chief Executive Officer and President of ADOT. Pursuant to the Settlement, ADOT also transferred 1,231,575 Biomoda shares to the Company ~~reviewed~~and released Biomoda from all ~~material~~ADOT ~~events~~claims, ~~through~~including ~~March~~claims 15related to an alleged promissory note dated May 1, ~~2011~~2002, in the amount of $1,030,748, which was disputed and ~~there~~previously ~~are~~written nooff ~~other~~by ~~material~~Biomoda ~~subsequent~~as ~~events~~of tothe ~~report~~year ended December 31, 2008.

47As the result of a federal lawsuit entitled Advanced Optics Electronics, Inc., et al. v. Leslie S. Robins, et al. No. CIV-2007-00855, JB/DJS, U.S. District Court for the District of New Mexico and two related suits, Biomoda has won default judgments against two Defendants, Alvin Robins and John Kearns, on all counts alleged and in favor of Biomoda. Biomoda submitted a final statement of damages to the Court in November, 2009. At the hearing on Aug. 4, 2010, defendant Alvin Robins failed to appear. The Court allowed Biomoda's counsel to proceed with oral argument on the motion for a damages amount to be awarded to Biomoda. Subsequently, in an opinion and memoranda issued on August 4, 2010, the Court allowed defendant Alvin Robins ten days to request further hearing on the matter before the Court and to answer the Biomoda argument for damages. Defendant John Kearns is deceased. Biomoda has waived the right to pursue damages against Mr. Kearns' estate.

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BIOMODA, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011 and 2010

14. SUBSEQUENT EVENTS

In accordance with SFAS 165 (ASC 855-10) the Company reviewed all material events through April 16, 2012.

In January 2012, Biomoda returned a leased flow cytometer to the distributor due to payment default of the leasing agreement.

In February 2012, 2,000,000 Series I Warrants were exercised at a price per share of $0.01 for cash proceeds of $20,000.

In March, 2012, 40,749,600 shares were issued for services to employees and vendors, with a value of approximately $407, 500. The shares were valued using the stock price on the date of issuance.

In March 2012, 2,800,000 shares were issued to an investor at a price per share of $0.01 for cash proceeds of $28,000.

In April 2012, the Company entered into a convertible loan agreement for $250,000. The Lenders agreed to lend Biomoda $250,000 for a term not to exceed six (6) months. Biomoda shall repay the Lenders the principal amount of $250,000 plus $45,000 in interest and a loan origination fee and any expense reimbursement at the end of the Term or at an earlier time. The amount of repayment is fixed at $295.000 which includes the principal amount of $250,000 plus interest and loan origination fee plus any expense reimbursement. The Lenders shall have the option of receiving a) repayment of $270,000 in cash and 2,500,000 shares of restricted common stock or b) 29,500,000 shares of restricted common stock at an agreed share price of one cent ($0.01) per share. 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 must 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 will determine in what form whether a) or b) above shall be the form of the repayment.

The loan shall be secured by a security interest in the Biomoda United States and European Union Patents and patent rights. The security interests shall expire upon repayment.

Biomoda determined that the convertible note agreement contained a beneficial conversion feature. As such, the Company has recorded a debt discount for the full amount of the note. The $295,000 discount will be amortized using the straight-line method over the term of the convertible note.

There are no other material subsequent events to report.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL DISCLOSURE

None

ITEM 9A. CONTROLS AND PROCEDURES

As of December 31, ~~2010~~2011, the Company carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. This evaluation was done under the supervision and with the participation of our management, including Biomoda’s President and Chief Financial Officer. Based on his evaluation of our disclosure controls and procedures (as defined in the Exchange Act Rule 13a-15e), our President and Chief Financial Officer has concluded that as of December 31, ~~2010~~2011, such 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 the 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.

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 possibly 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.

Pursuant to Rule 13a-15d of the Exchange Act, management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework (1992) and Internal Control Over Financial Reporting Guidance for Smaller Public Companies (2006), issued by the Committee of Sponsoring Organizations of the Treadway Commission.

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Based on this evaluation, management concluded that our internal control over financial reporting was not effective as of December 31, ~~2010~~2011.

This annual report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this annual report.

Changes in Controls and Procedures

There were no significant changes made in our internal controls over financial reporting during the ~~quarter~~year ended December 31, ~~2010~~2011, that have materially affected or are reasonably likely to materially affect these controls. Thus, no corrective actions with regard to significant deficiencies or material weaknesses were necessary.

Limitations on the Effectiveness of Internal Control

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

ITEM 9B. OTHER INFORMATION

On ~~January~~March 421, ~~2011~~2012, Biomoda issued an 8-K Item 5.02, Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers. On March 19, 2012, the Board of Directors of Biomoda, Inc. (the "Company") elected Timothy Peter Zannes as Vice-President. Please see full text on the www.sec.gov website.

On January 4, 2011, Biomoda issued an 8-K Item 5.02, Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers. Please see full text on the www.sec.gov website.

On December 29, 2010, the Board of Directors of Biomoda, Inc. (the “Company”) elected Maria Zannes to serve as Chief Executive Officer. Ms. Zannes has been a Director of Biomoda since May 1, 2008, and Chairman of the Board since July 27, 2010.

On February 25, 2011, Biomoda issued an 8-K/A to to correct the description of the amount of warrants issued from the 8-K filing on March 19, 2010.

49On July 25, 2011, Biomoda issued an 8-K Item 1.02 Termination of a Material Definitive Agreement. Please see full text on the www.sec.gov website. This 8-K refers to the fact that, the Purchasers had completed the conversion of the Convertible Notes into shares of common stock.

On August 22, 2011, Biomoda issued an 8-K Item 3.02 Unregistered Sales of Equity Securities, Item 3.03 Material Modification to Rights of Security Holders, Item 5.01 Changes in Control of Registrant, Item 5.03 Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year.

Please see full text on the www.sec.gov website. This 8-K refers to the establishment of a Series of Preferred Stock of the Company, and that 100 shares of preferred stock had been issued.

On September 16, 2011, Biomoda issued an 8-K Item 5.03 Amendment to Articles of Incorporation or Bylaws; Change in Fiscal Year, and Item 5.07 Submission of Matters to a Vote of Security Holders. This 8-K refers to the annual meeting of stockholders at which the Company’s stockholders approved all three proposals presented. Please see full text on the www.sec.gov website.

On September 28, 2011, Biomoda issued an S-1 Registration Statement to register up to 206,387,725 shares of our common stock, including 203,887,725 shares of common stock issuable upon exercise of outstanding common stock purchase warrants currently exercisable at $0.01 per share. This S-1 registration statement was declared effective on October 11, 2011.

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

The following sets forth information, as of December 31, ~~2010~~2011, concerning the Company’s directors and executive officers:

Name	Age	Position	Since
Maria Zannes	5556	Chairman, Chief Executive Officer, Director	July 2009
John J. Cousins	5455	President, Treasurer, Director, Chief Financial Officer and Controller	April 2002
David Lambros	5758	Director	May 2008
Lewis White	5859	Director	May 2008
Timothy Peter Zannes	5960	Corporate Secretary, Corporate Counsel	November 2007

The Company elects its ~~Board~~board of ~~Directors~~directors at meetings of shareholders, and directors hold office until the next meeting of shareholders following their election. In the event of a vacancy due to resignation, removal or death, the remaining duly elected ~~Directors~~directors may fill such vacancy until the next meeting of the shareholders. Officers of the Company are elected by the ~~Board~~board of ~~Directors~~directors which shall at a minimum elect a president, a secretary and a treasurer to hold office for one year and thereafter until their successors are elected. The ~~Board~~board of ~~Directors~~directors may, from time to time, by resolution, appoint one or more vice presidents, assistant secretaries, assistant treasurers and transfer agents of the Company as it may deem advisable, prescribe their duties; and fix their compensation.

Maria Zannes is Chief Executive Officer and Chairman of the ~~Board~~board of directors. Ms. Zannes has more than 30 years of management experience in business and industry. After serving as President of the Energy Recovery Council, a national waste-to-energy trade group in Washington, D.C., for 10 years, Ms. Zannes began a consulting practice for private clients in the medical, environmental and energy industries. She is a research associate with Columbia University Earth Engineering Center and co-founder of two research centers at Columbia. Ms. Zannes is a director and founder of American Homecoming Foundation, a non-profit organization directed at helping homeless veterans~~, and Standard Alcohol Company of America, an alternative energy company~~. Previously, she worked as General Manager for ECOS Corporation, a subsidiary of Burlington Environmental, and Project Manager for Wheelabrator Technologies, Inc., a subsidiary of Waste Management. Ms. Zannes began her career as a journalist before joining the office of Congressman Charles Wilson (D-Texas) as legislative aide and press secretary. Ms. Zannes is licensed to practice law in ~~Washington~~New ~~State~~Mexico and ~~New~~is ~~Mexico~~an inactive member of the Washington State Bar Association.

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Timothy Peter Zannes is ~~Corporate~~Vice ~~Secretary~~President and General Legal Counsel and Corporate Secretary. Mr. Zannes holds a law degree from the University of New Mexico, is a member in good standing of the New Mexico Bar and contributes 19 years experience as a lawyer.

Family Relationships

Maria Zannes and David Lambros are cousins. Timothy Peter Zannes, Corporate Secretary and General Legal Counsel, and Maria Zannes are siblings. David Lambros and Timothy Peter Zannes are cousins. ~~Aside~~ There ~~from that, there are~~ no other family relationships ~~that exist~~ among the directors, officers, or other persons nominated to become such.

Term of Officers

All executive officers are appointed by the board and hold office until the board appoints their successors.

Code of Ethics

For the year ended December 31, 2010, the Company completed and communicated to all employees its written values and ethical standards. Company management actively communicates values and ethical standards during Company-wide meetings. These standards are outlined in the human ~~resource~~resources manual completed in December 2010.

Audit Committee

Currently the ~~Board~~board of ~~Directors~~directors acts as the audit committee.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s directors and executive officers and persons who own more than ten percent of a registered class of the Company’s equity securities to file with the SEC initial reports of ownership and reports of changes in ownership of common stock and other equity securities of the Company. Officers, directors and greater -than -ten -percent shareholders are required by SEC regulations to furnish the Company with copies of all Sections 16(a) forms they file. To the Company’s knowledge, based solely on the review of copies of such reports furnished to the Company and written representations that no other reports were required and to the best of its knowledge, during the year ended December 31, ~~2010~~2011, the Company complied with all Section 16(a) filing requirements applicable to the Company’s officers, directors and greater than ten percent shareholders.

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Involvement in Legal Proceedings

To the best of the Company’s knowledge, during the past five years, none of the following occurred with respect to a present or former director or executive officer of the Company: (1) Any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; (2) Any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); (3) Being subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of any competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; and (4) Being found by a court of competent jurisdiction (in a civil action), the SEC or the Commodities Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.

In ~~January~~Biomoda, ~~2010~~Inc. v. Robins, ~~Biomoda~~U.S. ~~received~~Dist. ~~100~~Ct., D.N.M., No. CIV 07-0855 JB/GBW, the Court entered its Amended Final Judgment on March 16, 2011, for $35,000, ~~restricted~~with post-judgment interest, in favor of Biomoda ~~shares~~and against Alvin D. Robins. No appeal from ~~Seacoast~~the ~~Advisors~~Amended Final Judgment has been filed, ~~LLC as~~and ~~part~~the ofdeadline anfor ~~arbitration~~doing ~~decision~~so has passed. The judgment is therefore final and no longer reviewable on appeal.

As the result of a federal lawsuit entitled Advanced Optics Electronics, Inc., et al. v. Leslie S. Robins, et al. No. CIV-2007-00855, JB/DJS, U.S. District Court for the District of New Mexico and two related suits, Biomoda won default judgments against two Defendants, Alvin Robins and John Kearns, on all counts alleged and in favor of Biomoda. Biomoda submitted a final statement of damages to the Court in November 2009. Defendant Alvin Robins failed to appear at a hearing on August 4, 2010, and the Court allowed Biomoda's counsel to proceed with oral argument on the motion for a damages amount to be awarded to Biomoda. At a hearing on October 6, 2010, Mr. Robins again failed to appear. On November 12, 2010, the Court held a hearing in the matter of Biomoda’s motion for summary judgment for default damages. Mr. Robins appeared and was given opportunity to argue only to the merits of the amount of the damages claimed by Biomoda. On December 15, 2010, Judge James O. Browning ruled that Biomoda was entitled to $35,000 in damages from Mr. Robins. Biomoda subsequently filed a motion with the Court to dismiss all claims against Mr. Robins with the exception of the $35,000 judgment already rendered. Mr. Robins has moved the Court to vacate the judgment for $35,000 rendered against him along with the 52-page ruling made by the Court. Defendant John Kearns is deceased. Biomoda has waived the right to pursue damages against Mr. Kearns' estate.

ITEM 11. EXECUTIVE COMPENSATION

The following table discloses the compensation earned for services rendered in all capacities by the Company’s executive officers for ~~2010~~2011 and ~~2009~~2010:

SUMMARY COMPENSATION TABLE

Name and Principal Position (a)	Year (b)	Salary (c)			Stock Awards (d)			Option Awards ($) (e)	Non-Equity Incentive Plan Compen-sation (f)	Changes in Pension Value and Nonqualified Deferred Compensation Earnings ($) (g)	All Other Compensation ($) (h)	Total (i)
John Cousins,
President, Director	~~2010~~2011		$	~~170~~34,~~592~~013		$	~~134~~63						$	~~170~~34,~~726~~076
	2009		$	97,392		$	0						$	97,392
	2010		$	170,592		$	133						$	170,726
Maria Zannes,
Chairman and CEO	~~2010~~2011		$	017,033		$	~~133~~63						$	~~133~~17,096
	2010		$	0		$	133						$	133
Timothy Peter Zannes,
Corporate Secretary	~~2010~~2011		$	~~129~~21,~~292~~635		$	~~759~~0						$	~~130~~21,~~051~~635
	2010		$	129,292		$	759						$	130,051
Verrity Gershin*
	2010		$	78,750		$	108						$	78,858
	2009		$	53,025		$	0						$	53,025

*Verrity Gershin was the former Corporate Secretary of Biomoda and now is the Office Manager.

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OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END ~~2010~~2011

No options were awarded in ~~2010~~2011.

LONG-TERM COMPENSATION PLANS

As of December 31, ~~2010~~2011, there are no long-term incentive or retirement plans.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth certain information concerning the ownership of the Company’s common stock as of December 31, ~~2010~~2011, with respect to: (i) each person known to the Company to be the beneficial owner of more than five percent of the Company’s common stock; (ii) all directors; and (iii) directors and executive officers of the Company as a group. The notes accompanying the information in the table below are necessary for a complete understanding of the figures provided below. As of December 31, ~~2010~~2011, there were 79130,~~514~~314,~~589~~361 shares of common stock issued and outstanding.

Title of Class	Name and Address	Nature of Beneficial Ownership	Amount of Beneficial Ownership		Percent of class
Common Stock (no par value)	John Cousins (Director / Exec Officer) ~~P.O.~~609 ~~Box~~Broadway ~~11342~~NE, Albuquerque, New Mexico, ~~87192~~87102	Direct		2,~~835~~860,000	2.19	~~3.05~~%	%
Common Stock (no par value)	Lewis White ~~P.O.~~(Director) ~~Box~~609 ~~11342~~Broadway NE, Albuquerque, New Mexico, ~~87192~~87102	Direct		3,~~946~~971,000	3.05	~~4.25~~%	%
Common Stock (no par value)	Maria Zannes (Director / Exec Officer) ~~P.O.~~609 ~~Box~~Broadway ~~11342~~NE, Albuquerque, New Mexico, ~~87192~~87102	Direct		~~683~~708,000	.54	~~.73~~%	%
Common Stock (no par value)	David Lambros (Director) ~~P.O.~~609 ~~Box~~Broadway ~~11342~~NE, Albuquerque, New Mexico, ~~87192~~87102	Direct		~~600~~625,000	.48	~~.65~~%	%
Common Stock (no par value)	Timothy Peter Zannes (Exec Officer/ Corporate Secretary) ~~P.O.~~609 ~~Box~~Broadway ~~11342~~NE Albuquerque, New Mexico, ~~87192~~87102	Direct		600,200	.46	~~.65~~%	%
Common Stock (no par value)	All Directors and Officers as a group	Direct		8,~~664~~764,200	6.73	~~9.32~~%	%

There are no agreements, contracts or arrangements that the Company is part of or knows about that would result in a change of control of the Company.

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STOCK OPTIONS

Date	Name	Options Outstanding		Percent of Options Outstanding			Price		Expiration
12/1/03	Herbert Whitaker		75,000		68.95	%	$	2.99	12/1/13
9/1/05	Stuart Ferguson		33,768		31.05	%	$	0.90	9/1/15
			108,768		100	%

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

As of December 31, ~~2010~~2011, the Company had advances of approximately $~~229~~242,000 payable to two of its stockholders. Such advances bore interest at 10% per annum and are due on demand. Management and the Board of Directors are reevaluating the current market trends and terms and expect to reduce such interest rate in ~~2010~~2011. The advances are all due on demand. Interest expense related to such advances for the years ended December 31, ~~2010~~2011 and ~~2009~~2010, and for the period from inception through December 31, ~~2010~~2011, was approximately $13,000, $13,000 and $94107,000, respectively.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

Audit Fees

The aggregate fees billed by GBH CPAs, PC for professional services rendered in connection with the audit of our annual consolidated financial statements for the fiscal years ended December 31, ~~2010~~2011 and ~~2009~~2010, were approximately $5047,~~850~~650 and $3850,~~300~~850, respectively.

Audit-Related Fees

Our auditors ~~did~~aggregate ~~not bill any additional~~ fees for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements were $8,225.

Tax Fees

Our accountants did not bill any fees for tax compliance, tax advice, and tax planning for the fiscal years ended December 31, ~~2010~~2011 and ~~2009~~2010.

All Other Fees

The aggregate fees billed by our auditors for all other non-audit services, such as attending meetings and other miscellaneous financial consulting, for the fiscal years ended December 31, ~~2010~~2011 and ~~2009~~2010, were $0 and $0 respectively.

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PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

Exhibits
3.1	Articles of Incorporation	Incorporated by reference to Exhibit 1 on Form SB-2 filed 6/18/02
3.2	By-Laws	Incorporated by reference to Exhibit 2 on Form SB-2 filed 6/18/02
31.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 filed herein.	Filed Herewith
31.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 filed herein.	Filed Herewith
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 filed herein.	Filed Herewith
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 filed herein.	Filed Herewith

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SIGNATURES

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

	BIOMODA, INC.
Dated: March 15, 2011	By:
Dated: April 19, 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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Filing Compare · BIOMODA INC/NM