UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington, D. C.
20549
  FORM 10-Q
 
 QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
 SECURITIES
EXCHANGE ACT OF 1934
  For
Quarter Ended June 30, 2010
  Commission
File Number 000-51809
 
 BIOELECTRONICS
CORPORATION
 
 (Exact
name of registrant as specified in its charter)
 
 Maryland
                
                52-2278149(State
      or other jurisdiction of
                  incorporation
      or organization)
                
                (I.R.S.
      employer
                  identification
      number)
 
 4539
Metropolitan Court
 Frederick,
Maryland 21704
 (Address
of principal executive offices and zip code)
 
 Phone:  301.874.4890
 Fax:  301.874.6935
 (Registrant’s
telephone number, including area code)
  Indicate
by check mark whether the registrant: (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such returns), (2) has been subject to such filing
requirements for the past 90 days. YES o NO þ
  Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). YES o NO o
  Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
definitions of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check
one)
 
 Large
      accelerated filer o
                  
                  Accelerated
      filer o
                  
                  Non-accelerated
      filer o
                  
                  Smaller
      Reporting
                    Company
      þ
  Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). YES o NO þ
  Number of
shares of common stock, issued and outstanding as of August 16, 2010 is
1,474,198,871.
  
  BIOELECTRONICS
CORPORATION
 FORM
10-Q
 
 TABLE
OF CONTENTS
 
 PART
      IItem
      1.
                Condensed
      Financial Statements
                3Item
      2.
                Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operation
                19Item
      3.
                Quantitative
      and Qualitative Disclosures About Market Risk
                28Item
      4T.
                Controls
      and Procedures
                29PART
      IIItem
      1.
                Legal
      Proceedings
                32Item
      1A.
                Risk
      Factors
                32Item
      2.
                Unregistered
      Sales of Equity Securities and Use of Proceeds
                32Item
      3.
                Defaults
      Upon Senior Securities
                32Item
      4.
                (Removed
      and Reserved)
                33Item
      5.
                Other
      Information
                33Item
      6.
                Exhibits
                33Signatures
                34
  2
  PART I – FINANCIAL
INFORMATION
  Item 1. Financial
Statements.
 
 BioElectronics
Corporation (A Development Stage Company)
 Condensed
Balance Sheets
 
 June 30,
                          
                          
                          December 31,2010
                          
                          
                          2009(Unaudited)AssetsCurrent
      assets:Cash
      and cash equivalents
                          
                          $
                          136,684
                          
                          
                          $
                          296,352Trade
      and other receivables, net
                          
                          
                          212,279
                          
                          
                          
                          402,003Trade
      receivable assigned to related party
                          
                          
                          353,995
                          
                          
                          
                          -Trade
      receivable from related parties
                          
                          
                          10,594
                          
                          
                          
                          165,297Inventory
                          
                          
                          670,301
                          
                          
                          
                          201,359Prepaid
      expenses and others
                          
                          
                          75,883
                          
                          
                          
                          102,635Total
      current assets
                          
                          
                          1,459,736
                          
                          
                          
                          1,167,646Property
      and equipment
                          
                          
                          119,251
                          
                          
                          
                          93,502Less:
      Accumulated depreciation
                          
                          
                          (87,921
                          )
                          
                          
                          (79,921
                          )Property
      and equipment, net
                          
                          
                          31,330
                          
                          
                          
                          13,581Total
      assets
                          
                          $
                          1,491,066
                          
                          
                          $
                          1,181,227Liabilities
      and stockholders' deficiencyCurrent
      liabilities:Accounts
      payable
                          
                          $
                          253,431
                          
                          
                          $
                          85,661Accrued
      expenses
                          
                          
                          20,926
                          
                          
                          
                          43,241Notes
      payable
                          
                          
                          12,925
                          
                          
                          
                          12,654Financing
      of receivables with related party
                          
                          
                          44,190
                          
                          
                          
                          -Total
      current liabilities
                          
                          
                          331,472
                          
                          
                          
                          141,556Long-term
      liabilities:Related
      party notes payable
                          
                          
                          2,800,257
                          
                          
                          
                          1,824,176Total
      liabilities
                          
                          
                          3,131,729
                          
                          
                          
                          1,965,732Commitments
      and contingenciesStockholders'
      deficiency:Common
      stock, par value $0.001 per share, 1,500,000,000 shares authorized at June
      30, 2010 and December 31, 2009 and 1,474,198,871 and 1,470,998,871 shares
      issued and outstanding at June 30, 2010 and December 31, 2009,
      respectively
                          
                          
                          1,474,199
                          
                          
                          
                          1,470,999Additional
      paid-in capital
                          
                          
                          8,536,454
                          
                          
                          
                          8,408,986Deficit
      accumulated during the development stage
                          
                          
                          (11,651,316
                          )
                          
                          
                          (10,664,490
                          )Total
      stockholders' deficiency
                          
                          
                          (1,640,663
                          )
                          
                          
                          (784,505
                          )Total
      liabilities and stockholders' deficiency
                          
                          $
                          1,491,066
                          
                          
                          $
                          1,181,227
 
 The
accompanying notes are an integral part of these condensed financial
statements.
  3
  BioElectronics
Corporation (A Development Stage Company)
 Condensed
Statements of Operations
 (Unaudited)
  For
      the three months ended June 30,
                                
                                
                                For
      the six months ended June 30,
                                
                                
                                Period
      from April
                                  10,
      2000
                                  (Inception)
      to June2010
                                
                                
                                2009
                                
                                
                                2010
                                
                                
                                2009
                                
                                
                                30,
      2010Sales
                                
                                $
                                331,479
                                
                                
                                $
                                221,875
                                
                                
                                $
                                613,246
                                
                                
                                $
                                516,456
                                
                                
                                $
                                4,064,830Cost
      of Goods Sold
                                
                                
                                125,581
                                
                                
                                
                                82,198
                                
                                
                                
                                246,644
                                
                                
                                
                                158,081
                                
                                
                                
                                1,761,137Gross
      profit
                                
                                
                                205,898
                                
                                
                                
                                139,677
                                
                                
                                
                                366,602
                                
                                
                                
                                358,375
                                
                                
                                
                                2,303,693General
      and Administrative Expenses:Depreciation
      and Amortization
                                
                                
                                13,265
                                
                                
                                
                                3,645
                                
                                
                                
                                20,036
                                
                                
                                
                                7,290
                                
                                
                                
                                116,749Investor
      Relations Expenses
                                
                                
                                8,712
                                
                                
                                
                                6,195
                                
                                
                                
                                54,611
                                
                                
                                
                                11,585
                                
                                
                                
                                1,649,172Legal
      and Accounting Expenses
                                
                                
                                168,655
                                
                                
                                
                                50,632
                                
                                
                                
                                369,590
                                
                                
                                
                                69,330
                                
                                
                                
                                1,152,643Sales
      Support Expenses
                                
                                
                                79,933
                                
                                
                                
                                16,220
                                
                                
                                
                                151,700
                                
                                
                                
                                110,013
                                
                                
                                
                                1,579,630Other
      General and Administrative Expenses
                                
                                
                                381,881
                                
                                
                                
                                109,965
                                
                                
                                
                                682,457
                                
                                
                                
                                248,831
                                
                                
                                
                                7,868,589Total
      General and Administrative Expenses
                                
                                
                                652,446
                                
                                
                                
                                186,657
                                
                                
                                
                                1,278,394
                                
                                
                                
                                447,049
                                
                                
                                
                                12,366,783Loss
      from Operations
                                
                                
                                (446,548
                                )
                                
                                
                                (46,980
                                )
                                
                                
                                (911,792
                                )
                                
                                
                                (88,674
                                )
                                
                                
                                (10,063,090
                                )Interest
      Expense and Other:Interest
      Expense
                                
                                
                                (39,945
                                )
                                
                                
                                (20,943
                                )
                                
                                
                                (69,343
                                )
                                
                                
                                (40,741
                                )
                                
                                
                                (1,546,683
                                )Loss
      on Disposal of Assets
                                
                                
                                (5,691
                                )
                                
                                
                                -
                                
                                
                                
                                (5,691
                                )
                                
                                
                                -
                                
                                
                                
                                (41,543
                                )Total
      Interest Expense and Other
                                
                                
                                (45,636
                                )
                                
                                
                                (20,943
                                )
                                
                                
                                (75,034
                                )
                                
                                
                                (40,741
                                )
                                
                                
                                (1,588,226
                                )Loss
      Before Income Taxes
                                
                                
                                (492,184
                                )
                                
                                
                                (67,923
                                )
                                
                                
                                (986,826
                                )
                                
                                
                                (129,415
                                )
                                
                                
                                (11,651,316
                                )Provision
      for Income Tax Expense
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -Net
      loss
                                
                                $
                                (492,184
                                )
                                
                                $
                                (67,923
                                )
                                
                                $
                                (986,826
                                )
                                
                                $
                                (129,415
                                )
                                
                                $
                                (11,651,316
                                )Net
      loss Per Share - Basic and Diluted
                                
                                $
                                (0.00
                                )
                                
                                $
                                (0.00
                                )
                                
                                $
                                (0.00
                                )
                                
                                $
                                (0.00
                                )
                                
                                
                                N/AWeighted
      Average Number of Shares Outstanding -Basic and Diluted
                                
                                
                                1,473,465,538
                                
                                
                                
                                734,726,974
                                
                                
                                
                                1,472,398,871
                                
                                
                                
                                567,727,334
                                
                                
                                
                                N/A
  The
accompanying notes are an integral part of these condensed financial
statements.
  4
  BioElectronics
Corporation (A Development Stage Company)
 Condensed
Statements of Cash Flows
 (Unaudited)
 
 Period fromApril 10, 2000For the six months ended June30,
                                      
                                      
                                      (Inception) to June2010
                                      
                                      
                                      2009
                                      
                                      
                                      30,
      2010Cash
      flows from Operating Activities:Net
      loss
                                      
                                      $
                                      (986,826
                                      )
                                      
                                      $
                                      (129,415
                                      )
                                      
                                      $
                                      (11,651,316
                                      )Adjustment
      to Reconcile Net Loss toNet
      Cash Used In Operating Activities:Depreciation
      and amortization
                                      
                                      
                                      19,400
                                      
                                      
                                      
                                      7,290
                                      
                                      
                                      
                                      117,684Provision
      for bad debts
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      58,255Amortization
      of non-case debt issuance costs
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      725,373Non-cash
      expenses
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (18,989
                                      )
                                      
                                      
                                      1,455,978Stock-based
      employee compensation expense
                                      
                                      
                                      123,468
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      161,409Non-cash
      interest related to notes payable
                                      
                                      
                                      -
                                      
                                      
                                      
                                      5,018
                                      
                                      
                                      
                                      592,418Non-cash
      interest related to related party notes payable
                                      
                                      
                                      65,285
                                      
                                      
                                      
                                      29,712
                                      
                                      
                                      
                                      152,988Adjustment
      of related party notes payable
                                      
                                      
                                      -
                                      
                                      
                                      
                                      139,100
                                      
                                      
                                      
                                      (266,490
                                      )Amortization
      of loan costs
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      129,852Increase
      in related party notes payable for services rendered
                                      
                                      
                                      95,796
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      658,572Loss
      on disposal of property and equipment
                                      
                                      
                                      5,691
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      41,543Changes
      in Assets and Liabilities(Increase)
      Decrease in:Trade
      and other receivables
                                      
                                      
                                      189,724
                                      
                                      
                                      
                                      (153,733
                                      )
                                      
                                      
                                      (435,829
                                      )Trade
      receivables assigned to related party
                                      
                                      
                                      (353,995
                                      )
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (353,995
                                      )Inventory
                                      
                                      
                                      (468,942
                                      )
                                      
                                      
                                      (77,649
                                      )
                                      
                                      
                                      (670,301
                                      )Trade
      receivable from related parties
                                      
                                      
                                      154,703
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      154,703Prepaid
      expenses and others
                                      
                                      
                                      28,277
                                      
                                      
                                      
                                      (19,994
                                      )
                                      
                                      
                                      (61,703
                                      )Increase
      (Decrease) in:Accounts
      payable
                                      
                                      
                                      167,770
                                      
                                      
                                      
                                      (87,298
                                      )
                                      
                                      
                                      393,679Accrued
      expenses
                                      
                                      
                                      (15,115
                                      )
                                      
                                      
                                      (9,003
                                      )
                                      
                                      
                                      236,568Customer
      deposits
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (119,398
                                      )
                                      
                                      
                                      -Net
      cash used in operating activities
                                      
                                      
                                      (974,764
                                      )
                                      
                                      
                                      (434,359
                                      )
                                      
                                      
                                      (8,560,612
                                      )Cash
      flows from Investing ActivitiesAcquisition
      of property no acquisition of property and equipment
                                      
                                      
                                      (31,440
                                      )
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (160,169
                                      )Net
      cash Used in Investing Activities
                                      
                                      
                                      (31,440
                                      )
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (160,169
                                      )Cash
      flows from Financing ActivitiesProceeds
      from note payable, net of loan costs of $10,000
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      1,090,148Payments
      on note payable
                                      
                                      
                                      (12,654
                                      )
                                      
                                      
                                      (62,000
                                      )
                                      
                                      
                                      (540,873
                                      )Proceeds
      from related party notes payable
                                      
                                      
                                      815,000
                                      
                                      
                                      
                                      282,015
                                      
                                      
                                      
                                      5,619,953Proceeds
      from financing of receivables with related party
                                      
                                      
                                      85,610
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      85,610Payments
      on related party notes payable
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (8,600
                                      )
                                      
                                      
                                      (969,803
                                      )Payments
      for financing of receivables with related party
                                      
                                      
                                      (41,420
                                      )
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (41,420
                                      )Proceeds
      from issuance of common stock
                                      
                                      
                                      -
                                      
                                      
                                      
                                      190,200
                                      
                                      
                                      
                                      3,623,837Other
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (9,987
                                      )Net
      cash provided by financing activities
                                      
                                      
                                      846,536
                                      
                                      
                                      
                                      401,615
                                      
                                      
                                      
                                      8,857,465Net
      increase (Decrease) in cash
                                      
                                      
                                      (159,668
                                      )
                                      
                                      
                                      (32,744
                                      )
                                      
                                      
                                      136,684Cash-
      Beginning of Period
                                      
                                      
                                      296,352
                                      
                                      
                                      
                                      55,278
                                      
                                      
                                      
                                      -Cash-
      End of Period
                                      
                                      $
                                      136,684
                                      
                                      
                                      $
                                      22,534
                                      
                                      
                                      $
                                      136,684Supplemental
      Disclosures of Cash Flow Information:Cash
      paid during the periods for:Interest
                                      
                                      $
                                      4,054
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      70,686Supplemental
      Schedule of Non-Cash Investing and Financing Activities:Conversion
      of debt and accrued interest into common stock
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      576,747
                                      
                                      
                                      $
                                      3,309,625Issuance
      of common stock from accrued expense
                                      
                                      $
                                      7,200
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      7,200Conversion
      of warrants into common stock
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      5,336Prepaid
      insurance expense through issuance of notes
                                      
                                      $
                                      12,925
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      25,579Equipment
      purchases financed through capital leases and notes
payable
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      9,986
  The
accompanying notes are an integral part of these condensed financial
statements.
  5
 
 BioElectronics
Corporation (A Development Stage Company)
 Notes to
Condensed Financial Statements
 (Unaudited)
 
 NOTE
1 - BASIS OF PRESENTATION
 
 The
unaudited condensed financial statements included herein have been prepared by
BioElectronics Corporation (the “Company”, “we” or “us”), a Maryland corporation
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. The financial statements reflect all adjustments that are,
in the opinion of management, necessary to fairly state such
information.  All such adjustments are of a normal recurring
nature.  Although the Company believes that the disclosures are
adequate to make the information presented not misleading, certain information
and footnote disclosures, including a description of significant accounting
policies normally included in financial statements prepared in accordance with
accounting principles generally accepted in the United States of America, have
been condensed or omitted pursuant to such rules and regulations.
 
 The
year-end condensed balance sheet data were derived from audited financial
statements but do not include all disclosures required by accounting principles
generally accepted in the United States of America. Certain reclassifications
were made to the prior year financial statement amounts to conform to current
year presentation.  These financial statements should be read in
conjunction with the audited financial statements and accompanying notes
included in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2009, as filed with the SEC on March 31, 2010.
 
 The
independent registered public accounting firm’s report on the financial
statements for the fiscal year ended December 31, 2009 states that because of
recurring substantial losses from operations and a deficit accumulated during
the development stage, there is substantial doubt about the Company’s ability to
continue as a going concern.  A “going concern” opinion indicates that
the financial statements have been prepared assuming the Company will continue
as a going concern and do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the outcome of this
uncertainty.
 
 The
Company is a voluntary filer of reports with the SEC and does not have an
effective registration statement with respect to its securities.  As a
result, the Company may cease to file its Exchange Act reports at any time and
for any reason without notice.
  6
  BioElectronics
Corporation (A Development Stage Company)
 Notes to
Condensed Financial Statements
 (Unaudited)
 
 NOTE  2
– SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 DEVELOPMENT
STAGE COMPANY
 
 As
defined by ASC Topic 915, “Development Stage Entities” (formerly SFAS 7,
“Accounting and Reposting by Development Stage Enterprises”), the Company is
devoting substantially all of its present efforts to developing its
business.  Additionally, the Company has not yet commenced one of its
planned principal activities, the sales of products in the U.S. retail
market.  All losses accumulated since inception have been considered
as part of the Company’s development stage activities.  Costs of
start-up activities, including organizational costs, are expensed as
incurred.
 
 TRADE
RECEIVABLES
 
 The
Company maintains reserves on customer accounts where estimated losses may
result from the inability of its customers to make required
payments.  These reserves are determined based on a number of factors,
including the current financial condition of specific customers, the age of
trade and other receivable balances and historical loss rate.  The
allowance for doubtful accounts was $33,791 at both June 30, 2010 and December
31, 2009.  Bad debt expense for the six months ended June 30, 2010 and
June 30, 2009 were both $0.  For both the three months ended June 30,
2010 and June 30, 2009, bad debt expense was $0.
 
 ADVERTISING
COSTS
 
 The
Company expenses the costs associated with advertising as
incurred.  Costs incurred to fund the production of advertisements are
reported as a prepaid expense if the related advertisement has not yet been
broadcast.   Prepaid advertising cost incurred to fund the production
of infomercials was $38,324 and $34,014 at June 30, 2010 and December 31, 2009,
respectively.  During the six months ended June 30, 2010, $11,400 of
infomercial costs were amortized.  Amortization costs for the six
months ended June 30, 2009 were $0.  For both the three months ended
June 30, 2010 and June 30, 2009, amortization costs were $0.
 
 ISSUANCE
OF STOCK FOR NON-CASH CONSIDERATION
 
 All
issuances of the Company’s stock for non-cash consideration are assigned a per
share amount based on either the market value of the shares issued or the value
of consideration received, whichever is more readily
determinable.  The majority of the non-cash consideration pertains to
services rendered by consultants and others.  The fair value of the
services received was used to record the related expense and value attributed to
the shares issued.   On March 18, 2010, the Company issued
1,000,000 common shares, and on May 21, 2010, the Company issued 2,200,000
common shares to consultants in respect of services provided in the year ended
December 31, 2009.   The shares were valued at $0.00225 per share
(or $7,200 in aggregate) and were issued as payment of an accrued liability
recorded in the Company’s balance sheet as of June 30, 2010.
 
  7
  BioElectronics
Corporation (A Development Stage Company)
 Notes to
Condensed Financial Statements
 (Unaudited)
 
 NOTE  2
– SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
 RECENT
ACCOUNTING PRONOUNCEMENTS
 
 Recently
Adopted Accounting Pronouncements
 
 In
January 2010, the Financial Accounting Standards Board (“FASB”) issued
Accounting Standards Update (“ASU”) 2010-06, “Fair Value Measurements and
Disclosures,” which amends the disclosure requirements related to
recurring and nonrecurring fair value measurements.  The guidance requires
disclosure of transfers of assets and liabilities between Level 1 and Level 2 of
the fair value measurement hierarchy, including the reasons and the timing of
the transfers and information on purchases, sales, issuance, and settlements on
a gross basis in the reconciliation of the assets and liabilities measured under
Level 3 of the fair value measurement hierarchy. The guidance is effective for
annual and interim reporting periods beginning after December 15, 2009,
except for Level 3 reconciliation disclosures which are effective for annual and
interim periods beginning after December 15, 2010. The Company adopted
these amendments in the first quarter of 2010 and the adoption did not have a
material impact on the disclosures in the Company’s financial
statements.
 
 In
June 2009, the FASB issued ASU 2009-17, Improvements to Financial Reporting
by Enterprises Involved with Variable Interest Entities, which changes
various aspects of accounting for and disclosures of interests in variable
interest entities. ASU 2009-17 is effective for interim and annual periods
beginning after November 15, 2009. The Company adopted these amendments in
the first quarter of 2010 and the adoption did not have a material impact on the
Company’s financial statements.
 
 In June
2009, the Financial Accounting Standards Board ("FASB") issued authoritative
guidance on accounting for transfers of financial assets.  This guidance
was issued to improve the relevance, representational faithfulness, and
comparability of the information that a reporting entity provides in its
financial statements about a transfer of financial assets; the effects of a
transfer on its financial position, financial performance, and cash flows; and a
transferor's continuing involvement, if any, in transferred financial assets.
 This guidance is effective for fiscal years and interim periods beginning
after November 15, 2009.  The adoption of this statement did not have a
material effect on the Company's financial statements.
 
 Recently
Issued Accounting Pronouncements Not Yet Adopted
 
 In July
2010, the Financial Accounting Standards Board (“FASB”) issued new accounting
guidance that will require additional disclosures about the credit quality of
loans, lease receivables and other long-term receivables and the related
allowance for credit losses. Certain additional disclosures in this new
accounting guidance will be effective for the Company on December 31,
2010 with certain other additional disclosures that will be effective on
March 31, 2011. The Company does not expect the adoption of this new
accounting guidance to have a material impact on its financial
statements.
  8
  BioElectronics
Corporation (A Development Stage Company)
 Notes to
Condensed Financial Statements
 (Unaudited)
 
 NOTE  2
– SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
 In April
2010, the FASB issued ASU 2010-13, “Compensation — Stock Compensation (Topic
718) — Effect of Denominating the Exercise Price of a Share-Based Payment Award
in the Currency of the Market in Which the Underlying Equity Security Trades.”
ASU 2010-13 provides amendments to Topic 718 to clarify that an employee
share-based payment award with an exercise price denominated in the currency of
a market in which a substantial portion of the entity’s equity securities trades
should not be considered to contain a condition that is not a market,
performance, or service condition. Therefore, an entity would not classify such
an award as a liability if it otherwise qualifies as equity. The amendments in
ASU 2010-13 are effective for fiscal years, and interim periods within those
fiscal years, beginning on or after December 15, 2010 and are not expected
to have a significant impact on the Company’s financial statements.
 
 In March
2010, the FASB issued ASU No. 2010-11, “Derivatives and Hedging (Topic 815)
— Scope Exception Related to Embedded Credit Derivatives.”  ASU
2010-11 clarifies that the only form of an embedded credit derivative that is
exempt from embedded derivative bifurcation requirements are those that relate
to the subordination of one financial instrument to another. As a result,
entities that have contracts containing an embedded credit derivative feature in
a form other than such subordination may need to separately account for the
embedded credit derivative feature. The provisions of ASU 2010-11 will be
effective on July 1, 2010 and are not expected to have a significant impact on
the Company’s financial statements.
 
 In
October 2009, the FASB issued ASU No. 2009-14, “Software (Topic 985) —
Certain Revenue Arrangements That Include Software Elements (A Consensus of the
FASB Emerging Issues Task Force)”. ASU 2009-14 requires tangible products that
contain software and non-software elements that work together to deliver the
products essential functionality to be evaluated under the accounting standard
regarding multiple deliverable arrangements. This standard update is effective
January 1, 2011 and may be adopted prospectively for revenue arrangements
entered into or materially modified after the date of adoption or
retrospectively for all revenue arrangements for all periods presented. The
Company does not expect that this standard update will have a significant impact
on its financial statements.
  9
  BioElectronics
Corporation (A Development Stage Company)
 Notes to
Condensed Financial Statements
 (Unaudited)
 
 NOTE  2
– SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
 In
September 2009, the FASB issued certain amendments as codified in ASC Topic
605-25, “Revenue Recognition;
Multiple-Element Arrangements.”  These amendments provide
clarification on whether multiple deliverables exist, how the arrangement should
be separated, and the consideration allocated.  An entity is required to
allocate revenue in an arrangement using estimated selling prices of
deliverables in the absence of vendor-specific objective evidence or third-party
evidence of selling price. These amendments also eliminate the use of the
residual method and require an entity to allocate revenue using the relative
selling price method.  The amendments significantly expand the disclosure
requirements for multiple-deliverable revenue arrangements.  These
provisions are to be applied on a prospective basis for revenue arrangements
entered into or materially modified in fiscal years beginning on or after
June 15, 2010, with earlier application permitted.  The Company will
adopt the provisions of these amendments in its fiscal year 2011 and is
currently evaluating the impact of these amendments to its financial
statements.
 
 NOTE
3 – GOING CONCERN
 
 The
Company’s financial statements have been prepared on a going concern basis which
contemplates the realization of assets and the liquidation of liabilities in the
ordinary course of business.  The Company has incurred substantial
losses from operations.  The Company sustained a net loss of $986,826
for the six months ended June 30, 2010.  The Company projects that it
will require an additional $300,000 in working capital in the next 12
months.  Management has already loaned the Company $200,000 and is
committed to loan the additional $100,000.  Given a current ratio of
1:4, management assumes it can finance some additional growth with asset based
financing.  If sales increase as anticipated, the Company will seek
additional capital from new investors.  The Company has prepared a
financing proposal to discuss opportunities with potential investors or possible
strategic partners.  However, the Company can provide no assurance
that it will be able to obtain the financing it needs to continue its efforts
for market acceptance, U.S. FDA approval and to maintain operations and
alleviate doubt about its ability to continue as a going concern.
 
 NOTE
4 - INVENTORY
  The
components of inventory as of June 30, 2010 and December 31, 2009
are:
 
 June 30, 2010
                          
                          
                          December 31,
                            2009Raw
      materials
                          
                          $
                          136,469
                          
                          
                          $
                          27,900Finished
      goods
                          
                          
                          533,832
                          
                          
                          
                          173,459$
                          670,301
                          
                          
                          $
                          201,359
  10
  BioElectronics
Corporation (A Development Stage Company)
 Notes to
Condensed Financial Statements
 (Unaudited)
 
 NOTE
5 – PROPERTY AND EQUIPMENT
 
 Property
and equipment consists of the following at June 30, 2010 and December 31,
2009:
 
 December 31,June 30, 2010
                      
                      
                      2009Machinery
      & Equipment
                      
                      $
                      112,369
                      
                      
                      $
                      86,620Leasehold
      improvements
                      
                      
                      6,882
                      
                      
                      
                      6,882119,251
                      
                      
                      
                      93,502Less:
      accumulated depreciation
                      
                      
                      (87,921
                      )
                      
                      
                      (79,921
                      )Total
      property and equipment, net
                      
                      $
                      31,330
                      
                      
                      $
                      13,581
 
 Depreciation
expense on property and equipment amounted to $8,636 and $7,290 for the six
months ended June 30, 2010 and June 30, 2009, respectively.  For the
three months ended June 30, 2010 and June 30, 2009, the depreciation expense
amounted to $3,684 and $3,645, respectively.
 
 NOTE
6 – INSURANCE PREMIUM FINANCING
 
 During
2009, the Company entered into an insurance premium financing agreement with an
independent company to purchase insurance policies for directors’ and officers’
liability, general liability and product liability.  The annual
interest rate was 6.26%.  The remaining balance of the amount financed
was $12,654 as of December 31, 2009, and payments of $12,654 were made during
the six months ended June 30, 2010.  The interest expense for this
note was $100 for the three and six months ended June 30, 2010.
 
 On June
22, 2010, the Company entered into a new insurance premium financing agreement
with an independent company to purchase insurance policies for directors’ and
officers’ liability to replace a portion of the policy described
above.  The annual interest rate is 5.51%, the amount financed is
$12,925 and the first payment is due July 22, 2010.
 
 NOTE
7 – FINANCING OF RECEIVABLES WITH RELATED PARTY
 
 The
Company entered into an agreement (the “Agreement”) on March 5, 2010, with
Jarenz LLC (“Jarenz”), a related party, pursuant to which Jarenz is providing
accounts receivable financing and collection services to the
company.
 
 The
Agreement provides for the Company to assign certain accounts receivable
balances to Jarenz in exchange for a Cash Advance Amount of up to 80% of the
face value of the receivables transferred; such amount determined upon
discussions between the parties.    Following collection of
the related receivable, Jarenz pays the balance thereof to BioElectronics minus
the initial down payment and a discount fee earned by Jarenz.
 
  11
  BioElectronics
Corporation (A Development Stage Company)
 Notes to
Condensed Financial Statements
 (Unaudited)
 
 NOTE
7 – FINANCING OF RECEIVABLES WITH RELATED PARTY (CONTINUED)
 
 Jarenz’s
discount fee is a percentage, between 1% to 9.5%, of the Cash Advance Amount
based upon the number of days elapsing between the date of purchase by Jarenz
and the date of collection of the related accounts receivable.
 
 The
Company accounts for transactions under the Agreement as secured borrowings
since the Company has not surrendered control of the transferred accounts
receivable to Jarenz under the Agreement.  The Company reports the
proceeds received from Jarenz as a current liability.   The
discount fee and any subsequent interest payments are recorded as interest
expense in the Statement of Operations.  The accounts receivable
balance at June 30, 2010 includes receivables amounting to $353,995 which have
been assigned to Jarenz under the Agreement.
 
 As at
June 30, 2010, Jarenz received $423 from the assigned receivables which was not
yet forwarded to the Company.  Interest expense of $3,954 was recorded
for the six months ended June 30, 2010, and interest expense of $3,681 was
recorded for the three months ended June 30, 2010.   Jarenz is a
limited liability company, whose owner is the daughter of the President of the
Company.
 
 NOTE
8 – RELATED PARTY NOTES PAYABLE
 
 On
January 1, 2005, the Company entered into an unsecured revolving convertible
promissory note agreement (“the Revolver”) with IBEX, LLC (“IBEX”) a related
party, for a maximum limit of $2,000,000, with interest at the Prime Rate plus
2% (5.25% for the six months ended June 30, 2010), and all accrued interest and
principal due on or before January 1, 2015, whether by the payment of cash or by
conversion, at the option of the holder, into shares of the Company’s common
stock. A copy of
the Revolver is attached here to as Exhibit 99. The
Revolver is convertible at various fixed conversion prices based on the
Volume-Weighted Average Price (“VWAP”) for the 10 trading days preceding the
date of note, which approximated the fair value of the Company’s stock at the
date of conversion.  IBEX, LLC is a limited liability company, whose
President is the daughter of the President of the Company.  The
balance of the Revolver was $1,321,702 as at June 30, 2010.
 
  12
  BioElectronics
Corporation (A Development Stage Company)
 Notes to
Condensed Financial Statements
 (Unaudited)
 
 NOTE
8 – RELATED PARTY NOTES PAYABLE (CONTINUED)
 
 In
addition to the Revolver as described above, the Company has entered into the
following convertible promissory note agreements with related
parties:
 
 Principal
                              
                              
                              
                              
                              
                              ConversionDate Issued
                              
                              Amount
                              
                              Due Date
                              
                              Lender
                              
                              PriceAugust
      1, 2009
                              
                              $
                              519,920
                              
                              August
      31, 2011
                              
                              IBEX,
      LLC
                              
                              $
                              0.019February
      9, 2010
                              
                              
                              135,000
                              
                              February
      2, 2012
                              
                              IBEX,
      LLC
                              
                              $
                              0.01March
      31, 2010
                              
                              
                              310,000
                              
                              March
      31, 2012
                              
                              IBEX,
      LLC
                              
                              $
                              0.01April
      15, 2010
                              
                              
                              20,000
                              
                              April
      30, 2012
                              
                              IBEX,
      LLC
                              
                              $
                              0.01May
      5, 2010
                              
                              
                              120,000
                              
                              May
      31, 2012
                              
                              IBEX,
      LLC
                              
                              $
                              0.01May
      14, 2010
                              
                              
                              100,000
                              
                              May
      31, 2012
                              
                              IBEX,
      LLC
                              
                              $
                              0.01June
      22, 2010
                              
                              
                              130,000
                              
                              June
      30, 2012
                              
                              IBEX,
      LLC
                              
                              $
                              0.01June
      30, 2010
                              
                              $
                              95,795
                              
                              June
      30, 2012
                              
                              St.
      Johns, LLC
                              
                              $
                              0.01
 
 Each of
the above promissory notes bears simple interest at 8% per annum, and all
accrued interest and principal is due on the maturity date.  Copies
of notes are attached here to as Exhibit 99. At the
option of the holder, the promissory notes are convertible into common shares of
the Company’s stock at a conversion rate equal to the quotient of (i) a sum
equal to the entire outstanding principal and interest, divided by (ii) the
conversion price indicated in the table above.  According to the
Security Agreements dated August 1, 2009 and February 9, 2010, the Company
grants IBEX a security interest in, all of the right, title, and interest of the
Company, in and to all of the Company’s personal property and intellectual
property, and all proceeds or replacements as collaterals.  St. Johns,
LLC is a limited liability company, which is owned by family members of the
President of the Company.
 
 Total
interest expense incurred on the related party notes payable for the six months
ended June 30, 2010 and 2009 was $65,285 and $29,712,
respectively.  For the three months ended June 30, 2010 and June 30,
2009, interest expense amounted to $36,264 and $20,886,
respectively.
 
  13
  BioElectronics
Corporation (A Development Stage Company)
 Notes to
Condensed Financial Statements
 (Unaudited)
 
 NOTE
9 – LOSS PER SHARE
 
 The
following table sets forth the computation of basic and diluted share
data:
 
 Three
      months ended June 30,
                                                          
                                                          
                                                          Six
      months ended June 30,Common
      Stock:
                                                          
                                                          2010
                                                          
                                                          
                                                          2009
                                                          
                                                          
                                                          2010
                                                          
                                                          
                                                          2009Weighted
      average number of shares outstanding – basic
                                                          
                                                          
                                                          1,473,465,538
                                                          
                                                          
                                                          
                                                          734,726,974
                                                          
                                                          
                                                          
                                                          1,472,398,871
                                                          
                                                          
                                                          
                                                          567,727,334Effect
      of dilutive securities:Options
      and Warrants
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -Weighted
      average number of shares outstanding – diluted
                                                          
                                                          
                                                          1,473,465,538
                                                          
                                                          
                                                          
                                                          734,726,974
                                                          
                                                          
                                                          
                                                          1,472,398,871
                                                          
                                                          
                                                          
                                                          567,727,334Options
      and Warrants not included above (anti-dilutive)Options
      to purchase common stock
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          350,000
                                                          
                                                          
                                                          
                                                          350,000Restricted
      Stock grants awarded to employees not yet issued
                                                          
                                                          
                                                          11,000,000
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          66,550,000
                                                          
                                                          
                                                          
                                                          -Warrants
      to purchase common stock
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          332,000
                                                          
                                                          
                                                          
                                                          4,844,44411,000,000
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          67,232,000
                                                          
                                                          
                                                          
                                                          5,194,444
 
 NOTE
10 – SHARE BASED COMPENSATION
 
 On
November 30, 2004, as amended March 22, 2005, the Company adopted the
BioElectronics Equity Incentive Plan (''the Plan''), for the purpose of
providing incentives for officers, directors, consultants and key employees to
promote the success of the Company, and to enhance the Company's ability to
attract and retain the services of such persons.  The Plan initially
reserved 10 million shares of common stock for issuance, which was amended to
100 million shares on March 1, 2010.  The issuance can be in the forms
of options or shares.  The options may be incentive, nonqualified or
stock appreciation rights.  The shares may be issued for
performance.
 
 As of
June 30, 2010, the Company had 27,565,000 shares available for future grant
under the Plan.
  Restricted
Stock
  The
following table is a summary of activity related to restricted stock grants to
directors, consultants and key employees for the six months ended June 30,
2010:
  Restricted
      shares granted
                      
                      
                      66,550,000Weighted
      average grant date fair value per share
                      
                      $
                      0.01487Aggregate
      grant date fair value
                      
                      $
                      989,445Restricted
      shares forfeited
                      
                      
                      -Vesting
      service period of shares granted
                      
                      3 yearsGrant
      date fair value of shares vested
                      
                      $
                      -
 
  14
  BioElectronics
Corporation (A Development Stage Company)
 Notes to
Condensed Financial Statements
 (Unaudited)
  Compensation
expense related to the fair value of these awards is recognized straight-line
over the requisite service period based on those restricted stock grants that
ultimately vest.  The fair value of grants is measured by the market
price of the Company’s common stock on the date of grant and then applied a
liquidity discount of 50 percent.  This discount rate is determined by
analyzing the Company’s liquidity history and using peer company data to
estimate.   Restricted stock awards generally vest ratably over
the service period beginning with the first anniversary of the grant
date.  After shares are vested, they will be issued upon the request
of the grantee.
 
 There was
no restricted stock outstanding as at June 30, 2009.
 
 The
Company adopted the provisions of SFAS No. 123R in the beginning of
2006.  SFAS No. 123R requires that compensation cost relating to
share-based payment transactions be recognized as an expense over the service
period or vesting term.   Accordingly, compensation costs recognized for
the restricted stock for the six months ended June 30, 2010 and 2009 totaled
$123,468 and $0, respectively.  For both the three months ended June
30, 2010 and 2009, compensation expense was $0.
  15
  BioElectronics
Corporation (A Development Stage Company)
 Notes to
Condensed Financial Statements
 (Unaudited)
 
 NOTE
10 – SHARE BASED COMPENSATION (CONTINUED)
 
 Stock
Options
 Option
awards are granted with an exercise price equal to Company's bid price on the
Pink Sheets on the date of grant, which is fair value.  The options
vest over three years of continuous service and are exercisable over ten years
from the date of grant.
 
 There
were no grants, exercises or expirations of options during the six months ended
June 30, 2010.
 
 Summary
information about the Company's stock options outstanding at June 30,
2010:
 
 Weighted AverageExercise
                      
                      Options
                      
                      
                      Remaining Years of
                      
                      
                      Weighted Average
                      
                      
                      OptionsPrice
                      
                      Outstanding
                      
                      
                      ContractualLife
                      
                      
                      ExercisePrice
                      
                      
                      Exercisable$
                      0.300
                      
                      
                      350,000
                      
                      
                      
                      0.50
                      
                      
                      $
                      0.300
                      
                      
                      
                      350,000
 
 NOTE
11 - WARRANTS
 
 There
were no grants, exercises or expirations of warrants during the six months ended
June 30, 2010.
  The
following table summarizes the characteristics of the outstanding warrants as at
June 30, 2010:
 
 Optionsoutstandingweighted averageExercise
                          
                          
                          
                          
                          Original
                          
                          
                          remaining lifePrice
                          
                          Number
                          
                          
                          Term (Years)
                          
                          
                          in years$
                          0.33
                          
                          
                          332,000
                          
                          
                          
                          5
                          
                          
                          
                          0.17
 
 NOTE
12 – FAIR VALUE MEASUREMENTS
 
 The
Company’s financial instruments consist primarily of cash, receivables, accounts
payable and notes payable.  The carrying amounts of such financial
instruments approximate their respective estimated fair value due to the
short-term maturities and/or approximate market interest rates of these
instruments.  The estimated fair value is not necessarily indicative of the
amounts the Company would realize in a current market exchange or from future
earnings or cash flows.
  16
  BioElectronics
Corporation (A Development Stage Company)
 Notes to
Condensed Financial Statements
 (Unaudited)
 
 NOTE
13 – INCOME TAXES
 
 The
Company has not provided for income tax expense for the six months ended June
30, 2010 because of a significant net operating loss carry-forward of
approximately $5 million.  A full valuation allowance has been
recorded against the deferred tax asset resulting from the benefits associated
with the net operating loss carry-forward.
 
 NOTE
14 – COMMITMENTS AND CONTINGENCIES LITIGATION
 
 General
 In the
ordinary course of conducting its business, the Company may become involved in
various legal actions and other claims, some of which are currently
pending.  Litigation is subject to many uncertainties and management
may be unable to accurately predict the outcome of individual litigated
matters.  Some of these matters may possibly be decided unfavorably
towards the Company.
 
 The
Company is involved, on a continuing basis, in monitoring our compliance with
environmental laws and in making capital and operating improvements necessary to
comply with existing and anticipated environmental
requirements.  While it is impossible to predict with certainty,
management currently does not foresee such expenses in the future as having a
material effect on the business, results of operations, or financial condition
of the Company.
 
 William Lyons v.
BioElectronics Corporation
 In 2005,
a lawsuit was filed against the Company by William Lyons for alleged breach of
contract and conversion claims associated with fees for services provided to the
Company.  Mr. Lyons alleged that Andrew Whelan, the President of the
Company, the Company, and PAW II, a Maryland limited liability company,
(collectively, “the Defendants”) reached an agreement to convey stock to Mr.
Lyons.  The defendants deny that any such agreement was in place or
that Mr. Lyons had the right to enforce such an agreement.
 
 On May
29, 2009, through binding arbitration, Mr. Lyons was awarded approximately $1.2
million for his claims.  Subsequently, on June 25, 2009 the Company filed,
in the Circuit Court of Frederick County, Maryland, a Petition to Vacate
Arbitration Award issued by the arbitrator.  The Motion was denied by
the Court on December 30, 2009.
 
 On
January 14, 2010, the Court entered Judgment in favor of Mr. Lyons and against
the Defendants jointly and severally in the amount of $1,217,919.  The
matter is now on appeal in the Maryland Court of Special Appeals.
 
  17
  BioElectronics
Corporation (A Development Stage Company)
 Notes to
Condensed Financial Statements
 (Unaudited)
 
 NOTE
14 – COMMITMENTS AND CONTINGENCIES LITIGATION (CONTINUED)
 
 As of the
date of this filing, the Court of Special Appeals has not ruled on the Appeal.
However, the Defendants intend to pursue the appeal toward either settlement or
reversal.  It is management’s opinion that, the court’s decision will
be reversed on appeal or the amount of damages will be reduced because the
arbitrator used information beyond the evidence to reach his
verdict.  Management’s position is also that any Judgment against the
Corporation is improper because Mr. Whelan and the other Board members present
had no authority to make this agreement on behalf of the Company.  The
Board of Directors has had independent legal counsel prepare a complaint to
pursue collection for unjust enrichment from the Directors who participated in
the action.
 
 At this
time, the Company cannot accurately estimate actual damages to the claimants
since the appeal is still pending.  As a result of all the
uncertainties, the outcome cannot be reasonably determined at this time and the
Company is unable to estimate the loss, if any, in accordance with ASC Topic 450
“Contingencies” (formerly SFAS No. 5, “Accounting for
Contingencies”).
 
 NOTE
15 – RELATED PARTY TRANSACTIONS
 
 In
addition to the related party transactions disclosed in Note 7 and Note 8,
BioElectronics signed a distribution agreement on February 9, 2009 with eMarkets
Group, LLC (eMarkets) a company owned and controlled by a member of the board of
directors and sister of the company's president.   The agreement
provides for eMarkets to be the exclusive distributor of the veterinary products
of the Company to customers in certain countries outside of the United States
for a period of three years.   The distribution agreement lists
the prices to be paid for the company's products by eMarkets and provides for
the company to provide training and customer support at its own cost to support
the distributor’s sales function.
 
 Sales to
eMarkets recognized for the three months ended June 30, 2010 and 2009 amounted
to $615 and $97,477, respectively.  For the three months ended June
30, 2010 and 2009, the cost of goods sold to eMarkets amounted to $220 and
$26,462, respectively.  Sales include $0 and $96,520 from bill and
hold revenue transactions for the three months ended June 30, 2010 and 2009,
respectively.
 
 Sales
transactions to eMarkets recognized for the six months ended June 30, 2010
include $1,887 in sales and $734 in cost of goods sold.  For the six
months ended June 30, 2009, sales to eMarkets accounted for $113,227 in sales
and $29,889 in cost of goods sold to eMarkets.  Sales include $0 and
$112,270 from bill and hold revenue transactions for the six months ended June
30, 2010 and 2009, respectively.    The balance due from
eMarkets was $10,171 and $165,297 at June 30, 2010 and December 31, 2009,
respectively.  Such amounts were presented under “Trade receivables
from related parties”.
 
  18
  Item 2. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.
  This
Quarterly Report on Form 10-Q may contain certain forward-looking statements,
including without limitation, statements concerning BioElectronics Corporation
(“the Company”) operations, economic performance and financial condition. These
forward-looking statements are made pursuant to the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995, and within the meaning
of Section 21E of the Securities Exchange Act of 1934, as amended. The
words "believe," "expect," "anticipate," "will," "could," "would,"
"should," "may," "plan," "estimate," "intend," "predict,"
"potential," "continue," and the negatives of these
words and other similar expressions generally identify forward-looking
statements. These forward-looking statements may include statements
addressing our operations and our financial performance. Readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of their dates. These forward-looking statements are based largely on
the Company's current expectations and are subject to a number of risks and
uncertainties. Factors we have identified that may materially affect our results
are discussed in our Annual Report on Form 10-K, including the documents, for
the year ended December 31, 2009, particularly under Item 1A, "Risk
Factors". In addition, other important factors to consider in evaluating such
forward-looking statements include changes in external market factors, changes
in the Company’s business or growth strategy or an inability to execute its
strategy, including due to changes in its industry or the economy generally. In
light of these risks and uncertainties, there can be no assurances that the
results referred to in the forward-looking statements will, in fact, occur. We
undertake no obligation to revise any forward-looking statements in order to
reflect events or circumstances that may arise after the date of this report.
Readers are urged to carefully review and consider the various disclosures made
in this report, in our Annual Report on Form 10-K and in our other filings with
the Securities and Exchange Commission that attempt to advise interested parties
of the risks and factors that may affect our business.
 
 INTRODUCTION
  BioElectronics
Corporation (OTCPK) (the “Company”) is the developer, marketer and manufacturer
of patented, inexpensive, drug–free, topical, anti-inflammatory medical devices
based upon proven therapy.  Pulsed electromagnetic therapy has been
used by physicians, sports trainers, and therapist around the world for eighty
years.  The Company has reduced the therapy to wafer thin devices that
are applied directly to the body. The devices consist of an inexpensive
microchip, battery and antenna that more effectively deliver the
energy.  Recent improved circuitry has created a product that heals
for 10 days and can be sold at prices competitive to hot and cold packs. These
products will be sold very competitively on Direct Response Television (DRTV)
and in the analgesic aisle in stores around the world.   The
Company’s design cost goal is to make its chips ubiquitous or one in every
bandage.
  The DRTV
and online marketing platforms enable customers to easily gain access to
information regarding these new and exciting consumer products and the ability
to purchase these items within the convenience of their own homes. The Company
works with its distribution partners to provide product distribution,
fulfillment and customer interaction, including the operation of customer call
centers
  An
increased consumer awareness of the dangers of overuse of oral analgesics such
as acetaminophen and non-steroidal anti-inflammatory drugs (NSAIDs) has
significantly altered the competitive landscape for pain management
therapeutics.  Many common anti-inflammatory pain medications are
required to carry warning labels due to potential dangerous side effects (and
some have been withdrawn altogether).  Therefore, there is significant
market opportunity for a therapeutic agent with improved efficacy and no
side-effects. The distinctive value proposition of the products is the delivery
of drug-free therapy that reduces pain and inflammation and accelerates healing by
30% to 50% when compared with the present standard methods of patient
care.  The market potential is estimated at $10 billion
worldwide.
  19
  The
Company’s immediate objective is to sell and distribute its three main products:
ActiPatch® Back
Pain Therapy, ActiPatch Knee Pain Therapy, and AllayTM Menstrual Cycle Pain
Therapy, each of which has significant market potential.  To
accomplish these objectives, we incurred significant additional costs in monthly
expenses to:
 
 ·
              File
      our audited financial statements with the
SEC
 ·
              Obtain
      additional regulatory clearances in Latin America, the US and
      Canada.
 ·
              Establish
      brand management
 ·
              Conduct
      consumer research
 ·
              Develop
      infomercials
 ·
              Research
      and develop new products and make product
  improvements
 
 During
the six months ended June 30, 2010, our sales and marketing focus was on
launching direct response television (DRTV) in Latin America, Canada, and
preparing other international launches of DRTV campaigns.  The
development of our product marketing group and initiation of consumer research
has increased sales and administration expense.  Likewise, we have
engaged B2C Agency for direct response and advertising support for the United
Kingdom and European market expansion.  We committed substantial
resources to biophysics and regulatory consulting to obtain additional product
market clearances in U.S., Latin America, and Canada.  Additionally,
we have also made several significant product improvements in the electronics,
packaging, and affixing methods.  Furthermore, as a result of our SEC
filings, our accounting and legal costs have dramatically
increased.
 
 Securing
additional U.S. FDA market clearance is central to market entry and product
acceptance.  Plastic surgery is the only domestic market segment with
current U.S. FDA market clearance.  We have developed a new device and
honed our arguments on the power of our existing device to meet the standards
for a broader indication-of-use market clearance from the U.S. FDA, and thus, we
have submitted a form 510(k) for the new and existing device to the U.S. FDA for
broader market clearance.  The new market clearance will enable us to
market and sell to all surgeons and chronic would care providers, home health
care agencies, and nursing homes.
 
 We have
received a Not Significantly Equivalent (NSE) letter from the U.S. FDA for both
our Actipatch musculoskeletal pain and Allay Menstrual Pain Therapy market
clearance applications.  We have filed formal requests to have both
products reclassified under Section 513 of the Food and Drug Act.  The
NSE letters are required to use the simpler reclassification provisions of the
Section 513.  During the last several months, we have performed
substantial tests and developed additional documentation to support our
reclassification requests.  We have also developed an alternative
over-the-counter device to submit in another product category to preclude the
complications of a pulsed electromagnetic classification.  We are
confident that we will obtain U.S. over-the-counter clearance for our
products.
 
 20
 
 As
of June 30, 2010, we have established distribution agreements with distributors
that offer our product for sale in over 40 countries internationally, mainly in
Europe, Latin America, Middle East and South East Asia.  The
international market is expected to further expand going forward and to
eventually constitute two-thirds of our total sales.


MAJOR GOALS, SIGNIFICANT ACTIVITIES
AND RESULTS
 DURING
FIRST SIX MONTHS OF 2010
 
 BioElectronics’
operational plan is centered on marketing oriented functions.  We
believe our product set is very strong, our quality is very high, our
ISO-certified production capabilities are extensive, and our Company is
structured for accelerated growth.  Over the past 24 months, the
Company has significantly strengthened its product lines, improved product
quality, created new packaging, and redesigned marketing materials and
products.
 
 We have
several major goals to continue the advancement of business operations,
including:
 
 ·
              Obtain
      additional U.S. FDA market clearances
for:
 o
              the
      postoperative treatment of pain and edema in soft
  tissue
 o
              over-the-counter
      treatment of musculoskeletal pain
 o
              over-the-counter
      treatment of menstrual cycle pain and
discomfort
 o
              the
      treatment of chronic pain
 ·
              Develop
      a management team, DRTV, advertising, and brand management expertise and
      infrastructure necessary to support large scale, multiple product
      offerings on a national and international
level.
 ·
              Maintain
      primary management focus on our leading back pain, knee pain, and
      menstrual cycle pain blockbuster
products.
 ·
              Obtain
      3rd
      party product reimbursement (insurance coverage) for kidney compromised,
      cardiovascular, diabetic and C-section
patients.
 ·
              Continue
      product improvements and manufacturing cost reductions to maintain market
      dominance.
 ·
              Pursue
      additional clinical studies and research to support sales and marketing
      and new product introductions.
 ·
              Optimize
      the Company’s presence on securities
exchanges.
  21
  Additional
U.S. Government FDA and International Regulatory Body Filings
 
 Outside
the U.S., our products are classified as Class II devices and are sold
over-the-counter.  In the US, our products are currently classified as
a high risk, Class III device.  We have U.S. FDA market clearance for
the treatment of edema following blepharoplasty.  We have filed two
additional 510(k) market clearance applications for “relief of musculoskeletal
pain” and “relief of menstrual cycle pain and discomfort” for over-the-counter
sales.  Even though the U.S. FDA is reluctant to give us
over-the-counter clearance for a Class III device, we are currently pursuing
both reclassification and approval of the pending applications.  We
are also preparing an additional U.S. FDA market clearance request for our new
chronic pain device and a market clearance request for post-operative pain and
edema.  As we expand internationally, we are required to and do obtain
additional market clearance in each country.
 
 Continue
to Build Our Four Primary Markets
 
 We
augmented our marketing team with two experienced Brand Managers to help build
our brands.  As we grow, we plan to add additional brand management
staff to manage new product categories such as foot care products, would care
orthopedics, etc.
 
 Due to
BioElectronics having only limited U.S. FDA clearance of its products, mass
distribution to direct consumers in the U.S. is prohibited.  We
believe U.S. FDA clearance for our products is forthcoming, and thus, we are
currently in the process of identifying and building a domestic distribution
network for both the over-the-counter and medical markets.
 
 Continued
Expansion of Our Already Growing International Distribution Network
 
 BioElectronics
has made steady, significant progress in building an international distribution
network.  Due to the Company obtaining over-the-counter sales approval
for its products in Canada, Europe and many other markets, it has regular
interest from international distribution companies to market and distribute the
product lines. Our strategy is to partner with distributors that have the
experience and financial ability to place our products into the consumer goods
retail sales channels.  We have seen success in executing this
strategy relative to Canada, Western Europe, South-East Asia and the Middle
East.  Since retail distribution is a core strategy, the Company is
regularly in negotiations with existing and future distributors, and anticipates
signing additional contracts with qualified distributors in Asia, Europe, and
other international locations.
  22
  The
Company developed Direct Response Television (DRTV) materials produced by
leading companies (Schulberg Media Works for English-speaking markets, and RC
Productions for Hispanic markets) for both the ActiPatch Back Pain product and
the Allay Menstrual Pain Therapy product. Subsequently, the commercials are
extremely helpful with establishing partnerships with major DRTV companies to
test our products in many countries. The Company contracted with TeleDEPOT in
Latin America, where it completed a very successful test in several countries.
In Turkey, the distributor has created a Turkish Allay infomercial and has begun
DRTV testing and retail distribution.  In Canada, the Company has
assumed sales and marketing responsibilities to prepare for its U.S. launch and
to introduce its new disposable products.
 
 Other
Issues Relative to Plan of Operations
 
 Cash
Requirements - BioElectronics is currently in a positive current asset position
with its current assets exceeding current liabilities.  As is typical
for most growth companies, BioElectronics may, in the future, need to raise
additional funds to finance its working capital requirements.  It is
unknown at this time how much, if any, additional funds will be needed to
execute our business plan, as it is highly dependent upon our sales growth
trajectory over the coming quarters.
 
 Research
and Development – Our products are substantially developed and ready for sale,
and many of our products are currently offered for sale on the international
market.  We are designing several new products based on our core
technologies with developmental costs being financed by funds provided by
related parties.
 
 Expected
Purchase or Sale of Plant and Significant Equipment - BioElectronics does not
anticipate any major purchases or sales of plant or significant
equipment.
 
 Expected
Changes in the Number of Employees - We are currently recruiting new talent and
expect our hiring will focus on marketing personnel, support, and manufacturing
staff.  Our hiring plans are dependent upon revenue growth rates over
the coming quarters.
 
 RESULTS
OF OPERATIONS
 
 Our
principal activity, to sell and market in the U.S. retail market, has not yet
commenced due to the lack of U.S. FDA approval for our
product.   As a result, we consider ourselves a development stage
entity in accordance with FASB Accounting Standards Codification Topic 915,
“Development Stage Enterprise”, and accordingly present, in our financial
statements, the results of operations and other disclosures for the company for
the period from our inception, April 10, 2000, to June 30,
2010.  Apart from the additional financial information provided
regarding our financial results for the period from inception, April 10, 2000,
to June 30, 2010, our designation as a Development Stage Company did not affect
our accounting or other information provided in our financial
statements.
  23
  Three
and Six Months Ended June 30, 2010 and 2009
 
 Revenue.  Revenue
from operations for the three months ended June 30, 2010 and 2009 amounted to
approximately $331,000 and $222,000, respectively, an increase of $109,000 or
49% over the prior year.  Revenues were approximately $613,000 and
$516,000, for the six months ended June 30, 2010 and 2009, respectively,
resulting in an increase of $97,000 or 19% over the prior year.  The
following table summarizes the Company’s domestic, international and veterinary
(related party) revenues earned during the three and six months ended June 30,
2010 and 2009:
 
 For
      the three months ended, June 30
                      
                      
                      For
      the six months ended, June 302010
                      
                      
                      2009
                      
                      
                      2010
                      
                      
                      2009Amounts
                      
                      
                      Percentage
                      
                      
                      Amounts
                      
                      
                      Percentage
                      
                      
                      Amounts
                      
                      
                      Percentage
                      
                      
                      Amounts
                      
                      
                      PercentageInternational
                      
                      $
                      291,904
                      
                      
                      
                      88
                      %
                      
                      $
                      70,215
                      
                      
                      
                      32
                      %
                      
                      $
                      551,907
                      
                      
                      
                      90
                      %
                      
                      $
                      190,426
                      
                      
                      
                      37
                      %Domestic
                      
                      
                      39,169
                      
                      
                      
                      12
                      %
                      
                      
                      54,183
                      
                      
                      
                      24
                      %
                      
                      
                      59,452
                      
                      
                      
                      10
                      %
                      
                      
                      212,803
                      
                      
                      
                      41
                      %Veterinary
                      
                      
                      406
                      
                      
                      
                      0
                      %
                      
                      
                      97,477
                      
                      
                      
                      44
                      %
                      
                      
                      1,887
                      
                      
                      
                      0
                      %
                      
                      
                      113,227
                      
                      
                      
                      22
                      %$
                      331,479
                      
                      
                      
                      100
                      %
                      
                      $
                      221,875
                      
                      
                      
                      100
                      %
                      
                      $
                      613,246
                      
                      
                      
                      100
                      %
                      
                      $
                      516,456
                      
                      
                      
                      100
                      %
 
 International
sales increased by approximately $222,000 or 316% in the three months
ended  June 30, 2010 and $361,000 or 190% in the six months ended June
30, 2010 from the comparative periods in 2009 as a result of new distributorship
agreements signed in 2010 and increased sales through agreements signed in prior
years.   Domestic sales reduced by approximately $15,000 or 28%
in the three months ended June 30, 2010 and $153,000 or 72% in the six months
ended June 30, 2010 from the comparative periods in 2009.  The
reduction for the six month period resulted from sales of special cervical
devices totaling $100,000 in 2009.
 
 Veterinary
revenues of $406 and $97,477 were recorded in the three months ended June 30,
2010 and 2009, respectively, and $1,887 and $113,227 were recorded in the six
months ended June 30, 2010 and 2009, respectively.   The
reduction in veterinary revenues is primarily due to eMarkets requesting
shipment of the bill and hold transactions from 2009 in lieu of purchasing
additional units.  eMarkets is our exclusive distributor of veterinary
products to customers in certain countries outside of the United
States.
 
 At June
30, 2010, the Company has not yet delivered 43,005 units, totaling approximately
$365,000 bill and hold sales recognized for the year ended December 31,
2009.  The units will be shipped during 2010 to help meet the
distribution 2010 purchase obligation.
 
 Cost of Goods Sold and Gross
Margin.  Costs of goods sold for the three months ended June
30, 2010 and 2009 amounted to approximately $126,000 and $82,000, respectively,
and for the six months ended June 30, 2010 and 2009 amounted to approximately
$247,000 and $158,000, respectively.   Gross margin decreased
from approximately 69% of sales for the six months ended June 30, 2009 to
approximately 60% for the six months ended June 30, 2010.  The
decrease was primarily the result of replacing 7,500 defective units totaling
approximately $30,000 in cost of goods sold.  Other factors include
higher production costs, which arose from an increase in the use of contingent
workers to expedite shipment of the new Allay packaging, and higher shipping
costs related to international sales.  We expect the normal gross
margins on our products to be in the range of 66 % to 70 % of sales in the
future, depending on product mix and sales prices. This gross margin range is
consistent with other medical device and pharmaceutical
companies.
  24
 
 General and Administrative
Expense.  General and administrative expenses for the three
months ended June 30, 2010 and 2009 amounted to approximately $652,000 and
$187,000, respectively, and increase of $465,000 or 249%.  For the six
months ended June 30, 2010, general and administrative expenses amounted to
approximately $1,278,000 as compared to $447,000 in comparative period of 2009,
an increase of $831,000 or 186% over the prior period.  The following
table summarizes the Company’s general and administrative expenses for the three
and six months ended June 30, 2010 and 2009:
 
 Three months ended June 30,
                          
                          
                          Six months ended June 30,General
      and Administrative Expenses:
                          
                          2010
                          
                          
                          2009
                          
                          
                          2010
                          
                          
                          2009Depreciation
      and Amortization
                          
                          $
                          13,265
                          
                          
                          $
                          3,645
                          
                          
                          $
                          20,036
                          
                          
                          $
                          7,290Investor
      Relations Expenses
                          
                          
                          8,712
                          
                          
                          
                          6,195
                          
                          
                          
                          54,611
                          
                          
                          
                          11,585Legal
      and Accounting Expenses
                          
                          
                          168,655
                          
                          
                          
                          50,632
                          
                          
                          
                          369,590
                          
                          
                          
                          69,330Payroll
      Expenses
                          
                          
                          245,828
                          
                          
                          
                          44,471
                          
                          
                          
                          427,481
                          
                          
                          
                          90,388Sales
      Support Expenses
                          
                          
                          79,933
                          
                          
                          
                          16,220
                          
                          
                          
                          151,700
                          
                          
                          
                          110,013Other
      General and Administrative Expenses
                          
                          
                          136,053
                          
                          
                          
                          65,494
                          
                          
                          
                          254,976
                          
                          
                          
                          158,443Total
      General and Administrative Expenes
                          
                          $
                          652,446
                          
                          
                          $
                          186,657
                          
                          
                          $
                          1,278,394
                          
                          
                          $
                          447,049
  The Other
General and Administrative Expenses include all payroll and related costs for
the Company’s management, accounting, and administrative
functions.  The increase in Other General and Administrative Expenses
for the three and six months ended June 30, 2010 was primarily driven by an
increase in sales and marketing personnel.  The payroll, compensation,
and other payroll related expenses for the six months ended June 30, 2010
increased by approximately $337,000 compared to the previous period in
2009.  Additionally for the six month ended June 30, 2010, there was
an increase in consulting expense of approximately $50,000 for consulting
services related to product enhancements and preparing support for submissions
to the FDA, and there was an increase in travel expense of approximately $15,000
related to several new trade shows and international
distribution.  Further factors in the overall increase of General and
Administrative Expenses are attributed to accounting, legal and investor
relation consulting expenses necessary to prepare annual, quarterly and other
reports for filing with the SEC.
  Interest Expense.Interest
expense increased to approximately $40,000 for the three months ended June 30,
2010 from approximately $21,000 in the comparable period in 2009.  For
the six months ended June 30, 2010 and 2009, interest expense amounted to
$69,000 and $41,000, respectively.   The increase in interest
expense was mainly attributed to the new financing loans with IBEX, LLC and St.
Johns, LLC.  IBEX, LLC is a limited liability company, whose President
is the daughter of the President of the Company.  St. Johns, LLC is a
limited liability company, which is owned by family members of the President of
the Company
 
  25
  Net Loss.  Net
losses during the three months ended June 30, 2010 and 2009 amount to
approximately $492,000 and $68,000, respectively.  Net losses
increased from approximately $129,000 during the first six months of 2009 to
approximately $987,000 during the comparative period in 2010.  Losses
were increased primarily due to increase in general and administrative expense
and interest expense.
 
 LIQUIDITY
AND CAPITAL RESOURCES
 
 Our
sources of funds are primarily cash flows from financing
activities.  We raise funds for our operations by borrowing on notes,
agreements with third parties and related parties, and selling equity in the
capital markets.  We are still operating as a development stage
company, in which we are devoting substantially all of our present efforts to
developing our business.  For every year and period since our
inception, we have generated negative cash flow from
operations.   At June 30, 2010, our cash and cash equivalents
were approximately $137,000. Since December 31, 2009, our balance of cash and
cash equivalents decreased by approximately $160,000 as a result of our loss
from operations in the first six months of 2010 of $986,826, offset by changes
in our working capital balances and proceeds received from our financing
activities, primarily proceeds from the issuance of related party notes payable
and assignment of receivables under our factoring agreement with Jarenz LLC
(“Jarenz”), a related party.  Jarenz is a limited liability company,
whose owner is the daughter of the President of the Company.
 
 Since our
inception on April 10, 2000, the majority of our financing has been provided by
the Company’s founders including the CEO, certain board members, and their
immediate family and associates.  As of June 30, 2010, all of the
Company’s debt was provided by these related parties.  We present the
secured borrowing as short-term liabilities and the notes payable as long-term
liabilities in our financial statements, as the holders of these notes (who are
related parties) have no current intention to pursue repayment of these
amounts.
 
 At June
30, 2010, we had positive working capital of approximately $1,128,000 which is
comparable to approximately $1,026,000 at December 31, 2009.
 
 On
January 1, 2005, we entered into an unsecured revolving convertible promissory
note agreement (“the Revolver”) with IBEX, for a maximum limit of $2,000,000,
with interest at the Prime Rate plus 2% (i.e. 5.25% for the six months ended
June 30, 2010), and all accrued interest and principal due on or before January
1, 2015, whether by the payment of cash or by conversion into shares of our
common stock.  The Revolver is convertible at various fixed conversion
prices based on the Volume-Weighted Average Price (“VWAP”) for the 10 trading
days preceding the date of note, which approximated the fair value of the
Company’s stock at the date of conversion.  As of June 30, 2010, an
amount of approximately $1,322,000 was drawn from the Revolver.
 
 We refer
to Note 8 of our interim financial statements included in this Report on Form
10-Q which contains information on borrowings received in the form of promissory
notes from IBEX, LLC and St. Johns, LLC.
  26
  The
Company entered into an Agreement (the “Agreement”) on March 5, 2010, with
Jarenz pursuant to which Jarenz is providing accounts receivable financing and
collection services to the Company.  The Agreement provides for the
Company to assign certain accounts receivable balances to Jarenz in exchange for
a cash advance amount of up to 80% of the face value of the receivables
transferred; such amount determined upon discussions between the
parties.    Following collection of the related receivable,
Jarenz pays the balance thereof to BioElectronics minus the initial down payment
and a discount fee earned by Jarenz.  Jarenz’s discount fee is a
percentage of the cash advance amount based upon the number of days elapsing
between the date of purchase by Jarenz and the date of collection of the related
accounts receivable.  As at June 30, 2010, 10% of the initial down
payment of the assigned receivables was drawn totaling approximately
$86,000.  The Company will draw further cash advance amounts upon
additional financing needs.
  Net Cash Used In Operating
Activities.Net cash used in operating activities amounted to
approximately $975,000 and $434,000 in the six months ended June 30, 2010 and
June 30, 2009, respectively.
  Net cash
used in operating activities amounted to approximately $975,000 for the six
months ended June 30, 2010 primarily as a result of the net loss incurred,
offset by changes in the Company’s capital balances including an increase in
trade and other receivables of approximately $164,000, increase in accounts
payable of approximately $167,000, and increase in inventory of approximately
$468,000.
  Net cash
used in operating activities amounted to approximately $434,000 for the six
months ended June 30, 2009 primarily as a result of the net loss incurred,
offset by changes in the Company’s capital balances including an increase in
trade and other receivables of approximately $154,000, decrease in accounts
payable of approximately $87,000, increase in inventory of approximately
$78,000, and decrease in customer deposits of approximately
$119,000.
  Net Cash Used in Investing
Activities.During the six months ended June 30, 2010, we purchased
approximately $31,000 of laboratory equipment to develop new products and to
improve quality assurance.   We did not make any significant
investments in fixed or other long-term assets during the six months ended June
30, 2009.
  Net Cash Provided by Financing
Activities.Net cash provided by financing activities amounted to
approximately $847,000 and $402,000 in six months ended June 30, 2010 and June
30, 2009, respectively.  The increase of approximately $445,000 was
primarily because of the increase in proceeds obtained from related party notes
payable of approximately $533,000.
  During
the six months ended June 30, 2010, the Company generated approximately $847,000
in cash from financing activities through the issuance of notes payable to
related parties (amounting to $815,000) and the assignment of receivables to
related parties (amounting to $86,000).  The proceeds received from
these activities were used to repay notes payable and financing of receivable
(amounting to $54,000) and to fund operations during the year.
  27
  During
the six months ended June 30, 2009, the Company generated $402,000 in cash from
financing activities mainly through the issuance of related party notes payable
(amounting to $282,000) and the sale of common shares (amounting to
$190,000).  The funds received were used to repay certain notes
payable and related party notes payable (amounting to $71,000) and to fund
operations.
 
 Going
concern.   The Company’s financial statements have been
prepared on a going concern basis which contemplates the realization of assets
and the liquidation of liabilities in the ordinary course of
business.  We have incurred substantial losses from operations in the
six months ended June 30, 2010 and prior years, including a net loss of
approximately $987,000 and $268,000 for the six months ended June 30, 2010 and
June 30, 2009 respectively.  The Company also has an accumulated
deficit as of June 30, 2010 of $11,651,316.
 
 The
Company projects that it will require an additional $300,000 in working capital
in the next 12 months.  Management has already loaned the Company
$200,000 and is committed to loan the additional $100,000.  Given a
current ratio of 1:4, management assumes it can finance some additional growth
with asset based financing.  If sales increase as anticipated, the
Company will seek additional capital from new investors.  The Company
has prepared a financing proposal to discuss opportunities with potential
investors or possible strategic partners.   However, we can
provide no assurance that we will be able to obtain financing on reasonable
terms and at sufficient levels to enable us to complete developmental
activities, receive U.S. FDA approval and develop sufficient sales revenue and
achieve profitable operations.  Until sufficient financing has been
received to complete our developmental activities, there exists substantial
doubt as to our ability to continue as a going concern.
  Item
3.  Quantitative and Qualitative Disclosures About Market
Risk.
 
 We have
minimal market risk inherent in our financial position.  We do not
have any derivative financial instruments and do not hold any derivative
financial instruments for trading purposes.  Our market risk primarily
represents the potential loss arising from adverse changes in market interest
rates.  Our results from operations could be impacted by decreases in
interest rates on our cash and cash equivalents.  Additionally, we may
be exposed to market risk from changes in interest rates related to any debt
that may be outstanding under our related party notes payable.  We do
not expect our cash flows to be affected to any significant degree by a sudden
change in market interest rates.
 
 We
operate our business within the United States and sell to the United States and
certain international locations such as Italy, Canada, Saudi Arabia,
Scandinavia, Netherlands and Singapore.  We execute all of our
transactions in U.S. dollars and therefore do not have any foreign currency
exchange risk.
  28
  Item 4T. Controls and
Procedures.
 
 We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed by us in reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the SEC’s rules and forms and that such
information is accumulated and communicated to our management, including our
President, Chief Executive Officer and Chief Financial Officer, as appropriate,
to allow timely decisions regarding required disclosures. In designing and
evaluating these disclosure controls and procedures, management recognizes that
any controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired control objectives,
and management necessarily is required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures.
 
 Evaluation
of disclosure controls and procedures
 
 We
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures as of the end of the period covered by this Quarterly
Report on Form 10-Q. Disclosure controls and procedures are designed to
ensure that information required to be disclosed in our reports filed under the
Exchange Act, such as this Quarterly Report on Form 10-Q are recorded,
processed, summarized and reported within the time periods specified by the
SEC.  Disclosure controls are also designed to ensure that such
information is accumulated and communicated to our President, Chief Executive
Officer and Chief Financial Officer, and other management, as appropriate, to
allow timely decisions regarding required disclosure.
 
 Based on
the evaluation, our President, Chief Executive Officer and Chief Financial
Officer after evaluating the effectiveness of our “disclosure controls and
procedures” (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)),
have concluded that, subject to the inherent limitations noted in this
Part II, Item 9A, as of June 30, 2010, our disclosure controls and
procedures were not effective due to the existence of several material
weaknesses in our internal control over financial reporting, as discussed
below.
 
 Material
Weaknesses Identified
 
 In
connection with the preparation of our financial statements for the year ended
December 31, 2009, certain significant deficiencies in internal control
became evident to management that, in the aggregate, represent material
weaknesses, including:
 
 (i) Lack
of a sufficient number of independent directors for our board and audit
committee.  We currently only have one independent director on our
board, which is comprised of three directors, and on our audit committee, which
is comprised of one director.  Although we are considered a controlled
company, whereby a group holds more than 50% of the voting power and as such are
not required to have a majority of our board of directors be independent, it is
our intention to have a majority of independent directors in due
course.
 
 29
  (ii) Lack
of a financial expert on our audit committee.  We currently do not
have an audit committee financial expert, as defined by SEC regulations, on our
audit committee.
 
 (iii) Insufficient
segregation of duties in our finance and accounting functions due to limited
personnel.   During the six months ended June 30, 2010, we had
one person on staff that performed nearly all aspects of our financial reporting
process, including, but not limited to, access to the underlying accounting
records and systems, the ability to post and record journal entries and
responsibility for the preparation of the financial
statements.   This creates certain incompatible duties and a lack
of review over the financial reporting process that would likely result in a
failure to detect errors in spreadsheets, calculations, or assumptions used to
compile the financial statements and related disclosures as filed with the
SEC.   These control deficiencies could result in a material
misstatement to our interim or annual consolidated financial statements that
would not be prevented or detected.
 
 As part
of the communications by Berenfeld, Spritzer Shechter & Sheer LLP,
(“Berenfeld, Spritzer”), with our Audit Committee with respect to Berenfeld,
Spritzer’s audit procedures for fiscal 2009, Berenfeld, Spritzer informed the
audit committee that these deficiencies constituted material weaknesses, as
defined by Auditing Standard No. 5, “An Audit of Internal Control Over
Financial Reporting that is Integrated with an Audit of Financial Statements and
Related Independence Rule and Conforming Amendments,” established by the Public
Company Accounting Oversight Board (“PCAOB”).
 
 Plan
for Remediation of Material Weaknesses
 
 We intend
to take appropriate and reasonable steps to make the necessary improvements to
remediate these deficiencies.  We intend to consider the results of
our remediation efforts and related testing as part of our year-end 2010
assessment of the effectiveness of our internal control over financial
reporting.
 
 We have
implemented certain remediation measures and are in the process of designing and
implementing additional remediation measures for the material weaknesses
described in this Quarterly Report on Form 10-Q.  Such
remediation activities include the following:
 
 ·
              At
      an appropriate time, we will recruit one or more additional independent
      board members to join our board of directors.  Such recruitment
      will include at least one person who qualifies as an audit committee
      financial expert to join as an independent board member and as an audit
      committee member.
 
 ·
              We will
      hire or engage additional qualified and experienced accounting personnel
      as necessary to review our quarter-end closing processes as well as
      provide additional oversight and supervision within the accounting
      department.
 
 In
addition to the foregoing remediation efforts, we will continue to update the
documentation of our internal control processes, including formal risk
assessment of our financial reporting processes.
  30
 
 Changes
in Internal Controls over Financial Reporting
  There
were no significant changes in internal control over financial reporting during
the second quarter of 2010 that materially affected, or are reasonably likely to
materially affect, our internal control over financing
reporting.
  31
  PART II - OTHER
INFORMATION
 
 Item 1. Legal
Proceedings.
 The
Company and Andrew Whelan, President & CEO, were defendants in a lawsuit
brought by a plaintiff who is seeking damages arising from a breach by the
Company of certain alleged oral contractual obligations.  The
plaintiff claimed that, pursuant to these alleged obligations, he would have
been entitled to receive common stock from the Company as compensation for
rendering certain services to the Company.  The matter was removed
from Maryland state court to arbitration provided for in the contract at
issue.  The plaintiff prevailed in arbitration, and a judgment was entered
against BioElectronics Corporation, PAW, LLC and Andrew Whelan in the amount of
$1,217,919.10.  The Company believes the plaintiff’s claims to be without
merit and the arbitrator’s decision to have been possible only by a manifest
disregard of the law.  As such, the Company and Mr. Whelan filed a
Petition to Vacate Arbitration Award with the Maryland Court of Special
Appeals.  Though no rulings have yet been issued, a mediation hearing on
the petition was held on June 17, 2010.  During the mediation hearing, no
resolution was made, and the mediation was terminated.  The Company
intends to continue defend the matter and vigorously pursue any and all
available remedies.
 
 The Board
of Directors has had independent legal counsel prepare a complaint to pursue
collection for unjust enrichment from the Directors who participated in the
action.
 
 Item 1A.
Risk Factors.  As a smaller reporting company, Registrant is
not required to provide the information required by this item.
 
 Item 2. Unregistered Sales
of Equity Securities and Use of Proceeds.
 On March
18, 2010 and May 21, 2010, the Company issued and tendered 1,000,000 and
2,200,000 common shares to consultants in respect of services provided in the
year ended December 31, 2009.  The shares were recorded at $0.00225
per share (or $7,200 in aggregate), and the related expense was recorded in the
prior year.
 
 Item 3. Defaults Upon Senior
Securities.
 We have
minimal market risk inherent in our financial position.  We do not
have any derivative financial instruments and do not hold any derivative
financial instruments for trading purposes.  Our market risk primarily
represents the potential loss arising from adverse changes in market interest
rates.  Our results from operations could be impacted by decreases in
interest rates on our cash and cash equivalents.  Additionally, we may
be exposed to market risk from changes in interest rates related to any debt
that may be outstanding under our related party notes payable.  We do
not expect our cash flows to be affected to any significant degree by a sudden
change in market interest rates.
 
  32
  Item 4.
(Removed and Reserved).Not
applicable.
 
 Item 5.
Other Information.  Not
applicable
 
 Item 6.
Exhibits.
 
 Exhibit
31.1. Certification of Principal Executive Officer and Principal Financial
Officer
 Exhibit
32.1. Certification of Andrew Whelan, Chief Executive Officer and Chief
Financial Officer, pursuant to 18 U.S.C. Section 1350.
 Exhibit
99.  Additional Exhibits
  33
  SIGNATURES
 
 Pursuant
to the requirements of  Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned; thereunto duly authorized, in Frederick, Maryland, on August 16,
2010.
  BIOELECTRONICS
      CORPORATIONAugust
      16, 2010
                By:
                /S/Andrew
      WhelanAndrew
      WhelanPresident,
      Chief Executive Officer, Chief
                  Financial
      Officer and Director(Principal
      Executive Officer and
                  Principal Financial
      Officer)
  Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of Registrant and in the
capacities indicated on August 16, 2010.
  Signature
                
                Title/S/Andrew
      Whelan
                
                President,
      Chief Executive Officer, Chief Financial Officer and
      DirectorAndrew
      Whelan
                
                (Principal
      Executive Officer and Principal Financial
  Officer)
  34