EXHIBIT
99





BIOELECTRONICS
CORPORATION


(A
DEVELOPMENT STAGE COMPANY)





FINANCIAL
STATEMENTS


PERIOD
FROM APRIL 10, 2000 (INCEPTION) TO DECEMBER 31, 2009





BIOELECTRONICS
CORPORATION (A DEVELOPMENT STAGE COMPANY)


PERIOD
FROM APRIL 10, 2000 (INCEPTION) TO DECEMBER 31, 2009





TABLE
OF CONTENTS





Report
      of Independent Registered Public Accounting Firm
                  1Balance
      Sheets
                  2Statements
      of Operations
                  3Statement
      of Changes in Stockholders’ Deficiency
                  4Statements
      of Cash Flows
                  5Notes
      to Financial Statements
                  6
      to 31





REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM





To the
Board of Directors and Stockholders


BioElectronics
Corporation


Frederick,
Maryland





We have
audited the accompanying balance sheets of BioElectronics Corporation (A
Development Stage Company) as of December 31, 2009 and 2008 and the related
statements of operations, changes in stockholders' deficiency and cash flows for
the three year period ended December 31, 2009 and for the period from April 10,
2000 (Inception) to December 31, 2009. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.





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





In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of BioElectronics Corporation as of
December 31, 2009 and 2008 and the results of its operations and its cash flows
for the three year period ended December 31, 2009 and for the period from April
10, 2000 (Inception) to December 31, 2009, in conformity with accounting
principles generally accepted in the United States of America.





The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 3 to the financial
statements, the Company has substantial losses from operations which raise
substantial doubt about its ability to continue as a going concern. Management’s
plans regarding those matters are also discussed in Note 3. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.





/s/Berenfeld
Spritzer Shechter & Sheer, LLP


Fort
Lauderdale, Florida


March 31,
2010


1


BioElectronics
Corporation (A Development Stage Company)


Balance
Sheets


December
31, 2009 and 2008





2009
                      
                      
                      2008AssetsCurrent
      assets:Cash
      and cash equivalents
                      
                      $
                      296,352
                      
                      
                      $
                      55,278Trade
      and other receivables, net
                      
                      
                      402,003
                      
                      
                      
                      68,878Inventory
                      
                      
                      201,359
                      
                      
                      
                      65,092Due
      from related party
                      
                      
                      165,297
                      
                      
                      
                      -Prepaid
      expenses and others
                      
                      
                      102,635
                      
                      
                      
                      5,791Total
      current assets
                      
                      
                      1,167,646
                      
                      
                      
                      195,039Property
      and equipment
                      
                      
                      93,502
                      
                      
                      
                      93,502Less:
      Accumulated depreciation
                      
                      
                      (79,921
                      )
                      
                      
                      (65,342
                      )Property
      and equipment, net
                      
                      
                      13,581
                      
                      
                      
                      28,160Security
      deposits
                      
                      
                      -
                      
                      
                      
                      900Total
      assets
                      
                      $
                      1,181,227
                      
                      
                      $
                      224,099Liabilities
      and stockholders' deficiencyCurrent
      liabilities:Accounts
      payable
                      
                      $
                      85,661
                      
                      
                      $
                      407,151Accrued
      expenses
                      
                      
                      43,241
                      
                      
                      
                      258,753Notes
      payable
                      
                      
                      12,654
                      
                      
                      
                      574,092Customer
      deposits
                      
                      
                      -
                      
                      
                      
                      119,398Total
      current liabilities
                      
                      
                      141,556
                      
                      
                      
                      1,359,394Long-term
      liabilities:Related
      party notes payable
                      
                      
                      1,824,176
                      
                      
                      
                      1,598,479Total
      liabilities
                      
                      
                      1,965,732
                      
                      
                      
                      2,957,873Commitments
      and contingenciesStockholders'
      deficiency:Common
      stock, par value $0.001 per share, 1,500,000,000 and
      750,000,000  shares authorized at December 31, 2009 and 2008
      respectively; 1,470,998,871 and 266,542,635 shares issued and outstanding
      at December 31, 2009 and 2008, respectively
                      
                      
                      1,470,999
                      
                      
                      
                      266,542Additional
      paid-in capital
                      
                      
                      8,408,986
                      
                      
                      
                      7,404,197Deficit
      accumulated during the development stage
                      
                      
                      (10,664,490
                      )
                      
                      
                      (10,404,513
                      )Total
      stockholders' deficiency
                      
                      
                      (784,505
                      )
                      
                      
                      (2,733,774
                      )Total
      liabilities and stockholders' deficiency
                      
                      $
                      1,181,227
                      
                      
                      $
                      224,099





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


2


BioElectronics
Corporation (A Development Stage Company)


Statements
of Operations


For the
Years Ended December 31, 2009, 2008 and 2007


And for
the Period from April 10, 2000 (Inception) to December 31, 2009





2009
                                        
                                        
                                        Years ended
                                          December 31,
                                          2008
                                        
                                        
                                        2007
                                        
                                        
                                        Period from April
                                          10, 2000
                                          (Inception) to
                                          December 31,
                                          2009Sales
                                        
                                        $
                                        1,145,647
                                        
                                        
                                        $
                                        716,755
                                        
                                        
                                        $
                                        603,110
                                        
                                        
                                        $
                                        3,451,584Cost
      of Goods Sold
                                        
                                        
                                        390,342
                                        
                                        
                                        
                                        508,541
                                        
                                        
                                        
                                        169,921
                                        
                                        
                                        
                                        1,514,493Gross
      profit
                                        
                                        
                                        755,305
                                        
                                        
                                        
                                        208,214
                                        
                                        
                                        
                                        433,189
                                        
                                        
                                        
                                        1,937,091General
      and Administrative Expenses:Depreciation
      and Amortization
                                        
                                        
                                        14,579
                                        
                                        
                                        
                                        15,099
                                        
                                        
                                        
                                        19,419
                                        
                                        
                                        
                                        96,713Investor
      Relations Expenses
                                        
                                        
                                        33,895
                                        
                                        
                                        
                                        551,288
                                        
                                        
                                        
                                        543,108
                                        
                                        
                                        
                                        1,594,561Sales
      Support Expenses
                                        
                                        
                                        147,037
                                        
                                        
                                        
                                        439,359
                                        
                                        
                                        
                                        343,219
                                        
                                        
                                        
                                        1,427,930Other
      General and Administrative Expenses
                                        
                                        
                                        708,745
                                        
                                        
                                        
                                        1,034,595
                                        
                                        
                                        
                                        912,193
                                        
                                        
                                        
                                        7,969,185Total
      General and Administrative Expenses
                                        
                                        
                                        904,256
                                        
                                        
                                        
                                        2,040,341
                                        
                                        
                                        
                                        1,817,939
                                        
                                        
                                        
                                        11,088,389Loss
      from Operations
                                        
                                        
                                        (148,951
                                        )
                                        
                                        
                                        (1,832,127
                                        )
                                        
                                        
                                        (1,384,750
                                        )
                                        
                                        
                                        (9,151,298
                                        )Interest
      Expense and Other:Interest
      Expense
                                        
                                        
                                        (111,026
                                        )
                                        
                                        
                                        (192,083
                                        )
                                        
                                        
                                        (588,042
                                        )
                                        
                                        
                                        (1,477,340
                                        )Loss
      on Disposal of Assets
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (30,262
                                        )
                                        
                                        
                                        (35,852
                                        )Total
      Interest Expense and Other
                                        
                                        
                                        (111,026
                                        )
                                        
                                        
                                        (192,083
                                        )
                                        
                                        
                                        (618,304
                                        )
                                        
                                        
                                        (1,513,192
                                        )Loss
      Before Income Taxes
                                        
                                        
                                        (259,977
                                        )
                                        
                                        
                                        (2,024,210
                                        )
                                        
                                        
                                        (2,003,054
                                        )
                                        
                                        
                                        (10,664,490
                                        )Provision
      for Income Tax Expense
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Net
      loss
                                        
                                        $
                                        (259,977
                                        )
                                        
                                        $
                                        (2,024,210
                                        )
                                        
                                        $
                                        (2,003,054
                                        )
                                        
                                        $
                                        (10,664,490
                                        )Net
      loss Per Share - Basic and Diluted
                                        
                                        $
                                        (0.00
                                        )
                                        
                                        $
                                        (0.01
                                        )
                                        
                                        $
                                        (0.02
                                        )
                                        
                                        
                                        N/AWeighted
      Average Number of Shares Outstanding -Basic
      and Diluted
                                        
                                        
                                        982,246,684
                                        
                                        
                                        
                                        178,826,253
                                        
                                        
                                        
                                        90,906,674
                                        
                                        
                                        
                                        N/A





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


3


BioElectronics
Corporation (A Development Stage Company)


Statement
of Changes in Stockholders’ Deficiency


For the
Period from April 10, 2000 (Inception) to December 31, 2009




Capital
      Stock
                      
                      
                      Additional
                        Paid-in
      Capital
                      
                      
                      Deficit
      Accumulated
                        During
      the
                        Development
      Stage
                      
                      
                      TotalShares
                      
                      
                      AmountBalance
      at April 10, 2000 (Inception)
                      
                      
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -Net
      Loss
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (34,124
                      )
                      
                      
                      (34,124
                      )Contribution
      of assets
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      8,000
                      
                      
                      
                      -
                      
                      
                      
                      8,000Issuance
      of common stock for services rendered
                      
                      
                      22,150,000
                      
                      
                      
                      22,150
                      
                      
                      
                      (8,000
                      )
                      
                      
                      (13,150
                      )
                      
                      
                      1,000Balance
      at December 31, 2000
                      
                      
                      22,150,000
                      
                      
                      
                      22,150
                      
                      
                      
                      -
                      
                      
                      
                      (47,274
                      )
                      
                      
                      (25,124
                      )Net
      Loss
                      
                      
                      
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Balance
      at December 31, 2001
                      
                      
                      22,150,000
                      
                      
                      
                      22,150
                      
                      
                      
                      -
                      
                      
                      
                      (47,274
                      )
                      
                      
                      (25,124
                      )Net
      Loss
                      
                      
                      
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Balance
      at December 31, 2002
                      
                      
                      22,150,000
                      
                      
                      
                      22,150
                      
                      
                      
                      -
                      
                      
                      
                      (47,274
                      )
                      
                      
                      (25,124
                      )Net
      Loss
                      
                      
                      
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (568,087
                      )
                      
                      
                      (568,087
                      )Sale
      of common stock at $.03 per share
                      
                      
                      3,950,000
                      
                      
                      
                      3,950
                      
                      
                      
                      112,100
                      
                      
                      
                      -
                      
                      
                      
                      116,050Sale
      of common stock at $.0496 per share
                      
                      
                      800,000
                      
                      
                      
                      800
                      
                      
                      
                      38,900
                      
                      
                      
                      -
                      
                      
                      
                      39,700Sale
      of common stock at $.35 per share
                      
                      
                      40,000
                      
                      
                      
                      40
                      
                      
                      
                      13,960
                      
                      
                      
                      -
                      
                      
                      
                      14,000Balance
      at December 31, 2003
                      
                      
                      26,940,000
                      
                      
                      
                      26,940
                      
                      
                      
                      164,960
                      
                      
                      
                      (615,361
                      )
                      
                      
                      (423,461
                      )Net
      loss
                      
                      
                      
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (792,799
                      )
                      
                      
                      (792,799
                      )Common
      stock dividend
                      
                      
                      15,800,577
                      
                      
                      
                      15,800
                      
                      
                      
                      -
                      
                      
                      
                      (15,800
                      )
                      
                      
                      -Issuance
      of common stock for services rendered
                      
                      
                      2,245,649
                      
                      
                      
                      2,246
                      
                      
                      
                      110,036
                      
                      
                      
                      -
                      
                      
                      
                      112,282Sale
      of common stock at $.3540 per share
                      
                      
                      678,000
                      
                      
                      
                      678
                      
                      
                      
                      239,322
                      
                      
                      
                      -
                      
                      
                      
                      240,000Sale
      of common stock at $.4286 per share
                      
                      
                      149,333
                      
                      
                      
                      149
                      
                      
                      
                      63,851
                      
                      
                      
                      -
                      
                      
                      
                      64,000Sale
      of common stock at $.30 per share
                      
                      
                      83,333
                      
                      
                      
                      83
                      
                      
                      
                      24,917
                      
                      
                      
                      
                      
                      
                      
                      25,000Sale
      of common stock at $.01 per share
                      
                      
                      5,020,000
                      
                      
                      
                      5,020
                      
                      
                      
                      45,180
                      
                      
                      
                      -
                      
                      
                      
                      50,200Balance
      at December 31, 2004
                      
                      
                      50,916,892
                      
                      
                      
                      50,916
                      
                      
                      
                      648,266
                      
                      
                      
                      (1,423,960
                      )
                      
                      
                      (724,778
                      )Net
      loss
                      
                      
                      
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (1,914,053
                      )
                      
                      
                      (1,914,053
                      )Fair
      value of warrants issued in connection with financing
      arrangements
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      542,460
                      
                      
                      
                      
                      
                      
                      
                      542,460Issuance
      of common stock for services rendered
                      
                      
                      2,128,000
                      
                      
                      
                      2,128
                      
                      
                      
                      205,043
                      
                      
                      
                      -
                      
                      
                      
                      207,171Sale
      of common stock at $.30 per share
                      
                      
                      3,420,000
                      
                      
                      
                      3,420
                      
                      
                      
                      1,022,580
                      
                      
                      
                      -
                      
                      
                      
                      1,026,000Sale
      of common stock at $.0833 per share
                      
                      
                      4,600,000
                      
                      
                      
                      4,600
                      
                      
                      
                      378,785
                      
                      
                      
                      -
                      
                      
                      
                      383,385Sale
      of common stock at $.0959 per share
                      
                      
                      800,000
                      
                      
                      
                      800
                      
                      
                      
                      75,912
                      
                      
                      
                      -
                      
                      
                      
                      76,712Sale
      of common stock at $.1475 per share
                      
                      
                      1,000,000
                      
                      
                      
                      1,000
                      
                      
                      
                      146,500
                      
                      
                      
                      -
                      
                      
                      
                      147,500Balance
      at December 31, 2005
                      
                      
                      62,864,892
                      
                      
                      
                      62,864
                      
                      
                      
                      3,019,546
                      
                      
                      
                      (3,338,013
                      )
                      
                      
                      (255,603
                      )Net
      loss
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (3,039,236
                      )
                      
                      
                      (3,039,236
                      )Issuance
      of common stock for services rendered
                      
                      
                      7,099,856
                      
                      
                      
                      7,100
                      
                      
                      
                      433,481
                      
                      
                      
                      -
                      
                      
                      
                      440,581Fair
      value of warrants issued in connection with financing
      arrangements
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      182,913
                      
                      
                      
                      -
                      
                      
                      
                      182,913Sale
      of common stock at $.1667 per share
                      
                      
                      240,000
                      
                      
                      
                      240
                      
                      
                      
                      39,760
                      
                      
                      
                      -
                      
                      
                      
                      40,000Sale
      of common stock at $.10 per share
                      
                      
                      400,000
                      
                      
                      
                      400
                      
                      
                      
                      39,600
                      
                      
                      
                      -
                      
                      
                      
                      40,000Issuance
      of common stock for conversion of debt
                      
                      
                      5,000,000
                      
                      
                      
                      5,000
                      
                      
                      
                      495,000
                      
                      
                      
                      
                      
                      
                      
                      500,000Stock
      based compensation expense
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      23,941
                      
                      
                      
                      -
                      
                      
                      
                      23,941Balance
      at December 31, 2006
                      
                      
                      75,604,748
                      
                      
                      
                      75,604
                      
                      
                      
                      4,234,241
                      
                      
                      
                      (6,377,249
                      )
                      
                      
                      (2,067,404
                      )Net
      loss
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (2,003,054
                      )
                      
                      
                      (2,003,054
                      )Issuance
      of common stock for services rendered
                      
                      
                      1,555,000
                      
                      
                      
                      1,555
                      
                      
                      
                      51,145
                      
                      
                      
                      -
                      
                      
                      
                      52,700Sale
      of common stock at $.035 per share
                      
                      
                      6,000,000
                      
                      
                      
                      6,000
                      
                      
                      
                      204,000
                      
                      
                      
                      -
                      
                      
                      
                      210,000Sale
      of common stock at $.04 per share
                      
                      
                      750,000
                      
                      
                      
                      750
                      
                      
                      
                      29,250
                      
                      
                      
                      -
                      
                      
                      
                      30,000Sale
      of common stock at $.0444 per share
                      
                      
                      1,125,000
                      
                      
                      
                      1,125
                      
                      
                      
                      48,875
                      
                      
                      
                      -
                      
                      
                      
                      50,000Issuance
      of common stock for conversion of debt
                      
                      
                      33,366,847
                      
                      
                      
                      33,367
                      
                      
                      
                      1,470,471
                      
                      
                      
                      -
                      
                      
                      
                      1,503,838Stock
      based compensation expense
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      14,000
                      
                      
                      
                      -
                      
                      
                      
                      14,000Balance
      at December 31, 2007
                      
                      
                      118,401,595
                      
                      
                      
                      118,401
                      
                      
                      
                      6,051,982
                      
                      
                      
                      (8,380,303
                      )
                      
                      
                      (2,209,920
                      )Net
      loss
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (2,024,210
                      )
                      
                      
                      (2,024,210
                      )Issuance
      of common stock for services rendered
                      
                      
                      45,338,500
                      
                      
                      
                      45,338
                      
                      
                      
                      355,007
                      
                      
                      
                      -
                      
                      
                      
                      400,345Sale
      of common stock at $.035 per share
                      
                      
                      2,000,000
                      
                      
                      
                      2,000
                      
                      
                      
                      68,000
                      
                      
                      
                      -
                      
                      
                      
                      70,000Sale
      of common stock at $.0026 per share
                      
                      
                      8,500,000
                      
                      
                      
                      8,500
                      
                      
                      
                      14,000
                      
                      
                      
                      -
                      
                      
                      
                      22,500Sale
      of common stock at $.005 per share
                      
                      
                      5,000,000
                      
                      
                      
                      5,000
                      
                      
                      
                      20,000
                      
                      
                      
                      -
                      
                      
                      
                      25,000Sale
      of common stock at $.0032 per share
                      
                      
                      6,250,000
                      
                      
                      
                      6,250
                      
                      
                      
                      13,750
                      
                      
                      
                      -
                      
                      
                      
                      20,000Sale
      of common stock at $.00351 per share
                      
                      
                      5,700,000
                      
                      
                      
                      5,700
                      
                      
                      
                      14,300
                      
                      
                      
                      -
                      
                      
                      
                      20,000Sale
      of common stock at $.0035 per share
                      
                      
                      11,642,857
                      
                      
                      
                      11,643
                      
                      
                      
                      29,107
                      
                      
                      
                      -
                      
                      
                      
                      40,750Issuance
      of common stock for conversion of debt
                      
                      
                      63,709,683
                      
                      
                      
                      63,710
                      
                      
                      
                      838,051
                      
                      
                      
                      
                      
                      
                      
                      901,761Balance
      at December 31, 2008
                      
                      
                      266,542,635
                      
                      
                      $
                      266,542
                      
                      
                      $
                      7,404,197
                      
                      
                      $
                      (10,404,513
                      )
                      
                      $
                      (2,733,774
                      )Net
      loss
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (259,977
                      )
                      
                      
                      (259,977
                      )Issuance
      of common stock for services rendered
                      
                      
                      149,051,667
                      
                      
                      
                      149,052
                      
                      
                      
                      93,845
                      
                      
                      
                      -
                      
                      
                      
                      242,897Sale
      of common stock at $.0030 per share
                      
                      
                      9,000,000
                      
                      
                      
                      9,000
                      
                      
                      
                      18,000
                      
                      
                      
                      -
                      
                      
                      
                      27,000Sale
      of common stock at $.0020 per share
                      
                      
                      15,000,000
                      
                      
                      
                      15,000
                      
                      
                      
                      15,000
                      
                      
                      
                      -
                      
                      
                      
                      30,000Sale
      of common stock at $.0017 per share
                      
                      
                      11,500,000
                      
                      
                      
                      11,500
                      
                      
                      
                      8,500
                      
                      
                      
                      -
                      
                      
                      
                      20,000Sale
      of common stock at $.0015 per share
                      
                      
                      16,666,667
                      
                      
                      
                      16,667
                      
                      
                      
                      8,334
                      
                      
                      
                      -
                      
                      
                      
                      25,001Sale
      of common stock at $.0012 per share
                      
                      
                      55,500,000
                      
                      
                      
                      55,500
                      
                      
                      
                      11,100
                      
                      
                      
                      -
                      
                      
                      
                      66,600Sale
      of common stock at $.0013 per share
                      
                      
                      16,750,000
                      
                      
                      
                      16,750
                      
                      
                      
                      4,850
                      
                      
                      
                      -
                      
                      
                      
                      21,600Sale
      of common stock at $.02 per share
                      
                      
                      7,500,000
                      
                      
                      
                      7,500
                      
                      
                      
                      142,500
                      
                      
                      
                      -
                      
                      
                      
                      150,000Sale
      of common stock at $.028 per share
                      
                      
                      5,357,142
                      
                      
                      
                      5,357
                      
                      
                      
                      144,643
                      
                      
                      
                      -
                      
                      
                      
                      150,000Sale
      of common stock at $.0444 per share
                      
                      
                      2,250,000
                      
                      
                      
                      2,250
                      
                      
                      
                      97,750
                      
                      
                      
                      -
                      
                      
                      
                      100,000Sale
      of common stock at $.05 per share
                      
                      
                      5,646,000
                      
                      
                      
                      5,646
                      
                      
                      
                      276,654
                      
                      
                      
                      -
                      
                      
                      
                      282,300Issuance
      of common stock for conversion of debt
                      
                      
                      905,788,207
                      
                      
                      
                      905,788
                      
                      
                      
                      182,724
                      
                      
                      
                      -
                      
                      
                      
                      1,088,512Issuance
      of common stock for warrant exercises
                      
                      
                      4,446,553
                      
                      
                      
                      4,447
                      
                      
                      
                      889
                      
                      
                      
                      -
                      
                      
                      
                      5,336Balance
      at December 31, 2009
                      
                      
                      1,470,998,871
                      
                      
                      $
                      1,470,999
                      
                      
                      $
                      8,408,986
                      
                      
                      $
                      (10,664,490
                      )
                      
                      $
                      (784,505
                      )





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


4


BioElectronics
Corporation (A Development Stage Company)


Statements
of Cash Flows


For the
Years Ended December 31, 2009, 2008 and 2007


And for
the Period from April 10, 2000 (Inception) to December 31, 2009





2009
                      
                      
                      Years
      ended
                        December
      31, 2008
                      
                      
                      2007
                      
                      
                      Period
      from April
                        10,
      2000
                        (Inception)
      to
                        December
      31,
                        2009Cash
      flows from Operating Activities:Net
      loss
                      
                      $
                      (259,977
                      )
                      
                      $
                      (2,024,210
                      )
                      
                      $
                      (2,003,054
                      )
                      
                      $
                      (10,664,490
                      )Adjustment
      to Reconcile Net Loss to Net Cash Used In Operating
      Activities:Depreciation
      and amortization
                      
                      
                      14,579
                      
                      
                      
                      15,099
                      
                      
                      
                      19,419
                      
                      
                      
                      98,284Provision
      for bad debts
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      12,000
                      
                      
                      
                      58,255Amortization
      of non-cash debt issuance costs
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      350,589
                      
                      
                      
                      725,373Non-cash
      expenses
                      
                      
                      242,898
                      
                      
                      
                      400,346
                      
                      
                      
                      52,700
                      
                      
                      
                      1,455,978Stock-based
      employee compensation expense
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      14,000
                      
                      
                      
                      37,941Non-cash
      interest related to notes payable
                      
                      
                      52,656
                      
                      
                      
                      188,958
                      
                      
                      
                      205,030
                      
                      
                      
                      592,418Non-cash
      interest related to related party notes payable
                      
                      
                      87,703
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      87,703Write
      off of related party notes payable
                      
                      
                      (266,490
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (266,490
                      )Amortization
      of loan costs
                      
                      
                      -
                      
                      
                      
                      3,125
                      
                      
                      
                      63,100
                      
                      
                      
                      129,852Increase
      in related party notes payable for services rendered
                      
                      
                      -
                      
                      
                      
                      247,345
                      
                      
                      
                      309,181
                      
                      
                      
                      562,776Loss
      on disposal of property and equipment
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      30,262
                      
                      
                      
                      35,852Changes
      in Assets and Liabilities(Increase)
      Decrease in:Trade
      and other receivable
                      
                      
                      (333,125
                      )
                      
                      
                      129,382
                      
                      
                      
                      (98,760
                      )
                      
                      
                      (625,553
                      )Inventory
                      
                      
                      (136,267
                      )
                      
                      
                      126,443
                      
                      
                      
                      (128,033
                      )
                      
                      
                      (201,359
                      )Due
      from related party
                      
                      
                      (165,297
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Prepaid
      expenses and others
                      
                      
                      (84,190
                      )
                      
                      
                      (1,512
                      )
                      
                      
                      -
                      
                      
                      
                      (89,980
                      )Deposits
                      
                      
                      900
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Increase
      (Decrease) in:Accounts
      payable
                      
                      
                      (181,241
                      )
                      
                      
                      13,923
                      
                      
                      
                      (148,348
                      )
                      
                      
                      225,909Accrued
      expenses
                      
                      
                      (215,512
                      )
                      
                      
                      260,543
                      
                      
                      
                      (13,199
                      )
                      
                      
                      251,683Customer
      deposits
                      
                      
                      (119,398
                      )
                      
                      
                      119,398
                      
                      
                      
                      -
                      
                      
                      
                      -Net
      cash used in operating activities
                      
                      
                      (1,362,761
                      )
                      
                      
                      (521,160
                      )
                      
                      
                      (1,335,113
                      )
                      
                      
                      (7,585,848
                      )Cash
      flows from Investing ActivitiesAcquisition
      of property and equipment
                      
                      
                      -
                      
                      
                      
                      (6,882
                      )
                      
                      
                      -
                      
                      
                      
                      (128,729
                      )Net
      cash Used in Investing Activities
                      
                      
                      -
                      
                      
                      
                      (6,882
                      )
                      
                      
                      -
                      
                      
                      
                      (128,729
                      )Cash
      flows from Financing ActivitiesProceeds
      from note payable, net of loan costs of $10,000
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      1,090,148Payments
      on note payable
                      
                      
                      (62,000
                      )
                      
                      
                      (100,000
                      )
                      
                      
                      -
                      
                      
                      
                      (528,219
                      )Proceeds
      from related party notes payable
                      
                      
                      1,725,360
                      
                      
                      
                      461,371
                      
                      
                      
                      962,787
                      
                      
                      
                      4,804,953Payments
      on related party notes payable
                      
                      
                      (932,025
                      )
                      
                      
                      (12,600
                      )
                      
                      
                      (10,100
                      )
                      
                      
                      (969,803
                      )Proceeds
      from issuance of common stock
                      
                      
                      872,500
                      
                      
                      
                      198,250
                      
                      
                      
                      290,000
                      
                      
                      
                      3,623,837Other
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (9,987
                      )Net
      cash provided by financing activities
                      
                      
                      1,603,835
                      
                      
                      
                      547,021
                      
                      
                      
                      1,242,687
                      
                      
                      
                      8,010,929Net
      increase (Decrease) in cash
                      
                      
                      241,074
                      
                      
                      
                      18,979
                      
                      
                      
                      (92,426
                      )
                      
                      
                      296,352Cash-
      Beginning of Year
                      
                      
                      55,278
                      
                      
                      
                      36,299
                      
                      
                      
                      128,725
                      
                      
                      
                      -Cash-
      End of Year
                      
                      $
                      296,352
                      
                      
                      $
                      55,278
                      
                      
                      $
                      36,299
                      
                      
                      $
                      296,352Supplemental
      Disclosures of Cash Flow Information:Cash
      paid during the years for:Interest
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      66,632Income
      taxes
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -Supplemental
      Schedule of Non-Cash Investing and Financing Activities:Conversion
      of debt and accrued interest into common stock
                      
                      $
                      1,093,848
                      
                      
                      $
                      967,658
                      
                      
                      $
                      1,248,119
                      
                      
                      
                      N/AConversion
      of warrants into common stock
                      
                      $
                      5,336
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      5,336Prepaid
      insurance expense through issuance of notes
                      
                      $
                      12,654
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      12,654Equipment
      purchases financed through capital leases and notes
payable
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      9,986





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


5




BioElectronics
Corporation (A Development Stage Company)


Notes to
Financial Statements




NOTE
1 - NATURE OF BUSINESS





BioElectronics
Corporation was incorporated in April 2000 and began employee-based operations
in 2003.  BioElectronics Corporation (the “Company”) is the maker of
inexpensive, drug–free, anti-inflammatory medical devices and patches – its
primary SIC code is 3845.  The Company's wafer thin patches contain an
embedded microchip and battery that deliver pulsed electromagnetic energy, a
clinically proven and widely accepted anti-inflammatory and pain relief therapy
that heretofore has only been possible to obtain from large, facility-based
equipment.  BioElectronics markets and sells its current products
under the brand names ActiPatch®, AllayTM and RecoveryRxTM.





The
dermal patch delivery system creates a multitude of new product opportunities
for chronic and acute inflammatory conditions.  The market potential
is estimated at $10 billion or 400 million incidents worldwide.  The
distinctive value proposition of the device 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
current major applications are:





·      Medical
Surgeries


·      Chronic
Wounds


·      Oral
Surgeries


·      Sprains
and Strains


·      Lower
Back Pain


·      Chronic
Repetitive Stress Injuries, Heel Pain, Carpal Tunnel, Bursitis,
etc.





The
Company was granted its first approval from the FDA under a 510(k) in August
2002.  Prior to FDA approval and the establishment of its research and
development group, PAW, LLC (an entity owned by the family of Andy Whelan,
President) funded the operations and costs of product development.





In
December 2004, the Company received ISO and CE (European Common Market)
certification.  In 2005, Health Canada approved ActiPatch® Therapy for
the relief of pain in musculoskeletal complaints.




In early
2008, the Company redesigned its product and manufacturing process and
established new disease specific products and distinct medical and retail
product lines.  It also shifted its attention to international
sales.





The
accompanying financial statements are those of a development stage
company.  The Company is currently engaged in and devotes considerable
time to planning, developing and testing Infomercials, product design changes,
establishing sources of material supply and manufacturing subcontractors,
recruiting distributors and establishing a market presence for its
product.




The
Company has focused attention on international customers to expand its
distributions and sales.  The Company has established distribution
agreements with distributors in Korea, Singapore, Malaysia, Canada, Columbia,
Italy, Scandinavia, Saudi Arabia, Japan, Benelux, the Balkans, Austria,
Australia, China and South America.  The distribution agreements grant
the right to sell BioElectronics’ products in certain
territories.  The distributors are responsible for advertising and
promotion in their assigned territories.  In addition, the
distributors are subject to minimum annual product purchases, minimum initial
purchases and minimum inventory requirements.




6




BioElectronics
Corporation (A Development Stage Company)


Notes to
Financial Statements


NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





BASIS
OF PRESENTATION





The
Company has prepared the financial statements in accordance with accounting
principles generally accepted in the United States of America.




Effective
September 30, 2009, the Financial Accounting Standards Board (“FASB”)
established The FASB Accounting Standards Codification (“ASC”) (formerly
Statement of Financial Accounting Standards (“SFAS”) No. 162, “The Hierarchy of
Generally Accepted Accounting Principles”) as the source of authoritative
accounting to be applied by nongovernmental entities in the preparation of
financial statements in conformity with U.S. GAAP. Except for newly issued
standards that have not been codified, references to codified literature have
been updated to reflect this change.




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.




CONCENTRATION
OF CREDIT RISK





Financial
instruments, which potentially subject the Company to significant concentration
of credit risk, consist primarily of cash and cash equivalents. From time to
time the Company may have bank deposits in excess of federally insured
limits.  The standard maximum deposit insurance amount protected by
the Federal Deposit Insurance Corporation is $250,000.   As at
December 31, 2009, the excess amount of bank deposits unprotected is
approximately $46,000.  Management believes that the Company is not
exposed to significant credit risk due to the financial position of the
depository institutions in which those deposits are held.





USE
OF ESTIMATES





The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. The
more significant estimates include inventory obsolescence reserve, useful lives
for depreciation and amortization, salvage values of depreciable equipment,
valuation of warrants and options, allowance for doubtful trade and other
receivables and the utilization of deferred tax assets. Actual results could
differ from those estimates.


7




BioElectronics
Corporation (A Development Stage Company)


Notes to
Financial Statements


NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES  (CONTINUED)





TRADE
AND OTHER 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 December 31, 2009 and 2008. Bad debtexpense for the years
ended December 31, 2009, 2008 and 2007 was $3,385, $17,095 and $13,970,
respectively.





CREDIT
RISK ASSOCIATED WITH TRADE RECEIVABLE





In order
to reduce the default risk associated with international revenue transactions,
the Company secured most of international sales by a letter of credit or
guaranteed by the Export Import Bank of the United States.





INVENTORIES





Inventories
consist of raw materials, supplies and finished goods. All inventories are
valued at lower of average cost or market determined under the first-in,
first-out method. The Company periodically reviews inventories and items
considered outdated or obsolete are reduced to their estimated net realizable
value.




IMPAIRMENT
OF LONG-LIVED ASSETS





The
Company reviews its long lived assets for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable as prescribed by ASC Topic 360-10-05, “Impairment or Disposal of
Long-Lived Assets (formerly SFAS No. 144 “Accounting for the Impairment of
Long-Lived Assets”). If the carrying amount of the asset, including any
intangible assets associated with that asset, exceeds its estimated undiscounted
net cash flow, before interest, the Company will recognize an impairment loss
equal to the difference between its carrying amount and its estimated fair
value. No impairment losses were recognized for the years ended December 31,
2009, 2008 or 2007.





PROPERTY
AND EQUIPMENT





Property
and equipment are stated at cost less accumulated depreciation. The Company
provides for depreciation expense on a straight line basis over each asset’s
estimated useful life.




ASSET
      CLASSIFICATION
                
                USEFUL LIFEMachinery
                
                5
      yearsEquipment
                
                5 yearsLeasehold
      Improvements
                
                5
      years




8


BioElectronics
Corporation (A Development Stage Company)
 Notes to
Financial Statements


NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES  (CONTINUED)





Additions
to property and equipment and major improvements are capitalized. Gains and
losses on dispositions are recognized immediately. Maintenance, repairs and
minor replacements are expensed as incurred. Depreciation expense for the years
ended December 31, 2009, 2008 and 2007 was $14,579, $15,099, and $19,419,
respectively.





REVENUE
RECOGNITION





The
Company sells its products to wholesale distributors and directly to hospitals
and clinics. Revenue is recognized when evidence of an arrangement exists,
pricing is fixed and determinable, collection is reasonably assured, and
shipment has occurred or title to the goods has been transferred to the buyer.
Payment is due on a net basis in 30 days. If the customer is deemed not credit
worthy, payment in advance is required. The Company's agreement with customers
includes a right of return, but the return history of products is
immaterial.  No allowance for returns is required for the years ended
December 31, 2009, 2008 and 2007. Defective units are replaced at the request of
the customer.





The
Company enters into bill and hold arrangements from time to time with certain
distributors pursuant to which the product is purchased by distributors for
shipment at a later date.  The Company recognizes revenue on bill and hold
arrangements when the following seven criteria have been
met:   (1) the risk of ownership has passed to the buyer (2) the
buyer has made a fixed commitment to purchase the goods, preferably in writing
(3) the buyer, and not the seller, has requested that the transaction is on a
bill and hold basis (4) there is a fixed schedule for delivery of the goods,
indicating a delivery date that is reasonable and consistent with the buyer's
business purpose (5) the buyer has not retained any specific performance
obligations such that the earnings process is not complete (6) the ordered goods
are segregated from the seller's inventory and is not being used to fill other
orders and (7) the product must be complete and ready for
shipment.   In addition, payment must be received and/or fixed
payment dates be agreed with the customer pursuant to which the risk of
collection is reduced to a minimal level.





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.  Advertising expenses for the years ended December 31,
2009, 2008 and 2007 are $550, $5,132 and $4,515, respectively and are included
in general and administrative expenses in the statements of
operations.   Prepaid advertising cost incurred to fund the
production of Infomericals was $34,014 and $0 at December 31, 2009 and December
31, 2008, respectively.




INCOME
TAXES





The
Company provides for deferred taxes in accordance with ASC Topic 740, “Income
Taxes” (formerly SFAS No. 109, “Accounting for Income Taxes), which requires an
asset and liability approach for measuring deferred taxes and liabilities due to
temporary differences existing at year-end using currently enacted rates (See
Note 13).  A valuation allowance is provided when necessary to reduce
deferred tax assets to amounts expected to be realized.


9




BioElectronics
Corporation (A Development Stage Company)


Notes to
Financial Statements


NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES  (CONTINUED)




The
Company has adopted the provision within ASC Topic 740 for uncertain tax
positions, which clarifies the accounting for uncertainty in tax positions taken
or expected to be taken in a tax return, including issues relating to financial
statement recognition and measurement. The tax effects from an uncertain tax
position can be recognized in the financial statements only if the position is
“more-likely-than-not” of being sustained if the position were to be challenged
by a taxing authority. The assessment of the tax position is based solely on the
technical merits of the position, without regard to the likelihood that the tax
position may be challenged. If an uncertain tax position meets the
“more-likely-than-not” threshold, the largest amount of tax benefit that is
greater than 50 percent likely of being recognized upon ultimate settlement with
the taxing authority, is recorded. The provisions for uncertain tax positions
became effective for fiscal years beginning after December 15, 2006, with
the cumulative effect of the change in accounting principle recorded as an
adjustment to opening retained earnings.  The Company files income tax
returns in the U.S. federal jurisdiction and various state jurisdictions. These
income tax returns are subject to examinations range from 2006 to
2008.





From time
to time, the Company may be assessed interest or penalties by major tax
jurisdictions, although any such assessments historically have been minimal and
immaterial to the financial results. Our policy is that we recognize interest
and penalties accrued on any unrecognized tax benefits as a component of income
tax expense.





RESEARCH
AND DEVELOPMENT





Research
and development are costs of clinical studies that are charged to operations as
incurred.  The Company incurred $38,107, $115,667 and $41,288 of such
costs for the years ended December 31, 2009, December 31, 2008 and December 31,
2007.





SHIPPING
AND HANDLING FREIGHT FEES AND COSTS





All
amounts billed to a customer in a sales transaction related to shipping and
handling represent revenues earned and are reported as revenue.  The
costs incurred by the Company for shipping and handling are reported as part of
cost of goods sold.  The Company includes freight costs in cost of
goods sold.




COMPENSATED
ABSENCES





The
Company does not accrue for compensated absences and recognizes the costs of
compensated absences when paid to employees.  Accordingly, no liability for
such absences has been recorded in the accompanying financial statements.
 Management believes the effect of this policy is not material to the
accompanying financial statements.




STOCK
BASED COMPENSATION





Effective
January 1, 2006, the Company adopted the provisions of ASC Topic 718,
“Compensation – Stock Compensation,” (formerly SFAS No. 123R “Stock Based
Payment”) requiring that compensation cost relating to  stock based
payment transactions be recognized in the financial statements. The cost is
measured at the grant date, based on the calculated fair value of the award, and
is recognized as an expense over the employee’s requisite service period
(generally the vesting period of the equity award).


10




BioElectronics
Corporation (A Development Stage Company)


Notes to
Financial Statements


NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES  (CONTINUED)





Prior to
January 1, 2006, the Company accounted for stock based compensation as
permitted under ASC Topic 718, using the intrinsic value method. The fair value
of options that were not vested as of January 1, 2006 was calculated using
the Black-Scholes method and those amounts were recorded as stock-based
compensation prospectively over the remaining service period.





NET
LOSS PER SHARE





The
Company calculates basic and diluted net loss per share in accordance with ASC
Topic 260, “Earnings Per Share” (formerly SFAS No. 128, “Earnings Per Share”),
which requires the presentation of “basic” and “diluted” net loss per share on
the face of the statement of operations. Basic and diluted net loss per share is
computed by dividing net loss by the weighted-average number of outstanding
shares of common stock. Convertible debt instruments, warrants, and options to
purchase common stock are included as common stock equivalents only when
dilutive. For the years ended December 31, 2009, 2008 and 2007 the Company
reported net losses, as a result there is no difference between basic and
diluted shares for each of the years presented.





ISSUANCE
OF STOCK FOR NON-CASH CONSIDERATION





All
issuances of the Company’s stock for non-cash consideration have been assigned a
per share amount determined with reference to 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 in the statement and
value attributed to the shares issued.





The
Company’s accounting policy for equity instruments issued to consultants and
vendors in exchange for goods and services follows the provisions of ASC Topic
505-50, “Equity-Based Payments to Non-Employees”  (formerly EITF No.
96-18, Accounting for Equity Instruments That are Issued to Other Than Employees
for Acquiring , or in Conjunction with Selling, Goods or Services and EITF No.
00-18, Accounting Recognition for Certain Transactions Involving Equity
Instruments Granted to Other Than Employees).  The measurement date
for the fair value of the   equity instruments issued is
determined at the earlier of (i) the date at which a commitment for performance
by the consultant or vendor is reached or (ii) the date at which the consultant
or vendor’s performance is complete.





STOCKHHOLDERS’
EQUITY TRANSACTION





On June
18, 2009, the Company authorized to increase the number of authorized common
shares from 750,000,000 to 1,000,000,000.  Subsequently, on July 9,
2009, the Company further increased the authorized common shares to
1,500,000,000.




11




BioElectronics
Corporation (A Development Stage Company)


Notes to
Financial Statements


NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES  (CONTINUED)





FAIR
VALUE OF FINANCIAL INSTRUMENTS





The
Company’s financial instruments consist primarily of cash, trade and other
receivables, accounts payable, accrued liabilities, loans and notes payable. The
carrying amounts of such financial instruments approximate their respective
estimated fair value due to the short-term maturities and 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.  The Company
adopted ASC Topic 820-10, “Fair Value Measurements and Disclosures” (formerly
SFAS No. 157, “Fair Value Measurements”), which defines fair value, establishes
a framework for measuring fair value, and expands disclosures about fair value
measurements.  The standard provides a consistent definition of fair
value which focuses on an exit price that would be received upon sale of an
asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date.  The standard also prioritizes,
within the measurement of fair value, the use of market-based information over
entity specific information and establishes a three-level hierarchy for fair
value measurements based on the nature of inputs used in the valuation of an
asset or liability as of the measurement date.





The
three-level hierarchy for fair value measurements is defined as
follows:





·
                  Level
      1 – inputs to the valuation methodology are quoted prices (unadjusted) for
      identical assets or liabilities in active markets;·
                  Level
      2 – inputs to the valuation methodology include quoted prices for similar
      assets and liabilities in active markets, and inputs that are observable
      for the asset or liability other than quoted prices, either directly or
      indirectly including inputs in markets that are not considered to be
      active;·
                  Level
      3 – inputs to the valuation methodology are unobservable and significant
      to the fair value
measurement




An
investment’s categorization within the valuation hierarchy is based upon the
lowest level of input that is significant to the fair value
measurement.





RECLASSIFICATIONS





Certain
amounts in the prior year's financial statements have beenreclassified to conform
to the current year's presentation.




12




BioElectronics
Corporation (A Development Stage Company)


Notes to
Financial Statements


NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES  (CONTINUED)





RECENT
ACCOUNTING PRONOUNCEMENTS





Accounting Standards
Codification





In
June 2009, the FASB issued Statement of Financial Accounting Standards
(“SFAS”) No. 168, The
FASB Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles(the “Codification”). This standard replaces SFAS
No. 162, The Hierarchy of
Generally Accepted Accounting Principles, and establishes only two levels
of U.S. generally accepted accounting principles (“GAAP”), authoritative and
nonauthoritative. The FASB ASC has become the source of authoritative,
nongovernmental GAAP, except for rules and interpretive releases of the SEC,
which are sources of authoritative GAAP for SEC registrants. All other
nongrandfathered, non-SEC accounting literature not included in the Codification
will become nonauthoritative. This standard is effective for financial
statements for interim or annual reporting periods ending after
September 15, 2009. The adoption of the Codification changed the Company’s
references to GAAP accounting standards but did not impact the Company’s results
of operations, financial position or liquidity.





Participating Securities Granted in
Share-Based Transactions





Effective
January 1, 2009, the Company adopted a new accounting standard included in
ASC 260, Earnings Per Share(formerly FASB Staff Position (“FSP”) Emerging Issues Task Force (“EITF”)
03-6-1, Determining Whether
Instruments Granted in Share-Based Payment Transactions Are Participating
Securities).The new guidance clarifies that non-vested share-based
payment awards that entitle their holders to receive nonforfeitable dividends or
dividend equivalents before vesting should be considered participating
securities and included in basic earnings per share. The Company’s adoption of
the new accounting standard did not have a material effect on previously issued
or current earnings per share.





Fair Value Measurement and
Disclosure





Effective
January 1, 2009, the Company adopted a new accounting standard included in
ASC 820, Fair Value
Measurements and Disclosures(“ASC 820”) (formerly FASB FSP No 157-2,
Effective Date of FASB
Statement No. 157),which delayed the effective date for disclosing
all non-financial assets and non-financial liabilities, except for items that
are recognized or disclosed at fair value on a recurring basis (at least
annually). This standard did not have a material impact on the Company’s
financial statements.




In
April 2009, the FASB issued new guidance for determining when a transaction
is not orderly and for estimating fair value when there has been a significant
decrease in the volume and level of activity for an asset or liability. The new
guidance, which is now part of ASC 820 (formerly FSP 157-4, Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly), requires
disclosure of the inputs and valuation techniques used, as well as any changes
in valuation techniques and inputs used during the period, to measure fair value
in interim and annual periods. In addition, the presentation of the fair value
hierarchy is required to be presented by major security type as described in ASC
320, Investments — Debt and
Equity Securities. The provisions of the new standard were effective for
interim periods ending after June 15, 2009. The adoption of the new
standard on April 1, 2009 did not have a material effect on the Company’s
financial statements.


13




BioElectronics
Corporation (A Development Stage Company)


Notes to
Financial Statements


NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES  (CONTINUED)





In
April 2009, the Company adopted a new accounting standard included in ASC
820, (formerly FSP 107-1 and Accounting Principles Board (“APB”) 28-1, Interim Disclosures about Fair Value
of Financial Instruments).The new standard requires disclosures of the
fair value of financial instruments for interim reporting periods of publicly
traded companies in addition to the annual disclosure required at year-end. The
provisions of the new standard were effective for the interim periods ending
after June 15, 2009. The Company’s adoption of this new accounting standard
did not have a material effect on the Company’s financial
statements.





In
August 2009, the FASB issued new guidance relating to the accounting for
the fair value measurement of liabilities. The new guidance, which is now part
of ASC 820, provides clarification that in certain circumstances in which a
quoted price in an active market for the identical liability is not available, a
company is required to measure fair value using one or more of the following
valuation techniques: the quoted price of the identical liability when traded as
an asset, the quoted prices for similar liabilities or similar liabilities when
traded as assets, or another valuation technique that is consistent with the
principles of fair value measurements. The new guidance clarifies that a company
is not required to include an adjustment for restrictions that prevent the
transfer of the liability and if an adjustment is applied to the quoted price
used in a valuation technique, the result is a Level 2 or 3 fair value
measurement. The new guidance is effective for interim and annual periods
beginning after August 27, 2009. The Company’s adoption of the new guidance
did not have a material effect on the Company’s financial
statements.





Derivative Instruments and Hedging
Activities





Effective
January 1, 2009, the Company adopted a new accounting standard included in
ASC 815, Derivatives and
Hedging(SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities, an amendment of SFAS No. 133).
The new accounting standard requires enhanced disclosures about an entity’s
derivative and hedging activities and is effective for fiscal years and interim
periods beginning after November 15, 2008. Since the new accounting
standard only required additional disclosure, the adoption did not impact the
Company’s financial statements.





Other-Than-Temporary
Impairments





In
April 2009, the FASB issued new guidance for the accounting for
other-than-temporary impairments. Under the new guidance, which is part of ASC
320, Investments — Debt and
Equity Securities(formerly FSP 115-2 and 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments),an other-than-temporary impairment is
recognized when an entity has the intent to sell a debt security or when it is
more likely than not that an entity will be required to sell the debt security
before its anticipated recovery in value.The new guidance does not
amend existing recognition and measurement guidance related to
other-than-temporary impairments of equity securities and is effective for
interim and annual reporting periods ending after June 15, 2009. The
Company’s adoption of the new guidance did not have a material effect on the
Company’s financial statements.


14




BioElectronics
Corporation (A Development Stage Company)


Notes to
Financial Statements


NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES  (CONTINUED)





Subsequent
Events





In
May 2009, the FASB issued new guidance for subsequent events. The new
guidance, which is part of ASC 855, Subsequent Events(formerly
SFAS No. 165, Subsequent
Events)is intended to establish general standards of accounting for and
disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. Specifically,
this guidance sets forth the period after the balance sheet date during which
management of a reporting entity should evaluate events or transactions that may
occur for potential recognition or disclosure in the financial statements, the
circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements, and the
disclosures that an entity should make about events or transactions that
occurred after the balance sheet date. The new guidance is effective for fiscal
years and interim periods ended after June 15, 2009 and will be applied
prospectively. The Company’s adoption of the new guidance did not have a
material effect on the Company’s financial statements. Management has evaluated
the impact of events occurring after December 31, 2009 up to the date of
issuance of these financial statements. These statements contain all necessary
adjustments and disclosures resulting from that evaluation.




Accounting StandardsNot Yet
Effective




Accounting
for the Transfers of Financial Assets




In
June 2009, the FASB issued new guidance relating to the accounting for
transfers of financial assets. The new guidance, which was issued as SFAS
No. 166, Accounting for
Transfers of Financial Assets, an amendment to SFAS No.140,
was adopted into Codification in December 2009 through the issuance of
Accounting Standards Updated (“ASU”) 2009-16. The new standard eliminates the
concept of a “qualifying special-purpose entity,” changes the requirements for
derecognizing financial assets, and requires additional disclosures in order to
enhance information reported to users of financial statements by providing
greater transparency about transfers of financial assets, including
securitization transactions, and an entity’s continuing involvement in and
exposure to the risks related to transferred financial assets. The new guidance
is effective for fiscal years beginning after November 15, 2009. The
Company does not expect that the provisions of the new guidance will have a
material effect on its financial statements.




Accounting forVariable Interest Entities




In
June 2009, the FASB issued revised guidance on the accounting for variable
interest entities. The revised guidance, which was issued as SFAS No. 167,
Amending FASB Interpretation
No. 46(R),was adopted into Codification in December 2009
through the issuance of ASU 2009-17. The revised guidance amends FASB
Interpretation No. 46(R), Consolidation of Variable Interest
Entities, in determining whether an enterprise has a controlling
financial interest in a variable interest entity. This determination identifies
the primary beneficiary of a variable interest entity as the enterprise that has
both the power to direct the activities of a variable interest entity that most
significantly impacts the entity’s economic performance, and the
obligation to absorb losses or the right to receive benefits of the entity
that could potentially be significant to the variable interest entity. The
revised guidance requires ongoing reassessments of whether an enterprise is the
primary beneficiary and eliminates the quantitative approach previously required
for determining the primary beneficiary. The Company does not expect that the
provisions of the new guidance will have a material effect on its financial
statements.




15




BioElectronics
Corporation (A Development Stage Company)


Notes to
Financial Statements


NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES  (CONTINUED)




Revenue
Recognition




In
October 2009, the FASB issued ASU 2009-13, Multiple-Deliverable Revenue
Arrangements. The new standard changes the requirements for establishing
separate units of accounting in a multiple element arrangement and requires the
allocation of arrangement consideration to each deliverable based on the
relative selling price. The selling price for each deliverable is based on
vendor-specific objective evidence (“VSOE”) if available, third-party evidence
if VSOE is not available, or estimated selling price if neither VSOE or
third-party evidence is available. ASU 2009-13 is effective for revenue
arrangements entered into in fiscal years beginning on or after June 15,
2010. The Company does not expect that the provisions of the new guidance will
have a material effect on its financial statements.




In
October 2009, the FASB issued Accounting Standards Update No. 2009-14,
"Certain Revenue Arrangements That Include Software Elements"("ASU No. 2009-14").
ASU No. 2009-14 amends guidance included within ASC Topic 985-605 to exclude
tangible products containing software components and non-software components
that function together to deliver the product’s essential
functionality.  Entities that sell joint hardware and software
products that meet this scope exception will be required to follow the guidance
of ASU No. 2009-13.  ASU No. 2009-14 is effective prospectively for
revenue arrangements entered into or materially modified in fiscal years
beginning on or after June 15, 2010.  Early adoption and
retrospective application are also permitted.  The Company does not
expect that the provisions of the new guidance will have a material effect on
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 $259,977
for the year ended December 31, 2009.  The Company is currently
looking for financing to provide the needed funds for
operations.  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.




16




BioElectronics
Corporation (A Development Stage Company)


Notes to
Financial Statements


NOTE
4 - INVENTORY




The
components of inventory as of December 31, 2009 and 2008 are:





2009
                  
                  
                  2008Raw
      materials
                  
                  $
                  27,900
                  
                  
                  $
                  21,662Finished
      goods
                  
                  
                  173,459
                  
                  
                  
                  43,430$
                  201,359
                  
                  
                  $
                  65,092





NOTE
5 – PROPERTY AND EQUIPMENT





Property
and equipment consists of the following at December 31:




2009
                  
                  
                  2008Machinery
      & Equipment
                  
                  $
                  86,620
                  
                  
                  $
                  86,620Leasehold
      improvements
                  
                  
                  6,882
                  
                  
                  
                  6,88293,502
                  
                  
                  
                  93,502Less:
      accumulated depreciation
                  
                  
                  (79,921
                  )
                  
                  
                  (65,342
                  )Total
      property and equipment, net
                  
                  $
                  13,581
                  
                  
                  $
                  28,160





Depreciation
expenses recorded related to property and equipment were $14,579, $15,099 and
$19,419 for the years ended December 31, 2009, December 31, 2008 and December
31, 2007, respectively.





NOTE
6 – NOTES PAYABLE





Senior
Secured Convertible Notes




On
December 8, 2005, the Company entered into a Subscription Agreement wherein the
Subscribers (“the Investors”) agreed to purchase up to $1 million of 8%
promissory notes of the Company, convertible into shares of the Company’s common
stock at a per share convertible price set forth in the Agreement, and share
purchase warrants to purchase shares of the Company’s common
stock.  On the Initial Closing Date, the Investors purchased a total
of $750,000 of Senior Secured Convertible Notes ("the Initial Closing
Notes").




17


BioElectronics
Corporation (A Development Stage Company)


Notes to
Financial Statements




NOTE
6 – NOTES PAYABLE (CONTINUED)




The
Investors also agreed to purchase an additional $250,000 (“the Second Closing
Purchase Price”) of Notes (the "Additional Notes") on the Second Closing Date,
which was defined as the third business day after the Actual Effective Date of
the Registration Statement, which is described below.  Both the
Initial Closing Notes and the Additional Notes bear interest at a fixed rate of
8% per annum, payable monthly. The Initial Closing Notes and the Additional
Notes were initially convertible into 3,000,000 shares and 1,000,000 shares,
respectively, of the Company's common stock at the lesser of (a) the Fixed
Conversion Price of $0.25 per share, or (b) 85% of the Volume Weighted Average
Price (“the VWAP”) for the 10 trading days preceding conversion.  The
Notes are collateralized by a security interest in substantially all of the
Company’s assets.




The
Company issued Class A share purchase warrants along with the Initial Closing
Notes.  One Class A warrant was issued to each Investor for each
common stock share which would be issued to the Investor assuming the complete
conversion of the Notes on such closing date at the conversion price in effect
at that date (for a total 3,000,000 warrants).  The warrant exercise
price was equal to 120% of the closing bid price on the Initial Closing Date for
the last trading day preceding the Initial Closing Date, not to exceed $0.50 per
share.  The Class A warrants were exercisable until 5 years after each
closing date.




The
Company also issued Class B share purchase warrants to the
Investors.  An aggregate of 750,000 Class B warrants were issued to
the Investors on the Initial Closing Date, and an aggregate of 250,000 Class B
warrants were to be issued to the Investors on the Second Closing
Date.  The Company ultimately issued a total of 1,000,000 Class B
warrants to the Investors.  The warrant exercise price for the Class B
warrants was $0.55 per share.  The Class B warrants were to be
exercisable until the Registration Statement was effective, as described below,
for 180 days.




The
Subscription Agreement contained registration rights that were granted to the
holders of the Company’s common stock issued upon note conversion. The
registration rights contained a provision wherein a Registration Statement was
to be filed with the U.S. Securities and Exchange Commission (“SEC”) within 45
days after the Initial Closing Date, and the Registration Statement had to be
declared effective not later than 75 days after the Initial Closing Date, or
within 115 days if there was an SEC review.  Failure to comply with
these dates would constitute a Non-Registration Event, which would make all
principal and accrued interest on the notes become immediately due and payable,
under which the Investors could assess, as Liquidated Damages, an amount
calculated on a daily basis at a rate of 2% for each 30 days of the Purchase
Price of the Notes remaining unconverted and purchase price of Shares issued
upon conversion of the Notes.  The Liquidated Damages, at the option
of the Company, may be paid in cash or additional shares of its common
stock.  Also, the interest rate on the Notes would increase to a
Default Rate of 15% per annum until the Registration Statement was
filed.




18




BioElectronics
Corporation (A Development Stage Company)


Notes to
Financial Statements




NOTE
6 – NOTES PAYABLE (CONTINUED)




The
Company filed a Registration Statement on February 13, 2006 but the statement
was not declared effective within 75 days of the Initial Closing Date, therefore
a Non-Registration Event was asserted by the Investors. As a result, the
Investors allowed the Company to amend the Subscription Agreement on June 16,
2006 (“the June 16, 2006 Modification and Amendment Agreement”) in which the
Company was permitted to file an amended Registration Statement no later than
June 16, 2006.  Due to the Non-Registration Event, liquidated damages
were accrued through June 16, 2006, and were payable in the form of
Notes.  Additionally, the Notes Fixed Conversion Price was changed
from $0.25 to $0.18 per share.  The Company recorded liquidated
damages of $76,500 in 2006, and issued 443,000 Class B Warrants to the
Investors. In the Modification and Amendment Agreement, the Investors agreed to
accelerate a funding of an aggregate of $100,000 of the Second Closing Purchase
Price (“Interim Funding”).  The balance of the Second Closing Purchase
Price was to be funded on the Second Closing Date pursuant to the Subscription
Agreement. The Investors also agreed to waive additional Liquidated Damages
payable in connection with the initial 60 day period following the Closing Date
of the Interim Funding.




On June
16, 2006, the Registration Statement was not declared effective, and it was
withdrawn by the Company on July 13, 2006.  As a result, the Company
entered into a second Modification and Amendment agreement on August 14, 2006,
under which the Company agreed to file an amendment to the Registration
Statement no later than August 14, 2006. The second Modification and Amendment
agreement resulted in the purchase by the Investors of $100,000 of Notes (“the
Interim Funding Notes”) under the Interim Funding provisions of the June 16,
2006 Modification and Amendment Agreement. The investors also agreed to waive
the accrual of interest on liquidated damages for a period up to sixty days
until October 14, 2006. If the Registration Statement was not filed and not
declared effective by this date, interest on the liquidated damages would begin
to accrue until the Registration Statement was declared effective.




The
Registration Statement was filed on August 14, 2006, but was not declared
effective on October 14, 2006. Therefore, interest on the Liquidated Damages of
$3,507 was accrued by the Company from October 14, 2006 to December 31, 2006,
and was payable in the form of Notes.




During
the year ended December 31, 2007, the Company issued 1,577,652 shares of the
Company’s common stock at conversion prices ranging from $.06 to $.18 per share
in complete satisfaction of an Investor’s convertible promissory notes. The
principal amount of the notes, Liquidated Damages and accrued interest totaled
$133,749. In addition, the remaining Investors converted Notes, Liquidated
Damages and accrued interest totaling $175,070, into 2,654,576 shares of the
Company’s common stock at conversion prices ranging from $.06 to $.07 per share.
At December 31, 2007, the balance of the Notes, Liquidated Damages and accrued
interest was $847,118.




19




BioElectronics
Corporation (A Development Stage Company)


Notes to
Financial Statements




NOTE
6 – NOTES PAYABLE (CONTINUED)




On May
28, 2008, the Company entered into a third amendment of the Subscription
Agreement, under which the Company immediately converted $50,000 (total
conversion of $100,000) of the amounts owed to the two remaining investors, at a
conversion price of $.025 into 2,000,000 (4,000,000 total) shares of the
Company’s common stock. The fixed conversion price for the remaining face amount
of the Notes and Additional Notes was changed to $.06 per share. In addition,
commencing 76 days after the date of the third amendment, August 11, 2008, the
Company began making amortizing payments of $20,000 monthly towards the
outstanding amounts due on the Notes until the Notes were repaid in full,
whether by the payment of cash or by conversion at the Company’s election. The
conversion rate for the $20,000 payment amounts was to be calculated on the
lesser of (a) the Fixed Conversion Price of $.06 per share, or (b) 85% of the
VWAP for the 10 trading days preceding the payment date. During the year ended
December 31, 2008, the Company paid five monthly $20,000 amortizing payments
($100,000 total) towards the balance of the Notes. In addition, the Company
issued 9,150,331 shares of the Company’s common stock at conversion prices
ranging from $.03 to $.04 per share in conversion of Notes, Liquidated Damages
and accrued interest totaling $240,308. At December 31, 2008, the balance of the
Notes, Liquidated Damages and accrued interest were $574,092.




During
the first and second quarters of the year ended December 31, 2009, the Company
made four cash payments during the year of 2009 totaling $62,000 towards the
balance of the Notes.  There were further interest accruals totaling
$52,656 during the year of December 31, 2009.  As at December 31,
2009, the Company converted the remaining balance of notes payable ($564,748)
into 466,488,207 shares of the Company’s common stock, at a conversion price of
$.0012.  The notes payable was fully converted as at December 31,
2009.





As
required by ASC Topic 815, Accounting for Derivative Instruments and Hedging
Activities, a discount of $731,293 was recorded started December 8, 2005 against
the face amount of the Notes that has been amortized over the two year term of
the notes to their maturity date.  The fair value of the warrants
issued of $731,293 was calculated using the Black Scholes option pricing model
based on the following assumptions: (1) risk free interest rate of 4.21%; (2)
dividend yield of 0%; (3) volatility factor of the expected market price of the
Company’s common stock of 40%; and (4) an expected life of the warrants of 5
years. Additionally, the proceeds were allocated between the notes and warrants
using the relative fair value method. During the years ended December 31, 2009,
2008 and 2007, amortization of the discount as interest expense was $0, $0, and
$350,589, respectively.




20




BioElectronics
Corporation (A Development Stage Company)


Notes to
Financial Statements




NOTE
6 – NOTES PAYABLE (CONTINUED)




The
following table summarizes the activity of the Senior Secured Convertible Notes
from December 31, 2005 through December 31, 2009:




Convertible NotesBalance,
      December 31, 2005
                            
                            $
                            750,000Proceeds
      from notes payable
                            
                            
                            100,000Liquidated
      damages
                            
                            
                            76,500Accrual
      of interest
                            
                            
                            110,965Conversion
      of notes payable
                            
                            
                            -Balance,
      December 31, 2006
                            
                            
                            1,037,465Accrual
      of interest
                            
                            
                            117,772Conversion
      of notes payable into 4,232,228 shares
                            
                            
                            (308,119
                            )Balance,
      December 31, 2007
                            
                            
                            847,118Accrual
      of interest
                            
                            
                            67,282Repayments
      of notes payable
                            
                            
                            (100,000
                            )Conversion
      of notes payable into 9,150,331 shares
                            
                            
                            (240,308
                            )Balance,
      December 31, 2008
                            
                            
                            574,092Accrual
      of interest
                            
                            
                            52,656Repayments
      of notes payable
                            
                            
                            (62,000
                            )Conversion
      of notes payable into 466,288,207 shares
                            
                            
                            (564,748
                            )Balance,
      December 31, 2009
                            
                            $
                            -





Interest
expense incurred on the above notes, which included amortization of the note
discount, for the years ended December 31, 2009, 2008 and 2007 was $52,656,
$67,282, and $468,361, respectively.





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 total amount financed was $29,295 with
payments of $16,641 made during the year ended December 31, 2009.  The
interest expense for this note was $982 per the year ended December 31,
2009.  The outstanding payable balance at December 31, 2009 was
$12,654, which is due in full by May 31, 2010.




21




BioElectronics
Corporation (A Development Stage Company)


Notes to
Financial Statements




NOTE
7 – 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%, 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 the Company’s
common stock. The Revolver is convertible at various conversion prices based on
the VWAP for the 10 trading days preceding the date of
conversion.  IBEX, LLC is a limited liability company, whose President
is the daughter of the President of the Company.





During
the year ended December 31, 2007, IBEX converted $910,000 of the Revolver’s
outstanding balance and received 26,000,000 shares of the Company’s common stock
at conversion prices ranging from $.02 to $.10 per share.





During
the year ended December 31, 2008, IBEX converted $722,400 of the Revolver’s
outstanding balance and received 57,000,000 shares of the Company’s common stock
at conversion prices ranging from less than $.01 to $.02 per
share.  At December 31, 2008, the balance of the Revolver was
$1,099,722.





During
the year ended December 31, 2009, IBEX converted $529,100 of the Revolver’s
outstanding balance and received 439,500,000 shares of the Company’s common
stock at conversion prices at less than $.01 per share.  At December
31, 2009, the balance of the Revolver was $1,287,954.





In
addition to the Revolver as described above, on August 1, 2009, the Company
entered into a convertible promissory note agreement with IBEX, for $519,920,
with simple interest at 8% per annum.  All accrued interest and
principal are due on or before August 31, 2011, whether by the payment of cash
or by conversion into shares of the Company’s common stock.  The
promissory note is convertible equal to the quotient of (i) a sum equal to the
entire outstanding principal and interest, divided by (ii) the conversion price
of $.019 per share.  According to the Security Agreement dated August
1, 2009, 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.




The
Company has entered into related party loans with various stockholders of the
Company. The loans are interest-bearing at rates consisting of prime plus 2.0%
(5.25% at December 31, 2009 and 7.00% at December 31, 2008) and stated rates at
8% with no stated maturity dates.  During the year ended December 31,
2009, the Company obtained an additional loan of $1,033,249 from the
shareholders and made payments of $893,000.  The amounts owed to the
stockholders other than IBEX as of December 31, 2009 and 2008 were $0 and
$498,757, respectively.




22




BioElectronics
Corporation (A Development Stage Company)


Notes to
Financial Statements




NOTE
7 – RELATED PARTY NOTES PAYABLE (CONTINUED)





Maturities
of notes payable at December 31, 2009 are:





2010
                  
                  $
                  -2011
                  
                  
                  536,2222012
                  
                  
                  -2013
                  
                  
                  -2014
                  
                  
                  -Thereafter
                  
                  
                  1,287,954Total
                  
                  $
                  1,824,176





Interest
expense incurred on the related party notes payable for the years ended December
31, 2009, 2008 and 2007 was $57,388, $124,800 and $119,682,
respectively.





NOTE
8 – LOSS PER SHARE





The
following table sets forth the computation of basic and diluted share
data:





Common Stock:
                
                2009
                
                
                2008
                
                
                2007Weighted
      average number of shares outstanding – basic
                
                
                982,246,684
                
                
                
                178,826,253
                
                
                
                90,906,674Effect
      of dilutive securities:Options
      and Warrants
                
                
                -
                
                
                
                -
                
                
                
                -Weighted
      average number of shares outstanding – diluted
                
                
                982,246,684
                
                
                
                178,826,253
                
                
                
                90,906,674Options
      and Warrants not included above (anti-dilutive)Options
      to purchase common stock
                
                
                350,000
                
                
                
                350,000
                
                
                
                350,000Warrants
      to purchase common stock
                
                
                332,000
                
                
                
                4,844,444
                
                
                
                5,144,444682,000
                
                
                
                5,194,444
                
                
                
                5,494,444




23




BioElectronics
Corporation (A Development Stage Company)
 Notes to
Financial Statements
 
 NOTE
9 - STOCK OPTION PLANS/STOCK 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 reserves 10
million shares of common stock for issuance. The options may be incentive,
nonqualified or stock appreciation rights.
  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 five years from the
date of grant.
  On
exercise of a stock appreciation right, the holder may receive shares of common
stock and cash equal to the excess of the fair market value of the common stock
at the date of exercise over the option price. Stock appreciation rights
may be exercised five years from the date of grant.  As of December 31,
2009 no stock appreciation rights have been granted.
 
 The
following table sets forth options, granted, cancelled, forfeited and
outstanding:
 
 Number of
                      Shares
                    
                    
                    Aggregate
                      Grant Date
                      Fair Value
                    
                    
                    Weighted
                      Average
                      Exercise PriceDecember
      31,2006
                    
                    
                    350,000
                    
                    
                    $
                    42,000
                    
                    
                    $
                    0.30Granted
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Exercised
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Forfeited
      / Canceled
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Outstanding,December
      31, 2007
                    
                    
                    350,000
                    
                    
                    
                    42,000
                    
                    
                    
                    0.30Granted
                    
                    
                    -
                    
                    
                    
                    -Exercised
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Forfeited
      / Canceled
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Outstanding,
      December 31, 2008
                    
                    
                    350,000
                    
                    
                    
                    42,000
                    
                    
                    
                    0.30Granted
                    
                    
                    -
                    
                    
                    
                    -Exercised
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Forfeited
      / Canceled
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Outstanding,December
      31, 2009
                    
                    
                    350,000
                    
                    
                    $
                    42,000
                    
                    
                    $
                    0.30
 
 Summary
information about the Company's stock options outstanding at December 31,
2009:
 
 Weighted AverageExercise
                            
                            Options
                            
                            
                            Remaining Years of
                            
                            
                            Weighted Average
                            
                            
                            Options
                            
                            
                            Weighted AveragePrice
                            
                            Outstanding
                            
                            
                            ContractualLife
                            
                            
                            ExercisePrice
                            
                            
                            Exercisable
                            
                            
                            ExercisePrice$
                            .30
                            
                            
                            350,000
                            
                            
                            1.0
                            
                            
                            $
                            .30
                            
                            
                            
                            350,000
                            
                            
                            $
                            .30
 
 As of December 31, 2009, and 2008 the
Company had 350,000 options exercisable and 4,115,000 available for future
grant.
  24
  BioElectronics
Corporation (A Development Stage Company)
 Notes to
Financial Statements
 
 NOTE
9 - STOCK OPTION PLANS/STOCK BASED COMPENSATION (CONTINUED)
 
 The
Company adopted the provisions of ASC Topic 718 in the beginning of
2006.  ASC Topic 718 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
stock option plan for the years ended December 31, 2009, 2008 and 2007 totaled
$0, $0, and $14,000, respectively.
 
 The fair
value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions used for options granted are:
 
 AssumptionsRisk-free
      interest rate
                                              
                                              
                                              3.64%Dividend
      yield
                                              
                                              
                                              0%Expected
      life of option grants
                                              
                                              5
      yearsExpected
      stock price volatility
                                              
                                              
                                              40%
 
 The
Company's computation of the expected stock price volatility is based primarily
upon historical volatility and the expected term of the option.  The
expected term is based on the historical exercise experience under the
share-based plans of the underlying award and represents the period of time the
share-based awards are expected to be outstanding.  The interest rate is
based on the U.S. Treasury yield in effect at the time of grant for a period
commensurate with the estimated expected life.  The forfeiture rate is
based on historical data.
  NOTE
10 - WARRANTS
  On April
4, 2005, the Company sold 3,420,000 shares of Common Stock for $1,026,000 in a
private placement and issued 3,911,500 warrants, including 491,500 agent's
warrants, (''PPM Warrants'') to purchase 3,911,500 shares of the Company's
Common Stock.
  On
December 8, 2005, the Company issued $750,000 of Senior Secured Convertible
Notes and agreed to issue an additional $250,000 of Notes (see Note 6).  In
connection with this financing, the Company issued warrants ("Investor
Warrants") to purchase a total of 3,000,000 shares of the Company's common
stock, and issued additional warrants (“Broker Warrants”) to a broker to
purchase 300,000 shares of the Company’s common stock.
  On August
14, 2006, the Company issued an additional $100,000 of Senior Secured
Convertible Notes (see Note 6). In connection with this financing, the Company
issued warrants (“Additional Investor Warrants”) to purchase a total of
1,000,000 shares of the Company’s common stock, and issued additional warrants
to a broker to purchase 69,444 shares of the Company’s common stock. In
addition, the Company accrued liquidated damages of $76,500 due to the
Non-Registration Event (see Note 6). In connection with these liquidated
damages, the Company issued warrants to purchase a total of 443,000 shares of
the Company’s common stock.
 
 During
the years ended December 31, 2008, 2007 and 2006, no warrants were exercised.
However, during the years ended December 31, 2008 and 2007, the Broker Warrants
to purchase 300,000 shares of the Company’s common stock expired and 3,579,500
of the PPM Warrants expired.   During the year ended December 31,
2009, 4,512,444 warrants were exercised in cashless transactions, resulting in
4,446,553 shares of the Company’s common stock.
  25
  BioElectronics
Corporation (A Development Stage Company)
 Notes to
Financial Statements
 
 NOTE 10 – WARRANTS
(CONTINUED)
 
 The
warrants did not contain a beneficial exchange feature at the date of the
agreement. As required by ASC Topic 815, Accounting for Derivative
Instruments and Hedging Activities, the warrants were valued at $731,293 and
this value was recorded as a discount against the face amount of the Notes that
has been amortized over the two year term of the notes to their maturity date.
The fair value of the warrants issued of $731,293 was calculated using the Black
Scholes option pricing model based on the following assumptions: (1) risk free
interest rate of 4.21%; (2) dividend yield of 0%; (3) volatility factor of the
expected market price of the Company’s common stock of 40%; and (4) an expected
life of the warrants of 5 years. Additionally, the proceeds were allocated
between the notes and warrants using the relative fair value method. During the
years ended December 31, 2009, 2008 and 2007, amortization of the discount as
interest expense was $0, $0, and $350,589 respectively.
 
 The
exercise price of the investor warrants are subject to adjustment in certain
events, including split-ups or combinations of common stock, dividends payable
in common stock, and the issuance of rights to purchase additional shares of
common stock or to receive other securities or rights convertible into or
entitling the holder to receive additional shares of common stock without
payment of any consideration.  In addition, if the Company sells any shares
or any instrument convertible into such, at a price per share that is less than
the conversion price, then the warrant price will automatically be lowered to
that new price.  The shares underlying the warrants are subject to a
registration rights agreement. The outstanding warrants provide the holder with
the right to convert one warrant for one share of the Company’s common stock at
the stated exercise price. The majority of the outstanding warrants have a
cashless exercise feature.
  The
Investor Warrants, Additional Investor Warrants, and Broker Warrants are
redeemable by the Company at a price of $.01 per investor warrant at any time
prior to their exercise or expiration upon 30 days written notice provided that
the closing stock price for the Common stock for at least thirty days has been
$1.00 per share and the shares underlying the warrants have been
registered.
  At
December 31, 2009 and 2008, 332,000 and 4,844,444 warrants were outstanding,
respectively.
  The
following table summarizes information for warrants outstanding and exercisable
at December 31, 2009:
 
 Optionsoutstandingweighted averageExercise
                                                    
                                                    
                                                    
                                                    
                                                    Original
                                                    
                                                    
                                                    remaining lifePrice
                                                    
                                                    Number
                                                    
                                                    
                                                    Term (Years)
                                                    
                                                    
                                                    in years$0.33
                                                    
                                                    
                                                    332,000
                                                    
                                                    
                                                    5
                                                    
                                                    
                                                    0.67
  26
  BioElectronics
Corporation (A Development Stage Company)
 Notes to
Financial Statements
 
 NOTE 10 – WARRANTS
(CONTINUED)
 
 The
following schedule summarizes the activity involving stock warrants for the
years ended December 31:
 
 2009
                    
                    
                    2008Weighted
                    
                    
                    
                    
                    
                    WeightedAverage
                    
                    
                    
                    
                    
                    AverageShares
                    
                    
                    Exercise
                    
                    
                    Shares
                    
                    
                    ExerciseOutstanding
                    
                    
                    Price
                    
                    
                    Outstanding
                    
                    
                    PriceBeginning
      of year
                    
                    
                    4,844,444
                    
                    
                    $
                    0.452
                    
                    
                    
                    5,144,444
                    
                    
                    $
                    0.448Granted
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Exercised
                    
                    
                    (4,512,444
                    )
                    
                    
                    0.0012
                    
                    
                    
                    -
                    
                    
                    
                    -Expired
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (300,000
                    )
                    
                    
                    0.39End
      of year
                    
                    
                    332,000
                    
                    
                    $
                    0.33
                    
                    
                    
                    4,844,444
                    
                    
                    $
                    0.452Exercisable
                    
                    
                    332,000
                    
                    
                    $
                    0.33
                    
                    
                    
                    4,844,444
                    
                    
                    $
                    0.452
 
 NOTE
11 - VENDOR AND CUSTOMER CONCENTRATION
  During
the year ended December 31, 2009, four vendors accounted for more than 10% of
the Company’s total purchases, $101,094, $52,001, $40,946, and $30,125, totaling
78% of total purchases.  Three customers accounted for 51% (23%, 15%
and 13% respectively) of total revenues for 2009.
  During
the year ended December 31, 2008, one vendor accounted for more than 10% of
the Company’s total purchases or $50,985. Three customers, new to the Company,
accounted for 51% (17%, 11% and 23%, respectively) of total
revenues.
  For the
year ended December 31, 2007, the Company had three vendors individually
accounting for more than 10% of the Company’s purchases, $24,600, $29,600 and
$11,900, totaling 66.39% of total purchases.  A new customer to the
Company accounted for 20% of total revenues.
  The
Company has never relied exclusively upon any of its vendors for on-going
purchases, the components of the Company’s products are all readily available
commodities and the Company has multiple sources for procuring its
inventory.
  27
  BioElectronics
Corporation (A Development Stage Company)
 Notes to
Financial Statements
  NOTE
12 – COMMITMENTS AND CONTINGENCIES
  OPERATING
LEASES
  The
Company leases warehouse, manufacturing and office space under various
non-cancelable operating leases expiring in various years through
2011.  The Company also leases office equipment under a non-cancelable
operating lease expiring in 2014. In the normal course of business, operating
leases are generally renewed or replace by other leases.  The future
minimum lease payments as of December 31 for each of the next five years and in
the aggregate, are as follows:
 
 PAYMENTS DUE BY PERIOD2010
                      
                      
                      2011
                      
                      
                      2012
                      
                      
                      2013
                      
                      
                      2014
                      
                      
                      TotalOperating
      leases
                      
                      $
                      60,895
                      
                      
                      $
                      52,403
                      
                      
                      $
                      2,693
                      
                      
                      $
                      2,693
                      
                      
                      $
                      1,346
                      
                      
                      $
                      120,030
  The
amount of rental expenses were $71,655, $51,301 and $39,803 for the year ended
December 31, 2009, December 31, 2008 and December 31, 2007,
respectively.
  LITIGATION
  Legal
Matters
  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.
  28
  BioElectronics
Corporation (A Development Stage Company)
 Notes to
Financial Statements
  NOTE
12 – COMMITMENTS AND CONTINGENCIES (CONTINUED)
  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.
  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. If the claims are not vacated by the Court,
the Board of Directors will pursue collection of the damages 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
13 – INCOME TAXES
  The
income tax provision in the statements of operations for the years ended
December 31, 2009, 2008 and 2007 consists of:
  2009
                      
                      
                      2008
                      
                      
                      2007Current
      tax expense:U.S.
      federal
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -State
      and local
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      --
                      
                      
                      
                      -
                      
                      
                      
                      -Deferred
      tax expense:U.S.
      federal
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -State
      and local
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      --
                      
                      
                      
                      -
                      
                      
                      
                      -Total
      income tax expense
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
  29
  BioElectronics
Corporation (A Development Stage Company)
 Notes to
Financial Statements
  NOTE
13 – INCOME TAXES (CONTINUED)
  For the
years ended December 31, 2009, 2008 and 2007, the difference between the
expected income tax benefit computed by applying the U.S. federal corporate
income tax rate of 35% to loss before income taxes, and the reported income tax
benefit is as follows:
  2009
                        
                        
                        2008
                        
                        
                        2007Federal
      income tax benefit, at statutory tax rate
                        
                        $
                        (90,992
                        )
                        
                        $
                        (708,600
                        )
                        
                        $
                        (701,552
                        )State
      income taxes, net of related federal benefit
                        
                        
                        (8,138
                        )
                        
                        
                        (156,857
                        )
                        
                        
                        (67,149
                        )Nondeductible
      expenses
                        
                        
                        37,875
                        
                        
                        
                        66,756
                        
                        
                        
                        185,021Change
      in valuation allowance
                        
                        
                        61,255
                        
                        
                        
                        798,701
                        
                        
                        
                        583,680Total
      income tax benefit
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        -
  The tax
effects of temporary differences that give rise to the deferred tax assets and
deferred tax liabilities at December 31, 2009, 2008 and 2007 are presented
below:
  2009
                    
                    
                    2008
                    
                    
                    2007Allowance
      for doubtful accounts
                    
                    $
                    13,639
                    
                    
                    $
                    13,639
                    
                    
                    $
                    13,364Charitable
      contributions
                    
                    
                    2,502
                    
                    
                    
                    2,502
                    
                    
                    
                    2,452Accrued
      expenses
                    
                    
                    121,891
                    
                    
                    
                    104,438
                    
                    
                    
                    -Deferred
      tax assets-current
                    
                    
                    138,032
                    
                    
                    
                    120,579
                    
                    
                    
                    15,816Less:  Valuation
      allowance
                    
                    
                    (138,032
                    )
                    
                    
                    (120,579
                    )
                    
                    
                    (15,816
                    )Net
      deferred tax assets-current
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Deferred
      tax assets-non-current:Net
      operating loss carryforwards
                    
                    
                    1,641,716
                    
                    
                    
                    1,473,691
                    
                    
                    
                    699,355Capitalized
      start-up expenses
                    
                    
                    1,928,645
                    
                    
                    
                    2,052,868
                    
                    
                    
                    2,133,266Deferred
      tax assets-non-current
                    
                    
                    3,570,361
                    
                    
                    
                    3,526,559
                    
                    
                    
                    2,832,621Less:  Valuation
      allowance
                    
                    
                    (3,570,361
                    )
                    
                    
                    (3,526,559
                    )
                    
                    
                    (2,832,621
                    )Net
      deferred tax assets-non-current
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Total
      net deferred tax asset
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -
  As of
December 31, 2009, the Company had net operating losses of approximately $4.1
million that can be carried forward for up to twenty years and deducted against
future taxable income  (December 31, 2008 - $3.7
million).   The net operating losses expire in various years
through 2029.
  In
assessing the realizability of deferred tax assets, management considers whether
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which these temporary differences become deductible.  Management
considers the scheduled reversal of deferred tax liabilities, projected future
taxable income and tax planning strategies in making this
assessment.
  30
  BioElectronics
Corporation (A Development Stage Company)
 Notes to
Financial Statements
  NOTE
13 – INCOME TAXES (CONTINUED)
  Based on
available evidence, the Company’s managements believes it is more likely than
not that the Company will not be able to realize the benefit of its net deferred
tax assets as of December 31, 2009, 2008 and 2007 and that full valuation
allowance is needed to reduce the net deferred tax asset to $0 for each
year.   The valuation allowance at December 31, 2009, 2008 and
2007 was $3.6 million, $3.5 million and $2.8 million,
respectively.   The increase in deferred tax assets and the
related valuation allowance was approximately $61,000 for the year ended
December 31, 2009 and $800,000 for the year ended December 31, 2008, primarily
due to the operating losses of the Company.
 
 NOTE
14 – RELATED PARTY TRANSACTIONS
 
 In
addition to the related party transactions disclosed in Note 7, 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 company's line of
products 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.
 
 Revenues
for the year ended December 31, 2009 include $271,047 for sales and $63,496 for
cost of goods sold to eMarkets, a related party, and a balance due from such
company at December 31, 2009 of $165,297.
 
 NOTE
15 – ADDITIONAL INCOME STATEMENT DISCLOSURES
 
 Gross
margin increased from 29% of sales during the year ended December 31, 2008 to
66% of sales during the year ended December 31, 2009 as a result of higher unit
prices, lower production costs which arose primarily from improvements in
productivity and lower defect rate.
 
 General
and administrative expenses included $551,288 and $543,108 during December 31,
2008 and December 31, 2007, respectively, of investor relations expense which
were paid in the form of common stock.
 
 Interest
expenses included amortization of non-cash debt issuance costs of $350,589
during December 31, 2007.  These debt issuance costs were fully
amortized by the end of December 31, 2007.
 
 NOTE
16 – SUBSEQUENT EVENTS
 
 During
2010, the Company’s focus has been on obtaining additional domestic and
international distribution channels and completing additional clinical trials,
eliminating debt and strengthening the balance sheet.  The primary
motivation for continued clinical trials is to obtain additional U.S. FDA
approved therapeutic indications for existing and future products and to
facilitate faster diffusion of the Company’s medical product line by the medical
community.  Securing FDA approval is central to market entry and
product acceptance.




31