Bio Electronics Report (BIEL)- Sizing the Opportunity

8/14/2019 Bio Electronics Report (BIEL)- Sizing the Opportunity

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Report on BioElectronics, Corp. Sizing theMarket Opportunity and Assessing PossibleOutcomes for the Company

BioElectronics Corp., which trades under the ticker symbol BIEL is themaker of disposable, inexpensive, drug-free, anti-inflammatory medical

devices and patches. Our six-month target price for these shares is $0.30

to $0.50, assuming FDA actions take place as we expect.

The Company was recently awarded a U.S. patent that protects itsintellectual property and revolutionary product design for a portable PEMF

device that is worn against the skin.

Consumers now have the choice of an effective drug-free therapy-aid inBioElectronics Corporations PEMF patches for managing pain, promoting

healing and speeding surgical recovery. The recent FDA panel

recommendations regarding the potential dangers of acetaminophen, and

their corresponding recommendation to remove Extra Strength Tylenol

from store shelves, has damaged Tylenols brand equity and is beginning

to focus a meaningful amount of attention on BioElectronics.

We believe the market opportunity for the Company's products issignificant, especially as related to the treatment of back pain, menstrual

pain and general musculoskeletal complaints.

The review of multiple FDA clearances is highly probable. Data from arecently announced heel and foot pain study shows a high degree of

efficacy and was produced by a very prominent surgeon. We expect this

to lead to rapid FDA clearance. We also believe the AllayTM product will

receive FDA clearance.

In our view, it would not be unreasonable to see the total marketcapitalization of the Company rise to between $300 million and $500

million, if events take place as outlined above.

Alquemie

Partners, LLC

Quality

Independent

Research

6-Month Share

Target Price:

$0.30 to $0.50

Our Analyst

Certification:

I, Carrie Snyder,independent analyst,hereby certify (1) thatthe views expressedin this researchCompany reportaccurately reflect mypersonal views aboutany or all of thesubject securities orissues reflected in this

Companyreport, and (2) nopart of mycompensation was, is,or will be directly orindirectly related tospecificrecommendations orviews expressed inthis Company report.

Please see importantdisclosures and

Analyst Bio at the endof this report

Email Address:

[email protected]

August 3, 2009


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BioElectronics Corp. Sizing the Market Opportunity

August 2009

BIOELECTRONICS,COPORATIONBioElectronics Corp., which trades under the

ticker symbol BIEL, is the maker of

disposable, inexpensive, drug-free, anti-

inflammatory medical devices and patches.

The Company's products contain an

embedded microchip and battery that deliver

pulsed electromagnetic field therapy (PEMF)

directly to the targeted body region. PEMF is

a clinically proven and widely accepted anti-

inflammatory and pain relief therapy that

traditionally has only been obtainable from

very large machines located in clinical

settings or hospitals. BioElectronics was

recently awarded a U.S. patent that protects

the Companys intellectual property and

revolutionary product design for a portable

PEMF device worn against the skin.

Over the past few decades, the medical

industry has made only limited strides in

developing effective drugs and

methodologies for the management of pain.

Several years ago, the U.S. governmentsFood and Drug Administration (FDA)

removed many non-steroidal anti-

inflammatory drugs (NSAIDs) from the

marketplace and an FDA panel recently made

a similar recommendation relative to Extra

Strength Tylenol, citing that acetaminophen

is the leading cause of liver failure in the

United States. Throughout most of the

western world, many consumers have been

conditioned to reach for a pill when

seeking to alleviate pain.

Through the use of BioElectronics

Corporations PEMF patches, however

consumers now have an effective non-drug

choice for managing pain, promoting healing

and speeding surgical recovery.

The Company's PEMF technologies target

multiple applications for both human and animal

use including surgical recovery, healing of

chronic wounds, menstrual pain relief,

musculoskeletal complaints such as back pain,

chronic repetitive stress injuries, heel pain, carpal

tunnel syndrome, and dental and oral surgery

recovery, among other applications. The

Company has developed four main brands to

target these markets: ActiPatchTM, AllayTM,

RecoveryRxTM and HealFastTM.

We believe the market opportunity for the

Company's products is significant and have

examined several scenarios for market size within

various key segments, as outlined in this report.

Given that this report analyzes only a few of the

main market opportunities the Company currently

faces, we would consider this forecast to be

moderately conservative.

Overall, however, we believe the largest market

opportunity for the Company is the treatment of

back pain, followed by the market for treating

dysmenorrhea (menstrual pain) which is also

significantly sized albeit somewhat smaller.Another substantial market opportunity is that for

treating other musculoskeletal complaints as well

as the market for pet and animal therapy

treatments.

We would also note that BioElectronics is

somewhat of a restart Company in that it

experienced product quality problems several

years ago, which have now been solved. New

international distribution has also been

established, clinical studies are quickly coming toa close, and the Company recently filed an FDA

remarketing application and has commented that

several more will be forthcoming.

We believe its very possible the Company could

gain multiple FDA clearances, especially given

the recently completed heel/foot pain study which

could likely lead to indications for heel/foot pain,

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August 2009

plantar fasciitis and, quite possibly, a wide scale

indication for general musculoskeletal complaints. This

would enable the Company to market its entire

ActiPatchTM product line over the counter (OTC) in the

lucrative grocery and drug store chain markets. We also

believe clearance for the AllayTM Period Relief Patch is

highly likely, as the related data has shown strong

advocacy and 100% user safety.

We also believe it is very important that the Company's

balance sheet has recently been improved through the

elimination of nearly all convertible debentures. One

year ago, convertible debenture balances exceeded

$900,000. Today, balances are likely less than $50,000

and could even go to zero over the next few weeks.

While paying off this convertible debt was expensivefrom a shareholder dilution standpoint, we believe the

vast majority of this delusion is now behind the

Company.

Also, a recent guarantee by the U.S. Export-Import Bank

should enable the Company to meaningfully enhance its

working capital position and allow for further expansion

of its international distribution capabilities.

BioElectronics is also working to expand both its board

and management team, as the Company recently added a

new chairman and several marketing managers to furtherdevelop its brands.

We do not currently hold any concerns regarding the

Companys liquidity, as BioElectronics cost of capital

has fallen significantly since its convertible debt has

been eliminated and replaced by bank financing, made

possible by the Export-Import Bank guarantee, now a

viable option.

While the price of the Company's shares has risen

substantially over the past few months, as clinical trialshave come to a conclusion and an FDA filing has been

made, we believe further upward appreciation is highly

likely as additional trials are completed, more FDA

filings are submitted and as FDA clearances are granted.

With approximately one billion shares outstanding,

BioElectronics market capitalization is approximately

$55 million.

While it is difficult to ascertain the precise value

of multiple FDA indications in two of the key

markets that we believe could be worth perhaps as

much as hundreds of millions of dollars per year

to the Company, we believe it would not be

unreasonable to see the total market capitalization

of BioElectronics rise to between $300 million

and $500 million, if certain key events take place

as outlined above.

We also believe the Company could be a highly

attractive future partner or acquisition candidate

for one of the major consumer products or

pharmaceutical corporations.

Within our targeted potential market capitalization

range, BioElectronics shares could be valued

between $0.30 and $0.50, again assuming these

multiple FDA indications are granted.


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August 2009

BioElectronics Corporation Sizing theMarket Opportunity and Assessing

Future Stock ValuationThe Company

BioElectronics Corp., headquartered in Frederick, Maryland, is the

maker of inexpensive, drug-free, anti-inflammatory medical devices

and patches. The Company's wafer thin patches contain an embedded

microchip and battery that deliver pulsed electromagnetic field therapy

(PEMF), a clinically proven and widely accepted anti-inflammatory

and pain relief therapy that traditionally has only been possible to

obtain from very large machines located in clinical settings or hospitals.

The Company was recently awarded a U.S. patent that protects its

intellectual property and revolutionary product design for a portable

PEMF device worn against the skin. Furthermore, BioElectronics has

applied for an additional patent, which is currently pending, to further

protect its intellectual property.

The Company's PEMF technologies target multiple applications for

both human and animal use including surgical recovery, healing of

chronic wounds, menstrual pain relief, musculoskeletal complaints such

as back pain, chronic repetitive stress injuries, heel pain, carpal tunnel

syndrome, and dental and oral surgery recovery, among otherapplications. The Company has developed four main brands to target

these markets: ActiPatchTM, AllayTM, RecoveryRxTM and HealFastTM.

Company History and Current Product Development

Status

The management team of BioElectronics acquired its core technology

in the 1990s, after the Companys predecessor firm invested $5 million

in electronic engineering prototypes, production runs and additional

confirming clinical studies. In late 2002, the Company was granted its

first clearance by the FDA. Over the past few years, the management

team has redesigned the offering to reduce product size and

manufacturing costs, while developing new applications for the

technology. In fact, new manufacturing partners have been secured,

enabling the Company to further reduce manufacturing costs and

realize strong margins on product sales.


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August 2009

Over the past few years, considerable corporate resources have been

expended on domestic and international certifications and clearances.

BioElectronics now has ISO and European Common Market

certification as well as Health Canada approval for the relief of pain in

musculoskeletal complaints.

During 2009, significant progress has been made on clinical studies,

which has recently enabled the Company to file for pre-marketing

clearance from the FDA. On June 15, 2009, BioElectronics applied for

clearance to market its AllayTM Menstrual Pain Therapy product and

the Company has indicated it will also be filing at least two additional

FDA applications over the coming weeks, likely for general surgical

recovery treatment and general musculoskeletal complaints.

Significant corporate resources are also being directed at completing

several ongoing clinical studies, with multiple others currently being

organized. The heel and foot pain study, for example, was recently

completed and initial data from Dr. David Genecov was reported on the

Companys conference call last week. At present, ongoing studies

include cesarean section surgical recovery, breast augmentation

surgical recovery, uveitis (the second leading cause of blindness in the

United States) and hernia surgical recovery, among others.

Furthermore, the BioElectronics management team indicated there are

numerous requests from physicians and healthcare organizations for

additional clinical studies.

BioElectronics is somewhat of a restart company. The Companyexperienced product quality problems several years ago, which have

now been resolved. Our research indicates that the newer versions of

the Companys product are sound and durable, with battery life

duration that easily exceeds the rated capability of 720 hours.

Over the past year, the management team has taken some important

steps that have enabled the Company to remain viable. Specifically,

products lines have been organized into several categories in order to

target specific applications in the areas of surgical recovery, treatment

of musculoskeletal complaints, menstrual pain, and animal related pain

and surgical recovery. BioElectronics has also significantly reducedstaff and expenses while moving core manufacturing offshore, with

final assembly, testing and packaging remaining at the Companys

Frederick, Maryland headquarters.

These actions have allowed the Company to significantly reduce its

losses to where it is now operating at a virtual break even point.

Moving its manufacturing operations offshore and partially redesigning


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the technology packaging, which resulted in reduced costs, has allowed

the Company generate solid gross margin results, similar to those of

other pharmaceutical and medical device companies.

BioElectronics has also taken significant action regarding product

distribution, signing-up new and much higher quality distributors toservice several important markets including Canada, Western Europe,

Korea and the Middle East. Active negotiations are currently underway

for distribution in other markets such as Japan, China and Latin

America, among others.

The Company has also made meaningful progress in improving its

balance sheet. In December 2005, BioElectronics issued $750,000 in

convertible notes with additional notes issued in 2006 for $100,000.

The terms of these borrowing could be characterized as very

unfavorable to both the corporate entity and its shareholders, with

significant company resources having gone toward repayment.

BioElectronics recently announced that virtually all of these notes have

now been eliminated and we expect the balance could be at zero over

the next few weeks.

The elimination of these notes is a major event for the Company and its

shareholders, enabling BioElectronics to significantly reduce its cost of

capital and thereby attract new investors. Another major development

was the recent guarantee by the U.S. Export-Import Bank, which will

allow the Company to greatly improve its working capital position and

augment its ability to service its growing international distributionnetwork.

We believe investors have responded very positively to these

developments, taking up shares at a rapid rate, which has resulted in a

meaningfully higher valuation for the Company and higher daily

trading share volumes that place BioElectronics among the top

traders on the pink sheets.

What We Are Expecting in the Future

The Company has stated its primary corporate objective is thecompletion of clinical trials and the subsequent filing of FDA

applications in order to receive clearance for marketing its products

over the counter in the United States. Additionally, we are expecting

the Company to announce a financial audit and movement off of the

pink sheets and onto the over-the-counter market. It appears

BioElectronics is also strengthening its management team and the

Company has indicated it hired several brand managers to help build its


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August 2009

marketing programs.

We believe BioElectronics will continue to see resistance among

surgeons relative to the use of its RecoveryRxTM product line. The

management team seems to understand this position, however, and is

appropriately focusing its corporate resources on other areas.Nevertheless, we believe the Company will soon file an application

with the FDA to market its products to the U.S. surgical recovery and

pain relief market.

We believe BioElectronics will likely be successful with its FDA

filings over the coming months. Of particular interest to us is the

recently completed study on heel and foot pain. While the Company

initially indicated it would use this data to file for an indication related

directly to heal and foot pain, it now appears BioElectronics will use

the data to file for a more significant indication of general

musculoskeletal complaints, which would likely allow the Company to

sell its products in the lucrative U.S. grocery and drug store channels.

We believe the FDA will likely find the data from this clinical study to

be very strong and, with this expectation, we believe clearance will be

granted.

We also like the probability of the Company receiving an indication for

menstrual pain, as the recently completed study resulted in 100% user

safety and a very high efficacy rate. We believe BioElectronics

AllayTM product could also be a big winner for the Company, second

only perhaps to a PEMF product specifically targeting the back pain

market.

In our view, an FDA clearance for either the AllayTM product or for

general musculoskeletal complaints opens a world of possibilities for

distribution, strategic alliances or even an acquisition of the Company.

We believe it is possible, for example, that a scenario could develop

where one of the major consumer goods manufacturers seeks to acquire

either the AllayTM or ActiPatchTM products for mass consumer

distribution, with a full acquisition of BioElectronics and its

technologies also a distinct possibility, again assuming all FDAclearances are granted.

We are also expecting the Company to move off of the pink sheets and

onto the OTC market by the end of the year. We expect this could

happen either via a direct application for trading on the OTC market

following completion of a financial audit, or via an acquisition by a

publicly traded OTC company.


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August 2009

Our Market Capitalization and Stock Value Predictions

Based on the approximately one billion shares outstanding, the current

market capitalization of BioElectronics is approximately $55 million

dollars. We believe this market valuation, and even a higher market

valuation, is supportable based on the substantial market opportunities

currently facing the Company.

We see many internal and external factors currently favoring a

strengthening of BioElectronics. Specifically, the Company has

meaningfully strengthened its balance sheet by paying off of its

convertible debt and, in addition, its working capital position will be

improved as a result of the U.S. Export-Import Bank guarantee. Its

product quality is up significantly and its international distribution

network is growing rapidly. FDA panel recommendations relative to

acetaminophen usage and the adverse impact on the brand perception ofTylenol are also serving to spotlight the Companys drug-free product

advantages.

Clinical studies are quickly coming to a close, and we believe FDA

clearance for one or more of the Companys products is almost

inevitable. Additionally, we are excited about BioElectronics near

breakeven status and what appears to be very strong gross margins, all

of which leads us to believe the Company can be highly profitable even

at modest revenue growth levels. Likewise, accelerated revenue

growth could generate extraordinary profitability. We also do not hold

concerns about the Companys continued viability. It appears multiple

financing sources are currently available to BioElectronics as a result of

a significant reduction in the Companys cost of capital, as its

convertible debt has been paid off, its working capital position has

improved meaningfully and shareholder dilution is quickly

decelerating.

Based on our belief that multiple FDA clearances are likely

forthcoming, we believe a market valuation of several hundred million

dollars is not unreasonable over the shorter term, as FDA clearances are

provided.

We also thus believe it is reasonable to anticipate the market

capitalization of BioElectronics will continue to move higher under

these conditions. If we were to assume a market capitalization of $400

million, for example, following FDA clearance and a probable

distribution agreement with a major consumer goods manufacturer or

distributor, we could expect the shares to be valued at approximately


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$0.40.

History of PEMF TechnologyThe use of magnetic fields in therapy has a long history, with

physicians from ancient Greece, China, Japan and Europe whosuccessfully applied natural magnetic materials in their daily practice.

In fact, 500 years ago, a Swiss physician and alchemist named

Paracelsus questioned whether diseases could be manipulated by

magnets and he experimented to test his theory using lodestones, or

naturally magnetized pieces of the mineral magnetite, as the best

available magnets during that time. However, given that natural

lodestones are quite weak in their magnetic capabilities, few people

paid much attention to his ideas until the discovery of carbonsteel

magnets in the 1700s. Later, during the 1800s, most of the discoveries

relating electricity to magnetism were made by the early pioneers of themodern technical world such as men including Gauss, Weber, Faraday

and Maxwell, among others.

Regarding some of the industrys early scientists, in 1791, Luigi

Galvani demonstrated he could cause a frog's leg muscle to contract

simply by applying an electric current. Later, in 1830, Carlos

Matteucci, an Italian physicist and neurophysiologist who was a

pioneer in the study of bioelectricity, proved that injured tissues

generate an electric current in a series of experiments he pursued until

his death in 1865. Specifically, using a sensitive galvanometer, he was

able to prove that injured, excitable biological tissues generated directelectrical currents.

For the past two hundred years, it has been possible to build magnets,

aptly called electromagnets, from coils of wire powered by electricity.

Given that such devices can be pulsed to produce magnetic fields that

change very rapidly, their discovery served to open a whole new world

of medical applications since changing magnetic fields can induce tiny

electrical currents in human tissue. Historically, as far back as 1890,

the American Electro-Therapeutic Association held annual conferences

on the therapeutic use of electricity and electrical devices by physicians

on ailing patients.

References suggest that Nicola Tesla, the genius inventor and father of

modern physics," first observed the effects of electromagnetic fields on

cells and that cells responded favorably to energy. Specifically, around

1895, Teslas high voltage coil devices, powered by alternating current

(AC) started to become widely known and applied within the energy

power transmission industry in New York. Shortly thereafter, in 1898,


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Tesla published a paper that he read at the eighth annual meeting of the

American Electro-Therapeutic Association in New York in which he

stated that one of the early observed and remarkable features of pulsed

magnetism was its apparent harmlessness, which made it possible to

pass relatively great amounts of electrical energy through the body of a

person. In those early days of PEMF therapy, coils up to three feet in

diameter were used for magnetically treating the body without contact.

In his 1898 paper, Tesla concluded that bodily "tissues are condensers,"

which are the basic component (dielectric, or a non-conducting

substance) for an equivalent circuit only recently developed for the

human body. This unique property of the human body indicates an

inherent adaptation and perhaps innate compatibility toward the

presence of high-voltage electric fields, possibly due to the high trans-

membrane potential already present in cellular tissue. Tesla also

indicated that the after-effects to patients from his coil treatment were

certainly beneficial. Tesla is best known for his plasma energy work

starting around the turn of the century. The original Tesla therapy

devices, called pulsed diathermy devices, were in common use in

hospitals until the 1950s. These devices were dramatically successful,

as are their modern day successors, in treating a wide range of

conditions.

A later theory by Georges Lakhovsky (1869-1942) held that each cell

in the body of an organism, whether plant, animal or a human being, is

in itself a little radio receiver and works on its own unique little

frequency. He considered that each cell, in addition to being tissue as

well as biology, was also electricity. Within this theory, Lakhovsky

held that pathology was a not matter of biological concern or

intervention, but one of electrical concern and intervention.

His philosophy was that "the amplitude of cell oscillations must reach a

certain value, in order that for the organism to be strong enough to

repulse the destructive vibrations from certain microbes." He went on

to say, "the remedy in my opinion, is not to kill the microbes in contact

with the healthy cells but to reinforce the oscillations of the cell either

directly by reinforcing the activity of the blood or in producing on the

cells a direct action by means of the proper rays." The record of histreatment of degenerative disease with what amounts to an early

"energy-medicine" device, Lakhovskys Radio-Cellulo-Oscillator, was

deemed remarkable.

While electrical devices had been in widespread use to manage pain

and cure everything from cancer to impotency, in the early part of the

20th century electromedical current therapy fell into a period of


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disrepute by the medical profession due to its unrefined early electrical

technologies. There was even a period where electrotherapy devices

had become abolished "...and academics frowned upon anyone who

even brought up the subject of electromagnetic therapy.

Fortunately, immediately after World War II, contemporary

magnetotherapy really began when the technology of both magnetic

and electromagnetic fields, generated by various waveshapes of the

supplying currents, was introduced. Starting in Japan, this modality

quickly moved to Europe, beginning in Romania and the former Soviet

Union. During the period 1960 to 1985, nearly all European countries

designed and manufactured their own magnetotherapeutic systems. In

fact, the first book on magnetotherapy, written in 1982 by N. Todorov,

was published in Bulgaria and summarizes the experience of utilizing

magnetic fields for the treatment of 2,700 patients who had 33 different

pathologies.

Furthermore, following the War, from 1944 to 1945, Antoine Priore, an

electrical engineer and inventor, immediately began work to develop an

electromagnetic device which cured cancer. During the 1960s and

early 1970s, his electromagnetic therapy machine was perfected as a

team of leading French scientists demonstrated conclusive, total

remissions of terminal tumors and infectious diseases in hundreds of

laboratory animals. In addition, and remarkably, the animals immune

systems were also restored to normal.

By 1961, it was noted that pulsed radio frequency treatment of a

surgical incision in a dog resulted in less severe edema (swelling) thenin an untreated control group (Cameron, 1961). It was reasoned that if

pulsed electromagnetic energy reduces edema and so accelerates the

acute inflammatory phase of wound healing, it should also enhance the

second and third phases of recovery. Also in the 1960s, a pioneering

medical doctor named Robert Becker established that the Chinese

meridians of the body, or channels along which the energy of the

psychophysical system is considered to flow, are skin pathways of

decreased electrical resistance. He also discovered a host of other

bioelectric effects within the body as well and worked on electrically

stimulating bone growth with Dr. Andrew Bassett, who along with Dr.Arthur Pilla, developed a very effective PEMF generator to stimulate

bone fracture healing later approved by the FDA. By the end of the

decade in 1969, Wolcott, et al. applied electrical stimulation in the

range of 200-800 microamps to a variety of wounds and found that

treated wounds showed a 200% to 500% faster healing rate, with

stronger tensile strength of scar tissue and antibacterial effects on

infected wounds versus the untreated control group.


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August 2009

One of the more modern and interesting magnetic theories is "Magnetic

Field Deficiency Syndrome" postulated by Dr. Kyochi Nakagawa of

Japan in 1976. Dr. Nakagawa offered it as an explanation of

biomagnetic effects in which he reasoned the earths magnetic field is

not fixed in position or strength but rather, in the last hundred years, it

has weakened on the average by about 6.0% and, in the last thousand

years, it has fallen nearly 30%. Dr. Nakagawa argued that since

humans evolved in a magnetic field, maintaining that magnetic balance

and environment is necessary for proper health. In other words, a

falling magnetic field puts all living beings at risk and magnetic therapy

can serve as a solution to help make up the deficit.

During the 1970s, Andrew Bassett and his team introduced a new

approach for the treatment of delayed fractures, a technique that

employed a very specific biphasic low frequency signal (Bassett et al.,

1974,1977) approved by the FDA to be applied in the United States for

non-union/delayed fractures only. The very effective PEMF generator

developed by Bassett and Dr. Arthur Pilla to stimulate bone fracture

healing holds an 80% success rate. Similar PEMF signals have recently

been used effectively to prevent osteoporosis, even in patients with an

ovariectomy or surgical removal of an ovary(ies).

In 1982, Dr. Bentall, a surgeon, and Timothy Cox, D. Phil., an

electrical engineer, developed the first miniaturized pulsed

electromagnetic device in the form of the Portic Electronic Bandage.

This device and subsequent clinical studies on over 2,000 subjects

helped establish the clinical effectiveness of low power pulsed

electromagnetic energy using a 3-volt lithium battery. Later, the

existence and importance of small electrical charges in the membrane

of all cells was firmly established in 1991 when the Nobel Prize in

Physiology or Medicine was awarded to two German cell physiologists,

namely Erwin Neher and Bert Sakmann, for their discoveries

concerning "the function of single ion channels in cells," as they

successfully measured the incredibly small electrical charge of the cell

membrane.

It is now commonly accepted that weak electromagnetic fields (EMF)

are capable of initiating various healing processes including delayedfractures, pain relief, multiple sclerosis and Parkinsons disease.

(Rosch, Markov, 2004). The FDA has also allowed the use of pulsed

radiofrequency electromagnetic fields for the treatment of pain and

edema in superficial soft tissues and has approved several products for

use in various treatments.

In the year 2000, the New Technology Committee of the American


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August 2009

Society of Aesthetic Plastic Surgeons evaluated and approved PEMF

treatments for edema reduction, accelerated healing and post operative

surgical pain. Two years later in 2002, the U.S. FDA approved low

dose, extended duration ActiPatchTM Therapy by BioElectronics

Corporation for the treatment of edema following blepharoplasty. The

European Common Market later followed in 2004 when it approved

low dose ActiPatchTM Therapy as a Class II medical device, allowing

sales without a prescription, for all pulsed electromagnetic therapy

indications and retail sales. Importantly, that same year, U.S. Medicare

and Medicaid agreed to reimburse for electromagnetic treatment of

chronic Stage III and IV wounds.

To date, there have been many basic research studies and many clinical

trials of pulsed electromagnetic field therapy. Pulsed electromagnetic

therapy has been used on over 500,000 patients in the United States for

aiding non-fusion bone growth stimulation and other applications.

Powerful electromagnets have also been used in brain and muscle

research to generate currents strong enough to fire nerves that trigger

sensations and flex muscles.

Since the pioneering work of these many early scientists and inventors

over the centuries, PEMF therapeutic applications have been reported

for a wide variety ailments including the reduction of post-traumatic

and post-operative pain and edema in soft tissues, wound healing, burn

treatment and nerve regeneration, among others. Magnetic and

electromagnetic fields are now recognized by 21st century medicine as

real physical entities that promise the healing of various health

problems even when and where conventional medicine has failed.

The Mechanics of Cell Healing and The Benefits of PEMFTechnologyPulsed electromagnetic (PEMF) therapy is a type of healing treatment

that uses electrical energy to direct a series of magnetic pulses through

injured tissue whereby each magnetic pulse induces a tiny electrical

signal that stimulates cellular repair. For decades, physicians and

therapists around the world have used pulsed electromagnetic field

therapy to relieve a host of ailments including to reduce swelling(edema) and inflammation, muscle pulls and strains, to relieve pain and

accelerate the healing of bone fractures, for surgical injuries and

recovery, osteoarthritis, sprains, cuts and bruises and to help heal

chronic wounds, among others.

It is now widely accepted within plastic surgery, orthopedics, sports

and physical medicine and chronic wound care that weak, non-ionizing


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August 2009

electromagnetic fields exert a wide range of beneficial effects. With

the inexpensive, self-administered micro-technology becoming

increasingly available, other branches of medicine are also beginning to

recognize and utilize the curative benefits of radio frequency (RF)

therapy. In fact, more than half a million patients with chronically un-

united fractures have benefited from the surgically non-invasive

method of PEMF therapy without risk, discomfort or the comparatively

high costs of operative repair.

PEMF therapy is also increasing in recognition and acceptance within

the established health industry. Pulsed electromagnetic therapy is

considered a form of standard care and is a reimbursable treatment in

the United Kingdom and the European Common Market. In the United

States, Medicare and Medicaid will reimburse for the treatment of

chronic stage III and IV wounds. The technology is also currently

being evaluated by major pharmaceutical manufacturers for several

new products. Additionally, the New Technology Committee of the

American Society of Aesthetic Plastic Surgeons has evaluated and

approved PEMF treatments for edema reduction, accelerated healing

and post-operative surgical pain.

Normal, Healthy Cell Function

At the individual cell level, every normal, healthy skin cell or muscle

cell is comprised of an outer membrane layer that encloses the cell,

encasing and separating its inside contents from its outside

environment. The cell membrane monitors and controls the cellsmetabolism by taking in nutrients carried to it by blood vessels and

expelling the resulting waste into the lymph fluid which surround the

outside of the cell. Importantly, to regulate and effect this process, the

trans-membrane charge of a normal healthy cell maintains an electrical

potential in the range of 70 millivolts to 110 millivolts.

Schematic of a Normal, Healthy Cell:


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August 2009

Source: Bioelectronics, Corp

In order to maintain healthy tissue, normal cells also need to be able tointeract with one another at the cell population or cell network level, a

situation that requires maintaining the integrity of an individual cells

membrane and its effective electrical potential. Specifically, in healthy

tissue, normal cells manage the functions of the body by acting in

groups at the system or population level. In this regard, normal tissue

is characterized by both well connected cells and clear communication

channels among cell populations. In other words, tissues are composed

of cell networks in which healthy cell-to-cell communication relies

extensively on effective cell-to-cell contact. Furthermore, the actions

of these cell populations are very dependent upon the communicationchannels established among the cells in order to create synchronization

among the population. This is important for normal tissue maintenance

and repair, which requires the coordinated activity of multiple cell

types such as in the transport of oxygen and nutrients to a cell via blood

flow and the flushing of toxins out of the cell - crucial under normal

circumstances and of significant importance in the sequence of healing

a wounded cell.

Injured Cells Act Differently

Unlike healthy body tissue, injured tissue is characterized by edema

(swelling). Inflammation can occur following a variety of widely

experienced soft tissue injuries such as cuts, surgical incisions, sprains

and strains (including those in the lower back region), and repetitive

stress injuries such as plantar fasciitis (heel pain), carpal tunnel

syndrome (hand and arms) and so-called tennis elbow, among others.

When soft tissue is damaged, cells in the injured area respond by


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August 2009

leaking fluid and cellular components break down. Specifically,

following mechanical or other tissue injury, the inflammatory process

initiates a tissue destruction phase in which rapid dilation of blood

vessels and increased vessel leakiness leads to tissue edema (swelling),

which can inhibit the process of wound healing.

Importantly, the damaged cells electrical charge is diminished, causing

normal cell functions and operations to shut down. Unlike healthy

cells, damaged or diseased cells demonstrate an abnormally low

membrane potential of only 40 millivolts to 50+ millivolts, well below

that of normal cells. At these levels, the cell is unable to carry out its

complex metabolic functions. The diminished electrical potential of an

unhealthy cells membrane results in impairment of the cells ionic

pumping activity, as regulated by its membrane, and consequently the

normal speed of cellular metabolism is greatly reduced. Thus, when

injury or disease destroys the normal electrical balance of the

membrane, and metabolism is consequently slowed, causing the

removal of waste to back-up inside the cell, the injured or diseased cells

release chemical signals that cause inflammation, resulting in swelling

(edema) and pain.

Schematic of a Damaged or Diseased Cell:

Source: BioElectronics, Corp.

Furthermore, when the electrical balance of the cell membrane is

comprised due to cell injury and swelling, crucial cell-to-cell contact

channels and cell-to-cell communications necessary for synchronization

amongst the population, and thus healing, are destroyed. When the

body receives an injury during surgery, or from trauma such as a sprain,

the danger of infection is minimal. Nevertheless, the body will respond

to the injury by swelling, in order to prevent an infection. Swelling, in

turn, separates the cells to prevent the transmission of potential


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August 2009

infection. Likewise, under infectious conditions, tissue edema serves to

disconnect the adjacent cells within the surrounding tissue in order to

prevent the spread of infection. This response is known as the

inflammatory process and consists of a rapid tissue destruction phase

followed by a longer duration tissue repair phase. The initial

destruction phase is evidenced by redness, heat, swelling and pain in

the tissue. Unlike infections conditions, however, in the case of non-

infected trauma or aseptic surgical procedures, inflammatory responses

cause discomfort and pain without contributing to the healing process.

In viewing a wounded skin cell with edema, it is possible to see how

the cells have been pushed apart into a chaotic pattern with interstitial

fluid interrupting the normal synchronized cellular communication,

which adversely affects the healing process as disconnected cells

cannot heal. Edematous tissue is characterized by disconnected cells

and a build-up of noxious agents as well as the release of dilation

agents like nitric oxide.

View of a Wounded Cell:



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August 2009

The Three Phases of Healing

Inflammation Phase

The healing process actually begins at the moment of injury, as the

bodys repair response is initiated immediately. Under a biological

phenomenon known as the inflammatory cascade, the presence of tissue

injury or pathogens in the bloodstream elicits an inflammatory response

and results in edema in the area of injury which is responsible for the

onset of pain and swelling.

The main function of the inflammatory phase is phagocytosis of

bacteria, which is the process used by the human body to destroy dead

or foreign cells. It is important to note that phagocytosis is not

essential for aseptic, non-invasive or normal wound healing.

Proliferation Phase

The proliferation phase is characterized by the migration of new cells

and the formation of granulation tissue, or the perfused, fibrous

connective tissue that replaces a fibrin clot in healing wounds. It is

during the proliferation phase, around the third day following an injury,

that collagen is first detected in the wound. Large quantities ofcollagen serve to form the extra-cellular matrix (ECM) that is

responsible for imparting tensile strength to the wounds or injured

areas scar tissue.

As a side note, most of the cells in multi-cellular organisms are

surrounded by a complex mixture of nonliving material that makes up

the extra-cellular matrix. This matrix is secreted by the cells and


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August 2009

consists of protein fibers embedded in an amorphous mixture of huge

protein-polysaccharide ("proteoglycan") molecules and, in the case of

bone, mineral deposits. In biology, the extra-cellular matrix is the

extra-cellular part of tissue in humans and certain animals that usually

provides structural support to cells in addition to performing various

other important functions. The extra-cellular matrix is the defining

feature of connective tissue whose cells are embedded in a great

amount of extra-cellular material.

Maturation Phase

Almost as soon as the extra-cellular matrix is established, its

reorganization begins. In a process known as remodeling, there is a

gradual change in the cellular composition and vascularity of the

reparative tissue. Wound contraction, or inward movement, is another

important step in the healing process. Early inflammatory reduction,

such as that delivered via PEMF therapy, and wound closure can help

reduce scarring and increase the healed areas tensile strength.

Untreated Cells Heal in a Random, Chaotic Pattern

There are many factors that can influence the course of healing

including appropriate blood flow to an injured area, transport of oxygen

to the wound, edema and the inflammatory reaction of damaged cells as

well as the bodys overall nutritional status in which vitamins A, B, C

and D are all essential, as are proteins. Additionally, the use of drugs

such as steroids, among others, and any underlying pathologies(diabetes, renal failure etc.) clearly impact the bodys ability to heal

well.

Just as healthy tissue maintenance and repair requires the coordinated

activity of multiple cell types, while damaged cells are under repair,

and the electrical potential of their membranes are deficient, the normal

cell-to-cell communication and cell-to-cell alignment activity that

would otherwise take place between healthy cells fails to occur, thereby

inhibiting healing. The effects of this deficit can be seen in the

micrograph below contrasting healthy cells with injured, swollen cells.


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August 2009

View of a Healthy Cell View of a Swollen Cell


If untreated, the formation of new extra-cellular matrix can be random,

haphazard and chaotic, as occurs under the normal healing process.

That is, without PEMF therapy, the natural, untreated healing process

can be slower and the tensile strength of the healed skin can be lower

than under PEMF administered therapy.

If, on the other hand, formation of the new matrix is able to take place

via a facilitated and more organized process, the healed wound tends to

be stronger and requires less remodeling. PEMF therapy works to

restore healthy membrane electrical potential, resulting in enhancedlymphatic flow that facilitates a cleaning-up of the wounded area.

Dead cells and interstitial proteins are more rapidly removed from the

injured cells and tissue area, enabling wounds to heal stronger and scar

less than PEMF-untreated cells. In fact, PEMF treatment can improve

a wounds appearance 50% faster than untreated wounds.

The micrograph below shows actual skin treated by PEMF solutions

from BioElectronics product line in order to ensure the physical

alignment of the cells, necessary for effective cell-to-cell

communication in the healing process, in the newly formed extra-

cellular matrix.


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August 2009

View of Skin Treated by BioElectronics PEMF

Therapy Products


PEMF Therapy Accelerates Natural Healing in Cells

Effective PEMF treatment, such as that delivered by the Companys

product line, has been shown to have a therapeutic effect when used in

the treatment of connective tissue injury in humans.

In swollen tissues, cell-to-cell communication is greatly reduced and/or

impaired, resulting in poor coordination between cells involved in the

repair process and delayed healing. In the absence of normal cell

contact, induced electric fields can be used as a coordinating signal to

synchronize the activity of the cells within the damaged tissue area,thereby returning cells and the tissues they comprise to a normal level

of functioning within a shorter period of time than if left untreated.

BioElectronics PEMF therapy solutions use an ELF (extremely low

field) system to project an indiscernible electrical current into damaged

cells at a frequency that recharges them to their normal level of electric

potential. This system is able to target only the swollen cells and apply

an induced electro-medicating field across their cell membrane, with

the effect of restoring the energy, or electric potential, of the swollen

cells membrane to its normal, healthy state so that the cells own

natural healing process can work better toward a full recovery of thetotal cell.

By restoring the normal charge of the cell membrane, PEMF therapy is

able to stop the cells release of inflammatory mediators and reestablish

normal cell interaction. PEMF therapy facilitates improved micro-

vascular perfusion of damaged tissue, resulting in a faster clearing of

edema fluid and a more rapid elimination of many of the noxious


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August 2009

agents such as nitrous oxide and histamine, among others, released into

tissue following an injury. These mechanisms provide an environment

in which cell-to-cell communication in the involved tissue area is re-

established. By helping to re-establish coordinated cell activity in

injured tissue, PEMF therapy can induce an immediate reduction in

swelling and inflammation of the damaged tissue, and decrease the

associated pain of tissue injury, and contribute to a beneficial

acceleration in the bodys normal the healing process.

Schematic of a Cell Treated with Effective PEMF Therapy:


Thus, to enhance the healing of non-infected injuries, the therapeutic

goal of PEMF therapy is to induce the tissue to rapidly pass through, orby-pass, the tissue-damaging phase of the inflammatory process and

move to the tissue repair mode. In the case of BioElectronics, the

Companys PEMF solutions have the benefit of boosting the natural

healing process in injured or swollen cells by:

Penetrating through the skin in a non-invasive manner to reachand deliver treatment to muscles and tendons;

Increasing lymph flow around the injured cell, therebyreducing swelling;

Reducing bruising by helping the lymph fluid remove wasteproducts faster;

Restoring synchronization among the injured tissue cells and; Accelerating the migration of new skin cells.

Additional benefits include the rapidly improved appearance and

increased tensile strength, and hence an improved quality, of newly

formed skin as well as the reduced risk of infection. Importantly to

Effect ive PEMF

Therapy Res tores

Cel l Membrane

Elec t r ica l Potent ia l

to Normal Levels


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August 2009

many patients and medical professionals, PEMF therapy also represents

a drug-free solution to pain relief and healing.

Today, most electro-therapies utilize induced electric fields in the

extremely low frequency (ELF) range of 3Hz-3000Hz. The earliest

demonstrations of induction of cell coordination by induced ELF

electric fields (Wachtel, 1979) showed that electric fields at intensities

in the range of 100-1000 V/cm2 were sufficient to initiate

synchronous cell activity within seconds of application. Subsequent

studies by McLeod et al, 1987, showed that cell ensemble activity

could be influenced by induced electric fields as low as 30 V/cm, as

long as exposures extended for four hours or more. More recent studies

(McLeod, et al., 2000) indicate that cell ensemble activity can be

significantly influenced by induced electric fields as low as 1 V/cm

when using continuous exposures as applied over several days.

BIOELECTRONICS PRODUCT OFFERING

BioElectronics Corporation is in the business of putting proven medical

technology into advanced miniaturized electronics to create convenient,

efficacious and cost-effective therapies to help change the way people

heal. PEMF therapy is a proven safe, effective alternative for many

musculoskeletal disorders and there is a growing body of research

evidence showing its effectiveness in speeding surgical recovery and in

reducing, or completely eliminating, the amount of pain medication

required, with no known side effects.

Specifically, BioElectronics Corporation is the maker of patented,

inexpensive, drugfree, anti-inflammatory medical devices and patches

as developed and based upon underlying, and proven-to-be-theraputic,

PEMF technology. The Company's wafer thin patches are applied

directly to the skin and contain an embedded microchip and micro-

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. Furthermore, product testing has shown that this

wearable technology is easy to apply, comfortable to next to the skin

and, most importantly, has been shown to be highly effective.

While PEMF technology has been proven safe and effective in

hundreds of peer-reviewed scientific studies, historically it has not been

made widely available to the individual consumer or even to smaller,

more economically conscientious medical practitioners due mainly to

the size of delivery mechanisms and cost. Until recently, and with the

advent of the BioElectronics product line launched several years ago,


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August 2009

PEMF devices have been very expensive, large-scale devices and/or

high-powered machines that administer the therapy in limited sessions,

usually based in clinical settings such as clinics or hospitals. Now,

however, BioElectronics is making the product available to the general

public for home use.

Through the use of advanced micro-circuitry established over the past

decade of research and development, engineers at BioElectronics have

successfully shrunk or down-sized this technology into a portable,

wafer-thin device that can be worn directly on the skin as a patch in

order to relieve pain, swelling and speed healing, often cutting the

healing time of cuts, bruises and soft tissue injuries by more than half.

Furthermore, as consumers and the U.S. Food and Drug Administration

become more aware of the potential dangers of drugs such as

acetaminophen, the main ingredient in many well known pain killers

including the Tylenol brand, consumers are increasingly searching foralternatives, including non-drug options. BioElectronics portable, self-

administrable PEMF technology-containing patches represent an

interesting and sought-after solution for many consumers, patients and

medical community members.

BioElectronics Significant Patent Holding

In June 2009, BioElectronics received a significant new patent from the

United States Patent and Trademark Office, representing an important

event for the Company. This patent protects BioElectronics

Corporation's systems and techniques for applying an electromagnetic

field to bodily tissue, including a self-contained and, importantly,

portable electromagnetic field generating device disposed over a

surface of body tissue, such as the Companys skin patch delivery

format.

This key patent, which relates specifically to a portable PEMF device

that is worn next to the skin, including a patch of any size or shape for

example, represents broad, exclusive protection for the very

fundamental portable technology of BioElectronics unique PEMF

therapy line and covers a wide variety of product opportunities. By

being granted this critical patent, the Companys existing products and

many new future product opportunities are protected from imitation and

would-be competitors.

The Companys new patent ensures BioElectronics ability to be the

sole provider of this PEMF technology in a wearable and portable form

factor, likely increasing the value of the Company significantly as

consumer awareness about the benefits of PEMF therapy grows and


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August 2009

future product lines become available from the Company.

BioElectronics has also applied for an additional patent to further

protect its intellectual property. While it is difficult at present to

predict when the U.S. government patent office will issue its

determination, should the Company be granted a patent as requested, it

would mean significant further intellectual property protection for

BioElectronics in this important field.

While the management team at the Company has done a good job in

protecting its intellectual property rights in the U.S. market thus far, we

would note there may be some issues relating to international

protections. Internationally, intellectual property protection is an

expensive process requiring resources that are currently beyond the

capabilities of this Company. As BioElectronics progresses in its

business growth, however, we would expect the management team to

take steps to gain any needed international intellectual propertyprotections.

Market Opportunity

The market potential for PEMF therapy products is significant and

growing substantially, likely representing a possible market opportunity

of hundreds of millions of dollars per year on a worldwide basis.

For decades, physicians and therapists around the world have used

pulsed electromagnetic field therapy to relieve a host of ailments and

accelerate healing, including use for reducing swelling (edema) and

inflammation, muscle pulls and strains, relieving pain, accelerating

bone fracture repair, facilitating surgical injury recovery, osteoarthritis,

sprains, cuts and bruises and to help heal chronic wounds, among other

applications. Over the past few years, it is now becoming more

generally accepted within plastic surgery, orthopedics, sports and

physical medicine and chronic wound care areas that using electrical

energy to direct a series of magnetic pulses through injured tissue

exerts a range of beneficial effects, as each magnetic pulse induces a

tiny electrical signal to stimulate cellular repair and accelerate patient

healing. Nonetheless, despite the technologys long-time existence and

more modern day introduction into the field of healing, the actual

addressable markets that could benefit from PEMF therapy remain both

under-informed and underserved.

While many people suffering from injury, recovering from surgery and

even enduring general physical discomforts could likely benefit from

PEMF treatment, much of the consumer/patient population as well as

the medical community at large are either unaware or do not often


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August 2009

recognize the opportunity to consider use of effective PEMF therapy as

an option or solution. Likewise, until recently, most forms of

delivering PEMF therapy have been limited to very expensive, large-

scale devices/high-powered machines that administer the therapy in

limited sessions, usually based in clinical settings such as clinics or

hospitals. This situation has had the effect of making beneficial PEMF

treatment cost prohibitive and relatively unavailable to the public at

large, even potentially excluding those would-be users with the

foresight to recognize its advantages.

Today, however, all this is beginning to change, representing an

exciting opportunity for PEMF therapies in the field of healing and pain

treatment. Specifically, as the general public and the U.S. Food and

Drug Administration become more aware of the potential dangers of

drugs such as acetaminophen, the main ingredient in many well known

pain killers including Tylenol, medical providers and

patients/consumers are increasingly searching for alternatives. As these

groups look for effective alternatives to traditional pain killers and

medications of all types, and as information about PEMF therapy and

its effects become increasingly available, including through many

currently important ongoing clinical studies, both awareness and

demand for PEMF solutions will likely rise. This in turn is expected to

lead to substantial increased market penetration of affordable and

convenient PEMF products in both the pain medication and injury

healing markets.

Cost effective and widely available PEMF therapy products, such as the

Companys portable ActiPatchTM, Allay, RecoveryRxTM brands, face

a significant global opportunity to address the growth in demand for

solutions to alleviate pain and provide injury/post-surgery healing,

particularly as awareness of PEMF solutions increases, as people look

for effective non-drug alternatives to pain killers and as the absolute

number of patients and surgical procedures rise with a growing

population and, in the United States, the aging and increasing medical

needs of the baby boom generation.

Below we examine the value potential of just a few of the very large

and growing market segments for which PEMF therapy, and henceBioElectronics products, are applicable.


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August 2009

Global Pain Pharmaceutical Market

According to certain estimates, the global pain pharmaceutical marketis set to become a serious growth area, experiencing a compoundannual growth rate of 4.56% to 2012. With the world market currentlyvalued at approximately $34.0 billion in 2009, revenues are forecastedto increase to just under $40.0 billion in 2012. Specifically, the non-narcotics market alone is set to dominate the pain relief market over theforecast period 2007-2012, accounting for almost 36.8% of marketrevenues by 2012 and well set for growth through the next 15 years.

Currently, the major market areas for drug-related options to treat avariety of sources of pain include the anti-migraine market, the anti-rheumatics (medical problems affecting the joints and connectivetissue) non-steroidal market, the narcotics market and, of course, thenon-narcotics market. We believe that as there are clearly R&D

opportunities for new-comer industry players to the painpharmaceutical market, PEMF therapy and all its associated benefitsalso has a distinct opportunity to participate meaningfully in thistherapeutics growth sector going forward, a role which is already onlyjust beginning to take place today.

Below is a brief analysis of the global pain pharmaceutical market andthe potential value to the PEMF industry, and BioElectronics, ofacquiring a modest market share stake by replacing the drug-relatedtreatment with an alternative PEMF solution.

2009 2010 2011 2012

Industry Compound Annual Growth Rate: 4.56% 4.56% 4.56% 4.56%

Global Pain Pharmaceutical Market (millions of $'s) $33,892 $35,437 $37,053 $38,743

PEMF Market Share Analysis:

Value of a 0.25% market share stake $84.7 $88.6 $92.6 $96.9

Value of a 0.50% market share stake 169.5 177.2 185.3 193.7






Value of a 5.00% market share stake 1,694.6 1,771.9 1,852.7 1,937.1

C-Section Market

In 2006, the last year for which data is available, the rate of U.S. birthsby C-section hit an all-time high of 31.1%, or 1.34 million births via c-

section out of a total 4.3 million births that year. America leads the

world with one of the highest percentage rates of C-sections performed

per births, in addition to Italy and Australia.

To target this market, BioElectronics has developed a Caesarian

Section Recovery Kit for drug free pain relief and accelerated healing.


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August 2009

The product is designed to treat cesarean section surgery pain without

the use of drugs and to speed healing of the incision. The use of drugs

after a cesarean section is a major concern to both obstetricians and

new mothers, as many pain medications can be transferred via breast

milk with unknown consequences to the newborn.

The analysis below demonstrates the approximate value to the

Company of participating in the U.S. C-section surgery market. With

1.34 million procedures performed per year and a product sales price of

$40.00 for BioElectronics Caesarian Section Recovery Kit, inclusion

in this market segment alone could become of significant value to the

Company. As a side note, these estimates are conservative as we are

using a price point here of only $40.00 for the purpose of this analysis,

whereas BioElectronics is currently charging $50.00 per unit.

Total C-Section Surgeries Performed in the U.S. 1,340,000Sales Price of BioElectronics PEMF Product

$40.0


Market Share

Stake

Market Share

Value

1.0% market share stake 13,400 $536,000

1.5% market share stake 20,100 $804,000

2.0% market share stake 26,800 $1,072,000







Market for Cosmetic Procedures & Surgeries

In 2008, the American Society of Plastic Surgeons reported a total of

12.1 million cosmetic procedures. Of these, 1.7 million were cosmetic

surgical procedures with the top five being breast augmentations, eyelid

surgery (blepharoplasty), liposuction, nose reshaping (rhinoplasty) and

tummy tucks (abdominoplasty). In addition to the millions of cosmetic

procedures performed last year in the United States, there were 4.9

million reconstructive procedures performed for breast reduction, hand

surgery, laceration repair, scar revision and tumor removal, amongothers.

The table below outlines the approximate value to the Company of

participating in the U.S. cosmetic surgery and reconstructive

procedures market, with a combined total of approximately 6.6 million

such procedures performed last year. At a product sale price of $40.00

for its RecoveryRx line of PEMF therapies for the medical market,


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August 2009

BioElectronics inclusion in this sector could also become of significant

value to the Company. The size of this market may also be

underestimated, as we are again using only a $40.00 price point for the

product where as BioElectronics currently prices each unit targeting

this area at $50.00.

Total U.S. Cosmetic Surgical Procedures: 1,700,000

Total U.S. Surgical Reconstructive Procedures: 4,900,000

Total 6,600,000

Sales Price of BioElectronics PEMF Product $40.0


Market Share

Stake

Market Share

Value







15.0% market share stake 990,000 $39,600,00020.0% market share stake 1,320,000 $52,800,000

25.0% market share stake 1,650,000 $66,000,000

The obsession of Americans to look young drives demand for cosmetic

surgery and the large and growing market for cosmetic surgery

procedures is projected continue to grow in the United States going

forward, reaching $15.13 billion by 2012. In Europe, the second

largest market for cosmetic procedures, cosmetic surgery is a $2.2

billion business and growing. These trends should continue to drive the

need for post-operative care products, presenting an excitingopportunity for PEMF therapy solutions such as those supplied by

BioElectronics. This market is clearly a significant opportunity for the

Company and, importantly for BioElectronics, it could perhaps

represent a field in which there would be few competitors due to the

Companys strong intellectual-property protections on portable PEMF

technology therapy.

Back Pain Market

While there is clearly a meaningfully sized market for cosmetic and

reconstructive surgery recovery therapy, potentially worth tens of

millions of dollars per year to the Company, it pales in comparison to

the significant opportunity presented by one of the most common

human ailments, namely, musculoskeletal complaints. While this is

especially true regarding the substantial market for treating back pain,

additional opportunities exist in other types of musculoskeletal

complaints such as sore knees, tennis elbow, heal and foot pain, plantar


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August 2009

fasciitis and a host of other similar types of conditions.

Due to the difficulties in sizing all of these markets, this report will

focus on what we believe is the largest of these - the market for treating

back pain.

According to the U.S. National Institute for Occupational Safely andHealth (NIOSH), back pain is one of the most common and significant

musculoskeletal medical problems in the world. In fact, some 80% of

adults seek professional care at some point for low back pain, and one

third of all disability costs in the United States are due to lower back

disorders. A surprisingly high 16.2 million office visits result from

back pain conditions each year.

Other notable statistics that make the back pain sector of particular

importance as a large business opportunity to the injury and healing

products market include the following facts:

Back injuries are the leading cause of disability in the UnitedStates for people younger than 45 years of age and representthe most expensive health care problem for people between 20years and 50 year old;

Approximately 1.0% of the United States population ischronically disabled due to back pain and an additional 1% istemporarily disabled and;

Each year, two percent of the United States work force hascompensable back injuries each year.

Patients suffering from back pain consume more that $90 billion

annually in health-care expenses, with approximately $26 billion of that

amount directly attributable to treating back pain. Furthermore, a study

by Duke University found the annual per capita expenditures for

patients with back pain were 1.6 times higher than those without back

pain. These increased expenditures were found in all categories

including inpatient charges, office visits, prescription drugs, outpatient

care, home health care and emergency room care. Back pain is

classified into three categories, based on the duration of symptoms, as

acute (pain that has been present for six weeks or less), sub acute (a six-

to 12-week duration) and chronic (longer than 12 weeks).

The chart below indicates the potential value of the Companys PEMF

therapy solutions for the U.S. back pain market based on the number of

office visits resulting from this condition each year.


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August 2009

Total U.S. Office Visits from Back Pain: 16,200,000



Market Share

Stake

Market

Share Value



5.0% market share stake 810,000 $32,400,00010.0% market share stake 1,620,000 $64,800,000






In Europe, the situation is no different. Lower back pain is a major

health and socio-economic problem throughout the region and the

second leading cause of sick leave. An EU Commission study recently

suggested that a very significant 67 million people suffered pain in their

lower or upper back in the previous week. The lifetime prevalence hasbeen estimated at anything between 59% to 90%, and in any one year,

the incidence of back pain is reported to be about 5.0% of the

population. Furthermore, while most episodes of low back pain settle

after a couple of weeks, many have a recurrent course with further

acute episodes affecting 20% to 44% of patients within one year in the

working population and lifetime recurrences of up to 85%, making

effective solutions to back pain and helping to aliviate back pain

suffering a very important market.

As can be seen from the analysis below of the European back pain

market, if only a fraction of those complaining of back pain at any

given time sought relief and treatment via PEMF therapy, the market

for BioElectronicss ActipatchTM could quickly become enormous.

Menstrual Pain and Market

Earlier this year, BioElectronics announced a revolutionary, drug-free

Total European Population Experiencing Back Pain: 67,000,000



Market Share

Stake

Market

Share Value











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August 2009

treatment for the pain and discomfort associated with menstruation, for

which we believe there is a significant market opportunity. Various

researchers estimate between 60% and 70% of women suffer from pain

during menstruation, with millions of women experiencing pain severe

enough to restrict their daily activities.

There are currently approximately 300 million people in the United

States with roughly half or about 150 million representing women.

Assuming approximately one third are of childbearing age, the total

potential addressable market for the Company's AllayTM product

becomes around 50 million women in the United States. Gaining only

a 5.0% market share of this segment would represent a significant

market opportunity for the Company of approximately 500,000 women.

Considering each AllayTM product lasts for approximately three periods

(over three months time), many women would likely purchase up to

four units per year. At $40.00 per unit and a 5% market share,BioElectronics could easily experience revenues of $80 million per

year in the United States, with the European market likely being

equivalently sized.

Below, we have speculated some possible market sizing scenarios

relative to the Company's Allay Period Relief Patch Product.

Menstrual Pain Market Opportunity

Total women in the U.S.A. (approx. half the 300MM population): 150,000,000

* 1/3rd are of childbearing age: 50,000,000

* Approx. 20.0% experience severe to moderate mentral pain: 10,000,000

Allay brand for menstrual pain (one patch good for 3 month duration) product price: $40.00

* Product sales per year (12 months): $160.00


Market

Share Stake

Market

Share Value










Veterinary Market

BioElectronics recently entered the veterinary care market in early

2009 when the Company launched its HealFast Therapy electro-

treatment line for dogs, cats and horses (equine). Based on the

Companys same ActiPatch technology, HealFast Therapy is a

drug-free line of wearable patches sized for pets to fit the wound or


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August 2009

sore joint of the animal. HealFast helps rapidly restore normal cell

function and accelerate healing, speeding the healing of muscle and

tendon injuries in animals.

BioElectronics offers three separate product lines for dogs, cats and

horses (equine), with each product line comprised of three distinct

offerings:

HealFast Therapy Kit for chronic pain conditions, includingsore muscles, tendons or joint pain in which the patch can bedirectly positioned over the swollen location or joint withoutputting adhesive on the pet's fur;

HealFast Flex Loop Pet Patches for boosting the speed andstrength of healing following surgery where the patch can beapplied by veterinarians over surgical wounds using themedical tape of their choice and;

The HealFast Crescent Patch for sores or abrasions.In the United States, the veterinary services market is estimated to be

an approximate $28 billion per year industry. While animal hospitals

and clinics treat injuries and diseases, they derive most of their revenue

from animal health procedures like neutering and spaying, vaccinations

and regular checkups.

As further evidence of the importance of the U.S. market for veterinary

services and products, the United States has more dogs per capita than

any other country in the world. According to the American Pet

Products Manufacturers Association 2007-2008 National Pet Owners

Survey, there are approximately 74.8 million owned dogs in the UnitedStates, 75% of which are spayed or neutered, with dog owners spending

an average of about $219 on veterinary visits (vaccine, well visits)

annually.

Furthermore, there are approximately 88.3 million owned cats in the

United States, 87% of which are spayed or neutered, with cat owners

spending an average of about $175 on routine vet visits per year.

Additionally, there are approximately seven million prized animal

status horses owned in the United States. Owners and trainers of these

important animals spend a significant sum of money each year for their

care and treatment, likely in the range of several thousands of dollars or

more per year. We believe the equine market alone is very significant

and will likely be the sector in which the Company places the majority

of its emphasis.

We also believe there is a substantial market in the greyhound racing

industry. Within the greyhound racing industry, there is a strong


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August 2009

emphasis on animal safety and a corresponding extensive screening

process to detect for performance enhancing drugs. Considering

HealFastTM is a drug-free and non-invasive treatment, we believe many

greyhound racing owners could be interested in using this treatment on

their animals. The BioElectronics management team is apparently

working with at least one greyhound racing association in Europe and

we expect information on this topic to be forthcoming.

The potential for participating the veterinary care market in the United

States alone is significant and this product line could easily be spun-off

into a separate publicly traded company. We believe BioElectronics

could best be served, however, by targeting its limited resources on the

equine and older pet canine markets, although other racing animals

such as greyhounds could also represent a meaningful market

opportunity.

As can be seen from the brief analysis below, if a modest percentage ofpet owners purchased products from the Companys HealFast

Therapy line in a given year, the revenue stream to the Company from

this market could quickly become relevant. In our analysis below, we

use an average HealFast product price of approximately $63.00.

Owned Dogs in the United States: 74,800,000

Owned Cats in the United States: 88,300,000

"Prized Horses" Owned in the United States: 7,000,000

Total 170,100,000

Average Price - All Product Lines $63.28

PEMF Market Share Analysis:Market Share

StakeMarket Share

Value




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Bio Electronics Report (BIEL)- Sizing the Opportunity