##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE QUARTERLY PERIOD ENDED June 30, 2007
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 Commission file number: 0-20882
 Standard Management Corporation
  Indiana
(State or other jurisdiction 
of incorporation or organization)
    
    No. 35-1773567
(I.R.S. Employer Identification No.)10689 N. Pennsylvania Street, Indianapolis, Indiana
(Address of principal executive offices)
    
    46280
(Zip Code)
   þ o
  o o þ
 o þ




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##### 



STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
  
 INDEX
 Page NumberPart I.
    
    FINANCIAL INFORMATION:Item 1.
    
    Unaudited Financial StatementsConsolidated Balance Sheets --June 30, 2007 and December 31, 2006
    
    
    3Consolidated Statements of Operations --For the Three Months and Six Months Ended June 30, 2007 and 2006
    
    
    4Consolidated Statements of Shareholders' Deficit --For the Six Months Ended June 30, 2007 and 2006
    
    
    5Consolidated Statements of Cash Flows --For the Six Months Ended June 30, 2007 and 2006
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2.
    
    Management's Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    20Item 4.
    
    Controls and Procedures
    
    
    20Part II.
    
    OTHER INFORMATION:Item 1A.
    
    Risk Factors
    
    
    21Item 2.
    
    Unregistered Sale of Equity Securities and Use of Proceeds
    
    
    21Item 3.
    
    Defaults Upon Senior Securities
    
    
    21Item 6.
    
    Exhibits and Reports on Form 8-K
    
    
    21SIGNATURES
    
    
    22EX-10.1 STOCK PURCHASE WARRANTEX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CAOEX-32 SECTION 906 CERTIFICATIONS OF THE CEO AND CAO
  2




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##### Table of Contents



STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
 
 PART I  FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 
 CONSOLIDATED BALANCE SHEETS
  June 30
    
    
    December 312007
    
    
    2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    338
    
    
    $
    565Accounts receivable, net
    
    
    764
    
    
    
    1,004Inventories
    
    
    576
    
    
    
    750Prepaid and other current assets
    
    
    411
    
    
    
    535Assets of discontinued operations
    
    
    150
    
    
    
    948Total current assets
    
    
    2,239
    
    
    
    3,802Property and equipment, net
    
    
    7,865
    
    
    
    8,037Assets held for sale
    
    
    924
    
    
    
    931Deferred financing fees, net
    
    
    983
    
    
    
    1,263Officer and other notes receivable, less current portion
    
    
    776
    
    
    
    776Intangible assets, net
    
    
    266
    
    
    
    304Goodwill
    
    
    2,078
    
    
    
    2,078Other noncurrent assets
    
    
    1,667
    
    
    
    1,302Total assets
    
    $
    16,798
    
    
    $
    18,493LIABILITIES AND SHAREHOLDERS DEFICITCurrent liabilities:Accounts payable
    
    $
    2,143
    
    
    $
    1,720Accrued expenses
    
    
    4,046
    
    
    
    2,101Current portion of long-term debt
    
    
    11,427
    
    
    
    4,306Liabilities of discontinued operations
    
    
    681
    
    
    
    1,471Total current liabilities
    
    
    18,297
    
    
    
    9,598Long-term debt, less current portion
    
    
    14,744
    
    
    
    22,809Common stock warrants
    
    
    1,455
    
    
    
    87Other long-term liabilities
    
    
    982
    
    
    
    1,070Total liabilities
    
    
    35,478
    
    
    
    33,564Shareholders deficit:Common stock, no par value, and additional paid in capital, 200,000,000 shares
authorized and 43,102,092 shares and 19,011,367 shares issued
in 2007 and 2006, respectively
    
    
    73,223
    
    
    
    70,785Retained deficit
    
    
    (81,305
    )
    
    
    (75,214
    )Treasury stock, at cost, 2,840,173 shares
    
    
    (10,829
    )
    
    
    (10,829
    )Accumulated other comprehensive income
    
    
    231
    
    
    
    187Total shareholders deficit
    
    
    (18,680
    )
    
    
    (15,071
    )Total liabilities and shareholders deficit
    
    $
    16,798
    
    
    $
    18,493
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STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
  Three Months Ended
    
    
    Six Months EndedJune 30
    
    
    June 302007
    
    
    2006
    
    
    2007
    
    
    2006Net revenues
    
    $
    2,222
    
    
    $
    2,239
    
    
    $
    4,595
    
    
    $
    4,353Cost of sales
    
    
    1,598
    
    
    
    1,486
    
    
    
    3,284
    
    
    
    3,003Gross profit
    
    
    624
    
    
    
    753
    
    
    
    1,311
    
    
    
    1,350Selling, general and administrative expenses
    
    
    2,445
    
    
    
    4,352
    
    
    
    4,449
    
    
    
    7,195Impacts related to value of warrants and derivatives
    
    
    875
    
    
    
    (70
    )
    
    
    1,444
    
    
    
    (133
    )Depreciation and amortization
    
    
    213
    
    
    
    185
    
    
    
    277
    
    
    
    366Operating loss
    
    
    (2,909
    )
    
    
    (3,714
    )
    
    
    (4,859
    )
    
    
    (6,078
    )Other income, net
    
    
    122
    
    
    
    7,078
    
    
    
    223
    
    
    
    7,293Interest expense
    
    
    635
    
    
    
    1,314
    
    
    
    1,413
    
    
    
    2,295Income (loss) from continuing operations before
income taxes
    
    
    (3,422
    )
    
    
    2,050
    
    
    
    (6,049
    )
    
    
    (1,080
    )Income tax expense (benefit)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss) from continuing operations
    
    
    (3,422
    )
    
    
    2,050
    
    
    
    (6,049
    )
    
    
    (1,080
    )Income (loss) from discontinued operations
    
    
    235
    
    
    
    (1,458
    )
    
    
    (42
    )
    
    
    (2,587
    )Net income (loss)
    
    $
    (3,187
    )
    
    $
    592
    
    
    $
    (6,091
    )
    
    $
    (3,667
    )Income (loss) per share:Basic:Income (loss) from continuing operations
    
    $
    (0.09
    )
    
    $
    0.21
    
    
    $
    (0.17
    )
    
    $
    (0.11
    )Income (loss) from discontinued operations
    
    $
    0.01
    
    
    $
    (0.15
    )
    
    $
    (0.01
    )
    
    $
    (0.28
    )Net income (loss)
    
    $
    (0.08
    )
    
    $
    0.06
    
    
    $
    (0.18
    )
    
    $
    (0.39
    )Weighted average shares outstanding
    
    
    39,566,687
    
    
    
    9,508,135
    
    
    
    34,764,648
    
    
    
    9,302,812Diluted:Income (loss) from continuing operations
    
    $
    (0.09
    )
    
    $
    0.17
    
    
    $
    (0.17
    )
    
    $
    (0.11
    )Income (loss) from discontinued operations
    
    $
    0.01
    
    
    $
    (0.12
    )
    
    $
    (0.01
    )
    
    $
    (0.28
    )Net income (loss)
    
    $
    (0.08
    )
    
    $
    0.05
    
    
    $
    (0.18
    )
    
    $
    (0.39
    )Weighted average shares outstanding
    
    
    39,566,687
    
    
    
    12,296,464
    
    
    
    34,764,648
    
    
    
    9,302,812
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STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS DEFICIT
  Common stock andadditional paid in
    
    
    
    
    
    
    
    
    
    
    Accumulated otherTotal
    
    
    capital
    
    
    Retained deficit
    
    
    Treasury stock
    
    
    comprehensive incomeBalance at January 1, 2006
    
    $
    4,943
    
    
    $
    68,537
    
    
    $
    (55,793
    )
    
    $
    (7,901
    )
    
    $
    100Comprehensive loss:Net loss
    
    
    (3,667
    )
    
    
    
    
    
    
    (3,667
    )
    
    
    
    
    
    
    Change in unrealized loss on securities
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8Comprehensive loss
    
    
    (3,659
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation expense
    
    
    35
    
    
    
    35
    
    
    
    
    
    
    
    
    
    
    
    Exchange  Trust Preferred
    
    
    1,802
    
    
    
    1,802
    
    
    
    
    
    
    
    
    
    
    
    Issuance of warrants for services
    
    
    123
    
    
    
    123
    
    
    
    
    
    
    
    
    
    
    
    Sale of Common Stock, net of issuance costs
    
    
    293
    
    
    
    293
    
    
    
    
    
    
    
    
    
    
    
    Treasury stock acquired
    
    
    (117
    )
    
    
    
    
    
    
    
    
    
    
    (117
    )
    
    
    Balance at June 30 2006
    
    $
    3,420
    
    
    $
    70,790
    
    
    $
    (59,460
    )
    
    $
    (8,018
    )
    
    $
    108Balance at January 1, 2007
    
    $
    (15,071
    )
    
    $
    70,785
    
    
    $
    (75,214
    )
    
    $
    (10,829
    )
    
    $
    187Comprehensive loss:Net loss
    
    
    (6,091
    )
    
    
    
    
    
    
    (6,091
    )
    
    
    
    
    
    
    Change in unrealized gain on securities
    
    
    44
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    44Comprehensive loss
    
    
    (6,047
    )Sale of common stock
    
    
    2,185
    
    
    
    2,185
    
    
    
    
    
    
    
    
    
    
    
    Stock- based compensation expense
    
    
    250
    
    
    
    250
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    3
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    Balance at June 30, 2007
    
    $
    (18,680
    )
    
    $
    73,223
    
    
    $
    (81,305
    )
    
    $
    (10,829
    )
    
    $
    231
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STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
  Six Months Ended June 302007
    
    
    2006OPERATING ACTIVITIES:Net loss
    
    $
    (6,091
    )
    
    $
    (3,667
    )Net loss from discontinued operations
    
    
    (42
    )
    
    
    (2,587
    )Net loss from continuing operations
    
    
    (6,049
    )
    
    
    (1,080
    )Adjustments to reconcile net loss to net cash used in continuing operating activities:Depreciation and amortization
    
    
    277
    
    
    
    366Amortization of deferred financing costs and debt discount
    
    
    205
    
    
    
    433Gain on Trust Preferred exchange
    
    
    
    
    
    
    (9,194
    )Non-cash stock- based compensation expense
    
    
    250
    
    
    
    35Provision (recovery) for bad debts
    
    
    (14
    )
    
    
    94Net loss related to sale of assets
    
    
    
    
    
    
    2,981Impacts related to value of warrants and derivatives
    
    
    1,444
    
    
    
    (133
    )Change in operating assets and liabilities:Accounts receivable
    
    
    254
    
    
    
    449Inventories
    
    
    174
    
    
    
    (322
    )Prepaid and other current assets
    
    
    494
    
    
    
    157Accounts payable
    
    
    423
    
    
    
    3,700Accrued expenses
    
    
    1,945
    
    
    
    1,677Other
    
    
    (88
    )
    
    
    (1
    )Net cash used in operating activities of continuing operations
    
    
    (685
    )
    
    
    (838
    )INVESTING ACTIVITIES:Capital expenditure
    
    
    (26
    )
    
    
    (101
    )Proceeds from sale of businesses and assets held for sale
    
    
    428
    
    
    
    1,083Redemption of Preferred Stock
    
    
    
    
    
    
    1,500Cash paid
for pending acquisition
    
    
    (348
    )
    
    
    Change in otehr noncurrent assets,net
    
    
    30
    
    
    
    17Net cash provided by investing activities of continuing operations
    
    
    84
    
    
    
    2,499FINANCING ACTIVITIES:Borrowing
    
    
    321
    
    
    
    3,450Net cash provided to discontinued operations
    
    
    (462
    )
    
    
    (3,687
    )Proceeds from sale of stock
    
    
    2,185
    
    
    
    293Purchase of treasury stock
    
    
    
    
    
    
    (117
    )Deferred financing costs paid
    
    
    (295
    )
    
    
    Repayments of long-term debt
    
    
    (1,375
    )
    
    
    (2,416
    )Net cash provided by (used in) financing activities of continuing operations
    
    
    374
    
    
    
    (2,477
    )Net cash used in operating activities of discontinued operations
    
    
    (478
    )
    
    
    (4,041
    )Net cash provided by (used in ) investing activities of discontinued operations
    
    
    
    
    
    
    (87
    )Net cash provided by financing activities of discontinued operations
    
    
    462
    
    
    
    3,687Net (decrease) increase in cash and cash equivalent of discontinued operations
    
    
    (16
    )
    
    
    (441
    )Total
decrease in cash and cash equivalents
    
    
    (243
    )
    
    
    (1,257
    )Net decrease in cash and cash equivalents of discontinued operations
    
    
    (16
    )
    
    
    (441
    )Net decrease in cash and cash equivalents of continuing operations
    
    
    (227
    )
    
    
    (816
    )Cash and cash equivalents of continuing operations at beginning of period
    
    
    565
    
    
    
    1,709Cash and cash equivalents of continuing operations at end of period
    
    $
    338
    
    
    $
    893
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STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Note 1  Basis of Presentation
        7




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STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
  Note 2  Discontinued Operations  Pharmacy Services
       8




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STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
  9




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STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
  June 30,
    
    
    December 31,2007
    
    
    2006Current assets
    
    $
    46
    
    
    $
    425Property & equipment net
    
    
    104
    
    
    
    523Intangible assets net
    
    
    
    
    
    
    Current liabilities
    
    
    (681
    )
    
    
    (1,471
    )Net liabilities of discontinued operations
    
    $
    (531
    )
    
    $
    (523
    )
 Three Months
    
    
    Three Months
    
    
    Six Months
    
    
    Six MonthsEnding
    
    
    Ending
    
    
    Ending
    
    
    EndingJune 30,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net revenues
    
    $
    19
    
    
    $
    10,383
    
    
    $
    197
    
    
    $
    22,253Cost of sales
    
    
    (16
    )
    
    
    (7,357
    )
    
    
    (147
    )
    
    
    (15,863
    )Selling, general and administrative expenses
    
    
    (78
    )
    
    
    (3,729
    )
    
    
    (316
    )
    
    
    (7,798
    )Depreciation and amortization
    
    
    
    
    
    
    (419
    )
    
    
    
    
    
    
    (837
    )Impairment charge and loss on sale
    
    
    
    
    
    
    
    
    
    
    (53
    )
    
    
    Other income
    
    
    325
    
    
    
    1
    
    
    
    325
    
    
    
    6Interest expense
    
    
    (15
    )
    
    
    (37
    )
    
    
    (48
    )
    
    
    (48
    )Net income (loss) from discontinued operations
    
    $
    235
    
    
    $
    (1,158
    )
    
    $
    (42
    )
    
    $
    (2,287
    )
  Note 3  New Accounting Policy
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STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
 Note 4  Indebtedness
  Interest
    
    
    June 30
    
    
    December 31Rate(1)
    
    
    2007
    
    
    2006Mortgages payable
    
    
    7.20
    %
    
    $
    5,646
    
    
    $
    5,701Promissory notes
    
    
    8.30
    %
    
    
    837
    
    
    
    1,7957% convertible notes
    
    
    7.00
    %
    
    
    3,300
    
    
    
    3,30010% notes
    
    
    10.00
    %
    
    
    2,500
    
    
    
    6% notes
    
    
    6.00
    %
    
    
    250
    
    
    
    6% notes mandatory convertible
    
    
    6.00
    %
    
    
    
    
    
    
    2,750Laurus convertible notes
    
    
    10.25
    %
    
    
    2,401
    
    
    
    2,401Subordinated debentures
    
    
    10.25
    %
    
    
    9,577
    
    
    
    9,5772006 6% convertible notes
    
    
    6.00
    %
    
    
    1,300
    
    
    
    1,300Derivatives embedded in 2006 notes
    
    
    
    
    
    
    1,756
    
    
    
    1,685Capital lease obligations
    
    
    
    
    
    
    32
    
    
    
    77Total indebtedness
    
    
    
    
    
    
    27,599
    
    
    
    28,586Less debt discount on convertible notes
    
    
    
    
    
    
    1,428
    
    
    
    1,471Less current portion
    
    
    
    
    
    
    11,427
    
    
    
    4,306Total long-term debt, less current portion
    
    
    
    
    
    $
    14,744
    
    
    $
    22,809(1) Current weighted average rate at June 30, 2007.
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STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
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STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
     Note 5  Equity Transactions
   13




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STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
 
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STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
 
 
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Comparison of the Three and Six Months Ended June 30, 2007 and June 30, 2006:
  Continuing Operations:
 Net revenues
 Quarterly Analysis:
 
    
    Sales for the second quarter of 2007 were $2.2 million and
essentially flat with $2.2 million of recorded sales during the second quarter
of 2006.
 Year-to-date Analysis:
 
    
    Sales for the first six months of 2007 improved by 5.6% or $.2
million versus the first six months of 2006 due to increased volume.
 Gross profit
 Quarterly Analysis:
  Year-to-date Analysis:
  Selling, general and administrative expenses
 Quarterly Analysis:
  Year-to-date Analysis:
 
    
    Selling, general and administrative expenses for the first six months of 2007 decreased by $2.7 million or 38% to
$4.4 million compared to the first quarter of 2006, primarily due to a $1.3 million decrease in compensation expense (a $1.5 million
decrease in compensation partially offset by a $.2 million increase in stock option expense) due to staffing reductions relating to
the corporate transition, a $1.2 million decrease in professional fees due to legal expenses incurred in 2006 relating to
discontinued operations, and $.2 million in decreased operating expenses at Precision Healthcare.
 Impact related to value of warrants and derivatives:
 Quarterly Analysis:
 
    
    Expense in 2007 of $.9 million was due primarily to 8 million warrants valued at $1 million to NIR offset by gain on
valuation of existing warrants of $.1 million. In 2006, the gain of $.1 million was on the valuation of warrants.
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STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
 
 Year-to-date analysis
 
    
    Expense of $1.4 million in 2007 is due to 8 million warrants valued at $1 million to NIR as well as $.4 expense due to
valuation of existing warrants. In 2006, the gain of $.1 million was on the valuation of warrants.
 Depreciation and amortization
 Quarterly Analysis:
 
    
    Depreciation and amortization was $.2 million in the second quarters of 2007 and 2006, respectively.
 Year-to-date Analysis:
 
    
    Depreciation and amortization was $.3 million and $.4 million in the first six months of 2007 and 2006,
respectively. The decrease was due to the sale of furniture and equipment.
 Other income
 Quarterly Analysis:
 
    
    Other income for the second quarter of 2007 of $.1 million is rental income from leasing space at the Companys
corporate headquarters. Other income for the second quarter of 2006 of $7.1 million is due primarily to the following: $9.2 million
of income from the exchange offer for the Trust Preferred Securities, $2.8 million of loss from the sale of preferred stock owned
by the Company, $.5 million of income from the sale of real estate , $.2 million of income due to the dividends received from the
preferred stock, as well as rental income from leasing space at the Companys corporate headquarters to the purchaser of Standard
Life.
 Year-to-date Analysis:
 
    
    Other income for the first six months of 2007 of $.2 million is rental income from leasing space at the Companys
corporate headquarters. Other income for the first six months of 2006 of $7.3 million is due primarily to the following: $.5
million of income from the sale of real estate, $9.2 million of income from the exchange offer for the Trust Preferred Securities,
$2.8 million of loss from the sale of preferred stock owned by the Company, and $.4 million of income due to the dividends
received from the preferred stock, as well as rental income from leasing space at the Companys corporate headquarters to the
purchaser of Standard Life.
 Interest expense
 Quarterly Analysis:
 
    
    Interest expense for the second quarter of 2007 decreased by $.7 million or 52% to $.6 million compared to the
second quarter of 2006, primarily due to the exchange of certain debt into equity in June 2006.
 Year-to-date Analysis:
 
    
    Interest expense for the first six months of 2007 decreased by $.9 million or 38 % to $1.4 million compared to the
first six months of 2006, primarily due to the exchange of certain debt into equity in June 2006.
 Federal income tax expense
 
    
    Provision for federal income tax remained zero due to a 100% valuation allowance on the net losses in the first six
months of 2007 and 2006.
 Discontinued Operations:
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 Quarterly Analysis:
 
    
    Net income from discontinued operations for the second quarter of 2007 was $.2 million due primarily to the reversal
of $325,000 of previously established lease reserves as the lease was terminated in the second quarter at favorable terms for the
Company. The net loss of $1.5 million for the second quarter of 2006 was primarily due to the cessation of operations of a base of
business during 2006.
 Year-to-date Analysis:
 
    
    Net loss from discontinued operations for the first six months of 2007 was $.1 million
compared to net loss of $2.6 million for the first six months of 2006. The reduction was
primarily due to the cessation of operations of a base of business during 2006.
 Liquidity and Capital Resources
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  
    
    In April 2006, we borrowed $2.8 million from one of our then
officers. We repaid this debt with proceeds from borrowings of
$2.8 million from a then director in July 2006. This debt was
repaid as well as an additional $1 million borrowed from and due
to this individual as financing fees at various times throughout
the second half of 2006 and the first quarter of 2007 with
proceeds generally from the sale of pharmacy operations and our
common stock.
    
    On March 8, 2006, we announced that we elected to defer
distributions, beginning March 31, 2006, on the 10.25% preferred
securities (the Trust Preferred Securities) of our subsidiary
SMAN Capital Trust I for up to two (2) years, with the ability to
defer up to five (5) years. All unpaid distributions will accrue
interest at the rate of 10.25% annually until paid.
    
    In June 2006 the Company completed an exchange offer for a portion
of the Trust Preferred Securities which allowed all Trust
Preferred Security holders to exchange their Trust Preferred
Securities for six (6) shares of common stock of Standard
Management. The Company received tenders for 1,112,341 shares or
53.7% of outstanding Trust Preferred Securities by the expiration
date of the offer to exchange. On June 30, 2006, as a result of
the exchange offer, the Company issued 6,674,046 shares of its
common stock valued at $1.8 million in exchange for $11.1 million
of the Trust Preferred Securities and $.6 million of related
deferred interest, which in turn, reduced the outstanding balance
of the subordinated debentures and accrued interest by like
amounts. After the write off of a pro rata portion of
previously-unamortized deferred financing fees and the costs of
the transaction, the Company recorded a $9.2 million gain upon the
exchange as a component of Other Income, net in June 2006.
    
    In early 2006, the Company announced efforts to offer up to $15
million shares of its common stock for sale to accredited
investors in a series of one or more private placements. Through
December 31, 2006, the Company issued 1,491,340 shares of common
stock along with warrants to acquire up to an additional 447,402
shares of common stock (exclusive of certain issuances which were
later reacquired by the Company at the same price) for $630,000.
    
    During the third and fourth quarter of 2006 and the first quarter
of 2007, the Company sold substantially all of the pharmacy
operations it had acquired from 2002 through 2006. Aggregate
sales proceeds received as of March 31, 2007 of $16.2 million have
been used primarily to pay down short term borrowings and other
general corporate purposes.
    
    In March 2007, the Company issued 20 million shares of its common
stock to Mr. Sam Schmidt for $2.0 million, providing Mr. Schmidt
with a 55.3% interest in the Company. An additional 1,850,000
shares were sold to four outside investors at $.10 per share.
Proceeds were used primarily to pay off short term borrowings and
other general corporate purposes.
    
    Management has created Universal HealthCare Company, LLC (UHCC),
through which it intends to attract unrelated investors and
lenders to fund future acquisitions of pharmacy operations,
including Precision from Standard Management. Management expects
that Standard Managements ultimate ownership of UHCC will be
approximately 24% as a result of future equity financing by these
investors. Standard Management is the Managing Member of UHCC
pursuant to a Management Agreement under which it has substantial
influence and control of the operations of the acquired
businesses. In return, Standard Management will receive
guaranteed and performance based fees from UHCC. These fees are
expected to provide Standard Management with the funding necessary
to support its operations as a management company.
    
    Management also continues to explore other sources of funding and
new business opportunities, which will enable the Company to
continue its operations and become profitable. However, the
Company can not provide any assurance that such funding or
business opportunities will be consummated.
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 Future Acquisitions:
 Contractual Obligations :
 Cautionary Notice Regarding Forward-Looking Statements
  
    
    Our having sufficient cash on hand, whether generated through operations or financings,
to meet our debt service and operating needs and continue our acquisition program.
    
    The ability of our management team to successfully operate a pharmacy business with
limited experience in that industry.
    
    Our ability to expand our pharmacy business both organically and through acquisitions,
including our ability to identify suitable acquisition candidates, acquire them at
favorable prices and successfully integrate them into our business, and to achieve
anticipated levels of operational efficiencies and implement cost-saving initiatives.
    
    General economic conditions and other factors, including prevailing interest rate
levels, and stock market performance, which may affect our ability to obtain additional
capital when needed and on favorable terms.
    
    Customer response to new products, distribution channels and marketing initiatives.
    
    Increasing competition in the sale of our products.
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4. CONTROLS AND PROCEDURES
 a)
    
    Evaluation of Disclosure Controls and Procedures
 The Company carried out, under the supervision and with the participation of the
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STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
 
 Companys
management, including the Companys Chief Executive Officer and Chief Accounting
Officer, an evaluation of the effectiveness of the design and operation of the Companys
disclosure controls and procedures (as defined in Rules 13(a)-15(e) and 15(d-15(e) under the
Securities Exchange Act of 1934, as amended). Based on their evaluation, the Companys
Chief Executive Officer and its Chief Accounting Officer concluded that, as of June 30,
2007, the Companys disclosure controls and procedures were not effective because of the
previously identified material weakness described below. Notwithstanding the
existence of the material weakness described below, management has concluded that the
consolidated financial statements in this Form 10-Q fairly present, in all material
respects, the Companys financial position, results of operations and cash flows for the
periods and dates presented. In making this conclusion, the Chief Executive Officer and
Chief Accounting Officer considered the material weaknesses in our internal controls over
financial reporting and the status of corrective actions to remedy those material weaknesses
described below. Although the Chief Executive Officer and the Chief Accounting Officer noted
certain incremental improvements during the period ended June 30, 2007, we have not formally
documented and tested all of our potentially remediated controls to affirmatively conclude
that such controls are operating effectively.
 b)
    
    Material Weakness in Internal Controls and Procedures
 During the later part of 2006, the Company was in the final stages of a major transition in
business operations as described earlier in this report. One of the results of this
transition was the Company entering into substantial, non-routine accounting transactions
which required a higher level of accounting knowledge to complete This situation, combined
with the loss of certain accounting personnel, during the same time period, resulted in the
Company not having, during the later part of 2006 and the first half of 2007, a sufficient
complement of personnel with the requisite level of accounting knowledge, experience, and
training in the application of U.S. generally accepted accounting principles to properly
analyze, review, monitor and record these more complicated and certain other accounting
transactions. As a result, we have concluded that there was more than a remote likelihood
that a material misstatement of the Companys annual financial statements may not have been
prevented or could have gone undetected as part of the financial statement closing process
for the period ended June 30, 2007.
 c)
    
    Companys Response to Material Weakness
 The Company hired its Chief Accounting Officer, Dan Calvert, late in 2006. Mr. Calvert has
over twenty five years of financial and accounting management experience in both private and
public companies combined with graduate study in finance and accounting. The 2006 year end
closing process itself has significantly increased his awareness of the Companys historical
and contemplated routine and non routine transactions. On April 17, 2007, the Company
replaced its corporate controller. Mike Cleary has over ten years of experience developing
accounting staffs and systems in private and public companies. The Company continues to
emphasize the development and training of its accounting staff and its commitment to make
available accounting research tools necessary to assess complex accounting issues in the
future.
 There have been some improvements in our internal control over our financial reporting that
have occurred during the period covered by this report that have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.
During the period covered by this report, we have taken steps to improve our internal
control structure and procedures regarding disclosures of our financial reporting, including
those contemplated by Section 404 of the Sarbanes-Oxley Act and the rules and regulations of
the SEC promulgated thereunder, with which we are required to be in compliance as of
December 31, 2007. We will continue to take steps with regard to these matters.
 
 PART II. OTHER INFORMATION
 
 ITEM 1A. RISK FACTORS
 We reported a material weakness in our internal control over financial reporting, and if we
are unable to improve our internal controls, our financial results may not be reported accurately.
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 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
     
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 6. EXHIBITS
  10.1
    
    Stock Purchase Warrant (NIR)New Millennium Capital Partners II, LLCAJW Master Fund, Ltd.AJW Partners, LLC31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.31.2
    
    Certification of Chief Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.32
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
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STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
 
 
 SIGNATURES
   STANDARD MANAGEMENT CORPORATION
(Registrant)By:
    /s/ Ronald D. HunterRonald D. HunterChairman, Chief Executive Officer and President
(Principal Executive Officer)By:
    /s/ Daniel K CalvertDaniel K CalvertChief Accounting Officer
(Principal Financial and Accounting Officer) 22