##### 



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, 2002or                                          
|  |  |                                                                                         
|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

(Exact name of registrant as specified in its charter)


|                                                                                             |  |                                                    
|-------------------------------------------------------------------------------------------- |  | ---------------------------------------------------
|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)                                   

(317) 574-6200
(Registrants telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:
Yes þ  No o

As of July 31, 2002, the Registrant had 7,613,479shares of Common Stock
outstanding.

1



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##### 



STANDARD MANAGEMENT CORPORATION

INDEX

|        |  |                                                                                                                  |  |            
|------- |  | ---------------------------------------------------------------------------------------------------------------- |  | -----------
|        |  |                                                                                                                  |  | Page Number
|        |  |                                                                                                                  |  |            
|Part I  |  | FINANCIAL INFORMATION:                                                                                           |  |            
|        |  |                                                                                                                  |  |            
|Item 1. |  | Financial Statements                                                                                             |  |            
|        |  |                                                                                                                  |  |            
|        |  | Consolidated Balance Sheets
June 30, 2002 (Unaudited) and December 31, 2001 (Audited)                            |  | 3          
|        |  |                                                                                                                  |  |            
|        |  | Consolidated Statements of Income 
For the Three Months and Six Months Ended June 30, 2002 and 2001 (Unaudited) |  | 4-5        
|        |  |                                                                                                                  |  |            
|        |  | Consolidated Statements of Shareholders Equity 
For the Six Months Ended June 30, 2002 and 2001 (Unaudited)    |  | 6          
|        |  |                                                                                                                  |  |            
|        |  | Consolidated Statements of Cash Flows 
For the Six Months Ended June 30, 2002 and 2001 (Unaudited)              |  | 7          
|        |  |                                                                                                                  |  |            
|        |  | Notes to Consolidated Financial Statements (Unaudited)                                                           |  | 8-10       
|        |  |                                                                                                                  |  |            
|Item 2. |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                            |  | 11-24      
|        |  |                                                                                                                  |  |            
|Item 3. |  | Quantitative and Qualitative Disclosures about Market Risk                                                       |  | 24         
|        |  |                                                                                                                  |  |            
|Item 4. |  | Submission of Matters to a Vote of Securities Holders                                                            |  | 24         
|        |  |                                                                                                                  |  |            
|Item 5. |  | Other Information                                                                                                |  | 24         
|        |  |                                                                                                                  |  |            
|Part II |  | OTHER INFORMATION:                                                                                               |  | 24         
|        |  |                                                                                                                  |  |            
|Item 6. |  | Exhibits and Reports on Form 8-K                                                                                 |  | 25         
|        |  |                                                                                                                  |  |            
|        |  | SIGNATURES                                                                                                       |  | 25         

2



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##### 



PART I  FINANCIAL INFORMATION

ITEM 1.   FINANCIAL STATEMENTS

STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)

|                                                                                            |                                                                         |                                                                                                  |         |             |           |             |         |           |           | 
|------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------ | ------- | ----------- | --------- | ----------- | ------- | --------- | --------- | 
|                                                                                            |                                                                         |                                                                                                  |         | June 30     |           | December 31
|                                                                                            |                                                                         |                                                                                                  |         | 2002        |           | 2001       
|                                                                                            |                                                                         |                                                                                                  |         |             |           |            
|                                                                                            |                                                                         |                                                                                                  |         | (Unaudited) |           | (Audited)  
|ASSETS                                                                                      |                                                                         |                                                                                                  |         |             |           |             |         |          
|Investments:                                                                                |                                                                         |                                                                                                  |         |             |           |             |         |          
|                                                                                            | Securities available for sale:                                          |                                                                                                  |         |             |           |             |         |           |          
|                                                                                            |                                                                         | Fixed maturity securities at fair value (amortized cost $1,171,696 in 2002 and
$930,831 in 2001) |         | $           | 1,169,097 |             |         | $         | 920,944   | 
|                                                                                            | Mortgage loans on real estate                                           |                                                                                                  |         | 4,773       |           |             |         | 5,023     |          
|                                                                                            | Policy loans                                                            |                                                                                                  |         | 12,703      |           |             |         | 12,946    |          
|                                                                                            | Real estate                                                             |                                                                                                  |         | 3,662       |           |             |         | 4,011     |          
|                                                                                            | Equity-indexed call options                                             |                                                                                                  |         | 1,443       |           |             |         | 3,545     |          
|                                                                                            | Short-term investments                                                  |                                                                                                  |         | 2,011       |           |             |         | 5,509     |          
|                                                                                            | Other invested assets                                                   |                                                                                                  |         | 776         |           |             |         | 776       |          
|                                                                                            |                                                                         |                                                                                                  |         |             |           |             |         |          
|                                                                                            |                                                                         | Total investments                                                                                |         |             | 1,194,465 |             |         |           | 952,754   | 
|Cash                                                                                        |                                                                         |                                                                                                  | 7,108   |             |           |             | 18,144  |          
|Accrued investment income                                                                   |                                                                         |                                                                                                  | 17,732  |             |           |             | 14,152  |          
|Amounts due and recoverable from reinsurers                                                 |                                                                         |                                                                                                  | 40,206  |             |           |             | 41,969  |          
|Deferred policy acquisition costs                                                           |                                                                         |                                                                                                  | 134,070 |             |           |             | 109,844 |          
|Present value of future profits                                                             |                                                                         |                                                                                                  | 20,275  |             |           |             | 22,269  |          
|Goodwill                                                                                    |                                                                         |                                                                                                  | 6,199   |             |           |             | 5,146   |          
|Property and equipment (less accumulated depreciation of $3,064 in 2002 and $2,428 in
2001) |                                                                         |                                                                                                  | 12,204  |             |           |             | 12,148  |          
|Other assets                                                                                |                                                                         |                                                                                                  | 14,971  |             |           |             | 6,897   |          
|Assets of discontinued operations                                                           |                                                                         |                                                                                                  | 459,593 |             |           |             | 430,330 |          
|                                                                                            |                                                                         |                                                                                                  |         |             |           |             |         |          
|                                                                                            |                                                                         | Total assets                                                                                     |         | $           | 1,906,823 |             |         | $         | 1,613,653 | 
|                                                                                            |                                                                         |                                                                                                  |         |             |           |             |         |          
|LIABILITIES AND SHAREHOLDERS EQUITY                                                        |                                                                         |                                                                                                  |         |             |           |             |         |          
|Liabilities:                                                                                |                                                                         |                                                                                                  |         |             |           |             |         |          
|                                                                                            | Insurance policy liabilities                                            |                                                                                                  | $       | 1,326,184   |           |             | $       | 1,065,763 |          
|                                                                                            | Accounts payable and accrued expenses                                   |                                                                                                  |         | 4,794       |           |             |         | 5,935     |          
|                                                                                            | Obligations of capital lease                                            |                                                                                                  |         | 1,001       |           |             |         | 1,152     |          
|                                                                                            | Mortgage payable                                                        |                                                                                                  |         | 6,834       |           |             |         | 6,900     |          
|                                                                                            | Notes payable                                                           |                                                                                                  |         | 18,500      |           |             |         | 19,100    |          
|                                                                                            | Deferred federal income taxes                                           |                                                                                                  |         | 6,504       |           |             |         | 6,392     |          
|                                                                                            | Liabilities of discontinued operations                                  |                                                                                                  |         | 446,266     |           |             |         | 417,522   |          
|                                                                                            |                                                                         |                                                                                                  |         |             |           |             |         |          
|                                                                                            |                                                                         | Total liabilities                                                                                |         |             | 1,810,083 |             |         |           | 1,522,764 | 
|                                                                                            |                                                                         |                                                                                                  |         |             |           |             |         |          
|Company-obligated trust preferred securities                                                |                                                                         |                                                                                                  | 20,700  |             |           |             | 20,700  |          
|Shareholders Equity:                                                                       |                                                                         |                                                                                                  |         |             |           |             |         |          
|                                                                                            | Preferred stock, no par value:                                          |                                                                                                  |         |             |           |             |         |           |          
|                                                                                            |                                                                         | Authorized 870,000 shares; none issued and outstanding                                           |         |             |          |             |         |           |          | 
|                                                                                            | Common stock and additional paid in capital, no par value:              |                                                                                                  |         |             |           |             |         |           |          
|                                                                                            |                                                                         | Authorized 20,000,000 shares; issued 9,107,557 in 2002 and 9,039,471 in 2001                     |         |             | 63,597    |             |         |           | 63,011    | 
|                                                                                            | Treasury stock, at cost, 1,494,078 shares in 2002 and 1,492,978 in 2001 |                                                                                                  |         | (7,594      | )         |             |         | (7,589    | )        
|                                                                                            | Accumulated other comprehensive loss                                    |                                                                                                  |         | (3,808      | )         |             |         | (6,172    | )        
|                                                                                            | Retained earnings                                                       |                                                                                                  |         | 23,845      |           |             |         | 20,939    |          
|                                                                                            |                                                                         |                                                                                                  |         |             |           |             |         |          
|                                                                                            |                                                                         | Total shareholders equity                                                                       |         |             | 76,040    |             |         |           | 70,189    | 
|                                                                                            |                                                                         |                                                                                                  |         |             |           |             |         |          
|                                                                                            |                                                                         | Total liabilities and shareholders equity                                                       |         | $           | 1,906,823 |             |         | $         | 1,613,653 | 
|                                                                                            |                                                                         |                                                                                                  |         |             |           |             |         |          

See accompanying notes to consolidated financial statements

3



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##### 



STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, Dollars in Thousands)

|                                                                        |                                                                                |                                                                                |        |                    |        |                  |       |        |        |      |        |        |        |   |       |        |        | 
|----------------------------------------------------------------------- | ------------------------------------------------------------------------------ | ------------------------------------------------------------------------------ | ------ | ------------------ | ------ | ---------------- | ----- | ------ | ------ | ---- | ------ | ------ | ------ | - | ----- | ------ | ------ | 
|                                                                        |                                                                                |                                                                                |        | Three Months Ended |        | Six Months Ended
|                                                                        |                                                                                |                                                                                |        | June 30            |        | June 30         
|                                                                        |                                                                                |                                                                                |        |                    |        |                 
|                                                                        |                                                                                |                                                                                |        | 2002               |        | 2001             |       | 2002   |        | 2001
|                                                                        |                                                                                |                                                                                |        |                    |        |                  |       |        |        |     
|Revenues:                                                               |                                                                                |                                                                                |        |                    |        |                  |       |        |        |      |        |        |        |   |       |       
|                                                                        | Premium income                                                                 |                                                                                | $      | 1,838              |        |                  | $     | 2,332  |        |      | $      | 4,222  |        |   | $     | 5,088  |       
|                                                                        | Net investment income                                                          |                                                                                |        | 18,493             |        |                  |       | 14,047 |        |      |        | 35,644 |        |   |       | 27,628 |       
|                                                                        | Call option losses                                                             |                                                                                |        | (5,598             | )      |                  |       | (560   | )      |      |        | (6,991 | )      |   |       | (3,137 | )     
|                                                                        | Net realized investment losses                                                 |                                                                                |        | (8,624             | )      |                  |       | (127   | )      |      |        | (8,898 | )      |   |       | (55    | )     
|                                                                        | Policy income                                                                  |                                                                                |        | 1,946              |        |                  |       | 2,066  |        |      |        | 3,723  |        |   |       | 3,975  |       
|                                                                        | Fees and other income                                                          |                                                                                |        | 345                |        |                  |       | 1,776  |        |      |        | 1,708  |        |   |       | 3,460  |       
|                                                                        |                                                                                |                                                                                |        |                    |        |                  |       |        |        |      |        |        |        |   |       |       
|                                                                        |                                                                                | Total revenues from continuing operations                                      |        |                    | 8,400  |                  |       |        | 19,534 |      |        |        | 29,408 |   |       |        | 36,959 | 
|Benefits and expenses:                                                  |                                                                                |                                                                                |        |                    |        |                  |       |        |        |      |        |        |        |   |       |       
|                                                                        | Benefits and claims                                                            |                                                                                |        | 2,482              |        |                  |       | 3,416  |        |      |        | 4,774  |        |   |       | 6,475  |       
|                                                                        | Interest credited to interest-sensitive annuities and other financial products |                                                                                |        | 10,240             |        |                  |       | 7,147  |        |      |        | 18,133 |        |   |       | 12,852 |       
|                                                                        | Amortization                                                                   |                                                                                |        | 2,140              |        |                  |       | 2,944  |        |      |        | 6,128  |        |   |       | 4,969  |       
|                                                                        | Commission expenses                                                            |                                                                                |        | 108                |        |                  |       | 996    |        |      |        | 1,032  |        |   |       | 1,973  |       
|                                                                        | Other operating expenses                                                       |                                                                                |        | 2,187              |        |                  |       | 2,868  |        |      |        | 5,112  |        |   |       | 5,831  |       
|                                                                        | Interest expense and financing costs                                           |                                                                                |        | 1,123              |        |                  |       | 743    |        |      |        | 2,234  |        |   |       | 1,559  |       
|                                                                        |                                                                                |                                                                                |        |                    |        |                  |       |        |        |      |        |        |        |   |       |       
|                                                                        |                                                                                | Total benefits and expenses from continuing operations                         |        |                    | 18,280 |                  |       |        | 18,114 |      |        |        | 37,413 |   |       |        | 33,659 | 
|Income (loss) before federal income taxes and preferred stock dividends |                                                                                |                                                                                | (9,880 | )                  |        |                  | 1,420 |        |        |      | (8,005 | )      |        |   | 3,300 |       
|Federal income tax expense (benefit)                                    |                                                                                |                                                                                | (6,017 | )                  |        |                  | 78    |        |        |      | (5,633 | )      |        |   | 427   |       
|                                                                        |                                                                                |                                                                                |        |                    |        |                  |       |        |        |      |        |        |        |   |       |       
|Income (loss) from continuing operations                                |                                                                                |                                                                                | (3,863 | )                  |        |                  | 1,342 |        |        |      | (2,372 | )      |        |   | 2,873 |       
|Discontinued operations:                                                |                                                                                |                                                                                |        |                    |        |                  |       |        |        |      |        |        |        |   |       |       
|                                                                        |                                                                                | Income from discontinued operations (less taxes of $285, $306, $550, and
$546) |        |                    | 556    |                  |       |        | 593    |      |        |        | 1,068  |   |       |        | 1,062  | 
|                                                                        |                                                                                | Gain from the sale of discontinued operations (less taxes of $2,169)           |        |                    | 4,210  |                  |       |        |       |      |        |        | 4,210  |   |       |        |       | 
|                                                                        |                                                                                |                                                                                |        |                    |        |                  |       |        |        |      |        |        |        |   |       |       
|Total discontinued operations                                           |                                                                                |                                                                                | 4,766  |                    |        |                  |      |        |        |      | 5,278  |        |        |   |      |       
|                                                                        |                                                                                |                                                                                |        |                    |        |                  |       |        |        |      |        |        |        |   |       |       
|                                                                        | Net income                                                                     |                                                                                |        | 903                |        |                  |       | 1,935  |        |      |        | 2,906  |        |   |       | 3,935  |       
|Preferred stock dividends                                               |                                                                                |                                                                                |       |                    |        |                  | (127  | )      |        |      |       |        |        |   | (253  | )     
|                                                                        |                                                                                |                                                                                |        |                    |        |                  |       |        |        |      |        |        |        |   |       |       
|Earnings available to common shareholders                               |                                                                                | $                                                                              | 903    |                    |        | $                | 1,808 |        |        | $    | 2,906  |        |        | $ | 3,682 |       
|                                                                        |                                                                                |                                                                                |        |                    |        |                  |       |        |        |      |        |        |        |   |       |       

4



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STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (continued)
(Unaudited, Dollars in Thousands)

|                              |                                           |                                               |   |                    |     |                  |   |      |     |      |   |      |     |  |   |      |     | 
|----------------------------- | ----------------------------------------- | --------------------------------------------- | - | ------------------ | --- | ---------------- | - | ---- | --- | ---- | - | ---- | --- |  | - | ---- | --- | 
|                              |                                           |                                               |   | Three Months Ended |     | Six Months Ended
|                              |                                           |                                               |   | June 30            |     | June 30         
|                              |                                           |                                               |   |                    |     |                 
|                              |                                           |                                               |   | 2002               |     | 2001             |   | 2002 |     | 2001
|                              |                                           |                                               |   |                    |     |                  |   |      |     |     
|Earnings per share  basic:   |                                           |                                               |   |                    |     |                  |   |      |     |      |   |      |     |  |   |     
|                              | Income (loss) from continuing operations  |                                               |   | ($.50              | )   |                  | $ | .17  |     |      | $ | (.31 | )   |  | $ | .38  |    
|                              | Discontinued operations:                  |                                               |   |                    |     |                  |   |      |     |      |   |      |     |  |   |      |    
|                              |                                           | Income from discontinued operations           |   |                    | .07 |                  |   |      | .08 |      |   |      | .14 |  |   |      | .14 | 
|                              |                                           | Gain from the sale of discontinued operations |   |                    | .55 |                  |   |      |    |      |   |      | .55 |  |   |      |    | 
|                              |                                           |                                               |   |                    |     |                  |   |      |     |      |   |      |     |  |   |     
|                              | Total discontinued operations             |                                               |   | .62                |     |                  |   | .08  |     |      |   | .69  |     |  |   | .14  |    
|                              |                                           |                                               |   |                    |     |                  |   |      |     |      |   |      |     |  |   |     
|                              | Net income                                |                                               |   | .12                |     |                  |   | .25  |     |      |   | .38  |     |  |   | .52  |    
|                              |                                           |                                               |   |                    |     |                  |   |      |     |      |   |      |     |  |   |     
|                              | Preferred stock dividends                 |                                               |   |                   |     |                  |   | (.01 | )   |      |   |     |     |  |   | (.03 | )  
|                              |                                           |                                               |   |                    |     |                  |   |      |     |      |   |      |     |  |   |     
|                              | Earnings available to common shareholders |                                               | $ | .12                |     |                  | $ | .24  |     |      | $ | .38  |     |  | $ | .49  |    
|                              |                                           |                                               |   |                    |     |                  |   |      |     |      |   |      |     |  |   |     
|Earnings per share  diluted: |                                           |                                               |   |                    |     |                  |   |      |     |      |   |      |     |  |   |     
|                              | Income (loss) from continuing operations  |                                               | $ | (.48               | )   |                  | $ | .16  |     |      | $ | (.29 | )   |  | $ | .34  |    
|                              | Discontinued operations:                  |                                               |   |                    |     |                  |   |      |     |      |   |      |     |  |   |      |    
|                              |                                           | Income from discontinued operations           |   |                    | .07 |                  |   |      | .07 |      |   |      | .13 |  |   |      | .13 | 
|                              |                                           | Gain from the sale of discontinued operations |   |                    | .52 |                  |   |      |    |      |   |      | .52 |  |   |      |    | 
|                              |                                           |                                               |   |                    |     |                  |   |      |     |      |   |      |     |  |   |     
|                              | Total discontinued operations             |                                               |   | .59                |     |                  |   | .07  |     |      |   | .65  |     |  |   | .13  |    
|                              |                                           |                                               |   |                    |     |                  |   |      |     |      |   |      |     |  |   |     
|                              | Net income                                |                                               |   | .11                |     |                  |   | .23  |     |      |   | .36  |     |  |   | .47  |    
|                              | Preferred stock dividends                 |                                               |   |                   |     |                  |   |     |     |      |   |     |     |  |   |     |    
|                              |                                           |                                               |   |                    |     |                  |   |      |     |      |   |      |     |  |   |     
|                              | Earnings available to common shareholders |                                               | $ | .11                |     |                  | $ | .23  |     |      | $ | .36  |     |  | $ | .47  |    
|                              |                                           |                                               |   |                    |     |                  |   |      |     |      |   |      |     |  |   |     

See accompanying notes to consolidated financial statements

5



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##### 



STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(Unaudited, Dollars in Thousands)

|                           |                                       |                                                                     |                            |       |       |       |         |      |                |   |          |    |                   |   |             |   |       |   |        |       |   |  | 
|-------------------------- | ------------------------------------- | ------------------------------------------------------------------- | -------------------------- | ----- | ----- | ----- | ------- | ---- | -------------- | - | -------- | -- | ----------------- | - | ----------- | - | ----- | - | ------ | ----- | - |  | 
|                           |                                       |                                                                     |                            |       |       |       |         |      | Common stock   |   |          |    |                   |   | Accumulated |   |       |   |       
|                           |                                       |                                                                     |                            |       |       |       |         |      | and additional |   |          |    |                   |   | other       |   |       |   |       
|                           |                                       |                                                                     |                            |       |       |       |         |      | paid in        |   | Treasury |    | comprehensive     |   |             |   |      
|                           |                                       |                                                                     |                            |       | Total |       | capital |      | stock          |   | loss     |    | Retained earnings
|                           |                                       |                                                                     |                            |       |       |       |         |      |                |   |          |    |                  
|Balance at January 1, 2001 |                                       | $                                                                   | 62,899                     |       |       | $     | 63,019  |      |                | $ | (7,589   | )  |                   | $ | (12,008     | ) |       | $ | 19,477 |      
|Comprehensive income:      |                                       |                                                                     |                            |       |       |       |         |      |                |   |          |    |                   |   |             |   |       |   |        |      
|                           | Net income                            |                                                                     |                            | 3,935 |       |       |         |      |                |   |          |    |                   |   |             |   |       |   |        | 3,935 |  
|                           | Other comprehensive income:           |                                                                     |                            |       |       |       |         |      |                |   |          |    |                   |   |             |   |       |   |        |       |  
|                           |                                       | Change in unrealized gain (loss) on
securities, net taxes of $1,117 |                            |       | 2,168 |       |         |      |                |   |          |    |                   |   |             |   | 2,168 |   |        |       |   | 
|                           |                                       | Change in foreign currency translation                              |                            |       | 1,104 |       |         |      |                |   |          |    |                   |   |             |   | 1,104 |   |        |       |   | 
|                           |                                       |                                                                     |                            |       |       |       |         |      |                |   |          |    |                   |   |             |   |       |   |        |      
|                           |                                       |                                                                     | Other comprehensive income |       |       | 3,272 |         |      |                |   |          |    |                   |   |             |   |       |   |        |       |   |  | 
|                           |                                       |                                                                     | Comprehensive income       |       |       | 7,207 |         |      |                |   |          |    |                   |   |             |   |       |   |        |       |   |  | 
|                           | Issuance of common stock and warrants |                                                                     |                            | 93    |       |       |         | 93   |                |   |          |    |                   |   |             |   |       |   |        |       |  
|                           | Preferred stock dividends             |                                                                     |                            | (253  | )     |       |         |      |                |   |          |    |                   |   |             |   |       |   |        | (253  | )
|                           |                                       |                                                                     |                            |       |       |       |         |      |                |   |          |    |                   |   |             |   |       |   |        |      
|Balance at June 30, 2001   |                                       | $                                                                   | 69,946                     |       |       | $     | 63,112  |      |                | $ | (7,589   | )  |                   | $ | (8,736      | ) |       | $ | 23,159 |      
|                           |                                       |                                                                     |                            |       |       |       |         |      |                |   |          |    |                   |   |             |   |       |   |        |      
|Balance at January 1, 2002 |                                       | $                                                                   | 70,189                     |       |       | $     | 63,011  |      |                | $ | (7,589   | )  |                   | $ | (6,172      | ) |       | $ | 20,939 |      
|Comprehensive income:      |                                       |                                                                     |                            |       |       |       |         |      |                |   |          |    |                   |   |             |   |       |   |        |      
|                           | Net income                            |                                                                     |                            | 2,906 |       |       |         |      |                |   |          |    |                   |   |             |   |       |   |        | 2,906 |  
|                           | Other comprehensive income:           |                                                                     |                            |       |       |       |         |      |                |   |          |    |                   |   |             |   |       |   |        |       |  
|                           |                                       | Change in unrealized gain (loss) on
securities, net taxes of $1,542 |                            |       | 2,885 |       |         |      |                |   |          |    |                   |   |             |   | 2,885 |   |        |       |   | 
|                           |                                       | Change in foreign currency translation                              |                            |       | (521  | )     |         |      |                |   |          |    |                   |   |             |   | (521  | ) |        |       |   | 
|                           |                                       |                                                                     |                            |       |       |       |         |      |                |   |          |    |                   |   |             |   |       |   |        |      
|                           |                                       |                                                                     | Other comprehensive income |       |       | 2,364 |         |      |                |   |          |    |                   |   |             |   |       |   |        |       |   |  | 
|                           |                                       |                                                                     | Comprehensive income       |       |       | 5,270 |         |      |                |   |          |    |                   |   |             |   |       |   |        |       |   |  | 
|                           | Issuance of common stock and warrants |                                                                     |                            | 837   |       |       |         | 837  |                |   |          |    |                   |   |             |   |       |   |        |       |  
|                           | Exercise of common stock options      |                                                                     |                            | (251  | )     |       |         | (251 | )              |   |          |    |                   |   |             |   |       |   |        |       |  
|                           | Purchase of treasury stock            |                                                                     |                            | (5    | )     |       |         |      |                |   |          | (5 | )                 |   |             |   |       |   |        |       |  
|                           |                                       |                                                                     |                            |       |       |       |         |      |                |   |          |    |                   |   |             |   |       |   |        |      
|Balance at June 30, 2002   |                                       | $                                                                   | 76,040                     |       |       | $     | 63,597  |      |                | $ | (7,594   | )  |                   | $ | (3,808      | ) |       | $ | 23,845 |      
|                           |                                       |                                                                     |                            |       |       |       |         |      |                |   |          |    |                   |   |             |   |       |   |        |      

See accompanying notes to consolidated financial statements

6



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STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, Dollars in Thousands)

|                                                                                                               |                                                                    |                                                                    |         |                  |          |      |         |          |         |  
|-------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------ | ------------------------------------------------------------------ | ------- | ---------------- | -------- | ---- | ------- | -------- | ------- | -
|                                                                                                               |                                                                    |                                                                    |         | Six Months Ended
|                                                                                                               |                                                                    |                                                                    |         | June 30         
|                                                                                                               |                                                                    |                                                                    |         |                 
|                                                                                                               |                                                                    |                                                                    |         | 2002             |          | 2001
|                                                                                                               |                                                                    |                                                                    |         |                  |          |     
|Operating Activities                                                                                           |                                                                    |                                                                    |         |                  |          |      |         |         
|Net income                                                                                                     |                                                                    | $                                                                  | 2,906   |                  |          | $    | 3,935   |         
|Net income from discontinued operations                                                                        |                                                                    |                                                                    | (1,068  | )                |          |      | (1,062  | )       
|Gain from the sale of discontinued operations                                                                  |                                                                    |                                                                    | (4,210  | )                |          |      |        |         
|Adjustments to reconcile net income to net cash provided by operating activities:                              |                                                                    |                                                                    |         |                  |          |      |         |         
|                                                                                                               | Amortization of deferred acquisition costs                         |                                                                    |         | 5,161            |          |      |         | 3,647    |        
|                                                                                                               | Deferral of acquisition costs                                      |                                                                    |         | (31,312          | )        |      |         | (13,147  | )      
|                                                                                                               | Deferred federal income taxes                                      |                                                                    |         | (6,164           | )        |      |         | 877      |        
|                                                                                                               | Depreciation and amortization                                      |                                                                    |         | 1,691            |          |      |         | 1,732    |        
|                                                                                                               | Insurance policy liabilities                                       |                                                                    |         | 30,189           |          |      |         | 7,279    |        
|                                                                                                               | Net realized investment losses                                     |                                                                    |         | 8,898            |          |      |         | 55       |        
|                                                                                                               | Accrued investment income                                          |                                                                    |         | (3,581           | )        |      |         | (1,063   | )      
|                                                                                                               | Other                                                              |                                                                    |         | (879             | )        |      |         | (716     | )      
|                                                                                                               |                                                                    |                                                                    |         |                  |          |      |         |         
|                                                                                                               |                                                                    | Net cash provided by operating activities of continuing operations |         |                  | 1,631    |      |         |          | 1,537   |  
|                                                                                                               |                                                                    |                                                                    |         |                  |          |      |         |         
|Investing Activities                                                                                           |                                                                    |                                                                    |         |                  |          |      |         |         
|Fixed maturity securities available for sale:                                                                  |                                                                    |                                                                    |         |                  |          |      |         |         
|                                                                                                               | Purchases                                                          |                                                                    |         | (518,024         | )        |      |         | (258,811 | )      
|                                                                                                               | Sales                                                              |                                                                    |         | 259,195          |          |      |         | 191,684  |        
|                                                                                                               | Maturities, calls and redemptions                                  |                                                                    |         | 6,500            |          |      |         | 7,011    |        
|Short-term investments, net                                                                                    |                                                                    |                                                                    | 6,982   |                  |          |      | (17,119 | )       
|Other investments, net                                                                                         |                                                                    |                                                                    | (1,709  | )                |          |      | (3,550  | )       
|                                                                                                               |                                                                    |                                                                    |         |                  |          |      |         |         
|                                                                                                               |                                                                    | Net cash used by investing activities of continuing operations     |         |                  | (247,056 | )    |         |          | (80,785 | )
|                                                                                                               |                                                                    |                                                                    |         |                  |          |      |         |         
|Financing Activities                                                                                           |                                                                    |                                                                    |         |                  |          |      |         |         
|Repayments on notes payable and mortgage payable                                                               |                                                                    |                                                                    | (666    | )                |          |      | (3,200  | )       
|Premiums received on interest-sensitive and other financial products
credited to policyholder account balances |                                                                    |                                                                    | 307,016 |                  |          |      | 136,733 |         
|Return of policyholder account balances on interest-sensitive annuities and other
financial products           |                                                                    |                                                                    | (72,491 | )                |          |      | (49,871 | )       
|Issuance of common stock and warrants                                                                          |                                                                    |                                                                    | 530     |                  |          |      | 93      |         
|Dividends on preferred stock                                                                                   |                                                                    |                                                                    |        |                  |          |      | (253    | )       
|                                                                                                               |                                                                    |                                                                    |         |                  |          |      |         |         
|                                                                                                               | Net cash provided by financing activities of continuing operations |                                                                    |         | 234,389          |          |      |         | 83,502   |        
|                                                                                                               |                                                                    |                                                                    |         |                  |          |      |         |         
|Net (decrease) increase in cash                                                                                |                                                                    |                                                                    | (11,036 | )                |          |      | 4,254   |         
|Cash at beginning of period                                                                                    |                                                                    |                                                                    | 18,144  |                  |          |      | 1,840   |         
|                                                                                                               |                                                                    |                                                                    |         |                  |          |      |         |         
|Cash at end of period                                                                                          |                                                                    | $                                                                  | 7,108   |                  |          | $    | 6,094   |         
|                                                                                                               |                                                                    |                                                                    |         |                  |          |      |         |         

See accompanying notes to consolidated financial statements.

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STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following notes should be read along with the notes to the
consolidated financial statements included in the 2001 Form 10-K of Standard
Management Corporation, (we, our, Standard Management or the Company).

Standard Management is a financial services holding company that develops,
markets and/or administers, through several subsidiaries, annuity and life
insurance products domestically and unit-linked assurance products, which are
investment products with a nominal death benefit, internationally.

Note 1  Basis of Presentation

Our unaudited, consolidated financial statements reflect normal recurring
adjustments that are necessary to present fairly Standard Managements
financial position and results of operations on a basis consistent with that of
our prior audited consolidated financial statements. As permitted by rules and
regulations of the Securities and Exchange Commission applicable to quarterly
reports on Form 10-Q, we have condensed or omitted certain information and
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles (GAAP). We have also
reclassified certain amounts from the prior periods to conform to the 2002
presentation. These reclassifications have no effect on net income or
shareholders equity. Results for interim periods are not necessarily
indicative of the results that may be expected for a full year.

The nature of the insurance business requires us to make estimates and
assumptions that affect the amounts reported in our consolidated financial
statements and accompanying notes. For example, we use significant estimates
and assumptions in calculating deferred policy acquisition costs, present value
of future profits, goodwill, future policy benefits and deferred federal income
taxes. If future experience differs from these estimates and assumptions, our
financial statements could be materially affected.

Recently Issued Professional Accounting Standards

In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets
(SFAS 142). SFAS 142 is effective for fiscal years beginning after December
15, 2001. Under the new rules, goodwill and indefinite lived intangible assets
are no longer amortized, but are subject to impairment tests conducted at least
annually in accordance with the new standard. Intangible assets that do not
have indefinite lives continue to be amortized over their estimated useful
lives. We adopted SFAS 142 on January 1, 2002.

Goodwill is tested for impairment using a two step process prescribed in
SFAS 142. The first step is a screen for potential impairment, while the
second step measures the amount of the impairment, if any. In compliance with
the transition provision of SFAS 142, we completed the first step of the
transitional goodwill impairment test during the second quarter of 2002. A
discounted cash flow model was used to assess the goodwill of the reporting
units. The results indicate it is likely that a portion of the goodwill
related to the domestic insurance operations will be impaired using the
impairment test required by SFAS 142. An impairment that is required to be
recognized will be reflected as the cumulative effect of a change in accounting
principle. We have not yet determined the amount of the potential impairment
loss. We plan to complete the measurement of the impairment loss in the third
quarter 2002.

For the three months ended June 30, 2001, on a SFAS No. 142 comparable
basis, our net income, basic net income per share and diluted net income per
share would have remained as originally reported at $1.9 million, $.25 and
$.23, respectively.

For the six months ended June 30, 2001, on a SFAS No. 142 comparable
basis, our net income, basic net income per share and diluted net income per
share would have been $4.0 million, $.53 and $.48, respectively, which includes
the elimination of amortization of $.1 million or $.01 per share.

8



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STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES

Note 2  International Operations

On May 28, 2002, we announced that we signed an agreement to sell 100% of
the shares of Premier Life (Luxembourg) S.A. and the portfolio of Premiers
business in Bermuda (collectively our International Operations) to Winterthur
Life, a division of Credit Suisse Group for a sale price of approximately $27.8
million (the Transaction). The Transaction will ultimately provide
approximately $25.0 million in cash to Standard Management. The sales price
was determined through arms-length negotiations.

On August 14, 2002,
we closed the sale of our Bermuda business and received net proceeds
of $8.2 million. In accordance with the agreement we recorded a gain on sale, net of related costs, of
$4.2 million in our second quarter 2002 financial statements. The remaining
sale of our international operations, Premier Life (Luxembourg), S.A., is
pending regulatory approval, expected to occur in the third quarter of 2002 and
result in a gain on sale.

The disposition of our international operations segment will represent a
disposal of a segment under SFAS No. 144, Accounting for the Impairment and
Disposal of Long-Lived Assets. Accordingly, the revenues, costs and expenses,
assets and liabilities, and cash flows of this segment have been segregated in
the Consolidated Balance Sheets, Consolidated Statements of Income and
Consolidated Statements of Cash Flows.

Note 3  Mortgage Payable, Notes Payable and Trust Preferred Securities

Our mortgage payable, notes payable and trust preferred securities were as
follows (dollars in thousands):

|                           |                                              |  |          |       |         |   |             |        |  |   |        |        | 
|-------------------------- | -------------------------------------------- |  | -------- | ----- | ------- | - | ----------- | ------ |  | - | ------ | ------ | 
|                           |                                              |  | Interest |       | June 30 |   | December 31
|                           |                                              |  | Rate     |       | 2002    |   | 2001       
|                           |                                              |  |          |       |         |   |            
|Mortgage payable           |                                              |  | 7.38     | %     |         | $ | 6,834       |        |  | $ | 6,900  |       
|Notes payable:             |                                              |  |          |       |         |   |             |        |  |   |        |       
|                           | Borrowings under revolving credit agreements |  |          | 5.17  | %(1)    |   | $           | 7,500  |  |   | $      | 8,100  | 
|                           | Senior subordinated notes                    |  |          | 10.00 | %       |   |             | 11,000 |  |   |        | 11,000 | 
|                           |                                              |  |          |       |         |   |             |        |  |   |        |       
|                           |                                              |  |          |       |         | $ | 18,500      |        |  | $ | 19,100 |       
|                           |                                              |  |          |       |         |   |             |        |  |   |        |       
|Trust preferred securities |                                              |  | 10.25    | %     |         | $ | 20,700      |        |  | $ | 20,700 |       
|                           |                                              |  |          |       |         |   |             |        |  |   |        |       



---

|(1) |  | Current weighted average rate at June 30, 2002.
|--- |  | -----------------------------------------------

Note 4  Net Unrealized Loss on Securities Available for Sale

The components of unrealized loss on securities available for sale in
shareholders equity are summarized as follows (in thousands):

|                                                |                                      |                                                        |           |         |        |             |         |       |        |  
|----------------------------------------------- | ------------------------------------ | ------------------------------------------------------ | --------- | ------- | ------ | ----------- | ------- | ----- | ------ | -
|                                                |                                      |                                                        |           | June 30 |        | December 31
|                                                |                                      |                                                        |           | 2002    |        | 2001       
|                                                |                                      |                                                        |           |         |        |            
|Fair value of securities available for sale     |                                      | $                                                      | 1,169,097 |         |        | $           | 920,944 |      
|Amortized cost of securities available for sale |                                      |                                                        | 1,171,696 |         |        |             | 930,831 |      
|                                                |                                      |                                                        |           |         |        |             |         |      
|                                                |                                      | Gross unrealized loss on securities available for sale |           |         | (2,599 | )           |         |       | (9,887 | )
|Adjustments for:                                |                                      |                                                        |           |         |        |             |         |      
|                                                | Deferred policy acquisition costs    |                                                        |           | 656     |        |             |         | 2,468 |       
|                                                | Present value of future profits      |                                                        |           | 361     |        |             |         | 1,410 |       
|                                                | Deferred federal income tax benefits |                                                        |           | 538     |        |             |         | 2,080 |       
|                                                |                                      |                                                        |           |         |        |             |         |      
|                                                |                                      | Net unrealized loss on securities available for sale   |           | $       | (1,044 | )           |         | $     | (3,929 | )
|                                                |                                      |                                                        |           |         |        |             |         |      

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STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES

Note 5  Earnings Per Share

A reconciliation of income and shares used to calculate basic and diluted
earnings per share is as follows (dollars in thousands):

|                                                                       |                                                                               |   |                    |         |                  |   |           |         |      |   |           |         |  |   |           |         | 
|---------------------------------------------------------------------- | ----------------------------------------------------------------------------- | - | ------------------ | ------- | ---------------- | - | --------- | ------- | ---- | - | --------- | ------- |  | - | --------- | ------- | 
|                                                                       |                                                                               |   | Three Months Ended |         | Six Months Ended
|                                                                       |                                                                               |   | June 30            |         | June 30         
|                                                                       |                                                                               |   |                    |         |                 
|                                                                       |                                                                               |   | 2002               |         | 2001             |   | 2002      |         | 2001
|                                                                       |                                                                               |   |                    |         |                  |   |           |         |     
|Income (loss):                                                         |                                                                               |   |                    |         |                  |   |           |         |      |   |           |         |  |   |           |        
|Income (loss) from continuing operations before income taxes           |                                                                               | $ | (9,880             | )       |                  | $ | 1,420     |         |      | $ | (8,005    | )       |  | $ | 3,300     |        
|Federal income expense (benefit)                                       |                                                                               |   | (6,017             | )       |                  |   | 78        |         |      |   | (5,633    | )       |  |   | 427       |        
|                                                                       |                                                                               |   |                    |         |                  |   |           |         |      |   |           |         |  |   |           |        
|Income (loss) from continuing operations                               |                                                                               |   | (3,863             | )       |                  |   | 1,342     |         |      |   | (2,372    | )       |  |   | 2,873     |        
|Discontinued operations:                                               |                                                                               |   |                    |         |                  |   |           |         |      |   |           |         |  |   |           |        
|                                                                       | Income from discontinued operations (less taxes of $285,
$306, $550 and $546) |   |                    | 556     |                  |   |           | 593     |      |   |           | 1,068   |  |   |           | 1,062   | 
|                                                                       | Gain from the sale of discontinued operations (less taxes
of $2,169)          |   |                    | 4,210   |                  |   |           |        |      |   |           | 4,210   |  |   |           |        | 
|                                                                       |                                                                               |   |                    |         |                  |   |           |         |      |   |           |         |  |   |           |        
|Total discontinued operations                                          |                                                                               |   | 4,766              |         |                  |   | 593       |         |      |   | 5,278     |         |  |   | 1,062     |        
|                                                                       |                                                                               |   |                    |         |                  |   |           |         |      |   |           |         |  |   |           |        
|Preferred stock dividends                                              |                                                                               |   |                   |         |                  |   | (127      | )       |      |   |          |         |  |   | (253      | )      
|                                                                       |                                                                               |   |                    |         |                  |   |           |         |      |   |           |         |  |   |           |        
|Net income                                                             |                                                                               |   | 903                |         |                  |   | 1,808     |         |      |   | 2,906     |         |  |   | 3,682     |        
|Effect of dilutive securities:                                         |                                                                               |   |                    |         |                  |   |           |         |      |   |           |         |  |   |           |        
|                                                                       | Preferred stock dividends                                                     |   |                    |        |                  |   |           | 127     |      |   |           |        |  |   |           | 253     | 
|                                                                       |                                                                               |   |                    |         |                  |   |           |         |      |   |           |         |  |   |           |        
|Income available to common shareholders for diluted earnings
per share |                                                                               | $ | 903                |         |                  | $ | 1,935     |         |      | $ | 2,906     |         |  | $ | 3,935     |        
|                                                                       |                                                                               |   |                    |         |                  |   |           |         |      |   |           |         |  |   |           |        
|Shares:                                                                |                                                                               |   |                    |         |                  |   |           |         |      |   |           |         |  |   |           |        
|Weighted average shares outstanding for basic earnings
per share       |                                                                               |   | 7,613,479          |         |                  |   | 7,545,156 |         |      |   | 7,610,705 |         |  |   | 7,545,156 |        
|Effect of dilutive securities:                                         |                                                                               |   |                    |         |                  |   |           |         |      |   |           |         |  |   |           |        
|                                                                       | Stock options                                                                 |   |                    | 292,351 |                  |   |           | 71,148  |      |   |           | 198,052 |  |   |           | 39,425  | 
|                                                                       | Stock warrants                                                                |   |                    | 258,574 |                  |   |           | 148,406 |      |   |           | 207,503 |  |   |           | 91,671  | 
|                                                                       | Preferred stock                                                               |   |                    |        |                  |   |           | 768,235 |      |   |           |        |  |   |           | 768,235 | 
|                                                                       |                                                                               |   |                    |         |                  |   |           |         |      |   |           |         |  |   |           |        
|                                                                       | Dilutive potential common shares                                              |   |                    | 550,925 |                  |   |           | 987,789 |      |   |           | 405,555 |  |   |           | 899,331 | 
|                                                                       |                                                                               |   |                    |         |                  |   |           |         |      |   |           |         |  |   |           |        
|Weighted average shares outstanding for diluted earnings per
share     |                                                                               |   | 8,164,404          |         |                  |   | 8,532,945 |         |      |   | 8,016,260 |         |  |   | 8,444,487 |        
|                                                                       |                                                                               |   |                    |         |                  |   |           |         |      |   |           |         |  |   |           |        

10



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STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES

ITEM 2.   MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

General

The following discussion highlights the material factors affecting the
results of operations and the significant changes in balance sheet items.
Notes to the consolidated financial statements included in this report and the
notes to the consolidated financial statements included in our Form 10-K for
the year ended December 31, 2001 should be read in conjunction with both sets
of consolidated financial statements.

Comparison of the Three Month and Six Month Periods Ended June 30, 2002 and
June 30, 2001:

The following tables and narratives summarize the results of operations by
operating segment:

|                                             |                                                                                          |                                                                    |   |                        |        |                        |   |       |       |      |   |        |         |   |   |       |       |  
|-------------------------------------------- | ---------------------------------------------------------------------------------------- | ------------------------------------------------------------------ | - | ---------------------- | ------ | ---------------------- | - | ----- | ----- | ---- | - | ------ | ------- | - | - | ----- | ----- | -
|                                             |                                                                                          |                                                                    |   | Three Months Ended     |        | Six Months Ended      
|                                             |                                                                                          |                                                                    |   | June 30                |        | June 30               
|                                             |                                                                                          |                                                                    |   |                        |        |                       
|                                             |                                                                                          |                                                                    |   | 2002                   |        | 2001                   |   | 2002  |       | 2001
|                                             |                                                                                          |                                                                    |   |                        |        |                        |   |       |       |     
|                                             |                                                                                          |                                                                    |   | (Dollars in thousands) |        | (Dollars in thousands)
|Operating income (loss) before income taxes: |                                                                                          |                                                                    |   |                        |        |                        |   |       |       |      |   |        |         |   |   |      
|                                             | Operating income (loss) from continuing
operations                                       |                                                                    | $ | (1,256                 | )      |                        | $ | 1,548 |       |      | $ | 893    |         |   | $ | 3,355 |      
|                                             | Taxes (benefits) related to operating income
from continuing operations                  |                                                                    |   | (3,084                 | )      |                        |   | 45    |       |      |   | (2,608 | )       |   |   | 335   |      
|                                             |                                                                                          |                                                                    |   |                        |        |                        |   |       |       |      |   |        |         |   |   |      
|                                             |                                                                                          | Operating income after taxes (benefits)
from continuing operations |   |                        | 1,828  |                        |   |       | 1,503 |      |   |        | 3,501   |   |   |       | 3,020 |  
|                                             |                                                                                          |                                                                    |   |                        |        |                        |   |       |       |      |   |        |         |   |   |      
|                                             | Consolidated realized investment losses before
taxes (benefits)                          |                                                                    |   | (8,624                 | )      |                        |   | (127  | )     |      |   | (8,898 | )       |   |   | (55   | )    
|                                             | Taxes (benefits) related to realized
investment losses                                   |                                                                    |   | (2,933                 | )      |                        |   | 34    |       |      |   | (3,025 | )       |   |   | 92    |      
|                                             |                                                                                          |                                                                    |   |                        |        |                        |   |       |       |      |   |        |         |   |   |      
|                                             |                                                                                          | Consolidated realized investment losses
after taxes (benefits)     |   |                        | (5,691 | )                      |   |       | (161  | )    |   |        | (5,873  | ) |   |       | (147  | )
|                                             |                                                                                          |                                                                    |   |                        |        |                        |   |       |       |      |   |        |         |   |   |      
|                                             |                                                                                          | Income (loss) from continuing operations                           |   | $                      | (3,863 | )                      |   | $     | 1,342 |      |   |        | $(2,372 | ) |   | $     | 2,873 |  
|Discontinued operations:                     |                                                                                          |                                                                    |   |                        |        |                        |   |       |       |      |   |        |         |   |   |      
|                                             | Operating income from discontinued operations
(less taxes of $285, $306, $550, and $546) |                                                                    |   | 556                    |        |                        |   | 593   |       |      |   | 1,068  |         |   |   | 1,062 |      
|                                             | Gain from the sale of discontinued operations
(less taxes of $2,169)                     |                                                                    |   | 4,210                  |        |                        |   |      |       |      |   | 4,210  |         |   |   |      |      
|                                             |                                                                                          |                                                                    |   |                        |        |                        |   |       |       |      |   |        |         |   |   |      
|                                             |                                                                                          | Total discontinued operations                                      |   |                        | 4,766  |                        |   |       |      |      |   |        | 5,278   |   |   |       |      |  
|                                             |                                                                                          |                                                                    |   |                        |        |                        |   |       |       |      |   |        |         |   |   |      
|                                             |                                                                                          | Net income                                                         |   | $                      | 903    |                        |   | $     | 1,935 |      |   | $      | 2,906   |   |   | $     | 3,935 |  
|                                             |                                                                                          |                                                                    |   |                        |        |                        |   |       |       |      |   |        |         |   |   |      

Consolidated Results and Analysis:

Quarterly analysis:

Net income for the second quarter of 2002 was $.9 million, or $.11 per
diluted share compared to $1.9 million or $.23 per diluted share in the second
quarter 2001. Negatively impacting net income for the second quarter of 2002
were net realized investment losses after tax of $5.7 million or ($.70) per
diluted share, which included portfolio write-downs of $5.2 million or $.63 per
diluted share from collateralized debt obligations and telecommunications
investments. Net realized investment losses also included losses from WorldCom
bonds of $2.8 million or $.35 per diluted share reduced by net realized gains
of $2.3 million or $.28 per diluted share. Current quarter earnings were also
negatively impacted by a reserve strengthening

11



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STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES

adjustment of $1.8 million or $.23 per diluted share, and net interest expense
related to capital restructuring $.05 per diluted share. Offsetting these were
increased net spread of $.04 per diluted share and a lower effective tax rate
resulting from the utilization of net operating loss carryforwards which
contributed $2.4 million or $.29 per diluted share. Net income included a $4.2
million gain or $.52 per diluted share from the sale of discontinued
operations.

Domestic Operations (Continuing Operations):

|                                                                               |                                                       |                                                            |        |                        |         |                        |        |        |        |      |        |         |         |   |        |         |         | 
|------------------------------------------------------------------------------ | ----------------------------------------------------- | ---------------------------------------------------------- | ------ | ---------------------- | ------- | ---------------------- | ------ | ------ | ------ | ---- | ------ | ------- | ------- | - | ------ | ------- | ------- | 
|                                                                               |                                                       |                                                            |        | Three Months Ended     |         | Six Months Ended      
|                                                                               |                                                       |                                                            |        | June 30                |         | June 30               
|                                                                               |                                                       |                                                            |        |                        |         |                       
|                                                                               |                                                       |                                                            |        | 2002                   |         | 2001                   |        | 2002   |        | 2001
|                                                                               |                                                       |                                                            |        |                        |         |                        |        |        |        |     
|                                                                               |                                                       |                                                            |        | (Dollars in thousands) |         | (Dollars in thousands)
|Premiums and Deposits Collected:                                               |                                                       |                                                            |        |                        |         |                        |        |        |        |      |        |         |         |   |        |        
|                                                                               | Traditional life                                      |                                                            | $      | 1,838                  |         |                        | $      | 2,332  |        |      | $      | 4,222   |         |   | $      | 5,088   |        
|                                                                               |                                                       |                                                            |        |                        |         |                        |        |        |        |      |        |         |         |   |        |        
|                                                                               | Deferred annuities                                    |                                                            |        | 82,366                 |         |                        |        | 35,893 |        |      |        | 170,997 |         |   |        | 69,755  |        
|                                                                               | Single premium immediate annuities and other
deposits |                                                            |        | 44,777                 |         |                        |        | 21,941 |        |      |        | 81,210  |         |   |        | 33,631  |        
|                                                                               | Equity-indexed annuities                              |                                                            |        | 32,048                 |         |                        |        | 14,832 |        |      |        | 54,507  |         |   |        | 33,021  |        
|                                                                               | Universal and interest-sensitive life                 |                                                            |        | 142                    |         |                        |        | 158    |        |      |        | 302     |         |   |        | 326     |        
|                                                                               |                                                       |                                                            |        |                        |         |                        |        |        |        |      |        |         |         |   |        |        
|                                                                               |                                                       | Subtotal  interest sensitive and other
financial products |        |                        | 159,333 |                        |        |        | 72,824 |      |        |         | 307,016 |   |        |         | 136,733 | 
|                                                                               |                                                       |                                                            |        |                        |         |                        |        |        |        |      |        |         |         |   |        |        
|                                                                               | Total premiums and deposits collected                 |                                                            | $      | 161,171                |         |                        | $      | 75,156 |        |      | $      | 311,238 |         |   | $      | 141,821 |        
|                                                                               |                                                       |                                                            |        |                        |         |                        |        |        |        |      |        |         |         |   |        |        
|Statement of Operations:                                                       |                                                       |                                                            |        |                        |         |                        |        |        |        |      |        |         |         |   |        |        
|Premium income                                                                 |                                                       | $                                                          | 1,838  |                        |         | $                      | 2,332  |        |        | $    | 4,222  |         |         | $ | 5,088  |        
|Policy income                                                                  |                                                       |                                                            | 1,946  |                        |         |                        | 2,066  |        |        |      | 3,723  |         |         |   | 3,975  |        
|                                                                               |                                                       |                                                            |        |                        |         |                        |        |        |        |      |        |         |         |   |        |        
|                                                                               | Total policy related income                           |                                                            |        | 3,784                  |         |                        |        | 4,398  |        |      |        | 7,945   |         |   |        | 9,063   |        
|Net investment income                                                          |                                                       |                                                            | 18,493 |                        |         |                        | 14,047 |        |        |      | 35,644 |         |         |   | 27,628 |        
|Call option losses                                                             |                                                       |                                                            | (5,598 | )                      |         |                        | (560   | )      |        |      | (6,991 | )       |         |   | (3,137 | )      
|Fees and other income                                                          |                                                       |                                                            | 345    |                        |         |                        | 1,776  |        |        |      | 1,708  |         |         |   | 3,460  |        
|                                                                               |                                                       |                                                            |        |                        |         |                        |        |        |        |      |        |         |         |   |        |        
|                                                                               | Total revenues                                        |                                                            |        | 17,024                 |         |                        |        | 19,661 |        |      |        | 38,306  |         |   |        | 37,014  |        
|Benefits and claims                                                            |                                                       |                                                            | 2,482  |                        |         |                        | 3,416  |        |        |      | 4,774  |         |         |   | 6,475  |        
|Interest credited to interest sensitive annuities
and other financial products |                                                       |                                                            | 10,240 |                        |         |                        | 7,147  |        |        |      | 18,133 |         |         |   | 12,852 |        
|Amortization                                                                   |                                                       |                                                            | 2,140  |                        |         |                        | 2,944  |        |        |      | 6,128  |         |         |   | 4,969  |        
|Commission expenses                                                            |                                                       |                                                            | 108    |                        |         |                        | 996    |        |        |      | 1,032  |         |         |   | 1,973  |        
|Other operating expenses                                                       |                                                       |                                                            | 2,187  |                        |         |                        | 2,868  |        |        |      | 5,112  |         |         |   | 5,831  |        
|Interest expense and financing costs                                           |                                                       |                                                            | 1,123  |                        |         |                        | 743    |        |        |      | 2,234  |         |         |   | 1,559  |        
|                                                                               |                                                       |                                                            |        |                        |         |                        |        |        |        |      |        |         |         |   |        |        
|                                                                               | Total benefits and expenses                           |                                                            |        | 18,280                 |         |                        |        | 18,114 |        |      |        | 37,413  |         |   |        | 33,659  |        
|                                                                               |                                                       |                                                            |        |                        |         |                        |        |        |        |      |        |         |         |   |        |        
|                                                                               | Operating income (loss) before income taxes           |                                                            |        | (1,256                 | )       |                        |        | 1,547  |        |      |        | 893     |         |   |        | 3,355   |        
|Net realized investment losses, net of related costs                           |                                                       |                                                            | (8,624 | )                      |         |                        | (127   | )      |        |      | (8,898 | )       |         |   | (55    | )      
|                                                                               |                                                       |                                                            |        |                        |         |                        |        |        |        |      |        |         |         |   |        |        
|                                                                               | Income (loss) before income taxes                     |                                                            | $      | (9,880                 | )       |                        | $      | 1,420  |        |      | $      | (8,005  | )       |   | $      | 3,300   |        
|                                                                               |                                                       |                                                            |        |                        |         |                        |        |        |        |      |        |         |         |   |        |        

12



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STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES

General:Our domestic operations (continuing operations) segment consists of
revenues earned and expenses incurred from our United States operations. Our
primary products include deferred annuities, single premium immediate annuities
and equity-indexed annuities. The profitability of this segment is primarily a
function of net investment spread (the difference between the investment income
earned on our investments less the interest we credit to our policyholders),
persistency of our in force business, mortality experience and management of
our operating expenses.

Quarterly analysiscompares the three month period ending June 30, 2002 to the
three month period ending June 30, 2001.

Year-to-date analysiscompares the six month period ending June 30, 2002 to the
six month period ending June 30, 2001.

Premium depositsconsist of deposits from our deferred annuities, single
premium immediate annuities, equity-indexed annuities, and other financial
products that do not incorporate significant mortality features. For GAAP,
these premium deposits are not shown as premium income in the income statement.
A change in premium deposits in a single period does not directly cause our
operating income to change, although continued increases or decreases in
premiums may affect the growth rate of assets on which investment spreads are
earned.

Quarterly analysis:



| |  | Premium deposits for the second quarter of 2002 increased
$86.5 million or 119%, to $159.3 million, compared to the same
period in 2001. Deferred annuity deposits increased $46.5
million or 129%, to $82.4 million. Single premium immediate
annuity deposits increased $22.8 million or 104%, to $44.8
million.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Year-to-date analysis:



| |  | Premium deposits for the first six months of 2002 increased
$170.3 million or 125%, to $307.0 million, compared to the
same period in 2001. Deferred annuity deposits increased
$101.2 million or 145%, to $171.0 million. Single premium
immediate annuity deposits increased $47.6 million or 142%, to
$81.2 million.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
|  |  | Premium deposits increased in the 2002 period primarily due to an expanded
distribution force and an enhanced product portfolio.                                                                                                                                                                                       

Premium incomeconsists of premiums earned from 1) traditional life products
and 2) annuity products that incorporate significant mortality features.

Quarterly analysis:



| |  | Premium income for the second quarter of 2002 decreased by $.5
million or 21%, to $1.8 million compared to the same period in
2001.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------

Year-to-date analysis:



| |  | Premium income for the first six months of 2002 decreased $.9
million or 17%, to $4.2 million compared to the same period in
2001.                                                         
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
|  |  | Premium income in 2002 declined because effective August 2001, we suspended
the active marketing of life products indefinitely. We continue, however, to
manage our in force life business.

Policy incomerepresents 1) mortality income and administrative fees earned on
universal life products and 2) surrender income earned on terminated universal
life and annuity policies.

13



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STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES

Quarterly analysis:



| |  | Policy income, in the second quarter of 2002, decreased $.1
million or 6%, to $1.9 million compared to the same period in
2001. This decrease primarily relates to less surrender
income.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Year-to-date analysis:



| |  | Policy income for the first six months of 2002 decreased $.3
million or 6%, to $3.7 million which includes a decline in
surrender income.                                   
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
|  |  | Generally during a declining interest rate environment, policyholders are
less likely to terminate existing annuity policies, therefore, resulting in
less surrender income.

Net investment incomeincludes interest earned on invested assets which
fluctuates with changes in 1) the amount of average invested assets supporting
insurance liabilities and 2) the average yield earned on those invested assets.

Quarterly analysis:



| |  | Net investment income for the second quarter of 2002 increased
by $4.4 million or 32%, to $18.5 million compared to the same
period in 2001. Net investment income increased as a result of
a $326.3 million or 40% increase in weighted average invested
assets for the period.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | The net investment yields earned on average invested assets
were 6.60% and 6.95% for the second quarter of 2002 and 2001,
respectively.                                                                                                                                         

Year-to-date analysis:



| |  | Net investment income for the first six months of 2002
increased $8.0 million or 29%, to $35.6 million compared to
the same period in 2001. Net investment income increased as a
result of a $284.9 million or 36% increase in weighted average
invested assets for the period.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | The net investment yields earned on average invested assets
were 6.71% and 6.99% for the first six months of 2002 and
2001, respectively.                                                                                                                                      
| 
|  |  | Net investment income for 2002 was unfavorably impacted from reversal of
interest accruals on defaulted bonds and lower earned rates on current year
investments.                                                                                                              

Call option lossesrelate to equity-indexed products that are hedged with call
options to limit risk against unusually high crediting rates from favorable
returns in the equity market. The market value of these options fluctuate from
period to period and are substantially offset by amounts credited to
policyholder account balances.

Quarterly analysis:



| |  | Call option losses for the second quarter of 2002 increased by
$5.0 million to $5.6 million compared to the same period in
2001.
|- |  | --------------------------------------------------------------------------------------------------------------------------------

Year-to-date analysis:



| |  | Call option losses for the first six months of 2002 increased
by $3.9 million to $7.0 million compared to the same period in
2001.     
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------
| 
|  |  | Call option losses in 2002 were due to a decline in the market value of our
call options as a result of changes in the S & P 500 Index.

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STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES

See also Interest credited to interest sensitive annuities and other financial
products for information regarding the impact of our equity-indexed products.

Fees and other incomeconsist of fee income related to servicing unaffiliated
blocks of business, experience refunds and commission income.

Quarterly analysis:



| |  | Fees and other income in the second quarter of 2002 decreased
$1.4 million or 81%, to $.3 million and includes a decline of
$1.1 million in commission income.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------

Year-to-date analysis:



| |  | Fees and other income for the first six months of 2002
decreased $1.8 million or 51%, to $1.7 million and includes a
decline of $1.3 million in commission income.                                                             
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
|  |  | The decline in commission income in 2002 was due to the termination of a
marketing and administration contract in the second quarter of 2002. This
decrease is substantially offset by a decline in related commission expense.

Benefits and claimsinclude 1) mortality experience, 2) benefits from other
policies that incorporate significant mortality features and 3) changes in
future policy reserves. Throughout our history, we have experienced periods of
higher and lower benefit claims. This volatility is not uncommon in the life
insurance industry and, over extended periods of time, periods of higher claims
experience tend to offset periods of lower claim experience.

Quarterly analysis:



| |  | Benefits and claims for the second quarter of 2002 decreased
$.9 million or 27%, to $2.5 million compared to the same
period in 2001.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------

Year-to-date analysis:



| |  | Benefits and claims for the first six months of 2002 decreased
$1.7 million or 26%, to $4.8 million compared to the same
period in 2001.                                      
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
|  |  | Benefits and claims declined in 2002 due to favorable mortality experience,
and less traditional life business from our decision to suspend active
marketing of life products.

Interest credited to interest sensitive annuities and other financial products
represents interest credited to insurance liabilities of the deferred
annuities, single premium immediate annuities, equity-indexed annuities and
other financial products. This expense fluctuates with changes in 1) the
average interest-sensitive insurance liabilities, 2) the average credited rate
on those liabilities and 3) the market value fluctuations of call options.

Quarterly analysis:



| |  | During the second quarter of 2002, interest credited increased $3.1
million to $10.2 million, an increase of 43% compared to the same period
in 2001. This increase is primarily due to a 48%, or $367.8 million,
increase in average interest sensitive liabilities and a one-time $2.3
million reserve strengthening adjustment, offset by a decrease in weighted
average credited rates from 5.02% to 4.72%.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
|  |  | In addition to these items, credited interest on equity-indexed products
declined by $4.4 million as a result of equity market declines, offset by a
$2.2 million increase in the reserve for future equity benefits, which varies
inversely with treasury rates.                                                                                                                                              

15



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STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES

Year-to-date analysis:



| |  | During the first six months of 2002, interest credited increased $5.3
million to $18.1 million, an increase of 41% compared to the same period
in 2001. This increase is primarily due to a 43%, or $324.0 million,
increase in average interest sensitive liabilities and the reserve
adjustment noted in the quarterly analysis, offset by a decrease in
weighted average credited rates from 4.99% to 4.85%.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
|  |  | In addition to these items, credited interest on equity-indexed products
declined by $3.1 million as a result of equity market declines, offset by a
$.4 million increase in the reserve for future equity benefits, which varies
inversely with treasury rates.                                                                                                                                               

Amortizationincludes 1) amortization related to the present value of our
policies purchased from our acquired insurance business, 2) amortization of
deferred acquisition costs related to capitalized costs of our insurance
business sold, and 3) amortization of goodwill for the 2001 period.

Quarterly analysis:



| |  | Amortization for the second quarter of 2002 was $2.1 million, a decrease of $.8 million
compared to the same period in 2001. This decrease includes a $1.4 million decrease
related to the increase in reserve for future equity benefits of equity-indexed
products, offset by an increase of $.6 million primarily related to increased sales of
annuity products in recent periods, and the resulting increase in the amount of
deferred acquisition costs.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Year-to-date analysis:



| |  | Amortization for the first six months of 2002 was $6.1 million, an increase of $1.2
million compared to the same period in 2001. This increase reflects a $1.7 million
from the recognition of additional gross profits from increased sales of annuity
products during recent periods offset by $.2 million of lower amortization due to
favorable persistency, and $.2 million from the increase in reserve for future equity
benefits of equity-indexed products.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Commission expensesrepresent commission expenses, net of deferrable amounts.

Quarterly analysis:



| |  | Commission expenses decreased $.9 million to $.1 million.
|- |  | ---------------------------------------------------------

Year-to-date analysis:



| |  | Commission expenses decreased by $.9 million to $1.0 million.                                                                        
|- |  | -------------------------------------------------------------------------------------------------------------------------------------
| 
|  |  | Commission expenses declined in 2002 due to the termination of a marketing
and administration contract in the second quarter of 2002.

Other operating expensesconsist of general operating expenses, including
salaries, net of deferrable amounts.

Quarterly analysis:



| |  | Other operating expenses for the second quarter of 2002
decreased $.7 million to $2.2 million compared to the same
period in 2001.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------

Year-to-date analysis:



| |  | Other operating expenses for the first six months of 2002
decreased $.7 million to $5.1 million compared to the same
period in 2001.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------

16



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STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES

Interest expense and financing costsrepresents interest expense incurred and
the amortization of related debt issuance costs.

Quarterly analysis:



| |  | Interest expense and financing costs increased by $.4 million or 51%, to
$1.1 million for the second quarter of 2002 compared to the same period
for 2001. Average borrowings increased $17.8 million to $46.1 million in
the 2002 period and included the impact of our trust preferred offering
and our mortgage payable.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
|  |  | The interest rate incurred on average borrowings were 9.62% and 10.65% for
the second quarter of 2002 and 2001, respectively.                                                                                                                                                                                              

Year-to-date analysis:



| |  | Interest expense and financing costs increased by $.7 million or 43%, to
$2.2 million. Average borrowings increased $17.1 million to $46.2 million
in the 2002 period and included the impact of our trust preferred offering
and our mortgage payable.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
|  |  | The interest rate incurred on average borrowings were 9.67% and 10.71% for
the first six months of 2002 and 2001, respectively.                                                                                                                        

Net realized investment losses, net of related costsfluctuate from period to
period and generally arise when securities are sold in response to changes in
the investment environment. Realized investment losses can affect the timing
of the amortization of deferred acquisition costs and the present value of
future profits.

Quarterly analysis:



| |  | Net realized investment losses, net of related costs were $8.6 million in the second quarter of 2002, and included
net realized losses from the sale of securities of $.9 million and portfolio write-downs of $7.7 million from
collateralized debt obligations and telecommunication investments.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Year-to-date analysis:



| |  | Net realized investment losses, net of related costs were $8.9 million in the first six months of 2002.
|- |  | -------------------------------------------------------------------------------------------------------
| 
|  |  | Approximately 96% of our fixed maturity securities are classified as
investment grade at June 30, 2002.

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STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES

International Operations (Discontinued Operations):

|                                 |                           |                                       |       |                        |        |                        |       |        |        |      |       |        |        |   |       |        |        | 
|-------------------------------- | ------------------------- | ------------------------------------- | ----- | ---------------------- | ------ | ---------------------- | ----- | ------ | ------ | ---- | ----- | ------ | ------ | - | ----- | ------ | ------ | 
|                                 |                           |                                       |       | Three Months Ended     |        | Six Months Ended      
|                                 |                           |                                       |       | June 30                |        | June 30               
|                                 |                           |                                       |       |                        |        |                       
|                                 |                           |                                       |       | 2002                   |        | 2001                   |       | 2002   |        | 2001
|                                 |                           |                                       |       |                        |        |                        |       |        |        |     
|                                 |                           |                                       |       | (Dollars in thousands) |        | (Dollars in thousands)
|Premiums and Deposits Collected: |                           |                                       |       |                        |        |                        |       |        |        |      |       |        |        |   |       |       
|                                 | Traditional life          |                                       | $     | 4                      |        |                        | $     | 107    |        |      | $     | 18     |        |   | $     | 121    |       
|                                 | Separate account deposits |                                       |       | 18,555                 |        |                        |       | 25,171 |        |      |       | 32,384 |        |   |       | 53,841 |       
|                                 |                           |                                       |       |                        |        |                        |       |        |        |      |       |        |        |   |       |       
|                                 |                           | Total premiums and deposits collected |       | $                      | 18,559 |                        |       | $      | 25,278 |      |       | $      | 32,402 |   |       | $      | 53,962 | 
|                                 |                           |                                       |       |                        |        |                        |       |        |        |      |       |        |        |   |       |       
|Statement of Operations:         |                           |                                       |       |                        |        |                        |       |        |        |      |       |        |        |   |       |       
|Premium income                   |                           | $                                     | 4     |                        |        | $                      | 107   |        |        | $    | 18    |        |        | $ | 121   |       
|Net investment income            |                           |                                       | 22    |                        |        |                        | 147   |        |        |      | 103   |        |        |   | 280   |       
|Separate account fees            |                           |                                       | 1,688 |                        |        |                        | 2,754 |        |        |      | 3,569 |        |        |   | 4,254 |       
|                                 |                           |                                       |       |                        |        |                        |       |        |        |      |       |        |        |   |       |       
|                                 |                           | Total revenues                        |       |                        | 1,714  |                        |       |        | 3,008  |      |       |        | 3,690  |   |       |        | 4,655  | 
|Benefits and claims              |                           |                                       | (246  | )                      |        |                        | (46   | )      |        |      | (186  | )      |        |   | (68   | )     
|Amortization                     |                           |                                       | 133   |                        |        |                        | 1,294 |        |        |      | 272   |        |        |   | 1,164 |       
|Commission expenses              |                           |                                       | 43    |                        |        |                        | 59    |        |        |      | 97    |        |        |   | 71    |       
|Other operating expenses         |                           |                                       | 943   |                        |        |                        | 802   |        |        |      | 1,889 |        |        |   | 1,880 |       
|                                 |                           |                                       |       |                        |        |                        |       |        |        |      |       |        |        |   |       |       
|                                 |                           | Total benefits and expenses           |       |                        | 873    |                        |       |        | 2,109  |      |       |        | 2,072  |   |       |        | 3,047  | 
|                                 |                           |                                       |       |                        |        |                        |       |        |        |      |       |        |        |   |       |       
|                                 |                           | Income before income taxes            |       | $                      | 841    |                        |       | $      | 899    |      |       | $      | 1,618  |   |       | $      | 1,608  | 
|                                 |                           |                                       |       |                        |        |                        |       |        |        |      |       |        |        |   |       |       

General:Our international operations (discontinued operations) include
revenues earned and expenses incurred from abroad, primarily Europe, and
include fees collected on our deposits from unit-linked assurance products.
The profitability of this segment primarily depends on the amount of separate
account assets under management, the management fee charged on those assets and
management of our operating expenses.

Quarterly analysiscompares the three month period ending June 30, 2002 to the
three month period ending June 30, 2001.

Year-to-dateanalysis compares the six month period ending June 30, 2002 to the
six month period ending June 30, 2001.

Separate account depositsconsist of deposits from our unit-linked assurance
products. For GAAP these separate account deposits are not shown as premium
income in the income statement. A change in separate account deposits in a
single period does not directly cause our operating income to change, although
continued increases or decreases in separate account deposits may affect the
growth rate of separate account assets on which fees are earned.

Quarterly analysis:



| |  | Separate account deposits for the second quarter of 2002,
decreased $6.6 million or 26%, to $18.6 million compared to
the same period in 2001.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------

Year-to-date analysis:



| |  | Separate account deposits for the first six months of 2002,
decreased $21.5 million or 40%, to $32.4 million compared to
the same period in 2001.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------

The decrease in deposits in 2002 is primarily due to the volatile global equity
environment.

Net investment incomerepresents income earned on our corporate assets such as
cash, short-term investments and fixed securities. Standard Management
International is required to hold a certain level of cash and short-term
investments in order to comply with local insurance laws.

18



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STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES

Quarterly analysis:



| |  | Net investment income for the second quarter of 2002 decreased
$.1 million or 85%, to $22 thousand compared to the same
period in 2001. Corporate assets averaged $8.0 million and
$13.8 million for the second quarter of 2002 and 2001,
respectively.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | The net investment yields earned on average invested assets
were 2.60% and 4.20% for the second quarter of 2002 and 2001,
respectively.                                                                                                                
|

Year-to-date analysis:



| |  | Net investment income for the first six months of 2002
decreased $.2 million or 63%, to $.1 million compared to the
same period in 2001. Corporate assets averaged $7.9 million
and $13.3 million for the six month period ending June 30,
2002 and 2001, respectively.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | The net investment yields earned on average invested assets
were 1.10% and 4.27% for the six month period ending June 30,
2001 and 2002, respectively.                                                                                                                 

Corporate assets consist primarily of cash and short-term investments.

Fees from separate accountsrepresent the net fees earned on our unit-linked
assurance products. The fees include asset based administrative fees, premium
based administrative fees and the amortization of front end loads (deferred
revenue) into income. Asset based fees fluctuate in relation to separate
account assets, and premium based fees fluctuate in relation to premium
collections for certain products. Deferred revenue amortization fluctuates
subject to the amortization rules of SFAS No. 97.

Quarterly analysis:



| |  | Fees from separate accounts for the second quarter of 2002
decreased $1.1 million or 39%, to $1.7 million compared to the
same period in 2001. Average separate account assets
decreased $45.7 million or 10%, to $426.3 million. Fees were
unfavorably impacted by $.7 million due to changes in the
value of foreign currencies relative to the United States
dollar.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Year-to-date analysis:



| |  | Fees from separate accounts for the first six months of 2002
decreased $.7 million or 16%, to $3.6 million compared to the
same period in 2001. Average separate account assets
decreased $69.7 million or 14% to $420.3 million. Fees were
unfavorably impacted by $.3 million due to changes in the
value of foreign currencies relative to the United States
dollar.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Amortizationincludes the amortization of deferred acquisition costs, such as
sales commissions and other costs, directly related to selling new business and
foreign exchange translation.

Quarterly analysis:



| |  | Amortization for the second quarter of 2002 decreased $1.2
million or 90%, to $.1 million compared to the same period in
2001. This decrease is primarily related to the favorable
impact of $.8 million from changes in the value of foreign
currencies relative to the United States dollar. Excluding
the impact of foreign currencies, amortization decreased $.4
million in the 2002 period.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Year-to-date analysis:



| |  | Amortization for the first six months of 2002 decreased $.9
million or 77%, to $.3 million compared to the same period in
2001. This decrease is partially related to the favorable
impact of $.2 million from changes in the value of foreign
currencies relative to the United States dollar. Excluding
the impact of foreign currencies, amortization decreased $.7
million in the 2002 period.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES

Commission expensesrepresent commission expenses, net of deferrable amounts.

Quarterly analysis:



| |  | Commission expenses were $43 thousand and $59 thousand for the second quarter of 2002 and 2001, respectively.
|- |  | -------------------------------------------------------------------------------------------------------------

Year-to-date analysis:



| |  | Commission expenses were $97 thousand and $71 thousand for the first six months of 2002 and 2001, respectively.
|- |  | ---------------------------------------------------------------------------------------------------------------

Due to the nature of our business, most incurred commissions are deferred.

Other operating expensesconsist of general operating expenses, including
salaries, net of deferrable amounts.

Quarterly analysis:



| |  | Other operating expenses for the second quarter of 2002 and 2001 were $.9 million and $.8 million, respectively.
|- |  | ----------------------------------------------------------------------------------------------------------------

Year-to-date analysis:



| |  | Other operating expenses for the first six months of 2002 and 2001 were $1.9 million, in each period.
|- |  | -----------------------------------------------------------------------------------------------------

Foreign currency translationcomparisons between 2002 and 2001 are impacted by
the strengthening and weakening of the United States dollar relative to foreign
currencies, primarily the Euro. The impact of these translations has been
quantified on fees from separate accounts and amortization.

20



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STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES

Liquidity and Capital Resources

Liquidity of Standard Management (Parent Company)

Standard Management is a financial services holding company whose
liquidity requirements are met through payments received from our subsidiaries.
These payments have included 1) surplus debenture interest, 2) dividends, 3)
management fees, 4) equipment rental fees, 5) lease income and 6) allocation of
taxes through a tax sharing agreement, all of which are subject to restrictions
under applicable insurance laws and are used to pay our operating expenses and
meet our debt service obligations. These internal sources of liquidity have
been supplemented in the past by external sources such as revolving credit
agreements and long-term debt and equity financing in the capital markets.

Potential Cash Available in 2002

We anticipate that available cash from our existing working capital,
surplus debenture interest, dividends, management fees, equipment rental fees
and lease income will be more than adequate to meet our anticipated parent
company cash requirements in 2002. The following describes our potential
sources of cash in 2002.

Surplus Debenture Interest.We loaned $27.0 million to Standard Life
Insurance Company of Indiana (Standard Life) pursuant to unsecured surplus
debenture agreements (surplus debentures) which requires Standard Life to
make quarterly interest payments at a variable corporate base rate plus 2% per
annum, and annual principal payments of $1.0 million per year beginning in 2007
and concluding in 2033. The interest and principal payments are subject to
quarterly approval by the Indiana Department of Insurance, depending upon
satisfaction of certain financial tests relating to levels of Standard Lifes
capital and surplus and general approval of the Commissioner of the Indiana
Department of Insurance. We currently anticipate these quarterly approvals will
be granted. Assuming the approvals are granted and the June 30, 2002 interest
rate of 6.75% continues, we expect to receive interest income of $1.8 million
from the surplus debentures in 2002.

Dividendspaid from Standard Life are limited by laws applicable to
insurance companies. As an Indiana domiciled insurance company, Standard Life
may pay a dividend or distribution from its surplus profits, without the prior
approval of the Commissioner of the Indiana Department of Insurance, if the
dividend or distribution, together with all other dividends and distributions
paid within the preceding twelve months, does not exceed the greater of 1) net
gain from operations or 2) 10% of surplus, in each case as shown in its
preceding annual statutory financial statements. In 2001, we received
dividends of $1.6 million and $.5 million from Standard Life and Savers
Marketing, respectively. In 2002, we could receive dividends of approximately
$4.4 million from Standard Life.

Management Fees. Pursuant to a management services agreement, Standard
Life paid $3.6 million during 2001 for certain management services related to
the production of business, investment of assets and evaluation of
acquisitions. In addition, Dixie National Life Insurance Company (Dixie
Life) paid Standard Life $1.1 million in 2001, respectively, for certain
management services provided. Both of these agreements provide that they may
be modified or terminated by the applicable Departments of Insurance in the
event of financial hardship of Standard Life or Dixie Life. In 2002, we expect
to receive management fees of $3.6 million from Standard Life.

Pursuant to the management services agreement, Premier Life (Luxembourg)
paid $1.2 million during 2001 for certain management, technical support and
administrative services. In 2002, we expect to receive management fees of $.4
million from Premier Life (Bermuda) and $.1 million from Premier Life
(Luxembourg). These fees will be terminated upon sale of our international
operations.

Equipment Rental Fees.In 2001 we charged subsidiaries $1.1 million for
the use of our equipment. In 2002, we expect to receive $1.1 million of
equipment rental fees from Standard Life.

Lease Income.Effective January 1, 2002, we entered into a lease
agreement with Standard Life whereby Standard Life leases approximately 43,000
square feet of our office space located at 10689 North Pennsylvania Street. In
2002, we expect to receive lease income of $.8 million from Standard Life.

Tax Sharing Payments.Effective January 1, 2000 we entered into a tax
sharing agreement with Savers Marketing Corporation (Savers Marketing) and
Standard Management International S.àr.l. (Standard Management International)
that allocates the consolidated federal income tax liability. During 2001,
Savers Marketing and Standard Management International

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STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES

paid $.5 million and $.8 million, respectively, in accordance with this
agreement. We do not expect tax sharing payments in 2002 to be material.

Estimated Cash Required in 2002

The following are the characteristics of our mortgage payable, notes
payable and trust preferred securities, including estimated required payments
in 2002.



|  |  | Mortgage Payable:                                                                                                        
|- |  | -------------------------------------------------------------------------------------------------------------------------
| 
|  |  | The following are characteristics of our mortgage payable agreement at
June 30, 2002:                                    
| 
| |  | outstanding balance of $6.8 million;                                                                                     
| 
| |  | interest rate of 7.38% per annum;                                                                                        
| 
| |  | principal and interest payments: $56 thousand per month through December 2011;                                           
| 
| |  | interest payments required in 2002 based on current balances will be $.5 million;                                        
| 
| |  | note may be prepaid on or before January 2005 at 105% and declining to 101% after December 2008.                         
| 
|  |  | Notes Payable:                                                                                                           
| 
|  |  | The following are characteristics of our amended credit agreement at June 30, 2002:                                      
| 
| |  | outstanding balance of $7.5 million;                                                                                     
| 
| |  | weighted average interest rate of 5.17%;                                                                                 
| 
| |  | principal payments: $.6 million paid in March 2002 and $3.75 million
is due in August 2002 and August 2003, respectively;
| 
| |  | subject to certain restrictions and financial and other covenants;                                                       
| 
| |  | interest payments required in 2002 based on current balances will be $.4 million.                                        
| 
|  |  | The following are characteristics of our subordinated debt agreement at June 30, 2002:                                   
| 
| |  | outstanding balance of $11.0 million;                                                                                    
| 
| |  | interest rate is greater of 1) 10% per annum or 2) six month London
Inter-Bank Offered Rate (LIBOR) plus 1.5%;         
| 
| |  | due October 2007;                                                                                                        
| 
| |  | interest payments required in 2002 based on current balances will be $1.1 million.                                       
| 
|  |  | Trust Preferred Securities:                                                                                              
| 
|  |  | The following are characteristics of our trust preferred securities at June 30, 2002:                                    
| 
| |  | outstanding balance of $20.7 million;                                                                                    
| 
| |  | annual distribution rate of 10.25%; distributions may be deferred up to 20 consecutive quarters;                         
| 
| |  | matures August 9, 2031;                                                                                                  
| 
| |  | may be redeemed on or after August 9, 2006 at $10 per security plus accumulated and unpaid distributions;                
| 
| |  | distributions required in 2002 based on current balances will be $2.1 million;                                           
| 
| |  | distributions are classified as interest expense.                                                                        

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STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES

General:On a consolidated basis we reported net cash provided by
operations of $1.6 million and $1.5 million for the first six months of 2002
and 2001, respectively. At June 30, 2002, we had parent company only cash
and short-term investments of $.2 million which are available for general
corporate purposes. Annual parent company operating expenses (not including
interest expense) were $4.3 million and $4.5 million for 2001 and 2000,
respectively.

Liquidity of Insurance Operations

United States Insurance Operations (Continuing Operations).The principal
liquidity requirements of Standard Life are its 1) contractual obligations to
policyholders, 2) surplus debenture interest, dividends, management fees and
rental fees to Standard Management and 3) other operating expenses. The primary
source of funding for these obligations has been cash flow from premium income,
net investment income, investment sales and maturities, and sales of annuity
products. These sources of liquidity for Standard Life significantly exceed
scheduled uses. Liquidity is also affected by unscheduled benefit payments
including death benefits, policy withdrawals and surrenders. The amount of
withdrawals and surrenders is affected by a variety of factors such as renewal
interest crediting rates, interest rates for competing products, general
economic conditions, Standard Lifes A.M. Best rating and events in the
industry that affect policyholders confidence.

The policies and annuities issued by Standard Life contain provisions that
allow policyholders to withdraw or surrender their policies under defined
circumstances. These policies and annuities generally contain provisions, which
apply penalties or otherwise restrict the ability of policyholders to make such
withdrawals or surrenders. Standard Life closely monitors the surrender
activity of its insurance products and manages the composition of its
investment portfolios, including liquidity, to ensure it has sufficient cash
resources in light of such activity.

Changes in interest rates may affect our incidence of policy surrenders
and other withdrawals. In addition to the potential effect on liquidity,
unanticipated withdrawals in a changing interest rate environment could
adversely affect our earnings if we were required to sell investments at
reduced values to meet liquidity demands. We manage our asset and liability
portfolios in order to minimize the adverse earnings effect of changing market
interest rates. We seek assets that have duration characteristics similar to
the liabilities that they support. We also prepare cash flow projections and
perform cash flow tests under various market interest rate scenarios to assist
in evaluating liquidity needs and adequacy. Our United States insurance
subsidiaries currently expect available liquidity sources and future cash flows
to be adequate to meet the demand for funds.

Statutory surplus is computed according to rules prescribed by the
National Association of Insurance Commissioners as modified by the Indiana
Department of Insurance, or the state in which our insurance subsidiaries do
business. Statutory accounting rules are different from GAAP and are intended
to reflect a more conservative perspective. With respect to new business,
statutory accounting practices require that: 1) acquisition costs (primarily
commissions and policy issue costs) and 2) reserves for future guaranteed
principal payments and interest in excess of statutory rates, be expensed in
the year the new business is written. These items cause a reduction in
statutory surplus or surplus strain in the year written for many insurance
products. We design our products to minimize such first-year losses, but
certain products continue to cause a statutory loss in the year written. For
each product, we control the amount of net new premiums written to manage the
effect of such surplus strain. Our long-term growth goals contemplate continued
growth in our insurance businesses. To achieve these growth goals, our United
States insurance subsidiaries will need to increase statutory surplus.
Additional statutory surplus may be secured through various sources such as
internally generated statutory earnings, infusions with funds generated through
our debt or equity offerings, or mergers with other life insurance companies.
If additional capital is not available from one or more of these sources, we
believe that we could reduce surplus strain through the use of reinsurance or
through reduced writing of new business.

We believe that the operational cash flow of Standard Life will be
sufficient to meet our anticipated needs for 2002. As of June 30, 2002,
Standard Life had statutory capital and surplus for regulatory purposes of
$52.0 million. As the annuity business produced by Standard Life increases,
Standard Life expects to satisfy statutory capital and surplus requirements
through statutory profits and through additional capital contributions by
Standard Management. Net cash flow from operations on a statutory basis of
Standard Life, after payment of benefits and operating expenses, was $229.1
million and $86.5 million for the first six months of 2002 and 2001,
respectively. If the need arises for cash, which is not readily available,
additional liquidity could be obtained from the sale of invested assets.

International Operations (Discontinued Operations).Standard Management
International and Premier Life (Luxembourg) were not permitted to pay dividends
in 2001 due to accumulated losses.

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STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES

Forward-looking Statements

All statements, trend analyses, and other information contained in this
quarterly report on Form 10-Q or any document incorporated by reference herein
relative to markets for our products and trends in our operations or financial
results, as well as other statements including words such as anticipate,
believe, plan, estimate, expect, intend, and other similar
expressions, constitute forward-looking statements under the Private Securities
Litigation Reform Act of 1995. These forward-looking statements are subject to
known and unknown risks, uncertainties and other factors which may cause actual
results to be materially different from those contemplated by the
forward-looking statements. Such factors include, but are not limited to:



| |  | general economic conditions and other factors, including prevailing interest rate levels, stock market performance
which may affect the ability to sell our products, the market value of our investments and the lapse rate and
profitability of our policies;
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | customer response to new products, distribution channels and marketing initiatives;                                                                                                                                                                            
| 
| |  | mortality, morbidity and other factors which may affect the profitability of our insurance products;                                                                                                                                                           
| 
| |  | changes in the Federal income tax laws and regulation which may affect the relative tax advantages of some of our
products;                                                                                                                                    
| 
| |  | increasing competition in the sale of our products;                                                                                                                                                                                                            
| 
| |  | regulatory changes or actions, including those relating to regulation of financial services affecting bank sales and
underwriting of insurance products, regulation of the sale, underwriting and pricing of insurance products;                               
| 
| |  | the availability and terms of future acquisitions; and                                                                                                                                                                                                         
| 
| |  | the risk factors or uncertainties listed from time to time in any document incorporated by reference herein.                                                                                                                                                   

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our market risks and the way they are managed are summarized in our
discussion and analysis of financial condition and results of operations in our
December 31, 2001 Form 10-K. There have been no material changes in 2002 to
these risks or the management of these risks

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS

At our Annual Meeting of Stockholders held on June 12, 2002, the following
individuals were elected to the Board of Directors

|                  |  |            |           |                 |  |  |           | 
|----------------- |  | ---------- | --------- | --------------- |  |  | --------- | 
|                  |  | Shares For |           | Shares Withheld
|                  |  |            |           |                
|Robert A. Borns   |  |            | 4,971,054 |                 |  |  | 1,374,727 | 
|Raymond J. Ohlson |  |            | 4,571,637 |                 |  |  | 1,774,144 | 
|Robert J. Salyers |  |            | 4,971,172 |                 |  |  | 1,374,609 | 

Our 2002 Stock Incentive Plan was adopted in all respects, with 2,090,660
shares voting for the plan, 2,057,754 shares voting against the plan and 13,732
shares abstained.

ITEM 5.   OTHER
INFORMATION

Effective August 13,
2002, as part of our attempt to be proactive with corporate
governance issues certain of our inside Directors have resigned in
order to work toward having a majority of outside Directors. The Directors
resigning were Raymond J. Ohlson, John J. Dillon and Edward T.
Stahl.

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STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES

PART II. OTHER INFORMATION

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K.



|(a) |  | Exhibits
|--- |  | --------

|     |  |                                                                                              
|---- |  | ---------------------------------------------------------------------------------------------
|99.1 |  | Purchase Agreement by and between SMC and Winterthur Life, dated May 28, 2002.               
|99.2 |  | Fleet Consent of Purchase Agreement between SMC and Winterthur Life, dated May 20, 2002.     
|99.3 |  | Zurich Consent of Purchase Agreement between SMC and Winterthur Life, dated May 8, 2002.     
|99.4 |  | Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350.                
|99.5 |  | Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350.                
|99.6 |  | Amendment to Purchase Agreement by and between SMC and Winterthur
Life, dated August 9, 2002.



|(b) |  | Reports on Form 8-K
|--- |  | -------------------

No reports on Form 8-K were filed with the Commission in second quarter of
2002.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

|                       |                                                                                                                                       
|---------------------- | --------------------------------------------------------------------------------------------------------------------------------------
|Dated: August 14, 2002 |                                                                                                                                       
|                       | STANDARD MANAGEMENT CORPORATION
(Registrant)                                                                                          
|                       |                                                                                                                                       
|                       | By:   /s/ RONALD D. HUNTER
Ronald D. Hunter
Chairman of the Board, President and
Chief Executive Officer
(Principal Executive Officer)
|                       |                                                                                                                                       
|                       | By:   /s/ GERALD R. HOCHGESANG
Gerald R. Hochgesang
Senior Vice President and Treasurer
(Chief Accounting Officer)                    

25