##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 June 30, 2005
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
  Standard Management Corporation
  Indiana
(State or other jurisdiction
of incorporation or organization)
    
    No. 35-1773567
(I.R.S. Employer Identification No.)10689 N. Pennsylvania Street, Indianapolis, Indiana
(Address of principal executive offices)
    
    46280
(Zip Code)
 
 þ o
 o þ




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STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
 INDEX
  
 Page NumberPart I.
    
    FINANCIAL INFORMATION:Item 1.
    
    Unaudited Financial StatementsConsolidated Balance Sheets 
June 30, 2005 and December 31, 2004
    
    
    3Consolidated Statements of Operations 
For the Three Months and Six Months Ended June 30, 2005 and 2004
    
    
    4Consolidated Statements of Shareholders Equity 
For the Six Months Ended June 30, 2005 and 2004
    
    
    5Consolidated Statements of Cash Flows 
For the Six Months Ended June 30, 2005 and 2004
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    17Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    23Item 4.
    
    Controls and Procedures
    
    
    23Part II.
    
    OTHER INFORMATION:Item 1.
    
    Legal Proceedings
    
    
    24Item 6.
    
    Exhibits and Reports on Form 8-K
    
    
    25SIGNATURES
    
    
    26EX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32 SECTION 906 CERTIFICATION OF THE CEO & CFO
   
 2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 
 STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 June 30
    
    
    December 312005
    
    
    2004ASSETSCurrent assets:Cash and cash equivalents
    
    $
    25,972
    
    
    $
    1,121Accounts receivable, net
    
    
    1,314
    
    
    
    1,109Inventories
    
    
    1,354
    
    
    
    748Prepaid and other current assets
    
    
    790
    
    
    
    1,009Assets of discontinued operations
    
    
    
    
    
    
    1,921,550Total current assets
    
    
    29,430
    
    
    
    1,925,537Property and equipment, net
    
    
    11,245
    
    
    
    11,299Assets held for sale
    
    
    738
    
    
    
    738Deferred financing fees, net
    
    
    2,211
    
    
    
    1,767Officer and other notes receivable, less current portion
    
    
    878
    
    
    
    912Investments in unconsolidated subsidiaries
    
    
    5,160
    
    
    
    160Intangible assets, net
    
    
    1,155
    
    
    
    1,312Goodwill
    
    
    3,725
    
    
    
    3,725Other noncurrent assets
    
    
    1,542
    
    
    
    2,295Total assets
    
    $
    56,084
    
    
    $
    1,947,745LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    950
    
    
    $
    401Accrued expenses
    
    
    1,698
    
    
    
    2,236Current portion of long-term debt
    
    
    2,556
    
    
    
    3,597Liabilities of discontinued operations
    
    
    1,585
    
    
    
    1,829,606Total current liabilities
    
    
    6,789
    
    
    
    1,835,840Long-term debt, less current portion
    
    
    36,345
    
    
    
    50,714Other long-term liabilities
    
    
    1,148
    
    
    
    1,159Total liabilities
    
    
    44,282
    
    
    
    1,887,713Shareholders equity:Common stock, no par value, and additional paid in capital, 20,000,000 shares
authorized, 9,479,524 shares and 9,446,191 shares issued in 2005
and 2004, respectively
    
    
    64,789
    
    
    
    64,369Retained deficit
    
    
    (45,352
    )
    
    
    (1,529
    )Treasury stock, at cost, 1,525,078 shares
    
    
    (7,703
    )
    
    
    (7,703
    )Accumulated other comprehensive income from continuing operations
    
    
    68
    
    
    
    68Accumulated other comprehensive income from discontinued operations
    
    
    
    
    
    
    4,827Total shareholders equity
    
    
    11,802
    
    
    
    60,032Total liabilities and shareholders equity
    
    $
    56,084
    
    
    $
    1,947,745
  3




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STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 Three Months Ended
    
    
    Six Months EndedJune 30
    
    
    June 302005
    
    
    2004
    
    
    2005
    
    
    2004Net revenues
    
    $
    2,489
    
    
    $
    1,841
    
    
    $
    4,691
    
    
    $
    3,492Cost of sales
    
    
    1,957
    
    
    
    1,363
    
    
    
    3,738
    
    
    
    2,564Gross profit
    
    
    532
    
    
    
    478
    
    
    
    953
    
    
    
    928Selling, general and administrative expenses
    
    
    3,451
    
    
    
    3,710
    
    
    
    7,423
    
    
    
    6,529Depreciation and amortization
    
    
    486
    
    
    
    530
    
    
    
    1,014
    
    
    
    1,058Loss related to sale of a business
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    964Operating loss
    
    
    (3,405
    )
    
    
    (3,762
    )
    
    
    (7,484
    )
    
    
    (7,623
    )Interest expense
    
    
    1,186
    
    
    
    1,166
    
    
    
    2,310
    
    
    
    2,183Loss before income taxes
    
    
    (4,591
    )
    
    
    (4,928
    )
    
    
    (9,794
    )
    
    
    (9,806
    )Income tax expense (benefit)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss from continuing operations
    
    
    (4,591
    )
    
    
    (4,928
    )
    
    
    (9,794
    )
    
    
    (9,806
    )Income (loss) from discontinued operations, net of
income taxes of $233, $411, $212 and $1,006,
respectively
    
    
    (772
    )
    
    
    2,461
    
    
    
    (34,029
    )
    
    
    5,572Net loss
    
    $
    (5,363
    )
    
    $
    (2,467
    )
    
    $
    (43,823
    )
    
    $
    (4,234
    )Loss per share  basic and dilutedLoss from continuing
operations
    
    $
    (0.58
    )
    
    $
    (0.62
    )
    
    $
    (1.23
    )
    
    $
    (1.22
    )Income (loss) from discontinued operations
    
    
    (0.10
    )
    
    
    0.31
    
    
    
    (4.29
    )
    
    
    0.69Net loss available to common shareholders
    
    $
    (0.68
    )
    
    $
    (0.31
    )
    
    $
    (5.52
    )
    
    $
    (0.53
    )Weighted average shares outstanding
    
    
    7,954,446
    
    
    
    7,923,335
    
    
    
    7,937,780
    
    
    
    8,018,891
  4




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STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
 Common stock
    
    
    Retained
    
    
    
    
    
    
    Accumulated otherand additional
    
    
    earnings
    
    
    
    
    
    
    comprehensive incomeTotal
    
    
    paid in capital
    
    
    (deficit)
    
    
    Treasury stock
    
    
    (loss)Balance at January 1, 2004.
    
    $
    72,447
    
    
    $
    68,078
    
    
    $
    9,338
    
    
    $
    (7,671
    )
    
    $
    2,702Comprehensive loss:Net loss
    
    
    (4,234
    )
    
    
    
    
    
    
    (4,234
    )
    
    
    
    
    
    
    Change in unrealized gain on securities, net
of income tax provision of $6,725
    
    
    (12,157
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,157
    )Comprehensive loss
    
    
    (16,391
    )Issuance of common stock
    
    
    294
    
    
    
    294
    
    
    
    
    
    
    
    
    
    
    
    Exercise of common stock options and warrants
    
    
    (2
    )
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    Sale of MCO
    
    
    (4,000
    )
    
    
    (4,000
    )
    
    
    
    
    
    
    
    
    
    
    Balance at June 30, 2004
    
    $
    52,348
    
    
    $
    64,370
    
    
    $
    5,104
    
    
    $
    (7,671
    )
    
    $
    (9,455
    )Balance at January 1, 2005
    
    $
    60,032
    
    
    $
    64,369
    
    
    $
    (1,529
    )
    
    $
    (7,703
    )
    
    $
    4,895Comprehensive loss:Net loss
    
    
    (43,823
    )
    
    
    
    
    
    
    (43,823
    )
    
    
    
    
    
    
    Change in unrealized loss on securities, net
of income tax benefits of $2,670
    
    
    (4,827
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,827
    )Comprehensive loss
    
    
    (48,650
    )Adjustment due to stock price contingency
    
    
    (84
    )
    
    
    (84
    )
    
    
    
    
    
    
    
    
    
    
    Issuance of warrants
    
    
    518
    
    
    
    518
    
    
    
    
    
    
    
    
    
    
    
    Exercise of common stock options
    
    
    (14
    )
    
    
    (14
    )
    
    
    
    
    
    
    
    
    
    
    Balance at June 30, 2005
    
    $
    11,802
    
    
    $
    64,789
    
    
    $
    (45,352
    )
    
    $
    (7,703
    )
    
    $
    68
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STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Six Months EndedJune 302005
    
    
    2004OPERATING ACTIVITIES:Net loss
    
    $
    (43,823
    )
    
    $
    (4,234
    )Net income (loss) from discontinued operations
    
    
    (34,029
    )
    
    
    5,572Net loss from continuing operations
    
    
    (9,794
    )
    
    
    (9,806
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    1,014
    
    
    
    1,058Amortization
of deferred financing costs and debt discount
    
    
    215
    
    
    
    66Accounts receivable
    
    
    (205
    )
    
    
    (454
    )Inventories
    
    
    (606
    )
    
    
    (521
    )Prepaid and other current assets
    
    
    219
    
    
    
    2Accounts payable
    
    
    549
    
    
    
    (282
    )Accrued expenses
    
    
    (838
    )
    
    
    1,006Net realized loss on sale of a business
    
    
    
    
    
    
    964Other
    
    
    (902
    )
    
    
    (845
    )Net cash used in operating activities of continuing operations
    
    
    (10,348
    )
    
    
    (8,812
    )INVESTING ACTIVITIES:Capital expenditures
    
    
    (342
    )
    
    
    (256
    )Proceeds from the sale of Standard Life
    
    
    47,214
    
    
    
    Cash paid for health services acquisitions, net of cash acquired
    
    
    (84
    )
    
    
    (823
    )Cash paid for health service sold
    
    
    
    
    
    
    (800
    )Change in other noncurrent assets, net
    
    
    517
    
    
    
    (371
    )Net cash provided by (used in) investing activities of continuing operations
    
    
    47,305
    
    
    
    (2,250
    )FINANCING ACTIVITIES:Borrowings
    
    
    4,750
    
    
    
    3,300Cash received from discontinued operations
    
    
    3,649
    
    
    
    8,690Deferred financing costs paid
    
    
    (660
    )
    
    
    (447
    )Repayments of long-term debt
    
    
    (19,831
    )
    
    
    (1,093
    )Exercise of common stock options and redemption of common stock
    
    
    (14
    )
    
    
    Net cash provided by (used in) financing activities of continuing operations
    
    
    (12,106
    )
    
    
    10,450Net increase (decrease) in cash and cash equivalents of continuing operations
    
    
    24,851
    
    
    
    (612
    )Cash and cash equivalents at beginning of period
    
    
    1,121
    
    
    
    1,337Cash and cash equivalents at end of period
    
    $
    25,972
    
    
    $
    725
  6




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STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
 
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Note 1  Basis of Presentation
     Note 2  Summary of Significant Accounting Policies
 Revenue Recognition / Contractual Allowances
   7




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STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (cont.)
 Note 2  Summary of Significant Accounting Policies (continued)
 Cash Equivalents
  Allowance for Doubtful Accounts
    Inventories and Cost of Revenues
     Deferred Financing Costs
  8




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STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (cont.)
 Note 2  Summary of Significant Accounting Policies (continued)
 Assets Held For Sale
  Investments in Unconsolidated Subsidiaries
  Other Noncurrent Assets
  Other Long-Term Liabilities
  Legal fees
  Net Loss Per Common Share
  Note 3  Discontinued Operations  Financial Services
    9




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STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (cont.)
 Note 3  Discontinued Operations  Financial Services (continued)
       10




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STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (cont.)
 Note 3  Discontinued Operations  Financial Services (continued)
  Standard Life
Unaudited Condensed Consolidated Balance Sheet
 June 30
    
    
    December 312005
    
    
    2004Assets:Total investments
    
    $
    
    
    
    $
    1,686,396Deferred policy acquisition costs and present value of future profits
    
    
    
    
    
    
    174,172Other assets
    
    
    
    
    
    
    60,982Assets of discontinued operations
    
    $
    
    
    
    $
    1,921,550Liabilities:Insurance policy liabilities
    
    $
    
    
    
    $
    1,824,736Accounts payable and accrued
expenses
    
    
    1,585
    
    
    
    5,141Liabilities of discontinued
operations
    
    $
    1,585
    
    
    $
    1,829,877
 Standard Life
Unaudited Condensed Consolidated Income Statement
 June 30
    
    
    June 302005
    
    
    2004Revenues
    
    $
    40,796
    
    
    $
    56,658Benefits, claims, interest
credited and amortization
    
    
    33,307
    
    
    
    45,907Operating and other expenses
    
    
    4,700
    
    
    
    4,241Impairment charge and loss on
sale
    
    
    36,606
    
    
    
    Income tax expense (benefit)
    
    
    212
    
    
    
    1,001Income (loss) from discontinued
operations
    
    $
    (34,029
    )
    
    $
    5,509
 11




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STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (cont.)
 Note 4  Health Services Business Acquisitions
     Net revenues
    
    $
    4,293Gross profits
    
    
    1,237Operating loss
    
    
    (7,563
    )Net loss from continuing operations
    
    
    (9,746
    )Net loss per share from continuing operations
    
    $
    (1.22
    )
  12




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STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (cont.)
 Note 5  Stock Option Plan
  Three Months Ended
    
    
    Six Months EndedJune 30
    
    
    June 302005
    
    
    2004
    
    
    2005
    
    
    2004Reported net loss from continuing operations
    
    $
    (4,591
    )
    
    $
    (4,928
    )
    
    $
    (9,794
    )
    
    $
    (9,806
    )Less: Total stock-based employee compensation
expense determined under fair value based
method for all grants
    
    
    41
    
    
    
    105
    
    
    
    362
    
    
    
    190Pro forma net loss from continuing operations
    
    $
    (4,632
    )
    
    $
    (5,033
    )
    
    $
    (10,156
    )
    
    $
    (9,996
    )Loss per share from continuing operations:Basic and diluted  as reported
    
    $
    (0.58
    )
    
    $
    (0.62
    )
    
    $
    (1.23
    )
    
    $
    (1.22
    )Basic and diluted  pro forma
    
    $
    (0.58
    )
    
    $
    (0.64
    )
    
    $
    (1.28
    )
    
    $
    (1.25
    )
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STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (cont.)
 Note 6  Indebtedness
  Interest
    
    
    June 30
    
    
    December 31Rate (1)
    
    
    2005
    
    
    2004Mortgages payable
    
    
    6.72
    %
    
    $
    6,015
    
    
    $
    6,607Senior secured credit facility
    
    
    
    
    
    
    
    
    
    
    18,500Promissory notes
    
    
    3.43
    %
    
    
    1,313
    
    
    
    1,8836% convertible notes
    
    
    6.00
    %
    
    
    2,750
    
    
    
    2,7507% convertible notes
    
    
    7.00
    %
    
    
    3,300
    
    
    
    3,300Other convertible notes
    
    
    8.25
    %
    
    
    4,750
    
    
    
    Subordinated debentures
    
    
    10.25
    %
    
    
    20,700
    
    
    
    20,700Capital lease obligations.
    
    
    
    
    
    
    395
    
    
    
    571Total indebtedness
    
    
    
    
    
    
    39,223
    
    
    
    54,311Less debt discount on other convertible notes
    
    
    
    
    
    
    322
    
    
    
    Less current portion
    
    
    
    
    
    
    2,556
    
    
    
    3,597Total long-term debt, less current portion
    
    
    
    
    
    $
    36,345
    
    
    $
    50,714
 
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STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (cont.)
 Note 6  Indebtedness (continued)
    Note 7  Shareholders Equity
  Warrants OutstandingExercise
    
    
    June 30
    
    
    December 31Issue Date
    
    Expiration Date
    
    
    Price
    
    
    2005
    
    
    2004January 2002
    
    January 2005
    
    $
    6.02
    
    
    
    
    
    
    
    287,000June 2002
    
    June 2005
    
    
    7.61
    
    
    
    
    
    
    
    89,500October 2002
    
    October 2007
    
    
    4.92
    
    
    
    10,000
    
    
    
    10,000March 2005
    
    March 2010
    
    
    3.28
    
    
    
    175,000
    
    
    
    March 2005
    
    March 2010
    
    
    3.90
    
    
    
    563,130
    
    
    
    748,130
    
    
    
    386,500
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STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (cont.)
 Note 8  Subsequent Events
     16




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STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
 
 
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Recent Developments
       17




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STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
 
    18




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STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
 
 Comparison of the Three and Six Month Periods Ended June 30, 2005 and June 30, 2004:
  Continuing Operations:
 Net revenues
 Quarterly analysis:
 
    
    Sales for the second quarter of 2005 increased $0.6 million or 35% to $2.5 million compared to the second
quarter of 2004, primarily related to the growth in our veterinary line of business.
 Year-to-date analysis:
 
    
    Sales for the first six months of 2005 increased $1.2 million or 34% to $4.7 million compared to the
first six months of 2004, primarily related to the acquisition of Apothecary Solutions and RoyalMed
along with growth in our veterinary line of business.
 Gross profit
 Quarterly analysis:
 
    
    Gross profit for the second quarter of 2005 increased by
$0.1 million or 11% to $0.5 million compared to
the second quarter of 2004, primarily related to the growth in net revenues.
 Year-to-date analysis:
 
    
    Gross profit for the first six months of 2005 increased by $0.1 million or 3% to $1.0 million compared to
the first six months of 2004, primarily related to the growth in net revenues partially offset by an
increased mix of wholesale veterinary sales that carry lower margins than other sources of revenues.
 Selling, general and administrative expenses
 Quarterly analysis:
 
    
    Selling, general and administrative expenses for the second
quarter of 2005 decreased by $0.2 million or
8% to $3.5 million compared to the second quarter of 2004 as a result of decreased legal and
professional fees related to arranging our sale of Standard Life.
 Year-to-date analysis:
 
    
    Selling, general and administrative expenses for the first
six months of 2005 increased by $0.9 million
or 13% to $7.4 million compared to the first six months of 2004. The increase is primarily related to
expenses from our acquired businesses Apothecary Solutions and RoyalMed.
 Depreciation and amortization
 Quarterly analysis:
 
    
    Depreciation and amortization was $0.5 million in the second quarter of 2005 and 2004.
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STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
 
 Year-to-date analysis:
 
    
    Depreciation and amortization was $1.0 million and $1.1 million for the first six months of 2005 and
2004, respectively.
 Loss related to sale of business
 Year-to-date analysis:
 
    
    Loss related to sale of business in the first six months of 2004 represents the loss on the sale of MCO.
 Interest expense
 Quarterly analysis:
 
    
    Interest expense for the second quarter of 2005 increased by
$0.1 million or 9% to $1.2 million compared to the
second quarter of 2004, primarily due to the incurrence of new debt offset partially by repayment of our senior
secured credit facility after the sale of Standard Life.
 Year-to-date analysis:
 
    
    Interest expense for the first six months of 2005 increased
by $0.2 million or 10% to $2.3 million compared to the
first six months of 2004, primarily due to the incurrence of new debt offset partially by repayment of our senior
secured credit facility after the sale of Standard Life.
 Federal income tax benefit
 Quarterly analysis:
 
    
    Provision for federal income tax remained zero due to a 100% valuation allowance on the net losses in the second
quarters of 2005 and 2004.
 Year-to-date analysis:
 
    
    Provision for federal income tax remained zero due to a 100% valuation allowance on the net losses in the first
six months of 2005 and 2004.
 Discontinued Operations:
 Income (loss) from Discontinued Operations:
 Quarterly analysis:
 
    
    Net loss for the second quarter of 2005 was $0.8 million
compared to net income of $2.5 million for the second quarter
or 2004. The 2005 quarter was primarily impacted by an
additional $1.0 million loss related to the sale of Standard
Life and increase of $0.7 million of litigation reserves
recorded in that quarter.
 Year-to-date analysis:
 
    
    Net loss for the six months ended June 30, 2005 was $34.0
million compared to net income of $5.6 million for the six
months ended June 30, 2004. The 2005 period was negatively
impacted by a $36.6 million loss related to the sale of
Standard Life in 2005.
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STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
 
 Liquidity and Capital Resources
 Liquidity of Standard Management (Parent Company)
  Potential Cash Available for 2005
     Estimated Cash Required in 2005
  Cash Flows of the consolidated company
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STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
 
 Contractual Obligations :
 Off-Balance Sheet Arrangements :
 Liquidity of Health Services
   Forward-looking Statements
  
    
    The ability of our management team to successfully operate a health services business
with the limited experience in that industry.
    
    Our ability to expand our health services business both organically and through
acquisitions, including our ability to identify suitable acquisition candidates, acquire
them at favorable prices and successfully integrate them into our business.
    
    General economic conditions and other factors, including prevailing interest rate
levels, and stock market performance, which may affect our ability to obtain additional
capital when needed and on favorable terms.
    
    Our ability to achieve anticipated levels of operational efficiencies at recently
acquired companies, as well as through other cost-saving initiatives.
    
    Customer response to new products, distribution channels and marketing initiatives.
    
    Increasing competition in the sale of our products.
    
    The risk factors or uncertainties listed from time to time in our Annual Report on Form
10-K for the year ended December 31, 2004 and any document incorporated by reference
herein.
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STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
 
 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4. CONTROLS AND PROCEDURES
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STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
 
 
 PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
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STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
 
 
 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
  4.5(a)
    
    Supplemental Indenture dated June 7, 2005 by and between Standard Management Corporation
and Deutsche Bank Trust Company Americas (incorporated by reference to the Current Report
on Form 8-K filed on June 13, 2005).31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.32
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
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STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
 
 
 SIGNATURES
   STANDARD MANAGEMENT CORPORATION
(Registrant)By:
    /s/ Ronald D. HunterRonald D. HunterChairman of the Board, Chief Executive Officer and President
(Principal Executive Officer)By:
    /s/ Michael B. EdwardsMichael B. EdwardsInterim Chief Financial Officer
(Chief Accounting Officer) 26