POAI 10-Q Quarterly Report Sept. 30, 2013

PREDICTIVE ONCOLOGY INC.

10-Ks and 10-Qs

10-Q	Quarter ended Sept. 30, 2025
10-Q	Quarter ended June 30, 2025
10-Q	Quarter ended March 31, 2025
10-K	Fiscal year ended Dec. 31, 2024
10-Q	Quarter ended Sept. 30, 2024
10-Q	Quarter ended June 30, 2024
10-Q	Quarter ended March 31, 2024
10-K	Fiscal year ended Dec. 31, 2023
10-Q	Quarter ended Sept. 30, 2023
10-Q	Quarter ended June 30, 2023
10-Q	Quarter ended March 31, 2023
10-K	Fiscal year ended Dec. 31, 2022
10-Q	Quarter ended Sept. 30, 2022
10-Q	Quarter ended June 30, 2022
10-Q	Quarter ended March 31, 2022
10-K	Fiscal year ended Dec. 31, 2021
10-Q	Quarter ended Sept. 30, 2021
10-Q	Quarter ended June 30, 2021
10-Q	Quarter ended March 31, 2021
10-K	Fiscal year ended Dec. 31, 2020
10-Q	Quarter ended Sept. 30, 2020
10-Q	Quarter ended June 30, 2020
10-Q	Quarter ended March 31, 2020
10-K	Fiscal year ended Dec. 31, 2019
10-Q	Quarter ended Sept. 30, 2019
10-Q	Quarter ended June 30, 2019
10-Q	Quarter ended March 31, 2019
10-K	Fiscal year ended Dec. 31, 2018
10-Q	Quarter ended Sept. 30, 2018
10-Q	Quarter ended June 30, 2018
10-Q	Quarter ended March 31, 2018
10-K	Fiscal year ended Dec. 31, 2017
10-Q	Quarter ended Sept. 30, 2017
10-Q	Quarter ended June 30, 2017
10-Q	Quarter ended March 31, 2017
10-K	Fiscal year ended Dec. 31, 2016
10-Q	Quarter ended Sept. 30, 2016
10-Q	Quarter ended June 30, 2016
10-Q	Quarter ended March 31, 2016
10-K	Fiscal year ended Dec. 31, 2015
10-Q	Quarter ended Sept. 30, 2015
10-Q	Quarter ended June 30, 2015
10-Q	Quarter ended March 31, 2015
10-K	Fiscal year ended Dec. 31, 2014
10-Q	Quarter ended Sept. 30, 2014
10-Q	Quarter ended June 30, 2014
10-Q	Quarter ended March 31, 2014
10-K	Fiscal year ended Dec. 31, 2013
10-Q	Quarter ended Sept. 30, 2013
10-Q	Quarter ended June 30, 2013
10-Q	Quarter ended March 31, 2013
10-K	Fiscal year ended Dec. 31, 2012
10-Q	Quarter ended Sept. 30, 2012
10-Q	Quarter ended June 30, 2012
10-Q	Quarter ended March 31, 2012
10-K	Fiscal year ended Dec. 31, 2011
10-Q	Quarter ended Sept. 30, 2011
10-Q	Quarter ended June 30, 2011
10-Q	Quarter ended March 31, 2011
10-K	Fiscal year ended Dec. 31, 2010
10-Q	Quarter ended Sept. 30, 2010
10-Q	Quarter ended June 30, 2010
10-Q	Quarter ended March 31, 2010
10-K	Fiscal year ended Dec. 31, 2009

PROXIES

DEF 14A	Filed on Nov. 25, 2025
DEF 14A	Filed on Sept. 19, 2025
DEF 14A	Filed on Dec. 30, 2024
DEF 14A	Filed on Nov. 27, 2024
DEF 14A	Filed on Dec. 28, 2023
DEF 14A	Filed on Dec. 7, 2023
DEF 14A	Filed on April 17, 2023
DEF 14A	Filed on March 29, 2023
DEF 14A	Filed on Dec. 1, 2022
DEF 14A	Filed on Oct. 18, 2022
DEF 14A	Filed on Nov. 5, 2021
DEF 14A	Filed on July 7, 2021
DEF 14A	Filed on Nov. 3, 2020
DEF 14A	Filed on July 29, 2020
DEF 14A	Filed on Nov. 25, 2019
DEF 14A	Filed on Sept. 30, 2019
DEF 14A	Filed on Dec. 7, 2018
DEF 14A	Filed on Dec. 4, 2017
DEF 14A	Filed on Jan. 3, 2017
DEF 14A	Filed on Aug. 9, 2016
DEF 14A	Filed on June 24, 2016
DEF 14A	Filed on Aug. 27, 2013
DEF 14A	Filed on April 2, 2013
DEF 14A	Filed on Dec. 31, 2012
DEF 14A	Filed on Sept. 4, 2012
DEF 14A	Filed on Aug. 8, 2011
DEF 14A	Filed on April 28, 2011
DEF 14A	Filed on June 10, 2010

10-Q 1 v358612_10q.htm FORM 10-Q

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2013

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________________________ to

Commission File Number: 000-54361

Skyline Medical Inc.

(Exact name of registrant as specified in its charter)

Minnesota		33-1007393
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

2915 Commers Drive, Suite 900		Eagan, Minnesota 55121
(Address of principal executive offices)		(Zip Code)

651-389-4800

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

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.

x Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

x Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨	Accelerated filer ¨

Non-accelerated filer ¨ (Do not check if a smaller reporting company)	Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

¨ Yes x No

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of November 6 , 2013 , the registrant had 221,068,939 shares of common stock, par value $.01 per share, outstanding .

SKYLINE MEDICAL INC.

TABLE OF CONTENTS

	Page No.
PART I.

Item 1. Condensed Financial Statements	3

Condensed Balance Sheets September 30, 2013 and December 31, 2012	3

Condensed Statements of Operations for the three-and nine month periods ended September 30, 2013 and September 30, 2012 and for the period from April 23, 2002 (Inception) to September 30, 2013	4

Statement of Stockholders’ Deficit from April 23, 2002 (Inception) to September 30, 2013	5

Condensed Statements of Cash Flows for the nine-month periods ended September 30, 2013 and September 30, 2012 and for the period from April 23, 2002 (Inception) to September 30, 2013	6

Notes to Condensed Financial Statements	7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

Item 3. Quantitative and Qualitative Disclosures About Market Risk	31

Item 4. Controls and Procedures	31

PART II. OTHER INFORMATION

Item 1. Legal Proceedings	31

Item 1A. Risk Factors	31

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	32

Item 3. Defaults Upon Senior Securities	35

Item 4. Mine Safety Disclosures	35

Item 5. Other Information	35

Item 6. Exhibits	35

Signatures	36

Exhibit Index	37

	2

FINANCIAL INFORMATION

PART 1. FINANCIAL INFORMATION

Item 1. Condensed Financial Statements

SKYLINE MEDICAL INC.

(A DEVELOPMENT STAGE COMPANY)

CONDENSED BALANCE SHEETS

(Unaudited)

		September 30, 2013		December 31, 2012
ASSETS
Current Assets:
Cash	$	328,362	$	13,139
Accounts Receivable, net of Allowance for Doubtful Accounts of $0 in 2013 and $4,073 in 2012.		83,191		39,711

Inventories		101,067		145,209
Prepaid Expense and other assets		34,462		27,409
Total Current Assets		547,082		225,468

Fixed Assets, net		37,491		3,521
Intangibles, net		52,074		140,588

Total Assets	$	636,647	$	369,577

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Current portion of convertible debt, net of discounts of $0 and $21,138 (See Note 6)	$	-	$	1,081,187
Convertible Notes Payable – Related Party (See Note 9)		-		-

Accounts payable		636,085		733,595

Accrued expenses		744,089		1,599,519
Deferred Revenue		5,000		-
Total Current Liabilities		1,385,174		3,414,301
Long-term convertible debt		-		89,300

Accrued Expenses		444,902		-

Liability for equity-linked financial instruments (See Note 8)		15,219		169,179
Total Liabilities		1,845,295		3,672,780
Stockholders' Deficit:
Common stock, $.01 par value, 300,000,000 authorized, 219,640,021 and 104,247,228 outstanding		2,196,401		1,042,473

Additional paid-in capital		23,138,027		14,945,435

Deficit accumulated during development stage		(26,543,076)		(19,291,111)

Total Stockholders' Deficit		(1,208,648)		(3,303,203)

Total Liabilities and Stockholders' Deficit	$	636,647	$	369,577

See Notes to Condensed Financial Statements

	3

SKYLINE MEDICAL INC.

(A DEVELOPMENT STAGE COMPANY)

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

										Period From April 23, 2002 (Inception)
	Three Months Ended September 30,				Nine Months Ended September 30,					To September 30,
	2013		2012		2013		2012		2013
Revenue	$	107,835	$	51,615	$	386,418	$	99,210	$	687,852

Cost of goods sold		26,181		69,962		135,120		85,478		326,880

Gross Margin		81,654		(18,347)		251,298		13,732		360,972

General and administrative expense		3,195,589		2,518,114		5,906,805		5,034,810		21,657,168

Operations expense		354,027		300,719		763,422		519,019		3,054,003

Sales and marketing expense		164,712		13,508		357,274		74,572		1,418,729

Interest expense		407,516		23,703		629,722		168,462		1,556,178

Loss (gain) on valuation of equity-linked financial instruments		(65,287)		(18,678)		(153,960)		(78,275)		(782,030)

Total expense		4,056,557		2,837,366		7,503,263		5,718,587		26,904,048

Net income (loss) available to common shareholders	$	(3,974,903)	$	(2,855,713)	$	(7,251,965)	$	(5,704,855)	$	(26,543,076)

Loss per common share basic and diluted	$	(0.03)	$	(0.04)	$	(0.06)	$	(0.10)	$	(1.63)

Weighted average shares used in computation, basic and diluted		136,728,212		79,467,603		126,664,802		55,370,243		16,302,589

See Notes to Condensed Financial Statements

	4

SKYLINE MEDICAL INC.

(A DEVELOPMENT STAGE COMPANY)

STATEMENT OF STOCKHOLDERS' DEFICIT

PERIOD FROM APRIL 23, 2002 (INCEPTION)

TO SEPTEMBER 30, 2013

	Shares	Amount		Paid- in Capital		Deficit		Total
Issuance of common stock 9/1/02, $.0167 (1)	598,549	$	5,985	$	4,015	$	-	$	10,000

Issuance of common 10/23/02, $1.67/share	2,993		30		4,970				5,000
Net loss							(51,057)		(51,057)
Balance 12/31/02	601,542	$	6,015	$	8,985	$	(51,057)	$	(36,057)

Issuance of common 2/12/03, $.0167 (2)	23,942		239		161				400
Issuance of common 6/11&12,$1.67 (3)	21,548		216		34,784				35,000
Net loss							(90,461)		(90,461)
Balance 12/31/03	647,032	$	6,470	$	43,930	$	(141,518)	$	(91,118)

Issuance of common 5/25/04, $.0167 (4)	6,567		66		44				110
Net loss							(90,353)		(90,353)
Balance 12/31/04	653,599	$	6,536	$	43,974	$	(231,871)	$	(181,361)

Issuance of common 12/14/05, $.0167 (5)	14,964		150		100				250
Vested stock options and warrants					2,793				2,793
Net loss							(123,852)		(123,852)
Balance 12/31/05	668,563	$	6,686	$	46,867	$	(355,723)	$	(302,170)

Issuance of common 5/16 & 8/8, $.0167 (6)	86,869		869		582				1,451
Issuance of common 10/19 & 23, $.0167 (7)	38,906		389		261				650
Issuance of common 12/01, $1.67 (8)	28,739		287		44,523				44,810
Vested stock options and warrants					13,644				13,644
Net loss							(273,026)		(273,026)
Balance 12/31/06	823,077	$	8,231	$	105,877	$	(628,749)	$	(514,641)

Issuance of common 1/30/07 @ $1.67 (9)	599		6		994				1,000
Value of equity instruments issued with debt					132,938				132,938
Capital contributions resulting from waivers of debt					346,714				346,714
Vested stock options and warrants					73,907				73,907
Net loss							(752,415)		(752,415)
Balance 12/31/07	823,676	$	8,237	$	660,430	$	(1,381,164)	$	(712,497)

Issuance of common 6/11 to 9/30, $.35 (10)	4,552,862		45,528		1,547,974				1,593,502
Shares issued to finders, agents	2,012,690		20,127		(20,127)				-
Shares issued to pay direct legal fees	285,714		2,857		(2,857)				-
Issuance of common due to anti-dilution provisions	205,899		2,059		(2,059)				-
Shares issued to pay investor relations services 6/23/08, $.35	250,000		2,500		85,000				87,500
Vested stock options and warrants					354,994				354,994
Capital contributions resulting from waivers of debt					129,684				129,684
Net loss							(1,762,628)		(1,762,628)
Balance 12/31/08	8,130,841	$	81,308	$	2,753,039	$	(3,143,792)	$	(309,445)
Cumulative effect of adoption of EITF 07-5					(486,564)		6,654		(479,910)
Vested stock options and warrants					111,835				111,835
Shares issued 3/20/09 to pay for fund raising	125,000		1,250		(1,250)				-
Shares issued under PMM in 2009, $.50	2,147,810		21,478		1,052,427				1,073,905
Capital contributions resulting from waivers of debt					84,600				84,600
Value of equity-linked financial instruments issued in connection with PPMs					(222,296)				(222,296)
Value of equity instruments issued with debt					30,150				30,150
Shares issued to consultant for fund raising	30,000		300		(300)				-
Shares issued upon conversion of debt and interest, $.27	935,446		9,354		247,100				256,454
Shares issued upon conversion of shareholder note, $.35	14,024		140		4,766				4,906
Net loss							(2,892,230)		(2,892,230)
Balance 12/31/09	11,383,121	$	113,830	$	3,573,507	$	(6,029,368)	$	(2,342,030)

Shares issued in 2010 under PPM, $.50	354,550		3,546		173,729				177,275
Shares issued to consultants for IR and consulting, $.50	374,090		3,741		183,304				187,045
Value of equity instruments issued for consulting services					354,602				354,602
Vested stock options and warrants					11,382				11,382
Value of equity-linked financial instruments issued in connection with PPM in first quarter					(25,553)				(25,553)
Shares issued in May 2010 to consultant, $.50	12,850		129		6,296				6,425
Shares issued in May 2010 to 2008 investors as a penalty for late registration, $.50	710,248		7,102		348,022				355,124
Value of equity instruments issued with debt					119,474				119,474
Value of equity-linked financial instruments issued in connection with PPM in second quarter					(31,332)				(31,332)
Value of equity-linked financial instruments issued in connection with PPM in third quarter					(31,506)				(31,506)
Shares issued in September 2010 under PPM, $.10	250,000		2,500		22,500				25,000
Shares issued to consultants in third quarter at $.22 per share	488,860		4,889		102,660				107,549
Shares issued in November 2010 upon exercise of warrants at $.135 per share	128,571		1,286		16,071				17,357
Shares issued in November 2010 to directors as compensation at $.15 per share	300,000		3,000		42,000				45,000
Vested stock options in fourth quarter					161,107				161,107
Equity instruments issued to consultants in fourth quarter					26,234				26,234
Net loss							(1,352,709)		(1,352,709)
Balance 12/31/2010	14,002,290	$	140,023	$	5,052,497	$	(7,382,077)	$	(2,189,557)

Value of equity instruments issued with debt in first quarter					47,908				47,908
Shares issued at $.075 per share under PPM	5,333,334		53,334		346,666				400,000
Shares issued at $.085 per share under PPM	1,882,353		18,823		141,177				160,000
Shares issued at $.09 per share under PPM	200,000		2,000		16,000				18,000
Shares issued at $.10 per share under PPM	150,000		1,500		13,500				15,000
Vested stock options and warrants in first quarter					1,937,638				1,937,638
Equity instruments issued to consultants in first quarter					91,504				91,504
Stock issued upon conversion of debt in first quarter	416,010		4,160		15,840				20,000
Stock issued to pay interest on debt	158,036		1,580		20,920				22,500
Shares issued at $.07 per share under PPM	1,071,429		10,715		64,285				75,000
Stock issued upon conversion of debt and interest	941,034		9,410		22,590				32,000
Equity instruments issued to consultants					12,256				12,256
Equity instruments issued to consultants					147,116				147,116
Restricted stock issued to consultants	822,842		8,228		46,772				55,000
Shares issued at $.06 per share under PPM	3,500,000		35,000		175,000				210,000
Shares issued at $.20 per share under PPM	1,375,000		13,750		261,250				275,000
Shares issued upon exercise of stock options at $.01	100,000		1,000						1,000
Shares issued at $.35 per share IR compensation	575,000		5,750		195,500				201,250
Equity instruments upon conversion of Accounts Payable					20,000				20,000
Shares issued to private investor at $.15 per share	1,546,667		15,467		216,533				232,000
Net loss							(4,486,879)		(4,486,879)
Balance 12/31/2011	32,074,000	$	320,740	$	8,844,952	$	(11,868,956)	$	(2,703,264)

Shares issued to institutional investor upon conversion of Note Payable at $.1342 per share	59,613		596		7,404				8,000
Shares issued to institutional investor upon conversion of Note Payable at $.13 per share	107,692		1,077		12,923				14,000
Shares issued to institutional investor upon conversion of Note Payable at $.088 per share	170,455		1,705		13,295				15,000
Shares issued to institutional investor upon conversion of Note Payable at $.0446 per share	343,348		3,433		12,567				16,000
Shares issued to institutional investor upon conversion of Note Payable at $.0446 per share	269,058		2,690		9,310				12,000
Shares issued to institutional investor upon conversion of Note Payable at $.0446 per share	268,670		2,687		7,313				10,000
Shares issued to institutional investor upon conversion of Note Payable at $.0397 per share	428,212		4,282		4,218				8,500
Shares issued to a private investor at $.065 per share	9,230,770		92,308		507,692				600,000
Shares issued for consulting to the then interim CEO at $.065 per share	300,000		3,000		16,500				19,500
Vested stock options and warrants					830,372				830,372
Shares issued to an institutional investor upon conversion of Note Payable at $.0286 per share	349,650		3,497		6,503				10,000
Shares issued to a private investor per a convertible note default at $.15 per share	7,500,000		75,000		1,050,000				1,125,000
Shares issued to a private investor at $.15 per share	263,333		2,633		36,867				39,500
Shares issued upon exercise of options at $.01 per share	412,963		4,130						4,130
Stock issued upon conversion of debt at $.15 per share	3,292,557		32,926		460,958				493,884
Stock issued upon conversion of debt at $.065 per share	2,850,754		28,508		156,791				185,299
Shares issued to private investor upon conversion of Note Payable at $.18 per share	316,898		3,169		53,873				57,042
Shares issued to private investor upon conversion of Note Payable at $.052 per share	1,147,078		11,471		48,063				59,534
Shares issued to private investor upon conversion of Note Payable at $.10 per share	565,834		5,658		50,926				56,584
Shares issued to a private investor upon conversion of Note Payable at $.032 per share	1,572,327		15,723		34,277				50,000
Shares issued to an institutional investor upon conversion of Note Payable at $.031 per share	387,097		3,871		8,129				12,000
Stock issued upon conversion of debt at $.15 per share	397,267		3,973		55,617				59,590
Shares issued to a Director as compensation at $.09 per share	277,778		2,778		22,222				25,000
Shares issued under PPM at $.07 per share	9,870,666		98,707		592,239				690,946
Shares issued to institutional investor upon conversion of Note Payable at $.0353 per share	509,915		5,099		12,901				18,000
Shares issued to a private investor upon conversion of Note Payable at $.032 per share	283,718		2,837		6,185				9,022
Shares issued to an institutional investor upon conversion of Note Payable at $.0297 per share including $11,021 of interest.	740,741		7,407		25,614				33,021
Shares issued at $.15 per share as Investor Relations compensation	625,000		6,250		87,500				93,750
Shares issued as settlement to remove anti-dilution agreement at $.065 per share	26,500,000		265,000		1,457,500				1,722,500
Shares issued in settlement with former COO at $.15 per share less shares cancelled at $.09 per share	803,701		8,037		134,296				142,333
Equity value for options and warrants					150,189				150,189
Shares issued at $.07 per share as Investor Relations compensation	300,000		3,000		18,000				21,000
Shares issued at $.15 per share as conversion of debt	157,088		1,571		21,992				23,563
Shares issued to a private investor exercising options at $.01 per share	71,826		718						718
Shares issued to debtors as compensation at $.10 per share	1,563,031		15,630		140,613				156,243
Value of equity instruments issued with debt					33,469				33,469
Shares issued upon conversion of Note Payable at $.07 per share	236,092		2,361		14,165				16,526
Share true-up to certified shareholders list per the stock transfer agency	100		1						1
Net loss							(7,422,155)		(7,422,155)
Balance at 12/31/2012	104,247,228	$	1,042,473	$	14,945,435	$	(19,291,111)	$	(3,303,203)

Shares issued to debtors as compensation at $.15 per share	290,143		2,901		40,620				43,521
Shares issued under PPM to five investors at $.07 per share	7,142,857		71,429		428,571				500,000
Shares issued to an escrow account underlying a debt agreement (11)	1,000,000		10,000						10,000
Shares issued to debtors as compensation at $.15 per share	230,332		2,303		32,247				34,550
Shares issued to an institutional investor at $.07 per share	7,142,858		71,429		428,571				500,000
Value of shares per an agreement with a former officer (12)					40,480				40,480
Vesting expense					1,585,518				1,585,518
Shares issued to consultant as compensation at $.067 per share	250,000		2,500		14,250				16,750
Value of Equity instruments issued with debt					392,556				392,556
Shares issued to former consultant exercising options at $.01 per share	200,000		2,000		-				2,000
Shares issued to former CEO exercising options at $.01 per share.	333,330		3,333		-				3,333
Shares issued upon conversion of four notes payable at $.15 per share	1,041,622		10,416		145,827				156,243
Shares issued for interest to the four notes payable at $.15 per share	74,462		745		10,425				11,170
Shares issued for cashless exercise of warrants at $.12 per share	277,778		2,778						2,778
Shares issued for cashless exercise of warrants at $.16 per share	163,334		1,633						1,633
Shares issued for cashless exercise of warrants at $.15 per share	632,708		6,327						6,327
Shares issued for cashless exercise of warrants at $.20 per share	261,848		2,618						2,618
Shares issued to 24 warrant holders exercised at a reduced price for $.10 per share	10,444,898		104,449		940,041				1,044,490
Shares issued to 4 PPM investors converting notes at $.12 per share	2,637,534		26,375		290,129				316,504
Shares issued to 10 PPM investors converting notes at $.18 per share	5,405,431		54,054		966,146				1,020,200
Shares issued to consultant as compensation at $.38 per share	150,000		1,500		55,500				57,000
Shares issued for two note conversions at $.014 per share	71,066,331		710,663		284,265				994,928
Shares issued for warrant exercise at $.15 per share	1,071,429		10,715		150,000				160,715
Shares issued cashless exercise of warrants at $.075	4,527,947		45,280						45,280
Shares issued to an investor for a cashless exercise of warrants at $.17 per share	204,306		2,044						2,044
Shares issued to one investor for cashless warrant exercise at $.075 per share	231,023		2,310						2,310
Shares issued to former Board Directors as compensation at $.325 per share	100,000		1,000		99,000				100,000
Reduced warrant exercise compensation expense					2,140,946				2,140,946
Options issued as part of employee bonus					147,500				147,500
Shares issued to one investor for cashless warrant exercised at $.12 per share	277,778		2,778						2,778
Shares issued for cashless warrant exercise at $.13 per share	234,844		2,348						2,348
Net loss							(7,251,965)		(7,251,965)
Balance at 9/30/13	219,640,021	$	2,196,401	$	23,138,027	$	(26,543,076)	$	(1,208,648)

(1) Founders shares, 1,000,000 pre-split

(2) 23,492 (40,000 pre-split) shares valued at $.0167 per share as compensation for loan guarantees by management

(3) Investment including 670 shares issued as a 10% finder’s fee

(4) For payment of patent legal fees

(5) Compensation for loan guarantees by management

(6) For vendor contractual consideration

(7) Employment agreements

(8) Investment

(9) Conversion of convertible notes by management

(10) Investment, "October 2008 financing".

(11) The shares reduce by 1/3 yearly and are returned to the Company as the debt is paid.

(12) The Company purchased shares previously issued to a former officer equal to the cost of withholding taxes advanced by the Company. The value here represents the net pay from the transaction that was retained by the Company.

See Notes to Financial Statements

	5

SKYLINE MEDICAL INC.

(A DEVELOPMENT STAGE COMPANY)

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine Months Ended September 30,				April 23, 2002 (Inception)
	2013		2012		To September 30, 2013
Cash flow from operating activities:
Net loss		(7,251,965)		(5,704,855)		(26,543,076)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		156,409		768		167,053
Compensation Expense for stock options and warrants		3,791,802		663,770		7,289,474
Equity instruments issued for management and consulting		137,230		3,775,250		5,926,998
Stock-based registration payments		-		-		355,124
Capital contributions resulting from waivers of debt		-		-		476,398
Amortization of debt discount		413,695		45,187		756,497
(Gain) loss on valuation of equity-linked instruments		(153,960)		(78,275)		(782,030)
Changes in assets and liabilities:
Accounts receivable		(43,480)		10,475		(83,191)
Inventories		44,142		(36,811)		(101,067)
Prepaid expense and other assets		(7,053)		7,141		(34,462)
Notes payable to shareholders				-		(14,957)
Accounts payable		3,012		387,294		1,721,851
Accrued expenses		(430,998)		149,347		1,286,691
Deferred Revenue		5,000		-		5,000
Net cash used in operating activities:		(3,336,166)		(780,709)		(9,573,697)
Cash flow from investing activities:
Purchase of fixed assets		(49,791)		-		(62,049)
Purchase of intangibles		(52,074)		-		(194,569)
Net cash used in investing activities		(101,865)		-		(256,618)

Cash flow from financing activities:
Proceeds from long-term and convertible debt		1,542,718		372,284		3,655,209
Repayment of convertible debt				(50,000)		(250,000)
Principal payments on long-term debt				-		(75,667)

Issuance of common stock		2,210,536		437,576		6,829,135
Net cash provided by financing activities		3,753,254		759,860		10,158,677

Net increase (decrease) in cash		315,223		(20,849)		328,362
Cash at beginning of period		13,139		122,985		-
Cash at end of period		328,362		102,136		328,362
Non cash transactions:

Conversion of debt to accrued liabilities		415,775				515,775
Common Stock/Options issued for accrued liabilities		395,304		99,784		613,474
Conversion of accounts payable to convertible debt		-		-		546,600
Common stock issued to satisfy debt		2,318,568		807,800		3,538,935
Stock/warrant issued to satisfy accounts payable/liabilities		100,521		395,078		539,165

See Notes to Condensed Financial Statements

	6

SKYLINE MEDICAL INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Amounts presented at and for the nine months ended September 30, 2013 and September 30, 2012 are unaudited)

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations and Continuance of Operations

Skyline Medical Inc. (the "Company") was incorporated under the laws of the State of Minnesota in 2002. The Company has developed an environmentally safe system for the collection and disposal of infectious fluids that result from surgical procedures and post-operative care. The Company also makes ongoing sales of our proprietary cleaning fluid to users of our systems. In April 2009, the Company received 510(k) clearance from the FDA to authorize the Company to market and sell its STREAMWAY® FMS products.

The accompanying financial statements have been prepared assuming the Company will continue as a going concern. The Company has suffered recurring losses from operations and has a stockholders’ deficit. These factors raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Since inception to September 30, 2013, the Company has raised approximately $ 6,829,000 in equity and $ 3,655,000 in debt financing, including $ 2,211,000 in equity and $ 1,543,000 in convertible debt in 2013. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources”.

Recent Accounting Developments

We reviewed all other significant newly issued accounting pronouncements and determined they are either not applicable to our business or that no material effect is expected on our financial position and results of our operations.

Valuation of Intangible Assets

We review identifiable intangible assets for impairment in accordance with ASC 350- Intangibles – Goodwill and Other, whenever events or changes in circumstances indicate the carrying amount may not be recoverable. Our intangible assets are currently solely the costs of obtaining trademarks and patents. Events or changes in circumstances that indicate the carrying amount may not be recoverable include, but are not limited to, a significant change in the medical device marketplace and a significant adverse change in the business climate in which we operate. If such events or changes in circumstances are present, the undiscounted cash flows method is used to determine whether the intangible asset is impaired. Cash flows would include the estimated terminal value of the asset and exclude any interest charges. If the carrying value of the asset exceeds the undiscounted cash flows over the estimated remaining life of the asset, the asset is considered impaired, and the impairment is measured by reducing the carrying value of the asset to its fair value using the discounted cash flows method. The discount rate utilized is based on management's best estimate of the related risks and return at the time the impairment assessment is made.

Our accounting estimates and assumptions bear various risks of change, including the length of the current economic downturn facing the United States, the expansion of the slowdown in consumer spending in the U.S. medical markets despite the early expressed opinions of financial experts that the medical market would not be as affected as other markets and failure to gain acceptance in the medical market.

Accounting Policies and Estimates

The presentation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

	7

Presentation of Taxes Collected from Customers

Sales taxes are imposed on the Company’s sales to nonexempt customers. The Company collects the taxes from customers and remits the entire amounts to the governmental authorities. The Company’s accounting policy is to exclude the taxes collected and remitted from revenues and expenses.

Shipping and Handling

Shipping and handling charges billed to customers are recorded as revenue. Shipping and handling costs are recorded within cost of goods sold on the statement of operations.

Advertising

Advertising costs are expensed as incurred. There were no advertising expenses in the three and nine months ended September 30, 2013 and September 30, 2012.

Research and Development

Research and development costs are charged to operations as incurred. Research and development expenses were $ 73,621 and $4,818 for the three months ended September 30, 2013 and September 30, 2012, and $ 207,162 in the nine months ended September 30, 2013 and $ 4,818 for the nine months ended September 30, 2012.

Revenue Recognition

The Company recognizes revenue in accordance with the SEC’s Staff Accounting Bulletin Topic 13 Revenue Recognition and ASC 605-Revenue Recognition.

Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed and determinable and collectability is probable. Delivery is considered to have occurred upon either shipment of the product or arrival at its destination based on the shipping terms of the transaction. The Company’s standard terms specify that shipment is FOB Skyline and the Company will, therefore, recognize revenue upon shipment in most cases. The Company recognizes revenue for trial base units when the customer signs our Terms and Conditions contract for the purchase of the trial unit. This revenue recognition policy applies to shipments of the STREAMWAY FMS units as well as shipments of cleaning solution kits. When these conditions are satisfied, the Company recognizes gross product revenue, which is the price it charges generally to its customers for a particular product. Under the Company’s standard terms and conditions, there is no provision for installation or acceptance of the product to take place prior to the obligation of the customer. The customer’s right of return is limited only to the Company’s standard one-year warranty whereby the Company replaces or repairs, at its option, and it would be rare that the STREAMWAY FMS unit or significant quantities of cleaning solution kits may be returned. Additionally, since the Company buys both the STREAMWAY FMS units and cleaning solution kits from “turnkey” suppliers, the Company would have the right to replacements from the suppliers if this situation should occur.

Receivables

Receivables are reported at the amount the Company expects to collect on balances outstanding. The Company provides for probable uncollectible amounts through charges to earnings and credits to the valuation based on management’s assessment of the current status of individual accounts, changes to the valuation allowance have not been material to the financial statements.

Inventories

Inventories are stated at the lower of cost or market, with cost determined on a first-in, first-out basis. Inventory balances are as follows:

	8

	September 30,		December 31,
	2013		2012
Finished goods	$	85,958	$	91,008
Raw materials		15,109		39,543
Work-In-Process		0		14,658
Total	$	101,067	$	145,209

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation of property and equipment is computed using the straight-line method over the estimated useful lives of the respective assets. Estimated useful asset life by classification is as follows:

	Years
Computers and office equipment		3
Furniture and fixtures		5

Upon retirement or sale, the cost and related accumulated depreciation are removed from the balance sheet and the resulting gain or loss is reflected in operations. Maintenance and repairs are charged to operations as incurred.

Intangible Assets

Intangible assets consist of patent costs. These assets are not subject to amortization until the property patented is in production. The assets are reviewed for impairment annually, and impairment losses, if any, are charged to operations when identified. The Company wrote off the entire STREAMWAY I product patent of $ 140,588 in June 2013. The balance represented intellectual property in the form of patents for our STREAMWAY I product. The Company’s new STREAMWAY II product has a new provisional patent. See “Patents and Intellectual Property”.

Income Taxes

The Company accounts for income taxes in accordance with ASC 740- Income Taxes (“ASC 740”). Under ASC 740, deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and net operating loss and credit carryforwards using enacted tax rates in effect for the year in which the differences are expected to impact taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized.

The Company reviews income tax positions expected to be taken in income tax returns to determine if there are any income tax uncertainties. The Company recognizes tax benefits from uncertain tax positions only if it is more likely than not that the tax positions will be sustained on examination by taxing authorities, based on technical merits of the positions. The Company has identified no income tax uncertainties.

Tax years subsequent to 2009 remain open to examination by federal and state tax authorities.

Patents and Intellectual Property

On January 25, 2013, the Company filed a U.S. Provisional Patent Application, number 61756763. The provisional patent application is for a new model of the surgical fluid waste management system that has embodiments, based on our patent attorney’s recommendations that are patentable over all prior art and will not infringe on any existing patents. This provisional patent adds features that are novel and non-obvious over all the Company’s previously filed applications.

Subsequent Events

The former CEO and the Company had a dispute concerning stock options negated under the former CEO’s settlement agreement. The Company and the former CEO have entered into an amended settlement agreement whereby he will retain the 333,330 shares of common stock already exercised and the right to exercise options with respect to an additional 325,187 shares of common stock (as adjusted for two past reverse stock splits) at $.01 per share. Additionally, the Company agreed to pay the former CEO $20,000 in cash in two installments. In exchange the former CEO agreed to relinquish warrants to purchase an aggregate 800,000 shares of common stock. The settlement agreement was signed in September 2013, and the final payment was remitted in October 2013.

	9

The Company has evaluated all other subsequent events through the date of this filing. The Company does not believe there are any other subsequent events that required disclosure.

Interim Financial Statements

The Company has prepared the unaudited interim financial statements and related unaudited financial information in the footnotes in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements. These interim financial statements reflect all adjustments consisting of normal recurring accruals, which, in the opinion of management, are necessary to present fairly the Company’s financial position, the results of its operations and its cash flows for the interim periods. These interim financial statements should be read in conjunction with the annual financial statements and the notes thereto contained in the Form 10-K filed with the SEC on March 22, 2013. The nature of the Company’s business is such that the results of any interim period may not be indicative of the results to be expected for the entire year.

NOTE 2 – DEVELOPMENT STAGE OPERATIONS

The Company was formed April 23, 2002. Since inception to November 6 , 2013 , 221,068,939 shares of common stock have been issued between par value and $ 1.67 . Operations since incorporation have been devoted to raising capital, obtaining financing, development of the Company’s product, and administrative services.

NOTE 3 – STOCKHOLDERS’ DEFICIT, STOCK OPTIONS AND WARRANTS

In connection with the financing completed in October 2008, the Company has effected two reverse stock splits, one on June 6, 2008 and another on October 20, 2008. In accordance with SAB Topic 4C, all stock options and warrants and their related exercise prices are stated at their post-reverse stock split values.

The Company has an equity incentive plan, which allows issuance of incentive and non-qualified stock options to employees, directors and consultants of the Company, where permitted under the plan. The exercise price for each stock option is determined by the Board of Directors. Vesting requirements are determined by the Board of Directors when granted and currently range from immediate to three years. Options under this plan have terms ranging from three to ten years.

Accounting for share-based payment

The Company has adopted ASC 718- Compensation-Stock Compensation ("ASC 718"). Under ASC 718 stock-based employee compensation cost is recognized using the fair value based method for all new awards granted after January 1, 2006 and unvested awards outstanding at January 1, 2006. Compensation costs for unvested stock options and non-vested awards that were outstanding at January 1, 2006, are being recognized over the requisite service period based on the grant-date fair value of those options and awards, using a straight-line method. We elected the modified-prospective method under which prior periods are not retroactively restated.

ASC 718 requires companies to estimate the fair value of stock-based payment awards on the date of grant using an option-pricing model or other acceptable means. The Company uses the Black-Scholes option valuation model which requires the input of significant assumptions including an estimate of the average period of time employees will retain vested stock options before exercising them, the estimated volatility of the Company's common stock price over the expected term, the number of options that will ultimately be forfeited before completing vesting requirements, the expected dividend rate and the risk-free interest rate. Changes in the assumptions can materially affect the estimate of fair value of stock-based compensation and, consequently, the related expense recognized. The assumptions the Company uses in calculating the fair value of stock-based payment awards represent the Company's best estimates, which involve inherent uncertainties and the application of management's judgment. As a result, if factors change and the Company uses different assumptions, the Company's equity-based compensation expense could be materially different in the future.

	10

Since the Company's common stock has no significant public trading history, and the Company has experienced no significant option exercises in its history, the Company is required to take an alternative approach to estimating future volatility and estimated life and the future results could vary significantly from the Company's estimates. The Company compiled historical volatilities over a period of 2 to 7 years of 15 small-cap medical companies traded on major exchanges and 10 mid-range medical companies on the OTC Bulletin Board and combined the results using a weighted average approach. In the case of ordinary options to employees the Company determined the expected life to be the midpoint between the vesting term and the legal term. In the case of options or warrants granted to non-employees, the Company estimated the life to be the legal term unless there was a compelling reason to make it shorter.

When an option or warrant is granted in place of cash compensation for services, the Company deems the value of the service rendered to be the value of the option or warrant. In most cases, however, an option or warrant is granted in addition to other forms of compensation and its separate value is difficult to determine without utilizing an option pricing model. For that reason the Company also uses the Black-Scholes option-pricing model to value options and warrants granted to non-employees, which requires the input of significant assumptions including an estimate of the average period the investors or consultants will retain vested stock options and warrants before exercising them, the estimated volatility of the Company's common stock price over the expected term, the number of options and warrants that will ultimately be forfeited before completing vesting requirements, the expected dividend rate and the risk-free interest rate. Changes in the assumptions can materially affect the estimate of fair value of stock-based consulting and/or compensation and, consequently, the related expense recognized.

Since the Company has limited trading history in its stock and no first-hand experience with how its investors and consultants have acted in similar circumstances, the assumptions the Company uses in calculating the fair value of stock-based payment awards represent its best estimates, which involve inherent uncertainties and the application of management's judgment. As a result, if factors change and the Company uses different assumptions, the Company's equity-based consulting and interest expense could be materially different in the future.

Valuation and accounting for options and warrants

The Company determines the grant date fair value of options and warrants using a Black-Scholes option valuation model based upon assumptions regarding risk-free interest rate, expected dividend rate, volatility and estimated term. For grants issued during 2008, the Company used a 2.0 to 4.5 % risk-free interest rate, 0 % dividend rate, 53 - 66 % volatility and estimated term of 2.5 to 7.5 years. Values computed using these assumptions ranged from $.102 per share to $.336 per share. Warrants or options awarded for services rendered are expensed over the period of service (normally the vesting period) as compensation expense for employees or an appropriate consulting expense category for awards to consultants and directors. Warrants granted in connection with a common equity financing are included in stockholders’ equity, provided that there is no re-pricing provision that requires them to be treated as a liability (See Note 8) and warrants granted in connection with a debt financing are treated as a debt discount and amortized using the interest method as interest expense over the term of the debt.

Warrants issued in connection with the $ 100,000 convertible debt that closed March 1, 2007 created a debt discount of $ 40,242 that was amortized as additional interest over its 5 -year term. Warrants issued in connection with the $ 170,000 convertible “bridge” debt that closed in July 2007 created a calculated debt discount of $ 92,700 that was fully expensed over its loan term that matured April 30, 2008 .

The Company issued $ 100,000 in convertible debt in October 2009 and issued a warrant, in connection with the debt, for 200,000 shares of common stock at $ .65 per share. The Company determined that the warrant had an initial value of $ 30,150 that was treated as a debt discount and amortized as additional interest expense over the 24 -month term of the note.

The Company also issued $ 200,000 in convertible debt in June 2010 and issued a warrant, in connection with the debt, to purchase 1,111,112 shares of common stock at $.46 per share. The Company determined that the value of the June 2010 warrant was $ 96,613 . This value was treated as a debt discount and amortized as additional interest expense over the 22 -month term of the note.

	11

The Company also issued $ 32,000 in convertible debt in September 2010 and issued a warrant to purchase 320,000 shares of common stock at $.18 per share. The Company determined that this warrant had a value of $ 15,553 that was treated as a debt discount and amortized as additional interest expense over the 18 -month term of the note.

The Company also issued $ 16,800 in convertible debt in December 2010 and issued a warrant to purchase 200,000 shares of common stock at $.084 per share. The Company determined that this warrant had a value of $ 7,232 that was treated as a debt discount and amortized as additional interest expense over the 24 - month term of the note.

In January 2011, the Company issued three convertible notes of $ 50,000 each and also issued warrants to purchase 1,595,239 common shares at $ .20 per share. The value of the warrants was determined to be $ 47,908 and was treated as a debt discount and amortized as additional interest expense over the 24 -month term of the notes.

For grants of stock options and warrants in 2011 the Company used a 0.34 to 2.44 % risk-free interest rate, 0 % dividend rate, 54 - 66 % volatility and estimated term of 3 to 10 years. Values computed using these assumptions ranged from $ 0.0126 to $ 0.3412 per share.

In November 2012, the Company issued four convertible notes of $ 27,500 , $ 27,500 , $ 51,243 and $ 50,000 , respectively. The note holders were issued shares of our common stock at $.10 per share value as bonus equity in consideration for the notes. Though short term the value of the notes were treated as a debt discount with an aggregate discount of $ 33,469 and amortized as additional interest expense over the six month term of the notes.

For grants of stock options and warrants in 2012 the Company used a 0.33 % to 1.80 % risk-free interest rate, 0 % dividend rate, 54 %, 59 % or 66 % volatility and estimated term of 3 , 5 or 10 years. Value computed using these assumptions ranged from $ 0.0111 to $ 0.096 per share.

In January 2013, in connection with a private placement offering the Company issued 8 % convertible one year promissory notes in an aggregate principal amount of $ 300,000 convertible into 2,500,000 shares of common stock assuming a conversion rate of $.12 per share and five year warrants to purchase up to an aggregate of 2,500,000 shares of the corporation’s common stock at an exercise price of $.15 per share. The value of the notes are being treated as a debt discount with an aggregate discount of $ 77,644 , and amortized as an additional interest expense over the twelve month term of the notes. In addition, we issued to the placement agent for these sales five year warrants to purchase an aggregate of 200,000 shares of common stock at an exercise price of $ .12 per share.

In January and March 2013, in connection with a separate and new private placement offering we issued 7,142,857 shares of common stock at $.07 per share and warrants to purchase 7,142,857 shares of common stock at $.15 per share to 5 investors in return for their $ 500,000 investment in the Company.

On March 15, 2013 the Company completed the private sale of 7,142,858 shares of the Company’s common stock, par value $.01 per share, at $ .07 per share for an aggregate purchase price of $ 500,000 , warrants to purchase 7,142,858 shares of common stock at an exercise price of $ .08 per share, and warrants to purchase 3,571,429 shares of common stock at an exercise price of $ .15 per share.

In April 2013, the Company issued 200,000 shares of common stock, par value $.01 per share, at $.01 per share to a former consultant exercising options; the Company issued 333,330 shares of common stock, par value $.01 per share, at $.01 per share to the former CEO exercising options.

In May 2013, the Company converted four (4) notes totaling $ 156,243 , plus $ 11,169 in interest; issued in November 2012, the noteholders received 1,116,084 shares of common stock, par value $.01, at $.10 per share. One of the noteholders was Dr. Samuel Herschkowitz who received 357,163 shares.

In May and June 2013, in connection with a private placement offering we issued 8 % convertible one year promissory notes in an aggregate principal amount of $ 1,000,000 convertible into 6,000,000 shares of common stock assuming a conversion rate of $ .18 per share and five year warrants to purchase up to an aggregate of 4,611,111 shares of the corporation’s common stock at an exercise price of $.198 per share. The value of the notes was net of discounts of $ 275,640 in 2013; due in May and June 2014. In addition, we issued to the placement agent for these sales five year warrants to purchase an aggregate of 444,444 shares of common stock at an exercise price of $ .18 per share.

	12

In August and September 2013 the Company entered into agreements with holders of certain of its outstanding warrants to purchase the Company’s common stock to amend the exercise price of the warrants to $ 0.10 per share in connection with the agreement of each such holder to exercise the warrants in full. Prior to the amendments, the exercise prices of such warrants ranged from $ 0.15 to $ 0.46 per share. Twenty-four warrants were exercised with a reduced exercise price, and nineteen warrants were exercised pursuant to a net exercise provision. Together, such warrant exercises resulted in aggregate cash proceeds of $ 1,044,490 to the Company, and the issuance of an aggregate of 10,444,898 shares of Common Stock through the reduced warrant exercise and 6,533,788 shares which were issued pursuant to a net exercise provision.

For grants of stock options and warrants in 2013 the Company used a 0.33 % to 1.80 % risk-free interest rate, 0 % dividend rate, 59 % volatility and estimated term of 5 years. Value computed using these assumptions ranged from $ 0.014 to $ 0.037 per share.

The following summarizes transactions for stock options and warrants for the periods indicated:

	Stock Options (1)					Warrants (1)
			Average				Average
	Number of		Exercise		Number of		Exercise
	Shares		Price		Shares		Price
Outstanding at December 31, 2005		17,956	$	1.67		20,950	$	2.62

Issued		23,942		1.67		71,826		0.85

Outstanding at December 31, 2006		41,898		1.67		92,776		1.25

Issued		5,984		1.67		28,502		0.35

Outstanding at December 31, 2007		47,882		1.67		121,278		1.04

Issued		1,243,292		0.20		5,075,204		0.45
Expired						(11,971)		3.76

Outstanding at December 31, 2008		1,291,174		0.26		5,184,511		0.45

Issued		205,000		0.37		2,188,302		0.65

Outstanding at December 31, 2009		1,496,174		0.27		7,372,813		0.49

Issued		2,210,000		0.17		3,435,662		0.34
Expired		(207,956)		0.43		(8,979)		1.67
Exercised						(128,571)		0.46

Outstanding at December 31, 2010		3,498,218		0.19		10,670,925		0.44

Issued		2,483,334		0.01		18,222,243		0.14
Expired		(83,941)		0.73		(2,010,917)		0.48
Exercised		(100,000)		0.01

Outstanding at December 31, 2011		5,797,611		0.11		26,882,251		0.23

Issued		9,514,286		0.08		11,688,166		0.15
Expired		(2,235,368)		0.11		(3,366,455)		0.50
Exercised		(412,963)		0.01		(71,826)		0.01

Outstanding at December 31, 2012		12,663,566		0.09		35,132,136		0.13

Issued		17,515,784		0.082		25,739,682		0.12
Expired		(1,059,995)		0.26		(6,811,207)		0.19
Exercised		(533,330)		0.01		(18,050,115)		0.10
Outstanding at September 30, 2013		28,586,025	$	0.08		36,010,496	$	0.14

(1)

Adjusted for the reverse stock splits in total at June 6, 2008 and October 20, 2008.

	13

At September 30, 2013 , 27,554,925 stock options are fully vested and currently exercisable with a weighted average exercise price of $ 0.08 and a weighted average remaining term of 9.00 years. All warrants are fully vested and exercisable. Stock-based compensation recognized for the nine months ending September 2013 and September 2012 was $ 1,585,518 and $ 663,770 , respectively. The Company has $ 146,538 of unrecognized compensation expense related to non-vested stock options that are expected to be recognized over a weighted average period of approximately 13 months.

	14

The following summarizes the status of options and warrants outstanding at September 30, 2013:

Range of Exercise Prices		Shares		Weighted Average Remaining Life
Options:
$	0.01		650,000		6.57
$	0.017		325,187		4.68
$	0.065		20,000		9.45
$	0.07		214,286		8.94
$	0.075		14,400,000		9.46
$	0.079		1,740,508		9.47
$	0.08		9,300,000		8.88
$	0.088		400,000		8.32
$	0.1325		226,415		9.79
$	0.14		242,857		9.79
$	0.15		676,666		7.41
$	0.17		5,000		9.61
$	0.318		94,338		10.00
$	0.33		100,000		9.99
$	0.3415		20,000		10.00
$	0.35		75,000		0.62
$	0.585		95,768		0.70
Total			28,586,025

Warrants:
$	0.01		200,000		2.19
$	0.075		2,883,334		1.15
$	0.08		7,714,286		4.45
$	0.10		1,428,572		0.59
$	0.12		200,000		5.78
$	0.15		16,648,284		4.25
$	0.16		150,000		0.80
$	0.17		1,294,118		0.53
$	0.18		533,333		3.08
$	0.198		1,770,833		4.66
$	0.20		1,437,500		0.47
$	0.25		1,375,000		0.99
$	0.46		83,207		0.56
$	0.769		342,029		0.75
Total			36,010,496

Stock options and warrants expire on various dates from January 2014 to September 2023.

Under the terms of the Company's agreement with investors in the October 2008 financing, 1,920,000 shares of common stock were the maximum number of shares allocated to the Company's existing shareholders at the time of the offering (also referred to as the original shareholders or the "Founders"). Since the total of the Company's fully diluted shares of common stock was greater than 1,920,000 shares, in order for the Company to proceed with the offering, the Board of Directors approved a reverse stock split of 1-for-1.2545. After this split was approved, additional options and warrants were identified, requiring a second reverse stock split in order to reach the 1,920,000 shares. The second reverse stock split on the reduced 1-for-1.2545 balance was determined to be 1-for-1.33176963. Taken together, if only one reverse stock split was performed, the number would have been a reverse stock split of 1-for-1.670705.

On June 6, 2008, the Board of Directors approved the first reverse stock split. The authorized number of shares of common stock of 20,000,000 was proportionately divided by 1.2545 to arrive at 15,942,607.

On October 20, 2008, the Board of Directors (i) approved the second reverse stock split pursuant to which the authorized number of shares of common stock of 15,942,607 was proportionately divided by 1.33177 to arrive at 11,970,994 shares and (ii) approved a resolution to increase the number of authorized shares of the Company's common stock from 11,970,994 to 40,000,000, which was approved by the Company’s shareholders holding a majority of the shares entitled to vote thereon at a special meeting of shareholders held on December 3, 2008.

	15

The shareholders approved an increase in authorized shares to 80 million shares in an annual shareholder meeting held on June 22, 2010 and approved an increase in authorized shares to 200 million shares in a special shareholder meeting held on September 7, 2011.

The shareholders approved an increase in authorized shares to 300 million shares in a special shareholder meeting held on January 15, 2013.

The shareholders approved an amendment of the Company’s 2012 Stock Incentive Plan to increase the reserve of shares authorized for issuance to 50 million shares and to increase the threshold of limitation on certain grants to 20 million shares on April 15, 2013.

An increase form 300 million to 800 million authorized shares, and an amendment of the Company’s 2012 Stock Incentive Plan to increase the reserve of shares authorized for issuance to 100 million shares was approved at the September 10, 2013 annual meeting

Stock Options and Warrants Granted by the Company

The following table is the listing of stock options and warrants as of September 30, 2013 by year of grant:

Stock Options:
Year	Shares		Price
2008		420,955	$	.017 -.58
2009		75,000		.35
2010		410,000		.15
2011		650,000		.01
2012		9,514,286		.07 - .08
2013		17,515,784		.065 - .3415
Total		28,586,025	$	.01 - .58

Warrants:
Year	Shares		Price
2008		342,029	$	.769
2009		83,207		.46
2010		400,000		.01 - .20
2011		9,764,357		.075-.25
2012		5,352,451		.15 - .20
2013		20,068,452		.08 - .198
Total		36,010,496	$	.01-.769

NOTE 4 - LOSS PER SHARE

The following table presents the shares used in the basic and diluted loss per common share computations:

	Three Months Ended September 30,				Nine Months Ended September 30,				Period from April 23, 2002 (Inception) to September 30,
	2013		2012		2013		2012		2013
Numerator:
Net loss available in basic and diluted calculation	$	(3,974,903)	$	(2,855,713)	$	(7,251,965)	$	(5,704,855)	$	(26,543,076)

Denominator:
Weighted average common shares outstanding-basic		136,728,212		79,467,603		126,664,802		55,370,243		16,302,589

Effect of diluted stock options and warrants (1)

Weighted average common shares outstanding-diluted		136,728,212		79,467,603		126,664,802		55,370,243		16,302,589

Loss per common share-basic and diluted	$	(0.03)	$	(0.04)	$	(0.06)	$	(0.10)	$	(1.63)

(1) The number of shares underlying options and warrants outstanding as of September 30, 2013 and September 30, 2012 are 64,596,521 and 45,250,929 respectively. The effect of the shares that would be issued upon exercise of such options and warrants has been excluded from the calculation of diluted loss per share because those shares are anti-dilutive.

	16

NOTE 5 – INCOME TAXES

The provision for income taxes consists of an amount for taxes currently payable and a provision for tax consequences deferred to future periods. Deferred income taxes are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

There is no income tax provision in the accompanying statements of operations due to the cumulative operating losses that indicate a 100 % valuation allowance for the deferred tax assets and state income taxes is appropriate.

Federal and state income tax return operating loss carryovers as of September 30, 2013, were approximately $ 11,723, 000 and will begin to expire in 2017 .

The valuation allowance has been recorded due to the uncertainty of realization of the benefits associated with the net operating losses. Future events and changes in circumstances could cause this valuation allowance to change.

The components of deferred income taxes at September 30, 2013 and December 31, 2012 are as follows:

	September 30,		December 31,
	2013		2012

Deferred Tax Asset:
Net Operating Loss	$	2,735,000	$	2,209,000
Other		21,000		73,000
Total Deferred Tax Asset		2,756,000		2,282,000
Less Valuation Allowance		2,756,000		2,282,000
Net Deferred Income Taxes	$	—	$	—

	17

NOTE 6 – LONG-TERM DEBT

Long-term debt is as follows:

	September 30, 2013		December 31, 2012
Note payable issued on October 26, 2009 with interest at 8% to March 31, 2012 and convertible into shares of common stock at $.35 per share. The note was renegotiated in February 2013.		-		100,000
Note payable issued on June 12, 2010 with interest at 12% to March 31, 2012, and convertible into common stock at $.18 per share. The note was renegotiated in February 2013.		-		200,000
Note payable issued on December 23, 2010 with interest at 12%, matures December 23, 2012 and is convertible into common stock at $.084 per share. The note was renegotiated in February 2013.		-		16,800
Note payable issued on September 21, 2010 with interest at 12%, matures December 23, 2012 and is convertible into common stock at $.18 per share. The note was renegotiated in February 2013.		-		32,000
Note payable issued January 1, 2011 to a law firm that accepted this note in full payment of their past due legal fees. The Note bears interest at 6%, matures December 31, 2014 and is convertible into common stock at $.15 per share. The note was renegotiated in March 2013.		-		89,300
On November 6, 2012 the Company issued four convertible notes at 20% interest, each, net of an aggregate discounts of $0 and $21,138; due on April 6, 2013. The four notes were converted into 1,041,622 shares at $.10 per share.		-		122,774
In January 2013, in connection with a private placement offering we issued convertible one year promissory notes that bear interest at 8%, in an aggregate principal amount of $300,000 convertible into 2,500,000 shares of common stock assuming a conversion rate of $.12 per share and five year warrants to purchase up to an aggregate of 2,500,000 shares of the corporation’s common stock at an exercise price of $.15 per share. The value of the notes are net discounts of $45,517 in 2013; due in January 2014. In addition, we issued to the placement agent for these sales five year warrants to purchase an aggregate of 200,000 shares of common stock at an exercise price of $.15 per share. All of the notes were converted in September 2013 resulting in 2,637,534 shares of common stock issued at $.12 per share.		-		-
In May and June 2013, in connection with a private placement offering we issued convertible one year promissory notes that bear interest at 8%, in an aggregate principal amount of $1,000,000 convertible into 6,000,000 shares of common stock assuming a conversion rate of $.18 per share and five year warrants to purchase up to an aggregate of 4,611,111 shares of the corporation’s common stock at an exercise price of $.198 per share. The value of the notes is net discounts of $275,640 in 2013; due in May and June 2014. In addition, we issued to the placement agent for these sales five year warrants to purchase an aggregate of 444,444 shares of common stock at an exercise price of $.18 per share. All of the notes were converted in September 2013 resulting in 5,683,210 shares of common stock issued at $.18 per share.		-
Total	$	-	$	560,874
Less amount due within one year		-		471,574
Long-Term Debt	$	-	$	89,300

Cash payments for interest were $ 41,264 for the nine months ended September 30, 2013 and $ 0 for the nine months ended September 30, 2012.

NOTE 7 – RENT OBLIGATION

The Company leases its principal office under a lease that can be cancelled after three years with proper notice per the lease and an amortized schedule of adjustments that will be due to the landlord. The lease extends five years and expires January 2018. In addition to rent, the Company pays real estate taxes and repairs and maintenance on the leased property. Rent expense was $ 46,321 and $ 39,593 through the nine months ended September 30, 2013 and September 30, 2012, respectively.

	18

The Company’s rent obligation for the next five years is as follows:

2014	$	36,000
2015	$	37,000
2016	$	38,000
2017	$	39,000
2018	$	3,600

NOTE 8 – LIABILITY FOR EQUITY-LINKED FINANCIAL INSTRUMENTS

The Company adopted ASC 815- Derivatives and Hedging (“ASC 815”) on January 1, 2009. ASC 815 mandates a two-step process for evaluating whether an equity-linked financial instrument or embedded feature is indexed to the entity's own stock. It was effective for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years, which was the Company's first quarter of 2009. Many of the warrants issued by the Company contain a strike price adjustment feature, which upon adoption of ASC 815, changed the classification (from equity to liability) and the related accounting for warrants with a $ 479,910 estimated fair value of as of January 1, 2009. An adjustment was made to remove $ 486,564 from paid-in capital (the cumulative values of the warrants on their grant dates), a positive adjustment of $ 6,654 was made to accumulated deficit, representing the gain on valuation from the grant date to January 1, 2009, and $ 479,910 was booked as a liability. The warrants issued in 2011 do not contain a strike price adjustment feature and, therefore, are not treated as a liability.

The January 1, 2009 valuation was computed using the Black-Scholes valuation model based upon a 2.5 -year expected term, an expected volatility of 63 %, an exercise price of $.46 per share, a stock price of $.35, a zero dividend rate and a 1.37 % risk free interest rate. Subsequent to January 1, 2009 these warrants were re-valued at the end of each quarter and a gain or loss was recorded based upon their increase or decrease in value during the quarter. Likewise, new warrants that were issued during 2009 and 2010 were valued, using the Black-Scholes valuation model on their date of grant and an entry was made to reduce paid-in capital and increase the liability for equity-linked financial instruments. These warrants were also re-valued at the end of each quarter based upon their expected life, the stock price, the exercise price, assumed dividend rate, expected volatility and risk free interest rate. A significant reduction in the liability was realized in 2010 primarily due to a reduction from $.50 to $.22 per share in the underlying stock price. The Company realized a slight increase in the liability for existing warrants during the first quarter of 2012, and a large decrease in the liability for existing warrants in the second quarter of 2012 as many of the existing warrants expired and the spread of the remaining warrants between exercise and market price was more consistent. In the first and second quarters of 2013 there was a decrease in the liability primarily due to current expirations and the amount of warrants reaching expiration in the near term. In the third quarter there was an additional decrease due to expirations and exercises. The remaining warrants are set to expire between October 2013 and June 2018.

The inputs to the Black-Scholes model during 2009, 2010, 2011, 2012 and 2013 were as follows:

Stock price		$ .35 to $.50
Exercise price		$ .13 to $.50
Expected life		.01 to 2.2 years
Expected volatility		54% to 66%
Assumed dividend rate		- %
Risk-free interest rate		.13% to 2.97%

The original valuations, annual gain/(loss) and end of year valuations are shown below:

	Value at 12/31/09		2010 Gain (Loss)		Value at 12/31/10		2011 Gain (Loss)		Value at 12/31/2011		2012 Gain (Loss)		Value at 12/31/2012		2013 Gain (Loss)		Value at 9/30/2013
January 1, 2009 adoption	$	870,278	$	868,772	$	1,506	$	(88,290)	$	89,796	$	(21,856)	$	111,652	$	96,433	$	15,219

Warrants issued in quarter ended 6/30/2009		149,007		147,403		1,604		(4,689)		6,293		6,293		-		-		-

Warrants issued in quarter ended 9/30/2009		40,481		40,419		62		(1,562)		1,624		910		714		714		-

Warrants issued in quarter ended 12/31/2009		12,081		12,053		28		(724)		752		78		337		337		-

Warrants issued in quarter ended 3/31/2010				25,014		539		(5,571)		6,109		3,701		2,408		2,408		-

Warrants issued in quarter ended 6/30/2010				30,740		592		(6,122)		6,714		6,083		631		631		-

Warrants issued in quarter ended 9/30/2010				20,811		10,615		(44,160)		54,775		1,338		53,437		53,437		-

Total	$	1,071,847	$	1,145,212	$	14,946	$	(151,118)	$	166,063	$	(3,453)	$	169,179	$	153,960	$	15,219

	19

NOTE 9 – RELATED PARTY TRANSACTIONS

The Audit Committee has the responsibility to review and approve all transactions to which a related party and the Company may be a party prior to their implementation, to assess whether such transactions meet applicable legal requirements. Rick Koenigsberger, a director, is a holder of membership units of SOK Partners.

Agreements with Former Directors

The Company entered into agreements, in 2008, with our Chairman of the Board, Lawrence Gadbaw, and in 2009 with a board member, Peter Morawetz, to pay Mr. Gadbaw $ 25,000 and Mr. Morawetz $ 30,000 upon the Company raising $ 3 million in new equity. Mr. Gadbaw received 277,778 shares at $ .09 per share in June 2012 as compensation in lieu of the $ 25,000 cash for raising $3 million in new equity. Mr. Gadbaw was paid the balance due under his separation agreement from 2008. This amount was $ 46,000 upon signing the agreement in 2008 payable at $ 2,000 per month; the payments to Mr. Gadbaw are complete. Mr. Gadbaw is due $ 10,000 in accounts payable as of December 31, 2012 pertaining to his monthly fee as Chairman of the Board of Directors. Mr. Gadbaw also received a warrant for 30,000 shares at $.15 per share in June 30, 2012 as compensation for service as Chairman. Mr. Gadbaw and Mr. Morawetz have both resigned from the Board in the third quarter of 2013. Both Mr. Gadbaw and Mr. Morawetz received 50,000 shares of common stock each at $ .325 per share; 20,000 of these shares were for compensation from serving as Board members and the remaining 30,000 shares were issued to satisfy previous contractual agreements.

Convertible Note Issuances to Dr. Samuel Herschkowitz and SOK Partners, LLC

On September 11, 2013, both the Herschkowitz Note and the SOK Note (each as defined below in this Note 9) were converted in full by the holders thereof at $ 0.014 per share. The principal and interest balance of the Herschkowitz Note of $ 314,484 was converted into 22,463,172 shares of common stock. The principal and interest balance of the SOK Note of $ 680,444 was converted into 48,603,721 shares of common stock. The collateral that secured these notes was released back to the Company.

The remaining disclosure of this Note 9 provides historical information regarding the Herschkowitz Note, the SOK Note and certain other convertible note issuances.

On March 28, 2012, the Company, entered into a Convertible Note Purchase Agreement, dated as of March 28, 2012 (the “SOK Purchase Agreement”) with SOK Partners, LLC (“SOK Partners”), an investment partnership. Josh Kornberg, who is the Company’s Chief Executive Officer and Chairman of the Board, and Dr. Samuel Herschkowitz are affiliates of the manager of SOK Partners and Ricardo Koenigsberger, a director, is a holder of membership units of SOK Partners. Pursuant to the SOK Purchase Agreement, the Company issued a 20.0 % convertible note due August 2012 in the principal amount of up to $ 600,000 (the “SOK Note”). Principal and accrued interest on the SOK Note was initially due and payable on August 28, 2012. The Company’s obligations under the SOK Note were secured by the grant of a security interest in substantially all tangible and intangible assets of the Company. The SOK Purchase Agreement and the SOK Note included customary events of default that include, among other things, non-payment defaults, covenant defaults, inaccuracy of representations and warranties, cross-defaults to other indebtedness and bankruptcy and insolvency defaults. The occurrence of an event of default would have resulted in the acceleration of the Company’s obligations under the SOK Note, and interest rate of twenty-four ( 24 %) percent per annum accrues if the SOK Note had not been paid when due.

	20

On March 28, 2012, the Company received an advance of $ 84,657 under the SOK Note, including a cash advance of $ 60,000 net of a prepayment of interest on the first $ 300,000 in advances under the SOK Note. The holder of the SOK Note was entitled to convert such note into shares of common stock of the Company at an initial conversion price per share of $ 0.065 per share, subject to adjustment in the event of (1) certain issuances of common stock or convertible securities at a price lower than the conversion price of the SOK Note, and (2) recapitalizations, stock splits, reorganizations and similar events. In addition, the Company is required to issue two installments of an equity bonus to SOK Partners in the form of common stock valued at the rate of $0.065 per share. In March 2012, the Company issued the first equity bonus to SOK Partners, consisting of 4,615,385 shares of common stock, with a second installment due within five business days after SOK Partners has made aggregate advances under the note of at least $ 300,000 . In May 2012, the Company issued the second installment consisting of 4,615,385 shares of common stock subsequent to SOK Partners surpassing the aggregate advances of $ 300,000 . Until the maturity date of the SOK Note, if the Company obtained financing from any other source without the consent of SOK Partners, then the Company was required to issue additional bonus equity in an amount equal to $ 600,000 less the aggregate advances on the SOK Note made prior to the breach. The principal balance of the SOK Note was $ 357,282 as of December 31, 2012.

As long as any amount payable under the SOK Note remained outstanding, SOK Partners or its designee were entitled to appoint a new member to the Company’s Board of Directors, to be appointed upon request. As a result, Mr. Koenigsberger was appointed to the Board by SOK Partners on June 25, 2012.

On March 28, 2012, the Company signed an Amended and Restated Note Purchase Agreement, dated as of December 20, 2011, with Dr. Herschkowitz (as amended, the “Herschkowitz Purchase Agreement”). Pursuant to the Herschkowitz Purchase Agreement, the Company issued a 20.0 % convertible note due June 20, 2012 in the principal amount of $ 240,000 for previous advances under the note (the “Herschkowitz Note”). The Company’s obligations under the Herschkowitz Note were secured by the grant of a security interest in substantially all tangible and intangible assets of the Company. The Company has previously issued to Dr. Herschkowitz an equity bonus consisting of 1,546,667 shares of common stock. An additional 7,500,000 shares were transferred to Dr. Herschkowitz effective in April 2012, upon the occurrence of an event of default on the Herschkowitz Note. On August 13, 2012, the Company entered into a settlement and forbearance agreement described below, relating to the defaults under the Herschkowitz Note and other matters.

As long as any amount payable under the Herschkowitz Note remained outstanding, Dr. Herschkowitz or his designee was entitled to appoint a special advisor to the Company’s Board of Directors, to be appointed as a member of the Board upon request. Pursuant to this authority, Josh Kornberg was appointed to the Board on March 9, 2012. In addition, pursuant to this authority, Ricardo Koenigsberger was appointed to the Board on June 25, 2012.

Pursuant to a letter dated April 20, 2012, Dr. Herschkowitz advised the Company of the occurrence of numerous events of default under the terms of the Herschkowitz Note and the Herschkowitz Note Purchase Agreement. As a result of such events of default, Dr. Herschkowitz asserted significant rights as a secured creditor of the Company, including his rights as a secured creditor with a security interest in substantially all assets of the Company. Without a settlement relating to the defaults and other matters, Dr. Herschkowitz could have taken action to levy upon the Company’s assets, including patents and other intellectual property.

	21

In addition, the Company and Atlantic Partners Alliance LLC (“APA”) were parties to a letter agreement dated March 14, 2012, providing APA and its affiliates (including Dr. Herschkowitz and SOK) with rights to avoid dilution relating to additional issuances of equity securities by the Company through July 14, 2012, evidencing the parties’ intent that APA would be provided with significant protection against dilution. This protection was in recognition of APA’s investments in the Company involving a high degree of risk and the Company’s contemplated need for restructuring its indebtedness, which were anticipated to result, and have resulted, in significant dilution. The parties acknowledged that Dr. Herschkowitz and SOK would not have made their historical cash investments in the Company to the same degree had the dilution protection not been provided, and the investments by these parties have enabled the Company to avoid insolvency. Since the respective dates of the Herschkowitz Note Purchase Agreement and the SOK Note Purchase Agreement, the Company has issued in excess of 16,000,000 shares of common stock to parties other than APA and its affiliates, resulting in significant dilution.

Effective August 15, 2012, the Company entered into a letter agreement with Dr. Herschkowitz, APA and SOK (the “Forbearance Agreement”). Under the Forbearance Agreement, among other things, (i) Dr. Herschkowitz agreed to forbear from asserting his rights as a secured creditor to substantially all of the Company’s assets, resulting from the Company’s defaults; (ii) the Company issued an aggregate 26.5 million shares of common stock to Dr. Herschkowitz and SOK and adjusted the conversion price of the Herschkowitz Note and the SOK Note, respectively, to $ 0.014 per share from $ 0.065 per share, to satisfy the Company’s obligations to adjust for dilution under the March 14, 2012 letter agreement; (iii) Dr. Herschkowitz and SOK agreed to extend the maturity of the Herschkowitz Note and the SOK Note, respectively, to December 31, 2012; (iv) the Company agreed to pay certain compensation to Dr. Herschkowitz upon the achievement of financial milestones; and (v) Dr. Herschkowitz clarified and waived certain of his rights, including the right to interest at a penalty rate upon default.

In the Forbearance Agreement, Dr. Herschkowitz agreed to forbear from exercising any of his rights arising under the Herschkowitz Note or the Herschkowitz Note Purchase Agreement with respect to the existing defaults against the Company, subject to the limitations set forth in the letter agreement and without releasing or waiving any future breach of the letter agreement. He further agreed to forbear from exercising any rights with respect to events of default, security interests in the collateral and other similar remedies against the Company or his interests under the Herschkowitz Note or the Herschkowitz Note Purchase Agreement until the occurrence of an event of default under the Herschkowitz Note: (a) that does not constitute an existing default and (b) occurs and accrues after the effective date of the letter agreement.

Dr. Herschkowitz and the Company acknowledged that 7.5 million shares of the Company’s common stock, constituting the “penalty shares” under the Herschkowitz Note Purchase Agreement, were delivered to Dr. Herschkowitz in April 2012 as provided in the Herschkowitz Note Purchase Agreement upon an event of default. Notwithstanding a provision that would have increased the rate of interest from 20 % to 24 % upon an event of default, Dr. Herschkowitz agreed that the Company would not pay the increased rate of interest but would accrue interest at 20 % until a subsequent event of default.

Under the Forbearance Agreement, the Herschkowitz Note and the SOK Note were amended as follows: (i) the due dates of the notes were extended to December 31, 2012, from the previous due dates of June 20, 2012 and August 28, 2012, respectively; (ii) Dr. Herschkowitz will release his security agreement after payment of all currently outstanding promissory notes to parties other than SOK; and (iii) the Herschkowitz Note was amended to add certain events of default relating to judgments against the Company or other creditors taking action with respect to the collateral. In consideration of the extension additional milestone fees were revised as described below. Pursuant to a Forbearance and Settlement Agreement with these parties dated August 15, 2012, as subsequently amended, the due date of these notes were extended to August 31, 2013 .

APA and its affiliates agreed to terminate the letter agreement regarding dilution dated March 14, 2012. In consideration of the various provisions of the letter agreement and in recognition of the understanding of the parties regarding dilution and the agreements of APA and its affiliates to forebear and to extend the due dates of the notes, the Company (i) issued 13,250,000 shares to Dr. Herschkowitz, (ii) issued 13,250,000 shares to SOK, and (iii) the conversion price of the Herschkowitz Note and the SOK Note, respectively was changed to $ 0.014 per share from $ 0.065 per share.

In the event that the Company consummated the following series of transactions on or prior to June 30, 2013: (i) a merger or similar transaction with a public shell company, (ii) raising between $ 2 million and $ 4 million through an offering of the securities of the public shell company concurrent with or subsequent to the shell merger and (iii) listing the Company’s shares on NASDAQ pursuant to an underwritten offering of the Company’s securities resulting in gross proceeds of between $5 million and $30 million, then the Company would have been required to deliver to Dr. Herschkowitz the following compensation: (A) $75,000 upon consummating the shell merger, (B) $150,000 upon consummating the qualifying financing round and (C) 3% of the gross proceeds of the NASDAQ underwriting, which payment shall under no circumstances be less than $200,000 or greater than $1,000,000. The Company was also required to reimburse Dr. Herschkowitz at his actual out-of-pocket cost for reasonable expenses incurred in connection with the shell transactions, with a maximum limit of $10,000 for such expenses.

	22

In connection with the extension of the due date for the Herschkowitz Note and the SOK Note on March 6, 2013, the milestone fees were revised. The following fees were payable to Dr. Herschkowitz in the event that the Company consummates the following series of transactions on or prior to December 31, 2013: (i) financing raising not less than $1 million, compensation of $75,000; (ii) a going private transaction, compensation of $200,000 and (iii) 3% of the gross proceeds of the NASDAQ underwriting, which payment shall under no circumstances be less than $200,000 or greater than $3,000,000. In May 2013 Dr. Herschkowitz received $75,000 after the Company surpassed raising $1 million.

As a result of the transactions under the Forbearance Agreement and other investments, Dr. Herschkowitz, SOK and their affiliates currently own shares of common stock and derivative securities representing beneficial ownership of more than 65% of the Company’s outstanding common stock, giving such parties significant control over election of the Board of Directors and other matters.

On November 6, 2012, the Company issued and sold convertible promissory notes in the total principal amount of $ 156,243 to Dr. Herschkowitz and certain of his assignees. The Company issued to these parties an aggregate 1,562,430 shares of common stock in consideration of placement of the notes. These notes bear interest at a rate of 20 % per annum and are secured by a security interest in the Company’s accounts receivable, patents and certain patent rights and are convertible into common stock upon certain mergers or other fundamental transactions at a conversion price based on the trading price prior to the transaction. The proceeds from this transaction were used to pay off approximately $ 155,000 in principal amount of secured indebtedness. Such notes were converted in April 2013 into 1,041,622 shares of common stock at $ .10 per share.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

We were incorporated in Minnesota in April 2002. We are a development stage company manufacturing an environmentally conscientious system for the collection and disposal of infectious fluids that result from surgical procedures and post-operative care. Since our inception in 2002, we have invested significant resources into product development. We believe that our success depends upon converting the traditional process of collecting and disposing of infectious fluids from the operating rooms of medical facilities to our wall-mounted Fluid Management System (“FMS”) and use of our proprietary cleaning fluid and filter kit.

We have two direct salespersons and an independent representative selling the STREAMWAY System, and expect to hire additional direct salespersons in 2013 as well as potentially reaching agreement with regional and/or national sales organizations. We have sold a number of systems and have recognized revenues from sales of our disposable procedure kits. We also have hundreds of trial procedures being performed on a monthly basis with institutions that have installed our Streamway System for a 30-60 day trial period. We have brought the manufacturing process in house and plan to supplement capacity through outside third party contract manufacturers.

Since inception, we have been unprofitable. We incurred net losses of approximately $7.3 million and $5.7 million for the nine months ended September 30, 2013 and 2012, respectively and net losses of approximately $4.0 million and $2.9 million in the three month periods ended September 30, 2013 and 2012, respectively. As of September 30, 2013, we had an accumulated deficit of approximately $26.5 million. We received approval from the FDA in April 2009 to commence sales and marketing activities of the STREAMWAY FMS and shipped the first system in 2009. However, there was no significant revenue prior to 2011, primarily due to lack of funds to build and ship the product. We sold five STREAMWAY units in 2011, and another 25 to date.

	23

The Company has completed the design of a STREAMWAY II version of the STREAMWAY system which will provide a number of enhancements to the existing product line including a more intuitive and easier to navigate control screen, data storage capabilities, and additional inlet ports on the filters, among other improvements. The Company has purchase orders for pending sales of 51 STREAMWAY II units that we anticipate producing in the fourth quarter of 2013. The Company has installed first generation STREAMWAY units in hospitals for evaluation purposes, and all of those units installed for trial during 2013 have been purchased by the hospital. If purchased, at that time, the Company recognizes revenue for trial base units if the customer signs a binding contract for the purchase of the trial unit. The Company invoices the customer based upon a contracted price negotiated prior to the trial.

We have never generated sufficient revenues to fund our capital requirements. We have funded our operations through a variety of debt and equity instruments. See “Liquidity and Capital Resources - Historical Financing” below. Our capital needs for the next 6 months are expected to be approximately $1 million because of our cash flow deficit. We will attempt to raise these funds through equity or debt financing, alternative offerings or other means. Our future cash requirements and the adequacy of available funds depend on our ability to sell our products. See “Liquidity and Capital Resources - Plan of Financing; Going Concern Qualification” below.

As a company still in development, our limited history of operations makes prediction of future operating results difficult. We believe that period to period comparisons of our operating results should not be relied on as predictive of our future results.

Results of Operations

Revenue. The Company recognized $386,418 of revenue in the nine months ended September 30, 2013 and $99,210 in revenue in the nine months ended September 30, 2012. The Company recognized $107,835 of revenue in the three months ended September 30, 2013 and $51,615 in revenue in the three months ended September 30, 2012.The revenue in the third quarter of 2013 included the sale of eight STREAMWAY FMS systems plus disposables. The Company is no longer installing first generation STREAMWAY FMS units in hospitals for evaluation purposes, but has four units in trials with purchase orders for 51 STREAMWAY II units that we anticipate producing in the quarter. The Company’s decision to cease production of the STREAMWAY first generation sacrificing, in order to concentrate efforts toward putting the STREAMWAY II into full production, delayed some sales that would have resulted in higher third quarter revenues.

Cost of sales. Cost of sales in the nine months ended September 30, 2013 was $135,120 and $85,478 in the nine months ended September 30, 2012. Cost of sales in the three months ended September 30, 2013 was $26,181 and $69,962 in the three months ended September 30, 2012. The gross profit margin was approximately 65% for both the hardware and the cleaning solution kits in the nine months ended September 30, 2013, and 14% in the nine months ended June 30, 2012. As revenues increase, gross margins will depend on various factors, including manufacturing costs and volume purchasing discounts on both the equipment and the cleaning solution. Over the next several quarters, we expect the relationship of costs to revenues generally to improve from period to period.

General and Administrative expense. General and administrative expense primarily consists of management salaries, professional fees, consulting fees, travel expense, administrative fees and general office expenses.

General and administrative (G&A) expense increased by $872,000 from the nine months ended September 30, 2013 compared to September 30, 2012. G&A expense increased by $677,000 from the three months ended September 30, 2013 compared to September 30, 2012. The increase in the nine month period was primarily due to a $245,000 increase in salaries due to the full time employment of a CEO and CFO for the full nine month period in 2013; a $294,000 increase in investor relations costs; a $308,000 increase in legal fees as a result of additional SEC filings and private offerings; a $140,588 in amortization expense relating to the write-off of our intangible assets related to STREAMWAY I patents; and a $443,000 increase in stock based compensation, mostly as a result of equity awards to officers and employees. The offset to the increases is a decrease of 684,000 in investor’s stock compensation. The increase for the three month period ended September 30, 2013 as compared to September 30, 2012 was primarily due to investor relation fees, $62,000, legal fees, $176,000 salaries $56,000 and investors stock compensation $495,000. The predominant offset is a $197,000 decrease to stock based compensation.

	24

Operations expense. Operations expense primarily consists of expenses related to product development and prototyping and testing in the company’s current stage.

Operations expense increased by $244,000 in the nine months ended September 30, 2013. Operations expenses increased by $53,000 in the three months ended September 30, 2013. Salaries increased $201,000 for the nine month period and $49,000 in the three month period, predominantly because the Company had a full time COO, but this was partially offset by reduced consulting fees of $110,000 for the nine month period and a reduction of $9,900 in the three month period, because the COO was previously a consultant for the Company. Research and development costs also increased by $203,000 and $69,000, for the nine month and three month periods, respectively. The increases were offset by stock based compensation of $117,000 for the nine month period and $10,000 for the three month period. Additionally there was a $33,000 increase in manufacturing expenses over the three month period.

Sales and Marketing expense. Sales and marketing expense consists of expenses required to sell products through independent reps, attendance at trades shows, product literature and other sales and marketing activities .

Sales and marketing expense increased by $282,702 in the nine months ended September 30, 2013. Sales and marketing expense increased by $151,204 in the three months ended September 30, 2013 compared to the three months ended September 30, 2012. Public relations costs increased by $100,000 for the nine month period and $37,000 for the three month period because of a newly hired public relations firm in 2013. Salaries also increased by $59,000 and $24,000 in the nine and three month periods, respectively, as an additional sales person was hired in April 2013. Commission expense has grown commensurate with sales, increasing by $63,000 and $49,000 in the nine and three month periods, respectively.

Interest expense. Interest expense increased by $461,000 in the nine months ended September 30, 2013 compared to the nine months ended September 30, 2012, as a direct result of converting all of the remaining notes payable to equity and the amortization of the debt discount. There was an increase of $384,000 in interest expense in the three-month period based upon the aforementioned transactions.

Gain/loss on revaluation of equity-linked financial instruments reflected a gain of $154,000 in the nine months ended September 30, 2013 compared to a gain of $78,300 in the 2012 period. Gain/loss on revaluation of equity-linked financial instruments reflected a gain of $65,300 in the three months ended September 30, 2013 compared to a $18,700 gain in the 2012 period. The increased gain in the current periods resulted from warrants moving closer to expiration.

Liquidity and Capital Resources

Cash Flows

Net cash used in operating activities was $3,336,000 for the nine months ended September 30, 2013 compared with net cash used of $781,000 for the September 30, 2012 period. The increase in cash used in operating activities was most affected by accrued expenses, $384,000, with an emphasis on reduced payroll liabilities, and $750,000 in accounts payable.

Cash flows used in investing activities was $101,865 for 2013 and zero in 2012. Investments consisted of software for a companywide implementation and legal bills directly incurred for new patent protection.

Net cash provided by financing activities was $3,753,000 for the nine months ended September 30, 2013 compared to net cash provided of $760,000 for the nine months ended September 30, 2012. The increase in 2013 was primarily the result of issuing $2,211,000 in common stock in 2013 compared to $438,000 in 2012, and obtaining an additional $1,543,000 in convertible debt funding. We expect to show additional cash provided by financing activities in the next few quarters provided we are successful in raising capital. See “Plan of Financing; Going Concern Qualification” below.

	25

Capital Resources

We had a cash balance of $328,362 as of September 30, 2013. Since our inception, we have incurred significant losses. As of September 30, 2013, we had an accumulated deficit of approximately $26,543,000. From inception to September 30, 2013, our operations have been funded through a bank loan and private convertible debt of approximately $3,655,000 and equity investments that totaled approximately $6,829,000. See “Historical Financing” below. During the third quarter of 2013, the holders of convertible notes converted $2,140,000 of outstanding debt into equity. As a result, we had no note payable indebtedness on our balance sheet as of September 30, 2013, compared to total note payable indebtedness of $1,170,000 as of December 31, 2012. Further, our current liabilities were $1,385,174 as of September 30, 2013, compared to current liabilities of $3,414,301 at December 31, 2012. Also during the third quarter of 2013, we raised approximately $1,044,000 through the cash exercise of warrants by investors who were offered a reduction in the exercise price in connection with the exercise. See Note 3 to the Financial Statements. Our cash balance increased to $328,362 as of September 30, 2013, compared to $13,139 as of December 31, 2012.

We are currently incurring operating expenses of approximately $185,000 per month. Although we are attempting to curtail our expenses, there is no guarantee that we will be able to reduce these expenses significantly, and expenses for some periods may be higher as we prepare our product for broader sales, increase our sales efforts and maintain adequate inventories. Further, we have approximately $1,385,000 in liabilities and cash obligations that become due over the next 12 months. We believe that we will need to raise at least an aggregate of $1 million from future financing in order to have sufficient financial resources to fund our operations for the next 6 months because of our cash flow deficit. We may also seek to induce the cash exercise of additional existing warrants as well by offering a reduced exercise price. If successful we are planning significant capital investments, and we will have human resource additions over the next 6 months.

Based on our current operating plan, we believe that we have sufficient cash, cash equivalents and short-term investment balances to last approximately through April 30, 2014, after which additional financing will be needed to continue to satisfy our obligations. Our STREAMWAY System Two will be in production during the fourth quarter and, sales of this product are expected to provide additional operating revenues and cash balances that could reduce the need for additional fundraising.

Historical Financing

We have funded our operations through a combination of debt and equity instruments. We funded our early operations through a bank loan of $41,400, an equity investment of $68,000 from the Wisconsin Rural Enterprise Fund (“WREF”) and $30,000 in early equity investment from several individuals. WREF had also previously held debt in the form of three loans of $18,000, $12,500 and $25,000. In December 2006, WREF converted two of the loans totaling $37,500 into 43,000 shares of our common stock. In August 2006, we secured a $10,000 convertible loan from one of our vendors. In February 2007, we obtained $4,000 in officer and director loans and in March 2007, we arranged a $100,000 convertible note from two private investors. In July 2007, we obtained a convertible bridge loan of $170,000. In June 2008, we paid off the remaining $18,000 loan from WREF and raised approximately $1.6 million through a private common stock offering completed in October 2008. The $170,000 convertible bridge loan and the $4,000 in officer and director loans were converted into shares of our common stock in October 2009. During 2009, we raised an additional $725,000 in a private placement of stock units and/or convertible debt, with each stock or debt unit consisting of, or converting into, respectively, one share of our common stock, and a warrant to purchase one share of our common stock at $.65 per share.

The funds from our October 2008 offering allowed us to complete the testing and certification of our FMS unit and to receive, on April 1, 2009, final FDA clearance. Management hired an investment banker in 2010 to raise an additional $3 to $5 million in new equity. The banker was unable to raise the expected $500,000 by September 30, 2010 and the balance within three months, but we raised approximately $229,000 in equity and $605,000 in convertible debt in 2010, and $1,386,000 in equity and $525,000 in convertible debt in 2011 through alternative means. In 2012, the Company converted $818,000 of debt into equity, raised $3,764,000 in equity and $1,053,000 in convertible debt. In the first three quarters of 2013 the company raised $1,471,000 in debt financing, and $4,417,000 in equity. In 2011, we raised $1,386,000 in equity and $525,000 in convertible debt, including the convertible debt investment by Dr. Sam Herschkowitz described under Item 13, “Certain Relationships and Related Party Transactions, and Director Independence.”

	26

In 2012, the Company raised $696,000 in equity and $529,000 in convertible debt, and $818,000 of debt was converted into equity. This convertible debt included advances on a convertible promissory note from SOK Partners, LLC, and an investment fund affiliated with one of our directors, for approximately $357,000. See Item 13, “Certain Relationships and Related Party Transactions, and Director Independence.” On November 6, 2012, we entered into additional note purchase agreements with Dr. Samuel Herschkowitz, pursuant to which on the same date, we issued and sold convertible promissory notes in the total principal amount of $156,243 to Dr. Herschkowitz and certain of his assignees. Pursuant to the note purchase agreements, we issued to these parties an aggregate 1,562,430 shares of common stock in consideration of placement of the notes. The convertible notes bear interest at a rate of 20% per annum and are secured by a security interest in the Company’s accounts receivable, patents and certain patent rights and are convertible into common stock upon certain mergers or other fundamental transactions at a conversion price based on the trading price prior to the transaction. The proceeds from this financing were used to pay off approximately $155,000 in principal amount of secured indebtedness.

The Company also raised an additional $300,000 from the sale of convertible notes in January 2013. Also, in January and March 2013, the Company raised an additional $500,000 from a second private sale of equity securities. In addition, in March 2013, the Company completed a further private sale of common stock for an aggregate purchase price of $500,000. In June 2013, the Company raised an additional $1,000,000 from the sale of convertible notes. See Note 3 to the Financial Statements. In the third quarter we also borrowed the remaining $243,000 principal amount of our convertible note payable to SOK Partners, LLC. During the third quarter of 2013, the holders of convertible notes, including Dr. Samuel Herschkowitz and SOK Partners, LLC, converted $1,506,000 of outstanding debt, including principal and interest, into equity. The Company converted the promissory notes totaling $314,484 and $680,444, respectively, including principal and interest, on September 11, 2013 for 22,463,172 and 48,603,159 shares, respectively, at $.014 per share. Also during the third quarter of 2013, we raised approximately $1,044,000 through the cash exercise of warrants by investors who were offered a reduction in the exercise price in connection with the exercise.

Plan of Financing; Going Concern Qualification

We have not achieved profitability and anticipate that we will continue to incur net losses for the foreseeable future. We expect that our operations, sales and marketing, and general and administrative expenses will increase, and as a result we will need to generate significant revenue to achieve profitability.

We believe that we will need to raise at least an aggregate of $1 million from future financing in order to have sufficient financial resources to fund our operations for the next 6 months because of our cash flow deficit. We have already successfully raised approximately $1,044,000 through the cash exercise of warrants by investors who were offered a reduction in the exercise price in connection with the exercise in August and September 2013, and we may seek to make a similar offer to holders of additional existing warrants as well. If successful we are planning significant capital investments, and we will have human resource additions over the next 6 months. If we are unable to attend additional funds at reasonable rates or at all we will be required to substantially curtail our operations and could cease to operate in our current form.

The Company has suffered recurring losses from operations and has a stockholders’ deficit. Although we have been able to fund our current working capital requirements, principally through debt and equity financing, there is no assurance that we will be able to do so in the future. If financing is available, it may be highly dilutive to our existing shareholders and may otherwise include burdensome or onerous terms. Our inability to raise additional working capital at all or to raise it in a timely manner would negatively impact our ability to fund our operations, to generate revenues, and to otherwise execute our business plan, leading to the reduction or suspension of our operations and ultimately forcing us to declare bankruptcy, reorganize or to go out of business. Should this occur, the value of any investment in our securities could be adversely affected, and an investor would likely lose all or a significant portion of their investment. These factors raise substantial doubt about our ability to continue as a going concern.

	27

As a result of the above factors, our independent registered public accountant firm has indicated in their audit opinion, contained in our financial statements included our annual report on Form 10-K for the year ended December 31, 2012, that they have serious doubts about our ability to continue as a going concern. The financial statements in the Form 10-K and in this Form 10-Q report have been prepared assuming the Company will continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Inflation

We do not believe that inflation has had a material impact on our business and operating results during the periods presented.

Off-Balance Sheet Arrangements

We have not engaged in any off-balance sheet activities as defined in Item 303(a)(4) of Regulation S-K.

Critical Accounting Policies and Estimates and Recent Accounting Developments

The discussion and analysis of our financial condition and results of operations are based upon our audited Financial Statements, which have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”). The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of our financial statements, the reported amounts of revenues and expenses during the reporting periods presented, as well as our disclosures of contingent assets and liabilities. On an on-going basis, we evaluate our estimates and assumptions, including, but not limited to, fair value of stock-based compensation, fair value of acquired intangible assets and goodwill, useful lives of intangible assets and property and equipment, income taxes, and contingencies and litigation.

We base our estimates and assumptions on our historical experience. We also used any other pertinent information available to us at the time that these estimates and assumptions are made. We believe that these estimates and assumptions are reasonable under the circumstances and form the basis for our making judgments about the carrying values of our assets and liabilities that are not readily apparent from other sources. Actual results and outcomes could differ from our estimates.

Our significant accounting policies are described in “Note 1 – Summary of Significant Accounting Policies,” in Notes to Financial Statements of this Quarterly Report on Form 10-Q. We believe that the following discussion addresses our critical accounting policies and reflects those areas that require more significant judgments, and use of estimates and assumptions in the preparation of our Financial Statements.

Revenue Recognition. We recognize revenue in accordance with the SEC’s Staff Accounting Bulletin Topic 13 Revenue Recognition and ASC 605 – Revenue Recognition.

Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed and determinable and collectability is probable. Delivery is considered to have occurred upon either shipment of the product or arrival at its destination based on the shipping terms of the transaction. Our standard terms specify that shipment is FOB Skyline and we will, therefore, recognize revenue upon shipment in most cases. This revenue recognition policy applies to shipments of our STREAMWAY FMS units as well as shipments of cleaning solution kits. When these conditions are satisfied, we recognize gross product revenue, which is the price we charge generally to our customers for a particular product. Under our standard terms and conditions, there is no provision for installation or acceptance of the product to take place prior to the obligation of the customer. The Company recognizes revenue for trial base units when the customer signs a binding contract for the purchase of the trial unit. The customer’s right of return is limited only to our standard one-year warranty, whereby we replace or repair, at our option. We believe it would be rare that the STREAMWAY FMS unit or significant quantities of cleaning solution kits may be returned. Additionally, since we buy both the STREAMWAY FMS units and cleaning solution kits from “turnkey” suppliers, we would have the right to replacements from the suppliers if this situation should occur.

	28

Stock-Based Compensation . Effective January 1, 2006, we adopted ASC 718- Compensation-Stock Compensation (“ASC 718”). Under ASC 718 stock-based employee compensation cost is recognized using the fair value based method for all new awards granted after January 1, 2006 and unvested awards outstanding at January 1, 2006. Compensation costs for unvested stock options and non-vested awards that were outstanding at January 1, 2006, are being recognized over the requisite service period based on the grant-date fair value of those options and awards, using a straight-line method. We elected the modified-prospective method in adopting ASC 718 under which prior periods are not retroactively restated.

ASC 718 requires companies to estimate the fair value of stock-based payment awards on the date of grant using an option-pricing model. We use the Black-Scholes option-pricing model which requires the input of significant assumptions including an estimate of the average period of time employees and directors will retain vested stock options before exercising them, the estimated volatility of our common stock price over the expected term, the number of options that will ultimately be forfeited before completing vesting requirements and the risk-free interest rate.

Because we do not have significant historical trading data on our common stock we relied upon trading data from a composite of 10 medical companies traded on major exchanges and 15 medical companies quoted by the OTC Bulletin Board to help us arrive at expectations as to volatility of our own stock when broader public trading commences. In the case of options and warrants issued to consultants and investors we used the legal term of the option/warrant as the estimated term unless there was a compelling reason to use a shorter term. The measurement date for employee and non-employee options and warrants is the grant date of the option or warrant. The vesting period for options that contain service conditions is based upon management’s best estimate as to when the applicable service condition will be achieved. Changes in the assumptions can materially affect the estimate of fair value of stock-based compensation and, consequently, the related expense recognized. The assumptions we use in calculating the fair value of stock-based payment awards represent our best estimates, which involve inherent uncertainties and the application of management's judgment. As a result, if factors change and we use different assumptions, our equity-based compensation expense could be materially different in the future. See “Note 3 – Stockholders’ Deficit, Stock Options and Warrants” in Notes to Financial Statements of this Quarterly Report on Form 10-Q for additional information.

When an option or warrant is granted in place of cash compensation for services, we deem the value of the service rendered to be the value of the option or warrant. In most cases, however, an option or warrant is granted in addition to other forms of compensation and its separate value is difficult to determine without utilizing an option pricing model. For that reason we also use the Black-Scholes option-pricing model to value options and warrants granted to non-employees, which requires the input of significant assumptions including an estimate of the average period that investors or consultants will retain vested stock options and warrants before exercising them, the estimated volatility of our common stock price over the expected term, the number of options and warrants that will ultimately be forfeited before completing vesting requirements and the risk-free interest rate. Changes in the assumptions can materially affect the estimate of fair value of stock-based compensation and, consequently, the related expense recognizes that. Since we have no trading history in our common stock and no first-hand experience with how our investors and consultants have acted in similar circumstances, the assumptions we use in calculating the fair value of stock-based payment awards represent our best estimates, which involve inherent uncertainties and the application of management's judgment. As a result, if factors change and we use different assumptions, our equity-based consulting and interest expense could be materially different in the future.

Since our common stock has no significant public trading history we were required to take an alternative approach to estimating future volatility and the future results could vary significantly from our estimates. We compiled historical volatilities over a period of 2 to 7 years of 10 small-cap medical companies traded on major exchanges and 15 medical companies in the middle of the market cap size range on the OTC Bulletin Board and combined the results using a weighted average approach. In the case of standard options to employees we determined the expected life to be the midpoint between the vesting term and the legal term. In the case of options or warrants granted to non-employees, we estimated the life to be the legal term unless there was a compelling reason to make it shorter.

	29

Valuation of Intangible Assets. We review identifiable intangible assets for impairment in accordance with ASC 350 – Intangibles – Goodwill and Other, whenever events or changes in circumstances indicate the carrying amount may not be recoverable. Our intangible assets are currently solely the costs of obtaining trademarks and patents. Events or changes in circumstances that indicate the carrying amount may not be recoverable include, but are not limited to, a significant change in the medical device marketplace and a significant adverse change in the business climate in which we operate. If such events or changes in circumstances are present, the undiscounted cash flows method is used to determine whether the intangible asset is impaired. Cash flows would include the estimated terminal value of the asset and exclude any interest charges. If the carrying value of the asset exceeds the undiscounted cash flows over the estimated remaining life of the asset, the asset is considered impaired, and the impairment is measured by reducing the carrying value of the asset to its fair value using the discounted cash flows method. The discount rate utilized is based on management's best estimate of the related risks and return at the time the impairment assessment is made. The Company wrote off the entire STREAMWAY I product patent of $140,588 in June 2013. The balance represented intellectual property in the form of patents for our STREAMWAY I product. The Company’s new STREAMWAY II product has a new provisional patent, see “Patents and Intellectual Property”.

Recent Accounting Developments

See Note 1 - “Summary of Significant Accounting Policies” to the Condensed Financial Statements of this Quarterly Report on Form 10-Q for a discussion of recent accounting developments.

Information Regarding Forward-Looking Statements

This Form 10-Q contains “forward-looking statements” that indicate certain risks and uncertainties related to the Company, many of which are beyond the Company’s control. The Company’s actual results could differ materially and adversely from those anticipated in such forward-looking statements as a result of certain factors, including those set forth below and elsewhere in this report. Important factors that may cause actual results to differ from projections include:

	⋅	Possible inability to raise sufficient additional capital to operate our business, causing our independent registered public accountant firm to indicate in their audit opinion, contained in our financial statements included our annual report on Form 10-K for the year ended December 31, 2012, that they have serious doubts about our ability to continue as a going concern;

	⋅	We have approximately $1.4 million in debts, liabilities and cash obligations that become due over the next twelve months;

	⋅	Unexpected costs and operating deficits, and lower than expected sales and revenues, if any;

	⋅	Adverse economic conditions;

	⋅	Adverse results of any legal proceedings;

	⋅	The volatility of our operating results and financial condition;

	⋅	Inability to attract or retain qualified senior management personnel, including sales and marketing personnel; and

	⋅	Other specific risks that may be alluded to in this report.

All statements, other than statements of historical facts, included in this report regarding the Company’s growth strategy, future operations, financial position, estimated revenue or losses, projected costs, prospects and plans and objectives of management are forward-looking statements. When used in this report, the words “will,” “may,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project,” “plan” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. All forward-looking statements speak only as of the date of this report. The Company does not undertake any obligation to update any forward-looking statements or other information contained herein. Potential investors should not place undue reliance on these forward-looking statements. Although the Company believes that its plans, intentions and expectations reflected in or suggested by the forward-looking statements in this report are reasonable, the Company cannot assure potential investors that these plans, intentions or expectations will be achieved. The Company discloses important factors that could cause the Company’s actual results to differ materially from its expectations in the “Risk Factors” section of the Form 10-K and Form 10-K/A filed with the Securities and Exchange Commission on March 22, 2013, and April 8, 2013, respectively. These cautionary statements qualify all forward-looking statements attributable to the Company or persons acting on its behalf.

	30

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

Not required.

ITEM 4. Control and Procedures

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in the rules promulgated under the Securities Exchange Act of 1934. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission.

With the participation of the Chief Executive Officer and the Chief Financial Officer, management has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2013.

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) during the three months ended September 30, 2013 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

The former CEO and the Company had a dispute concerning stock options negated under the former CEO’s settlement agreement. The Company and the former CEO have entered into an amended settlement agreement whereby he will retain the 333,330 shares of common stock already exercised and the right to exercise options with respect to an additional 325,187 shares of common stock at $.01 per share. Additionally, the Company agreed to pay the former CEO $20,000 in cash in two installments. In exchange the former CEO agreed to relinquish warrants to purchase an aggregate 800,000 shares of common stock.

ITEM 1A. Risk Factors

In addition to the other information set forth in this Quarterly Report on Form 10-Q, the reader should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012. There have been no material changes in the Company’s risk factors from those disclosed in Part I, Item 1A, of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012 with the exception of the amendment and replacement of the first risk factor below, and the addition of the second risk factor below.

We will require additional financing to sustain our operations, and if adequate financing is not available, we may be forced to go out of business. Such financing will be dilutive and feature restricted terms. Our independent public accounting firm has indicated in their audit opinion, contained in our financial statements, that they have serious doubts about our ability to remain a going concern.

We are currently incurring operating expenses of approximately $185,000 per month. Although we are attempting to curtail our expenses, there is no guarantee that we will be able to reduce these expenses significantly, and expenses for some periods may be higher as we prepare our product for broader sales, increase our sales efforts and maintain adequate inventories. Further, we have approximately $1,385,000 in debts, liabilities and cash obligations that become due over the next 12 months. The Company also has other significant indebtedness. If the Company defaults on its debt, it may be forced to seek bankruptcy protection and may be unable to continue in business.

	31

As a result of the above factors, our independent registered public accounting firm has indicated in their audit opinion, contained in our financial statements included in our Annual Report on Form 10-K that they have serious doubts about our ability to continue as a going concern. The financial statements have been prepared assuming the Company will continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Since our inception, a majority of our shares and other securities have been issued in violation of the preemptive rights of existing shareholders, which could result in claims against us.

It was recently brought to the attention of our management and board of directors that our company is subject to preemptive rights. The Minnesota Business Corporation Act (the “Act”) provides such rights to shareholders of a corporation, unless the corporation’s articles of incorporation “opt out” and deny them. Our company’s articles of incorporation have never denied preemptive rights or mentioned them in any way. Since our inception in 2002, our company has issued shares of common stock and other equity securities on numerous occasions to raise capital and for other purposes and, to our knowledge; we have never complied with the Minnesota preemptive rights statute in connection with such issuances. At our annual meeting in September 2013, the shareholders approved a merger to reincorporate our company in Delaware. Upon the completion of that merger, shareholders will no longer have preemptive rights relating to any future issuances of securities.

In connection with previous issuances of securities, we may be subject to the claims of previous and current shareholders based on violations of their preemptive rights. With certain exceptions, each time our company has issued common stock, rights to purchase common stock or securities convertible into common stock, we were required to provide notice to existing shareholders of their preemptive rights and to afford them the opportunity to purchase their pro rata share of such securities before they were sold to other purchasers. The Act provides exemptions for specified types of issuances; however, management believes that such exemptions did not apply to most of the issuances of equity securities by our company. Therefore, we believe that since our inception, a majority of our shares and other equity securities have been issued in violation of the preemptive rights of then-existing shareholders. Management does not believe that it would be practicable to offer preemptive rights retroactively or to seek waivers of such rights, because we have been a publicly traded company since November 2009.

	32

Shareholders who were denied preemptive rights in connection with the issuance of equity securities could seek various remedies, including the right to purchase securities on the same terms such securities were sold to other purchasers or monetary damages based on the loss of the opportunity to purchase such securities. Further, the shareholders whose preemptive rights were not honored or the holders of the securities issued in violation of the rights could claim that such securities are invalid. The risk and magnitude of these claims are uncertain, because there is little legal authority on the application of the Minnesota preemptive rights statute, especially for issuances of securities when a company’s shares are publicly traded. We believe shareholders would have difficulty asserting claims relating to issuances more than six years ago, because a six year statute of limitations would generally apply under Minnesota law, subject to potential claims that the certain transactions were not subject to the statute of limitations or that the six year period started at a later time. We intend to vigorously defend any potential claims, based in part on the following facts and circumstances: (a) since November 2009, the ability of existing shareholders to purchase freely tradable shares on the public markets; (b) the prevailing market prices or value of our shares on the dates when the company has issued equity securities; (c) existing shareholders’ knowledge of past issuances of securities, based on the public availability of our financial information since our first filing of a registration statement in November 2008 and our regular filing of periodic reports; (d) the purposes of preemptive rights, which are intended to protect the rights of shareholders in privately held corporations; and (e) the benefits that all shareholders have realized through the capital provided by the issuances of securities. However, if current or former shareholders bring claims against the company for violations of preemptive rights, there can be no assurance that our company will not be liable for damages, the amount of which cannot be predicted. Further, in connection with any such claims, a court may grant other remedies that will have a material adverse effect on our company’s financial condition or results of operations, or that will result in dilution to some existing shareholders.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following is a summary of our transactions since January 1, 2013 involving sales of our securities that were not registered under the Securities Act:

In January 2013, in connection with a private placement offering we issued convertible one year promissory notes that bear interest at 8%, in an aggregate principal amount of $300,000 convertible into 2,500,000 shares of common stock assuming a conversion rate of $.12 per share and five year warrants to purchase up to an aggregate of 2,500,000 shares of the corporation’s common stock at an exercise price of $.15 per share. The value of the notes are net discounts of $45,517 in 2013; due in January 2014. In addition, we issued to the placement agent for these sales five year warrants to purchase an aggregate of 200,000 shares of common stock at an exercise price of $.15 per share. All of the notes were converted in September 2013 resulting in 2,637,534 shares of common stock issued at $.12 per share.

In January and March, 2013, in connection with a separate and new private placement offering we issued 7,142,857 shares of common stock at $.07 per share and warrants to purchase 7,142,857 shares of common stock at $.15 per share to 5 investors in return for their $500,000 investment in the Company.

In January 2013, the Company issued 290,143 shares of common stock at $.15 per share in payment to a vendor for $43,521.39 including principal and interest.

In February 2013, the Company issued 1,000,000 shares of common stock to an escrow account to secure a settlement agreement with a former note holder. The escrow agent releases 1/3 of the stock back to the Company once per year until the settlement is paid in full. If the Company prepays the balance due then all the stock remaining in escrow is released back to the Company. If the Company defaults, and cannot cure the default within the contracted time period, then the stock is released to the note holder toward payment of the settlement.

In February 2013, the Company issued 250,000 shares of common stock in agreement with an investor relations firm canceling their services.

In March 2013, the Company issued 230,332 shares of common stock to a vendor as part of a cash/stock settlement of their long term note with the Company.

In March 2013, the Company issued 7,142,858 shares of common stock as an equity bonus. Includes a warrant to purchase 7,142,858 shares of common stock at $.08 per share. Includes a warrant to purchase 3,571,429 shares of common stock at $.15 per share. Includes a warrant to purchase 190,476 shares of common stock at $.08 per share. Includes a warrant to purchase 380,952 shares of common stock at $.08 per share.

	33

On April 22, 2013, the Company issued 200,000 shares of common stock to a former consultant exercising stock options with an exercise price of $.01.

On April 25, 2013, the Company issued 333,330 shares of common stock to the former CEO exercising stock options with an exercise price of $.01.

On May 7, 2013 the Company converted the notes issuing 1,116,082 aggregate shares of common stock at $.15 per share to the note holders. One of the note holder’s is Dr. Herschkowitz, a related party, who received 357,163 shares of common stock.

In May and June 2013, in connection with a private placement offering we issued convertible one year promissory notes that bear interest at 8%, in an aggregate principal amount of $1,000,000 convertible into 6,000,000 shares of common stock assuming a conversion rate of $.18 per share and five year warrants to purchase up to an aggregate of 4,611,111 shares of the corporation’s common stock at an exercise price of $.198 per share. The value of the notes is net discounts of $275,640 in 2013; due in May and June 2014. In addition, we issued to the placement agent for these sales five year warrants to purchase an aggregate of 444,444 shares of common stock at an exercise price of $.18 per share. All of the notes were converted in September 2013 resulting in 5,683,210 shares of common stock issued at $.18 per share.

In August and September 2013 some warrant holders opted for a cashless warrant exercise resulting in issuing 6,533,788 shares of common stock pursuant to the warrant instruction for cashless exercise.

In September 2013 the Company offered a limited amount of large warrant holders to exercise at a reduced rate of $.10 per share. Twenty-four warrants were exercised for a total of 10,444,898 shares for $1,044,490.

In September 2013 the Company issued 150,000 shares of common stock at $0.38 per share for consulting to a public relation/investor relations company.

In September 2013 the Company issued 22,463,172 shares of common stock at $0.14 per share to a secured note holder converting the debt to equity. The security interest held by the noteholder has been returned to the Company. UCC forms were filed appropriately.

In September 2013 the Company issued 48,603,159 shares of common stock at $0.14 per share to a secured note holder converting the debt to equity. The security interest held by the noteholder has been returned to the Company. UCC forms were filed appropriately.

In September 2013, two Board Directors resigned from the Board. Both received 50,000 shares of common stock each at $.325 per share; 20,000 of these shares were for compensation from serving as Board members and the remaining 30,000 shares were issued to satisfy previous contractual agreements.

In October 2013, the Company issued to Wisconsin Rural Enterprise Fund, LLC (“WREF”) 378,000 shares of the Company’s common stock in full and final settlement of all of WREF’s claims against the Company related to a certain Stock Purchase and Sale Agreement entered into by and between the Company and WREF on December 2, 2006.

	34

Unless otherwise specified above, the Company believes that all of the above transactions were transactions not involving any public offering within the meaning of Section 4(2) of the Securities Act, since (a) each of the transactions involved the offering of such securities to a substantially limited number of persons; (b) each person took the securities as an investment for his/her/its own account and not with a view to distribution; (c) each person had access to information equivalent to that which would be included in a registration statement on the applicable form under the Securities Act; and (d) each person had knowledge and experience in business and financial matters to understand the merits and risk of the investment; therefore no registration statement needed to be in effect prior to such issuances.

ITEM 3. Defaults Upon Senior Securities

None.

ITEM 4. Mine Safety Disclosures

Not applicable.

ITEM 5. Other Information

Frequency of Advisory Vote. The Board of Directors has determined that the Company will hold a shareholder advisory vote on executive compensation (Say-on-Pay) on a triennial basis. This decision was based in part on the results of the shareholder advisory vote on the frequency of the Say-on-Pay vote at the annual meeting of the Company’s shareholders held on September 10, 2013. In this frequency vote, a majority of shares were voted in favor of a triennial Say-on-Pay vote. Accordingly, the next Say-on-Pay vote is expected to be held at the annual meeting of the Company’s shareholders in 2016.

Shareholder Approval of Reincorporation Merger. At the Company’s annual meeting of shareholders held on Tuesday, September 10, 2013, the Company’s shareholders approved the proposed reincorporation of the Company in the State of Delaware, including an increase in the authorized share capital of the Company from 300,000,000 shares of Common Stock to 800,000,000 shares of Common Stock (proportionately reduced in the event of a reverse stock split) and 10,000,000 shares of preferred stock (collectively, the “Reincorporation Merger”). The Company’s Board of Directors has the discretion to consummate the Reincorporation Merger. The Reincorporation Merger is not yet effective, and will become effective only upon filing of a properly executed certificate of merger with the Secretary of State of Delaware and articles of merger with the Secretary of the State of Minnesota.

Item 6. Exhibits

See the attached exhibit index.

	35

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.

	SKYLINE MEDICAL INC.

Date: November 14, 2013	By:	/s/ Joshua Kornberg
		Joshua Kornberg
		President and Chief Executive Officer

Date: November 14, 2013	By:	/s/ Bob Myers
		Bob Myers
		Chief Financial Officer

	36

EXHIBIT INDEX

SKYLINE MEDICAL INC.

Form 10-Q

The quarterly period ended September 30, 2013

Exhibit No.		Description

2.1		Form of Agreement and Plan of Merger for Reincorporation Merger (2)

3.1		Articles of Amendment to the Articles of Incorporation, effective as of August 6, 2013 (1)

4.1		Amended and Restated 2012 Stock Incentive Plan (2).

10.1*		Settlement Agreement and Mutual General Release dated September 18, 2013, entered into by and among Kevin Davidson, Skyline Medical, Inc., Atlantic Partners Alliance LLC, SOK Partners LLC, Joshua Kornberg and Dr. Samuel Herschkowitz.

31.1*		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*		Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS*		XBRL Instance Document**
101.SCH*		XBRL Extension Schema Document**
101.CAL*		XBRL Extension Calculation Linkbase Document**
101.DEF*		XBRL Extension Definition Linkbase Document**
101.LAB*		XBRL Extension Labels Linkbase Document**
101.PRE*		XBRL Extension Presentation Linkbase Document**

* Filed herewith.

In accordance with Rule 406T of Regulation S-T, this information is deemed not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

	(1)	Filed on August 7, 2013 as an exhibit to our Current Report on Form 8-K and incorporated herein by reference.
	(2)	Filed on August 27, 2013 as an exhibit to our Proxy Statement on Schedule 14A and incorporated herein by reference.

	37

TABLE OF CONTENTS

Part 1. Financial Information Item 1. Condensed Financial Statements Note 1 Summary Of Significant Accounting Policies Note 2 Development Stage Operations Note 3 Stockholders Deficit, Stock Options and Warrants Note 4 - Loss Per Share Note 5 Income Taxes Note 6 Long-term Debt Note 7 Rent Obligation Note 8 Liability For Equity-linked Financial Instruments Note 9 Related Party Transactions Item 2. Management S Discussion and Analysis Of Financial Condition and Results Of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk Item 4. Control and Procedures Part II. Other Information Item 1. Legal Proceedings Item 1A. Risk Factors Item 2. Unregistered Sales Of Equity Securities and Use Of Proceeds Item 3. Defaults Upon Senior Securities Item 4. Mine Safety Disclosures Item 5. Other Information Item 6. Exhibits

POAI 10-Q Quarter ended Sept. 30, 2013