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 June 30, 2014

or

¨ 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)

Delaware	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 August 4, 2014, the registrant had 222,975,766 shares of common stock, par value $.01 per share, outstanding.

SKYLINE MEDICAL INC.

TABLE OF CONTENTS

	Page No.
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements	4
Condensed Balance Sheets June 30, 2014 and December 31, 2013	4
Condensed Statements of Operations for the three and six-month periods ended June 30, 2014 and June 30, 2013	5
Statement of Stockholders’ Deficit for the Year Ended December 31, 2013 and the six months ended June 30, 2014	6
Condensed Statements of Cash Flows for the six-month periods ended June 30, 2014 and June 30, 2013	7
Notes to Condensed Financial Statements	8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3. Quantitative and Qualitative Disclosures About Market Risk	36
Item 4. Controls and Procedures	36
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	36
Item 1A. Risk Factors	36
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	37
Item 3. Defaults Upon Senior Securities	38
Item 4. Mine Safety Disclosures	38
Item 5. Other Information	39
Item 6. Exhibits	39
Signatures	39
Exhibit Index	40

3

PART 1. FINANCIAL INFORMATION

Item 1. Condensed Financial Statements

SKYLINE MEDICAL INC.

(A DEVELOPMENT STAGE COMPANY)

CONDENSED BALANCE SHEETS

(Unaudited)

	June 30, 2014			December 31, 2013
ASSETS
Current Assets:
Cash	$	40,151		$	101,953
Accounts Receivable		149,640			97,245
Inventories		360,663			122,175
Prepaid Expense and other assets		149,524			60,588
Total Current Assets		699,977			381,961
Fixed Assets, net		204,658			158,110
Intangibles, net		68,137			53,355
Total Assets	$	972,772		$	593,426
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable		1,625,330			1,062,108
Accrued expenses		2,194,486			2,057,957
Short-term note payable net of discounts of $46,072 and $0 (See Note 8)		81,124			280,000
Deferred Revenue		5,000			69,000
Total Current Liabilities		3,905,940			3,469,065
Accrued Expenses		290,344			331,216
Liability for equity-linked financial instruments (See Note 9)		130			11,599
Total Liabilities	$	4,196,414		$	3,811,880
Commitments and Contingencies		-			-
Stockholders' Deficit:
Series A Convertible Preferred Stock, $.01 par value, $100 Stated Value, 40,000 authorized, 20,550 outstanding		206			-
Common stock, $.01 par value, 800,000,000 authorized, 222,869,997 and 219,937,619 outstanding		2,228,700			2,199,376
Additional paid-in capital		26,647,135			23,279,585
Deficit accumulated during development stage		(32,099,683	)		(28,697,415	)
Total Stockholders' Deficit		(3,223,642	)		(3,218,454	)
Total Liabilities and Stockholders' Deficit	$	972,772		$	593,426

See Notes to Condensed Financial Statements

4

SKYLINE MEDICAL INC.

(A DEVELOPMENT STAGE COMPANY)

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
Revenue	$	318,293		$	150,856		$	388,513		$	278,583
Cost of goods sold		98,365			67,335			129,448			108,939
Gross Margin		219,928			83,521			259,065			169,644
General and administrative expense		1,330,222			888,133			2,509,504			2,711,216
Operations expense		291,584			204,928			556,859			409,395
Sales and marketing expense		319,303			108,593			524,223			195,562
Interest expense		14,773			126,654			32,897			222,206
Loss (gain) on valuation of equity-linked financial instruments		-			(69,251	)		(11,468	)		(88,673	)
Total expense		1,955,882			1,259,057			3,612,014			3,446,705
Net income (loss) available to common shareholders	$	(1,735,954	)	$	(1,175,535	)	$	(3,352,949	)	$	(3,277,061	)
Loss per common share basic and diluted	$	(0.01	)	$	(0.01	)	$	(0.02	)	$	(0.03	)
Weighted average shares used in computation, basic and diluted		222,620,910			121,267,500			221,922,352			111,045,552

See Notes to Condensed Financial Statements

5

SKYLINE MEDICAL INC.

(A DEVELOPMENT STAGE COMPANY)

STATEMENT OF STOCKHOLDERS' DEFICIT

PERIOD FROM DECEMBER 31, 2012

TO JUNE 30, 2014

(Unaudited)

			Common Stock
	Preferred Stock		Shares			Amount			Paid-in Capital		Deficit			Total
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				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										40,480					40,480
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 for a cashless exercise of warrants at $.10 per share				3,024,390			30,244								30,244
Shares issued to an investor for a cashless exercise of warrants at $.17 per share				204,306			2,044								2,044
Shares issued for a cashless exercise of warrants at $.075 per share				544,714			5,447								5,447
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				159,722			1,597								1,597
Shares issued for interest on two note conversions at $.18 per share				40,918			409			6,956					7,365
Shares issued in settlement with a former noteholder at $.27 per share				378,000			3,780			98,280					102,060
Shares issued for a stock option exercise at $.065 per share				10,000			100			550					650
Shares issued to one warrant holder executed at a reduced price of $.125 per share				1,000,000			10,000			115,000					125,000
Shares issued for option exercise at $.07 per share				17,000			170			1,020					1,190
Shares issued for cashless warrant exercise at $.075 per share				116,667			1,167								1,167
Vesting expense										1,505,270					1,505,270
Net loss												(9,406,304	)		(9,406,304	)
Balance at 12/31/13	$	-		219,937,619		$	2,199,376		$	23,279,585	$	(28,697,415	)	$	(3,218,454	)
Shares issued for cashless warrant exercise at $.20 per share				129,630			1,296								1,296
Shares issued for option exercise at $.0167 per share				325,187			3,252			2,178					5,430
Shares issued at $.275 per share as Investor Relations compensation				150,000			1,500			39,750					41,250
Shares issued for cashless warrant exercise at $.17 per share				249,252			2,493								2,493
Shares issued for an option exercise at $.07 per share				20,000			200			1,200					1,400
Shares issued for cashless warrant exercise at $.01 per share				163,062			1,630								1,630
Shares issued for warrant exercise at $.18 per share				200,000			2,000			34,000					36,000
Shares issued at $.25 per share as Investor Relations compensation				100,000			1,000			24,000					25,000
Reduction in escrow account per settlement agreement				(333,334	)		(3,333	)							(3,333	)
Shares issued for cashless warrant exercise at $.10 per share				360,444			3,605								3,605
Shares issued for cashless warrant exercise at $.075 per share				233,334			2,333								2,333
Shares issued for cashless warrant exercise at $.17 per share				22,409			224								224
Shares issued to 16 shareholders of Series A Convertible Preferred Stock Dividends as converted to common shares at $.26 per share				72,760			728			18,191		(18,919	)		-
Vesting Expense										352,762					352,762
Options issued as part of employee bonus										694,500					694,500
Shares issued for combined cashless and cash warrant exercise @ $.15 per share.				583,334			5,833			46,667					52,500
Issuance of Preferred stock		206								2,054,795					2,055,001
Shares issued to Investor Relations consultant exercisable at $.15 per share				160,000			1,600			22,400					24,000
Shares issued to Investor Relations consultant exercisable at $.25 per share				100,000			1,000			24,000					25,000
Shares issued for cashless warrant exercise at $.18 per share				279,366			2,794								2,794
Shares issued to 16 shareholders of Series A Convertible Preferred Stock Dividends as converted to common shares at $.26 per share				116,934			1,169			29,232		(30,400	)		-
Value of equity instruments issued with debt										23,876					23,876
Net loss												(3,352,949	)		(3,352,949	)
Balance at 6/30/2014	$	206		222,869,997		$	2,228,700		$	26,647,136	$	(32,099,683	)	$	(3,223,642	)

See Notes to Financial Statements

6

SKYLINE MEDICAL INC.

(A DEVELOPMENT STAGE COMPANY)

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months Ended June 30,
	2014			2013
Cash flow from operating activities:
Net loss		(3,352,949	)		(3,277,061	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		25,829			141,482
Vested stock options and warrants		369,636			1,378,090
Equity instruments issued for management and consulting		111,917			67,230
Amortization of debt discount		-			92,538
(Gain) loss on valuation of equity-linked instruments		(11,468	)		(88,673	)
Changes in assets and liabilities:
Accounts receivable		(52,395	)		(62,180	)
Inventories		(238,488	)		37,173
Prepaid expense and other assets		(88,936	)		(8,176	)
Notes payable to shareholders		-			-
Accounts payable		563,223			(28,993	)
Accrued expenses		790,157			(379,465	)
Deferred Revenue		(64,000	)		5,000
Net cash used in operating activities:		(1,947,473	)		(2,123,035	)
Cash flow from investing activities:
Purchase of fixed assets		(72,377	)		(9,826	)
Purchase of intangibles		(14,782	)		(48,545	)
Net cash used in investing activities		(87,159	)		(58,371	)
Cash flow from financing activities:
Proceeds from long-term and convertible debt		125,000			1,300,000
Principal payments on notes payable		(300,000	)		-
Issuance of preferred stock		2,055,000			-
Issuance of common stock		92,831			1,005,333
Net cash provided by (used in) financing activities		1,972,831			2,305,333
Net increase (decrease) in cash		(61,802	)		123,927
Cash at beginning of period		101,953			13,139
Cash at end of period		40,151			137,066
Non cash transactions:
Conversion of debt to accrued liabilities		-			415,775
Common stock issued for accrued interest/bonus		694,500			23,394
Common stock issued to satisfy debt		-			178,568
Stock/warrant issued to satisfy accounts payable/Liabilities		-			43,521

See Notes to Condensed Financial Statements

7

SKYLINE MEDICAL INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Amounts presented at and for the six months ended June 30, 2014 and June 30, 2013 are unaudited)

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations and Continuance of Operations

BioDrain Medical, Inc. (the "Company") was incorporated under the laws of the State of Minnesota in 2002. Effective August 6, 2013, the Company changed its name to Skyline Medical Inc. Pursuant to an Agreement and Plan of Merger dated effective December 16, 2013, the Company merged with and into a Delaware corporation with the same name that was its wholly-owned subsidiary, with such Delaware Corporation as the surviving corporation of the merger. 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 and filters 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 June 30, 2014, the Company has raised approximately $9,104,000 in equity, inclusive of $2,055,000 from a private placement of Series A Convertible Preferred Stock, and $4,060,000 in debt financing. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources”.

Recent Accounting Developments

In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09, Revenue from Contracts with Customers and created a new topic in the FASB Accounting Standards Codification ("ASC"), Topic 606. The new standard provides a single comprehensive revenue recognition framework for all entities and supersedes nearly all existing U.S. GAAP revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that an entity should recognize revenue in a manner that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard is designed to create greater comparability for financial statement users across industries and also requires enhanced disclosures. The amendments are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted. We are currently evaluating the impact this guidance may have on our financial statements and related disclosures.

In June 2014, the FASB issued ASU 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements. ASU 2014-10 eliminates the distinction of a development stage entity and certain related disclosure requirements, including the elimination of inception-to-date information on the statements of operations, cash flows and stockholders' equity. The amendments in ASU 2014-10 will be effective prospectively for annual reporting periods beginning after December 15, 2014, and interim periods within those annual periods, however early adoption is permitted. The Company evaluated and adopted ASU 2014-10 for the reporting period ended June 30, 2014.

In June 2014, the FASB issued ASU 2014-12, "Compensation - Stock Compensation" providing explicit guidance on how to account for share-based payments granted to employees in which the terms of the award provide that a performance target that affects vesting could be achieved after the requisite service period. The amendments in this Update are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Early adoption is permitted. We are currently evaluating the impact this guidance may have on our financial statements.

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.

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.

8

Advertising

Advertising costs are expensed as incurred. Advertising expenses were $1,250 and $7,793 in the three and six months ended June 30, 2014 and there were no advertising expenses in the three and six months ended June 30, 2013.

Research and Development

Research and development costs are charged to operations as incurred. Research and development expenses were $131,285 and $249,636 in the three and six months ended June 30, 2014 and $75,264 and $133,541 for June 30, 2013.

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. 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:

	June 30,		December 31,
	2014		2013
Finished goods	$	88,285	$	56,818
Raw materials		230,092		18,603
Work-In-Process		42,286		46,754
Total	$	360,663	$	122,175

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 - 7
Leasehold improvements	5
Manufacturing tooling	3 - 7

The Company’s investment in Fixed Assets consists of the following:

	June 30, 2014		December 31, 2013
Computers and office equipment	$	126,234	$	61,505
Leasehold improvements		23,874		23,614
Manufacturing tooling		97,288		89,900
Total		247,396		175,019
Less: Accumulated depreciation		42,738		16,909
Total Fixed Assets, Net	$	204,658	$	158,110

9

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 trademarks and 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 original STREAMWAY System patent of $140,588 in 2013.

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 2010 remain open to examination by federal and state tax authorities.

Patents and Intellectual Property

On January 25th, 2014 the Company filed a non-provisional PCT Application No. PCT/US2014/013081 claiming priority from the U.S. Provisional Patent Application, number 61756763 which was filed one year earlier on January 25th, 2013.  The PCT makes it possible to seek patent protection for an invention simultaneously in each of 148 countries, including the United States, by filing this “international” patent application instead of filing several separate national or regional patent applications.

Our PCT patent application is for the 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 PCT Application adds features that are novel and non-obvious over all the Company’s previously filed applications. A feature claimed in the Patent is the ability to maintain continuous suction to the surgical field while simultaneously measuring, recording and evacuating fluid to the facilities sewer drainage system.  This provides for continuous operation of the STREAMWAY System unit in suctioning waste fluids, which means that the unit never has to be shut off or paused during a surgical operation, for example, to empty a fluid collection container or otherwise dispose of the collected fluid.

Subsequent Events

On July 23, 2014, Skyline Medical Inc. (the “Company”) entered into a Securities Purchase Agreement (the “Investor Securities Purchase Agreement”) with an institutional investor (the “Investor”), pursuant to which on that date the Company issued and sold (i) a senior convertible note, in an original principal amount of $610,978 (the “Investor Note”), which Investor Note shall be convertible into a certain amount of shares (the “Investor Conversion Shares”) of the Company’s common stock, par value $0.01 (the “Common Stock”), in accordance with the terms of the Investor Note, and (ii) a warrant (the “Investor Warrant”) to initially acquire up to 2,036,593 additional shares of Common Stock (the “Investor Warrant Shares”, and collectively with the Investor Note, the Investor Warrant and the Investor Conversion Shares, the “Investor Securities”). The aggregate purchase price was $500,000 (an approximately 22.2% original issue discount) (the “Investor Convertible Notes Offering”).

10

On July 23, 2014, the Company also entered into a Securities Purchase Agreement (the “SOK Securities Purchase Agreement”) with SOK Partners, LLC, an affiliate of the Company (“SOK”), pursuant to which on that date the Company issued and sold (i) a senior convertible note, in an original principal amount of $122,196 (the “SOK Note”), which SOK Note shall be convertible into a certain amount of shares (the “SOK Conversion Shares”) of Common Stock, in accordance with the terms of the SOK Note, and (ii) a warrant (the “SOK Warrant”) to initially acquire up to 407,318 additional shares of Common Stock (the “SOK Warrant Shares”, and collectively with the SOK Note, the SOK Warrant and the SOK Conversion Shares, the “SOK Securities”). The aggregate purchase price was $100,000 (an approximately 22.2% original issue discount) (the “SOK Convertible Notes Offering”).

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources” for a discussion of the above transactions.

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 27, 2014. 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 August 4, 2014, 222,975,766 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

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.

On February 4, 2014, (the “Closing Date”) we raised $2,055,000 in gross proceeds from a private placement of Series A Convertible Preferred Stock, par value $0.01 (the “Preferred Shares”) pursuant to a Securities Purchase Agreement with certain investors (the “Purchasers”) purchased 20,550 Preferred Shares, and warrants (the “Warrants”) to acquire an aggregate of approximately 1,600,000 shares of Common Stock. The Preferred Shares are convertible into shares of Common Stock at an initial conversion price of $0.26 per share of Common Stock. The Warrants are exercisable at an exercise price of $0.325 per share and expire five years from the Closing Date. If the Common Stock is not listed on the Nasdaq Stock Market, the New York Stock Exchange, or the NYSE MKT within 180 days of the Closing, the Company shall issue additional Warrants to purchase additional shares of Common Stock, equal to 30% of the shares of Common Stock which the Preferred Shares each Purchaser purchased are convertible into. As of August 4, 2014, the Company issued additional warrants to purchase 4,615,385 shares to the Purchasers in connection with this provision.

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The Securities Purchase Agreement requires the Company to register the resale of the shares of Common Stock underlying the Preferred Shares (the “Underlying Shares”) and the Common Stock underlying the Warrants (the “Warrant Shares”). The Company is required to prepare and file a registration statement with the Securities and Exchange Commission within 132 days of the Closing Date (as extended by subsequent consent of the Purchasers), and to use commercially reasonable efforts to have the registration statement declared effective within 147 days if there is no review by the Securities and Exchange Commission, and within 192 days in the event of such review. Pursuant to the Registration Rights Agreement this deadline was extended to a filing deadline of 45 days from July 23, 2014, and an effectiveness deadline of the earlier of (A) 60 calendar days from July 23, 2014 (or 120 calendar days from July 23, 2014 if the registration is subject to review by SEC) and (B) the fifth Trading Day after the Company is notified by the SEC that the Registration Statement will not be reviewed or will not be subject to further review.

The Preferred Shares are convertible at the option of the holder into the number of shares of Common Stock determined by dividing the stated value of the Preferred Shares being converted by the conversion price of $0.26, subject to adjustment for stock splits, reverse stock splits and similar recapitalization events. If the Company issues additional shares of Common Stock, other than certain stock that is excluded under the terms of the Securities Purchase Agreement, in one or more capital raising transactions with an aggregate purchase price of at least $100,000 for a price less than the then existing conversion price for the Preferred Shares (the “New Issuance Price”), then the then existing conversion price shall be reduced to the New Issuance Price, provided, however, that under no circumstances shall the New Issuance Price be less than $0.13 or reduced to a price level that would be in breach of the listing rules of any stock exchange or that would have material adverse effect on the Corporation’s ability to list its Common Stock on a stock exchange, including but not limited to the change of accounting treatment of the Preferred Stock. The Preferred Shares contain certain limitations on conversion so that the holder will not own more than 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of Preferred Shares held by the applicable holder, with the percentage subject to increase in certain circumstances. The Preferred Shares are eligible to vote with the Common Stock on an as-converted basis, but only to the extent that the Preferred Shares are eligible for conversion without exceeding the Beneficial Ownership Limitation. The Preferred Shares are entitled to receive dividends on a pari passu basis with the Common Stock, when, and if declared. Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary (a “Liquidation”), after the satisfaction in full of the debts of the Company and the payment of any liquidation preference owed to the holders of shares of Common Stock ranking prior to the Preferred Shares upon liquidation, the holders of the Preferred Shares shall receive, prior and in preference to the holders of any junior securities, an amount equal to $2,055,000 times 1.2, plus all declared but unpaid dividends.

The Warrants are exercisable on any day on or after the date of issuance, have an exercise price of $0.325 per share, subject to adjustment, and a term of five years from the date they are first exercisable. However, a holder will be prohibited from exercising a Warrant if, as a result of such exercise, the holder, together with its affiliates, would exceed the Beneficial Ownership Limitation as described above for the Preferred Shares. If any Warrant has not been fully exercised prior to the first anniversary of the Closing and if during such period the Company has not installed or received firm purchase orders (accepted by the Company) for at least 500 STREAMWAY ® Automated Surgical Fluid Disposal Systems, then, the number of shares of Common Stock for which such Warrant may be exercised shall be increased 2.5 times.

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.

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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.

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.

In January 2013, in connection with a private placement offering we 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.

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In April 2013, the Company issued 200,000 shares of common stock, par value $.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 Horowitz 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 net of discount was $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.

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 warrant 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 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.

In October 2013 the Company entered into agreements with a holder of certain of its outstanding warrants to purchase the Company’s common stock to amend the exercise price of the warrant to $.125 per share in connection with the agreement of the holder to exercise the warrants in full. Prior to the amendments, the exercise price of such warrants was $.25 per share. Two warrants were exercised with a reduced exercise price. Together the warrant exercises resulted in aggregate cash proceeds of $125,000 to the Company, and the issuance of an aggregate 1,000,000 shares of common stock.

For grants of stock options and warrants in 2013 the Company used a 0.78% to 2.04% risk-free interest rate, 0% dividend rate, 59% or 66% volatility and estimated terms of 5 or 10 years. Value computed using these assumptions ranged from $0.119 to $0.242 per share.

In January 2014 the Company issued 325,187 shares of common stock to the former CEO at $.0167 per share upon his exercising options.

In January through March 2014, 9 warrant holders exercised warrants through a cashless exercise for a total of 1,158,131 shares of common stock.

In January and February 2014 the Company issued warrants to purchase 1,615,383 shares pursuant to a February 4, 2014 private placement whereby the Company issued 20,550 shares of Series A Convertible Preferred Stock raising gross proceeds of $2,055,000. The warrants are at an exercise price of $0.325.

In February 2014 the Company issued a warrant to purchase 111,111 shares of common stock at an exercise price of $0.27 to a major shareholder Dr. Samuel Herschkowitz. The warrant is in consideration for a bridge loan extended in December 2013 that has been paid in February 2014.

On March 31, 2014, the Company issued dividends to the Purchasers of the Preferred Shares as described above. The dividends are at an annual rate of 6% of the stated value of the Preferred Shares paid on a quarterly basis in the form of common stock per a stipulated $0.26 per share. As a result 72,760 shares of common stock were issued to 16 holders of Preferred Shares.

In March 2014, the Company issued 333,334 shares of common stock to a warrant holder for a partial cash exercise at $0.15 per share; issued 250,000 shares to the holder via the cashless exercise of the remainder of the warrant.

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In June 2014, the Company issued 279,366 shares of common stock to a warrant holder exercising cashless warrants.

On June 30, 2014, the Company issued dividends to the Purchasers of the Preferred Shares as described above. The dividends are at an annual rate of 6% of the stated value of the Preferred Shares paid on a quarterly basis in the form of common stock per a stipulated $0.26 per share. As a result 116,934 shares of common stock were issued to 16 holders of Preferred Shares.

On June 30, 2014, the Company issued a warrant to purchase 407,318 shares of common stock at an exercise price of $0.165 to SOK Partners, LLC, in consideration for a bridge loan. The warrant has a Black-Scholes debt discount of $23,876.

For grants of stock options and warrants in 2014 the Company used a 1.44% to 2.75% risk-free interest rate, 0% dividend rate, 59% to 66% volatility and estimated terms of 5 to 10 years. Value computed using these assumptions ranged from $0.0586 to $0.1837 per share.

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

	Stock Options					Warrants
				Average					Average
	Number of			Exercise		Number of			Exercise
	Shares			Price		Shares			Price
Outstanding at December 31, 2012		12,663,566			0.09		35,132,136			0.13
Issued		17,986,157			0.09		25,739,682			0.12
Expired		(1,159,995	)		0.24		(8,326,862	)		0.18
Exercised		(560,330	)		0.01		(17,901,127	)		0.11
Outstanding at December 31, 2013		28,929,398			0.09		34,643,829			0.14
Issued		5,115,061			0.11		2,133,812			0.27
Expired		(495,768	)		0.34		(4,171,733	)		0.16
Exercised		(345,187	)		0.02		(2,220,831	)		0.13
Outstanding at June 30, 2014		33,203,504		$	0.10		30,385,077		$	0.15

At June 30, 2014, 31,341,741 stock options are fully vested and currently exercisable with a weighted average exercise price of $0.10 and a weighted average remaining term of 8.79 years. All warrants are fully vested and exercisable. Stock-based compensation recognized for the six months ending June 2014 and June 30, 2013 was $352,762 and $1,378,541, respectively. The Company has $259,398 of unrecognized compensation expense related to non-vested stock options that are expected to be recognized over a weighted average period of approximately 18 months.

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The following summarizes the status of options and warrants outstanding at June 30, 2014:

Range of Exercise Prices		Shares		Weighted Average Remaining Life
Options:
$	0.01		550,000		7.02
$	0.065		10,000		8.70
$	0.07		177,286		9.12
$	0.075		14,400,000		8.71
$	0.079		1,740,508		8.72
$	0.08		9,300,000		8.13
$	0.088		400,000		7.57
$	0.1325		226,415		9.04
$	0.14		242,857		9.04
$	0.15		1,110,000		7.97
$	0.17		755,000		9.79
$	0.185		162,162		9.76
$	0.20		250,000		9.72
$	0.23		3,019,565		9.69
$	0.25		250,000		9.65
$	0.27		370,373		9.51
$	0.29		100,000		9.28
$	0.318		94,338		9.26
$	0.33		25,000		9.24
$	0.3415		20,000		9.25
Total			33,203,504
Warrants:
$	0.01		30,000		1.44
$	0.075		2,083,333		0.07
$	0.08		7,714,286		3.71
$	0.12		200,000		3.58
$	0.15		15,314,951		3.52
$	0.165		407,318		1.38
$	0.18		333,333		3.97
$	0.198		1,770,833		3.92
$	0.20		87,500		0.60
$	0.25		375,000		0.27
$	0.27		111,111		3.21
$	0.325		1,615,383		4.76
$	0.769		342,029		0.01
Total			30,385,077

Stock options and warrants expire on various dates from July 2014 to June 2024.

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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 from 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 June 30, 2014 by year of grant:

Stock Options:
Year	Shares		Price
2010		410,000	$	.15
2011		550,000		.01
2012		9,477,286		.07 -.08
2013		17,901,157		.065 - .3415
2014		4,865,061		.15 –.25
Total		33,203,504	$	.01 -.3415

Warrants:
Year	Shares		Price
2008		342,029	$	.769
2010		30,000		.01
2011		2,458,333		.075 -.25
2012		5,352,451		.15 -.20
2013		20,068,452		.08 -.198
2014		2,133,812		.165 –.325
Total		30,385,077	$	.01 -.769

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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 June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
Numerator:
Net loss available in basic and diluted calculation	$	(1,735,954	)	$	(1,175,535	)	$	(3,352,949	)	$	(3,277,061	)
Denominator:
Weighted average common shares outstanding - basic		222,620,910			121,267,500			221,922,352			111,045,552
Effect of diluted stock options and warrants (1)		-			-			-			-
Weighted average common shares outstanding - basic		222,620,910			121,267,500			221,922,352			111,045,552
Loss per common share-basic and diluted	$	(0.01	)	$	(0.01	)	$	(0.02	)	$	(0.03	)

(1) The number of shares underlying options and warrants outstanding as of June 30, 2014 and June 30, 2013 are 63,588,581 and 84,320,276 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.

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.

During September 2013, the Company experienced an "ownership change" as defined in Section 382 of the Internal Revenue Code which could potentially limit the ability to utilize the Company’s net operating losses (NOLs). The general limitation rules allow the Company to utilize its NOLs subject to an annual limitation that is determined by multiplying the federal long-term tax-exempt rate by the Company’s value immediately before the ownership change.

At June 30, 2014, the Company had approximately $16.0 million of gross NOLs to reduce future federal taxable income, the majority of which are expected to be available for use in 2015, subject to the Section 382 limitation described above. The federal NOLs will expire beginning in 2022 if unused. The Company also had approximately $17.1 million of gross NOLs to reduce future state taxable income at June 30, 2014, which will expire in years 2022 through 2034 if unused. The Company's net deferred tax assets, which include the NOLs, are subject to a full valuation allowance. At June 30, 2014, the federal and state valuation allowances were $7.1 million and $1.5 million, respectively.

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The components of deferred income taxes at June 30, 2014 and December 31, 2013 are as follows:

	June 30,		December 31,
	2014		2013
Deferred Tax Asset:
Net Operating Loss	$	7,920,000	$	3,259,000
Other		648,000		59,000
Total Deferred Tax Asset		8,568,000		3,318,000
Less Valuation Allowance		8,568,000		3,318,000
Net Deferred Income Taxes	$	—	$	—

NOTE 6 – 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 $15,447 and $33,056, for the three and six months ended June 30, 2014 and was $15,173 and $35,159 for the three and six months ended June 30, 2013 respectively.

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

2015	$	37,000
2016	$	38,000
2017	$	39,000
2018	$	3,600
2019	$	-

NOTE 7 – 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. In 2013 there was a significant decrease in the liability primarily due to current expirations and the amount of warrants reaching expiration in the near term. In the first quarter 2014 the liability continued to decrease, and was stable in the second quarter 2014.

The inputs to the Black-Scholes model during 2009 through 2014 were as follows:

Stock price	$ .06 to $.50
Exercise price	$ .01 to $.325
Expected life	2.0 to 6.5 years
Expected volatility	59%
Assumed dividend rate	- %
Risk-free interest rate	.13% to 2.97%

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

															Value at		2012 Gain			Value		2013 Gain		Value		2014 Gain		Value at
	Initial Value		Annual Gain (Loss)			Value at 12/31/09		2010 Gain (Loss)		Value at 12/31/10		2011 Gain (Loss)			12/31/2011		(Loss)			at 12/31/2012		(Loss)		at 12/31/2013		(Loss)		6/30/2014
January 1, 2009 adoption	$	479,910	$	(390,368	)	$	870,278	$	868,772	$	1,506	$	(88,290	)	$	89,796	$	(21,856	)	$	111,652	$	100,053	$	11,599	$	11,469	$	130
Warrants issued in quarter ended 6/30/2009		169,854		20,847			149,007		147,403		1,604		(4,689	)		6,293		6,293			-		-		-		-		-
Warrants issued in quarter ended 9/30/2009		39,743		(738	)		40,481		40,419		62		(1,562	)		1,624		910			714		714		-		-		-
Warrants issued in quarter ended 12/31/2009		12,698		617			12,081		12,053		28		(724	)		752		415			337		337		-		-		-
Subtotal		702,205					1,071,847
Warrants issued in quarter ended 3/31/2010		25,553							25,014		539		(5,570	)		6,109		3,701			2,408		2,408		-		-		-
Warrants issued in quarter ended 6/30/2010		31,332							30,740		592		(6,122	)		6,714		6,083			631		631		-		-		-
Warrants issued in quarter ended 9/30/2010		31,506							20,891		10,615		(44,160	)		54,775		1,338			53,437		53,437		-		-		-
Total	$	790,596	$	(369,642	)	$	1,071,847	$	1,145,292	$	14,946	$	(151,117	)	$	166,063	$	(3,116	)	$	169,179	$	157,580	$	11,599	$	11,469	$	130

NOTE 8 – RELATED PARTY TRANSACTIONS

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 Dr. 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 also received a warrant for 30,000 shares at $.15 per share on June 30, 2012 as compensation for service as Chairman. Mr. Gadbaw and Dr. Morawetz have both resigned from the Board in the third quarter of 2013. Both Mr. Gadbaw and Dr. 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 July 23, 2014, the Company also entered into a Securities Purchase Agreement (the “SOK Securities Purchase Agreement”) with SOK Partners, LLC, an affiliate of the Company (“SOK”), pursuant to which the Company agreed to issue and sell (i) a senior convertible note, in an original principal amount of $122,195.60 (the “SOK Note”), which SOK Note shall be convertible into a certain amount of shares (the “SOK Conversion Shares”) of Common Stock, in accordance with the terms of the SOK Note, and (ii) a warrant (the “SOK Warrant”) to initially acquire up to 407,318 additional shares of Common Stock (the “SOK Warrant Shares”, and collectively with the SOK Note, the SOK Warrant and the SOK Conversion Shares, the “SOK Securities”) for an aggregate purchase price of $100,000 (an approximately 22.2% original issue discount) (the “SOK Convertible Notes Offering”).

The SOK Note, the SOK Warrant, the SOK Securities Purchase Agreement and the SOK Registration Rights Agreement contain terms and conditions substantially identical to that of the Investor Note, the Investor Warrant, the Investor Securities Purchase Agreement and the Investor Registration Rights Agreement (as defined below), respectively, which are described in greater detail under “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources”.

On September 11, 2013, both the Herschkowitz Note and the SOK Note (each as defined below in this Note 8) 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 8 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”), and an investment partnership. Josh Kornberg, who is a member of the Company’s Board of Directors, 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. Principal and accrued interest on the note is due and payable on August 28, 2012. The Company’s obligations under the note are secured by the grant of a security interest in substantially all tangible and intangible assets of the Company. The SOK Purchase Agreement and the note include 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 could result in the acceleration of the Company’s obligations under the note, and interest rate of twenty-four (24%) percent per annum accrues if the note is not paid when due.

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On March 28, 2012, the Company received an advance of $84,657 under the note, including a cash advance of $60,000 net of a prepayment of interest on the first $300,000 in advances under the note. The holder of the note is entitled to convert the 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 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 note, if the Company obtains financing from any other source without the consent of SOK Partners, then the Company is required to issue additional bonus equity in an amount equal to $600,000 less the aggregate advances on the 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 remains outstanding, SOK Partners or its designee is entitled to appoint a new member to the Company’s Board of Directors, who will be appointed upon request. 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. Samuel 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 Company’s obligations under the note are 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 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 remains outstanding, Dr. Herschkowitz or his designee is entitled to appoint a special advisor to the Company’s Board of Directors, to be appointed as a member upon request. Pursuant to this authority, Josh Kornberg was appointed to the Board on March 9, 2012. In addition, pursuant to this authority, Mr. Koenigsberger was appointed to the Board on June 25, 2012.

Pursuant to a letter dated April 12, 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.

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 had issued in excess of 16,000,000 shares of common stock to parties other than APA and its affiliates, resulting in significant dilution.

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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 their convertible notes to $0.014 per share from $0.065 per share, to satisfy the Company’s obligations to adjust for dilution; (iii) Dr. Herschkowitz and SOK agreed to extend the maturity of their notes 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 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 forbear 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 to be 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.

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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 or greater 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 securities representing beneficial ownership of more than 57% 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. The 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 in to 1,041,622 shares of common stock at $.10 per share.

In December 2013, the Company received an additional $300,000 in debt financing from SOK Partners under a non-convertible grid note due February 28, 2014, with 10% interest based on a 365 day year. Dr. Herschkowitz received 10% of the gross proceeds in advance, and the Company received $250,000 in three tranches in December 2013. In January 2014, the Company received an additional $20,000 from SOK Partners completing the grid note maximum. Should the company default on the note the interest rate will increase to 20% interest based on a 365 day year. In February 2014, the Company paid $305,589.04 to SOK Partners in complete payment of the grid note, including interest.

In connection with the sale of the Preferred Shares on February 4, 2014 as described in Note 3, Josh Kornberg, our CEO, was one of the Purchasers. Mr. Kornberg purchased 19,231 Preferred Shares for a purchase price of $25,000 and received warrants to purchase 3,846 shares of common stock. 

Note 9 – Retirement Savings Plan

We have a pre-tax salary reduction/profit-sharing plan under the provisions of Section 401(k) of the Internal Revenue Code, which covers employees meeting certain eligibility requirements. In fiscal 2012, 2013 and again in 2014, we matched 100%, of the employee’s contribution up to 4% of their earnings. The employer contribution was $8,171 and $12,304 for the three months ending June 30, 2014 and June 30, 2013, respectively, and was $15,494 and $18,097, for the six months ending June 30, 2014 and June 30, 2013, respectively.

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Note 10 – Commitments and Contingencies

On July 17, 2014, Skyline Medical Inc. (the “Company”) and a stockholder entered into a settlement agreement and release (the “Settlement Agreement”) with Marshall Ryan (“Ryan”) and a company related to Ryan (together, the “Plaintiffs”). The settlement relates to a previously disclosed lawsuit by the Plaintiffs initiated in March 2014. Ryan is an engineer who previously worked with the Company on design of certain of the Company’s products. The lawsuit alleged among other things, breach of a 2008 consulting agreement, a 2006 manufacturing agreement and a 2006 supply agreement among the Plaintiffs and the Company, various claims of fraud and negligent misrepresentation, and breach of the duty of good faith and fair dealing.

Under the Settlement Agreement, the parties have agreed that the lawsuit will be dismissed. The Company has agreed to pay Ryan an aggregate of $500,000 in various cash installments through April 25, 2015, which amount includes $200,000 in installments that are payable during the remainder of 2014. The Settlement Agreement, among other things, extinguishes any prior claims of Plaintiffs for royalties or other alleged rights to payments under their prior agreements with the Company. Payment of the outstanding balance under the Settlement Agreement will be accelerated if the Company raises $2 million or more of gross dollars in a single funding round or raises aggregate funding of $4 million of gross dollars on or before April 10, 2015. If the Company defaults on the required cash payments and fails to cure as provided in the Settlement Agreement, then Ryan will have the option to either sue Skyline to enforce the Settlement Agreement or rescind the Settlement Agreement, including returning all payments previously made thereunder.

The Settlement Agreement also contains mutual releases covering claims other than a breach of the Settlement Agreement. In the Settlement Agreement, Ryan fully, unconditionally and irrevocably affirms and ratifies the Company’s rights to Ryan’s prior patent assignments, and disclaims any right, title or interest in the Company’s Streamway product including any claims to royalties both past and future. In addition, the parties confirmed that the patents related to the Streamway product belong exclusively to Skyline and remain in full force and effect.

Note 11 – Supplemental Cash Flow Data

Cash payments for interest were $3,468 and $15,522 for the three months ended June 30, 2014 and June 30, 2013, and $21,606 and $41,930 for the six months ended June 30, 2014 and June 30, 2013.

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

Overview

We were incorporated in Minnesota in April 2002 under the name BioDrain Medical, Inc. Effective August 6, 2013, the Company changed its name to Skyline Medical Inc. Pursuant to an Agreement and Plan of Merger dated effective December 16, 2013, the Company merged with and into a Delaware corporation with the same name that was its wholly-owned subsidiary, with such Delaware Corporation as the surviving corporation of the merger. 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 currently have six Regional Sales Managers to sell the STREAMWAY System. In the first two quarters of 2014 we have signed a contract with an Independent Distributor covering New York and surrounding areas, as well as, two other independent contracting groups handling parts of the Midwest and the Southeast. 

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Since inception, we have been unprofitable. We incurred net losses of approximately $1.7 million and $1.2 million for the three months ended June 30, 2014 and 2013, respectively. We incurred net losses of approximately $3.4 million and $3.3 million for the six months ended June 30, 2014 and 2013, respectively. As of June 30, 2014, we had an accumulated deficit of approximately $32.0 million. We received approval from the FDA in April 2009 to commence sales and marketing activities of the STREAMWAY FMS system 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 original STREAMWAY units in 2011, and another twenty-nine original units to date.

In the first quarter of 2014, the Company commenced sales of an updated version of the STREAMWAY System, which provides 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. This updated version utilizes improved technology, augmenting the capability for continuous flow and continuous suctioning, as covered by our provisional patent application filed in 2013 and our non-provisional patent application filed in January 2014. The Company has sold twenty units through June 30, 2014. Company has trials and demonstrations in place at 2 major hospital systems and teaching hospitals as of June 2014. We have purchase orders for approximately 17 STREAMWAY Systems that will be installed in hospitals and surgical centers over the next 6 months beginning in July 2014.

We expect the revenue for STREAMWAY units to increase significantly, subject to market and product risks, at such time as the hospitals approve the use of the units for their applications based on trial basis units and place orders for billable units. Trial basis units are either installed in or hung on the hospital room wall. The unit is connected to the hospital plumbing and sewer systems, as well as, the hospital vacuum system. The unit remains on the customer site for 2 – 4 weeks, as contracted, at no cost to the customer. However, the customer does purchase the disposable kits necessary to effectively operate the units. Once the trial period has expired the unit is either returned to the Company or purchased by the customer. If purchased, at that time, 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 future cash requirements and the adequacy of available funds depend on our ability to sell our products. See “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 $318,000 of revenue in the three months ended June 30, 2014 compared to $151,000 in revenue in the three months ended June 30, 2013. The Company recognized $389,000 in revenue in the six months ended June 30, 2014 compared to $279,000 in revenue in the six months ended June 30, 2013. The revenue in the first six months of 2014 included the sale of 20 STREAMWAY FMS systems. Three STREAMWAY Systems were sold under the Company’s pay per procedure plan whereby hardware revenue is recognized on a per procedure basis. In essence, the Company adds a premium charge on top of the cleaning solution per bottle price representing an amortized amount of the STREAMWAY unit over an agreed upon period between the customer and Skyline.

Cost of sales. Cost of sales in the three months ended June 30, 2014 was $98,000 and $67,000 in the three months ended June 30, 2013. Cost of sales in the six months ended June 30, 2014 was $129,000 and $109,000 in the six months ended June 30, 2014. The gross profit margin was approximately 67% in the six months ended June 30, 2014 compared to 61% for the six months ended June 30, 2013. Our margins still vary as our initial production of the STREAMWAY has been released for sale. We expect our margins to increase over the remainder of the year as our manufacturing production becomes more consistent, and as increased sales allow us to achieve volume purchasing discounts on both equipment components and our cleaning solution. Over the next several quarters, we expect increases in revenues to exceed increases in costs related to increasing manufacturing and sales capabilities.

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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) expenses increased by $442,000 for the three months ended June 30, 2014 compared to the 2013 period. G&A decreased by $202,000 for the six months ended June 30, 2014 compared to the 2013 period. The increase for the three month period was primarily due to settling with Marshall Ryan thereby incurring an additional expense of $500,000 payable over the next six months, increases in recruiting fees of $60,000 for hiring our sales team in 2014, increases in our corporate insurance of $15,000 for additional coverage and salary increases by $20,000 due to hiring a controller and increasing administrative assistant salaries over 2013. Otherwise there were reductions in our investor relation fees by $49,000 concentrating on a more specified area of the market and reducing our consulting fees by $68,000 that were primarily for fund raising assistance in 2013. The decrease in the six month period, above the settlement expense, was primarily due to stock based and investor stock compensation reductions of $1,069,000 resulting from fewer private placements in 2014. Other increases were for salaries of $107,000 as a result of hiring a controller and company-wide raises, legal fees of $74,000, recruiting fees of $60,000 and fund raising consulting fees of $210,000.

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 $87,000 for the three months ended June 30, 2014 compared to the 2013 period. Operations increased by $147,000 for the six months ended June 30, 2014 compared to the 2013 period. The three and six month increases are comprised of consulting of $28,000 and $37,000 due to hiring a quality control contractor and additional engineers, shipping and postage of $12,000 and $20,000 for expedited orders that were in backorder and for $56,000 and $116,000 in research and development costs.

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 expenses increased by $211,000 for the three months ended June 30, 2014 compared to the 2013 period. Sales and marketing increased by $329,000 for the six months ended June 30, 2014 compared to the 2013 period. The three and six month increases are comprised of salaries of $137,000 and $216,000 due to hiring four additional regional sales managers, commissions of $12,000 for both periods as system sales began in the second quarter, a $24,000 increase over both periods in employee benefits resulting from the increased hires, increases in travel expense of $25,000 and $38,000 relating to new hires, a $15,000 increase in marketing expenses initiated in the second quarter, a $6,000 increase in web development in the second quarter and increased trade show expenses as the Company participated in national shows resulting in a rise of $33,000 and $40,000, respectively. There was some offset by reduced public relations expenses of $40,000 and $50,000, respectively.

Interest expense. Interest dropped significantly in the three months and six months ended June 30, 2014 compared to the three and six months ended June 30, 2013. There was a decrease of $112,000 in interest expense in the three-month period and $189,000 in the six month period. The lower interest is due to the elimination of convertible notes and all but one settlement agreement less the addition of original issue discounts to SOK Partners for our bridge loan.

The (Gain)/Loss on revaluation of equity-linked financial instruments reflected a gain of $0 in the three months ended June 30, 2014 compared to a gain of $69,000 in the three months ended June 30, 2013. The reflected gain is $11,000 in the six months ended June 30, 2014 compared to a gain of $89,000 in the six months ended June 30, 2013. The increased gain in the current periods resulted from warrants moving closer to expiration; there is only one warrant remaining to the equity-linked financial instruments.

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Liquidity and Capital Resources

Cash Flows

Net cash used in operating activities was $1,947,000 for the six months ended June 30, 2014 compared with net cash used of $2,123,000 for the 2013 period. The $153,000 decrease in cash used in operating activities was due to increases in accounts payables as vendors increased terms for the past quarter, increases in accrued liabilities as payroll liabilities were increased; this was offset by a further increases in inventories as more systems were in production.

Cash flows used in investing activities was $87,000 for the six months ended June 30, 2014 and $58,000 dollars for the six months ended June 30, 2013. As we have grown our fixed asset acquisitions have increased as well. We have purchased furniture, computers, software and have incurred leasehold improvements.

Net cash provided by financing activities was $1,973,000 for the six months ended June 30, 2014 compared to net cash provided of $2,305,000 for the six months ended June 30, 2013. The provision in 2014 was primarily the result of completing a private placement of for Series A Convertible Preferred Stock resulting in gross proceeds of $2,055,000 to the Company. See Note 3 to the Financial Statements. In 2013, there were private placements comprising the amount above.

Capital Resources

We had a cash balance of $40,000 as of June 30, 2014. Since our inception, we have incurred significant losses. As of June 30, 2014, we had an accumulated deficit of approximately $32,050,000.

From inception to June 30, 2014, our operations have been funded through a bank loan and private convertible debt of approximately $4,060,000 and equity investments totaling approximately $9,104,000. See “Historical Financing” below.

In the first quarter of 2014, we raised $2,055,000 in gross proceeds excluding offering expenses from a private placement of Series A Convertible Preferred Stock.

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 are currently incurring operating expenses of approximately $350,000 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 $3,500,000 in debts, liabilities and cash obligations that predominantly become due in calendar 2014.

In February 2014, we raised $2.0 million in gross proceeds from our private placement of convertible preferred stock and warrants. In July 2014, we sold convertible notes and warrants for an aggregate purchase price of $0.6 million. We may enter into purchase agreements for further sales of convertible notes and warrants. See “Historical Financing” below.

We expect that we will need further equity financing to maintain our operations, including further sales of convertible notes and warrants and possibly other financing. If such 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.

Our current operating cash balance, subsequent to the July 2014 convertible bridge first tranche, is approximately $75,000. The funds were predominantly used for operating expenses and purchasing. The Company is expecting $900,000 in additional funding in second and perhaps third tranches. Based on our current operating plan we believe that we have sufficient cash, cash equivalents and short-term investment balances to last approximately through September 30, 2014 after which additional financing will be needed to continue to satisfy our obligations. While holders of our warrants could exercise and provide cash to us during that time frame, we are not depending on that in our fundraising efforts. We commenced sales of our enhanced STREAMWAY in the first quarter of 2014. Sales of this product are expected to provide additional operating revenues and cash balances that could reduce the need for additional fundraising; however, cash collections for product sales are not immediate, which may result in a delay in positive operating cash flow over the next several quarters.

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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, 2013, 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.

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.   

In 2010, we raised approximately $229,000 in equity and $605,000 in convertible debt.

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.”

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. See Note 2 to the Financial Statements. 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. In December 2013 the Company raised $280,000 in the form of a short term non-convertible note with 10% interest based on a 365 day year from SOK Partners, LLC. In January 2014 an additional $20,000 was raised and added to the original note to SOK, Partners, LLC. Josh Kornberg the CEO, is a 50% managing partner in SOK Partners, LLC.

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2014 Sales of Preferred Stock and Warrants.

On February 4, 2014, (the “Closing Date”) we raised $2,055,000 in gross proceeds from a private placement of Series A Convertible Preferred Stock, par value $0.01 (the “Preferred Shares”) pursuant to a Securities Purchase Agreement with certain investors (the “Purchasers”) purchased 20,550 Preferred Shares, and warrants (the “Warrants”) to acquire an aggregate of approximately 1,600,000 shares of Common Stock. The Preferred Shares are convertible into shares of Common Stock at an initial conversion price of $0.26 per share of Common Stock. The Warrants are exercisable at an exercise price of $0.325 per share and expire five years from the Closing Date. If the Common Stock is not listed on the Nasdaq Stock Market, the New York Stock Exchange, or the NYSE MKT within 180 days of the Closing, the Company shall issue additional Warrants to purchase additional shares of Common Stock, equal to 30% of the shares of Common Stock which the Preferred Shares each Purchaser purchased are convertible into. As of August 4, 2014, the Company issued additional warrants to purchase 4,615,385 shares to the Purchasers in connection with this provision.

The Securities Purchase Agreement requires the Company to register the resale of the shares of Common Stock underlying the Preferred Shares (the “Underlying Shares”) and the Common Stock underlying the Warrants (the “Warrant Shares”). The Company is required to prepare and file a registration statement with the Securities and Exchange Commission within 132 days of the Closing Date (as extended by subsequent consent of the Purchasers), and to use commercially reasonable efforts to have the registration statement declared effective within 147 days if there is no review by the Securities and Exchange Commission, and within 192 days in the event of such review.

The Preferred Shares are convertible at the option of the holder into the number of shares of Common Stock determined by dividing the stated value of the Preferred Shares being converted by the conversion price of $0.26, subject to adjustment for stock splits, reverse stock splits and similar recapitalization events. If the Company issues additional shares of Common Stock, other than certain stock that is excluded under the terms of the Securities Purchase Agreement, in one or more capital raising transactions with an aggregate purchase price of at least $100,000 for a price less than the then existing conversion price for the Preferred Shares (the “New Issuance Price”), then the then existing conversion price shall be reduced to the New Issuance Price, provided, however, that under no circumstances shall the New Issuance Price be less than $0.13 or reduced to a price level that would be in breach of the listing rules of any stock exchange or that would have material adverse effect on the Corporation’s ability to list its Common Stock on a stock exchange, including but not limited to the change of accounting treatment of the Preferred Stock. The Preferred Shares contain certain limitations on conversion so that the holder will not own more than 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of Preferred Shares held by the applicable holder, with the percentage subject to increase in certain circumstances. The Preferred Shares are eligible to vote with the Common Stock on an as-converted basis, but only to the extent that the Preferred Shares are eligible for conversion without exceeding the Beneficial Ownership Limitation. The Preferred Shares are entitled to receive dividends on a pari passu basis with the Common Stock, when, and if declared. Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary (a “Liquidation”), after the satisfaction in full of the debts of the Company and the payment of any liquidation preference owed to the holders of shares of Common Stock ranking prior to the Preferred Shares upon liquidation, the holders of the Preferred Shares shall receive, prior and in preference to the holders of any junior securities, an amount equal to $2,055,000 times 1.2, plus all declared but unpaid dividends.

The Warrants are exercisable on any day on or after the date of issuance, have an exercise price of $0.325 per share, subject to adjustment, and a term of five years from the date they are first exercisable. However, a holder will be prohibited from exercising a Warrant if, as a result of such exercise, the holder, together with its affiliates, would exceed the Beneficial Ownership Limitation as described above for the Preferred Shares. If any Warrant has not been fully exercised prior to the first anniversary of the Closing and if during such period the Company has not installed or received firm purchase orders (accepted by the Company) for at least 500 STREAMWAY ® Automated Surgical Fluid Disposal Systems, then, the number of shares of Common Stock for which such Warrant may be exercised shall be increased 2.5 times.

As of July 23, 2014, in connection with the offering of convertible notes and warrants described below, the Company and the holders of at least the minimum number of Preferred Shares required to (i) waive certain covenants under the Securities Purchase Agreement for the Preferred Shares, dated February 4, 2014 (the “Preferred Stock SPA”), and (ii) consent to the automatic conversion of all outstanding Preferred Shares pursuant to Section 6(d) of the Certificate of Designation, filed January 27, 2014, setting forth the preferences, rights and limitations of the Preferred Shares (the “Certificate of Designation”), agreed to the following:

· a waiver of the Company’s obligation under Section 6.12 of the Preferred Stock SPA to not enter into any contract, transaction or arrangement or issue any security or instrument that provides for forward pricing of shares of Common Stock (the “Forward Pricing Transaction Restriction”) with respect to the offering of convertible notes and, following a Qualified Public Offering (as defined below), a waiver of the Forward Pricing Transaction Restriction for any subsequent offering of securities by the Company;

· a consent to the inclusion of the registration of the Additional Shares (as defined below) on a registration statement or registration statements of the Company to be filed under the Securities Act of 1933, as amended, pursuant to Section 10 of the Preferred Stock SPA (the “Registration Statement”), covering the “Registrable Securities” as defined under the Preferred Stock SPA (the “Preferred Stockholders Registrable Securities”);

· a consent to further extend the Filing Deadline and the Effectiveness Deadline (each as defined in the Certificate of Designation) pursuant to Section 10.1 of the Preferred Stock SPA such that the deadlines for the filing and effectiveness of the Registration Statement shall be the same as the applicable deadlines for the Convertible Notes Offering;

· an agreement by the Preferred Stockholders to a 90-day lock-up beginning from the date of closing of an underwritten public offering of the Common Stock with gross offering proceeds of at least $6.0 million and the concurrent listing of the Common Stock on a national securities exchange (a “Qualified Public Offering”) (the “Purchaser Lock-Up”); and

· a consent to automatically convert all outstanding Preferred Shares upon a Qualified Public Offering pursuant to the Certificate of Designation as described further below.

In consideration of the waiver and consents provided by the Preferred Stockholders, the Company agreed:

· to issue additional shares of Common Stock to the Preferred Stockholders (the “Additional Shares”) (A) automatically upon the closing of a Qualified Public Offering, to the extent that (i) the Qualified Public Offering closes within six (6) months of the first closing of the Convertible Notes Offering (“Qualified Public Offering Deadline”) and (ii) 70% of the public offering price per share of the Common Stock in the Qualified Public Offering (the “QPO Discount Price”) is less than the Conversion Price floor contained in Section 7(e)(i) of the Certificate of Designation (the “Conversion Price Floor”), or (B) if a Qualified Public Offering has not been consummated by the Qualified Public Offering Deadline, upon the Preferred Stockholders’ conversion of their shares of Preferred Stock to the extent that 70% of the volume weighted average price of the Common Stock on the principal Trading Market (as defined in the Certificate of Designation) of the Common Stock during the ten Trading Days (as defined in the Certificate of Designation) immediately preceding the Qualified Public Offering Deadline (the “Non-QPO Discount Price”) is less than the Conversion Price Floor;

· to provide the Preferred Stockholders with the right to participate in the Affiliate Convertible Notes Offering (as defined below) pro rata up to an aggregate of $500,000 based on their respective interests in the Preferred Shares; and

· to provide the Preferred Stockholders with the right to participate in the Affiliate Convertible Notes Offering pro rata up to an aggregate of $500,000 based on their respective interests in the Preferred Shares; and

· to pay reasonable attorneys’ fees and expenses of the Preferred Stockholders in connection with certain transactions as described further in the waiver and consent of, and notice to, holders of Preferred Shares.

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2014 Sales of Convertible Notes and Warrants.

Securities Purchase Agreements

On July 23, 2014, Skyline Medical Inc. (the “Company”) entered into a Securities Purchase Agreement (the “Investor Securities Purchase Agreement”) with an institutional investor (the “Investor”), pursuant to which the Company agreed to issue and sell (i) a senior convertible note, in an original principal amount of $610,978 (the “Investor Note”), which Investor Note shall be convertible into a certain amount of shares (the “Investor Conversion Shares”) of the Company’s common stock, par value $0.01 (the “Common Stock”), in accordance with the terms of the Investor Note, and (ii) a warrant (the “Investor Warrant”) to initially acquire up to 2,036,593 additional shares of Common Stock (the “Investor Warrant Shares”, and collectively with the Investor Note, the Investor Warrant and the Investor Conversion Shares, the “Investor Securities”) for an aggregate purchase price of $500,000 (an approximately 22.2% original issue discount) (the “Investor Convertible Notes Offering”).

On July 23, 2014, the Company also entered into a Securities Purchase Agreement (the “SOK Securities Purchase Agreement”) with SOK Partners, LLC, an affiliate of the Company (“SOK”), pursuant to which the Company agreed to issue and sell (i) a senior convertible note, in an original principal amount of $122,195.60 (the “SOK Note”), which SOK Note shall be convertible into a certain amount of shares (the “SOK Conversion Shares”) of Common Stock, in accordance with the terms of the SOK Note, and (ii) a warrant (the “SOK Warrant”) to initially acquire up to 407,318 additional shares of Common Stock (the “SOK Warrant Shares”, and collectively with the SOK Note, the SOK Warrant and the SOK Conversion Shares, the “SOK Securities”) for an aggregate purchase price of $100,000 (an approximately 22.2% original issue discount) (the “SOK Convertible Notes Offering”).

The SOK Note, the SOK Warrant, the SOK Securities Purchase Agreement and the SOK Registration Rights Agreement contain terms and conditions substantially identical to that of the Investor Note, the Investor Warrant, the Investor Securities Purchase Agreement and the Investor Registration Rights Agreement (as defined below), respectively, which are described in greater detail below.

In addition to the Investor Convertible Notes Offering and the SOK Convertible Notes Offering, the Company may enter into one or more additional Securities Purchase Agreements (collectively, the “Affiliate Securities Purchase Agreements”) with certain affiliates of the Company and certain persons with whom the Company has a pre-existing relationship (the “Affiliates”) pursuant to which the Company may issue and sell (i) one or more senior convertible notes, in an original principal amount of up to $1,099,760.40 (the “Affiliate Notes”), which Affiliate Notes shall be convertible into a certain amount of shares (the “Affiliate Conversion Shares”) of the Company’s Common Stock in accordance with the terms of the Affiliate Notes, and (ii) one or more warrants (the “Affiliate Warrants”) to initially acquire up to 3,665,862 additional shares of Common Stock (the “Affiliate Warrant Shares”, and collectively with the Affiliate Notes, the Affiliate Warrants and the Affiliate Conversion Shares, the “Affiliate Securities”) for an aggregate purchase price of $900,000 (with the same original issue discount as specified for the Investor Note and SOK Note) (the “Affiliate Convertible Notes Offering”).

Except for the maturity date of the Affiliate Notes and the expiration date of the Affiliate Warrants, the Affiliate Notes, the Affiliate Warrants, the Affiliate Securities Purchase Agreements and the registration rights agreement(s) to be entered into between the Company and the Affiliates, relating to the Affiliate Conversion Shares and Affiliate Warrant Shares, will have terms and conditions identical to that of the Investor Note, the Investor Warrant, the Investor Securities Purchase Agreement and the Investor Registration Rights Agreement (as defined below), respectively, which are described in greater detail below.

The Investor Security Purchase Agreement and the SOK Security Purchase Agreement are collectively referred to herein as the “Security Purchase Agreements.” The Investor Note and the SOK Note are collectively referred to herein as the “Notes.” The Investor Warrant and the SOK Warrant are collectively referred to herein as the “Warrants.” The Investor Securities and the SOK Securities are collectively referred to herein as the “Securities.” The Investor Convertible Notes Offering, the SOK Convertible Notes Offering, and the Affiliate Convertible Notes Offering are collectively referred to herein as the “Convertible Notes Offering.” The Investor Conversion Shares, SOK Conversion Shares, Affiliate Conversion Shares, Investor Warrant Shares, SOK Warrant Shares, and Affiliate Shares are collectively referred to herein as the “Additional Shares.” There is no guarantee that the Company will consummate the Affiliate Convertible Notes Offering as described or that such Affiliate Convertible Notes Offering will occur at all as described below.

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Convertible Notes

The Notes mature on July 23, 2015 (subject to extension as provided in the Notes) and, in addition to the approximately 22.2% original issue discount, accrues interest at a rate of 12.0% per annum. The Investor and SOK have no voting rights as the holders of the Notes. Upon conversion of the Notes, the holders are entitled to receive such dividends paid and distributions made to the holders of Common Stock from and after the initial issuance date of the Notes to the same extent as if the holders had effected such conversion and had held such shares of Common Stock on the record date for such dividends and distributions.

With respect to the Investor Note, $67,500 of the outstanding original principal amount of the Investor Note (together with any accrued and unpaid interest with respect to such portion of the principal amount and accrued and unpaid late charges with respect to such portion of the principal amount and such interest) will be automatically extinguished (without any cash payment by the Company) if (i) the Company has properly filed a registration statement covering the resale by the Investor of shares of the Common Stock issued or issuable upon conversion of the Investor Note with the Securities and Exchange Commission (the “SEC”), and such registration statement has been declared effective by the SEC on or prior to 120^th calendar day after the closing date of the Investor Convertible Notes Offering, and (ii) no event of default, or an event that with the passage of time or giving of notice would constitute an event of default, has occurred on or prior to such date.

With respect to the SOK Note, $13,500 of the outstanding original principal amount of the SOK Note (together with any accrued and unpaid interest with respect to such portion of the principal amount and accrued and unpaid late charges with respect to such portion of the principal amount and such interest) will be automatically extinguished (without any cash payment by the Company) if (i) the Company has properly filed a registration statement covering the resale by SOK of shares of the Common Stock issued or issuable upon conversion of the SOK Note with the SEC, and such registration statement has been declared effective by the SEC on or prior to 120^th calendar day after the closing date of the SOK Convertible Notes Offering, and (ii) no event of default, or an event that with the passage of time or giving of notice would constitute an event of default, has occurred on or prior to such date.

The Notes are convertible at any time after issuance, in whole or in part, at the Investor’s or SOK’s option, as the case may be, into shares of Common Stock, at a conversion price equal to the lesser of (i) the product of (x) the arithmetic average of the lowest three volume weighted average prices of the Common Stock during the ten consecutive trading days ending and including the trading day immediately preceding the applicable conversion date and (y) 72.5% (or if an event of default has occurred and is continuing, 70%), and (ii) $0.15 (as adjusted for stock splits, stock dividends, recapitalizations or similar events).

The Notes include customary events of default provisions. The Notes provides for a default interest rate of 15% per annum. Upon the occurrence of an event of default, the Investor or SOK, as the case may be, may require the Company to pay in cash the “Event of Default Redemption Price” which is defined in the Notes to mean the greater of (i) the product of (A) the amount to be redeemed multiplied by (B) 125% (or 100% if an insolvency related event of default) and (ii) the product of (X) the conversion price in effect at that time multiplied by (Y) the product of (1) 125% (or 100% if an insolvency related event of default) multiplied by (2) the greatest closing sale price of the Common Stock on any trading day during the period commencing on the date immediately preceding such event of default and ending on the date the Company makes the entire payment required to be made under this provision.

With respect to the Investor Note and the SOK Note, the Company has the right at any time to redeem, in whole or in part, the outstanding amount then remaining under such Note (the “Remaining Amount”) at a price equal to the greater of (i) 125% of the Remaining Amount and (ii) the product of (X) the conversion price in effect at that time multiplied by (Y) the product of (1) 135% multiplied by (2) the greatest closing sale price of the Common Stock on any trading day during the period commencing on the Company option redemption notice date and ending on the date immediately prior to the date that the Company makes the entire payment required to be made under this provision. The Company is also required to initially reserve 10 million shares of Common Stock, and will take all action necessary to reserve and keep available 150% of the number of shares of Common Stock as shall from time to time be necessary to effect the conversion of such portion of the Notes then outstanding.

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Warrants

The Warrants are exercisable on any day on or after the date of issuance and have an exercise price of $0.165 per share, subject to adjustment, and a term of five years from the date of issuance. With respect to the Investor Warrant, 225,000 Warrant Shares will be automatically extinguished (without any cash payment by the Company) if (i) the Company has properly filed a registration statement with the SEC that has been declared effective by the SEC on or prior to the earlier of (x) the 60^th calendar day after the closing of the offering (or the 120^th calendar day after the closing of the Investor Convertible Notes Offering in the event that such registration statement is subject to review by the SEC) and (y) the fifth trading day after the date the Company is notified by the SEC that such registration statement will not be reviewed or will not be subject to further review (such date, the “Warrant Shares Initial Effective Date”) and (ii) the prospectus contained therein is available for use by a holder for the resale by such holder of all of the shares of Common Stock issued or issuable upon exercise of the Investor Warrant or otherwise pursuant to the terms of the Investor Warrant as of the Warrant Shares Initial Effective Date.

With respect to the SOK Warrant, 45,000 Warrant Shares will be automatically extinguished (without any cash payment by the Company) if (i) the Company has properly filed a registration statement with the SEC that has been declared effective by the SEC on or prior to the earlier of (x) the 60^th calendar day after the closing of the offering (or the 120^th calendar day after the closing of the SOK Convertible Notes Offering in the event that such registration statement is subject to review by the SEC) and (y) the Warrant Shares Initial Effective Date and (ii) the prospectus contained therein is available for use by a holder for the resale by such holder of all of the shares of Common Stock issued or issuable upon exercise of the SOK Warrant or otherwise pursuant to the terms of the SOK Warrant as of the Warrant Shares Initial Effective Date.

The Investor and SOK, will not be entitled, by virtue of being holders of the Warrants, to vote, to consent, to receive dividends, to receive notice as shareholders with respect to any meeting of shareholders for the election of the Company’s directors or any other matter, or to exercise any rights whatsoever as our shareholders. If, however, the Company decides to declare a dividend or make distributions of its assets (the “Distribution”), the Investor and SOK will be entitled to such Distribution to the same extend that the Investor and SOK would have participated therein if the Investor or SOK had held the number of share of Common Stock acquirable upon complete exercise of the Warrants.

At any time commencing on the earliest to occur of (x) the public disclosure of any change of control, (y) the consummation of any change of control and (z) the Investor or SOK first becoming aware of any change of control through the date that is ninety (90) days after the public disclosure of the consummation of such change of control by the Company pursuant to a Current Report on Form 8-K filed with the SEC, the Company or the successor entity (as the case may be) may have to purchase the Warrants from the Investor and SOK in an amount equal to the Black Scholes Value (as defined in the Warrants).

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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 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.

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.

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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 2013 the Company experienced significant exercises of options and warrants.  The options raised $6,500 in capital. Warrants exercised for cash produced $1,330,000 of capital. 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.

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 original STREAMWAY product patent of $140,588 in June 2013. The balance represented intellectual property in the form of patents for our original STREAMWAY product. The Company’s enhanced STREAMWAY product has a new patent pending, see “Patents and Intellectual Property”.

34

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:

· Inability to raise sufficient additional capital to operate our business;

· 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 Skyline 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 and elsewhere our Annual Report on Form 10-K for the year ended December 31, 2013.  These cautionary statements qualify all forward-looking statements attributable to the Company or persons acting on its behalf.

Information regarding market and industry statistics contained in this report is included based on information available to the Company that it believes is accurate.  It is generally based on academic and other publications that are not produced for purposes of securities offerings or economic analysis.  The Company has not reviewed or included data from all sources, and the Company cannot assure potential investors of the accuracy or completeness of the data included in this report.  Forecasts and other forward-looking information obtained from these sources are subject to the same qualifications and the additional uncertainties accompanying any estimates of future market size, revenue and market acceptance of products and services.  The Company has no obligation to update forward-looking information to reflect actual results or changes in assumptions or other factors that could affect those statements.

35

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

Not required.

ITEM 4. Controls 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 June 30, 2014.

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 six months ended June 30, 2014 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

On July 17, 2014, Skyline Medical Inc. (the “Company”) and a stockholder entered into a settlement agreement and release (the “Settlement Agreement”) with Marshall Ryan (“Ryan”) and a company related to Ryan (together, the “Plaintiffs”). The settlement relates to a previously disclosed lawsuit by the Plaintiffs initiated in March 2014. Ryan is an engineer who previously worked with the Company on design of certain of the Company’s products. The lawsuit alleged among other things, breach of a 2008 consulting agreement, a 2006 manufacturing agreement and a 2006 supply agreement among the Plaintiffs and the Company, various claims of fraud and negligent misrepresentation, and breach of the duty of good faith and fair dealing.

Under the Settlement Agreement, the parties have agreed that the lawsuit will be dismissed. The Company has agreed to pay Ryan an aggregate of $500,000 in various cash installments through April 25, 2015, which amount includes $200,000 in installments that are payable during the remainder of 2014. The Settlement Agreement, among other things, extinguishes any prior claims of Plaintiffs for royalties or other alleged rights to payments under their prior agreements with the Company. Payment of the outstanding balance under the Settlement Agreement will be accelerated if the Company raises $2 million or more of gross dollars in a single funding round or raises aggregate funding of $4 million of gross dollars on or before April 10, 2015. If the Company defaults on the required cash payments and fails to cure as provided in the Settlement Agreement, then Ryan will have the option to either sue Skyline to enforce the Settlement Agreement or rescind the Settlement Agreement, including returning all payments previously made thereunder.

The Settlement Agreement also contains mutual releases covering claims other than a breach of the Settlement Agreement. In the Settlement Agreement, Ryan fully, unconditionally and irrevocably affirms and ratifies the Company’s rights to Ryan’s prior patent assignments, and disclaims any right, title or interest in the Company’s Streamway product including any rights to royalties both past and future. In addition, the parties confirmed that the patents related to the Streamway product belong exclusively to Skyline and remain in full force and effect. *

ITEM 1A. Risk Factors

In addition to the other information set forth in the 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, 2013. 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, 2013 with the exception of the amendment and replacement of the first risk factor below.

36

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 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 future cash requirements and the adequacy of available funds depend on our ability to sell our products. See “Plan of Financing; Going Concern Qualification” below.

In February 2014, we raised $2.0 million in gross proceeds from our private placement of convertible preferred stock and warrants.  In July 2014, we sold convertible notes and warrants for an aggregate purchase price of $0.6 million. We may enter into purchase agreements for further sales of convertible notes and warrants.

We expect that we will need further equity financing to maintain our operations, including further sales of convertible notes and warrants and possibly other financing. If such 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.

Based on our current operating plan we believe that we have sufficient cash, cash equivalents and short-term investment balances to last approximately through September 30, 2014 after which additional financing will be needed to continue to satisfy our obligations. While holders of our warrants could exercise and provide cash to us during that time frame, we are not depending on that in our fundraising efforts. We commenced sales of our enhanced STREAMWAY in the first quarter of 2014. Sales of this product are expected to provide additional operating revenues and cash balances that could reduce the need for additional fundraising; however, cash collections for product sales are not immediate, which may result in a delay in positive operating cash flows over the next several quarters.

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, 2013, 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.

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

The following is a summary of our transactions since January 1, 2014 involving sales of our securities that were not registered under the Securities Act:

In January 2014 a warrant holder opted for a cashless warrant exercise resulting in issuing 129,630 shares of common stock pursuant to the warrant instruction for cashless exercise.

On January 6, 2014, the Company issued 325,187 shares of common stock to the former CEO exercising stock options with an exercise price of $.01.

In January 2014 a vendor received 150,000 shares of common stock at $.275 per share in payment for public relations services.

In January 2014 a warrant holder opted for a cashless warrant exercise resulting in issuing 249,252 shares of common stock pursuant to the warrant instruction for cashless exercise.

In January 2014 a vendor exercised a portion of options received in payment for executive placement. He received 20,000 shares of common stock at $.07 per share.

37

On February 4, 2014 the Company issued 20,550 shares of Series A Convertible Preferred Stock, par value $.01, and warrants to acquire an aggregate of approximately 1,600,000 shares of common stock to the Purchasers as described in Note 3 to the Financial Statements. The preferred shares are convertible into shares of common stock at an initial conversion price of $.26 per share of common stock. The warrants are exercisable at an exercise price of $.325 per share and expire five years from the closing date. The Company received gross proceeds of $2,055,000, before offering expenses.

In February 2014 two warrant holders opted for a cashless warrant exercise resulting in issuing 163,062 shares of common stock pursuant to the warrant instruction for cashless exercise.

In February 2014 a warrant holder exercised his warrant resulting in issuing 200,000 shares of common stock at an exercise price of $.18 per share for $36,000.

In February 2014 the Company issued 100,000 shares of common stock at $.25 per share to a vendor as part of a contract for investor relations consulting.

In February 2014, as a result of completing payments for the first of three years pursuant to a settlement agreement, 1,000,000 shares of common stock held in escrow was canceled and reissued for 666,667 shares. The shares held in escrow will reduce by 333,333 shares in February 2015 and then again for the remaining 333,334 shares in February 2016 as the settlement is paid without default.

In March 2014 four warrant holders opted for a cashless warrant exercise resulting in issuing 616,187 shares of common stock pursuant to the warrant instruction for cashless exercise.

On March 31, 2014, the Company issued dividends to the holders of Preferred Shares in the form of common stock per a stipulated $.26 per share. As a result 72,760 shares of common stock were issued to the Preferred Holders.

In April 2014, SOK Partners transferred 1,500,000 shares of common stock, par value $.01, to six shareholders. Two of the recipients, Frank Mancuso and Arnon Dreyfuss are affiliates of the Company currently serving on the Board of Directors. Mr. Mancuso received 250,000 shares and Dr. Dreyfuss received 500,000 shares.

In May 2014, the Company issued 160,000 shares of common stock at $.15 per share to a vendor as part of a contract for investor relations consulting.

In May 2014, the Company issued 100,000 shares of common stock at $.25 per share to a vendor as part of a contract for investor relations consulting.

In May 2014, a warrant holder opted for a cashless warrant exercise resulting in issuing 279,366 shares of common stock pursuant to the warrant instruction for cashless exercise.

On June 30, 2014, the Company issued dividends to the holders of Preferred Shares in the form of common stock per a stipulated $.26 per share. As a result 116,934 shares of common stock were issued to the Preferred Holders.

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.

38

ITEM 5. Other Information

None.

Item 6. Exhibits

See the attached exhibit index.

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: August 8, 2014	By:	/s/ Joshua Kornberg
		Joshua Kornberg
		President and  Chief Executive Officer

Date: August 8, 2014	By:	/s/ Bob Myers
		Bob Myers
		Chief Financial Officer

39

EXHIBIT INDEX

SKYLINE MEDICAL INC.

Form 10-Q

The quarterly period ended June 30, 2014

Exhibit No.	Description
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.

40

EX-31.1

Exhibit 31.1

CERTIFICATION

PURSUANT TO SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

I, Joshua Kornberg, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Skyline Medical Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principals;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 8, 2014	/s/ Joshua Kornberg
	Joshua Kornberg
	President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

PURSUANT TO SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

I, Bob Myers, certify that:

1. I have reviewed the quarterly report on Form 10-Q of Skyline Medical Inc.;

2. Based on my knowledge, this report does not contain any untrue statements of a material fact or omit to state a material fact necessary to make the statements in light of the circumstances under which some statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principals;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report( that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date August 8, 2014	/s/ Bob Myers
	Bob Myers
	Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Skyline Medical Inc. (the “Company”) for the quarter ended June 30, 2014 as filed with the Securities and Exchange Commission (the “Report”), I, Joshua Kornberg, Chief Executive Officer (Principal Executive Officer) and, I, Bob Myers, Chief Financial Officer (Principal Financial Officer) of the Company, hereby certify as of the date hereof, solely for purposes of § 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. § 1350, that to the best of my knowledge:

(1)      The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and

(2)       The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

Date: August 8, 2014	/s/ Joshua Kornberg
	Joshua Kornberg
	Chief Executive Officer

Date: August 8, 2014	/s/ Bob Myers
	Bob Myers
	Chief Financial Officer

XML

RENT OBLIGATION (Details Textual) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Property Subject to or Available for Operating Lease [Line Items]
Operating Leases, Rent Expense	$ 15,447	$ 15,173	$ 33,056	$ 35,159
Lease Expiration Date			Jan. 31, 2018
Lessee Leasing Arrangements, Operating Leases, Term of Contract			5 years

XML

Supplemental Cash Flow Data (Details Textual) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Schedule Of Cash Flow Supplemental Disclosures [Line Items]
Interest Paid, Total	$ 3,468	$ 15,522	$ 21,606	$ 41,930

XML

STOCKHOLDERS' DEFICIT, STOCK OPTIONS AND WARRANTS (Details Textual) (USD $)	1 Months Ended						2 Months Ended		3 Months Ended	6 Months Ended		12 Months Ended										6 Months Ended		1 Months Ended		6 Months Ended	1 Months Ended	2 Months Ended			2 Months Ended	1 Months Ended		6 Months Ended	12 Months Ended		0 Months Ended	3 Months Ended	0 Months Ended	1 Months Ended	146 Months Ended	1 Months Ended	6 Months Ended		12 Months Ended	2 Months Ended	1 Months Ended			6 Months Ended	12 Months Ended		6 Months Ended	12 Months Ended			6 Months Ended		12 Months Ended	6 Months Ended	12 Months Ended			6 Months Ended		12 Months Ended
	Mar. 31, 2014	Feb. 28, 2014	May 31, 2013	Apr. 30, 2013	Jan. 31, 2013	Nov. 30, 2012	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2014	Jun. 30, 2014	Jun. 30, 2013	Mar. 31, 2014	Dec. 31, 2009	Aug. 04, 2014	Dec. 31, 2013	Oct. 31, 2013	Sep. 11, 2013	Jan. 15, 2013	Mar. 28, 2012	Sep. 07, 2011	Jun. 22, 2010	Jun. 30, 2014 SOK Partners, LLC, [Member]	Feb. 28, 2014 Dr.Samuel Herschowitz [Member]	Jan. 31, 2014 CEO [Member]	Apr. 30, 2013 CEO [Member]	Jun. 30, 2014 CEO [Member]	Jan. 31, 2013 Private Placement [Member]	Jun. 30, 2013 Private Placement [Member]	Mar. 31, 2013 Private Placement [Member]	Mar. 15, 2013 Private Placement [Member]	Jun. 30, 2013 Private Placement 2 [Member]	Apr. 30, 2013 Consultant [Member]	Jan. 31, 2013 Consultant [Member]	Jun. 30, 2014 Warrant [Member]	Dec. 31, 2013 Warrant [Member]	Jun. 30, 2014 Warrant [Member] SOK Partners, LLC, [Member]	Mar. 15, 2013 Warrant [Member] Private Placement [Member]	Mar. 31, 2013 Warrant [Member] Private Placement [Member]	Mar. 15, 2013 Warrant [Member] Private Placement 2 [Member]	Feb. 28, 2014 Series A Convertible Preferred Stock [Member]	Jun. 30, 2014 Series A Convertible Preferred Stock [Member]	Mar. 31, 2014 Warrant Holder [Member]	Jun. 30, 2014 Warrant Holder [Member]	Jun. 30, 2014 Preferred Holder [Member]	Mar. 31, 2014 Preferred Holder [Member]	Sep. 30, 2013 Twenty Four Warrant Holders [Member]	Oct. 31, 2013 One Warrant Holder [Member]	Sep. 10, 2013 Stock Incentive Plan 2012 [Member]	Apr. 15, 2013 Stock Incentive Plan 2012 [Member]	Jun. 30, 2014 Stock Options and Warrants [Member]	Dec. 31, 2013 Stock Options and Warrants One [Member]	Dec. 31, 2013 Stock Options and Warrants Two [Member]	Jun. 30, 2014 Minimum [Member]	Dec. 31, 2013 Minimum [Member]	Sep. 30, 2013 Minimum [Member]	Sep. 10, 2013 Minimum [Member]	Jun. 30, 2014 Minimum [Member] Warrant [Member]	Jun. 30, 2014 Minimum [Member] Stock Options and Warrants [Member]	Dec. 31, 2013 Minimum [Member] Stock Options and Warrants [Member]	Jun. 30, 2014 Maximum [Member]	Dec. 31, 2013 Maximum [Member]	Sep. 30, 2013 Maximum [Member]	Sep. 10, 2013 Maximum [Member]	Jun. 30, 2014 Maximum [Member] Warrant [Member]	Jun. 30, 2014 Maximum [Member] Stock Options and Warrants [Member]	Dec. 31, 2013 Maximum [Member] Stock Options and Warrants [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Weighted Average Remaining Life													2 years 6 months																																						5 years	10 years	2 years					5 years		6 years 6 months					10 years
Share-Based Compensation Arrangement By Share-Based Payment Award, Fair Value Assumptions, Expected Dividend Rate										0.00%																																								0.00%	0.00%
Share-Based Compensation Arrangement By Share-Based Payment Award, Fair Value Assumptions, Expected Volatility Rate, Minimum																																																		59.00%
Share-Based Compensation Arrangement By Share-Based Payment Award, Fair Value Assumptions, Expected Volatility Rate, Maximum																																																		66.00%
Issued - Average Exercise Price																																		$ 0.27	$ 0.12																			$ 0.119			$ 0.01	$ 0.0586			$ 0.242			$ 0.769	$ 0.1837
Share-Based Compensation Arrangement By Share-Based Payment Award, Fair Value Assumptions, Volatility Description										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.
Amortization of debt discount								$ 275,640		$ 0	$ 92,538
Debt Instrument Convertible Remaining Discount Amortization Period 1					12 months	6 months
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Risk Free Interest Rate													1.37%																																													1.44%	0.78%						2.75%	2.04%
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Volatility Rate										59.00%			63.00%																																						59.00%	66.00%
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Outstanding, Number																						31,341,741
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Outstanding, Weighted Average Exercise Price										$ 0.10
Share-Based Compensation Arrangement By Share-Based Payment Award, Options, Vested and Expected To Vest, Outstanding, Weighted Average Remaining Contractual Term 1																						8 years 9 months 14 days
Share-based Compensation Expense											1,378,541											352,762
Employee Service Share-Based Compensation, Nonvested Awards, Total Compensation Cost Not Yet Recognized, Stock Options										259,398
Employee Service Share Based Compensation Nonvested Awards Total Compensation Cost Not Yet Recognized Period For Recognition 1										18 months
Common stock, shares authorized										800,000,000					800,000,000			300,000,000		200,000,000	80,000,000																											100,000,000	50,000,000							300,000,000							800,000,000
Debt Instrument, Face Amount						156,243																					300,000	1,000,000
Convertible Notes Converted Into Common Stock			1,116,084		2,500,000																						2,500,000	6,000,000			4,611,111
Debt Instrument, Convertible, Conversion Price				$ 0.10	$ 0.12												$ 0.014		$ 0.065								$ 0.15
Accumulated discounts on current portion of convertible debt (in dollars)					77,644					46,072					0																			23,876
Debt Instrument, Convertible, Effective Interest Rate										24.00%																	8.00%	8.00%
Shares Grants Increase For Threshold																																																	20,000,000
Shares issued under PPM to five investors at $.07 per share (in shares)																																							3,571,429
Common stock, par value (in dollars per share)			$ 0.01							$ 0.01					$ 0.01															$ 0.01
Shares Issued, Price Per Share																													$ 0.07	$ 0.07
Warrants Term																											5 years	5 years
Class of Warrant or Right, Exercise Price of Warrants or Rights		$ 0.325	$ 0.10				$ 0.10	$ 0.18		$ 0.325	$ 0.18					$ 0.25							$ 0.27								$ 0.198					$ 0.165	$ 0.08	$ 0.15	$ 0.15																$ 0.15							$ 0.46
Class of Warrant or Right, Number of Securities Called by Warrants or Rights		1,600,000						444,444		1,615,383	444,444			4,615,385									111,111						7,142,857	7,142,858						407,318	7,142,858	7,142,857
Interest Payable						11,169
Stock Issued During Period, Value, New Issues																																					500,000	500,000		2,055,000	2,055,000
Stock Issued During Period, Shares, New Issues			357,163	1,041,622																																				20,550
Share-based Compensation Arrangements by Share-based Payment Award, Options, Exercises in Period, Weighted Average Exercise Price																								$ 0.0167	$ 0.01	$ 0.15						$ 0.01		$ 0.13	$ 0.11												$ 0.125
Stock Issued During Period, Value, Stock Options Exercised																																														$ 1,044,490	$ 125,000
Issuance of net exercise provision shares							6,533,788
Preferred Stock Conversion Price, Per Share																																								$ 0.26
Warrants Expiration										five years
Percentage Of Additional Warrants Issued To Purchase Common Stock		30.00%
Convertible Preferred Stock, Terms of Conversion										Preferred Shares are convertible at the option of the holder into the number of shares of Common Stock determined by dividing the stated value of the Preferred Shares being converted by the conversion price of $0.26, subject to adjustment for stock splits, reverse stock splits and similar recapitalization events. If the Company issues additional shares of Common Stock, other than certain stock that is excluded under the terms of the Securities Purchase Agreement, in one or more capital raising transactions with an aggregate purchase price of at least $100,000 for a price less than the then existing conversion price for the Preferred Shares (the New Issuance Price), then the then existing conversion price shall be reduced to the New Issuance Price, provided, however, that under no circumstances shall the New Issuance Price be less than $0.13 or reduced to a price level that would be in breach of the listing rules of any stock exchange
Beneficial Ownership Limitation, Percentage										4.99%
Preferred Shareholders, Receivable, Upon Any Liquidation, Description										an amount equal to $2,055,000 times 1.2, plus all declared but unpaid dividends
Cashless Exercise Of Common Stock Warrants Total									1,158,131
Stock Issued During Period, Shares, Conversion of Convertible Securities																																												116,934	72,760
Cashless Exercise Of Common Stock Shares Issued	250,000
Conversion Of Stock Price Per Share										$ 0.26		$ 0.26
Preferred Stock, Dividend Rate, Percentage	6.00%									6.00%		6.00%
Share-Based Compensation Arrangement By Share-Based Payment Award, Options, Exercises In Period																								325,187	333,330							200,000	200,000	2,220,831	17,901,127							333,334	279,366			10,444,898

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LIABILITY FOR EQUITY-LINKED FINANCIAL INSTRUMENTS (Tables)

6 Months Ended

Jun. 30, 2014

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Disclosure of Share-based Compensation Arrangements by Share-based Payment Award [Table Text Block]

The inputs to the Black-Scholes model during 2009 through 2014 were as follows:

Stock price	$ .06 to $.50
Exercise price	$ .01 to $.325
Expected life	2.0 to 6.5 years
Expected volatility	59%
Assumed dividend rate	- %
Risk-free interest rate	.13% to 2.97%

Schedule of Stockholders' Equity Note, Warrants or Rights [Table Text Block]

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

													Value at		2012 Gain		Value		2013 Gain		Value		2014 Gain		Value at
	Initial Value		Annual Gain (Loss)		Value at 12/31/09		2010 Gain (Loss)		Value at 12/31/10		2011 Gain (Loss)		12/31/2011		(Loss)		at 12/31/2012		(Loss)		at 12/31/2013		(Loss)		6/30/2014
January 1, 2009 adoption	$	479,910	$	(390,368)	$	870,278	$	868,772	$	1,506	$	(88,290)	$	89,796	$	(21,856)	$	111,652	$	100,053	$	11,599	$	11,469	$	130
Warrants issued in quarter ended 6/30/2009		169,854		20,847		149,007		147,403		1,604		(4,689)		6,293		6,293		-		-		-		-		-
Warrants issued in quarter ended 9/30/2009		39,743		(738)		40,481		40,419		62		(1,562)		1,624		910		714		714		-		-		-
Warrants issued in quarter ended 12/31/2009		12,698		617		12,081		12,053		28		(724)		752		415		337		337		-		-		-
Subtotal		702,205				1,071,847
Warrants issued in quarter ended 3/31/2010		25,553						25,014		539		(5,570)		6,109		3,701		2,408		2,408		-		-		-
Warrants issued in quarter ended 6/30/2010		31,332						30,740		592		(6,122)		6,714		6,083		631		631		-		-		-
Warrants issued in quarter ended 9/30/2010		31,506						20,891		10,615		(44,160)		54,775		1,338		53,437		53,437		-		-		-
Total	$	790,596	$	(369,642)	$	1,071,847	$	1,145,292	$	14,946	$	(151,117)	$	166,063	$	(3,116)	$	169,179	$	157,580	$	11,599	$	11,469	$	130

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LIABILITY FOR EQUITY-LINKED FINANCIAL INSTRUMENTS (Details Textual) (USD $)	6 Months Ended	12 Months Ended			6 Months Ended	12 Months Ended	6 Months Ended	12 Months Ended
	Jun. 30, 2014	Dec. 31, 2009	Dec. 31, 2013	Jan. 02, 2009	Jun. 30, 2014 Minimum [Member]	Dec. 31, 2010 Minimum [Member]	Jun. 30, 2014 Maximum [Member]	Dec. 31, 2010 Maximum [Member]
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Warrants Not Settleable In Cash, Fair Value Disclosure				$ 479,910
Weighted Average Remaining Life		2 years 6 months			2 years		6 years 6 months
Reduction In Stock Price						$ 0.22		$ 0.50
Additional Paid in Capital				486,564
Retained Earnings (Accumulated Deficit)				6,654
Total Current Liabilities	$ 3,905,940		$ 3,469,065	$ 479,910
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Volatility Rate	59.00%	63.00%
Share Based Compensation Arrangement By Share Based Payment Award Fair Value Assumptions Exercise Price		$ 0.46			$ 0.01		$ 0.325
Share Based Compensation Arrangement By Share Based Payment Award Fair Value Assumptions Stock Price		$ 0.35			$ 0.06		$ 0.50
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Risk Free Interest Rate		1.37%

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INCOME TAXES (Details Textual) (USD $) In Millions, unless otherwise specified	6 Months Ended
	Jun. 30, 2014
Tax Credit Carryforward [Line Items]
Valuation Allowance Percentage	100.00%
Operating Loss Carryforwards, Expiration Date	Dec. 31, 2022
Domestic Tax Authority [Member]
Tax Credit Carryforward [Line Items]
Operating Loss Carryforwards	$ 16.0
Operating Loss Carryforwards, Valuation Allowance	7.1
Operating Loss Carryforwards, Expiration Period	beginning in 2022
State and Local Jurisdiction [Member]
Tax Credit Carryforward [Line Items]
Operating Loss Carryforwards	17.1
Operating Loss Carryforwards, Valuation Allowance	$ 1.5
Operating Loss Carryforwards, Expiration Period	2022 through 2034

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DEVELOPMENT STAGE OPERATIONS

6 Months Ended

Jun. 30, 2014

Development Stage Enterprises [Abstract]

Development Stage Enterprise General Disclosures [Text Block]

NOTE 2 – DEVELOPMENT STAGE OPERATIONS

The Company was formed April 23, 2002. Since inception to August 4, 2014, 222,975,766  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.

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RELATED PARTY TRANSACTIONS (Details Textual) (USD $)	1 Months Ended							3 Months Ended	6 Months Ended	12 Months Ended								6 Months Ended					0 Months Ended	1 Months Ended					1 Months Ended		0 Months Ended	1 Months Ended			1 Months Ended			1 Months Ended		1 Months Ended			1 Months Ended	3 Months Ended		1 Months Ended
	May 31, 2013	Apr. 30, 2013	Nov. 30, 2012	Aug. 31, 2012	Jun. 30, 2012	Apr. 30, 2012	Mar. 31, 2012	Sep. 30, 2013	Jun. 30, 2014	Dec. 31, 2012	Aug. 04, 2014	Feb. 28, 2014	Sep. 11, 2013	Jun. 30, 2013	Jan. 31, 2013	Mar. 28, 2012	Dec. 31, 2008	Jun. 30, 2013 Minimum [Member]	Jun. 30, 2013 Maximum [Member]	Mar. 28, 2012 First Advance [Member]	Mar. 28, 2012 Second Advance [Member]	Dec. 31, 2008 Related Party [Member]	Sep. 11, 2013 Samuel Herschkowitz [Member]	Aug. 31, 2012 Samuel Herschkowitz [Member]	Apr. 30, 2012 Samuel Herschkowitz [Member]	Dec. 31, 2013 Samuel Herschkowitz [Member] Non-Convertible Grid Note [Member]	Apr. 30, 2012 Samuel Herschkowitz [Member] Minimum [Member]	Aug. 15, 2012 Samuel Herschkowitz [Member] Minimum [Member]	Apr. 30, 2012 Samuel Herschkowitz [Member] Maximum [Member]	Aug. 15, 2012 Samuel Herschkowitz [Member] Maximum [Member]	Sep. 11, 2013 Sok Partners [Member]	May 31, 2012 Sok Partners [Member]	Mar. 31, 2012 Sok Partners [Member]	Dec. 31, 2012 Sok Partners [Member]	Jan. 31, 2014 Sok Partners [Member] Non-Convertible Grid Note [Member]	Dec. 31, 2013 Sok Partners [Member] Non-Convertible Grid Note [Member]	Jun. 30, 2014 Sok Partners [Member] Non-Convertible Grid Note [Member]	Jan. 31, 2014 Sok Partners [Member] Non-Convertible Grid Note [Member] Subsequent Event [Member]	Feb. 28, 2014 Sok Partners [Member] Non-Convertible Grid Note [Member] Subsequent Event [Member]	Mar. 31, 2012 Sok Partners [Member] Minimum [Member]	Mar. 31, 2012 Sok Partners [Member] Maximum [Member]	Mar. 14, 2012 Sok Partners [Member] Common Stock [Member]	Mar. 31, 2012 Dr Herschkowitz and Sok Partners Llc [Member]	Sep. 30, 2013 Gadbaw [Member]	Sep. 30, 2013 Morawetz [Member]	Jul. 31, 2014 SOK Partners, LLC, [Member] Subsequent Event [Member]	Jun. 30, 2012 Board of Directors Chairman [Member]	Jun. 30, 2012 Director [Member]	Feb. 28, 2014 Chief Executive Officer [Member] Preferred Stock [Member]	Feb. 04, 2014 Chief Executive Officer [Member] Common Stock [Member]
Related Party Transaction [Line Items]
Payments Made To Officers One																																															$ 25,000
Proceeds from Issuance or Sale of Equity										3,000,000
Payments Made To Officers Two																																																30,000
Related Party Transaction, Due from (to) Related Party																	2,000					46,000
Converible Note Percentage			20.00%	20.00%			20.00%
Converible Note Principal Amount			156,243	600,000			240,000
Notes Payable, Total																																		357,282					305,589.04
Debt Instrument, Convertible, Effective Interest Rate									24.00%																												10.00%
Advance Under Note																				300,000	84,657											300,000	300,000
Cash Advance Net Of Interest																60,000
Debt Instrument, Convertible, Conversion Price		$ 0.10											$ 0.014		$ 0.12	$ 0.065												$ 0.014		$ 0.065
Stock Issued During Period, Shares, Conversion of Units																																4,615,385	4,615,385
Stock Issued During Period, Value, Conversion of Units							600,000
Stock Issued During Period, Shares, Other							1,546,667
Stock Transferred During Period						7,500,000
Shares Issued Related Party Transactions One					277,778
Price Per Share Related Party Transactions					$ 0.09
Compensation Issued In Lieu Of Cash					25,000
Warrants Shares Related Party Transactions					30,000
Warrants Price Per Share Related Party Transactions					$ 0.15
Shares Issued Related Party Transactions Two																								26,500,000
Shares Issued Related Party Transactions Three			1,562,430
Proceeds from Related Party Debt			155,000
Convertible Note Due Date		Aug. 31, 2013
Related Party Transaction, Description of Transaction									(i) financing raising not less than $1 million, compensation of $75,000; (ii) a going private transaction, compensation of $200,000 or greater 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.
Equity Bonus Valued At Common Stock Rate																																								$ 0.014	$ 0.065
Additional Issue Of Common Stock Shares																																										16,000,000
Stock Issued During Period Shares New Issues	357,163	1,041,622																							7,500,000								13,250,000										13,250,000						25,000
Percentage Of Interest Rate On Event Of Default																											20.00%		24.00%
Percentage Of Accrued Interest																									20.00%
Proceeds From Offering Of Securities																		2,000,000	4,000,000
Compensation Payment Pursuant To Merger									listing the Companys shares on NASDAQ pursuant to an underwritten offering of the Companys securities resulting in gross proceeds of between $5 million and $30 million, then the Company would have to be 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.
Common Shares received on resignation																																												50,000	50,000
Common shares received per share on resignation								$ 0.325
Compensation received from serving as board members								20,000
Issuance of shares to satisy previous contractual agreements								30,000
Debt Instrument, Periodic Payment																							314,484								680,444
Conversion of Stock, Shares Converted																							22,463,172								48,603,721
Proceeds from Notes Payable																																			20,000	300,000
Debt Instrument, Maturity Date																																				Feb. 28, 2014
Debt Instrument, Interest Rate, Effective Percentage									24.00%																												10.00%
Percentage Of Gross Proceeds Received In Advance																										10.00%
Amount Received In Three Tranches																																				250,000
Percentage Of Increase In Interest In Case Of Default																																						20.00%
Stock Issued During Period, Value, New Issues																																																	$ 19,231
Class of Warrant or Right, Number of Securities Called by Warrants or Rights									1,615,383		4,615,385	1,600,000		444,444																																				3,846
Securities Purchase Agreement Terms																																														(i) a senior convertible note, in an original principal amount of $122,195.60 (the SOK Note), which SOK Note shall be convertible into a certain amount of shares (the SOK Conversion Shares) of Common Stock, in accordance with the terms of the SOK Note, and (ii) a warrant (the SOK Warrant) to initially acquire up to 407,318 additional shares of Common Stock (the SOK Warrant Shares, and collectively with the SOK Note, the SOK Warrant and the SOK Conversion Shares, the SOK Securities) for an aggregate purchase price of $100,000 (an approximately 22.2% original issue discount) (the SOK Convertible Notes Offering).

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DEVELOPMENT STAGE OPERATIONS (Details Textual) (USD $)	147 Months Ended
	Aug. 04, 2014
Development stage operation [Line Items]
Common Stock, Shares, Issued	222,975,766
Equity Issuance Per Share Amount	$ 1.67

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Textual) (USD $)	3 Months Ended		6 Months Ended		12 Months Ended	146 Months Ended	6 Months Ended					1 Months Ended	146 Months Ended	1 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013	Dec. 31, 2013	Jun. 30, 2014	Jun. 30, 2014 Computers and office equipment [Member] Minimum [Member]	Jun. 30, 2014 Computers and office equipment [Member] Maximum [Member]	Jun. 30, 2014 Leasehold Improvements [Member]	Jun. 30, 2014 Manufacturing Tooling [Member] Minimum [Member]	Jun. 30, 2014 Manufacturing Tooling [Member] Maximum [Member]	Feb. 28, 2014 Series A Convertible Preferred Stock [Member]	Jun. 30, 2014 Series A Convertible Preferred Stock [Member]	Jul. 31, 2014 Subsequent Event [Member] SOK Partners, LLC, [Member]	Jul. 31, 2014 Subsequent Event [Member] Investor [Member]
Summary Of Significant Accounting Policy [Line Items]
Stockholders' Equity, Period Increase (Decrease)						$ 9,104,000
Debt Instrument, Increase (Decrease) for Period, Net						4,060,000
Research and Development Expense	131,285	75,264	249,636	133,541
Amortization of Intangible Assets					140,588
Property, Plant and Equipment, Useful Life							3 years	7 years	5 years	3 years	7 years
Stock Issued During Period, Value, New Issues												2,055,000	2,055,000
Advertising Expense	$ 1,250	$ 0	$ 7,793	$ 0
Securities Purchase Agreement Terms														(i) a senior convertible note, in an original principal amount of $122,196 (the SOK Note), which SOK Note shall be convertible into a certain amount of shares (the SOK Conversion Shares) of Common Stock, in accordance with the terms of the SOK Note, and (ii) a warrant (the SOK Warrant) to initially acquire up to 407,318 additional shares of Common Stock (the SOK Warrant Shares, and collectively with the SOK Note, the SOK Warrant and the SOK Conversion Shares, the SOK Securities). The aggregate purchase price was $100,000 (an approximately 22.2% original issue discount) (the SOK Convertible Notes Offering).	(i) a senior convertible note, in an original principal amount of $610,978 (the Investor Note), which Investor Note shall be convertible into a certain amount of shares (the Investor Conversion Shares) of the Companys common stock, par value $0.01 (the Common Stock), in accordance with the terms of the Investor Note, and (ii) a warrant (the Investor Warrant) to initially acquire up to 2,036,593 additional shares of Common Stock (the Investor Warrant Shares, and collectively with the Investor Note, the Investor Warrant and the Investor Conversion Shares, the Investor Securities).The aggregate purchase price was $500,000 (an approximately 22.2% original issue discount) (the Investor Convertible Notes Offering).

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Retirement Savings Plan (Details Textual) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]
Defined Contribution Plan, Employer Matching Contribution, Percent of Match			100.00%
Defined Contribution Plan, Maximum Annual Contributions Per Employee, Percent			4.00%
Defined Contribution Plan, Employer Discretionary Contribution Amount	$ 8,171	$ 12,304	$ 15,494	$ 18,097

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STOCKHOLDERS' DEFICIT, STOCK OPTIONS AND WARRANTS (Details) (USD $)	6 Months Ended	12 Months Ended
	Jun. 30, 2014	Dec. 31, 2013
Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Outstanding Number Of Shares	28,929,398	12,663,566
Issued - Number of Shares	5,115,061	17,986,157
Expired - Number of Shares	(495,768)	(1,159,995)
Exercised - Number of shares	(345,187)	(560,330)
Outstanding Number Of Shares	33,203,504	28,929,398
Outstanding - Average Exercise Price	$ 0.09	$ 0.09
Issued - Average Exercise Price	$ 0.11	$ 0.09
Expired - Average Exercise Price	$ 0.34	$ 0.24
Exercised - Average Exercise Price	$ 0.02	$ 0.01
Outstanding - Average Exercise Price	$ 0.10	$ 0.09
Warrant [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Outstanding Number Of Shares	34,643,829	35,132,136
Issued - Number of Shares	2,133,812	25,739,682
Expired - Number of Shares	(4,171,733)	(8,326,862)
Exercised - Number of shares	(2,220,831)	(17,901,127)
Outstanding Number Of Shares	30,385,077	34,643,829
Outstanding - Average Exercise Price	$ 0.14	$ 0.13
Issued - Average Exercise Price	$ 0.27	$ 0.12
Expired - Average Exercise Price	$ 0.16	$ 0.18
Exercised - Average Exercise Price	$ 0.13	$ 0.11
Outstanding - Average Exercise Price	$ 0.15	$ 0.14

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STOCKHOLDERS' DEFICIT, STOCK OPTIONS AND WARRANTS (Details 1) (USD $)	12 Months Ended	6 Months Ended																							6 Months Ended
	Dec. 31, 2009	Jun. 30, 2014 Stock Options One [Member]	Jun. 30, 2014 Stock Options Two [Member]	Jun. 30, 2014 Stock Options Three [Member]	Jun. 30, 2014 Stock Options Four [Member]	Jun. 30, 2014 Stock Options Five [Member]	Jun. 30, 2014 Stock Options Six [Member]	Jun. 30, 2014 Stock Options Seven [Member]	Jun. 30, 2014 Stock Options Eight [Member]	Jun. 30, 2014 Stock Options Nine [Member]	Jun. 30, 2014 Stock Options Ten [Member]	Jun. 30, 2014 Stock Options Eleven [Member]	Jun. 30, 2014 Stock Options Twelve [Member]	Jun. 30, 2014 Stock Options Thirteen [Member]	Jun. 30, 2014 Stock Options Fourteen [Member]	Jun. 30, 2014 Stock Options Fifteen [Member]	Jun. 30, 2014 Stock Options Sixteen [Member]	Jun. 30, 2014 Stock Options Seventeen [Member]	Jun. 30, 2014 Stock Options Eighteen [Member]	Jun. 30, 2014 Stock Options Nineteen [Member]	Jun. 30, 2014 Stock Options Twenty [Member]	Jun. 30, 2014 Stock Options [Member]	Dec. 31, 2013 Stock Options [Member]	Dec. 31, 2012 Stock Options [Member]	Jun. 30, 2014 Warrant One [Member]	Jun. 30, 2014 Warrant Two [Member]	Jun. 30, 2014 Warrant Three [Member]	Jun. 30, 2014 Warrant Five [Member]	Jun. 30, 2014 Warrant Six [Member]	Jun. 30, 2014 Warrant Seven [Member]	Jun. 30, 2014 Warrant Eight [Member]	Jun. 30, 2014 Warrant Nine [Member]	Jun. 30, 2014 Warrant Ten [Member]	Jun. 30, 2014 Warrant Eleven [Member]	Jun. 30, 2014 Warrant Twelve [Member]	Jun. 30, 2014 Warrant Thirteen [Member]	Jun. 30, 2014 Warrant Fourteen [Member]	Jun. 30, 2014 Warrant [Member]	Dec. 31, 2013 Warrant [Member]	Dec. 31, 2012 Warrant [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Range of Exercise Prices		$ 0.01	$ 0.065	$ 0.07	$ 0.075	$ 0.079	$ 0.08	$ 0.088	$ 0.1325	$ 0.14	$ 0.15	$ 0.17	$ 0.185	$ 0.20	$ 0.23	$ 0.25	$ 0.27	$ 0.29	$ 0.318	$ 0.33	$ 0.3415	$ 0.10	$ 0.09	$ 0.09	$ 0.01	$ 0.075	$ 0.08	$ 0.12	$ 0.15	$ 0.165	$ 0.18	$ 0.198	$ 0.20	$ 0.25	$ 0.27	$ 0.325	$ 0.769	$ 0.15	$ 0.14	$ 0.13
Shares		550,000	10,000	177,286	14,400,000	1,740,508	9,300,000	400,000	226,415	242,857	1,110,000	755,000	162,162	250,000	3,019,565	250,000	370,373	100,000	94,338	25,000	20,000	33,203,504	28,929,398	12,663,566	30,000	2,083,333	7,714,286	200,000	15,314,951	407,318	333,333	1,770,833	87,500	375,000	111,111	1,615,383	342,029	30,385,077	34,643,829	35,132,136
Weighted Average Remaining Life	2 years 6 months	7 years 7 days	8 years 8 months 12 days	9 years 1 month 13 days	8 years 8 months 16 days	8 years 8 months 19 days	8 years 1 month 17 days	7 years 6 months 25 days	9 years 14 days	9 years 14 days	7 years 11 months 19 days	9 years 9 months 14 days	9 years 9 months 4 days	9 years 8 months 19 days	9 years 8 months 8 days	9 years 7 months 24 days	9 years 6 months 4 days	9 years 3 months 11 days	9 years 3 months 4 days	9 years 2 months 26 days	9 years 3 months				1 year 5 months 8 days	25 days	3 years 8 months 16 days	3 years 6 months 29 days	3 years 6 months 7 days	1 year 4 months 17 days	3 years 11 months 19 days	3 years 11 months 1 day	7 months 6 days	3 months 7 days	3 years 2 months 16 days	4 years 9 months 4 days	4 days

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Jun. 30, 2014

Accounting Policies [Abstract]

Significant Accounting Policies [Text Block]

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations and Continuance of Operations

BioDrain Medical, Inc. (the "Company") was incorporated under the laws of the State of Minnesota in 2002. Effective August 6, 2013, the Company changed its name to Skyline Medical Inc. Pursuant to an Agreement and Plan of Merger dated effective December 16, 2013, the Company merged with and into a Delaware corporation with the same name that was its wholly-owned subsidiary, with such Delaware Corporation as the surviving corporation of the merger. 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 and filters 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 June 30, 2014, the Company has raised approximately $9,104,000 in equity, inclusive of $2,055,000 from a private placement of Series A Convertible Preferred Stock, and $4,060,000 in debt financing.  See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources”.

Recent Accounting Developments

In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09, Revenue from Contracts with Customers and created a new topic in the FASB Accounting Standards Codification ("ASC"), Topic 606. The new standard provides a single comprehensive revenue recognition framework for all entities and supersedes nearly all existing U.S. GAAP revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that an entity should recognize revenue in a manner that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard is designed to create greater comparability for financial statement users across industries and also requires enhanced disclosures. The amendments are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted. We are currently evaluating the impact this guidance may have on our financial statements and related disclosures.

In June 2014, the FASB issued ASU 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements. ASU 2014-10 eliminates the distinction of a development stage entity and certain related disclosure requirements, including the elimination of inception-to-date information on the statements of operations, cash flows and stockholders' equity. The amendments in ASU 2014-10 will be effective prospectively for annual reporting periods beginning after December 15, 2014, and interim periods within those annual periods, however early adoption is permitted. The Company evaluated and adopted ASU 2014-10 for the reporting period ended June 30, 2014.

In June 2014, the FASB issued ASU 2014-12, "Compensation - Stock Compensation" providing explicit guidance on how to account for share-based payments granted to employees in which the terms of the award provide that a performance target that affects vesting could be achieved after the requisite service period. The amendments in this Update are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Early adoption is permitted. We are currently evaluating the impact this guidance may have on our financial statements.

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.

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. Advertising expenses were $1,250 and $7,793 in the three and six months ended June 30, 2014 and there were no advertising expenses in the three and six months ended June 30, 2013.

Research and Development

Research and development costs are charged to operations as incurred. Research and development expenses were $131,285 and $249,636 in the three and six months ended June 30, 2014 and $75,264 and $133,541 for June 30, 2013.

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. 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:

	June 30,		December 31,
	2014		2013
Finished goods	$	88,285	$	56,818
Raw materials		230,092		18,603
Work-In-Process		42,286		46,754
Total	$	360,663	$	122,175

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 - 7
Leasehold improvements	5
Manufacturing tooling	3 - 7

The Company’s investment in Fixed Assets consists of the following:

 

	June 30,		December 31,
	2014		2013
Computers and office equipment	$	126,234	$	61,505
Leasehold improvements		23,874		23,614
Manufacturing tooling		97,288		89,900
Total		247,396		175,019
Less: Accumulated depreciation		42,738		16,909
Total Fixed Assets, Net	$	204,658	$	158,110

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 trademarks and 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 original STREAMWAY System patent of $140,588 in 2013.

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 2010 remain open to examination by federal and state tax authorities.

Patents and Intellectual Property

On January 25th, 2014 the Company filed a non-provisional PCT Application No. PCT/US2014/013081 claiming priority from the U.S. Provisional Patent Application, number 61756763 which was filed one year earlier on January 25th, 2013.  The PCT makes it possible to seek patent protection for an invention simultaneously in each of 148 countries, including the United States, by filing this “international” patent application instead of filing several separate national or regional patent applications.

Our PCT patent application is for the 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 PCT Application adds features that are novel and non-obvious over all the Company’s previously filed applications. A feature claimed in the Patent is the ability to maintain continuous suction to the surgical field while simultaneously measuring, recording and evacuating fluid to the facilities sewer drainage system.  This provides for continuous operation of the STREAMWAY System unit in suctioning waste fluids, which means that the unit never has to be shut off or paused during a surgical operation, for example, to empty a fluid collection container or otherwise dispose of the collected fluid.

Subsequent Events

On July 23, 2014, Skyline Medical Inc. (the “Company”) entered into a Securities Purchase Agreement (the “Investor Securities Purchase Agreement”) with an institutional investor (the “Investor”), pursuant to which on that date the Company issued and sold  (i) a senior convertible note, in an original principal amount of $610,978 (the “Investor Note”), which Investor Note shall be convertible into a certain amount of shares (the “Investor Conversion Shares”) of the Company’s common stock, par value $0.01 (the “Common Stock”), in accordance with the terms of the Investor Note, and (ii) a warrant (the “Investor Warrant”) to initially acquire up to 2,036,593 additional shares of Common Stock (the “Investor Warrant Shares”, and collectively with the Investor Note, the Investor Warrant and the Investor Conversion Shares, the “Investor Securities”). The aggregate purchase price was $500,000 (an approximately 22.2% original issue discount) (the “Investor Convertible Notes Offering”). 

On July 23, 2014, the Company also entered into a Securities Purchase Agreement (the “SOK Securities Purchase Agreement”) with SOK Partners, LLC, an affiliate of the Company (“SOK”), pursuant to which on that date the Company issued and sold  (i) a senior convertible note, in an original principal amount of $122,196 (the “SOK Note”), which SOK Note shall be convertible into a certain amount of shares (the “SOK Conversion Shares”) of Common Stock, in accordance with the terms of the SOK Note, and (ii) a warrant (the “SOK Warrant”) to initially acquire up to 407,318 additional shares of Common Stock (the “SOK Warrant Shares”, and collectively with the SOK Note, the SOK Warrant and the SOK Conversion Shares, the “SOK Securities”). The aggregate purchase price was $100,000 (an approximately 22.2% original issue discount) (the “SOK Convertible Notes Offering”).  

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources” for a discussion of the above transactions.

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 27, 2014. 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.

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STOCKHOLDERS' DEFICIT, STOCK OPTIONS AND WARRANTS (Details 2) (USD $)	12 Months Ended				12 Months Ended		12 Months Ended		12 Months Ended							12 Months Ended		6 Months Ended				6 Months Ended	12 Months Ended		6 Months Ended		12 Months Ended		12 Months Ended		12 Months Ended		12 Months Ended				12 Months Ended		6 Months Ended					6 Months Ended			12 Months Ended		6 Months Ended
	Dec. 31, 2013 Minimum [Member]	Dec. 31, 2013 Maximum [Member]	Dec. 31, 2008 Warrant One [Member]	Jun. 30, 2014 Warrant One [Member]	Dec. 31, 2010 Warrant Two [Member]	Jun. 30, 2014 Warrant Two [Member]	Dec. 31, 2011 Warrant Three [Member]	Jun. 30, 2014 Warrant Three [Member]	Dec. 31, 2011 Warrant Three [Member] Minimum [Member]	Dec. 31, 2011 Warrant Three [Member] Maximum [Member]	Dec. 31, 2012 Warrant Four [Member]	Dec. 31, 2012 Warrant Four [Member] Minimum [Member]	Dec. 31, 2012 Warrant Four [Member] Maximum [Member]	Dec. 31, 2013 Warrant Five [Member]	Jun. 30, 2014 Warrant Five [Member]	Dec. 31, 2013 Warrant Five [Member] Minimum [Member]	Dec. 31, 2013 Warrant Five [Member] Maximum [Member]	Jun. 30, 2014 Warrant Six [Member]	Jun. 30, 2014 Warrant Six [Member] Minimum [Member]	Jun. 30, 2014 Warrant Six [Member] Maximum [Member]	Jun. 30, 2014 Warrant Seven [Member]	Jun. 30, 2014 Warrant [Member]	Dec. 31, 2013 Warrant [Member]	Dec. 31, 2012 Warrant [Member]	Jun. 30, 2014 Warrant [Member] Minimum [Member]	Jun. 30, 2014 Warrant [Member] Maximum [Member]	Dec. 31, 2010 Stock Options One [Member]	Jun. 30, 2014 Stock Options One [Member]	Dec. 31, 2011 Stock Options Two [Member]	Jun. 30, 2014 Stock Options Two [Member]	Dec. 31, 2012 Stock Options Three [Member]	Jun. 30, 2014 Stock Options Three [Member]	Dec. 31, 2012 Stock Options Three [Member] Minimum [Member]	Dec. 31, 2012 Stock Options Three [Member] Maximum [Member]	Dec. 31, 2013 Stock Options Four [Member]	Jun. 30, 2014 Stock Options Four [Member]	Dec. 31, 2013 Stock Options Four [Member] Minimum [Member]	Dec. 31, 2013 Stock Options Four [Member] Maximum [Member]	Jun. 30, 2014 Stock Options Five [Member]	Jun. 30, 2014 Stock Options Five [Member] Minimum [Member]	Jun. 30, 2014 Stock Options Five [Member] Maximum [Member]	Jun. 30, 2014 Stock Options Six [Member]	Jun. 30, 2014 Stock Options Seven [Member]	Jun. 30, 2014 Stock Options Seven [Member] Minimum [Member]	Jun. 30, 2014 Stock Options Seven [Member] Maximum [Member]	Jun. 30, 2014 Stock Options [Member]	Dec. 31, 2013 Stock Options [Member]	Dec. 31, 2012 Stock Options [Member]	Jun. 30, 2014 Stock Options [Member] Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Issued - Number of Shares			342,029		30,000		2,458,333				5,352,451			20,068,452				2,133,812				2,133,812	25,739,682				410,000		550,000		9,477,286				17,901,157				4,865,061							5,115,061	17,986,157
Shares				30,000		2,083,333		7,714,286							200,000			15,314,951			407,318	30,385,077	34,643,829	35,132,136				550,000		10,000		177,286				14,400,000			1,740,508			9,300,000	400,000			33,203,504	28,929,398	12,663,566
Issued - Average Exercise Price	$ 0.119	$ 0.242	$ 0.769		$ 0.01				$ 0.075	$ 0.25		$ 0.15	$ 0.20			$ 0.08	$ 0.198		$ 0.165	$ 0.325		$ 0.27	$ 0.12		$ 0.01	$ 0.769	$ 0.15		$ 0.01				$ 0.07	$ 0.08			$ 0.065	$ 0.3415		$ 0.15	$ 0.25			$ 0.185	$ 0.25	$ 0.11	$ 0.09		$ 0.01

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LIABILITY FOR EQUITY-LINKED FINANCIAL INSTRUMENTS (Details) (USD $)	6 Months Ended	12 Months Ended
	Jun. 30, 2014	Dec. 31, 2009
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock price		$ 0.35
Exercise price		$ 0.46
Expected life		2 years 6 months
Expected volatility	59.00%	63.00%
Assumed dividend rate	0.00%
Risk-free interest rate - Minimum	0.13%
Risk-free interest rate - Maximum	2.97%
Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock price	$ 0.06
Exercise price	$ 0.01
Expected life	2 years
Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock price	$ 0.50
Exercise price	$ 0.325
Expected life	6 years 6 months

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CONDENSED BALANCE SHEETS (USD $)	Jun. 30, 2014	Dec. 31, 2013
Current Assets:
Cash	$ 40,151	$ 101,953
Accounts Receivable	149,640	97,245
Inventories	360,663	122,175
Prepaid Expense and other assets	149,524	60,588
Total Current Assets	699,977	381,961
Fixed Assets, net	204,658	158,110
Intangibles, net	68,137	53,355
Total Assets	972,772	593,426
Current Liabilities:
Accounts payable	1,625,330	1,062,108
Accrued expenses	2,194,486	2,057,957
Short-term note payable net of discounts of $46,072 and $0 (See Note 8)	81,124	280,000
Deferred Revenue	5,000	69,000
Total Current Liabilities	3,905,940	3,469,065
Accrued Expenses	290,344	331,216
Liability for equity-linked financial instruments (See Note 9)	130	11,599
Total Liabilities	4,196,414	3,811,880
Commitments and Contingencies	0	0
Stockholders' Deficit:
Common stock, $.01 par value, 800,000,000 authorized, 222,869,997 and 219,937,619 outstanding	2,228,700	2,199,376
Additional paid-in capital	26,647,135	23,279,585
Deficit accumulated during development stage	(32,099,683)	(28,697,415)
Total Stockholders' Deficit	(3,223,642)	(3,218,454)
Total Liabilities and Stockholders’ Deficit	972,772	593,426
Series A Convertible Preferred Stock [Member]
Stockholders' Deficit:
Series A Convertible Preferred Stock, $01 par value, $100 Stated Value, 40,000 authorized, 20,550 outstanding	$ 206	$ 0

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Commitments and Contingencies (Details Textual) (USD $)	6 Months Ended
	Jun. 30, 2014
Litigation Settlement, Amount	$ 500,000
Estimated Litigation Liability, Current	$ 200,000
Loss Contingency, Settlement Agreement, Terms	Payment of the outstanding balance under the Settlement Agreement will be accelerated if the Company raises $2 million or more of gross dollars in a single funding round or raises aggregate funding of $4 million of gross dollars on or before April 10, 2015.

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STATEMENT OF STOCKHOLDERS' DEFICIT [Parenthetical] (USD $)	6 Months Ended	12 Months Ended
	Jun. 30, 2014	Dec. 31, 2013
Issuance Of Common Stock To Debtors Compensation One		$ 0.15
Shares issued under PPM to five investors		$ 0.07
Issuance Of Common Stock To Debtors Compensation Two		$ 0.15
Shares issued to an institutional investor at per share		$ 0.07
Issuance Of Common Stock To Debtors Compensation Three		$ 0.067
Common stock issued to former consultant exercising option, Par value		$ 0.01
Common stock issued to former CEO exercising option, par value		$ 0.01
Shares issued upon conversion of four notes payable, par value		$ 0.15
Shares issued for interest to the four notes payable, par value		$ 0.15
Shares Issued For Cashless Exercise Of Warrants Par Value One	$ 0.20	$ 0.12
Shares Issued For Cashless Exercise Of Warrants Par Value Two	$ 0.17	$ 0.16
Shares Issued For Cashless Exercise Of Warrants Par Value Three		$ 0.15
Shares Issued For Cashless Exercise Of Warrants Par Value Four		$ 0.2
Shares Issued To Twenty Four Warrant Holders Exercised At Reduced Par Value		$ 0.1
Shares Issued To Four PPM Investors Converting Notes Par Value		$ 0.12
Shares Issued To Eleven PPM Investors Converting Notes Par Value		$ 0.18
Shares Issued To Consultant As Compensation Par Value		$ 0.38
Shares Issued For Two Note Conversions Par Value		$ 0.014
Shares Issued For Exercise Of Warrants Par Value	$ 0.18	$ 0.15
Shares Issued To Cashless Exercise Of Warrants Par Value		$ 0.17
Shares Issued To Former Board Directors As Compensation Par Value		$ 0.325
Shares Issued To One Investor For Cashless Exercise Of Warrants Par Value Two		$ 0.12
Shares Issued For Cashless Exercise Of Warrants Par Value Five		$ 0.10
Shares Issued For Interest On Conversion Of Two Note Conversions Par Value		$ 0.18
Shares Issued For Cashless Exercise Of Warrants Par Value Six		$ 0.075
Shares Issued In Settlement With Former Noteholder Par Value		$ 0.27
Shares Issued To Option Holder Par Value One	$ 0.167	$ 0.065
Shares Issued For Cashless Exercise Of Warrants Par Value Seven		$ 0.13
Shares Issued To One Warrant Holder Exercised At Reduced Par Value		$ 0.125
Shares Issued For Cashless Exercise Of Warrants Par Value Eight		$ 0.075
Shares Issued To Option Holder Par Value Two	$ 0.07	$ 0.07
Par Value Of Common Stock Issued For Ir Compensation One	$ 0.275
Shares Issued For Cashless Exercise Of Warrants Par Value Nine	$ 0.01
Shares Issued For Cashless Exercise Of Warrants Par Value Ten	$ 0.10
Shares Issued For Cashless Exercise Of Warrants Par Value Eleven	$ 0.075
Shares Issued For Cashless Exercise Of Warrants Par Value Twelve	$ 0.17
Shares Issued To Sixteen Shareholders Of Series A Convertible Preferred Stock Dividends Payable In Common Shares Par Value	$ 0.26
Shares Issued For Cashless And Cash Exercise Of Warrants Par Value	$ 0.15
Par Value Of Common Stock Issued For Investor Relations Compensation Two	$ 0.25
Stock Issued To Investor Relations Consultants Exercise Price One	$ 0.15
Stock Issued To Investor Relations Consultants Exercise Price Two	$ 0.25
Shares Issued For Cashless Exercise Of Warrants Par Value Thirteen	$ 0.18
Shares Issued To Sixteen Shareholders Of Series Convertible Preferred Stock Dividends Payable In Common Shares Par Value One	$ 0.26

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LOSS PER SHARE (Details Textual) (USD $)	Jun. 30, 2014	Jun. 30, 2013
Earnings Per Share, Diluted, by Common Class, Including Two Class Method [Line Items]
Options and Warrants Outstanding	$ 63,588,581	$ 84,320,276

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LOSS PER SHARE (Tables)

6 Months Ended

Jun. 30, 2014

Earnings Per Share [Abstract]

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

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

	Three Months Ended June 30,					Six Months Ended June 30,
	2014			2013		2014	2013
Numerator:
Net loss available in basic and diluted calculation	$	(1,735,954)	$	(1,175,535)	$	(3,352,949)	$	(3,277,061)
Denominator:
Weighted average common shares outstanding - basic		222,620,910		121,267,500		221,922,352		111,045,552
Effect of diluted stock options and warrants (1)		-		-		-		-
Weighted average common shares outstanding - basic		222,620,910		121,267,500		221,922,352		111,045,552
Loss per common share-basic and diluted	$	(0.01)	$	(0.01)	$	(0.02)	$	(0.03)

(1) The number of shares underlying options and warrants outstanding as of June 30, 2014 and June 30, 2013 are 63,588,581  and 84,320,276 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.

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INCOME TAXES (Details) (USD $)	Jun. 30, 2014	Dec. 31, 2013
Deferred Tax Asset:
Net Operating Loss	$ 7,920,000	$ 3,259,000
Other	648,000	59,000
Total Deferred Tax Asset	8,568,000	3,318,000
Less Valuation Allowance	8,568,000	3,318,000
Net Deferred Income Taxes	$ 0	$ 0

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RENT OBLIGATION (Tables)

6 Months Ended

Jun. 30, 2014

Rent Obligation [Abstract]

Schedule of Rent Expense [Table Text Block]

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

2015	$	37,000
2016	$	38,000
2017	$	39,000
2018	$	3,600
2019	$	-

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CONDENSED STATEMENTS OF CASH FLOWS (USD $)	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
Cash flow from operating activities:
Net loss	$ (3,352,949)	$ (3,277,061)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	25,829	141,482
Vested stock options and warrants	369,636	1,378,090
Equity instruments issued for management and consulting	111,917	67,230
Amortization of debt discount	0	92,538
(Gain) loss on valuation of equity-linked instruments	(11,468)	(88,673)
Changes in assets and liabilities:
Accounts receivable	(52,395)	(62,180)
Inventories	(238,488)	37,173
Prepaid expense and other assets	(88,936)	(8,176)
Notes payable to shareholders	0	0
Accounts payable	563,223	(28,993)
Accrued expenses	790,157	(379,465)
Deferred Revenue	(64,000)	5,000
Net cash used in operating activities:	(1,947,473)	(2,123,035)
Cash flow from investing activities:
Purchase of fixed assets	(72,377)	(9,826)
Purchase of intangibles	(14,782)	(48,545)
Net cash used in investing activities	(87,159)	(58,371)
Cash flow from financing activities:
Proceeds from long-term and convertible debt	125,000	1,300,000
Principal payments on notes payable	(300,000)	0
Issuance of preferred stock	2,055,000	0
Issuance of common stock	92,831	1,005,333
Net cash provided by (used in) financing activities	1,972,831	2,305,333
Net increase (decrease) in cash	(61,802)	123,927
Cash at beginning of period	101,953	13,139
Cash at end of period	40,151	137,066
Non cash transactions:
Debt Conversion, Converted Instrument, Amount	0	415,775
Common stock issued for accrued interest/bonus	694,500	23,394
Common stock issued to satisfy debt	0	178,568
Stock/warrant issued to satisfy accounts payable/Liabilities	$ 0	$ 43,521

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CONDENSED BALANCE SHEETS [Parenthetical] (USD $)	Jun. 30, 2014	Dec. 31, 2013
Discount on short term note payable (in dollars)	$ 46,072	$ 0
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized	800,000,000	800,000,000
Common stock, shares outstanding	222,869,997	219,937,619
Series A Convertible Preferred Stock [Member]
Preferred stock, par value (in dollars per share)	0.01
Preferred stock, stated value (in dollars per share)	$ 100
Preferred stock, shares authorized	40,000
Preferred stock, shares outstanding	20,550

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Commitments and Contingencies

6 Months Ended

Jun. 30, 2014

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies Disclosure [Text Block]

Note 10 – Commitments and Contingencies

On July 17, 2014, Skyline Medical Inc. (the “Company”) and a stockholder entered into a settlement agreement and release (the “Settlement Agreement”) with Marshall Ryan (“Ryan”) and a company related to Ryan (together, the “Plaintiffs”). The settlement relates to a previously disclosed lawsuit by the Plaintiffs initiated in March 2014. Ryan is an engineer who previously worked with the Company on design of certain of the Company’s products. The lawsuit alleged among other things, breach of a 2008 consulting agreement, a 2006 manufacturing agreement and a 2006 supply agreement among the Plaintiffs and the Company, various claims of fraud and negligent misrepresentation, and breach of the duty of good faith and fair dealing.

Under the Settlement Agreement, the parties have agreed that the lawsuit will be dismissed. The Company has agreed to pay Ryan an aggregate of $500,000 in various cash installments through April 25, 2015, which amount includes $200,000 in installments that are payable during the remainder of 2014. The Settlement Agreement, among other things, extinguishes any prior claims of Plaintiffs for royalties or other alleged rights to payments under their prior agreements with the Company. Payment of the outstanding balance under the Settlement Agreement will be accelerated if the Company raises $2 million or more of gross dollars in a single funding round or raises aggregate funding of $4 million of gross dollars on or before April 10, 2015. If the Company defaults on the required cash payments and fails to cure as provided in the Settlement Agreement, then Ryan will have the option to either sue Skyline to enforce the Settlement Agreement or rescind the Settlement Agreement, including returning all payments previously made thereunder.

The Settlement Agreement also contains mutual releases covering claims other than a breach of the Settlement Agreement. In the Settlement Agreement, Ryan fully, unconditionally and irrevocably affirms and ratifies the Company’s rights to Ryan’s prior patent assignments, and disclaims any right, title or interest in the Company’s Streamway product including any claims to royalties both past and future. In addition, the parties confirmed that the patents related to the Streamway product belong exclusively to Skyline and remain in full force and effect.

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Document And Entity Information	6 Months Ended
	Jun. 30, 2014	Aug. 04, 2014
Document Information [Line Items]
Entity Registrant Name	Skyline Medical Inc.
Entity Central Index Key	0001446159
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Trading Symbol	SKLN
Entity Common Stock, Shares Outstanding		222,975,766
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2014
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2014

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Supplemental Cash Flow Data

6 Months Ended

Jun. 30, 2014

Supplemental Cash Flow Elements [Abstract]

Cash Flow, Supplemental Disclosures [Text Block]

Note 11 – Supplemental Cash Flow Data

Cash payments for interest were $3,468 and $15,522 for the three months ended June 30, 2014 and June 30, 2013, and $21,606 and $41,930 for the six months ended June 30, 2014 and June 30, 2013.

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CONDENSED STATEMENTS OF OPERATIONS (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Mar. 31, 2013	Jun. 30, 2014	Jun. 30, 2013
Revenue	$ 318,293	$ 150,856	$ 388,513	$ 278,583
Cost of goods sold	98,365	67,335	129,448	108,939
Gross Margin	219,928	83,521	259,065	169,644
General and administrative expense	1,330,222	888,133	2,509,504	2,711,216
Operations expense	291,584	204,928	556,859	409,395
Sales and marketing expense	319,303	108,593	524,223	195,562
Interest expense	14,773	126,654	32,897	222,206
Loss (gain) on valuation of equity-linked financial instruments	0	(69,251)	(11,468)	(88,673)
Total expense	1,955,882	1,259,057	3,612,014	3,446,705
Net income (loss) available to common shareholders	$ (1,735,954)	$ (1,175,535)	$ (3,352,949)	$ (3,277,061)
Loss per common share basic and diluted (in dollars per share)	$ (0.01)	$ (0.01)	$ (0.02)	$ (0.03)
Weighted average shares used in computation, basic and diluted (in shares)	222,620,910	121,267,500	221,922,352	111,045,552

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INCOME TAXES

6 Months Ended

Jun. 30, 2014

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

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.

During September 2013, the Company experienced an "ownership change" as defined in Section 382 of the Internal Revenue Code which could potentially limit the ability to utilize the Company’s net operating losses (NOLs). The general limitation rules allow the Company to utilize its NOLs subject to an annual limitation that is determined by multiplying the federal long-term tax-exempt rate by the Company’s value immediately before the ownership change.

At June 30, 2014, the Company had approximately $16.0 million of gross NOLs to reduce future federal taxable income, the majority of which are expected to be available for use in 2015, subject to the Section 382 limitation described above. The federal NOLs will expire beginning in 2022 if unused. The Company also had approximately $17.1 million of gross NOLs to reduce future state taxable income at June 30, 2014, which will expire in years 2022 through 2034 if unused. The Company's net deferred tax assets, which include the NOLs, are subject to a full valuation allowance. At June 30, 2014, the federal and state valuation allowances were $7.1 million and $1.5 million, respectively.

The components of deferred income taxes at June 30, 2014 and December 31, 2013  are as follows:

	June 30,		December 31,
	2014		2013
Deferred Tax Asset:
Net Operating Loss	$	7,920,000	$	3,259,000
Other		648,000		59,000
Total Deferred Tax Asset		8,568,000		3,318,000
Less Valuation Allowance		8,568,000		3,318,000
Net Deferred Income Taxes	$	—	$	—

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LOSS PER SHARE

6 Months Ended

Jun. 30, 2014

Earnings Per Share [Abstract]

Earnings Per Share [Text Block]

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 June 30,					Six Months Ended June 30,
	2014			2013		2014	2013
Numerator:
Net loss available in basic and diluted calculation	$	(1,735,954)	$	(1,175,535)	$	(3,352,949)	$	(3,277,061)
Denominator:
Weighted average common shares outstanding - basic		222,620,910		121,267,500		221,922,352		111,045,552
Effect of diluted stock options and warrants (1)		-		-		-		-
Weighted average common shares outstanding - basic		222,620,910		121,267,500		221,922,352		111,045,552
Loss per common share-basic and diluted	$	(0.01)	$	(0.01)	$	(0.02)	$	(0.03)

(1) The number of shares underlying options and warrants outstanding as of June 30, 2014 and June 30, 2013 are 63,588,581  and 84,320,276 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.

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INCOME TAXES (Tables)

6 Months Ended

Jun. 30, 2014

Income Tax Disclosure [Abstract]

Schedule of Deferred Tax Assets and Liabilities [Table Text Block]

The components of deferred income taxes at June 30, 2014 and December 31, 2013  are as follows:

	June 30,		December 31,
	2014		2013
Deferred Tax Asset:
Net Operating Loss	$	7,920,000	$	3,259,000
Other		648,000		59,000
Total Deferred Tax Asset		8,568,000		3,318,000
Less Valuation Allowance		8,568,000		3,318,000
Net Deferred Income Taxes	$	—	$	—

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

6 Months Ended

Jun. 30, 2014

Accounting Policies [Abstract]

Basis Of Accounting Policy [Policy Text Block]

Nature of Operations and Continuance of Operations

BioDrain Medical, Inc. (the "Company") was incorporated under the laws of the State of Minnesota in 2002. Effective August 6, 2013, the Company changed its name to Skyline Medical Inc. Pursuant to an Agreement and Plan of Merger dated effective December 16, 2013, the Company merged with and into a Delaware corporation with the same name that was its wholly-owned subsidiary, with such Delaware Corporation as the surviving corporation of the merger. 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 and filters 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 June 30, 2014, the Company has raised approximately $9,104,000 in equity, inclusive of $2,055,000 from a private placement of Series A Convertible Preferred Stock, and $4,060,000 in debt financing.  See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources”.

New Accounting Pronouncements Policy [Policy Text Block]

Recent Accounting Developments

In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09, Revenue from Contracts with Customers and created a new topic in the FASB Accounting Standards Codification ("ASC"), Topic 606. The new standard provides a single comprehensive revenue recognition framework for all entities and supersedes nearly all existing U.S. GAAP revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that an entity should recognize revenue in a manner that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard is designed to create greater comparability for financial statement users across industries and also requires enhanced disclosures. The amendments are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted. We are currently evaluating the impact this guidance may have on our financial statements and related disclosures.

In June 2014, the FASB issued ASU 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements. ASU 2014-10 eliminates the distinction of a development stage entity and certain related disclosure requirements, including the elimination of inception-to-date information on the statements of operations, cash flows and stockholders' equity. The amendments in ASU 2014-10 will be effective prospectively for annual reporting periods beginning after December 15, 2014, and interim periods within those annual periods, however early adoption is permitted. The Company evaluated and adopted ASU 2014-10 for the reporting period ended June 30, 2014.

In June 2014, the FASB issued ASU 2014-12, "Compensation - Stock Compensation" providing explicit guidance on how to account for share-based payments granted to employees in which the terms of the award provide that a performance target that affects vesting could be achieved after the requisite service period. The amendments in this Update are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Early adoption is permitted. We are currently evaluating the impact this guidance may have on our financial statements.

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 [Policy Text Block]

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.

Use of Estimates, Policy [Policy Text Block]

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.

Presentation Of Taxes Collected From Customers Policy [Policy Text Block]

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 Cost, Policy [Policy Text Block]

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 Costs, Policy [Policy Text Block]

Advertising

Advertising costs are expensed as incurred. Advertising expenses were $1,250 and $7,793 in the three and six months ended June 30, 2014 and there were no advertising expenses in the three and six months ended June 30, 2013.

Research and Development Expense, Policy [Policy Text Block]

Research and Development

Research and development costs are charged to operations as incurred. Research and development expenses were $131,285 and $249,636 in the three and six months ended June 30, 2014 and $75,264 and $133,541 for June 30, 2013.

Revenue Recognition, Policy [Policy Text Block]

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. 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, Policy [Policy Text Block]

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.

Inventory, Policy [Policy Text Block]

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:

	June 30,		December 31,
	2014		2013
Finished goods	$	88,285	$	56,818
Raw materials		230,092		18,603
Work-In-Process		42,286		46,754
Total	$	360,663	$	122,175

Property, Plant and Equipment, Policy [Policy Text Block]

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 - 7
Leasehold improvements	5
Manufacturing tooling	3 - 7

The Company’s investment in Fixed Assets consists of the following:

 

	June 30,		December 31,
	2014		2013
Computers and office equipment	$	126,234	$	61,505
Leasehold improvements		23,874		23,614
Manufacturing tooling		97,288		89,900
Total		247,396		175,019
Less: Accumulated depreciation		42,738		16,909
Total Fixed Assets, Net	$	204,658	$	158,110

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 Policy [Policy Text Block]

Intangible Assets

Intangible assets consist of trademarks and 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 original STREAMWAY System patent of $140,588 in 2013.

Income Tax, Policy [Policy Text Block]

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 2010 remain open to examination by federal and state tax authorities.

Patents and Intellectual Property Policy [Policy Text Block]

Patents and Intellectual Property

On January 25th, 2014 the Company filed a non-provisional PCT Application No. PCT/US2014/013081 claiming priority from the U.S. Provisional Patent Application, number 61756763 which was filed one year earlier on January 25th, 2013.  The PCT makes it possible to seek patent protection for an invention simultaneously in each of 148 countries, including the United States, by filing this “international” patent application instead of filing several separate national or regional patent applications.

Our PCT patent application is for the 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 PCT Application adds features that are novel and non-obvious over all the Company’s previously filed applications. A feature claimed in the Patent is the ability to maintain continuous suction to the surgical field while simultaneously measuring, recording and evacuating fluid to the facilities sewer drainage system.  This provides for continuous operation of the STREAMWAY System unit in suctioning waste fluids, which means that the unit never has to be shut off or paused during a surgical operation, for example, to empty a fluid collection container or otherwise dispose of the collected fluid.

Subsequent Events, Policy [Policy Text Block]

Subsequent Events

On July 23, 2014, Skyline Medical Inc. (the “Company”) entered into a Securities Purchase Agreement (the “Investor Securities Purchase Agreement”) with an institutional investor (the “Investor”), pursuant to which on that date the Company issued and sold  (i) a senior convertible note, in an original principal amount of $610,978 (the “Investor Note”), which Investor Note shall be convertible into a certain amount of shares (the “Investor Conversion Shares”) of the Company’s common stock, par value $0.01 (the “Common Stock”), in accordance with the terms of the Investor Note, and (ii) a warrant (the “Investor Warrant”) to initially acquire up to 2,036,593 additional shares of Common Stock (the “Investor Warrant Shares”, and collectively with the Investor Note, the Investor Warrant and the Investor Conversion Shares, the “Investor Securities”). The aggregate purchase price was $500,000 (an approximately 22.2% original issue discount) (the “Investor Convertible Notes Offering”). 

On July 23, 2014, the Company also entered into a Securities Purchase Agreement (the “SOK Securities Purchase Agreement”) with SOK Partners, LLC, an affiliate of the Company (“SOK”), pursuant to which on that date the Company issued and sold  (i) a senior convertible note, in an original principal amount of $122,196 (the “SOK Note”), which SOK Note shall be convertible into a certain amount of shares (the “SOK Conversion Shares”) of Common Stock, in accordance with the terms of the SOK Note, and (ii) a warrant (the “SOK Warrant”) to initially acquire up to 407,318 additional shares of Common Stock (the “SOK Warrant Shares”, and collectively with the SOK Note, the SOK Warrant and the SOK Conversion Shares, the “SOK Securities”). The aggregate purchase price was $100,000 (an approximately 22.2% original issue discount) (the “SOK Convertible Notes Offering”).  

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources” for a discussion of the above transactions.

Interim Financial Statements Policy [Policy Text Block]

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 27, 2014. 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.

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RELATED PARTY TRANSACTIONS

6 Months Ended

Jun. 30, 2014

Related Party Transactions [Abstract]

Related Party Transactions Disclosure [Text Block]

NOTE 8 – RELATED PARTY TRANSACTIONS

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 Dr. 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 also received a warrant for 30,000 shares at $.15 per share on June 30, 2012 as compensation for service as Chairman. Mr. Gadbaw and Dr. Morawetz have both resigned from the Board in the third quarter of 2013. Both Mr. Gadbaw and Dr. 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 July 23, 2014, the Company also entered into a Securities Purchase Agreement (the “SOK Securities Purchase Agreement”) with SOK Partners, LLC, an affiliate of the Company (“SOK”), pursuant to which the Company agreed to issue and sell (i) a senior convertible note, in an original principal amount of $122,195.60 (the “SOK Note”), which SOK Note shall be convertible into a certain amount of shares (the “SOK Conversion Shares”) of Common Stock, in accordance with the terms of the SOK Note, and (ii) a warrant (the “SOK Warrant”) to initially acquire up to 407,318 additional shares of Common Stock (the “SOK Warrant Shares”, and collectively with the SOK Note, the SOK Warrant and the SOK Conversion Shares, the “SOK Securities”) for an aggregate purchase price of $100,000 (an approximately 22.2% original issue discount) (the “SOK Convertible Notes Offering”).

The SOK Note, the SOK Warrant, the SOK Securities Purchase Agreement and the SOK Registration Rights Agreement contain terms and conditions substantially identical to that of the Investor Note, the Investor Warrant, the Investor Securities Purchase Agreement and the Investor Registration Rights Agreement (as defined below), respectively, which are described in greater detail under “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources”.

On September 11, 2013, both the Herschkowitz Note and the SOK Note (each as defined below in this Note 8) 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 8 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”), and an investment partnership. Josh Kornberg, who is a member of the Company’s Board of Directors, 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. Principal and accrued interest on the note is due and payable on August 28, 2012. The Company’s obligations under the note are secured by the grant of a security interest in substantially all tangible and intangible assets of the Company. The SOK Purchase Agreement and the note include 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 could result in the acceleration of the Company’s obligations under the note, and interest rate of twenty-four (24%) percent per annum accrues if the note is not paid when due.

On March 28, 2012, the Company received an advance of $84,657 under the note, including a cash advance of $60,000 net of a prepayment of interest on the first $300,000 in advances under the note. The holder of the note is entitled to convert the 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 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 note, if the Company obtains financing from any other source without the consent of SOK Partners, then the Company is required to issue additional bonus equity in an amount equal to $600,000 less the aggregate advances on the 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 remains outstanding, SOK Partners or its designee is entitled to appoint a new member to the Company’s Board of Directors, who will be appointed upon request. 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. Samuel 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 Company’s obligations under the note are 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 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 remains outstanding, Dr. Herschkowitz or his designee is entitled to appoint a special advisor to the Company’s Board of Directors, to be appointed as a member upon request. Pursuant to this authority, Josh Kornberg was appointed to the Board on March 9, 2012. In addition, pursuant to this authority, Mr. Koenigsberger was appointed to the Board on June 25, 2012.

Pursuant to a letter dated April 12, 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.

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 had 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 their convertible notes to $0.014 per share from $0.065 per share, to satisfy the Company’s obligations to adjust for dilution; (iii) Dr. Herschkowitz and SOK agreed to extend the maturity of their notes 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 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 forbear 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 to be 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.

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 or greater 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 securities representing beneficial ownership of more than 57% 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. The 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 in to 1,041,622 shares of common stock at $.10 per share.

In December 2013, the Company received an additional $300,000 in debt financing from SOK Partners under a non-convertible grid note due February 28, 2014, with 10% interest based on a 365 day year. Dr. Herschkowitz received 10% of the gross proceeds in advance, and the Company received $250,000 in three tranches in December 2013. In January 2014, the Company received an additional $20,000 from SOK Partners completing the grid note maximum. Should the company default on the note the interest rate will increase to 20% interest based on a 365 day year. In February 2014, the Company paid $305,589.04 to SOK Partners in complete payment of the grid note, including interest.

In connection with the sale of the Preferred Shares on February 4, 2014 as described in Note 3, Josh Kornberg, our CEO, was one of the Purchasers. Mr. Kornberg purchased 19,231 Preferred Shares for a purchase price of $25,000 and received warrants to purchase 3,846 shares of common stock.

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RENT OBLIGATION

6 Months Ended

Jun. 30, 2014

Rent Obligation [Abstract]

Leases of Lessee Disclosure [Text Block]

NOTE 6 – 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 $15,447 and $33,056, for the three and six months ended June 30, 2014 and was $15,173 and $35,159 for the three and six months ended June 30, 2013 respectively.

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

2015	$	37,000
2016	$	38,000
2017	$	39,000
2018	$	3,600
2019	$	-

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LIABILITY FOR EQUITY-LINKED FINANCIAL INSTRUMENTS

6 Months Ended

Jun. 30, 2014

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities Disclosure [Text Block]

NOTE 7 – 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. In 2013 there was a significant decrease in the liability primarily due to current expirations and the amount of warrants reaching expiration in the near term. In the first quarter 2014 the liability continued to decrease, and was stable in the second quarter 2014.

The inputs to the Black-Scholes model during 2009 through 2014 were as follows:

Stock price	$ .06 to $.50
Exercise price	$ .01 to $.325
Expected life	2.0 to 6.5 years
Expected volatility	59%
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		2012 Gain		Value		2013 Gain		Value		2014 Gain		Value at
	Initial Value		Annual Gain (Loss)		Value at 12/31/09		2010 Gain (Loss)		Value at 12/31/10		2011 Gain (Loss)		12/31/2011		(Loss)		at 12/31/2012		(Loss)		at 12/31/2013		(Loss)		6/30/2014
January 1, 2009 adoption	$	479,910	$	(390,368)	$	870,278	$	868,772	$	1,506	$	(88,290)	$	89,796	$	(21,856)	$	111,652	$	100,053	$	11,599	$	11,469	$	130
Warrants issued in quarter ended 6/30/2009		169,854		20,847		149,007		147,403		1,604		(4,689)		6,293		6,293		-		-		-		-		-
Warrants issued in quarter ended 9/30/2009		39,743		(738)		40,481		40,419		62		(1,562)		1,624		910		714		714		-		-		-
Warrants issued in quarter ended 12/31/2009		12,698		617		12,081		12,053		28		(724)		752		415		337		337		-		-		-
Subtotal		702,205				1,071,847
Warrants issued in quarter ended 3/31/2010		25,553						25,014		539		(5,570)		6,109		3,701		2,408		2,408		-		-		-
Warrants issued in quarter ended 6/30/2010		31,332						30,740		592		(6,122)		6,714		6,083		631		631		-		-		-
Warrants issued in quarter ended 9/30/2010		31,506						20,891		10,615		(44,160)		54,775		1,338		53,437		53,437		-		-		-
Total	$	790,596	$	(369,642)	$	1,071,847	$	1,145,292	$	14,946	$	(151,117)	$	166,063	$	(3,116)	$	169,179	$	157,580	$	11,599	$	11,469	$	130

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Retirement Savings Plan

6 Months Ended

Jun. 30, 2014

Compensation and Retirement Disclosure [Abstract]

Pension and Other Postretirement Benefits Disclosure [Text Block]

Note 9 – Retirement Savings Plan

We have a pre-tax salary reduction/profit-sharing plan under the provisions of Section 401(k) of the Internal Revenue Code, which covers employees meeting certain eligibility requirements. In fiscal 2012, 2013 and again in 2014, we matched 100%, of the employee’s contribution up to 4% of their earnings. The employer contribution was $8,171 and $12,304 for the three months ending June 30, 2014 and June 30, 2013, respectively, and was $15,494 and $18,097, for the six months ending June 30, 2014 and June 30, 2013, respectively.

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LOSS PER SHARE (Details) (USD $)	3 Months Ended					6 Months Ended
	Jun. 30, 2014		Jun. 30, 2013		Mar. 31, 2013	Jun. 30, 2014		Jun. 30, 2013
Numerator:
Net loss available in basic and diluted calculation	$ (1,735,954)		$ (1,175,535)			$ (3,352,949)		$ (3,277,061)
Denominator:
Weighted average common shares outstanding-basic	222,620,910		121,267,500			221,922,352		111,045,552
Effect of diluted stock options and warrants	0	[1]	0	[1]		0	[1]	0	[1]
Weighted average common shares outstanding-basic (in shares)	222,620,910		121,267,500			221,922,352		111,045,552
Loss per common share-basic and diluted (in dollar per share)	$ (0.01)		$ (0.01)		$ (0.01)	$ (0.02)		$ (0.03)

[1] The number of shares underlying options and warrants outstanding as of June 30, 2014 and June 30, 2013 are 63,588,581 and 84,320,276 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.

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STOCKHOLDERS' DEFICIT, STOCK OPTIONS AND WARRANTS (Tables)

6 Months Ended

Jun. 30, 2014

Stockholders' Equity Note [Abstract]

Schedule of Share-based Compensation, Stock Options, Activity [Table Text Block]

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

	Stock Options			Warrants
	Number of	Average Exercise		Number of	Average Exercise
	Shares	Price		Shares	Price
Outstanding at December 31, 2012	12,663,566		0.09	35,132,136		0.13
Issued	17,986,157		0.09	25,739,682		0.12
Expired	(1,159,995)		0.24	(8,326,862)		0.18
Exercised	(560,330)		0.01	(17,901,127)		0.11
Outstanding at December 31, 2013	28,929,398		0.09	34,643,829		0.14
Issued	5,115,061		0.11	2,133,812		0.27
Expired	(495,768)		0.34	(4,171,733)		0.16
Exercised	(345,187)		0.02	(2,220,831)		0.13
Outstanding at June 30, 2014	33,203,504	$	0.10	30,385,077	$	0.15

Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Outstanding and Exercisable [Table Text Block]

The following summarizes the status of options and warrants outstanding at June 30, 2014:

			Weighted
			Average
			Remaining
Range of Exercise Prices		Shares	Life
Options:
$	0.01	550,000	7.02
$	0.065	10,000	8.70
$	0.07	177,286	9.12
$	0.075	14,400,000	8.71
$	0.079	1,740,508	8.72
$	0.08	9,300,000	8.13
$	0.088	400,000	7.57
$	0.1325	226,415	9.04
$	0.14	242,857	9.04
$	0.15	1,110,000	7.97
$	0.17	755,000	9.79
$	0.185	162,162	9.76
$	0.20	250,000	9.72
$	0.23	3,019,565	9.69
$	0.25	250,000	9.65
$	0.27	370,373	9.51
$	0.29	100,000	9.28
$	0.318	94,338	9.26
$	0.33	25,000	9.24
$	0.3415	20,000	9.25
Total		33,203,504
Warrants:
$	0.01	30,000	1.44
$	0.075	2,083,333	0.07
$	0.08	7,714,286	3.71
$	0.12	200,000	3.58
$	0.15	15,314,951	3.52
$	0.165	407,318	1.38
$	0.18	333,333	3.97
$	0.198	1,770,833	3.92
$	0.20	87,500	0.60
$	0.25	375,000	0.27
$	0.27	111,111	3.21
$	0.325	1,615,383	4.76
$	0.769	342,029	0.01
Total		30,385,077

Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Weighted Average Grant Date Fair Value [Table Text Block]

The following table is the listing of stock options and warrants as of June 30, 2014 by year of grant:

Stock Options:
Year	Shares	Price
2010	410,000	$	.15
2011	550,000		.01
2012	9,477,286		.07 -.08
2013	17,901,157		.065 - .3415
2014	4,865,061		.15 –.25
Total	33,203,504	$	.01 -.3415
Warrants:
Year	Shares	Price
2008	342,029	$	.769
2010	30,000		.01
2011	2,458,333		.075 -.25
2012	5,352,451		.15 -.20
2013	20,068,452		.08 -.198
2014	2,133,812		.165 –.325
Total	30,385,077	$	.01 -.769

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) (USD $)	Jun. 30, 2014	Dec. 31, 2013
Summary Of Significant Accounting Policy [Line Items]
Finished goods	$ 88,285	$ 56,818
Raw materials	230,092	18,603
Work-In-Process	42,286	46,754
Total	$ 360,663	$ 122,175

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LIABILITY FOR EQUITY-LINKED FINANCIAL INSTRUMENTS (Details 1) (USD $)	3 Months Ended						9 Months Ended	12 Months Ended
	Sep. 30, 2010	Jun. 30, 2010	Mar. 31, 2010	Dec. 31, 2009	Sep. 30, 2009	Jun. 30, 2009	Sep. 30, 2010	Dec. 31, 2009	Dec. 31, 2008
Class of Warrant or Right [Line Items]
Initial Value	$ 31,506	$ 31,332	$ 25,553	$ 12,698	$ 39,743	$ 169,854		$ 702,205	$ 479,910
Annual Gain (Loss)				617	(738)	20,847	(369,642)		(390,368)
Total							790,596
Value At 2009 [Member]
Class of Warrant or Right [Line Items]
Initial Value				12,081	40,481	149,007		1,071,847	870,278
Total							1,071,847
Value At 2010 [Member]
Class of Warrant or Right [Line Items]
Initial Value	10,615	592	539	28	62	1,604			1,506
Total							14,946
Gain Loss 2010 [Member]
Class of Warrant or Right [Line Items]
Annual Gain (Loss)	20,891	30,740	25,014	12,053	40,419	147,403			868,772
Total							1,145,292
Value At 2011 [Member]
Class of Warrant or Right [Line Items]
Initial Value	54,775	6,714	6,109	752	1,624	6,293			89,796
Total							166,063
Gain Loss 2011 [Member]
Class of Warrant or Right [Line Items]
Annual Gain (Loss)	(44,160)	(6,122)	(5,570)	(724)	(1,562)	(4,689)			(88,290)
Total							(151,117)
Value At 2012 [Member]
Class of Warrant or Right [Line Items]
Initial Value	53,437	631	2,408	337	714	0			111,652
Total							169,179
Gain Loss 2012 [Member]
Class of Warrant or Right [Line Items]
Annual Gain (Loss)	1,338	6,083	3,701	415	910	6,293			(21,856)
Total							(3,116)
Value At 2013 [Member]
Class of Warrant or Right [Line Items]
Initial Value	0	0	0	0	0	0			11,599
Total							11,599
Gain Loss 2013 [Member]
Class of Warrant or Right [Line Items]
Annual Gain (Loss)	53,437	631	2,408	337	714	0			100,053
Total							157,580
Value at 2014 [Member]
Class of Warrant or Right [Line Items]
Total	0	0	0	0	0	0	130		130
Gain Loss 2014 [Member]
Class of Warrant or Right [Line Items]
Annual Gain (Loss)	$ 0	$ 0	$ 0	$ 0	$ 0	$ 0	$ 11,469		$ 11,469

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STATEMENT OF STOCKHOLDERS' DEFICIT (USD $)	Total	Preferred Stock [Member]	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]
Balance at Dec. 31, 2012	$ (3,303,203)		$ 1,042,473	$ 14,945,435	$ (19,291,111)
Balance (in shares) at Dec. 31, 2012			104,247,228
Value of equity instruments issued with debt	392,556			392,556
Shares issued to debtors as compensation at $.15 per share	43,521		2,901	40,620
Shares issued to debtors as compensation at $.15 per share (in shares)			290,143
Shares issued under PPM to five investors at $.07 per share	500,000		71,429	428,571
Shares issued under PPM to five investors at $.07 per share (in shares)			7,142,857
Shares issued to an escrow account underlying a debt agreement	10,000		10,000
Shares issued to an escrow account underlying a debt agreement (in shares)			1,000,000
Shares issued to debtors as compensation at $.15 per share	34,550		2,303	32,247
Shares issued to debtors as compensation at $.15 per share (in shares)			230,332
Shares issued to an institutional investor at $.07 per share	500,000		71,429	428,571
Shares issued to an institutional investor at $.07 per share (in shares)			7,142,858
Value of shares per an agreement with a former officer	40,480			40,480
Shares issued to consultant as compensation at $.067 per share	16,750		2,500	14,250
Shares issued to consultant as compensation at $.067 per share (in shares)			250,000
Shares issued to former consultant exercising options at $.01 per share	2,000		2,000
Shares issued to former consultant exercising options at $.01 per share (in shares)			200,000
Shares issued to former CEO exercising options at $.01 per share	3,333		3,333
Shares issued to former CEO exercising options at $.01 per share (in shares)			333,330
Shares issued upon conversion of four notes payable at $.15 per share	156,243		10,416	145,827
Shares issued upon conversion of four notes payable at $.15 per share (in shares)			1,041,622
Shares issued for interest to the four notes payable at $.15 per share	11,170		745	10,425
Shares issued for interest to the four notes payable at $.15 per share (in shares)			74,462
Shares issued for cashless exercise of warrants at $.12 per share	2,778		2,778
Shares issued for cashless exercise of warrants at $.12 per share (in shares)			277,778
Shares issued for cashless exercise of warrants at $.16 per share	1,633		1,633
Shares issued for cashless exercise of warrants at $.16 per share (in shares)			163,334
Shares issued for cashless exercise of warrants at $.15 per share	6,327		6,327
Shares issued for cashless exercise of warrants at $.15 per share (in shares)			632,708
Shares issued for cashless exercise of warrants at $.20 per share	2,618		2,618
Shares issued for cashless exercise of warrants at $.20 per share (in shares)			261,848
Shares issued to 24 warrant holders exercised at a reduced price for $.10 per share	1,044,490		104,449	940,041
Shares issued to 24 warrant holders exercised at a reduced price for $.10 per share (in shares)			10,444,898
Shares issued to 4 PPM investors converting notes at $.12 per share	316,504		26,375	290,129
Shares issued to 4 PPM investors converting notes at $.12 per share (in shares)			2,637,534
Shares issued to 10 PPM investors converting notes at $.18 per share	1,020,200		54,054	966,146
Shares issued to 10 PPM investors converting notes at $.18 per share (in shares)			5,405,431
Shares issued to consultant as compensation at $.38 per share	57,000		1,500	55,500
Shares issued to consultant as compensation at $.38 per share (in shares)			150,000
Shares issued for two note conversions at $.014 per share	994,928		710,663	284,265
Shares issued for two note conversions at $.014 per share (in shares)			71,066,331
Shares issued for warrant exercise at $.15 per share	160,715		10,715	150,000
Shares issued for warrant exercise at $.15 per share (in shares)			1,071,429
Shares issued to an investor for a cashless exercise of warrants at $.17 per share	2,044		2,044
Shares issued to an investor for a cashless exercise of warrants at $.17 per share (in shares)			204,306
Shares issued to former Board Directors as compensation at $.325 per share	100,000		1,000	99,000
Shares issued to former Board Directors as compensation at $.325 per share (in shares)			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	2,778		2,778
Shares issued to one investor for cashless warrant exercised at $.12 per share (in shares)			277,778
Shares issued for a cashless exercise of warrants at $.10 per share	30,244		30,244
Shares issued for a cashless exercise of warrants at $.10 per share (in shares)			3,024,390
Shares issued for a cashless exercise of warrants at $.075 per share	5,447		5,447
Shares issued for a cashless exercise of warrants at $.075 per share (in shares)			544,714
Shares issued for cashless warrant exercise at $.13 per share	1,597		1,597
Shares issued for cashless warrant exercise at $.13 per share (in shares)			159,722
Shares issued for interest on two note conversions at $.18 per share	7,365		409	6,956
Shares issued for interest on two note conversions at $.18 per share (in shares)			40,918
Shares issued in settlement with a former noteholder at $.27 per share	102,060		3,780	98,280
Shares issued in settlement with a former noteholder at $.27 per share (in shares)			378,000
Shares issued for a stock option exercise at $.065 per share	650		100	550
Shares issued for a stock option exercise at $.065 per share (in shares)			10,000
Shares issued to one warrant holder executed at a reduced price of $.125 per share	125,000		10,000	115,000
Shares issued to one warrant holder executed at a reduced price of $.125 per share (in shares)			1,000,000
Shares issued for option exercise at $.07 per share	1,190		170	1,020
Shares issued for option exercise at $.07 per share (in shares)			17,000
Shares issued for cashless warrant exercise at $.075 per share	1,167		1,167
Shares issued for cashless warrant exercise at $.075 per share (in shares)			116,667
Vesting expense	1,505,270			1,505,270
Net loss	(9,406,304)				(9,406,304)
Balance at Dec. 31, 2013	(3,218,454)		2,199,376	23,279,585	(28,697,415)
Balance (in shares) at Dec. 31, 2013			219,937,619
Value of equity instruments issued with debt	23,876			23,876
Shares issued for cashless warrant exercise at $.20 per share	1,296		1,296
Shares issued for cashless warrant exercise at $.20 per share (in shares)			129,630
Shares issued for option exercise at $.0167 per share	5,430		3,252	2,178
Shares issued for option exercise at $.0167 per share (in shares)			325,187
Shares issued at $.275 per share as Investor Relations compensation	41,250		1,500	39,750
Shares issued at $.275 per share as Investor Relations compensation (in shares)			150,000
Shares issued for cashless warrant exercise at $.17 per share	2,493		2,493
Shares issued for cashless warrant exercise at $.17 per share (in shares)			249,252
Shares issued for an option exercise at $.07 per share	1,400		200	1,200
Shares issued for an option exercise at $.07 per share (in shares)			20,000
Shares issued for cashless warrant exercise at $.01 per share	1,630		1,630
Shares issued for cashless warrant exercise at $.01 per share (in shares)			163,062
Shares issued for warrant exercise at $.18 per share	36,000		2,000	34,000
Shares issued for warrant exercise at $.18 per share (in shares)			200,000
Shares issued at $.25 per share as Investor Relations compensation	25,000		1,000	24,000
Shares issued at $.25 per share as Investor Relations compensation (in shares)			100,000
Reduction in escrow account per settlement agreement	(3,333)		(3,333)
Reduction in escrow account per settlement agreement (in shares)			(333,334)
Shares issued for cashless warrant exercise at $.10 per share	3,605		3,605
Shares issued for cashless warrant exercise at $.10 per share (in shares)			360,444
Shares issued for cashless warrant exercise at $.075 per share	2,333		2,333
Shares issued for cashless warrant exercise at $.075 per share (in shares)			233,334
Shares issued for cashless warrant exercise at $.17 per share	224		224
Shares issued for cashless warrant exercise at $.17 per share (in shares)			22,409
Shares issued to 16 shareholders of Series A Convertible Preferred Stock Dividends as converted to common shares at $.26 per share	0		728	18,191	(18,919)
Shares issued to 16 shareholders of Series A Convertible Preferred Stock Dividends as converted to common shares at $.26 per share (in shares)			72,760
Vesting expense	352,762			352,762
Options issued as part of employee bonus	694,500			694,500
Shares issued for combined cashless and cash warrant exercise @ $.15 per share.	52,500		5,833	46,667
Shares issued for combined cashless and cash warrant exercise @ $.15 per share. (in shares)			583,334
Issuance of Preferred stock	2,055,001	206		2,054,795
Shares issued to Investor Relations consultant exercisable at $.15 per share	24,000		1,600	22,400
Shares issued to Investor Relations consultant exercisable at $.15 per share (in shares)			160,000
Shares issued to Investor Relations consultant exercisable at $.25 per share	25,000		1,000	24,000
Shares issued to Investor Relations consultant exercisable at $.25 per share (in shares)			100,000
Shares issued for cashless warrant exercise at $.18 per share	2,794		2,794
Shares issued for cashless warrant exercise at $.18 per share (in shares)			279,366
Shares issued to 16 shareholders of Series A Convertible Preferred Stock Dividends as converted to common shares at $.26 per share	0		1,169	29,232	(30,400)
Shares issued to 16 shareholders of Series A Convertible Preferred Stock Dividends as converted to common shares at $.26 per share (in shares)			116,934
Net loss	(3,352,949)				(3,352,949)
Balance at Jun. 30, 2014	$ (3,223,642)	$ 206	$ 2,228,700	$ 26,647,136	$ (32,099,683)
Balance (in shares) at Jun. 30, 2014			222,869,997

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STOCKHOLDERS' DEFICIT, STOCK OPTIONS AND WARRANTS

6 Months Ended

Jun. 30, 2014

Stockholders' Equity Note [Abstract]

Stockholders' Equity Note Disclosure [Text Block]

NOTE 3 – STOCKHOLDERS’ DEFICIT, STOCK OPTIONS AND WARRANTS

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.

On February 4, 2014, (the “Closing Date”) we raised $2,055,000 in gross proceeds from a private placement of Series A Convertible Preferred Stock, par value $0.01 (the “Preferred Shares”) pursuant to a Securities Purchase Agreement with certain investors (the “Purchasers”) purchased 20,550 Preferred Shares, and warrants (the “Warrants”) to acquire an aggregate of approximately 1,600,000 shares of Common Stock. The Preferred Shares are convertible into shares of Common Stock at an initial conversion price of $0.26 per share of Common Stock. The Warrants are exercisable at an exercise price of $0.325 per share and expire five years from the Closing Date. If the Common Stock is not listed on the Nasdaq Stock Market, the New York Stock Exchange, or the NYSE MKT within 180 days of the Closing, the Company shall issue additional Warrants to purchase additional shares of Common Stock, equal to 30% of the shares of Common Stock which the Preferred Shares each Purchaser purchased are convertible into. As of August 4, 2014, the Company issued additional warrants to purchase 4,615,385 shares to the Purchasers in connection with this provision.

The Securities Purchase Agreement requires the Company to register the resale of the shares of Common Stock underlying the Preferred Shares (the “Underlying Shares”) and the Common Stock underlying the Warrants (the “Warrant Shares”). The Company is required to prepare and file a registration statement with the Securities and Exchange Commission within 132 days of the Closing Date (as extended by subsequent consent of the Purchasers), and to use commercially reasonable efforts to have the registration statement declared effective within 147 days if there is no review by the Securities and Exchange Commission, and within 192 days in the event of such review. Pursuant to the Registration Rights Agreement this deadline was extended to a filing deadline of 45 days from July 23, 2014, and an effectiveness deadline of the earlier of (A) 60 calendar days from July 23, 2014 (or 120 calendar days from July 23, 2014 if the registration is subject to review by SEC) and (B) the fifth Trading Day after the Company is notified by the SEC that the Registration Statement will not be reviewed or will not be subject to further review.

The Preferred Shares are convertible at the option of the holder into the number of shares of Common Stock determined by dividing the stated value of the Preferred Shares being converted by the conversion price of $0.26, subject to adjustment for stock splits, reverse stock splits and similar recapitalization events. If the Company issues additional shares of Common Stock, other than certain stock that is excluded under the terms of the Securities Purchase Agreement, in one or more capital raising transactions with an aggregate purchase price of at least $100,000 for a price less than the then existing conversion price for the Preferred Shares (the “New Issuance Price”), then the then existing conversion price shall be reduced to the New Issuance Price, provided, however, that under no circumstances shall the New Issuance Price be less than $0.13 or reduced to a price level that would be in breach of the listing rules of any stock exchange or that would have material adverse effect on the Corporation’s ability to list its Common Stock on a stock exchange, including but not limited to the change of accounting treatment of the Preferred Stock. The Preferred Shares contain certain limitations on conversion so that the holder will not own more than 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of Preferred Shares held by the applicable holder, with the percentage subject to increase in certain circumstances. The Preferred Shares are eligible to vote with the Common Stock on an as-converted basis, but only to the extent that the Preferred Shares are eligible for conversion without exceeding the Beneficial Ownership Limitation. The Preferred Shares are entitled to receive dividends on a pari passu basis with the Common Stock, when, and if declared. Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary (a “Liquidation”), after the satisfaction in full of the debts of the Company and the payment of any liquidation preference owed to the holders of shares of Common Stock ranking prior to the Preferred Shares upon liquidation, the holders of the Preferred Shares shall receive, prior and in preference to the holders of any junior securities, an amount equal to $2,055,000 times 1.2, plus all declared but unpaid dividends.

The Warrants are exercisable on any day on or after the date of issuance, have an exercise price of $0.325 per share, subject to adjustment, and a term of five years from the date they are first exercisable. However, a holder will be prohibited from exercising a Warrant if, as a result of such exercise, the holder, together with its affiliates, would exceed the Beneficial Ownership Limitation as described above for the Preferred Shares. If any Warrant has not been fully exercised prior to the first anniversary of the Closing and if during such period the Company has not installed or received firm purchase orders (accepted by the Company) for at least 500 STREAMWAY ® Automated Surgical Fluid Disposal Systems, then, the number of shares of Common Stock for which such Warrant may be exercised shall be increased 2.5 times.

  

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.

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.

In January 2013, in connection with a private placement offering we 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, 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 Horowitz 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 net of discount was $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.

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 warrant 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 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.

In October 2013 the Company entered into agreements with a holder of certain of its outstanding warrants to purchase the Company’s common stock to amend the exercise price of the warrant to $.125 per share in connection with the agreement of the holder to exercise the warrants in full. Prior to the amendments, the exercise price of such warrants was $.25 per share. Two warrants were exercised with a reduced exercise price. Together the warrant exercises resulted in aggregate cash proceeds of $125,000 to the Company, and the issuance of an aggregate 1,000,000 shares of common stock.

 

For grants of stock options and warrants in 2013 the Company used a 0.78% to 2.04% risk-free interest rate, 0% dividend rate, 59% or 66% volatility and estimated terms of 5 or 10 years. Value computed using these assumptions ranged from $0.119 to $0.242 per share.

In January 2014 the Company issued 325,187 shares of common stock to the former CEO at $.0167 per share upon his exercising options.

In January through March 2014, 9 warrant holders exercised warrants through a cashless exercise for a total of 1,158,131 shares of common stock.

In January and February 2014 the Company issued warrants to purchase 1,615,383 shares pursuant to a February 4, 2014 private placement whereby the Company issued 20,550 shares of Series A Convertible Preferred Stock raising gross proceeds of $2,055,000. The warrants are at an exercise price of $0.325.

In February 2014 the Company issued a warrant to purchase 111,111 shares of common stock at an exercise price of $0.27 to a major shareholder Dr. Samuel Herschkowitz. The warrant is in consideration for a bridge loan extended in December 2013 that has been paid in February 2014.

On March 31, 2014, the Company issued dividends to the Purchasers of the Preferred Shares as described above. The dividends are at an annual rate of  6% of the stated value of the Preferred Shares paid on a quarterly basis in the form of common stock per a stipulated $0.26 per share. As a result 72,760 shares of common stock were issued to 16 holders of Preferred Shares.

In March 2014, the Company issued 333,334 shares of common stock to a warrant holder for a partial cash exercise at $0.15 per share; issued 250,000 shares to the holder via the cashless exercise of the remainder of the warrant.

 

In June 2014, the Company issued 279,366 shares of common stock to a warrant holder exercising cashless warrants.

On June 30, 2014, the Company issued dividends to the Purchasers of the Preferred Shares as described above. The dividends are at an annual rate of 6% of the stated value of the Preferred Shares paid on a quarterly basis in the form of common stock per a stipulated $0.26 per share. As a result 116,934 shares of common stock were issued to 16 holders of Preferred Shares.

On June 30, 2014, the Company issued a warrant to purchase 407,318 shares of common stock at an exercise price of $0.165 to SOK Partners, LLC, in consideration for a bridge loan. The warrant has a Black-Scholes debt discount of $23,876.

For grants of stock options and warrants in 2014 the Company used a 1.44% to 2.75% risk-free interest rate, 0% dividend rate, 59% to 66% volatility and estimated terms of 5 to 10 years. Value computed using these assumptions ranged from $0.0586 to $0.1837 per share.

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

	Stock Options			Warrants
	Number of	Average Exercise		Number of	Average Exercise
	Shares	Price		Shares	Price
Outstanding at December 31, 2012	12,663,566		0.09	35,132,136		0.13
Issued	17,986,157		0.09	25,739,682		0.12
Expired	(1,159,995)		0.24	(8,326,862)		0.18
Exercised	(560,330)		0.01	(17,901,127)		0.11
Outstanding at December 31, 2013	28,929,398		0.09	34,643,829		0.14
Issued	5,115,061		0.11	2,133,812		0.27
Expired	(495,768)		0.34	(4,171,733)		0.16
Exercised	(345,187)		0.02	(2,220,831)		0.13
Outstanding at June 30, 2014	33,203,504	$	0.10	30,385,077	$	0.15

At June 30, 2014, 31,341,741 stock options are fully vested and currently exercisable with a weighted average exercise price of $0.10 and a weighted average remaining term of 8.79 years. All warrants are fully vested and exercisable. Stock-based compensation recognized for the six months ending June 2014 and June 30, 2013 was $352,762 and $1,378,541, respectively. The Company has $259,398 of unrecognized compensation expense related to non-vested stock options that are expected to be recognized over a weighted average period of approximately  18 months.

The following summarizes the status of options and warrants outstanding at June 30, 2014:

			Weighted
			Average
			Remaining
Range of Exercise Prices		Shares	Life
Options:
$	0.01	550,000	7.02
$	0.065	10,000	8.70
$	0.07	177,286	9.12
$	0.075	14,400,000	8.71
$	0.079	1,740,508	8.72
$	0.08	9,300,000	8.13
$	0.088	400,000	7.57
$	0.1325	226,415	9.04
$	0.14	242,857	9.04
$	0.15	1,110,000	7.97
$	0.17	755,000	9.79
$	0.185	162,162	9.76
$	0.20	250,000	9.72
$	0.23	3,019,565	9.69
$	0.25	250,000	9.65
$	0.27	370,373	9.51
$	0.29	100,000	9.28
$	0.318	94,338	9.26
$	0.33	25,000	9.24
$	0.3415	20,000	9.25
Total		33,203,504
Warrants:
$	0.01	30,000	1.44
$	0.075	2,083,333	0.07
$	0.08	7,714,286	3.71
$	0.12	200,000	3.58
$	0.15	15,314,951	3.52
$	0.165	407,318	1.38
$	0.18	333,333	3.97
$	0.198	1,770,833	3.92
$	0.20	87,500	0.60
$	0.25	375,000	0.27
$	0.27	111,111	3.21
$	0.325	1,615,383	4.76
$	0.769	342,029	0.01
Total		30,385,077

Stock options and warrants expire on various dates from July 2014 to June 2024.

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 from 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 June 30, 2014 by year of grant:

Stock Options:
Year	Shares	Price
2010	410,000	$	.15
2011	550,000		.01
2012	9,477,286		.07 -.08
2013	17,901,157		.065 - .3415
2014	4,865,061		.15 –.25
Total	33,203,504	$	.01 -.3415
Warrants:
Year	Shares	Price
2008	342,029	$	.769
2010	30,000		.01
2011	2,458,333		.075 -.25
2012	5,352,451		.15 -.20
2013	20,068,452		.08 -.198
2014	2,133,812		.165 –.325
Total	30,385,077	$	.01 -.769

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 1) (USD $)	Jun. 30, 2014	Dec. 31, 2013
Summary Of Significant Accounting Policy [Line Items]
Total	$ 247,396	$ 175,019
Less: Accumulated depreciation	42,738	16,909
Total Fixed Assets, Net	204,658	158,110
Computers and office equipment [Member]
Summary Of Significant Accounting Policy [Line Items]
Total	126,234	61,505
Leasehold Improvements [Member]
Summary Of Significant Accounting Policy [Line Items]
Total	23,874	23,614
Manufacturing Tooling [Member]
Summary Of Significant Accounting Policy [Line Items]
Total	$ 97,288	$ 89,900

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RENT OBLIGATION (Details) (USD $)	Jun. 30, 2014
Operating Leased Assets [Line Items]
2015	$ 37,000
2016	38,000
2017	39,000
2018	3,600
2019	$ 0

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

6 Months Ended

Jun. 30, 2014

Accounting Policies [Abstract]

Schedule of Inventory, Current [Table Text Block]

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:

	June 30,		December 31,
	2014		2013
Finished goods	$	88,285	$	56,818
Raw materials		230,092		18,603
Work-In-Process		42,286		46,754
Total	$	360,663	$	122,175

Property, Plant and Equipment [Table Text Block]

The Company’s investment in Fixed Assets consists of the following:

 

	June 30,		December 31,
	2014		2013
Computers and office equipment	$	126,234	$	61,505
Leasehold improvements		23,874		23,614
Manufacturing tooling		97,288		89,900
Total		247,396		175,019
Less: Accumulated depreciation		42,738		16,909
Total Fixed Assets, Net	$	204,658	$	158,110