##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934For the quarterly period ended March 31, 2010
 or
 o
    
    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: 000-05663
 LIBERATOR MEDICAL HOLDINGS, INC.
  NEVADA
    
    87-0267292(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 2979 SE Gran Park Way, Stuart, Florida 34997  (Address of principal executive offices) (Zip Code)
 (772) 287-2414  (Registrants telephone number, including area code)
  þ o
  o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller reporting company þ
  o þ
   Class
    
    Outstanding as of May 5, 2010Common Stock, $.001
    
    39,198,333




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##### 



TABLE OF CONTENTS
 PagePART I  FINANCIAL INFORMATION
    
    
    1Item 1.
    
    Condensed Consolidated Financial Statements
    
    
    1Balance Sheets as of March 31, 2010 (unaudited) and September 30, 2009
    
    
    1Statements of Operations for the three and six months ended March 31, 2010 and 2009 (unaudited)
    
    
    2Statement of Changes in Stockholders Equity for the six months ended March 31, 2010 (unaudited)
    
    
    3Statements of Cash Flows for the six months ended March 31, 2010 and 2009 (unaudited)
    
    
    4Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    5Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    16Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    21Item 4T.
    
    Controls and Procedures
    
    
    21PART II  OTHER INFORMATION
    
    
    22Item 1.
    
    Legal Proceedings
    
    
    22Item 1A.
    
    Risk Factors
    
    
    22Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    22Item 3.
    
    Defaults Upon Senior Securities
    
    
    22Item 4.
    
    <Removed and Reserved>
    
    
    22Item 5.
    
    Other Information
    
    
    22Item 6.
    
    Exhibits
    
    
    22SIGNATURES
    
    
    23EX-31.1EX-31.2EX-32.1EX-32.2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 
 Liberator Medical Holdings, Inc. and Subsidiaries
 Condensed Consolidated Balance Sheets
 March 31,
    
    
    September 30,2010
    
    
    2009(unaudited)AssetsCurrent AssetsCash
    
    $
    7,961
    
    
    $
    3,798Restricted cash
    
    
    1,056
    
    
    
    500Accounts receivable, net of allowances of $3,232 and $2,327, respectively
    
    
    5,744
    
    
    
    3,850Inventory, net of allowance for obsolete inventory of $110 and $110, respectively
    
    
    1,552
    
    
    
    902Deferred advertising, current portion
    
    
    3,499
    
    
    
    2,016Deferred taxes, current portion
    
    
    555
    
    
    
    Other current assets
    
    
    429
    
    
    
    483Total Current Assets
    
    
    20,796
    
    
    
    11,549Property and EquipmentProperty and Equipment, net of accumulated depreciation of $1,207 and $1,021,
respectively
    
    
    1,982
    
    
    
    1,041Other AssetsDeferred advertising, net of current portion
    
    
    3,000
    
    
    
    1,739Deferred taxes, net of current portion
    
    
    545
    
    
    
    Deposits and other
    
    
    201
    
    
    
    130Total Other Assets
    
    
    3,746
    
    
    
    1,869Total Assets
    
    $
    26,524
    
    
    $
    14,459Liabilities and Stockholders EquityCurrent LiabilitiesAccounts payable
    
    $
    3,569
    
    
    $
    2,089Accrued liabilities
    
    
    907
    
    
    
    716Credit line facility
    
    
    750
    
    
    
    Stockholder loan
    
    
    1,315
    
    
    
    1,515Convertible notes payable, net of unamortized discount of $111 and $292,
respectively
    
    
    6,037
    
    
    
    3,893Capital lease obligations, current portion
    
    
    73
    
    
    
    80Deferred rent liability, current portion
    
    
    46
    
    
    
    60Total Current Liabilities
    
    
    12,697
    
    
    
    8,353Long-Term LiabilitiesConvertible notes payable, net of unamortized discount of $0 and $90, respectively
    
    
    
    
    
    
    2,447Capital lease obligations, net of current portion
    
    
    37
    
    
    
    70Deferred rent liability, net of current portion
    
    
    176
    
    
    
    165Deferred tax liability
    
    
    1,495
    
    
    
    Total Long-Term Liabilities
    
    
    1,708
    
    
    
    2,682Total Liabilities
    
    
    14,405
    
    
    
    11,035Stockholders EquityCommon stock, $.001 par value, 200,000 shares authorized; 39,118 and 32,462 shares
issued, respectively; 39,029 and 32,377 shares outstanding at March 31, 2010 and
September 30, 2009, respectively
    
    
    39
    
    
    
    32Additional paid-in capital
    
    
    19,291
    
    
    
    11,705Accumulated deficit
    
    
    (7,161
    )
    
    
    (8,272
    )12,169
    
    
    
    3,465Less: Treasury stock, at cost; 89 and 85 shares at March 31, 2010 and September 30,
2009, respectively
    
    
    (50
    )
    
    
    (41
    )Total Stockholders Equity
    
    
    12,119
    
    
    
    3,424Total Liabilities and Stockholders Equity
    
    $
    26,524
    
    
    $
    14,459
  1




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##### Table of Contents



Liberator Medical Holdings, Inc. and Subsidiaries
 Condensed Consolidated Statements of Operations
For the three and six months ended March 31, 2010 and 2009
(Unaudited)
 Three Months Ended March 31,
    
    
    Six Months Ended March 31,2010
    
    
    2009
    
    
    2010
    
    
    2009Sales
    
    $
    9,650
    
    
    $
    5,827
    
    
    $
    18,808
    
    
    $
    11,169Cost of Sales
    
    
    3,386
    
    
    
    2,078
    
    
    
    6,633
    
    
    
    3,919Gross Profit
    
    
    6,264
    
    
    
    3,749
    
    
    
    12,175
    
    
    
    7,250Operating ExpensesPayroll, taxes and benefits
    
    
    2,618
    
    
    
    1,274
    
    
    
    4,787
    
    
    
    2,339Advertising
    
    
    1,114
    
    
    
    459
    
    
    
    1,920
    
    
    
    757Bad debts
    
    
    928
    
    
    
    809
    
    
    
    1,583
    
    
    
    1,488Depreciation
    
    
    174
    
    
    
    67
    
    
    
    270
    
    
    
    134General and administrative
    
    
    1,070
    
    
    
    778
    
    
    
    2,094
    
    
    
    1,660Total Operating Expenses
    
    
    5,904
    
    
    
    3,387
    
    
    
    10,654
    
    
    
    6,378Income from Operations
    
    
    360
    
    
    
    362
    
    
    
    1,521
    
    
    
    872Other Income (Expense)Interest Expense
    
    
    (229
    )
    
    
    (273
    )
    
    
    (472
    )
    
    
    (545
    )Loss on disposal of assets
    
    
    (2
    )
    
    
    
    
    
    
    (2
    )
    
    
    Interest Income
    
    
    5
    
    
    
    6
    
    
    
    8
    
    
    
    14Total Other Income (Expense)
    
    
    (226
    )
    
    
    (267
    )
    
    
    (466
    )
    
    
    (531
    )Income before Income Taxes
    
    
    134
    
    
    
    95
    
    
    
    1,055
    
    
    
    341Provision for (benefit from) Income Taxes
    
    
    (122
    )
    
    
    
    
    
    
    (56
    )
    
    
    Net Income
    
    $
    256
    
    
    $
    95
    
    
    $
    1,111
    
    
    $
    341Basic earnings per share:Weighted average shares outstanding
    
    
    34,921
    
    
    
    32,021
    
    
    
    33,873
    
    
    
    32,035Earnings per share
    
    $
    0.01
    
    
    $
    0.00
    
    
    $
    0.03
    
    
    $
    0.01Diluted earnings per share:Weighted average shares outstanding
    
    
    47,843
    
    
    
    35,941
    
    
    
    51,158
    
    
    
    35,955Earnings per share
    
    $
    0.01
    
    
    $
    0.00
    
    
    $
    0.02
    
    
    $
    0.01
  2




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##### Table of Contents



Liberator Medical Holdings, Inc. and Subsidiaries
 Condensed Consolidated Statement of Changes in Stockholders Equity
For the six months ended March 31, 2010
(Unaudited)
 TotalCommon
    
    
    Common
    
    
    Paid in
    
    
    Accumulated
    
    
    Treasury
    
    
    StockholdersShares
    
    
    Stock
    
    
    Capital
    
    
    Deficit
    
    
    Stock
    
    
    Equity (Deficit)Balance at September 30, 2009
    
    
    32,377
    
    
    $
    32
    
    
    $
    11,705
    
    
    $
    (8,272
    )
    
    $
    (41
    )
    
    $
    3,424Options issued to employees
    
    
    
    
    
    
    
    
    
    
    208
    
    
    
    
    
    
    
    
    
    
    
    208Common stock issued for interest on convertible debt
    
    
    19
    
    
    
    
    
    
    
    45
    
    
    
    
    
    
    
    
    
    
    
    45Common stock issued upon conversion of debt
    
    
    1,086
    
    
    
    1
    
    
    
    542
    
    
    
    
    
    
    
    
    
    
    
    543Common stock issued for exercise of warrants
    
    
    723
    
    
    
    1
    
    
    
    529
    
    
    
    
    
    
    
    
    
    
    
    530Common stock issued for employee stock purchase plan
    
    
    162
    
    
    
    
    
    
    
    73
    
    
    
    
    
    
    
    
    
    
    
    73Common stock issued for cash, net of issuance costs
    
    
    4,666
    
    
    
    5
    
    
    
    6,613
    
    
    
    
    
    
    
    
    
    
    
    6,618Purchase common treasury stock
    
    
    (4
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9
    )
    
    
    (9
    )Deferred income taxes related to convertible notes payable
    
    
    
    
    
    
    
    
    
    
    (424
    )
    
    
    
    
    
    
    
    
    
    
    (424
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,111
    
    
    
    
    
    
    
    1,111Balance at March 31, 2010
    
    
    39,029
    
    
    $
    39
    
    
    $
    19,291
    
    
    $
    (7,161
    )
    
    $
    (50
    )
    
    $
    12,119
  3




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##### Table of Contents



Liberator Medical Holdings, Inc. and Subsidiaries
 Condensed Consolidated Statements of Cash Flows
For the six months ended March 31, 2010 and 2009
(Unaudited)
 2010
    
    
    2009Cash flow from operating activities:Net Income
    
    $
    1,111
    
    
    $
    341Adjustments to reconcile net income to net cash provided by (used in) operating activities:Depreciation and amortization
    
    
    2,156
    
    
    
    838Equity based compensation
    
    
    223
    
    
    
    272Provision for doubtful accounts and sales returns
    
    
    1,728
    
    
    
    1,488Non-cash interest related to convertible notes payable
    
    
    316
    
    
    
    322Deferred income taxes
    
    
    (27
    )
    
    
    Amortization of non-cash debt issuance costs
    
    
    17
    
    
    
    20Loss on disposal of assets
    
    
    2
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    (3,621
    )
    
    
    (2,483
    )Deferred advertising
    
    
    (4,630
    )
    
    
    (1,918
    )Inventory
    
    
    (650
    )
    
    
    (181
    )Other assets
    
    
    (50
    )
    
    
    174Accounts payable
    
    
    1,479
    
    
    
    929Accrued expenses
    
    
    128
    
    
    
    140Deferred rent
    
    
    (3
    )
    
    
    (24
    )Net Cash Flow (Used in) Operating Activities
    
    
    (1,821
    )
    
    
    (82
    )Cash flow from investing activities:Purchase of property and equipment
    
    
    (1,217
    )
    
    
    (224
    )Proceeds from the sale of assets
    
    
    5
    
    
    
    Purchase of certificates of deposit
    
    
    (556
    )
    
    
    Net Cash Flow Used in Investing Activities
    
    
    (1,768
    )
    
    
    (224
    )Cash flow from financing activities:Proceeds from the sale of common stock
    
    
    7,000
    
    
    
    Costs associated with the sale of common stock
    
    
    (382
    )
    
    
    Proceeds from issuance of convertible notes
    
    
    
    
    
    
    2,500Costs associated with issuance of convertible notes
    
    
    
    
    
    
    (326
    )Proceeds from the exercise of warrants
    
    
    530
    
    
    
    Proceeds from employee stock purchase plan
    
    
    104
    
    
    
    Proceeds from credit line facility
    
    
    750
    
    
    
    Purchase of treasury stock
    
    
    (9
    )
    
    
    (29
    )Payments of debt and capital lease obligations
    
    
    (241
    )
    
    
    (67
    )Net Cash Flow Provided by Financing Activities
    
    
    7,752
    
    
    
    2,078Net increase in cash
    
    
    4,163
    
    
    
    1,772Cash at beginning of period
    
    
    3,798
    
    
    
    1,173Cash at end of period
    
    $
    7,961
    
    
    $
    2,945Supplemental disclosure of cash flow information:Cash paid for interest
    
    $
    185
    
    
    $
    179Cash paid for income taxes
    
    $
    20
    
    
    $
    Supplemental schedule of non-cash investing and financing activities:Capital expenditures funded by capital lease borrowings
    
    $
    
    
    
    $
    48Common stock issued for interest expense
    
    $
    45
    
    
    $
    Common stock issued for conversion of debt
    
    $
    543
    
    
    $
    
  4




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##### Table of Contents



Liberator Medical Holdings, Inc. and Subsidiaries
 Notes To The Unaudited Condensed Consolidated Financial Statements
March 31, 2010
 Note 1  Basis of Presentation
 
   Note 2  Summary of Significant Accounting Policies
  Recently Adopted Accounting Standards
 ASU No. 2009-17, Consolidations (Topic 810)  Improvements to Financial Reporting by Enterprises
Involved with Variable Interest Entities. (ASU 2009-17)
  ASU No. 2010-06, Fair Value Measurements and Disclosures  Improving Disclosures about Fair Value
Measurements (ASU 2010-06)
  5




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##### Table of Contents



ASU No. 2010-09, Subsequent Events  Amendments to Certain Recognition and Disclosure
Requirements (ASU 2010-09)
  ASU No. 2009-16, Transfers and Servicing (Topic 860)  Accounting for Transfers of Financial
Assets. (ASU 2009-16)
  Recent Accounting Standards
 ASU No. 2009-13, Revenue Recognition (Topic 605)  Multiple-Deliverable Revenue Arrangements (A
Consensus of the FASB Emerging Issues Task Force) (ASU 2009-13)
  ASU No. 2009-14, Software (Topic 985)  Certain Revenue Arrangements That Include Software
Elements (A Consensus of the FASB Emerging Issues Task Force) (ASU 2009-14)
  ASU No. 2010-11, Derivatives and Hedging (Topic 815)  Scope Exception Related to Embedded Credit
Derivatives. (ASU 2010-11)
  ASU 2010-13, Compensation  Stock Compensation (Topic 718)  Effect of Denominating the Exercise
Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity
Security Trades. (ASU 2010-13)
  6




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Note 3  Property and Equipment
  Estimated
    
    March 31,
    
    
    September 30,Life
    
    2010
    
    
    2009Leased equipment
    
    5 years
    
    $
    582
    
    
    $
    582Transportation equipment
    
    3 years
    
    
    72
    
    
    
    95Warehouse equipment
    
    5 years
    
    
    64
    
    
    
    56Office furniture
    
    5 years
    
    
    450
    
    
    
    150Computer equipment
    
    3 years
    
    
    204
    
    
    
    87Telephone equipment
    
    5 years
    
    
    77
    
    
    
    33Rental equipment
    
    7 years
    
    
    18
    
    
    
    18Web Site
    
    3 years
    
    
    6
    
    
    
    6Software
    
    3 years
    
    
    222
    
    
    
    130Training guides
    
    3 years
    
    
    3
    
    
    
    3Leasehold improvements
    
    5 years
    
    
    1,470
    
    
    
    889Signage
    
    3 years
    
    
    21
    
    
    
    13Fixed assets under construction
    
    
    
    
    
    
    
    
    Total property and equipment
    
    
    
    
    3,189
    
    
    
    2,062Less: accumulated depreciation
    
    
    
    
    (1,207
    )
    
    
    (1,021
    )Property and equipment, net
    
    
    
    $
    1,982
    
    
    $
    1,041
  Note 4  Stockholder Loan
  Note 5  Credit Line Facility
  7




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Note 6  Convertible Notes Payable
 April 2008 Convertible Notes
   Amount DueApril 2010
    
    
    58Total April 2008 Convertible Notes Due
    
    $
    58
  May 2008 Convertible Note
   8




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October 2008 Convertible Note
     April08 Notes
    
    
    May08 Note
    
    
    Oct08 Note
    
    
    TotalsNotes Payable, face amount
    
    $
    58
    
    
    $
    3,500
    
    
    $
    2,500
    
    
    $
    6,058Discounts on Notes:Valuation of Warrants
    
    
    (126
    )
    
    
    (610
    )
    
    
    (86
    )
    
    
    (822
    )Intrinsic Value of Conversion Rights
    
    
    
    
    
    
    (303
    )
    
    
    (86
    )
    
    
    (389
    )Accumulated Amortization
    
    
    126
    
    
    
    849
    
    
    
    125
    
    
    
    1,100Total Discounts
    
    
    
    
    
    
    (64
    )
    
    
    (47
    )
    
    
    (111
    )Accrued Interest
    
    
    10
    
    
    
    43
    
    
    
    37
    
    
    
    90Convertible Notes Payable, net
    
    $
    68
    
    
    $
    3,479
    
    
    $
    2,490
    
    
    $
    6,037
  April08 Notes
    
    
    May08 Note
    
    
    TotalsNotes Payable, face amount
    
    $
    601
    
    
    $
    3,500
    
    
    $
    4,101Discounts on Notes:Valuation of Warrants
    
    
    (126
    )
    
    
    (610
    )
    
    
    (736
    )Intrinsic Value of Conversion Rights
    
    
    
    
    
    
    (303
    )
    
    
    (303
    )Accumulated Amortization
    
    
    126
    
    
    
    621
    
    
    
    747Total Discounts
    
    
    
    
    
    
    (292
    )
    
    
    (292
    )Accrued Interest
    
    
    40
    
    
    
    44
    
    
    
    84Convertible Notes Payable, net
    
    $
    641
    
    
    $
    3,252
    
    
    $
    3,893
  Oct08 NoteNotes Payable, face amount
    
    $
    2,500Discounts on Notes:Valuation of Warrants
    
    
    (86
    )Intrinsic Value of Conversion Rights
    
    
    (86
    )Accumulated Amortization
    
    
    82Total Discounts
    
    
    (90
    )Accrued Interest
    
    
    37Convertible Notes Payable, net
    
    $
    2,447
 9




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##### Table of Contents



Note 7  Capital Lease Obligations
   AmountYear ending September 30:2010
    
    $
    502011
    
    
    622012
    
    
    13Total minimum lease payments
    
    
    125Less: Interest on capitalized lease obligations
    
    
    (15
    )Present value of capitalized lease obligations
    
    
    110Less: Current portion
    
    
    (73
    )Capitalized lease obligations, net of current portion
    
    $
    37
  Note 8  Stockholders Equity
 Sale of Common Stock
    10




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##### Table of Contents



Warrants
  Shares
    
    Expiration Date7,188
    
    April 201031,250
    
    May 20101,778,404
    
    June 2010337,500
    
    July 201012,500
    
    August 201025,000
    
    November 2010
  Shares
    
    Expiration Date6,250
    
    July 2010159,375
    
    August 201075,625
    
    September 2010169,167
    
    October 2010145,000
    
    November 201031,250
    
    December 20106,250
    
    January 2011
  Risk-free interest rate:
    
    4.11%Expected term:
    
    5 yearsExpected dividend yield:
    
    0.00%Expected volatility:
    
    27.97%
  Shares
    
    Expiration Date263,000
    
    February 2013100,000
    
    March 2013497,000
    
    April 2013
  Risk-free interest rate:
    
    Range of 2.39% to 2.93%Expected term:
    
    5 yearsExpected dividend yield:
    
    0.00%Expected volatility:
    
    27.97%
  11




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##### Table of Contents



Risk-free interest rate:
    
    
    3.24
    %Expected term:
    
    5 yearsExpected dividend yield:
    
    
    0.00
    %Expected volatility:
    
    
    27.97
    %
  Risk-free interest rate:
    
    
    1.90
    %Expected term:
    
    3 yearsExpected dividend yield:
    
    
    0.00
    %Expected volatility:
    
    
    35.19
    %
  Risk-free interest rate:
    
    
    2.34
    %Expected term:
    
    5 yearsExpected dividend yield:
    
    
    0.00
    %Expected volatility:
    
    
    63.66
    %
  WeightedAvg.ExerciseWarrants:
    
    Shares
    
    
    PriceBalance at September 30, 2009
    
    
    10,458,093
    
    
    $
    1.07Issued
    
    
    233,333
    
    
    
    2.50Exercised
    
    
    (880,000
    )
    
    
    1.00Expired
    
    
    
    
    
    
    Balance at December 31, 2009
    
    
    9,811,426
    
    
    $
    1.11
 Options
  Employee and Director Stock Options
   12




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##### Table of Contents



Compensation  Stock
Compensation,
      2010
    
    
    2009Risk-free interest rate:
    
    
    1.37
    %
    
    
    1.82
    %Expected term:
    
    3 years
    
    3 yearsExpected dividend yield:
    
    
    0.00
    %
    
    
    0.00
    %Expected volatility:
    
    
    67.67
    %
    
    
    36.05
    %
   WeightedAvg.
    
    
    AggregateExercise
    
    
    Intrinsic2007 Stock Plan:
    
    Shares
    
    
    Price
    
    
    ValueOptions outstanding at September 30, 2009
    
    
    1,580,000
    
    
    $
    0.81Granted
    
    
    150,000
    
    
    
    2.14Exercised
    
    
    
    
    
    
    Expired or forfeited
    
    
    
    
    
    
    Options outstanding at March 31, 2010
    
    
    1,730,000
    
    
    $
    0.93
    
    
    $
    2,144,100Options exercisable at March 31, 2010
    
    
    755,000
    
    
    $
    0.79
    
    
    $
    1,064,250
 13




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##### Table of Contents



2009 Employee Stock Purchase Plan
 st th
   Note 9  Diluted Earnings per Common Share
  For the three months ended
    
    
    For the six months endedMarch 31,
    
    
    March 31,2010
    
    
    2009
    
    
    2010
    
    
    2009Numerator:Net income  basic
    
    $
    256
    
    
    $
    95
    
    
    $
    1,111
    
    
    $
    341Effect of dilutive securities:Convertible debt
    
    
    19
    
    
    
    
    
    
    
    97
    
    
    
    Net income  diluted
    
    $
    275
    
    
    $
    95
    
    
    $
    1,208
    
    
    $
    341Denominator:Weighted average shares outstanding  basic
    
    
    34,921
    
    
    
    32,021
    
    
    
    33,873
    
    
    
    32,035Effect of dilutive securities:Stock options and warrants
    
    
    9,589
    
    
    
    3,920
    
    
    
    9,577
    
    
    
    3,920Convertible debt
    
    
    3,333
    
    
    
    
    
    
    
    7,708
    
    
    
    Weighted average shares outstanding  diluted
    
    
    47,843
    
    
    
    35,941
    
    
    
    51,158
    
    
    
    35,955Earnings per share  basic
    
    $
    0.01
    
    
    $
    0.00
    
    
    $
    0.03
    
    
    $
    0.01Earnings per share  diluted
    
    $
    0.01
    
    
    $
    0.00
    
    
    $
    0.02
    
    
    $
    0.01
  For the three months ended
    
    
    For the six months endedMarch 31,
    
    
    March 31,2010
    
    
    2009
    
    
    2010
    
    
    2009Stock options
    
    
    150
    
    
    
    975
    
    
    
    150
    
    
    
    975Warrants
    
    
    233
    
    
    
    10,468
    
    
    
    233
    
    
    
    10,468Convertible debt
    
    
    4,492
    
    
    
    9,193
    
    
    
    117
    
    
    
    9,193Net income  diluted
    
    
    4,875
    
    
    
    20,636
    
    
    
    500
    
    
    
    20,636
 14




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##### Table of Contents



Note 10  Income Taxes
    Note 11  Commitments
  AmountYear ending September 30:2010
    
    $
    2892011
    
    
    6612012
    
    
    6082013
    
    
    2712014
    
    
    204$
    2,033
  Note 12  Subsequent Event
  15




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 This Managements Discussion and Analysis of Financial Condition and Results of Operations and
other parts of this quarterly report on Form 10-Q contain forward-looking statements that involve
risks and uncertainties. Forward-looking statements can also be identified by words such as
intends, anticipates, expects, believes, plans, predicts, and similar terms.
Forward-looking statements are not guarantees of future performance and our actual results may
differ significantly from the results discussed in the forward-looking statements. Factors that
might cause such differences include, but are not limited to, those set forth below under Certain
Risk Factors. The following discussion should be read in conjunction with our unaudited
consolidated financial statements and notes thereto included in this Form 10-Q and the audited
financial statements of the Company, included in our Report on Form 10-K for the year ended
September 30, 2009, filed with the Securities and Exchange Commission and managements discussion
and analysis contained therein. We assume no obligation to revise or update any forward-looking
statements for any reason, except as required by law.
 Overview
   Executive Summary
     16




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##### Table of Contents



Results of Operations
  For the three months ended March 31,
    
    
    For the six months ended March 31,2010
    
    
    2009
    
    
    2010
    
    
    2009Amount
    
    
    %
    
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %Sales
    
    $
    9,650
    
    
    
    100.0
    
    
    $
    5,827
    
    
    
    100.0
    
    
    $
    18,808
    
    
    
    100.0
    
    
    $
    11,169
    
    
    
    100.0Cost of Sales
    
    
    3,386
    
    
    
    35.1
    
    
    
    2,078
    
    
    
    35.7
    
    
    
    6,633
    
    
    
    35.3
    
    
    
    3,919
    
    
    
    35.1Gross Profit
    
    
    6,264
    
    
    
    64.9
    
    
    
    3,749
    
    
    
    64.3
    
    
    
    12,175
    
    
    
    64.7
    
    
    
    7,250
    
    
    
    64.9Operating Expenses
    
    
    5,904
    
    
    
    61.2
    
    
    
    3,387
    
    
    
    58.1
    
    
    
    10,654
    
    
    
    56.6
    
    
    
    6,378
    
    
    
    57.1Income from Operations
    
    
    360
    
    
    
    3.7
    
    
    
    362
    
    
    
    6.2
    
    
    
    1,521
    
    
    
    8.1
    
    
    
    872
    
    
    
    7.8Other Income (Expense)
    
    
    (226
    )
    
    
    (2.3
    )
    
    
    (267
    )
    
    
    (4.6
    )
    
    
    (466
    )
    
    
    (2.5
    )
    
    
    (531
    )
    
    
    (4.8
    )Income before Income
Taxes
    
    
    134
    
    
    
    1.4
    
    
    
    95
    
    
    
    1.6
    
    
    
    1,055
    
    
    
    5.6
    
    
    
    341
    
    
    
    3.1Benefits from Income Taxes
    
    
    (122
    )
    
    
    (1.3
    )
    
    
    
    
    
    
    0.0
    
    
    
    (56
    )
    
    
    (0.3
    )
    
    
    
    
    
    
    0.0Net Income
    
    $
    256
    
    
    
    2.7
    
    
    $
    95
    
    
    
    1.6
    
    
    $
    1,111
    
    
    
    5.9
    
    
    $
    341
    
    
    
    3.1
 Revenues:
  Gross Profit:
  17




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##### Table of Contents



Operating Expenses:
  For the three months ended March 31,
    
    
    For the six months ended March 31,2010
    
    
    2009
    
    
    2010
    
    
    2009Amount
    
    
    %
    
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %Operating Expenses:Payroll, taxes, & benefits
    
    $
    2,618
    
    
    
    27.1
    
    
    $
    1,274
    
    
    
    21.9
    
    
    $
    4,787
    
    
    
    25.5
    
    
    $
    2,339
    
    
    
    20.9Advertising
    
    
    1,114
    
    
    
    11.6
    
    
    
    459
    
    
    
    7.9
    
    
    
    1,920
    
    
    
    10.2
    
    
    
    757
    
    
    
    6.8Bad debts
    
    
    928
    
    
    
    9.6
    
    
    
    809
    
    
    
    13.9
    
    
    
    1,583
    
    
    
    8.4
    
    
    
    1,488
    
    
    
    13.3Depreciation
    
    
    174
    
    
    
    1.8
    
    
    
    67
    
    
    
    1.1
    
    
    
    270
    
    
    
    1.4
    
    
    
    134
    
    
    
    1.2General and administration
    
    
    1,070
    
    
    
    11.1
    
    
    
    778
    
    
    
    13.3
    
    
    
    2,094
    
    
    
    11.1
    
    
    
    1,660
    
    
    
    14.9Total Operating Expenses
    
    $
    5,904
    
    
    
    61.2
    
    
    $
    3,387
    
    
    
    58.1
    
    
    $
    10,654
    
    
    
    56.6
    
    
    $
    6,378
    
    
    
    57.1
  Other Income (Expense)
  Liquidity and Capital Resources
  For the six months endedMarch 31,2010
    
    
    2009Cash Flows:Net cash used in operating activities
    
    $
    (1,821
    )
    
    $
    (82
    )Net cash used in investing activities
    
    
    (1,768
    )
    
    
    (224
    )Net cash provided by financing activities
    
    
    7,752
    
    
    
    2,078Net increase in cash
    
    
    4,163
    
    
    
    1,772Cash at beginning of period
    
    
    3,798
    
    
    
    1,173Cash at end of period
    
    $
    7,961
    
    
    $
    2,945
     18




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##### Table of Contents



Operating Activities
  Investing Activities
  Financing Activities
   Outlook
   
    
    Continue our advertising and marketing efforts;
    
    Increase our customer base;
    
    Continue to service our current customer base and increase the retention rate;
    
    Continue to invest in the expansion of our infrastructure and workforce; and
    
    Increase our accounts receivable collection efforts.
  
    
    Completed the private placement of shares of our common stock to a single institutional
investor for gross proceeds of $7.0 million;
    
    Identified products and related target customers through extensive market research;
    
    Expanded our advertising and marketing efforts on the Internet to reach qualified customers in
an efficient and cost-effective manner;
 19




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##### Table of Contents




    
    Established an infrastructure of management and knowledgeable staff to support substantial
growth in sales with a minimal amount of additional staff members, maximizing our revenue per
employee;
    
    Completed the build out of an additional 24,000 square foot facility to house our expanding
workforce and support our continued growth;
    
    Appointed three independent members to our Board of Directors;
    
    Created a HIPPA compliant IT infrastructure and staff to accommodate additional growth in sales;
    
    Established a marketing plan that can be monitored for effectiveness and is flexible enough to
adjust to changing market conditions; and
    
    Tested our advertising methods and established methods of testing additional advertising
methods to meet changing market conditions.
  Contractual Obligations
  Payments due by periodTotals
    
    
    FY 2010
    
    
    FY 2011
    
    
    FY 2012
    
    
    FY 2013
    
    
    FY 2014Convertible debt obligations (1)
    
    $
    6,204
    
    
    $
    3,663
    
    
    $
    2,541
    
    
    $
    
    
    
    $
    
    
    
    $
    Operating leases
    
    
    2,033
    
    
    
    289
    
    
    
    661
    
    
    
    608
    
    
    
    271
    
    
    
    204Capital lease obligations
    
    
    125
    
    
    
    50
    
    
    
    62
    
    
    
    13
    
    
    
    
    
    
    
    Purchase commitment (2)
    
    
    488
    
    
    
    58
    
    
    
    120
    
    
    
    120
    
    
    
    120
    
    
    
    70Total contractual obligations
    
    $
    8,850
    
    
    $
    4,060
    
    
    $
    3,384
    
    
    $
    741
    
    
    $
    391
    
    
    
    274
 
 (1)
    
    The convertible debt obligations that are due in fiscal year 2010
include $58,000 of convertible notes that are convertible into shares
of our common stock at a conversion price of $0.50 per share and
$3,500,000 of convertible notes that are convertible into shares of
our common stock at a conversion price of $0.80 per share. These convertible notes were converted into shares of our common stock during April and May 2010.(2)
    
    The purchase commitment consists of a long distance service agreement
that requires us to purchase a minimum of $10,000 per month, partially
offset by rebates for the first five months of calendar year 2010, of
long distance service through April 2014. Off-Balance Sheet Arrangements
  Critical Accounting Policies
  Effect of Inflation
  20




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosure about Market Risk
  
 Item 4T. Controls and Procedures.
 Evaluation of Disclosure Controls and Procedures
  Change in Internal Controls
  21




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4.
 
 Item 5. Other Information
 Conversion of May 22, 2008, Convertible Notes
  st
 
 Item 6. Exhibits
 
 22




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##### Table of Contents



SIGNATURES
  /s/ LIBERATOR MEDICAL HOLDINGS, INC.Registrant /s/ Mark A. Libratore

Mark A. Libratore
    
    President
    
    May 11, 2010/s/ Robert J. Davis

Robert J. Davis
    
    Chief Financial Officer
    
    May 11, 2010
 23